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Ben Jenkins: Good morning, everyone. Thank you for joining us. There's obviously a lot to get through in the announcements today. So alongside the presentation, the Aura-Qoria team is going to be in the ground in Australia next week, meeting with as many of you as possible. In terms of the call today we have Peter, Tim, Ben and Crispin joining from Qoria alongside Brian from Aura. Everyone's going to be available with the line of Q&A at the end of this call. Hari is unfortunately, already in transit to Australia. But we do have some comments from him played shortly. So with that, Peter, I'll pass over to you to make a start. Peter Pawlowitsch: Thanks, Ben. And good morning, and thank you all for joining us. So today, we announced some changes to our merger arrangements with Aura. These changes reflected deliberate set of decisions by our respective boards to ensure that the combined group AXQ is positioned for long-term success in a rapidly evolving global technology landscape. We've announced that Aura secured binding commitments for an increased equity placement of USD 100 million. That's a significant increase from the original USD 75 million. And importantly, it's fully supported by existing Aura shareholders, demonstrating their confidence and strong conviction to the mission. Also it ensures that we have a strong balance sheet for the group on when the merger completes with only a modest dilution. We also announced today a new organizational structure, one designed to get the best out of the capabilities of the group, combining U.S.-based technology and growth leadership with Qoria's global market presence, regulatory expertise and customer footprint. Hari, Sujay and Brian have all agreed to continue in their current roles as CEO, Chairman and CFO, respectively, of Aura. And the group has been secured by the continued service of Tim to drive our ambition to be the global trusted name in online safety and Ben to support Brian as Australia's CFO. The Qoria Board is delighted to announce today's changes and continues to unanimously recommend the transaction. They ensure that Aura enters the ASX as a well-capitalized global platform, has the ability to execute through integration and invest in growth and is unconstrained in this area of significant technological change. We believe this structure, both capital and ownership gives shareholders the best opportunity to participate in the long-term value creation. Regretfully, Hari is currently on a plane coming to Australia to meet with investors. We wish he could have joined us on this call and has recorded a few comments. Tim, can you please roll the play? Timothy Levy: Sure. Hari Ravichandran: Hello, everyone. I'm really disappointed. I cannot be on this call live as I'm on my way to Australia to meet our investors and the Qoria team. I'm extremely excited and looking forward to meeting with the investors and engaging with all of you over the course of next week. What we are building here is something very significant. This is a global platform for digital safety and security at a time when the problem set is accelerating, it's not slowing down. The change announced today will reflect a very thoughtful and conscious decision to prioritize strength. The markets have moved, everyone in global SaaS knows that. We want to position Aura to win with both capital and capability. Sujay and I are excited to get behind the merger and commit a further $25 million to its success on top of our previous investments. The leadership structure here also reflects our commitment with me and Sujay continuing. My role here is to bring the businesses together and ensure that we hit our numbers and to drive global innovation, replatforming and growth. I'm also really looking forward to continuing my work with Tim Levy, who will support me at Aura through a leading Aura Alpha. Aura Alpha is a critical part of our strategy. This is how we will build new growth vectors across partnerships, markets and corporate development. This is not a site initiative. It focuses Tim on his unique vision, his global relationships and his skill set. And this is how we'll ensure that we stay ahead of the market as it evolves. We now have the platform, the leadership and the capital to build a global category leader. Again, I'm very sorry I'm not live on this call. However, I'm sure I'll get some baseline with many of you next week. With that, I'd like to now hand it over to Tim, Brian and Ben to deliver our results. Thank you all. Timothy Levy: Thanks, Hari. Thanks, Peter. That's great. So what I'll do now is I'll do a highlights of the Qoria, Aura and the group, and then I'll hand over to Brian DeCenzo who's going to run through Aura's results, which are fairly impressive. And then we'll cover off our typical Qoria results operational update with Crispin and Ben and then a brief Q&A at the end. So I guess if I was to summarize this slide, which is becoming increasingly complex. The overall thematic here is that the Qoria business, if you look through FX movements for the falling U.S. dollar and the transactional costs that we've been spending is actually performing extremely strongly. In the March quarter, it was probably a surprise to all of us. I think we outperformed analysts' expectations in terms of ARR added and net ARR growth at 49% improvement on what we did in the equivalent period last year, so that was pretty remarkable and not just in K-12. And one real highlight actually, which I do want to call out now is the K12 business in the U.K. that's been battling some headwinds for a while, particularly around funding and the lack of product. Now both of those things seem to be solving themselves. And so we had over a 60% PCP improvement in the performance of the U.K. operation in the March quarter. So it was tremendous. But really the But really the standout clearly continued to be still Qustodio's $2.7 million of ARR, which is more than double what they did in the equivalent period last year. So Victoria and the team are doing an outstanding job there with very modest increases in investments. On a constant currency basis, we ended at -- we would have ended at $169 million of recurring revenue, which would have been beyond everybody's expectations, I feel. But of course, we were buffeted by FX. The FX in our -- when we started the year was $0.64, that is $0.72 now. Now turning to Aura, if I can speak just briefly for Brian. Let me speak with admiration, added $26 million of recurring revenue in the quarter, 40% up versus the prior period with less marketing spend, improved AOV, improved CAC. It's an astonishing result. Just to remind everybody, when we started talking to Aura, I think they had $180 million or thereabout of recurring revenue. This is in October, November last year, ended the year with $216 million and now at $241 million. That's astonishing. And the businesses in combination now have $345 million in ARR. And if you extrapolate the March result, you get to a very big number. And remember, for those people that know Qoria well, the June quarter is our biggest period of growth. Last June, we added $14 million recurring revenue, around $10 million we added in the June quarter. If we replicate that, then a very big number will appear on the right-hand side of the screen in July. So all of those numbers are really, really strong. The unit economics of Aura in particular, I would like you to note because they're the things that give us the confidence as to why this deal is the right thing for our shareholders to do. So that being said, I might hand over to Brian. Brian DeCenzo: Yes. Thanks, Tim. So as Tim alluded to, very pleased to report that the performance that we had indicated through February on the call that we had about a month ago at this point, continued through the end of March. So GAAP revenue or statutory revenue was $59 million for the quarter with ARR ending at $241.5 million. That represents 31% up year-over-year for both metrics. Again, sort of reiterating some of the themes that we talked about at that March session, a lot of this has to do with strong unit economics in our D2C business, not only the CAC that Tim talked about, but really being able to mitigate the burn on account of the sales within our D2C business and then the deliberate upsell motions that we were able to employ to drive incremental AOV. Adjusted EBITDA for the quarter was negative AUD 14.3 million. So that was an improvement of AUD 1.1 million year-over-year. And while that is an improvement over last year, we would note that it does not reflect the full run rate impact of the cost actions that we executed in February, which we discussed on that call about a month ago or any additional planned cost savings, including the performance marketing spend pullback that we've indicated to the market we will do in the back half of the year. So just to summarize, I think these results reflect our ability to achieve the targets that we've set out and very much as we think about the performance in the first quarter and as we roll forward in the year, aligned with the prior communication that on a combined basis, we will be free cash flow positive from the time of closing through the end of 2026. On the next slide, if you turn there -- thank you. So as Tim noted, what we wanted to highlight here was when we first spoke with the market in February around this transaction, we indicated a commitment, again, free cash flow positive on a combined basis from the time of closing through the end of the year. And one of the ways that we would get there was through improved efficiency in our performance marketing spend. And so what we want to highlight here is we were able to both bring CAC down and then on account of the reduction in CAC and that improved AOV that I referred to on the prior page, we were able to see a very dramatic improvement, not only in CAC, but also in the overall burn rate through the first quarter at that $5 million number. If you flip to the next 2 pages, Tim, I also wanted to provide the market just a roll forward of the metrics that we've shared in prior sessions, so people can get a sense of how everything is trending. Obviously, as we talked about, we'll be in front of investors over the coming days and happy to answer any further questions. So with that, I'll turn it back to Tim. Timothy Levy: Thanks, Brian. So yes, I'll quickly skip through the quarter highlights. Obviously, I'm sure there are going to be a lot of questions and thorough side of things is probably less interesting, but I'll go through them. At the end of the year, actually, it should be 31 million children now. So we've added a further 1 million students since we last reported 10 million parents. All of the kind of operational metrics within Qoria are performing really well. Growth within the regions, U.S. is growing north of 26%. We expect to improve that through June. Qustodio is a standout, 30%. I think we're talking at the beginning of the year, 30% growth, and that's comfortably doing that. EMEA is the U.K. and now operation in Spain called Qoria Spain that's starting to target international schools globally and now recently in the Middle East. It's subdued at 6%, but you'll see that really picking up, particularly as we're launching this Qoria Connect product, the unified Qoria K12 platform is literally rolling out now. We've got customers using it now. So this year, I think I've said many times, for Qoria, it's about retention in the U.K. and next year, it's about growth. and we're seeing some really, really positive signs. The team there are doing outstanding work. And as I said, for now about a year, Australia is our best-performing K12 market with the community proposition of selling parental controls through schools in the Australian private school system. It's an outstanding performance. I think their PCP performance was like 80% above what they did in the prior year. That's just extraordinary growth out of this market here. So the contributors to ARR, obviously, Qustodio is a standout there at $2.7 million. Remember, that's net of churn, so that's a fabulous result. There's a modest amount of price optimization in that. They run a number of price optimization trials in January, February. They launched those at the back end of February. They've had to pull them back a bit tweak because it was elevating churn, but you will definitely see a flow through the year, particularly in that key renewal period in back-to-school and Christmas period. So there's something like a 5%, possibly 10% natural growth rate, net dollar retention and price increases coming to that business. So that's really exciting. And then the K12, as I said, a big contribution from new, increasingly strong contribution from existing cross-sells and upsells. I think our target was 33% or 34% contribution of growth through existing customers, and we're easily outperforming that. So Crispin and his team are doing a fantastic job. Obviously, the big story is the big red line on the right-hand side, we are being buffeted by the FX movement of the U.S. dollar. But the underlying business is really strong. And fortunately, for us, from July, we'll be reporting in U.S. dollars. So that will become much less of a problem for us and much less of an issue to explain to analysts. K12, I mean the numbers here speak for themselves. The real highlight for us, given our focus on that back to -- so the June quarter in the U.S. is the pipeline. $40 million of pipeline with a weighted value of $19 million. It is the highest I think we've ever had or equivalent to the highest that we had last year. We're set up really well. And of course, we have a number of [ whales ] that are outside that pipeline that give us a lot of confidence to outperform. So feeling really good about that. I think I touched on all these metrics, everything else is pretty stable. Average sales order, average price per unit, they really -- the June quarter is a really important period for us. So you'll see a turn in that chart down the bottom, average sales price per order, you'll see that click up in the June quarter again, as you saw last year. Qustodio performing on all metrics, profitable business growing really well. As I said, there's been price optimizations. We've given Victoria an extra 30%, 40% in marketing spend, and she's spending it very, very wisely. She's -- as compared to the -- and I'm not being disparaging but the Qustodio business is selling parental controls, they have the benefit of a positive cash burn in marketing. And so we've told Victoria, you can spend up to that burn and no more. So basically manage your cash flow and grow as hard as you can. And she is doing very well. School promotions continuing to grow. The old community stuff that we spoke about is going really well, 540 districts now. So I think we're now about 18% of our districts on that program, which is equivalent to 1.3 million parents. So the parents of 1.3 million students are being promoted Qustodio. That's pretty exciting. We're still getting those schools that launched our program north of 20% taking up the freemium offer and of those 1% taking up the premium offer. We're launching monthly subscriptions to those customers literally this quarter actually. So we're now starting to get into the cadence of promoting and seeing how we can monetize that pretty big audience. So stay tuned. Okay. It's obviously very, very cyclical. I would urge investors to not read too much into our December quarter or March quarter -- sorry, the March quarter or June quarter cash flows because really the key selling period for us, the key is June and the cash comes in, in that December half. 65% of our growth is typically in the June quarter. So I should be on our ARR performance for June. And you can see in this chart that the business is growing every year, and there's a high cyclicality now in our numbers. These charts are hard to interpret given the FX movements and what we've tried to do is show that our net ARR is growing, which is the -- on the bottom chart is the green box, the green shaded area. And the column on the right-hand side is our FX adjusted underlying cost structure. And you can see that there is -- it's moderated now with these -- we announced some changes in the last couple of months. We're pulling some costs out of the business, essentially reducing new hires and replacements to make sure that any operational cost expansion in our business is covered by cost outs or any delays in cash flows are similarly covered by very careful spending. But I'll let Ben talk more about that at the end of this deck. Over to you, Ben. Ben Jenkins: Thanks Tim. I'll just touch on a couple of things here quickly so that we can get into questions sooner rather than later. One of the main things that people will notice is the customer collections, the cash receipts are only slightly up year-on-year. Tim has touched on the seasonality of that. The December quarter is what feeds the March quarter receipts, so December sales and the December quarter is -- the U.S. is about 5% of its business in that quarter. And so it's more about Australia and New Zealand. So it's very hard to shift the March cash flows. But as noted here, the U.K. had a good quarter. That was largely in the month of March. So very little collections, if any, related to that in the March quarter, and that will flow through to a good growth in year-on-year comparisons for cash collections in the June quarter. On to a little bit more of the detail around the costs. Obviously, you can see direct costs in the quarter were up significantly. There's 2 things at play there. December quarter was down. It's just timing of cash flow payments falling into January. So some of that related to December. But also there's an annual billing cycle for some of the Google costs and that occurs at the end of November, invoiced in December, paid in the March quarter. So you'll see the direct costs come back down into line with the June, September quarter from last year. There's nothing structural that's changing that spend to be up on an annualized basis. It's a little bit in line with growth in students, but it's not linear. So we do get economic benefits there as we grow. Marketing costs are obviously up year-on-year, but as we flagged in the December quarter would be down from December, which is one of the biggest spending periods. The June quarter should be a similar number and staff costs well under control, some changes made during the March quarter that we announced as part of the half year results. So we've taken some cost out of the business, a slowdown on recruitment, and we've got that well under control, fixed other down as well and leases down as well. So overall, costs very much under control. And if you project that forward with the growth in ARR that Tim is talking about in the June quarter, you'll be able to see the growth in cash flows and cash generation over that period. So very comfortable with where we're at the moment, got line of sight through to July where the cash starts to flow strongly again and comfortable that the June quarter will significantly outperform the March quarter in terms of free cash flow. That's probably all I'll cover on that and happy to jump into questions there. Unknown Executive: We can. Ben Jenkins: Thanks a lot. We have some restrictions in place given around what we answer given the scheme booklet publication late May, early June. However, that being said, happy for you to ask whatever is top of mind around the update today. And if we're restricted from answering it, we'll just take it on notice and address later on. So with that, I think we'll go to Lindsay for our first question. Lindsay Bettiol: I think like probably today's results, there's kind of 3 parts to it. So maybe like first question just on the stand-alone Qoria business. Your pipeline is $44 million and your weighted pipeline is $19 million, which more or less is the exact same numbers you printed this quarter last year. So like how should we think about the June quarter in terms of -- if I'm just taking the pipeline as a gauge, it doesn't look like you're going to have much improvement year-over-year in the June quarter. Could you just maybe talk to that and explain where I'm not wrong, please? Timothy Levy: Crispin, you want to take that? Crispin Swan: Yes. So it is the biggest pipeline we've had, as you correctly state marginally. Yes. So from the North American market, as we know, it's the biggest selling period, and they are on track to have their largest ever quarter, Lindsay. We've also -- I don't know if you remember, we changed the structure of the team with an individual call Adam leading that team recently. And he's really implemented a lot of additional focus on deal management. So we're seeing extremely strong conversion ratios at this point in time as well. And as an example, we've got 30 deals in the pipeline with over 40,000 students each, which represents 2.5 million students with a [ fee ] of $350,000. So it will be our biggest ever quarter in the U.S. And then if you add the U.K. on top of that, as Tim said, they've had a really strong performance. They've essentially hit their annual budget year-to-date with 1 quarter to go and are projecting a strong Q4 as well and similarly for Australia. So all in all, I'm incredibly confident where we're at and the pipeline is definitely sufficient for us to have -- if you're focusing on the U.S., our biggest ever quarter. Lindsay Bettiol: Okay. So summary is absolute dollars is the same, but they're probably higher quality dollars. Crispin Swan: Yes. Lindsay Bettiol: Very good. Okay. Maybe a question on that. You've given us some updated figures versus, say, the Feb update. I look at the CAC that you've given for the first quarter, it's $169 in the D2C business. It was $173, I think, in the last update you gave, but that was only weeks ago. So just backsolving it implies like the CAC has collapsed in March. So one, like is that math correct? And two, could you just talk to what you're seeing on the CAC front, please, in the D2C business? Brian DeCenzo: Yes, absolutely. So yes, that math is correct. We saw some really favorable CACs towards the last few weeks of March. The prior update that we had given was only through the February month. So we had a full another month of performance, and it was a favorable month from a CAC standpoint. Look, it's a dynamic market. And so you look at what channels you're in, who is bidding on words in certain of those channels at different rates at different points in time. And then ultimately, there's the end market demand that exists at any point in time. And so based on those combination of factors, I think we were able to meet demand at a really attractive rate over the course of the month of March. Lindsay Bettiol: Okay. Brilliant. And I'll sneak in a third question just on the merger update. I think like probably one of the biggest critiques on the proposed merger I got is that it didn't make a lot of sense for what is essentially a U.S. business to run out of Perth. So you've obviously changed that. But my question is like is there not maybe an element of overcorrecting here? I mean Qoria is still going to be 1/3 of the combined business. And it just feels like -- I guess my question is who runs the legacy Qoria business inside the combined entity with both Tim and stepping back a bit. Timothy Levy: I'll take that one. So the structure, not everyone on this call will understand kind of the organizational structure of our businesses. But Crispin, who you see here on the call, who runs K12, he'll be reporting to Hari in the structure. So that's signaling the importance, the critical importance of K12 in this broader strategy. Victoria, who runs our Qustodio business will fall under Tom Clayton, who runs is the COO, current COO of Aura. And so he will essentially be looking after all of the consumer-facing revenue. And then our kind of functional product and engineering kind of security people and finance people will fall under their functional head. So in many ways, it's BAU to Crispin in particular, he's running his team. They're responsible end-to-end for revenue. And he has a product person, Nabil, and he has an engineering person, Rick, that will keep doing the things that he needs done, with their new reporting line. So but below the surface, not much difference. And the message internally is constantly reiterated, we're hitting our numbers, road maps aren't changing, plans aren't changing, hit your numbers, hit your numbers, don't break, [ it is not broken ]. Ben Jenkins: Thanks Lindsay. Owen, over to you. Owen Humphries: A quick question for me. Just we're getting to know the Aura business a bit better. I'm keen to learn more around the seasonality of that business. A critique this morning has been around the Jan and Feb run rate when you gave an update in March, running at around $11 million per month for Aura and then stepped down to, call it, $3 million for the month of March. Just keen to understand a little bit around seasonality of that business. What was March last year? Brian DeCenzo: I don't have those numbers. I don't have the March numbers at my fingertips. Ben Jenkins: Yes. Year-on-year ARR added is 39% up. So it's significantly up. Growth was around about $16 million in the March quarter last year. So it's not all seasonality. It's a really good quarter from the Aura business. Owen Humphries: So I guess the concern in the market has been around run rating a March number -- the March net add number? Brian DeCenzo: Yes. So there's a high degree of recurrence in that number. The -- when you look at the business, we have the big step up in January on the employee benefit side. And in the -- on the consumer side, there does tend to be some seasonality in the business. It actually tends to correlate a little bit more with a couple of things. One is the holiday period when you have people getting new devices and wanting to bring protection on those devices. You tend to see in the U.S. actually in the March and early April tax quarters around tax season with tax day being April 15, so anticipation of people getting their return checks. And then there are certain historical events that have driven excess demand. We've talked about those in prior forums, in particular, data breaches and so what you'll see is you'll see a little bit not necessarily on a new cash basis, but on a P&L overall basis, including renewal, you'll see slight bumps in late April and then a bigger bump in sort of the August, September period every year because of a prior event in 2024, if I'm understanding your question the right way. Crispin Swan: Yes. I think if I can jump in. This chart here, I think, shows you what you need to see, which is the EB business has an annual step change in the first quarter of the year, and that's magical, like it just -- they sell new logos and then they do essentially upselling within existing employers. That's a great business. So that's probably what the question is actually -- answering the question that you received. I think that's the answer to it, which is the March comp there was definitely step changes in that kind of more enterprise motion of the EB channel. And then the light blue is the typical consumer model. There is cyclicality far less than in the Family Safety business. But you also see in that Q1 '25, a jump that I think it was Q1 '25 when there was that big data leak in the U.S. And so there's also a consumer bump in that period as well. But they're the 2 cycles that flow in. Owen Humphries: And I guess a question for you guys then is just to understand the confidence of ARR growth. I understand the Qoria side of the growth in ARR in the second quarter of the calendar year. Maybe, Brian, if you can give us an indication of the expectations of where ARR growth would lie in the second quarter? Brian DeCenzo: Yes. Look, we continue -- so we grew at 31% year-over-year through the first quarter, as we talked about. We wouldn't necessarily view that as being the year-over-year run rate going forward. But we -- I think what we would say is we anticipate it growing sufficient to achieve the objectives that we put out to the market in terms of growing 20% on a combined basis year-over-year. Owen Humphries: So that is rolled over on the same ARR in the second quarter of last year, I'm not sure of the nuances in the D2C business. I'm guessing you'd expect to exceed that in the second quarter this year? Brian DeCenzo: Yes. So there were some issues around, frankly, Google algorithm changes and then also the shift to AI search that occurred in the second quarter of last year that I think we don't expect to see those same types of headwinds this year. Ben Jenkins: Sorry, I just realized you were asking about the March month. But the March quarter last year was $18.5 million. The March month last year was $1 million. So the $3.5 million of written this year is significantly up on last year as well. [indiscernible] over to you. Unknown Analyst: Just a couple of questions from me. Just with the new products flagged with Aura Enterprise, for example, can you just talk through how big the potential is there, sort of when that should be contributing to revenue? And then more broadly, just the road map and the opportunity across the 1.75 million subscribers that you've got and sort of what you think you can do with that over time? Brian DeCenzo: The first question, James, specifically relates to the Aura MSP business, if you will? Unknown Analyst: Yes. Yes, that's right. Brian DeCenzo: Yes. So that business is early days. We just moved the product out of beta. It's a sales channel that we find very compelling from a sales dynamic standpoint because it's a very large sales channel in the MSP network. We've seen estimates 30,000 MSPs plus in the United States alone. And then there's a multiplier effect underneath those 30,000 MSPs where they'll each have a number of small business clients who will each have a number of endpoints for each one of their SMB customers that are addressable. And it tends to be a very levered sales channel because these 30,000 MSPs, many of them don't compete with one another because they don't cover either the same industry or in the same geography. But they do tend to get together at large sort of conference-type events and sort of compare notes. So we find that to be a very interesting and levered sales channel when you can tap something that really appeals to that customer base. Again, early days, the feedback and the early returns have been good. It's growing off a base of 0. So I'd say it would take a period of time before it's going to be a material contributor. I think we'll start to see more momentum in that next year and then really start to see some ramp in sort of '28 and '29. Unknown Analyst: Excellent. And then second part of the question, just in terms of monetizing the existing user base over time with additional functionality and the like, maybe things like pace or locations and these type of things. Brian DeCenzo: Yes. Look, I think I'd say core to the discussion between the 2 of us, say Qoria and Aura is how do we deliver more value to the customer in the first instance based on the things that we each bring to the table today. And so as we go through and think about the back half of the year operating as a combined entity, we're thinking a lot about how to deliver value across the 2 different customer bases, one to the other, how do you take a Qustodio customer as an example, and make them an Aura customer. And then as we go forward, I think we're going to be very deliberate in terms of adding new products and features that they can deliver value to the existing customer base as well as new customers and also be very thoughtful about the way that we merchandise new product features, I'd say, in line with the merchandising that we have demonstrated with our upsell motion over the past couple of 6 months or so as we've talked about with the boost in AOV. I don't know, Tim, would you add anything to that? Timothy Levy: I think you answered it perfectly. Unknown Analyst: No, that's great. That all makes sense. Maybe just a couple more. Just on the rationale for taking the extra cash. I suppose the merged group is slated to be breakeven on completion. So strategically, is there a pathway to accelerating some strategic ambitions or just the thinking on taking that cash given the breakeven? Brian DeCenzo: Yes. So the way I would characterize it is given the dynamic operating environment that I think we all find ourselves in, we feel it's prudent from a balance sheet standpoint to capitalize ourselves in that way. Unknown Analyst: Okay. Great. And then just last one, I think you might have touched on it with Owen's question a little bit. But just with the ARR growth ambition of 20% this year and the performance marketing rolling off, I suppose you're growing at 28% currently, and we're 1/4 of the way through the year. So I suppose how do you get visibility in terms of what the growth does sort of post deal completion with that performance marketing reduction? Brian DeCenzo: Yes. So again, I didn't fully grasp Owen's question while he was asking it. And I think one of the things to highlight that's sort of embedded in the ARR growth year-over-year is the step-up, as I think Tim mentioned, around our employee benefits business that happens really in January and then a little bit of an incremental effect in February. Because of -- there is ballast from that business that continues through the course of the year on a year-over-year basis. So that gives us some visibility into the overall ARR growth. And then the remaining visibility that we have is it's very formulaic the way that we think about modeling out spend versus return in the D2C business and ensuring that we spend in order to be able to hit certain top line performance targets that we have. Unknown Analyst: Great. And maybe just last one, I'm not sure if we touched on it during the presentation, I dropped off. Just in terms of time line and catalysts and I suppose what we can expect to hear out of the company forward over the next 6 months? Brian DeCenzo: Yes. So in the first instance, I think the -- we have the deal process to get through. We've highlighted the time line to get through that process. So you'll be hearing a lot from us, frankly, through a regulatory lens over the course of the next 2 months, scheme booklet, et cetera, which will be published. And so you move forward with that. In terms of other announcements, we will be obviously having the Qoria fourth quarter announcements at some point in July, I would assume. And at that point, I think we'll have more updates, obviously, on the deal process, which should be near hopefully completion as well as incremental actions that we've taken to sort of put the business in the position what we've indicated to the market we will get it in. Ben Jenkins: Wei-Weng, go ahead. Wei-Weng Chen: I guess one of the announcements today was the creation of Aura Alpha, which is, I guess, a strategic sort of corporate dev-type division. Given the near-term sort of post-merger is very much about driving the path to positive free cash flow. Wondering what the near term looks like for that division? Timothy Levy: Yes, that's a good question. Thanks for that. There's seems to be things that we can -- we have to do actually that unlocks. And that when you're busy -- and we've been through this, Crispin and I have been tortured by a unification process that's been running way too long, probably 4 years. You don't get to do them when you're in BAU or the grind of unifying businesses. So what Hari wants me to do is to not get distracted by the day-to-day operations, hitting quarterly numbers, restructuring and so on and focus on those things that unlock value and not on the quarterly results, but unlock value in 2 or 3-year horizons. Some of those, of course, are going to be corporate, but they don't have to be. Some of those will definitely be partnerships. A lot of that is in relation to the work that I've been doing in a sense,, part time in advocacy, government relations, competition law reform, safety law reform, things that are really starting to change. One -- something that came up today is not -- I wouldn't claim in any respect that I or Qoria drove this, but there is this push for digital safety globally, and that's now manifested in California with an obligation for schools to limit screen time. And that's everything we've been talking about for 10 years in our business, and now that's coming to law in California. And who is better placed to organize to respond to that opportunity or that challenge than us with the parental control tools we have with the Octopus acquisition that allows us to measure time, use of on school devices, on school and other apps, like it's such an opportunity, and we're in the right place at the right time. So my job is to look for those opportunities and where I can internally or externally, make sure that we're pursuing them. We're already in discussions and have been prior to this deal, but since the deal was announced, we've opened up some new discussions with some really interesting strategic partnerships. So look, there is -- my problem actually is there's too much opportunity, not too little. As this business comes together and we get the confidence of the capital market, so our cost of capital comes down, then I think there's probably more corporate things that we can do. But for now, look, there's some really interesting stuff that I can do in my day-to-day and partnerships that will add a lot of value, I think, pretty quickly. So look, that's a stay tuned thing, but I'm hoping to very regularly update the market on that progress. Wei-Weng Chen: Yes, cool. And there's been, I guess, a few changes to the structure of the deal announced today. At the time of the announcement, I guess -- would it be correct to say, firstly, that you had no intention for, I guess, your announcement to be in negotiation, but it seems like you've taken on some feedback and kind of obviously restructured things in what I view as kind of a pretty logical manner. But I guess is the work now on, I guess, negotiating the structure in terms of the deal now kind of over and now it's just all about just kind of executing on the deal? Crispin Swan: Do you want to take that? Peter Pawlowitsch: Yes. So it wasn't an intention to have that, but a lot has changed since January, we're finalizing this what's happened with Claude AI, what you can now do from a development point of view and the AI stuff coming through is a dramatic change. And I think what we want to be known as a dynamic organization that adapts to what's happening to the market quickly. So there's a factor of that tied into it. We're not -- right here today, we're not expecting other changes. And we think we've got the structure that can handle that dynamism for the next period of time. So we're confident with that. And now it's just let's get this thing done and execute as quickly as we can. We put our timetable today. Obviously, some of these changes take a few weeks, but we're pushing [indiscernible] to get it done as quickly as we can and hit that strong growth. Wei-Weng Chen: Yes. And then just one more, just, I guess, to follow up on a prior question. The upsized raise, the $25 million, is that additive to your prior net cash guidance of $65 million to $70 million post transaction? Or -- and I guess, if not, does this reflect potentially higher-than-expected deal costs or... Brian DeCenzo: It is additive to the anticipated net cash position. Ben Jenkins: Possibly to be higher, we're still tracking in line with what we're expecting originally. So strong net cash position is the -- I guess, the outcome of the higher placement. Owen has a followup question. Owen Humphries: Yes. Just hitting directly on that, can you guys give an indicative guidance on -- or an update or reiteration around what the cash balance will be post transaction, noting that your guidance is free cash flow positive in the second half or July or close in July to December. So what the cash balance would be and then the undrawn debt facility? Brian DeCenzo: The cash balance at the time of the transaction, like in pro forma for day 1? Owen Humphries: Yes. Brian DeCenzo: Yes. So I would say that is still moving around on the basis of, I'd say, balance sheet management with respect to the various debt facilities that are in place. But we're currently anticipating somewhere in the order of magnitude of net cash of $20 million. Owen Humphries: Which is? Peter Pawlowitsch: At the time of merger, we said [ 0.5 negative ] so plus 25... Ben Jenkins: I've got a written question come through. So on today's announcement, the additional funds from the Aura founders, a figure of $0.40 was mentioned. I'm unclear as to what the jargon means. Will Qoria's shareholders still receive 1 AXQ share for average 17.2 Qoria shares? Unknown Executive: Yes, they will. There's no change to the relative valuation of the merger still a 35-65 split preplacement money. So the 17.2 exchange ratio that was disclosed when we originally announced deal still holds. Ben Jenkins: Awesome. I think that's all the questions I can see in the queue. Lindsay just put hand up actually. Lindsay Bettiol: Yes, I might just ask a third way on the balance sheet piece. So like rather than looking at it from a net debt perspective, just think about like the available liquidity. So you're going to raise $100 million, you have a debt facility of $100 million. Could you just remind us again like what the plans are in terms of existing debt facilities and like how much liquidity you're thinking you're going to have on day 1 post merger completion, please? Brian DeCenzo: Yes. So the anticipation is as quickly as practicable to consolidate all forms of debt that we choose to have outstanding into the new facility with the Banc of California. Again, as you highlighted, that would be a $100 million facility. And so I guess the math on that liquidity-wise would be we'd have, let's call it, $80 million drawn and $20 million of cash, so about $40 million of liquidity. $20 million of net cash. So $100 million of cash total and an additional $20 million of liquidity from the facility. Ben Jenkins: Tim, I'll pass back to you for closing remarks. Timothy Levy: Yes, cool. Thank you. Look, so this might be my last time closing one of these sessions. So first, I'd like to say thanks for everybody for supporting us to where we've got to. I'm very excited about this merger. I guess if I could position the bringing together these businesses and the most recent changes, what we're trying to do here is concentrate on setting up something that is globally significant. And the moves of the last announced today are really about setting this company up for success to tackle that immense opportunity with a heightened focus on the speed of pace of change in valuations, [indiscernible] and so on. So setting the organization up with the right division of labor with the right focus on engineering capability, where our revenue is based in the U.S., but also having an eye to the future with the role of Aura Alpha, setting up the business with the right capital structure, taking advantage of the extraordinary network of connections that the Aura team have, which is something I'm incredibly excited about. And so yes, that's what this whole thing is about is not creating a nice little business that's growing and making a little bit of profits, but to solving a global challenge and doing so in a really big way. And that's really the underlying message. And one final thing I'd add is the Aura leadership team are here with us in Perth. The senior leadership team of Aura are going to be in Sydney talking to investors next week. So please find the time to speak to them and be as excited about what we're creating. I'm sure we will be loving that process. Thanks for your time, everybody. I'll see you all very soon.
Operator: Good day, everyone, and welcome to today's Nomura Holdings Fourth Quarter and Full Year Operating Results for Fiscal Year Ended March 2026 Conference Call. Please be reminded that today's conference call is being recorded at the request of the hosting company. [Indiscernible] Please note that this telephone conference contains certain forward-looking statements and other projected results, which involve known and unknown risks, delays, uncertainties and other factors not under the company's control, which may cause actual results, performance or achievements of the company to be materially different from the results, performance or other expectations implied by these projections. Such factors include economic and market conditions, political events and investor sentiments, liquidity of secondary markets, level and volatility of interest rates, currency exchange rates, security valuations, competitive conditions and size, number and timing of transactions. With that, we'd like to begin the conference. Mr. Hiroyuki Moriuchi, Chief Financial Officer. Please go ahead. Hiroyuki Moriuchi: This is Moriuchi, CFO. Thank you for joining us. I will now give you an overview of our financial results for the fourth quarter and full year for the fiscal year ended March 2026. Please turn to Page 2. First of all, our full year results. As you can see on the bottom left, group net revenue increased 15% year-on-year to JPY 2,167.7 billion, while income before income taxes grew 14% to JPY 539.8 billion, and net income increased 6% to JPY 362.1 billion, setting a record high for the second consecutive year. We achieved full year ROE of 10.1% on target for the second year in a row since we set our ROE target range of 8% to 10% or more by 2030. Four segment income before income taxes reached an all-time high of JPY 506.9 billion. Wealth Management and Wholesale drove company-wide earnings while both divisions achieving their highest income since their respective establishments. Wealth Management achieved growth of 23% in income before income taxes as the recurring revenue-based business model gained further momentum and major KPIs also saw substantial growth. Investment Management saw its assets under management rise by more than 50% over the year to around JPY 137 trillion, with a substantial increase in the stable business revenue base. Meanwhile, wholesale saw revenue growth across all regions and both Global Markets and Investment Banking achieved record high revenue, resulting in income growth of 21%. As for banking, it has steadily expanded its business base since the division was established and is making solid progress toward implementing deposit sweep. In view of our strong performance for the period ended March 26, we expect to pay an ordinary dividend of JPY 24 per share. This brings the annual dividend to JPY 51 per share for a dividend payout ratio of 41%. Next, let me give you an overview of the fourth quarter results. Please turn to Page 3. All the percentages I mention from here on are quarter-on-quarter comparisons. First of all, group net revenue rose 5% to JPY 577.2 billion. Income before income taxes fell 20% to JPY 107.7 billion, and net income was down 19% at JPY 73.9 billion. Earnings per share came to JPY 24.34 and ROE was 8%. While four segment net revenue rose income fell due to factors, including a decrease in the amount of profit recognized from affiliates in the Other segment as well as an impairment loss at an investee company in Investment Management. Next, please turn to Page 7, and I will present an overview of each business in the fourth quarter. As you can see in the top left, in Wealth Management, net revenue was more or less flat versus the previous quarter at JPY 133.1 billion, while income before income taxes exceeded the strong previous quarter, rising 5% to JPY 61.2 billion. The recurring revenue cost coverage ratio reached 72%, and the division achieved a high level of profitability with the margin on income before income taxes remaining above 40%, which is higher than the industry average. As shown on the bottom left, recurring revenue reached an all-time high of JPY 56.8 billion. Net inflows of recurring revenue assets remained at a high level, exceeding JPY 400 billion once again this quarter. Flow revenue was down slightly, but at JPY 76.4 billion remain high in absolute terms, second only to the level of the previous quarter as we were able to effectively support customers' need amid volatile market conditions. Next, I will give you an update on total sales by product. Please turn to Page 8. Total sales rose 75 quarter-on-quarter to around JPY 11.7 trillion. This was largely due to major tender offers totaling JPY 4 trillion. But even excluding this factor, total sales remained at a high level by product. Excluding the tender offers, sales of Japanese stocks remain high, thanks to a contribution from primary deals. Sales of bonds fell by 5%, while demand for foreign products was solid, sales of Japanese bonds fell slightly in the absence of primary deals. Sales of investment trust and discretionary investments, which constitute recurring revenue assets saw some fluctuations but remained at a high level as a flow from savings to investments continued. In insurance, meanwhile, sales of foreign currency-denominated products declined on weaker yen. Next, we take a look at KPIs on Page 9. Net inflow of recurring revenue assets shown on the top left were JPY 422.8 billion, the 16th straight quarter for inflows to exceed outflows. Recurring revenue assets at the end of March, shown on the top right, were down owing to market factors, but recurring revenue came to JPY 56.8 billion, a record high even when factoring out the receipt of half yearly investment advisory fees. As shown on the bottom left, number of flow business clients rose by around 200,000 from the previous quarter, reaching 1.74 million. Business was -- has been growing against the backdrop of high market volatility, primarily in face-to-face channels. Next is Investment Management. Please turn to Page 10. As seen on the top left, net revenue increased 42% to JPY 86.2 billion, and income before income taxes was more or less flat at JPY 18.1 billion. Business revenue, which is a stable type of revenue, was at an all-time high, owing to growth in existing business and the expansion of international business through acquisitions. At the same time, expenses related to acquired businesses and losses on impairment of our equity stake in an investee company were recognized. As an explanation of the breakdown of net revenues can be found on the bottom right. Solid asset management business in the aircraft leasing business, Nomura Babcock and Brown both contributed to the increase in business revenue, while investment gains related to American Century Investments rose quarter-on-quarter. Moving on to Page 11, we look at our asset management business as a backbone of business revenue. The graph on the upper left shows that assets under management hit an all-time high of JPY 136.9 trillion at the end of March. Shifting our focus on the bottom left, we see there were net outflows of JPY 279 billion. In the domestic investment trust business, which had inflows of JPY 816 billion, funds went mostly into Japanese equity products in the ETF category and into balanced funds, Japan equity active funds and private asset-related products in the investment trust category. In the domestic investment advisory international business, outflows came to about JPY 1 trillion, mainly from business targeted for acquisition. In line with the industry trends in the U.S., we expect funds to continue flowing from active-type mutual funds for now, but we aim to grow assets under management by boosting total sales and bringing net flows close to neutral as soon as possible with enhancements to making capabilities and expansion of active ETF SMA business opportunities. Alternative assets under management on the bottom right grew to a record high JPY 3.6 trillion, an increase of about JPY 300 billion from the end of December, of which fund inflows account for more than half. Next, wholesale. Please refer to Page 12. On the top left, you can see that wholesale net revenue fell 2% to JPY 308.1 billion and income before income taxes declined 31% to JPY 43.2 billion. Looking at the breakdown on the bottom left, Global Markets net revenue split 2% and Investment Banking net revenue fell 3%. Discussion by business line can be found on Page 13. Global Markets net revenue was down 2% at JPY 252.5 billion. Please find the middle section on the right. Fixed income revenue declined 8% to JPY 125.3 billion. In macro products, rates revenue was weak in the Americas with weak volatility rising, but rose in Japan. FX emerging revenue offset some of the weakness in rates revenue as client flows were accurately captured. In spread products, securitized products revenue remained high, mainly in Americas and fell quarter-on-quarter in AEJ. Credit revenue was unchanged despite widening spreads. Equities revenue was up 6% to JPY 127.2 billion. Equity products revenue reached a record high as revenue rose sharply in Japan and AEJ on strong financing and derivatives performance. Execution Services revenue rose in all regions, benefiting from a pickup in client activity. Please go to Page 14 next. As shown on the bottom left, investment banking net revenue came to JPY 55.6 billion, down 3%, but still at a high level. By product in advisory, revenue growth momentum continued based on involvement in many M&A deals, chiefly in Japan. The range of deals was varied and included domestic realignment, privatization and cross-border deals in financing and solutions, et cetera. ECM revenue rose slightly on contributions from large-scale CB and PO deals. Solutions business continued to perform well as it tapped demand for unwinding of cross-shareholdings holdings. Let's continue to banking on Page 15. On the top left, banking net revenue was up 6% at JPY 14.5 billion, and income before income taxes was down 27% at JPY 3.0 billion. Loans outstanding accumulated steadily due to -- during the quarter as recognition of loan products on offer grew. The investment trust balance grew, thanks to both market factors and establishment of new trust. Income fell as expenses rose, including spending on IT and a part of the standardization of business processes and recognition of taxes and public charges. We would like you to view this as an upfront investment aimed for future business expansion. Next, expenses page -- on Page 16. groupwide expenses were JPY 469.5 billion, a quarter-on-quarter increase of about 13% or JPY 53 billion. Extraordinary factors that boosted expenses include impairment losses associated with our equity stake in investee company, compensation and benefits accompanying changes to remuneration regulation and effects from changes to the method of presentation of financial statements. When these factors are excluded, we think it's evident that the cost structure in place is appropriate for the revenue growth. We aim to balance revenue growth and cost controls while making steady investment in growth. Next, Page 17 for financial position. As you can see in the bottom left, the common equity Tier 1 ratio stood at 12.9% at the end of March, down 0.1 points from 13.0% at the end of December. This concludes our overview of our fourth quarter results. In closing, we announced which -- lastly, please allow me to briefly talk about the situation related to private credit. First, our group's exposure is properly diversified and managed, breaking down our exposure in wholesale business, lender financing for private credit funds comes to about $800 million. and direct lending to SMEs comes to about $1.2 billion, while in investment management, investment holdings related to private credit come to about $400 million. Lender financing is backed by a diversified corporate credit portfolio and the credit fund counterparties are, by and large, supported by long-term capital provided by institutional investors and the like. Direct lending is diversified across more than 40 companies and investment management investments are also suitably diversified and have been performing stably. In closing, we announced reaching for sustainable growth, our vision for business in 2030 in May 2024 and set as numerical targets, a consistent attainment of ROE of 8% to 10% or more and income before income taxes of more than JPY 500 billion with the targets attained now in the span of 2 years. Great strides have been made to build the franchise required to realize sustained growth of the Nomura Group. I would like to briefly touch upon the situation as of now in April. In Wealth Management, net revenue is largely at the same level as in the fourth quarter. Uncertainty remains in the market due to geopolitical risk, but the flow of funds into products and services, assuming the long-term diversification of investments remains firm and client sentiment has been recovering. In wholesale, net revenue has been trending much higher than in the fourth quarter with equity markets rebounding sharply from the end of March and rising to new all-time highs. Client activity has picked up and equity products revenue has been strong. The rates has also been steadily monetizing client flows amid moderate market volatility. We aim to monetize business opportunities while keeping mindful of appropriate risk levels and cost controls. Your continued support is appreciated. Operator: [Operator Instructions] The first question is from SMBC Nikko Securities, Muraki-san. Masao Muraki: SMBC Nikko Muraki, I have 2 questions. First, international asset management company control. On Page 10, on the footnote, 4 years ago, investment had been made forest-related asset management investment was done and JPY 12 billion of losses have been booked this time around. Can you explain the backdrop? And on Page 11, Macquarie Asset Management. Regarding the cancellation of the agreement, there is a comment. But against the plan, how is the actual performance? That's my first question. Second question is with regards to capital, Page 17. The short question is, in the next quarter, what would be the CET1 ratio? This is the new fiscal year. So I think this is a quarter where you can quite easily leverage your balance sheet. In equity derivatives, you are taking significant credit risk and private credit, U.S. division portfolio has been increasing in the past few years, which is using your balance sheet. So what's your idea regarding the use of balance sheet? And how will that impact your CET1 ratio? Hiroyuki Moriuchi: Muraki. Then let me take the first question. First, international asset management-related question. You touched upon 2 points. The forestry asset management company, we made an investment 4 years ago. And what about the loss and the history that had led to this loss. Back then, when we made the investment, ESG -- global ESG trend was on the rise globally and in the United States. And we expected that this will become a major trend. And we were also advocating public to private, and we were trying to expand our private asset business. So those have been the objectives based upon which we made a decision to make an investment into this company. On the other hand, after the investment was made, as is well known to all of you, the ESG environment had significantly changed mainly in the United States. So that had triggered some difficulties in fundraising. This company itself, AUM is top 5 in forestry. So the health doesn't change. But in comparison to the plan we had drawn back when we made the investment, the growth has decelerated. So we had to book that based upon accounting standards, and that is why we've decided to book for impairment this time around. Carbon offset requirements from operating companies, there are funds that will be introduced and those initiatives are under study. So we are hoping to further accelerate this business in the coming months and years. So that's the backdrop. Now this company is booking profits at the moment. However, the growth of profit is slower than we had expected. And international Asset Management, your second point, net outflow, I touched upon that in the initial presentation. Against the plan, what is the current situation? That was your question. Net outflow itself. From the acquisition, U.S. traditional asset management company was the industry trend. So that had been factored into the valuation in making investments. And based upon that, what about the performance? In principle, onetime of investment or excluding onetime of costs, the original revenue and expense and EBITDA expected in the CEO Forum in December, we made a presentation at the pure earning power a quarter. So 1 quarter worth has been booked. On the other hand, -- as we mentioned on that occasion, towards integration, onetime of expenses have been booked and amortization of intangibles have also been booked. So more or less -- we are more or less in line with the original expectations. But in the mid- to long run, this net outflow will be minimized, and we have to achieve net inflow. So back when we hosted the CEO forum, active ETF transition, and we will also be making J-curve investments in order to expand the business. On your second question, CET1 ratio for the next quarter. Wholesale equity and SPPC balance sheet, use of the balance sheet. Those were the points that you touched upon. Regarding wholesale, as you know, self-funding -- based upon self-funding within the border of additional capital, balance sheet is used, RWA leverage exposure is used within that framework. So based upon the earning power, they are hoping to grow business in that quarter. But additional capital within self-funding -- additional capital is within self-funding. So CET1 ratio impact through business expansion is not that significant. And then within that, what would be the positioning of equity PC and credit business? In the mid- to long run, we want to have a balanced portfolio, and that policy remains unchanged. Of course, we want to grow equity, but regarding SPPC, we will be looking at certain opportunities, and we will not deviate from that policy and quantitative control will be in place as we try to manage our portfolio. I hope I answered your question. Masao Muraki: Then in Q1, top line performance was good. CET1 ratio will not decline so significantly and ROE will improve. Is that the right interpretation? Hiroyuki Moriuchi: CET1 ratio will not decline due to this factor. We don't think so. As you rightly pointed out, we are also hopeful that this will lead to improved ROE. Operator: Next question comes from BofA Securities, Tsujino-san. Natsumu Tsujino: Regarding personnel expense on a Q-on-Q basis, it's up by more than JPY 6 billion. But in the U.K. regulatory change, there was regulatory change. And from the third quarter, there has been a change made to the deferred compensation. So what's the impact coming from them? That's my question. And also, then in the first quarter, what is going to be the impact coming from them? Could you explain? Another question relates to global markets. In April compared to the fourth quarter, wholesale outperformed compared to the fourth quarter. In other words, I believe that's due to thanks to global markets performance and Japan equity was mentioned, and it may be the case for overseas as well. But could you speak more about geographical split, equity or FIC and something like that? Hiroyuki Moriuchi: Thank you, Tsujino-san, for your questions. Regarding personnel expense, in the fourth quarter, as you pointed out, or in the third quarter, we made the announcement, but deferred compensation change, so that had an impact. And as a result, in the fourth quarter, we booked a relevant impact. Compared to the third quarter, the impact, the amount is smaller. However, it's about the same as in the third quarter. In the third and fourth quarters, deferred compensation related expense is booked. But in the third quarter, I explained it, but there is a timing gap, timing difference in terms of bookings. So for the fourth quarter, in terms of the amount, it's smaller. And this year, the impact is going to get closer to 0. As for the compensation regulation relaxation in the U.K., I am skipping details, but it's one-off in nature. So it's similar to the difference, quite a slight in the booking timing. That's my answer regarding personnel costs. Regarding April, when wholesale performance improved compared to the fourth quarter. The main factors are as follows: In wholesale, mainly rates, equity products drove the outperformance. And in the fourth quarter, rates, especially from the middle of March based upon the turmoil in the Middle East, the risk had to be controlled. So it's not just about the end of year factors, but due to risk control, revenue slowed down. And in April, we saw the significant improvement. Equity product is continuously performing well. As for nations, please give me a moment. As for the geography -- geographical split, all regions compared to the fourth quarter, we see outperformance, but regions other than the U.S. are particularly outperforming. The U.S. is performing well, but compared to other regions, growth rate is relatively lower. I hope I answered your question. Natsumu Tsujino: I have not captured everything, but U.S. was doing well as of the end of fiscal year -- previous fiscal year, if I am not mistaken, the U.S. business was strong. On the other hand, compared to the U.S. in the first quarter, growth is limited. Hiroyuki Moriuchi: Tsujino-san, sorry, I did not explain clearly, but bottom right on Page 12, you can find revenue by geography. In Americas, in the fourth quarter, revenue has come down relatively significantly in Americas compared to other regions. That's partially due to seasonality and also due to the impact from the Middle East. Since the middle of March, we had to control business. So especially macro business in Americas was particularly impacted and the timing didn't work well, especially the last 1 week of the month. And those -- that happened. And then the situation got relaxed. And then there has been a less tension after April, and we saw recovery. Operator: The next question is Daiwa Securities, Watanabe-san. Kazuki Watanabe: Daiwa Securities, Watanabe. I have 2 questions. First, private credit, $2.4 billion you explained. You also said diversification is in place, software by sector, can you give us some more detailed breakdown? And retail, private-related products, what is the redemption call? And what is your policy of sales going forward? And secondly, capital policy. You didn't announce any new buyback program. RSU, JPY 40 billion, it would be JPY 20 billion about buyback, 50% total return -- total payout ratio to shareholders. Is that the right interpretation? Hiroyuki Moriuchi: Watano-san, thank you very much. First of all, private credit sector diversification. So what is the picture? Overall, health care, business service, software and computer service, consumer, engineering and construction, these are the sectors included. Mostly health care and business service occupy quite a large proportion. Software, not necessarily high in terms of percentage. And on top of that, there is regional diversification in place as well. And regarding the second half of your first question, retail customers, private credit, what about the redemption and regarding sales policies, as client sentiments, there is some conservativeness. But at the moment, we are not seeing any calls for cancellation or requests. Originally -- or to begin with, when we sell to retail customers, we tell them that it's based upon the assumption of mid- to long-term investment. And when we obtain their understanding, we sell those products to them for the first time. So I think those communications have been effective so much so that there hasn't been any significant run. And on buyback and total payout ratio, first half, second half put together, full year RSU included 58%. Excluding RSU, it's beyond 50%. So I hope that answers your question. Kazuki Watanabe: Regarding buyback, announcement timing, if there's an announcement in 4Q, that would be fiscal year '25. Hiroyuki Moriuchi: The JPY 60 billion buyback program we announced in Q3, in Q4, we assumed the Q4 profit and we defined the amount based upon our assumption. Operator: The next question comes from JPMorgan Securities, Sato-san. Koki Sato: I am Sato from JPMorgan Securities. I have 2 questions. First question is about wholesale and wealth management expense outlook. In wholesale, performance was strong, and there was an adjustment made to the bonus, I believe. And as you explained, and there were onetime factors. So 83% of our cost-income ratio for the year and next following year onward, if top line is at the same level, then what kind of a level can we expect? And on the other hand, for wealth, in the fourth quarter, the performance was solid. The quarterly expense came down. So in this strong performance, I believe you are doing the payout to employees. And even in light of that, if this is the level you are achieving, then when recurring asset growth are bigger, then can we expect more leverage? So could you explain your outlook for expense for those 2 divisions? Secondly, in the third quarter related to laser digital loss was booked. At that time, risk control and net exposure reduction were explained. But in the fourth quarter period, what was the market situation -- based upon the market situation in the fourth quarter and based upon the result of the third quarter and what is the update on the effects achieved as a result of the countermeasure you have taken? Hiroyuki Moriuchi: Thank you for your question. First, outlook for -- the outlook for expense first, wholesale in the fourth quarter on a Q-on-Q basis, plus JPY 13 billion. Out of this increase, 30% is due to the compensation regulatory change and also end of the year performance-linked bonus adjustment. And then the last part is increase in the professional fee and the payment for services received. So the expense rate increased, but fixed cost was suppressed. So this fiscal year in the sense of the review of expense in the fourth quarter, wholesale, they had a few onetime items and also fees paid or professional fees. For example, SPPC pipeline -- so cost was incurred before the deal as we hired lawyers and the revenue recognition got delayed. So compared to the fourth quarter, we expect the expense level to come down. As for wealth management, we booked high level of margin. And can we expect the same level this year? As for this year, advanced investment in AI, also corporate cost increase due to inflation are expected. But continuously in Japan, for wealth management, we are going to tightly control cost. So even though there are timings when cost increases due to advanced investment, but it depends on revenues, but we expect we will be able to deliver a certain level of margin. And finally, regarding laser, in the third quarter, we troubled you and we got you worried with loss related to laser. But as you said, we have controlled risk volume and we have taken a more conservative stance. And in the fourth quarter, when we look at the market, Bitcoin and crypto market decline was the same level as in the third quarter. In terms of profit and loss, impact on consolidated result was limited. I hope I answered your question. Koki Sato: Regarding the latter part of your answer, the situation in the crypto market and the impact on your profitability. Simply put, you've reduced the exposure. So the benefit you've received is as a result of reduced exposure and hedging or different ways of conducting market making. In other words, what I'm getting at is previously, you said you are not intending to downsize the business. So the exposure level, I think, will increase in the future. Even with that, you have a structure in place to prevent impact on profit? Hiroyuki Moriuchi: Thank you very much. Regarding trading, the market making, the absolute amount of risk has been reduced. And of course, there are venture capital investments and asset management seed capital with our own fund. So for those areas, in nontrading areas, we have long positions. So when we have progress in asset management business, then from seed capital, we will see that transfer to equity capital by investors -- LP investment. Operator: The next question, SBI Securities, Otsuka-san. Wataru Otsuka: Otsuka of SBI Securities. Is my voice coming through? Operator: Yes. Wataru Otsuka: Could I do one question and one answer. The first question is just for confirmation purposes, but wholesale, quarter-on-quarter basis, profits declined. What's the reason? Can you recap that? Revenue, as you had explained, global markets fixed income, Q4 seasonality factor and Iran had been quite significant and expenses, expertise fee and performance -- pay for performance. And so due to the revenue and expenses, 30% decline in profit. That's quite significant, but it wasn't a surprise to you. So that's my first question. Hiroyuki Moriuchi: Thank you very much. And you've made the situation very clear. So if we divide it between revenue and cost, as far as revenue is concerned, seasonality due to the end of the fiscal year, risk position was controlled. And on top of that, due to the Middle East situation, in the mid- to late March period, there was exacerbation quite rapidly. So we had to control defensive position, and that's the big factor for the reduction of revenue. And on the cost side, I slightly touched upon this in my presentation. But due to the review of the compensation regulation and also being the end of the fiscal year, part of it is timing gap, and there has been a onetime of increase. And the remainder is increase of fees payable to experts and for transactions. But regarding this factor, the original understanding regarding SPPC we were to add one product to the lineup. So the initial investment, that was within our control. But professional fees, we paid it earlier than booking the revenue. So this was a relatively high cost increase higher than we had expected. That's my personal view. I hope I answered your first question. Wataru Otsuka: Sorry. One follow-up question. 86% expense ratio is slightly high. So there was the timing gap, but 83% for full year -- is that a normalized basis ratio? Hiroyuki Moriuchi: Q4, 86%. Obviously, it's quite significantly higher. And regarding expense ratio, rather than expense side, the impact from revenue is quite heavy. But at any rate, 86% is slightly higher than normal. Wataru Otsuka: Second question, at the end, you mentioned ROE, 10% full year basis. And 8% to 10% or higher and stably performing such ROE, you've achieved that goal. On the other hand, if we look at banks and other Japanese financial institutions or more so regarding overseas financial institutions, 8% to 10% ROE isn't that high. So plus, don't you have an intention to elevate your goal? Isn't that discussed at the Board of Directors meeting? Can you touch upon such aspects? Thank you very much. Hiroyuki Moriuchi: Otsuka-san. Your point is very true, of course, in comparison to mega banks, Japanese for financial institutions and peers overseas from the perspective of being in the investment business, 8% to 10% plus level is just a midpoint. It's not the ultimate goal. Regarding this matter, in the deliberations for the budget, there is intensive discussion on this matter. So if there are any points that we need to review, in late May, we will have the Investors Day, so we may touch upon that aspect. Thank you. That concludes my response. Wataru Otsuka: So your answer is you're discussing that point heavily, right? Hiroyuki Moriuchi: Yes, exactly. Operator: The next question comes from UBS Securities, Niwa-san. Koichi Niwa: I am Niwa. Can you hear me? Yes. Regarding wholesale cost and private asset initiatives of Nomura, I have a question about them. First, regarding wholesale cost this year and next year, on a run rate basis, what's the percentage? I do understand you have a medium-term goal. But given the environment where there is a strong cost increase pressure, what is your outlook? My second question is more long term than the earnings result. But in Americas, what's the future outlook of private asset market in the U.S.A. And on that basis, what is Nomura's strategy? So if it's in the initial phase, then there will be the room for expansion. And in the call today, listen to the tone of your explanation, it appears you remain positive. But looking at your peers, they are switching gears. So if you could give me some perspective on this, that's appreciated. Hiroyuki Moriuchi: Thank you very much. Regarding your first question on wholesale cost control and cost/income ratio target, what is the rate of progress and what is our outlook for this year? And the cost pressure may be high, as you said. But as you said, the group-wide cost control has an important theme of how to manage inflation. So certain parts of this are unavoidable, but rather than absorbing taking them 100%. The theme is to look at where we can reduce cost in other areas. For example, through location strategy, offshore can be more effectively used. So we are considering approaches, including structural approaches so that we can suppress cost increase to a certain level. And regarding cost/income ratio, we would like to grow revenue at a rate that beats inflation. That's an important factor. And for business, this is more important. So in wholesale, ROI against additional capital needs to be increased to increase ROE. That's our intention. Secondly, regarding our outlook for private credit, we need to separate my answer for midterm and long term. Regarding private credit market itself, our view is positive. In the medium to long term, market has the potential to grow. On the other hand, both the bracket and our peers have pointed out repeatedly that in the short term, credit cycle needs to be monitored closely and the risks must be controlled tightly. We do acknowledge the need to do so. So earlier, I answered to a previously asked question. But in SPPC, we have a rich pipeline with attractive opportunities, but our stance is to take selective approach and medium- to long-term portfolio, in wholesale as a whole, we would like to control so that no single product stands out too much. So that kind of control will be needed, and we have an agreement in our approach with wholesale. That's all. Koichi Niwa: Just one more thing from me. So mainly impact on you in terms of division, the impact is happening mainly in wholesale, not really in investment management, but wholesale is mainly impacted. in terms of product line? Hiroyuki Moriuchi: So as for the existing P&L, especially risk side, wholesale portion is the biggest. So your understanding is fine. But as we think about medium- to long-term growth, asset management is the area. As we have said since 2020, we are closely looking at the market opportunities and not just private credit, but we look to grow private business. And as part of that, hopefully, private credit will grow. And wealth management based upon the principle of suitability, based upon the needs of our clients, we would like to steadily accumulate assets. And going back to the previous point, in the short term, we need to control risk for wholesale, that's as you pointed out. Operator: We'd like to conclude question-and-answer session. If you have some more questions, please ask our Nomura Holdings IR department. In the end, we'd like to make closing address by Nomura Holdings. Once again, thank you for joining us. Hiroyuki Moriuchi: As I have said a few times, for 2 successive years on a full year basis, we've renewed the net profit and ROE. Yes, there were some voices saying that this may not be enough, but we exceeded 10% and we were able to achieve the goal towards the 2030 vision 2 years upfront. Recurring asset increased banking division establishment, Macquarie asset management, acquisition, these investments were done in order to make a robust platform for future growth. That was what we've done in the past 12 months. So I think we will begin to monetize out of those initiatives, and therefore, we call upon you to provide your continued support. That was Moriuchi, CFO. Thank you. Operator: Thank you for taking your time, and that concludes today's conference call. You may now disconnect your lines.
Operator: Welcome to XVIVO Q1 Report for 2026. [Operator Instructions] Now I will hand the conference over to CEO, Christoffer Rosenblad; and CFO, Kristoffer Nordstrom. Please go ahead. Christoffer Rosenblad: Thank you so much. Good morning and good afternoon, everyone, and welcome to XVIVO's earnings call for the first quarter of 2026. We can go to Slide #2 and just -- today's presenters are me, Christoffer Rosenblad calling in from the 2026 ISHLT Conference in Toronto, Canada; and Kristoffer Nordstrom, CFO calling in from Philadelphia in the United States. And with that, we can go to Slide #3, financial at the glance. So we see that the first quarter of this year showed a 23% organic top line growth. This is equivalent to an 18% organic top line growth if we adjust for the U.S. CAP trial revenue compared to the same quarter last year. EBITDA was kept at a healthy level, resulting in a positive cash flow for the second consecutive quarter. The CFO, Kristoffer Nordstrom will get more into the details on sales, gross margin and EBITDA later in this presentation. Short on the segments. Both the thoracic and abdominal segment are growing rapidly in both regions, which are North America and Europe. The lung market trend we saw in Q4 last year continues into 2026 with a good lung market with good underlying growth. And we see that a larger sales footprint supporting more customers is paying off. I'm also very pleased with the strong kidney sales in the quarter, partly fueled by the Canadian launch and a growing interest in the United States. We will come back later in this presentation on the progress for the service segment, the actions we have taken and how we will execute to become the preferred partner to all the transplant teams. And with that, we can go over to the highlights of the quarter, and we can actually jump straight to Slide #5, where we see the highlights. Very, very busy quarter. We took many important steps last year and this quarter, and we have passed many important milestones that led to actually another record quarter, which is the first highlight. Secondly, we also had the very important OPO EVLP hub pilot has been very successful and is now up and running. And it partly explains the increased lung sales we see in this quarter. So far, the progress is ahead of our internal plan, and we have identified 4 to 5 more OPOs in the rollout pipeline plan, whereof the second OPO in that plan will be onboarded already now in Q2. In parallel, we are continuously investing in more feet on the ground in the United States to enable a closer customer relations with the growing number of EVLP partners we see. And we also can report that the 60-patient CAP is now fully included during the quarter. We had an extreme high interest from trial centers to use the heart technology. And to satisfy their needs, we have -- to use the XVIVO Heart Assist, we have asked the FDA for an extension of the CAP, so they can use it again, under the ID we have. And if we look at #5, it's a testament to how well the XVIVO Heart Assist performed, and it's best shown with the real-life experience in Australia. So during Q1, the penetration increased to 52% for DBD heart, and we are happy to announce that we did our first DCD heart in Australia now as well. It's a very important milestone and makes us convinced that we should aim for the XVIVO Heart Assist to become the global gold standard for preservation of all hearts. And while we're waiting for the last part of the CE-mark for heart, we should mention that both the machine and disposables are already CE-marked, more and more European agencies are approving the XVIVO Heart Assist for compassionate use. And we actually saw sales in Europe picking up already now in Q1. This is again an indication that the European transplant teams can't wait for the device that optimize heart preservation and enable more hearts to be used for the patients waiting for new hearts. In our service business, we saw good progress in the Flowhawk part of it with high growth and new customers opting to use the communication software. Already now, 6 out of 10 of the largest transplant program in the U.S. opted to use Flowhawk since it simplifies the transplant process and reduces overall cost in the process. The organ recovery business is now ready for growth, and we have a positive outlook for the rest of the year. We offer NRP if needed and we see an increased interest to use the XVIVO organ recovery service. I had many, many good conversations during this ISHLT, for example. And with all those highlights, we can go to the deep dive into the highlights on Slide #6. So as I said earlier, I'm right now in the middle of the ISHLT conference, which is the biggest lung and heart transplant congress in the world. And after spending time here, it is clear that XVIVO is by far the innovation leader in the field of both lung and heart transplantation. For example, the XVIVO Heart Assist was featuring 2 late-breaking news sessions that was very well attended and increased interest from clinics who want to use the heart device. And I kind of go into those. We have some press releases regarding those, but I will go into them later in the next slide. I also want to highlight that very soon after this meeting, we will have our heart symposium, which will be really, really interesting to see. But already this Wednesday, we had the lung symposium, so the XVIVO industry-sponsored lung symposium, which was a great success really, had extremely high attendance, created a lot of interest from future customers to start up EVLP program. And it was also very clear that with new innovative technology on the market, the field of lung transplantation has improved significantly over the last decade. So one example over the last 5 years, the number of DCD lung transplantation has more than tripled. But more so, if we look at the patient outcome, that also improved. And over the last 10 years, the 1-year survival for ECDs, extended criteria and DCD lungs has gone from 85% to above 90% and is now on par with what we call normal lungs. And there, we see that the adoption of EVLP has been key to enable safe use of those extended criteria organs. But let's jump into the 2 highlights in the late-breaking news session from XVIVO. So we go to the next slide, which is #7, and it was the U.S. PRESERVE Trial that was presented. Again, the clinical result from investigational use is positively surprising us on the heart side. The trial was performed at 14 clinics in the U.S., and they enrolled a total of 141 patients. The U.S. study aimed to prove that extended criteria heart as described on the slide here, could safely be transplanted using the XVIVO Heart Assist. I'm happy to announce that the study met its predefined efficacy and safety endpoints. The sub-analysis or the analysis of the secondary endpoint showed also that severe PGD was only 7.9%. Severe PGD is the leading cause for early late mortality in heart transplantation. I will come back later here on the importance of it when we look over the European data. And next step is that we will now finalize the file for submission to the FDA for their review. And then we can turn to Slide #8, which is the other late-breaking news, which was a very well-received presentation from the European DCD direct procurement experience with DCD Heart. So the trial was a single-arm, proof-of-concept trial, a total of 40 adult heart transplants recipient across 4 European transplant centers in Belgium and the Netherlands were enrolled. And the primary endpoint for patient survival at 30 days was 98%, which is very high. And the secondary endpoint of severe PGD was only 5%, again, showing that the right preservation of heart keeps complications after heart transplantation low. I also want to mention looking forward that if the method of direct procurement is widely accepted by the heart transplant community, it would significantly reduce cost in the transplant process and simplify for the transplant teams around the world. And with that, we can go into the EU trial, which is now in a publication during Q1 this year. I again want to mention this is the first randomized controlled trial with superior endpoint that was ever performed in the field of heart transplantation. So no one dared to try this before, but we did. It is also the first clinical trial to establish a link between preservation method, severe PGD reduction and reduced 1-year mortality. And we can see this at the data, if you look at the little box of data that both mortality and severe PGD have a clear link, and I will explain that link. So in the analysis of the trial data, it was noted that the ex vivo group had a reduction of severe PGD by 76%. So 20% in the control group and only 5% in the XVIVO group. It was further noted that the mortality after severe PGD was approximately 40% in both groups, leading to an increased survival of 6% in the ex vivo group versus the control group. We can also note here that the primary endpoint showed statistical significance at day 365, which is good. With the experience we have seen in Australia with more than 50% of all DBD hearts now being preserved on the XVIVO Heart Assist and those 3 trials that I just went through that we have recently presented, the body of evidence in favor of the XVIVO Heart Assist is increasing significantly, which is great news. And with that, I will go over to the regulatory update on Slide 10, and we can actually go straight to the Slide 11, which is the usual overview of our regulatory processes. So the U.S. heart trial was fully included in record time, and we now passed the 12-month patient follow-up and you saw the result of that during the late-breaking news session of ISHLT and the press release we sent. We are now preparing the regulatory file. And when ready, we will submit the file to the FDA for their review. The CE-marking process in Europe is ongoing, and we are awaiting feedback from one competent authority. But again, as stated earlier, the heart box and disposable part of the product are already CE-marked, and we have passed the EMA consultation, and we're now waiting for the last consultation. Again, I also want to note, we are ready to launch when the product is fully approved. So we have a launch plan ready. We have staff recruited and the interest from clinics in Europe is very high. And as I stated earlier, we actually saw some sales already from compassionate use this quarter. But unfortunately, the European heart clinics are suffering badly from the lack of alternatives to the XVIVO Heart Assist. So we are working really hard with our notified body to get the final CE-mark. But we are happy to see and hear all the engagement from our heart transplant clinics in Europe who just want to get it up and running. Also to mention, and we mentioned before that the Australian and possible Canadian approval will follow on the CE-mark. So we will use that as a base. I will come back to the U.S. liver update in the next slide, actually, so we can go straight to that slide. And Slide #12 and the liver regulatory status. So we have previously reported that the Liver Assist has been granted breakthrough device designation by the FDA. We have an approved IDE and the CMS funding approved. We could have started a trial last year, mid last year. We did decide to temporarily post activities for the liver PMA process to investigate the alternative regulatory route. And we are right now in preparation for FDA QSA meeting where the possible regulatory route will be outlined further. And the company, and I will come back and inform all investors of the next step in the U.S. liver regulatory investigation and later, so of course, in the -- when we report the Q2 report in July, we will give an update. And with that, I hand over to our CFO for going into the financial performance of XVIVO. Kristoffer Nordstrom: Thank you, and happy to do so, Christoffer. So the financials for the first quarter. This was a record sales quarter with clear signs of growing momentum, as Christoffer mentioned, especially in our core business and across all main markets. For the first -- for the second quarter in a row, the strong sales momentum translated into a positive net cash flow despite continued investments into our clinical and regulatory processes. So we're very happy about that. Net sales in Q1 were SEK 241 million, and organic growth was 23% and 18% excluding the heart trial revenue from the CAP. Gross margins were 71%, while thoracic margins remained strong, the gross margins in abdominal and services were softer, which will be explained when I go through each business area here in a little while. Our continued focus on cost consciousness continues to translate into healthy EBIT and EBITDA levels. EBIT was 13% and EBITDA 21%. The quarter was impacted by SEK 7 million in heart go-to-market preparations, nonrecurring items, which explains the increase in administration costs. Setting this initiative aside, the underlying EBITDA in Q1 was 24% and was more in line with what we saw in Q4 last year. So moving over to Thoracic. So the thoracic business area accelerated in Q1 and delivered record sales of SEK 160 million. Organic growth was 27% and excluding heart trial revenue, 19%. In regard to lung, the momentum for EVLP continues to evolve positively. EVLP disposables grew 56% in Q1 and the main customer segments, the centralized perfusion hubs and larger key accounts grew double digits. And we're very satisfied with the early phase of the perfusion partnership that we launched in Q4 with PSI as we now have proof of concept from the first OPO EVLP hub. 10 EVLPs have been performed since the introduction of this program with good learnings and great collaboration. We also have a second OPO that was onboarded in early April, and we are hopeful that this partnership will be equally successful, of course. So this is a very exciting initiative that can have a significant impact for lung transplant patients on the waiting list in the U.S. and can have a strong impact on the EVLP adoption over time. In regard to heart, Q1 was a very good quarter. The CAP trial, as Christoffer mentioned, in the U.S. included its last patient. Australia and New Zealand continue with extraordinary market penetration on the compassionate use. And finally, what is very encouraging is that we now have a handful of countries in Europe as well where hospitals have worked hard to get the temporary special permits in place to be able to use the technology. All this in wait for the CE-mark approval, of course. Gross margin, 83%, in line with last year, and this means that we have successfully increased prices to offset impacts from tariffs and also from a weakened U.S. dollar. So overall, thoracic experiencing a good momentum. Moving over to abdominal. Abdominal continues to deliver good quarters. Net sales were SEK 66 million and equaling an organic growth of 24%. Liver sales grew 12% in local currencies to SEK 45 million. Kidney was the shining star of the quarter in abdominal and sales grew 63% in local currencies. We see a growing interest for Kidney Assist Transport in the North America, both in the U.S. and Canada, and Q1 brought new accounts both for clinical and research use. With a few important congresses coming up here in Q2, we are optimistic that the good traction for abdominal will continue as the year progresses. When it comes to gross margin in Q1, the gross margin was 54% versus 63% last year. The decrease was mainly a result of a larger portion of kidney sales versus liver, but also a larger portion this quarter of sales to lower-priced markets such as Asia, South America and Eastern Europe. Once again, a solid quarter for abdominal as we continue to build the market for liver and continue to take market share in kidney. Moving over to services, our last business area. Net sales were SEK 60 million, representing a negative 10% organic growth. The 2 areas, Flowhawk and Organ Recovery Services showed mixed results. Flowhawk showed an impressive growth of 62% as a result from both new customer acquisitions and upgrades and renewals. In Q1, the largest transplant program in the United States decided to implement Flowhawk. That's a true feather in the CAP for the Flowhawk team, which means the software is now embedded into the day-to-day practice at 6 out of the 10 largest transplant programs in the country. And with continued investments into Flowhawk, we believe it truly has the potential to become the future golden standard of transplant workflows and secure communication in the field. Organ recovery showed yet another quarter with a negative growth, minus 10%. And as I stated during the Q4 earnings call, we last year put a surgical organization in place that will enable us to return to growth in 2026 and beyond. Today, we have surgical capacity to significantly increase the case volume. And with ISHLT this month as a starting point, our focus from now on will lie heavily on marketing and sales execution. Gross margin decreased to 18%, and this was purely due to the lower case volumes for organ recovery at the same time as we incurred fixed operational costs, keeping our surgical teams on call 24/7. But with an increase in cases, our gross margins will improve to more sustainable levels. EBITDA. So profitability was strong for the second consecutive quarter, 21% and excluding nonrecurring costs, it was 24%. So rolling 12, we're at 20%, and we are on a positive trajectory on the rolling 12 KPI. In the following quarters, we will continue to manage our operating expenses with discipline and ensure resources are directed toward initiatives with clear commercial returns. Investments will mainly be directed to sales and clinical field force to capture the significant market opportunity that lies ahead of us being an all-organ company. And my final slide for the day here, cash flow, and we're ending with a positive -- some positive news here. So for the second consecutive quarter, we ended up with a total positive cash flow. Operating cash flow was SEK 65 million, mainly driven by good sales momentum, of course. And the cash flow from investments was minus SEK 55 million. But all in all, we ended up for the second quarter in a row with a positive total cash flow. And we have SEK 308 million on hand when we closed the quarter. And with those final remarks, Christoffer, I will give the word over to you again. Good luck with the end of the conference here. Christoffer Rosenblad: Thank you. And with that, we go into the outlook and a little bit into the future of what will happen this year and also what will happen in long term. And we can go to Slide #21, really focusing on this year and activities we have for this year. And again, we are going to continue to build salesforce and build new partnerships, especially in the U.S. to enable the OPOs and clinics to recover more lungs by EVLP adoption through a combination of a service model and staying very, very close to customers. In parallel, we just heard from our CFO that we will increase our service offering and better tailor to customer needs. Now we are offering NRP procurement from an increased footprint of surgical teams that can stay close to customers and recover organs with higher quality. We will continue to work closely with competent authorities in Europe to be able to use the heart box as much as possible already now, and we are aiming to obtaining a CE-mark as soon as possible and waiting for the last part there. Another key milestone now with the data from the U.S. PRESERVE Trial presented at ISHLT, we will now submit the regulatory file to the FDA for their review during the summer. And we also talked about the Liver Assist. We come back with more information on the regulatory route, but we know that it's soon becoming the liver gold standard in Europe, and we save hundreds of lives every quarter using Liver Assist. And now we want to continue to support clinics in Europe and also give the U.S. clinicians the ability to actually use the Liver Assist and have the same success we have seen in Europe. And we go to the next slide, 22 and a little bit longer-term outlook, and I want to state this every call for this is the reason here. We know that a lot of patients with end-stage organ failure are dying every day. Some of them are on the wait list, but the majority never even make their waitlist. So the demand for transplant is according to our analysis, approximately 10x of today's supply. We also see that the sales value of machine perfusion that improves patient outcomes and safely increase the usage of donated organ versus cold storage is also approximately 10x in terms of value. So we see a market opportunity with this almost 100x of what we see today. And we know that the machine perfusion and the service model have a proven track record, and that's really been clear here when we were in ISHLT of increased the number of organs used for transplantation and actually safely increase them with improving survival rate as well. And we also know that we see a growing DCD organ pool. In many countries, it's above 50%. We know here in the U.S., it is now hitting the 50% mark, and we have clear evidence that machine perfusion is -- you need to use them to safely address the DCD organs. And XVIVO, we want to change the paradigm on transplantation by innovation. And we want to be very clear that we believe that innovative products and innovative perfusion and preservation solution is the key for the future. And we do have a unique very innovative and world-leading product in the market or under IDE trials. So we believe in the longer term that we will lead this market due to innovation over time, enable lower cost in the transplant process, and we think that, that will be very important going forward. And with that, we turn to Slide 23 and open up for questions. Operator: [Operator Instructions] The next question comes from Simon Larsson from Danske Bank. Simon Larsson: Yes. Firstly, maybe on the U.S. heart theme, I noted in the press release from Wednesday that you are planning to hand in the file to the FDA later this year. But could you give us any more details on when that might be, would be helpful. Christoffer Rosenblad: Thank you. Good question. We are sitting with the file right now. We don't -- I don't have an exact time line, but it will be somewhere during the summer. So I will come back when I have a better time line, but it's somewhere during the summer. So it's not the end of the year, it's earlier than that. Simon Larsson: Yes. Understood. And maybe it's a bit sort of speculative at this point, but would you expect the FDA to sort of summon an advisory committee ahead of a potential approval? Or yes, what's your thinking around that dynamic? Christoffer Rosenblad: I can't speculate on what the FDA wants. We have to hand in the file and see what the feedback is and follow their process. It will be more or less impossible to speculate on what will happen or not. But I know last time we had an expert panel meeting, we fared very well on the lung side with [ 10-0, 10-0, 10-0 ]. So we know how to do this, and we are confident that we can answer any questions the FDA might pose to us. Simon Larsson: Yes, fair. Fair. And I know you said in the beginning of the presentation, Christoffer, that you aim to make the heart box standard of care for all hearts basically. But if you could help us understand the scope of the hearts that you will address in the U.S. maybe to begin with? Will you be focusing on the sort of marginalized ECD, DCD hearts or older donors? I mean any help slicing the market opportunity and what you will target first would be also interesting to hear. Christoffer Rosenblad: That's a great question. I mean we can only market what we get on the label and the label will be pending the FDA review process. So it's hard to say exactly. But if we look at the PRESERVE Trial and the inclusion/exclusion criteria there, it is exactly those hearts we're talking about. It's DCD heart, extended criteria heart. So that's either due to more than 2-hour preservation and a couple of factors -- a couple of risk factors or more than 4 hours. So we will definitely target those hearts. We will also -- we see an increasing interest here from U.S. clinicians. So we will have a quite broad target when we launch the product to make sure that we can reach all clinics as soon as possible after day 1 of the launch. Simon Larsson: Makes sense. And maybe then the final one from my end. Turning a bit to the lung part of the business. Obviously, the EVLP part is doing very good here. Could you say anything about the pipeline, how it looks for new accounts, both in terms of new centers, also OPOs, of course. And also if you're happy with the revenue generation from the new XPS accounts that you signed last year, and also maybe your visibility for the lungs here in the coming, let's say, couple of quarters as well? Christoffer Rosenblad: What I know here from ISHLT is that there is a growing interest for an EVLP program, and we do see great progress now, both an underlying market growth where we see that more and more data is getting published showing that using EVLP for extended grafts or DCD graft has a really positive impact on the overall survival and that we use more organs. So in general, there is a good underlying trend for the lung market. The other thing which we are working with is to put XPS into more hands, so to say, so we can do it and especially the hub model that 1 OPO with 1 center pumps lungs for a larger area, which we have seen has been very successful for. So we have a positive outlook. But again, looking into the future, it's impossible. But what we can see so far it looks very good. And especially, I'm really encouraged after all the meetings we had here in both the lung symposium and all the customer interactions from here from ISHLT, so we see positive outlook. Operator: The next question comes from Ulrik Trattner from DNB Carnegie. Ulrik Trattner: Thank you very much and a few on my end. And I'll start off with the abdominal gross margins. And Christoffer, you touched upon this. But I also note that the gross margin was kind of equally low in Q4. So is there FX related to this since you moved your manufacturing to Sweden from the Netherlands? Or is it just market product mix that we should expect to revert here in the short term? Christoffer Rosenblad: I can start a little bit high level and then Nordstrom, if you want to pitch in on this one. But if we take high level, it is -- there is today in the at least the abdominal [ fees ], slightly lower gross margins in Europe versus the U.S. So it's partly a regional mix that we hope over time we will grow out of. Also, we are moving production right now and have not reached full scale in production that we want. So it's not, let's say, call it, a quick fix, but we diligently work to improve the gross margin for our abdominal portfolio in the next quarters and years to come. So we see a gradual improvement, is my belief. Kristoffer Nordstrom: I'll just add as well, Christoffer, that we do expect to see the growing gross margins for abdominal. What will impact that is, of course, when we start to see a stronger ramp-up in the United States. It was a good quarter in North America abdominal sales this quarter, but it was partly research sales that over time, of course, will translate into more clinical sales, so to say. But it's still very much of a European business with some regions with lower pricing. Ulrik Trattner: Okay. Great. And on to sort of prospects going ahead and the [ SUB-Q ] meeting that you have scheduled. So what is your ambition going into this? You can obviously go down a few routes here. But are you aiming to use the European data in order to get approval as you did for kidney or 510(k)? What is sort of the most feasible and reasonable pathway forward here? Christoffer Rosenblad: It's a great question. I mean, of course, we're aiming that, but we will have a dialogue with FDA. We had a very positive meeting earlier this year, and we will continue in a more official QSUB meeting with them to get a firm route forward. We, of course, aim to leverage as much of the European data as possible. But we would also be in listening mode and see what the requirements from the FDA is. So there would be good dialogue that we have started that is very good and positive, but we also have to be humble that the FDA is deciding in this case. So we will argue our case and see what comes out of it. Ulrik Trattner: And just correct me if I'm wrong, but wouldn't it be beneficial on your end to actually generate some U.S. data prior to launching it, given sort of the -- I mean, hindsight, what we have seen with the kidney launch that U.S. data is of high importance in order to reach higher volume. Potentially a 510(k) would be the preferred route on your end? Christoffer Rosenblad: Yes. I mean the good news with the 510(k) route is that the, let's say, burden of proof is lessened. It's more towards safety than efficacy, but you're right. In either way, whatever the FDA says we need to do a trial, if it's, let's say, before or after. So we will do a clinical trial in the U.S. to make sure that the American users can replicate the European data that is extremely good for it to be believable. And you're right, with the kid experience, we learned that very fast that launching a product without U.S. data will not make it fly. So we have to do something either way. But we're still aiming to leverage as much as possible of the very positive European data. It is by far the largest body of clinical data we have for short, long term, all sorts of graphs, which are very positive. So that's, of course, our aim. Ulrik Trattner: Great. And a question on the CAP program. As you went from 4 patients in Q3 '22 and now further 6 here in Q1. And I would assume that the interest has not come down post ISHLT. So how quickly can you get a sort of reapproval or expansion of your CAP program in the U.S. Christoffer Rosenblad: We're aiming as soon as possible. So yes, it is under review from the FDA, and they will come back to us soon, according to what they said. So -- but again, it's hard to speculate on the FDA time line and the work burden they have. But what we can say is that, yes, the interest is extremely high from U.S. clinicians before the ISHLT and before those 2 presentations, and it has increased significantly after. So that is very clear. Ulrik Trattner: And can you give some type of indication on just the penetration per the sites who are actually active in the CAP program? Are they using it on all of their parts that are being transplanted? Or is it just a portion of them? Or can you give us any more sort of insight that would be very interesting. Christoffer Rosenblad: Yes. That's a good question. We should remember right now that this is a scarce resource for them. There is a limited number of patients. So they only use it on the worst grafts and the sickest patients where they see no other use right now. So we should remember that. But we can see in some CAP centers that is quite high penetration. And then the testimonial I get when I'm here from the users is that this is so easy to use, it's really plug-and-play, and the hearts are in an excellent condition after being in Xvivo Heart Assist. So it's -- some have quite high penetration, but we should remember that it would be higher if we would have an approval or let's say, it's an unlimited use because now it's capped to number of patients. And I think it's more interesting to look to the Australian situation where there is an uncapped continuous access protocol. So it is similar, but it is uncapped. And there, we see that it's 50% for DBDs and now we're starting with DCD. Ulrik Trattner: Sure. Yes. And just on the data that you have generated here lately and presented. Obviously, a positive outcome in the U.S. and 4 additional patients in Europe on HOPE. Are you adding this to the European regulatory agencies and have this in any way sort of increased your confidence in obtaining approval for the heart box here in 2026. Christoffer Rosenblad: The straight answer is yes. I mean, the feedback we get from those compassionate use is that, yes, we don't see any alternative on the market for any graft, pediatric, adult, DCD or DBD. So it's really encouraging to see medical agencies in Europe, looking into the file, clearly state, there is no alternative. We need compassionate use for this product. And so yes, the straight answer is, yes, we get more confident, the more we talk to medical agencies and the more we talk to clinicians of how important this is. And -- but again, the regulatory process is a regulatory process. And it's hard to speculate. But definitely, we are -- due to this, we are more confident, yes. Ulrik Trattner: Great. And last question on my end. Did you mention that you had found 4 to 5 OPO targets to sort of be integrated into an EVLP program. I just too -- if I heard that clearly. Christoffer Rosenblad: Yes, 4 to 5 are identified in the pipeline right now, to clarify that. So we have done our first installment, very successful ahead of plan. We are doing our second one. I think while we speak or at least very soon after ISHLT. And then there is a rollout plan, which is, to some extent, will be resource limited but we have a clear plan, and we're going to make sure that we are successful in every installation. So we're going to make sure that we are there. And we are also increasing our internal resources to be able to handle an increased growth and increased interest from OPOs, where, in all honesty the XPS and the STEEN Solution was developed in the beginning for this target group of OPOs. So it's great to be back home again, so to say, and see the OPOs using it. Ulrik Trattner: Okay. Great. And essentially, it's an acceleration at sort of a maintained pace even with your sort of limited resources. Christoffer Rosenblad: Yes. So we will try to accelerate as fast as possible, but we will be very conscious that we want to have the right quality of people both from our side, from our partner side and from the OPO side to make sure that each and every OPO program is a successful program where the clinicians really get the audience they so deserve for the patients on the waiting list. So we'll be very cautious on keeping a high quality. Operator: The next question comes from Jakob Lembke from SEB. Jakob Lembke: So my first question is on the strong EVLP sales here in Q1. So I'm wondering if you can sort of elaborate a bit more across the different customer groups, sort of your single one large customer, other U.S. customers as well as ex U.S. during the quarter? Christoffer Rosenblad: Yes, definitely can do that. It is one, an underlying market growth where we see an increased interest to making more lung transplantations. And we see a changing organ pool where more and more organs become extended criteria or DCD. So that's the underlying growth we see fueling the interest. So we see both a, let's call it, an underlying growth from existing customers, and we see that we now add new customers as well, which are slowly becoming more up and running. And we see, of course, the fast uptake in the pilot of the OPO that was -- so those are let's say, the 3 reasons. We also see that we're increasing the sales footprint. In other words, number of feet on the -- close to customers. We can see an increased usage. So it's a direct link there. Jakob Lembke: Okay. And then also, I'm wondering if there was any sort of large orders or timing effects impacting the strong Q1 sales for EVLP? Christoffer Rosenblad: I think it was fairly -- we saw the trend in Q4, and I think that trend continued into Q1. We didn't see any huge, let's call it, seasonal effect or up stocking, destocking during either this quarter this year or Q1 this year or Q1 last year. Jakob Lembke: So I guess my question then is it fair to assume then that this is sort of a new base line for the EVLP consumables? Christoffer Rosenblad: Yes, I think that's a fair assumption. I mean we do see an increasing interest, and we do foresee that we will continue to grow new -- both existing and new EVLP programs, absolutely. Jakob Lembke: Good. Then I also have a question on heart and the compassionate use in Europe. I'm wondering if you can elaborate a bit on sort of how freely the centers can use the product right now? And also if you can share how many centers that are live and if you have any more that you think will go live soon. Christoffer Rosenblad: Yes. I think to start with when we talk about compassionate use, there are, of course, limitations to it. And also, this is being Europe, so it's different country by country. Some are more hopefully soon here is going to be more Australian like and some will be more restricted in terms of when you can use it or not. So it's hard to give one answer to that question because it's many countries, but we do see that more and more countries are opening up for this opportunity, and that is very, very positive. That's the key message. And then we, of course, hope that we don't need this and get the CE Mark very soon, but we see that we can keep the high interest and continue to save patients where there is no alternative to the XVIVO Heart Assist, which is the case right now. Jakob Lembke: Okay. And then I'm also wondering if there's been any new or recent dialogue with the notified body or the competent authority regarding CE Mark? And also, if you expect to get the approval then in the early summer. Christoffer Rosenblad: We are in dialogue with our notified body. To clarify, we are not in direct contact with competent authorities in this case because they have asked for a consultation, and we are in contact with notified body. So the answer is yes, to the notified body. There has been contact. We -- from what we heard from them, yes, we should expect something here in early summer or summer. So that's the latest we heard. So we are crossing our fingers and provide all the information we possibly can to make sure that we can get a good decision. Jakob Lembke: Okay. And then as a final question, sort of a follow-up to the earlier discussion about the potential label of the heart product in the U.S. I'm thinking that the FDA must surely also include or consider the data you have gathered outside of the U.S. sort of the European randomized 2-arm trial and as well as the Australian trial. So I guess it must be a very broad label because you have, I mean, the most broad -- the broadest data of any machine perfusion product out there, right? Christoffer Rosenblad: To start with, we're extremely proud of all the data we have. And every time we do something with XVIVO Heart Assist, the clinical outcome is better than we could expect from it. So we're very proud of it. It's hard to speculate on the FDA and what they will do. We will, of course, submit all data for their review -- I mean, the lowest bar is for safety reasons. And we do -- we will argue that it should be taken into consideration at least for a future label discussion. But it's hard to speculate on the ruling from the FDA, so to say, regarding the label. But if we look at the inclusion/exclusion criteria in the United States PRESERVE Trial, it will cover the majority of donated hearts as it is already today. So that would be -- that in itself will be an extremely good label. Operator: The next question comes from Filip Wiberg from Pareto Securities. Filip Wiberg: First, I think I just would like to follow up on a prior question about the strength in EVLP this quarter. So I suppose like the largest customer explains some part of the strength at least. Given that, I'm just trying to get a better sense of the risk of ending up in a similar situation that we had last year with the destock. And you said that you don't think there are any stocking effects this quarter, but could you please just talk a little bit about that and the visibility for this largest customer? Christoffer Rosenblad: Yes, that's a good question. I mean we have very good visibility and very good dialogue with our largest customers, and we could see that they grow actually as much as other customers during Q1. But like we are, they are also depending on the underlying market growth, so to say, but we have a very good 1 year visibility into what they aim to do. And -- but they are for the same reason, as we are, dependent on the underlying market growth. And we saw that last year. In Q2 last year, it was that we got a dip during 1 quarter. So if the momentum we see now that we believe will continue, we have good visibility. Filip Wiberg: Good. We talked a little bit about the gross margins here, but perhaps one on thorax, which was actually okay this quarter. But I'm just thinking about it going forward now when EVLP is growing, Perfadex becoming a smaller part. So will you be able to defend the gross margin you've had when EVLP continues to grow and takes a bigger share and then also how you believe it's going to be affected when you launch heart in both Europe and in the U.S. Kristoffer Nordstrom: That is our goal to defend the thoracic gross margins. You have a point that I mean this quarter was extraordinary when it comes to EVLP portion out of sales, right? So -- and we have a lower margin on EVLP than on Perfadex. But we also see the growing -- the growth initiatives in the U.S., we have good prices on those and speaking about the hub model for EVLP. And also, we have not yet decided on the heart price in the U.S. as well, which will be a contributor to the gross margins going forward. So we feel for thoracic that we are in a good spot. And we will work to continue to defend also the abdominal margins here in 2026, of course. Christoffer Rosenblad: I don't know, but the bigger picture is also that for our thorax products, so heart and lung, we can have more of a global price list. So we don't see any regional differences if you compare, and we're not yet there for our abdominal products. So that's something we need to work on, of course. But we are more confident. And of course, with the heart, there is always when you start up production, there is always slightly lower, but I am confident that we very soon can get the heart up and running and reach scale in production. Filip Wiberg: All right. Good. Perhaps another one to you Nordstrom about the EBITDA margin, you stated it was 24%, excluding U.S. heart activities. But I think you said as well that there was a nonrecurring cost this quarter. So could you elaborate a little bit about that. Was it only related now to Q1 and nothing going forward? Kristoffer Nordstrom: Thank you. Good question and perhaps deserves some clarification, and this also ties into one of the questions I see here in the chat as well. So no, it's the same thing. So what I referred to as noncurrent was the SEK 7 million that we spent on foundational heart launch preparations consultancy work to prepare for the U.S. heart launch. So for us, that was a foundational activity, a bit of a onetime. I think the other investments we will do going forward, which we have touched upon in early calls as well is really to build out the U.S. organization to prepare for the launch. And I think that will be more of a linear step-wise growth in OpEx in marketing and sales. But overall, on EBITDA, I mean, last time I checked the consensus, I think that's kind of where we are aiming to land for the full year 2026. Filip Wiberg: Okay. Good. So just to be clear, admin costs, do you expect that to come down from Q1 levels, but that increasing the selling expenses going forward? Kristoffer Nordstrom: Correct. Filip Wiberg: Okay. Good. Just last question. I was curious around the next step in direct procurement DCD. So the study Filip Rega presented, like what are going to be the next step in this. I suppose there will be more studies required to get the surgeons confident in using this approach? Or what do you have to say about that? Christoffer Rosenblad: Yes, there will be many steps in this. The first one, we hope that Filip Rega can submit a paper on how to do this. So we get a standardized approach to direct procurement. Then this was, of course, a very important step to make this data public and also to get the interest up for direct procurement. But what we've seen is that the uptake is pretty fast once you got the hang of it, and you've done it. And the interest to avoid all complicated other process you would have to do, such as NRP or very expensive machinery in DCD hearts is avoided. So you reduce cost, you reduce complexity, et cetera. So the interest to go this route was during the late-breaking news was extremely high. And there was, unfortunately, not enough time for questions, but we will revisit that during our heart symposium today. So hopefully, more people can ask questions. And then again, this is a technique that spreads really surgeon to surgeon, so they will talk to each other and train each other and get more and more confident over time. Operator: The next question comes from Ludwig Germunder from Handelsbanken. Ludwig Germunder: I would like to follow up with another question on the EVLP and in line with some questions already asked, but I would like to hear if you could say something about or you see the recovery in terms of how much is recovered now in EVLP. Are we back at previous normal levels? You mentioned this is fair to assume as a new baseline in EVLP consumable sales. But do you see any more recovery to do before you're back at some sort of [ pre ] levels after last year? Christoffer Rosenblad: No, I think we -- not so much recovery. We have to be very aggressive and find new customers and new concepts, which satisfy the needs from American surgeons, such as the OPO model. So we will continue to build on what we have, so to say, on the foundation we have now established during Q4, Q3 -- sorry, Q4 and Q1. I want to mention that last year, there was a tough period for lung transplantation in terms of the number flattening out, and there was a lack of resource in the system. But again, the system reacted quickly. I think we reacted quickly to give them alternatives, alternative resources with partnerships. So I more look at it as a forward-looking exercise. Ludwig Germunder: Okay. I see. And then I have a question. I'm not sure if you mentioned it, I apologize if you did. But on the CAP study for heart you filled the 60 hearts that you were allowed to do. You previously mentioned that you could possibly get another 60 hearts. Can you comment anything on the status around that now? Christoffer Rosenblad: I can't comment further than I already did. We have applied for another 60, and we do hope that FDA come back as soon as possible, but it's -- we have to understand, we are under an IDE and the FDA are deciding what we can do and not do, during an IDE. Unknown Executive: Should we continue? Or would you like to end the call? Christoffer Rosenblad: Continue. If the last few questions, if we can keep them short. I know we're over time and I actually have to leave for another meeting, but I see there are 2 more analysts who have questions. So I do want to give them the opportunity to ask those questions. But I will be very brief. Operator: The next question comes from Oscar Bergman from Redeye. Oscar Bergman: Just wondering, R&D costs of SEK 37 million, if that should be considered sort of a baseline going forward? Or are there any one-offs that make maybe the last couple of quarters a better baseline? Kristoffer Nordstrom: Yes. Good question. Yes. I think it could be used as a baseline for the rest of the quarters here this year, but you will see a significantly lower spend on the other type of CapEx, material assets. We're building out the -- we are very soon done with investments into our -- increasing the product capacity. So I think all in all, you will see lower CapEx in 2026 than you saw in 2025, which means that we are optimistic that we should be able to end the year on a cash positive level here, which would be the first time in Xvivo history. Oscar Bergman: And then when you have the CE Mark in place for the heart product? Will you be able to implement any price changes in Australia and New Zealand -- and if yes, roughly how much? And will it be immediately after the CE Marking? Christoffer Rosenblad: To start with, the CE Marking will be the base for the approval in Australia, but we still need to go through a review process there to start with. Now we have fixed reimbursement. So with increasing body of evidence in terms of health and hospital economics, we will, of course, improve reimbursement levels, and the chance of doing that is a lot higher after an approval, so to say. Now you get what you get, so to say, during an unapproved product. So that's a job that will start. It will not be immediate. So you do have to work with reimbursement in each country. Operator: The next question comes from Ed Hall from Stifel. Edward Hall: Just quickly on lung and how we should think about it for the rest of the year. So I think you've outlined the underlying existing customers, the new customers are growing and obviously, looking at Q2 and Q3 or weaker comps? Or is there anything that you would point out to show, anything that I may be missing outside of the trends that you've already outlined? And that would just be my first question. Christoffer Rosenblad: Thank you, Ed, for that question. I do think that there will, of course, be seasonality like in any business depending. And we're also depending on the number of donors going for EVLP, but we do see -- and I still state that we do see an increased interest for lung transplantation in general and for EVLP, in particular, based on the body of evidence we see now that we -- for example, it was the presentation here during ISHLT, which show that you can better outcome on both DBD and DCD for EVLP, if you standardize your EVLP program and EVLP protocol. So if you have a very clear inclusion criteria, you actually get better results from using EVLP than standard of care. So I think this growing body of evidence speaks for EVLP increasing as an indication of all lungs. Edward Hall: Perfect. No, that makes sense. And then just a final question from my side. Just wanted to get your thoughts on how transplant surgeons are thinking about the trade-off between sort of the increased ECMO use that we saw in the PRESERVE data for some of the DCD implants versus what actually came out with lower severe PGD. From your talks that you've had this week at the Congress, is there any initial thoughts you could comment on there? Christoffer Rosenblad: No, but I think that everyone was surprised that the data was as good as it was because both the donor pool and the patients were very marginal, so to say. So this was better than expected from many of the trial centers. So that was really good news. I think that we saw still a low level of severe PDD was really good. I think that would be the leading indicator for us and that we also could see that we could replicate that in survival data, really strengthen the whole belief for what this product can do once it's on the market. Edward Hall: Perfect. Okay. So that makes sense. So it sounds like actually the lower PGD rate is really the driving force in that trade-off. That's how I should think about it. Christoffer Rosenblad: Thank you very much, everyone. Sorry for going a little bit over time. We will now end the call and move to the last slide where we want thank you so much for today and we meet next time on July 14.
Kati Kaksone: Good morning, everybody, and welcome to Terveystalo's First Quarter 2026 Results Call and Webcast. My name is Kati Kaksonen. I'm responsible for Investor Relations and Sustainability here at Terveystalo. As usual, I will go through the results with our CEO, Ville Iho; and our CFO, Juuso Pajunen. And after the presentation, you will have time for your questions. Without further ado, over to you, Ville. Ville Iho: Thank you, Kati, and good morning. Let's dive into it. So Terveystalo first quarter, during the first quarter, the market was even more negative than we expected going into the year. That was then clearly reflected into our revenue line, which came clearly down. And despite the adjustment measures that we did, especially in our operations, to adjust the ops to lower demand, there was a drop through to our adjusted EBIT, which was at EUR 34 million. Quality across the operations and services [ highest ] standard even improving, which is, of course, a positive sign of very professional and robust organization, delivering in any circumstances. If one then dives a little bit deeper in what's happening in Healthcare Services market, it is the market that is exceptionally negative this time around. We have not seen this type of a dip since the start of COVID. And basically, all of the segments, regardless of what data you look, all of the segments and services are roughly minus 5% to minus 10% down. The positive thing and silver lining with this one is that we are seeing a market bottoming out. So according to our judgment, and that's reflected also in our plans and actions, the bottom has been passed. And now the market shall start gradually slowly, but steadily grow from a low level. In our own operations, we have been, as we have reported earlier, we have been suffering from lower connected employees number. And that one as well, we see bottoming out. So going forward, now the number has been stable throughout the quarter and now looking at the sales funnel activities, looking at the renewals, looking at new opportunities, looking at win rates, we can with confidence say that we start turning this one into positive going into H2. Of course, the progress will not be rapid because this is B2B business and turning agreements around will take a while. But anyways, market and our own portfolio has bottomed out and now we can start developing on from this new base. The negative market environment was present in all of our 3 P&Ls, Healthcare Services, Portfolio Business and Sweden, a little bit different reasons and different levers into that one. But bottom line was that the market conditions were very, very tough during quarter 1 '26. Despite that one, of course, the absolute result level and profitability we achieved was high, and we can be pleased with our own ops. But now the eyes need to be fixed on growth going forward. Market will not give -- even though it starts gradually improving, it will not give anything for free. We still focus and concentrate on our own agenda. It is very much geared to boost growth in all of our segments. In Healthcare Services, we'll concentrate in occupational health care, a turnaround program and transforming that one to higher value for our customers and growth. We are renewing our offering for insurance customers and companies and intensifying cooperation with the insurance companies. We are focusing in segments that are growing in our traditional integrated care. One prime example is seniors where we have captured big markets in Kela 65 and Kela 65 continues developing positively for us. And of course, on top of this one, we are seeking drastic improvements in efficiency with our digital agenda in traditional operations in a digital 10X and also in prevention. In Portfolio Business, of course, a positive move from our side. This is dental growth. Actually, Dental has been a sort of a light or positive glimpse during quarter 1. It has -- the market conditions have been fairly good, and the team has done very good work in improving the business. And with the Hohde deal, the platform will be ever stronger and an integration of that platform, Juuso will comment on the phasing and timing of that one later in the presentation. We are actively engaging with healthcare counties. It is evident that they are very low with their purchases still. But at one point, that market will activate and we want to capture our fair share and even more from that one. In Sweden, market conditions have been tough. Now the efficiency is there, and we are operationally improving. Now the focus is in commercial actions and getting the revenue line in with the higher operating leverage and improving through that one, profitability. A cycle is a cycle, and it's clearly very, very negative at the present, but we need to look beyond this cycle. As I said, market will start gradually improving. But every time a strong cycle goes through an industry, some things change permanently. And that one, coupled with accelerating speed of technology development will mean that we need to be even speedier than the transformation of this industry, and we need to invest in all of the 3 modalities in Healthcare Services delivery. In integrated care, we are investing in Ella. We are making the life of our professionals easier, smoother, more efficient, and we are giving more time for professionals with the patients. In digital health care retail, we are improving the customer engagement call centers. We are investing in digital 10X and AI-assisted appointments and efficiency potential in this modality is huge. We are also starting to invest in prevention at scale, so digital engagement through digital and based on data proactive, active engagement with our customers being relevant when they need actively guiding them through their lifelong health journey and are looking for new growth in this emerging new market. We have the dry powder, we have the agenda, and we have the speed in executing in all of these 3 buckets. Two landmark milestones in this development during Q1. Terveystalo launched its new novel occupational health care digital platform for its first clients. This one is next level compared to current platforms in the marketplace. It's developed jointly with our joint venture, MedHelp, and it's now live, and it's used by the first paying customers. Early feedback from the market is very positive. We continue scaling this one rapidly throughout the year. And as I said, this is next level, this is future, and this will give way more value for our customers and better insights in their own personnel than before. This is a big step in our main business. In digital 10X, we have introduced AI-assisted appointments, and we are scaling that one. Also during the year, the efficiency potential in this modality is huge. We are also scaling volumes so that we can -- with our intelligent steering engines can steer more volumes in the digital modalities. At the same time, we are improving traditional physician-led integrated care. And there, the prime tool is Ella, which we have launched. It's the user interface for our physicians. And already now, we have gained some 30% efficiency improvement with the new platform. And at the same time, we have been able to give more time to physicians and patients. As said, we continue to scale this one up during the year. Within next 12 months, this is going to bypass any present platforms in the marketplace and will be a clear and powerful asset for Terveystalo. So market has been negative. It has bottomed out. We have agenda for growth. We continue investing. We continue accelerating our technology journey. And with that one, over to Juuso. Juuso Pajunen: Thank you, Ville. So good morning all. I'm Juuso Pajunen, CFO of Terveystalo. Let's go to the topic numbers. So first of all, if we look at the key numbers from first quarter, it is clear to say that the relative numbers are big. We see negative on everything else, excluding the NPS of appointments, which is improving and is a stellar 88. But outside of that one, each and every number is negative, and the market has been weaker than anticipated. But let's go through then a number by number, what we are talking about. But before we go to that one, it is good to note that if we look at absolute numbers, these are still quite robust figures. Our Q1 is materially above our average Q1 if we come to relative profitability. If we look in absolute EBITDA terms, this is the third best quarter ever in absolute EBITDA or EBIT, either way you want to look at. So in absolute terms, we are fairly strong. But in relative terms, we are absolutely disappointed and obviously, we'll work on to get forward. If we then look the group, we know that our big ticket component is the headwinds in the revenue. We also know that the mega trends are there. And in mid- to long-term, they will support, support the growth. But as stated, the market sentiment at the moment is exceptionally weak. If we then look on different segments, we will go a bit further into details. But in the Healthcare Services, the big thing is occupational health in the portfolios, it is the public sector. Sweden, we are now evening out. Then if we look on the group level and think about positives in here, our efficiency is strong. No matter how you view it in an exceptionally big market, we have been able to adjust our operations towards the lower demand, and we will continue to do that one. So all in all, with the efficiency, we will get forward. If we then look on the EPS impacting adjustment items, we have EUR 7 million of these ones. It is slightly more than I would like to see in there. But if we double-click those ones, we have a EUR 1 million related to divestment of child welfare, which was a strategic move, and we have now closed that deal at the end of January. We have EUR 1 million related to reevaluation of the values in the real estate assets. We are doing investments in those ones, and this is something that, when you reevaluate, this will take place. And then finally, EUR 1 million related to restructuring. It's good to note that structural restructurings, items that impact us in the future, not the demand-facing restructurings. And then finally, we have EUR 4 million in the strategic projects, which we have been communicating earlier that we have and we have guided how much annually is coming. This is slightly front heavy now facing a bit more in Q1 than I was anticipating. So all in all, then we end up in the reported EBIT of EUR 26.6 million. If we then go deeper into the Healthcare Services, margins are on a historically good level. So if we take any period of time and if we look at the Q1s of the history, the actual EBITDA and EBIT margins are solid. But obviously, they are coming materially down. So we come into the discussion of relative weakness and absolute weakness. And then if we look further where this is coming, this is coming from demand. The visit growth is minus 9.6%, and then everything else is basically flat. The visit growth, we will double click that one on the next slide. But basically, low morbidity impacts us through 2 different parts. We have the less appointments and weaker mix as the diagnostics are lesser than in a higher upper respiratory disease situation. And then obviously, the occupational health care has been contributing to that one. At the same time, as said, we are continuously adjusting for the lower demand, and we have also, during April, announced statutory negotiations towards the demand situation. And however, of these ones, once again, in absolute terms, we are in a good place, and we will continue to invest, for example, digital transformation like Ville explained. Then looking on the patient visits. We have -- the same factors we have been now going through in a couple of different quarters. We have the seasonality. We do know that we have some 43,000 fewer upper respiratory diseases than previous year. This is part of normal variation and changes annually. This is the lowest prevalence since the COVID pandemic if we take on the curves. Then if we look on the occupational health, it is very good to note, like Ville said, that we are now minus 5% in the connected employees, but it is now bottoming out or has bottomed out. Then the underlying impacts in there are still the same. We have the macro and macro component where there is less employees. And then in the dire times, employers are spending less into employee well-being. And then we have the actional part where we have the ongoing strong program to address this one. But at the same time, the connected employees and the large account sales cycles are longer. So we are getting back on growth in the second half of this year. Public sector has been now bottoming out like we see that this is not -- it's a minuscule bar in the chart. And consumer is having positive momentum in the total supported by the Kela 65 and general tendencies are there. If we then take a segue with that one to the portfolios, we already now see that in the consumer part, the dental business has been actually the best performing in relative terms of our businesses. They are basically flat while other modalities have been clearly down. This is a positive and then hopefully reflecting the future demand environment also. We have then good to note that in the portfolio numbers, we have the divestment of child welfare. It's visible in the bar order in here. Outsourcing is down 50%. This one, we have known. The contracts are expiring and ending. Staffing is still having negative momentum in the welfare -- wellbeing county market, but also that one is now little by little stabilizing out. Dental, as said, positive in relative terms in the performance. And we have announced the Hohde acquisition. That one is progressing well in a very good and positive dialogue with the authorities. And we are expecting the closing in the second half. And now based on the current visibility, it looks like it will be rather third quarter than fourth quarter. But obviously, in these processes, there are variables that are beyond our control. But as said, solid positive dialogue with the authorities. And if I would need to guess, it would be rather in Q3 closing than in Q4 closing. Moving to Sweden. We are having a weak market. It is a continued weak market and Sweden as an export-oriented nation is also having their share of the market environment. At the same time, it's good to note that our efficiency is in place. We have the EBITA margin is now improving, absolute numbers, 50% up, give or take, almost 60%. Obviously, within our scale, that is peanuts in the total absolute numbers. But it's signaling that we are going to the right direction. If we then look beyond the efficiency, our next battle in here is the growth. And we already now see that our connected employees are increasing. But at the same time, the behavior is similar by the employers as in Finland. So their behavior is dampened by the weak macro. But we have the means and the tools for growth in here. And we are confident that this will improve as we have iterated many times earlier. When talking about investments, we continue our investment cycle. We are now at EUR 56 million on the LTM. I think that it's good to highlight from here that what we are doing is facing the real world. It is in production, it is in use. Our brightest investments, Ella, it's the user interface for professionals. It's already live. We have been rolling it out to wider user groups with improved functionalities, and we are seeing continuous growth on the usage rate. So this is live. This is not something that happens at the back office and then one day comes somewhere. We are doing this one. The same applies to our joint venture, MedHelp. We have in March rolled out this to customers. We have paying customers on this one, and we are continuing this one. So what we are doing is already now impacting us positively. If we then look on the balance sheet, we continue to have a positive balance sheet position. Our net debt to EBITDA is at 2.4. It has been increasing due to weak cash flow in Q1 and reduced profitability in Q1. But if we double-click that one, we are in a good component. And on the cash flow perspective, it is good to note that in our cash -- how our cash operates. First of all, we are a negative net working capital company, which is obviously positive from a balance sheet perspective. But when the revenues decline, our cash flow also weakens because we don't actually release net working capital, we increase it. So that one is impacting us negatively. Then the second component on the cash flow is that if we -- if you look on the taxes paid now in Q1, we paid taxes from the record profits of '25, and that is having a negative impact on the cash flow. So all in all, our balance sheet is strong. We can continue to invest. We are not limited by the balance sheet. But at the same time, we are working on the cash flow and the key component in there is going back on growth. Then before going to guidance, let's take a quick view on the market environment. First of all, if we look at the red arrows, they are all pointing down. This is weaker than we originally expected in February. We have had negative momentum through all payer groups. And then we have had incidents in the world that are also impacting, for example, the consumer confidence that Ville was showing, now referring especially to the Iranian war. So the market environment in Q1 has been exceptionally weak. However, then if we look on the next 12 months and we look further the outlook, actually, the arrows are the same we had in February. And based on the data we have, we believe that the bottom has been seen. We do know that public sector both in Portfolio Businesses and Healthcare Services is on a lower level. They are still having stickiness in the system, but little by little, it will improve over time. If we then look at the consumer market, we have the dental, is already performing well. As stated in relative terms, it was the best performing payer group and discipline. And then looking forward, we have the Kela 65. We have recently heard the news on the widening of the scope of Kela 65 and widening the scope of the services within Kela 65, which are positive. Insurance market continues to be in a positive momentum. And then we have Sweden, which still is having positive macro forecast slightly coming down compared to their February post Iranian war, but they are still positive. So if we look at the market momentum, we believe that the market will improve. Then at the same time, we do know that this is tilting towards second half and the latter part of that one. So if we think about the developments, Q2 will definitely be difficult, Q3 is always seasonally low, and then Q4 is the place where we would see the impact. And with these ones, we reiterate our guidance. We expect full year '26 adjusted EBIT to be EUR 135 million to EUR 165 million. The estimates are based on the gradually improving demand environment as explained earlier and normalization of the upper respiratory infections in the second half. And as stated profitability in the first half is expected to be below the first half of '25. Then further to that one, it is good to note that our scenarios at the moment are pointing rather below midpoint than above midpoint of our guidance. So all in all, we have a difficult first half, but we have a strong, robust and efficient motor, and we are investing in the future. So we are confident that we are also delivering with those investments. With these words, thank you, and let's go to Q&A. Kati Kaksone: Thanks, Juuso. We are ready now for your questions. Do we have any questions from the phone lines? Operator: [Operator Instructions] The next question comes from Iiris Theman from DNB Carnegie. Iiris Theman: I have a couple of questions. So if I -- I'll ask them one by one. So firstly, what data indicates that the market has bottomed out? Can you explain that? Ville Iho: Over to you, Juuso. Juuso Pajunen: Yes. So basically, it depends how you look at on the market perspective. We obviously continuously follow up our different type of data points, consumer behavior, visits on different intervals, on days, on weeks and those ones. And at least our internal data is indicating that we have now bottomed out. Then you saw from Ville basically the connected employees perspective. Ville mentioned already in the call that it has been now stabilizing and gradually with the pipeline looking that we can capture going forward. But on the external markets, we are especially referring to our own internal data. Ville Iho: Yes. And I think it's important to note that now we are talking about sequential improvement. So market has -- if one a little bit cuts the corners, market has reset to post-inflation new normal. And now from that base, it starts slowly but steadily grow. Iiris Theman: Okay. And why did you keep your full year guidance even if your scenarios are pointing below the midpoint? Juuso Pajunen: Well, we have actually discussed this topic also earlier that when we are within the range and we see that both ends of the range are something within plausible scenarios, then we don't change it. So that is how we have behaved earlier, and that is how we continue to behave earlier. Iiris Theman: Okay. And can you still go through the drivers that will contribute to reaching the midpoint of the full year guidance, which implies basically only a 4% EBIT decline? Juuso Pajunen: Yes. So first of all, I iterated that we are likely to be rather below midpoint than above midpoint. So then it is up to you to decide on that one. But basically, the drivers that are pushing or that are impacting our guidance. And obviously, you need to put your own finger in the air, how you take them within your estimates. But we have the upper respiratory diseases, we have the consumer confidence and a general corporate behavior that we are expecting to improve from the current rock bottom. And then we are also confident that we have bottomed out in the connected employees and that we are getting forward with those ones in the second half. So these are the key drivers if we look our market. And then, of course, the public sector behavior is expected to have bottomed out at the moment. Iiris Theman: And then a question regarding portfolio businesses. The margin decreased significantly from Q4 and Q1 last year. So is this a one-off or a level that we should expect for the coming quarters? Juuso Pajunen: Well, all in all, portfolios is also facing a negative demand environment, especially from the public sector. And then it is good to note that now the outsourcing contracts have been also value contributing and decline in those ones will not anymore deliver margin expansion, but declining revenues is negative for us in the total perspective. So we are expecting improved performance in portfolios and also now sequential improvement, as Ville explained, for the full year. Ville Iho: Yes. So question, obviously, is warranted -- but if one looks at our plan and also our internal forecast, so we are not expecting as a drastic drop for upcoming quarters as you see during quarter 1, as you said. So we are looking for -- realistically looking for a gradual improvement from a lower base. Iiris Theman: Okay. But basically, the margin decrease is that related to -- mainly to outsourcing business? Juuso Pajunen: There are impacts. It is mainly related to the public sector. But basically, the overall market environment has been weak. So that has been contributing throughout. Iiris Theman: Okay. And my final question is related to the Finnish government's budget proposal that was just released. So is there anything negative or positive that you would like to highlight regarding private health care service providers? Ville Iho: Well, if anything clearly positive, expansion of Kela 65, obviously, is a highly welcomed initiative from our point of view. We have been investing in this segment. So user segment seniors. We have been investing in Kela 65 and now expanding the scope of the service to do more diagnostics and also allowing higher frequency of use will most probably increase the number of users and also frequency of use. So that's welcome news. Operator: [Operator Instructions] Sami Sarkamies: Can you hear me? Kati Kaksone: We hear you fine. Can you hear us? Sami Sarkamies: Okay. Four questions. I'll take this one by one. You're calling first half to be down from last year, but how should we think about the second quarter relative to last year, given your comments regarding the market having bottomed out during the latter part of Q1. Operator: The next question comes from Sami Sarkamies. Juuso Pajunen: Thank you, Sami. We identified you... Ville Iho: There's some stickiness online. Juuso Pajunen: But basically, we don't guide per quarter, but it is clear that quarter 2 will be also weak, but what we think about is sequential improvement in total. So at the moment, it is not against comparables as weak as quarter 1 was. Sami Sarkamies: Okay. And then on connected employees, we're expecting this to start growing sequentially in the second half of the year. Have you already won these deals? And how are front book prices looking relative to your current backlog prices? Ville Iho: Very good question. So deals are won and equally lost all the time. So then the real question forecasting forward is the funnel, how much renewals you have and how much new opportunities you have. And then against that one win rates. And then, of course, you have the packages and scopes and price levels. So what we are seeing now is a clear improvement in the new opportunities funnel. So new opportunities bucket increasing all the time and applying sort of average win rate to that one, we see a clear increase from that source. On the other hand, renewals from our existing customer base, that bucket is shrinking and renewal win rates are improving and really, really high. So just mathematically, looking forward, we can sort of, with confidence, expect growth. It's not going to be sort of early on rapid and skyrocketing, but it starts to grow. And of course, we want to accelerate it over time. Then looking at the scopes when these bids enter this tender space and comparing those ones with our current portfolio, the price levels are higher than existing ones. But then you need to, of course, do the full cycle of negotiations and go over the finish line. And only then you see what is the final package and what is the final price level on those agreements. But all in all, this is forward-looking picture, is positive, finally bottomed out and now looking forward and progressing to more positive. Sami Sarkamies: Okay. Then I may have missed, but did you give any commentary regarding cash flow in Q1? It was quite a bit below last year level. So what are you expecting for the full year? Juuso Pajunen: Yes. So basically, what I iterated on the balance sheet slide was that, first of all, cash flow was negatively impacted by the profitability. Then the second component is that we paid taxes from the record year previous year. So all-time high profits lead to all-time high taxes, obviously. And then the third component is that our net working capital is structurally negative, which means that decline in revenue impacts negatively our cash flow. And these are the 3 components. And obviously, taxes, we don't pay twice, but the growth component is very important for us for the cash recovery when we are going forward. Sami Sarkamies: Okay. And then my final question is on Hohde acquisition. Are you expecting to see any remedies from competition authorities? And what is your thinking on timing for closing when you sort of announced the deal at the year-end? Juuso Pajunen: Yes. So I also iterated that one on the portfolio slide. But basically, first of all, we don't comment the ongoing process from the content perspective. So that one we don't state at here. But on the closing, we have stated that the closing is expected to happen on the second half based on the dialogue so far that we have had with the authorities, we believe that it's rather in Q3 than in Q4. So we have a positive constructive dialogue continuously ongoing. Ville Iho: Yes. And maybe still, even though you said we don't comment the content, I can say that against the assumptions going in with what the process indicates and what is our current view on the sort of deal perimeter and the final package, I would say it's rational. It's rather on slightly more positive than we thought going in. Operator: There are no more questions at this time. So I hand the conference back to the speakers. Kati Kaksone: Thank you. We covered some of the questions from the webcast audience already earlier, but there are a few left. So maybe starting from the cost structure and the adjustment made. What specific actions did we take? And what actions are we still implementing going forward? Ville Iho: So we are -- of course, we are adjusting as agile company should -- for the lower demand and lower volumes, especially in our sort of customer-facing activities in our operations. We have scaled down almost according to the lower volume in our ops in Healthcare Services, where the volumes were down by 11%, we were able to adjust FTEs by 10%. So that's a very, very good and sort of robust achievement by ops team. Then we are -- one needs to note and remember that at the same time, we are also investing. So we are increasing resources in product, customer service, sales, account management-related activities, especially in occupational health care, but also in consumer and insurance-related activities. But all in all, we have been able to adjust nicely. Looking forward, of course, we are -- given the negative cycle, we are using this window as an opportunity also to look at the overhead and look at some structures. We have a separate program related to applying AI in the back-office functions, and that has started. But that's not really now in the scope when we are adjusting for the lower volume. But during next 12 months, you will hear more about this project Nova also. Kati Kaksone: Thanks, Ville. Then let's talk about the outsourcing in the Portfolio Businesses where we have seen the revenue decrease for quite some time. What does the remaining outsourcing portfolio look like? And do we expect further planned reductions beyond '26? Juuso Pajunen: Yes. So basically, if we look at the numbers in '25, the outsourcing delivering revenue of EUR 55 million, give or take. And we have already in our guidance stated that we are expecting roughly EUR 20 million -- we are expecting EUR 20 million reduction in the outsourcing portfolio revenues in '26. And currently, we are very clearly going towards that one. Kati Kaksone: And then beyond '26 is a... Juuso Pajunen: Beyond '26, that remaining -- roughly EUR 30 million portfolio will continue shrinking year-on-year. Kati Kaksone: Yes. Exactly... Ville Iho: And then we are, of course, talking about legacy outsourcing deals, and that's the focus for that sort of sliding curve. We are, of course, interested in partnerships with the health care counties and we are engaging actively. Right now, sort of the sales funnel for larger outsourcing type of -- new type of deals is fairly thin, but sort of engagement is active. And I would say, also according to our sort of data and interviews, some 50% of the counties are interested in increasing their purchases from private sector. But as we have seen, it's very difficult to put a date on when that starts to grow. Kati Kaksone: Yes. And it should be noted that the remaining legacy contracts are on a higher end in the margin as well. So getting healthier from that perspective as well. Then a question on the connected employees in the occupational health. We have seen a decrease for a few quarters for now. Can we just reiterate the reasons behind the decreases? And what are the sort of consequences from? For example, last year, we had some negative media coverage and had that impact... Ville Iho: Yes, it's a very, very good question. It's a combination of a couple of things. When we went into our profitability improvement program in late '23, one of the activities that we were adjusting back then was our very low price level in our main business, occupational health care. So the market was sort of had bypassed us in pricing for quite some time. And hence, the gap was way too large to operate with adequate profitability in this business. We did the increases in 2 steps. And in hindsight, I guess we could have done it a little bit more smoother so that maybe 3 steps would have been the better option. That sort of latter price increase, coupled with the negative media coverage related to billing was a negative trigger point for sort of many companies and additional tendering. Since then, of course, it has been rectified and trust is back. But we saw the damage last year. But as said, the important thing is that after negative development and cycle, now it's bottomed out and forward-looking funnel looks positive. Kati Kaksone: Exactly. Then the last question is related to the cooperation with the insurance companies. We have talked about intensifying our cooperation and sort of next generation of insurance partnerships. And what's the plan there? Ville Iho: First of all, we are doing fine with insurance companies. So actually, looking at the market view, even though the absolute volume in use of insurance coverage for health care spend, all in all, for all of the operators, is negative at the moment. Our market share has been improving. So we are gaining in that market, even though -- even that one is in negative cycle currently. So what we are doing there, of course, we are, in a way, putting ourselves in insurance company shoes and looking at what they are facing, what type of problems they are seeing, how they want our operations to serve the end customer, but also then what type of transparency we want and need to give them related to effectiveness of our care chain and fluency of our care chains and cost level. And we are building that sort of more active engagement all the time and getting positive feedback from that front. So we -- with our capabilities, excellent capabilities, we can be a better partner for insurance companies, guiding and steering the customers and patients to right modality of service, right care chain, measuring the care chain effectiveness, being very precise in billing and also give transparency on that one and also provide more transparency on sort of a full scope of the population on those contracts. So there are many things that we are doing and continue to do to further improve our relationship. Kati Kaksone: Thanks. With that, we don't have any questions left. So any closing words first from you, Juuso and Ville. Juuso Pajunen: No, thank you. We will continue pushing for '26. Ville Iho: Absolutely. It's a tough environment, but of course, we are tougher and now see forward building on a lower base, but with a very, very positive view. Kati Kaksone: Thank you. And on a personal note, this is my last quarter with Terveystalo. It's been a pleasure working with you guys for the last almost 9 years. I have full faith in this company and the team, and I believe that Terveystalo will come through as a winner from this cycle and from this industry transformation. Thanks. Have a great rest of the day and weekend.
Leonardo Karam: Good morning. Welcome to the conference call of Usiminas in which the results of the first quarter of 2026 will be discussed. I'm Leonardo Karam, Investor Relations Officer at Usiminas. [Operator Instructions]. This conference call is being recorded and simultaneously broadcast on the Usiminas YouTube channel. We would like to remind you that this conference call is intended exclusively for investors and market analysts. We kindly ask you to identify yourself so that your question can be addressed. We also request that any questions from journalists be directed to the media relations team at Usiminas via e-mail, imprensa@usiminas.com. Before proceeding, I would like to clarify that any forward-looking statements that may be made during this conference call regarding the prospects of the company's business as well as projections, operational and financial goals related to its growth potential constitute forecasts based on management's expectations regarding the future of Usiminas. These expectations are highly dependent on the performance of the steel sector, the country's economic situation and the situation on international markets. So they are subject to change. With us here today is our President, Marcelo Chara, the Vice President of Finance, Investor Relations, Diego Garcia; and our Commercial Vice President, Miguel Homes. First, Marcelo will make a few initial remarks, then Diego will present the results. Afterwards, the questions asked in the Q&A session will be answered. Now I give the floor to Marcelo. Please, Marcelo. Marcelo Chara: Thank you, Leonardo. Ladies and gentlemen, good morning, everyone. It's a pleasure to be here with you to share the results of the first quarter of 2026. We started the year with an improvement in the results of our company, recording a consolidated EBITDA of BRL 653 million that accounts for a growth of 56% in relation to the previous quarter. As to steel sector, there was an increase of 5% in the net per ton, especially as a result of the better mix of sales, the better share in the automotive sector and a reduction of the COGS. And this was driven by the appreciation of the real and the higher efficiency in our industrial activities. In mining, we had a reduction as a result of the rainy season in the region that impacted the production and the logistics. And also due to the prioritization of mining activities with better performance. Considering the present moment, we see a challenging scenario for the next quarters, especially due to the adverse effect of the Iran war at the global economy. And this is due to the expressive increase in the natural gas and oil prices, higher inflation and lower speed in the drop of interest rates and also the maritime aspects that have been impacted. In spite of this complex scenario, we have expectation of consolidated results relatively stable. In steel sector, volumes of sales should remain at the same levels maintaining the segment in the automotive due to the high level of imports. The increase of cost, especially of energy and logistic inputs should be accompanied by the increase in the net revenue per ton. We expect sales volumes to be recovered and also considering the freight prices and fuel prices. There are positive measures that were imposed by the government with antidumping duties related to coated steel, and this should strike a balance in the future. Considering the perspective of the changes, importers responded internalizing an expressive volume of steel in February and March that increased the inventory levels of imported materials in the Brazilian market. In addition to the measures that have been implemented, there is an investment of in China, and we believe that we are going to close them in July 2027. It's important to mention that there's a risk of the oversupply at the structural level with an increase of imports of steel from Asia and China and with an increase of 78% when compared to the first quarter of 2025, especially from South Korea and Vietnam. In addition to Egypt, Internally, we continue with our focus and safety and a continuous improvement in our environmental performance in our operations, increasing competitiveness so as to reduce costs and also have a higher industrial efficiency and basically with a strong financial discipline. In relation to investments, we continue executing priority projects of the company, such as the PCI plant who is to complete it in the second quarter -- second half of 2026. But the benefits have already been captured in the first half of 2026 and also the retrofitting of the coke [ oven ] and also all the activities on the way. We would like to thank all our employees for their efforts, for the engagement as well as the suppliers, clients and shareholders and the community at large for the confidence and for the solid relationship we have been building along those years. Thank you very much. And I turn the floor to our CFO, Diego. Diego Garcia: Thank you, Marcelo. Good morning, everyone. And before beginning the presentation of the results, I would like to remind you that these are the first results that were converted in reals from dollars. Let's move on to the highlights. Steel sales were decreased by 7% in relation to the fourth quarter '25. And this is a result of the strategy of giving more importance to the most effective activities. So there was a lower production due to the stronger rain during the period. EBITDA shows a significant moment in relation to the previous quarter. This was driven by a better mix of products in the steel sector and higher profitability that more than offset the drop in volumes. This improvement in the mix is reflected in an improvement of nearly 5% of the revenue per ton in the steel sector as the increase more than offset the drop in the mining activities. The cost per ton had a slight drop due to the expenses with retrofitting, and this is the impact of the appreciation of the real against the dollar. Let's move on Leo to talk about the consolidated results. Net revenues reflects the significant reduction in the iron ore and also steel products that were not totally offset by the increase of the increase per ton. This is an improvement of the steel unit as a result of the better mix, reaching to levels that the company had reached since the first quarter of last year. Consolidated net income reflects in addition to the best operating results, the positive FX fluctuation in relation to our operations and also an accounting impact and noncash of deferred taxes due to the appreciation of the real as well. Steel sales recorded a drop of 6.9% concentrated in industry, distribution and exports and partially offset with a significant increase in the automotive area, leading to a better sales mix. And there was also a better mix in exports due to a better share in the Argentinian auto market. This better mix led to a better mix of revenue per ton. And as for exports, there was an improvement of nearly 9%. Adjusted EBITDA more than improved and it was very much in line with the first quarter of 2025. This was a result of the better mix, as we mentioned, and the best cost per ton. A better cost per ton. And here, we can see the effect of the improvement in EBIT over EBITDA. COGS was positively impacted by reduction of maintenance costs and major retrofitting, as we mentioned. In addition, we have a better mix that was offset by the lower exchange rate when converting to reals. This positive result apply especially by lower sales of prices and costs and higher volumes. In the mining sector, during the quarter, we had a significant reduction of 21% in the sales volume as it was driven by the seasonal rainfall on production and also on logistics. We also prioritized some areas with best operating performance. Net revenue reflects this drop in volume and the net revenue per ton was maintained stable at $87, the same level as last quarter. The reference price were practically stable with a slightly increase of 0.9%, but they were offset by the higher level of discounts and the different -- differentials as prescribed by the market. Adjusted EBITDA per ton reflects especially the impact of the absorption of fixed costs as a result of lower sales. And now in relation to the financial indicators for the quarter, Usiminas frozen an operating cash flow of BRL 370 million was driven by the EBITDA generation, partially offset by the increase of working capital of BRL 120 million. The working capital variation is associated to a lower accounts payable and an increase of receivable accounts and also due to a reduction in inventory levels. We had a reduction of BRL 67 million in [ trading ] in order to reduce the cost of expenses for the company. It's a movement that we want to continue implementing along the next quarter. We had a CapEx of BRL 285 million, a reduction of 23% in relation to the previous quarter. As a result, we ended the quarter with a free cash flow of BRL 84 million. We ended the quarter maintaining a net cash position at levels which were very similar to the previous quarter. This movement reflects a proportional reduction in the gross debt and also to the cash level influenced by the appreciation of the in relation to the dollar, considering the conversion in the statements. The indicator of net debt over EBITDA also remained stable, reinforcing the consistency in our capital structure. Finally, we have a debt profile, which is very comfortable without relevant maturity in the next years and with the cash and investments enough to cover the indebtedness of the company. Leo, over to you. Thank you. Leonardo Karam: Thank you, Diego. Now we're going to start our Q&A session. Our first question is for you, Diego. Now we have most questions about costs. So we are going to try to address them all, breaking them down so that we can avoid confusion. So the first question comes from Caio Ribeiro from Bank of America. And this is what they ask from XP. Could you provide more color about the cost evolution of the input of the second quarter in relation to the first quarter? Which are the main drivers? How do you expect the cash per ton to increase? [ Guilherme ] completes -- asking for more details about the impact in the context of the increase in inputs and raw materials and freight that you mentioned in the outlook. Diego, over to you. Diego Garcia: Thank you very much for the question. In relation to the inputs for the next quarter, all raw materials will have an increase. We have already been seeing in slabs and this has no impact in the previous quarter due to the timing considering the moment when the slabs were purchased, but there will be an impact for the next quarter. And we also see that higher price in cokes and also in the coal. And Marcelo has mentioned that we see an impact caused by the freight increases that would affect mining activities, especially. However, as of the second quarter, they will start causing impact on the supply of raw materials. So these are the main drivers. Leonardo Karam: Thank you. Still about costs Rafael Barcellos, Bradesco, Gabriel Barra from Citi, and [ Emerson ] from Goldman Sachs. They ask the following. So what's the magnitude of cost reduction when you reduce maintenance costs? Is this something we are going to have an effect in the next half of the year? And the retrofitting will be offset in the next quarters? Or do you see that the cost will have some level of sustainability? And is there a space for room for better performance in the operations in terms of energy and raw materials? Diego? Diego Garcia: The cost per ton was at $15 per ton. So divided by ton, we made some savings. In relation. Leonardo Karam: I'm sorry, Diego, just to specify that you're talking specifically about major repairs, right? Unknown Executive: Yes, major repairs and maintenance. Yes, these are the 2 factors that explain the savings that we had. So I mentioned, we have $15 per ton. So it's an temporal or permanent effect. This was the question. We believe that this is going to be permanent. We have no expectations of anything changing unless something unexpected change happens. So this -- the cost may come back in the future, and this will be reflected in the activities. And these are the activities we are trying to do more efficiently. And to add Diego's comments, as I had mentioned in the previous calls, we are deeply focused in improving industrial efficiency, and we started important initiatives in order to improve efficiency. We have adopted tools to optimize and make all the repairs in a more effective way, especially the planned repairs. And in terms of cash control and in terms of asset controls, we have [ mentioned ] all the dimension in order to optimize all the flows and all the related costs. And we can see the results because we have been doing this for more than 2 years. And this is a continuous process as the expectation is to continue improving efficiency along those lines. Leonardo Karam: We have here another question related to cost, but I believe it's more directed to Miguel. Caio Ribeiro from Bank of America. He asks if the price increases were enough to offset the cost pressure? Or do you think more increases will be necessary? Miguel Angel Camejo: I think your question is very important so that we can clarify and apply the dynamics that we use for our prices along the quarter. And also for the present moment. The increase of January had the purpose of improving the margins of the steel sector after a long period of lean margins, considering that we were in conditions of unfair competition as we have observed in the last 3 years in Brazil. After the beginning of the war in 28th of February, we saw the pressure on costs, as Marcelo and Diego mentioned. And this leads the need for increasing prices as of April. As of now, we are always mentioning the negotiations in relation to spot businesses and the distribution. So we are in a scenario of high volatility and uncertainties. So we are going to be analyzing very cautiously the profitability of each operation in terms of imposing new prices for the spot prices. The industrial sectors will continue this trend. We'll continue making adjustments in the spot prices as we renew the agreements. Leonardo Karam: Thank you, Miguel. Diego, still related to costs. Now focusing on the ForEx. We have questions by Gabriel Barra and Ricardo Monegaglia from Safra. He says, should we expect 2-digit levels? Or should there be any pressure should the ForEx fluctuation revert? The functional currency helped us in nonrecurring manner. Or how -- what were the changes? And what were the exchange rate used? Ricardo ask saying the following. What was the estimated impact on the COGS price for the first quarter, considering this FX rate? And can we think about the aid of BRL 50 million in the EBITDA of the quarter compared to the previous methodology? And what's the evolution that we can expect in relation to the FX fluctuations? Miguel Angel Camejo: Thank you, Gabriel and Ricardo. In relation to the margins that we are -- what we are estimating for the next quarter, as Marcel has mentioned, we are expecting an EBITDA level, which should be stable. And we are likely to have an improvement in the steel sector to offset the mining activities. In relation to the functional currency effects, the main effects that we can see is on the one side, we should consider the net position in reals in a consolidated way. Because that will lead it to FX gain of BRL 110 million. And also, there is an impact in the deferred credit, which was something very significant, amounting to BRL 450 million, which is a very large -- a large share of the net income. And that will depend on the future FX variation. If there's no variation, we are going to see the effect on the results. If the FX is maintained what we saw yesterday, for sure, we are going to have a very similar result. And then the type of FX rate used. If I'm not mistaken, -- at the end of December, it was 5.5. And at the end of the March, it was 5.2. It had an impact on the cash cost of the steel sector in dollars. So it is cash cost. It's in dollars, so there will be no changes. So when we convert into reals, we use FX, FX rate, which was lower in relation to the previous period. Leonardo Karam: So there was another question. No, that's it. Okay. The next question is still about costs. Diego, Edgard and Daniel from Itau, [indiscernible], would like to understand this line in our cost of others. So they are asking us to give more color because when we look at the history track, there may be a seasonality influencing. So what can we expect for the second quarter? Is this already considering the outlook of the cost increase that was shared with us? So from BRL 240 million, we saw a drop of BRL 89 million in the line. And what can we expect? So they want details about this reduction, and this is what [ Guilherme ] asks us. Diego. Diego Garcia: This line is very pulverized, but we're not likely to see a seasonality influence. Now answering your last question in relation to the bonus payment. So except for this, all the others are very [polarized]. Leonardo Karam: Now Miguel, about third-party slabs, [indiscernible] they say it attracted our attention, the level of purchases that you made of slabs. So how does slab price has impacted the production of rolled steel in Cubatao. So how do you use the blast furnaces of Ipatinga? And can we expect the slab price level to be maintained at the same level? So the question is, is the level of purchase likely to be maintained? Miguel Angel Camejo: Of course, you have been following the international indicators for slabs. We have been suffering a lot of pressure since the Iran war started. And based on this, we can simulate the allocation of our production between Ipatinga and Cubatao. Of course, this will be a result of the best economic decision. Obviously, so we have to meet the need of each client at a certain moment. So what to expect for the future, we can expect our production to increase in Ipatinga with the blast furnaces and a reduction of activities in Cubatao in the short term. We are going to continue monitoring the market opportunities and alternatives so that we can go back to the levels at Cubatao that we want or to look for profitable alternatives for the company. Leonardo Karam: Thank you, Miguel. Marcelo There's a question by Gabriel Barra from Citi about the Iran conflict. This is a question. The effect of conflict did not affect the quarter of the steel sector is not so affected by the war. Marcelo, could you answer this? Marcelo Chara: Gabriel, thank you very much for the question. We all know the impact of the gas, of the oil barrel, which has a significant increase. And this impacts the cost of transportation and energy in all the logistics and production chain in general. In the first quarter, we hadn't seen this reflected on the results yet. But as we update all the indicators and all the contracts related to the indicators, we are sure to see those impacts. All industrial sector will have this impact and other sectors in the economy will also have the impact. The freight will have a significant impact. So the maritime transportation imports and exports will be impacted. I would say that this is inevitable. So the cost will be impacted eventually. Leonardo Karam: Thank you, Marcelo. Miguel -- now about sales. We have many questions about sales, and I'll try to concentrate them. of Goldman Sachs, [ Guilherme ] of XP and Caio Greiner of UBS asked the following questions. Considering the stable volume of production, considering the strategy of the company, is there room for gain in market share? The focus would be in maximizing the revenue per ton and profitability. And the expectation -- what's the expectation to imports to drop? And what you expect the stable volumes? And the first quarter was lower than we expected. Do you see any deterioration of the demand and [ Guilherme ] adds about the performance of the domestic market. And if we already have a tighter scenario for some specific products, especially those related to antidumping. And Caio Greiner also asks about the strategy. Are you going to continue with the same strategy? Or are you going to go for higher market share? Are you going to prioritize the old over volume? Miguel Angel Camejo: I'm going to give answers. And Leo, you can help me if I did not answer some questions. In relation to the market, we see a very important resilience of the main consuming sectors of steel. The first would be the automotive sector with an increase in production of auto and also in the formalization of those cars. And ANFAVEA estimates a 4% increase in production. Sectors related to consumption has a very resilient level with the expectations of growth, not very high, but following the macroeconomic indicators of the country. On the other hand, we have sectors that are being affected more in relation to consumption. And they have been facing tough times, especially the sector related to the agribusiness, roads implements, agricultural machineries, which have been drops in consumption. Considering this context and since imports have been increasing in the first quarter, in spite of the measures that have been implemented by the government, especially antidumping and cold rolling mill and coated rolling mill, but we see that the inventories will be very high. And as a consequence, there will be a stability in the apparent consumption of steel that could be better in the second half of the year when the inventory levels are more normalized. And then we expect a stability in the sales in the second quarter. In relation to the share, it would be fair to think we can talk about the second half of the year. We can talk about export -- import of steel, especially those with unfair competition will have some improvements. And Usiminas will then be a very important player in increasing the share of supply of local or domestic market. In relation to the prioritization of value over volume and profitability, it's fair to think that in a scenario of high volatility after the year on war, we tend to be more demanding in our decisions. so that we can make spot negotiations and also in relation to important projects in the medium and long term. Leonardo Karam: Thank you, Miguel. There is a follow-up on the functional currency. [ Gabriel Simoes ] and Marcelo Arazi from BTG. So what would be a follow-up on the cost and the function currency, especially those which have higher consumption. For example, the change of functional currency helped to reduce the cost of the raw materials after the conversion in real. And Marcelo asks us to quantify the effect of this variation should the function of currency remains intact, if there were no changes, what would be the evolution of the cost? What would be the cost behavior? Yes, Diego. Diego Garcia: Thank you, Ricardo and Marcelo. The costs are in dollar, the slab cost, coal or they were all converted into dollars. And the costs are accounted for. And then what happens is the conversion into real that happens every month. If the currency is lower, the cost will be shown in real. But it doesn't mean that the functional currency helped to reduce the cost. So we convert into real that will show this effect. In relation to the second question, if you're going to make a quantification, it's something very complex to be done because we would have to redo of the previous quarter that used a different functional currency. We -- it's not something that is required to be done. So it's very complex to redo the previous accounting of the previous quarter. Leonardo Karam: Thank you, Diego. Miguel, now about exports. [ Rodolfo Angele ] JPMorgan and Igor from Genial asks about exports. Steel sector volumes were lower. So what do you expect for the next period? And Igor asks more details about the prices. And he says that there was a better mix, especially what happened in Argentina. So are you going to continue with this price over volume now in the external market? Are you going to apply this as well to the external market? So what are the expectations for exports? Miguel Angel Camejo: Thank you, Leo. Our expectations for the second quarter of this year is to maintain a stability, both in terms of mix and the market -- exports market. So we don't see a lot of changes, a lot of variations in this regard. The higher average price is a result of the better mix. As we anticipated in the fourth quarter of last year in the call, we ended the deliveries of oil and gas that we had in the past. We maintain a positive expectation in the sector of oil and gas, especially in Argentina. In the short term, we do not see any closures. For the second half of the year, we have been negotiated important projects that we hope to have -- to be very successful in the negotiations. Leonardo Karam: Thank you, Miguel. Still about imports. Gabriel, Barra, Citi, [indiscernible] JPMorgan, they ask the following. In spite of the expectation of normalizing the exports, galvanized products has high levels still. So how do you see the competitive dynamics in this specific segment? Should we expect an accommodation of exports in the short run? And Igor says he understand that there was a raise of importers in order to go for the volumes before the measures were applied. So how long do you believe that the market will absorb this excess volume? And lastly,[ Thais ] asks about cold rolling products. So we saw that the volumes dropped, but we still have some inventories in the chain. So some volumes in other regions were also coming in. And we heard about volumes coming in, in other regions. Could you provide some more information about this? Miguel Angel Camejo: Gabriel, Igor Guedes. For sure, imports of the first quarter were very high, increasing by 30% when we compare to the previous quarter. This suggests a very big pressure in the inventories in the chain. And this will cause impact in the apparent consumption of steel, especially in the domestic market in the next months. The inventory levels cannot be calculated very accurately. But there is an expectation of increasing consumption. But -- so we believe it will take some levels. We believe that this inventory levels will be normalized in the second half of the year. And at that moment, the steel industries, including Usiminas will have more chances of opportunities in relation to the steel consumption in Brazil. What was the other question, Leo, please help me. The question was very relevant. In addition to the increase in imports, we can see an increase of imports, especially in the Southeast Asia. It's very relevant to understand that the world oversupply will be maintained. Even though the Chinese steel in March stands at BRL 120 million per year and generate an imbalance in different countries. This situation generates an indirect impact in the Southeast Asia countries that is to direct those oversupply to Brazil. So it's very important to continue monitoring together with the government, and we must take the right measures so that we can avoid the indirect impact generated by the Chinese oversupply. Leonardo Karam: Miguel still for you. A question about automotive. [ Diego Mora ] from Goldman Sachs says Ricardo Monegaglia from Safra has 2 questions. The stronger sales mix is sustainable. What are the negotiations of the agreements related to prices? What were the agreements for the automotive industry in April? And what are the impact of the coated and galvanized products in relation to agreements? In the first quarter, we had a big influence of the automotive sector. So how do you expect this to play out in the future? Miguel Angel Camejo: So let's start from the agreements. The agreements have showing reductions of 2% or 3%, similar to what we negotiated with the agreements that we had in January. We expect the automotive sector to continue the way it is. March was a very relevant month in production, especially in the first 15 days of April, we see this materializing. And ANFAVEA expects an increase of 4% for the year. However, it's very important to mention that both the steel sector and the automotive sector and other sectors of the economy and the Brazilian industry have been facing challenges in relation to imports, both for final products and also in relation to business models that will that are coming to Brazil. So we have a lower impact and lower impact in the production chains in Brazil. It's important, therefore, to continue with our agenda of reindustrialization and also with the public policies to reinforce the productive chain in different sectors. The galvanized products in the auto sector and also the coated products account for 70% of our installed capacity. So 30% of this is impacted by spot businesses and also other industrial sectors. that follow their own agreements. In relation to the favorable mix of the first half of the year, the expectation is to maintain this favorable mix for the second half of the year. In the second half of the year, we have to understand the dynamics of different sectors, the potential reduction of imports in Brazil after the implementation and also the inspection of the measures that were to be implemented by the government. Leonardo Karam: Thank you, Miguel. Miguel and Diego now. In relation to the outlook that we provided, Rafael Barcellos with Bradesco and Ricardo Monegaglia with Safra asked the following. What is the magnitude of price increase and cost in the steel sector as we're projecting in the outlook? So it's the same questions. They want to know the magnitude. They want to know about the cost and the price for the next quarter. Miguel Angel Camejo: I'll start, Diego. In terms of price, we have already mentioned, there was an increase in price as of April 1 for the distribution and the spot prices, as we mentioned previously. As -- in relation to the industry, the industrial agreement as of April will follow the trend of the mix of spot prices as we observed in the first quarter of the year. In the automotive sector, we continue with the agreements that we mentioned previously according to the negotiations that have been completed. So we are looking at the raw materials, especially plates and also Coke and coal. And this will have an impact that we will try to handle. However, I cannot provide you with exact numbers or precise magnitude. Leonardo Karam: Still about outlook related to prices, Guillermo [indiscernible] from JPMorgan and Carlos from Morgan Stanley, they said, what is the domestic performance along the second quarter? And do you see a more positive impact for the dumping -- for the local industry during the antidumping measures? So when will the price pass-through will happen? And how has this been impacted by the imported products? And [indiscernible] asks for more color about the increases in April that you have already mentioned. And if you expect any price changes for May and June, do we expect movements to happen, Miguel? Miguel Angel Camejo: In relation to the positive scenario for the local industry based on commercial measures, we do not see the impact of the measures that were defined in the beginning of the year. Why? Because as we mentioned previously, there were there was an increase of the import of there was an increase of the inventory level. So the results will take a bit longer. So there was a drop in the local production. So as the local mills cannot increase their share in the apparent consumption of steel in the country. Of course, the measures will then have the expected results. In relation to prices, we implemented a 5% increase in the spot sector as of April 1 and we're going to continue monitoring the pressure of costs in the international market, the cost of energy. And based on that, we will see the -- what will happen to the new adjustments for the next months. We still do not have the adjustments already defined, but we are monitoring all the situation very closely. And this will also be related to higher volatility in our local costs. Leo, did I miss anything? Leonardo Karam: No, I think you answered his questions. I said that the cost would be the most successful question, but no, there's a very long section about the commercial aspect. Carlos asks if you could mention this percentage of increase in April for the spot price as distribution and industrial segment industrial agreements. Miguel Angel Camejo: For the distribution sector, the adjustments implemented was at 5% as of April 1, the industrial agreements that start as of April should follow the dynamics that was observed in the spot price in the first quarter that had a very similar level of 5% or 6% in the distribution sector. Not all the agreements are updated on April 1. Some of them will have the update only on July 1. Leonardo Karam: Thank you, Miguel. We're moving towards the end, and I still have a lot of questions here with me. So I'm going to try to select the main ones. Miguel, about price parity. As Brian and Marcelo has asked about what's the import parity for the rolling and coated product? And what are we to expect for the future? The calculation of the parity is very interesting and why is that? Miguel Angel Camejo: Because different from what we saw in the past, when we talked about parity, the calculation used to be made based on market prices and outside of unfair competition and oversupply situation. When we compare, for example, the domestic market price against the price -- domestic price in Europe and the United States, we still are at lower levels that have defense -- commercial defense so as to balance the commercial market in the -- internally. So you can make recalculations. So it could be about 15% nowadays. But with impact on this price which is a price, which is impacted by the oversupply conditions of the international market. Leonardo Karam: Now, Miguel, commercial defense, Gabriel Barra, [indiscernible] of UBS ask the following: Gabriel asks about the hot rolling product. When the antidumping was not implanted, can we see this reflected in imported volumes? Do you think there will be other drop in hot coils and what are the measures to be implemented along the year? Marcelo completes asking about the share. If you have seen alternative routes for the imports of steel, such as Korea or Vietnam. And the price -- have the prices being more competitive than those are Chinese products. And could this increase the parity of the industries and [indiscernible] completes, asking about the vision about the implementation of the antidumping measures. After the implementation of antidumping measures, we will see an increase of prices and how you see the import parity of coated products? Yes, please. Miguel Angel Camejo: It's very relevant to implement the antidumping measures for hot rolling product. So we see what we saw in the cold rolling and coated products that have been very important. We still do not see a reduction in the results. So we are likely to see this when the -- there was a raise for anticipating those purchase of those materials. In terms of Vietnam and Korea, as an alternative route, we have observed a significant increase of imports from other origins China, especially Korea, Vietnam and other countries from the Southeast Asia. In commercial conditions, very similar to those offered by China. So this is a result of the high pressure that China has in the local market, leading those countries or leading those industries to have unfair competition in their exports. So this is very relevant, and we are very attentive to those cases so that we can activate the tools that we have for commercial defense so as to avoid the impacts that we have seen in the last 3 years, with a high increase of Chinese imports. So it's very important to keep monitoring and working with the local authorities, so that we can make -- adopt the right measures of defense. In relation to the price, I think I answered previously in relation to the parity and how we see the prices to play out in the future. Leonardo Karam: Thank you, Miguel. There is a follow-up. But I think you have already answered. Luis from -- asks about the price of Asia, you have heard Asia about Vietnam and Korea. So we are moving towards the end. So let's try it a bit quick. Diego, about deferred, Gabriel Barran says, the income was very favored by deferred tax credits and FX effects. How can we expect the effective tariff or liquid for the next quarter. How can you see that? Gabriel? Miguel Angel Camejo: The impact of the tax credit with deferred taxes will depend on the type of FX rate because the accounting base is in dollars and when the real is appreciated against the dollar, there's an increase. And then this credit is increased. We have the inverse movement we would have a negative result on this. So that will depend the kind of effects. In relation to the financial result, and this is more linked to the net position in reals will also depend on the evolution of net cash in reals that we have. So we are going to continue monitoring this, so that we can minimize the effect. Leonardo Karam: Marcelo, one question for you about compacters. Gabriel Barra from Citi, and Ricardo from Safra ask the following: what are the analysis of compact analysis can be done in phases, which is the most likely scenario and the friable, what the duration of the life of the mine. Is there any decision to be made still this year and the environmental permitting and all the documents at MUSA, what would be the expected timing for those -- and for the FID and approval? Marcelo, can you answer that? Marcelo Chara: Thank you, Leo, Rafael, Gabriel and Ricardo. I'm going to try to summarize. As we have been mentioning, the permitting is working well. According to the time line, considering magnitude and complexity of the project. In 2026, we believe we can have the confirmation, so that we complete all the permitting process. In relation to the friables, we have been making a new sizing of all the reserves and by using different strategies, we have been able to extend the useful life of the friables. And this is very important for us, the strategic view in addition to optimizing the assets that are already existing for the operation of friables. I would say that these are the main components. And as we evolve and we continue with the process of permitting, so at the end of 2026 and the beginning of 2027, we expect to have a proposal and also to analyze the alternatives. And this is a highly complexity project. And we have different alternatives. We have very good engineering team in order to optimize each of the possible steps. And we are very likely to have a very competitive and efficient split. So this proposal can be callinated in phases. Leonardo Karam: Thank you, Marcelo. Marcelo and Diego. We have questions about projects. So Gabriel Coelho Barra . Gabriel asks about the advances of the PCI project. Can it give an additional upside in the margin still this year. Can you comment on the evolution of other projects of the efficiency of the company, such as Coke batteries and gas holders. And how can we think about the PCI implementation leading to lower cost per ton. What can we expect in terms of efficiency after the implementation? And would it would reduce the purchase of still called for by third parties -- from third parties? Miguel Angel Camejo: The PCI project is a project that is in the final stage. And as I mentioned in the remarks, we are already capitalizing on it because there's a part in the blast furnace that has already been completed and that helps us to make the distribution of fuel and blast furnace in a very efficient manner. So we have been able to implement our PCI and our blast furnace 3 is where this investment is mostly concentrated. So we have already started to capitalize on this on the efficiency of the field as of this quarter, the second quarter and we are likely to capitalize it on full as of the fourth quarter without a doubt. And this will allow us to reduce the purchase of external Coke because this is going to be a replacement from this coal to Coke because this is a field that we are going to be applying internally. And the other projects are moving in alignment to our plan in a very efficient manner. For example, our Coke plant has two main sectors. One of the sector is undergoing hot repair. We have already advanced by 50% in this activity. So this will improve our environmental performance and we also have a very good thermal efficiency and there is a complete construction destruction of the other section of the Coke plant. And next month, we'll be able to see the construction works. So we had auction process and also the technical part, the technical dimensions in order for the implementation to happen. And the engineering side is also very advanced. So in 2 years' time, 2.5 years' time, we will have a very good improvement. And also for gas holders, we will see a very important evolution of the gas holders that will allow us to recover a large quantity of internal gas and we improve the overall efficiency. The sum of all those projects -- we'll be capitalized in a progressive manner in the next quarter until the full completion. In the calls, we are going to share with you the progression of all those activities. And Marcelo, in fact, the hot repair and the PCI plant used up most of the CapEx for the quarter. Leonardo Karam: Okay. Last question now, we are running out of time. It's about sales at MUSA. Caio Ribeiro with Bank of America, they ask the following: and the mining sector, then with increase of cost and freight, will there be a decrease in the shipping to the external market. MUSA operations were affected in the volumes because of the rainfall. And in the second and third quarters, which are dryer periods, do you believe that you can recover the volumes at the same levels that we had in 2025? Yes, Diego? Diego Garcia: In fact, we exported to Asia, but those cost increases impacted our profitability, but it's still profitable. As we can see in the results of MUSA. The diesel cost impact has not had a significant increase. So the higher consumption was associated with internal movement. So in terms of volume, as we mentioned at the beginning of the presentation, we expect a recovery volumes, especially due to higher production. And we are going to prioritize the area with higher grades so that we can continue exporting. Leonardo Karam: Thank you very everyone. We end the Q&A session now. We would like to thank you for taking part in this event. And if you have any questions, we would like to remind you that the IR team is available to take your questions. Have a good day, everyone. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good morning, and welcome to FIBRA Macquarie's First Quarter 2026 Earnings Call and Webcast. My name is Alicia, and I'll be your operator for this call. [Operator Instructions] I would now like to turn the conference over to Nikki Sacks. Please go ahead. Nikki Sacks: Thank you, and hello, everyone. Thank you for joining FIBRA Macquarie's First Quarter 2026 Earnings Conference Call and Webcast. Today's call will be led by Simon Hanna, our Chief Executive Officer; and Andrew McDonald-Hughes, our CFO. Before I turn the call over to Simon, I would like to remind everyone that this presentation is proprietary and all rights are reserved. The presentation has been prepared solely for informational purposes and is not a solicitation or an offer to buy or sell any securities. Forward-looking statements in this presentation are subject to a number of risks and uncertainties. Our actual results, performance, prospects or opportunities could differ materially from those expressed in or implied by the forward-looking statements. These forward-looking statements are made as of the date of this presentation. We undertake no obligation to publicly update or revise any forward-looking statements after the completion of this presentation, whether as a result of new information, future events or otherwise, except as required by law. Additionally, on this conference call, we may refer to certain non-IFRS measures as well as to U.S. dollars, which are U.S. dollar equivalent amounts, unless otherwise specified. As usual, we have prepared supplementary materials that we may reference during the call. If you have not already done so, I would encourage you to visit our website at fibramacquarie.com and download these materials. A link to these materials can be found under the Investors Events and Presentations tab. And with that, it's my pleasure to hand the call over to FIBRA Macquarie's Chief Executive Officer, Simon Hanna. Simon? Simon Hanna: Thank you, Nikki, and good afternoon, everyone. Thank you for joining us for FIBRAMQ's First Quarter 2026 Earnings Call. Before we begin our earnings presentation and open the call to questions, I want to take a moment to address the ongoing offer by FIBRA Prologis to acquire up to 100% of FIBRAMQ's outstanding CBFIs, which commenced on April 7, as well as the potential offers by other third parties that have not yet been formally commenced. As noted in our earnings release, we have published the relevant market notices in connection with the FIBRA Prologis offer and we will continue to do so as required. For clarity and due to legal restrictions, we are unable to comment further or answer any questions on these offers. Overall, we delivered a strong and steady quarter with in-line results from both a financial and operating perspective. Portfolio performance remained resilient, and our operating platform continued to execute effectively against a subdued market backdrop. Our outlook on the Mexican real estate market remains cautiously optimistic. We continue to see some softness driven by an ongoing wait-and-see dynamic ahead of the expected USMCA renewal with market-wide industrial vacancy inching up by approximately 100 basis points during the quarter. At the same time, it is encouraging to see a continued decline in new construction starts, which is helping keeping the overall demand-supply balance in check. Importantly, market rental rates have held up relatively well, particularly in core logistics and border markets. We view the current environment as one defined by timing rather than a deterioration in fundamentals. Turning to our industrial portfolio. During the quarter, we executed new and renewal leases on approximately 1.6 million square feet of GLA, a 12-month high across a broad mix of customers and geographies. Leasing spreads were 13.8%, an overall strong outcome and in line with expectations. This supported an overall rental rate increase of 6.1% year-over-year, while industrial NOI reached $51.2 million, up 4.4% annually, highlighting steady cash flow growth and disciplined cost management. Quarter end industrial occupancy was 94.6%. Underlying customer demand remains stable and leasing activity continues as we look forward to working through a very manageable lease expiration profile of just 7.3% for the remainder of the year. A highlight during the quarter was a new lease in Tijuana, which includes an expansion component for a large first-time Asian entrant into Mexico assembling high-end consumer electronics. The expansion is expected to generate a double-digit cash-on-cash yield. We view this transaction as another encouraging signal on the increasing potential in Northern markets as we move towards gaining greater visibility around the longer-term trade and tariff policy. Our retail portfolio remains stable with sustained new and renewal leasing volume of 22,000 square meters. The modest decline in occupancy during the quarter was attributable to the departure of a single cinema tenant at lease expiry. Excluding this event, occupancy would otherwise have been broadly stable. Retail NOI increased 3.6% sequentially, and we also expect full year retail NOI to steadily increase from 2025 as we work through other low-impact scheduled move-outs during the balance of the year. Turning to growth CapEx. We remain committed to our strategy of allocating capital to our industrial development program, focusing on land acquisition opportunities while taking a disciplined approach on new building starts. During the quarter, we completed our largest land acquisition to date, acquiring a 124-hectare parcel in Tijuana's Boulevard 2000 corridor for $114 million. The site supports the future development of up to 3.4 million square feet of Class A industrial space. Importantly, the park will also include a dedicated 90-megawatt substation currently under construction, providing a significant competitive advantage in a power-constrained market. The transaction was structured with favorable payment terms over 3 years with approximately 35% paid at closing, preserving liquidity while securing a long-term strategic asset. While the land bank will not contribute to NOI in the near term, we believe it will generate some meaningful returns over time and aligns directly with our disciplined development strategy. In summary, while leasing velocity continues to be influenced by broader market uncertainty, our portfolio fundamentals remain solid. Cash returns from the top line through to AFFO are robust, and our asset quality and vertically integrated operating platform continue to differentiate us. Importantly, our long-term investment thesis remains intact. We remain committed to executing our strategy with discipline and delivering value for our certificate holders. With that backdrop, I'll turn it over to Andrew to walk through our financial results and guidance outlook. Andrew McDonald-Hughes: Thank you, Simon, and hello, everyone. From a financial perspective, we delivered quarterly results in line with expectations across our key metrics, including record quarterly EBITDA of $55.1 million, up 6.7% and record quarterly FFO of $38.5 million, up 6.8%. AFFO per certificate was MXN 0.65, up on a sequential and annual basis in underlying U.S. dollar terms, driven by robust same-store consolidated NOI growth of 5%. NAV per certificate increased to MXN 49.7 representing a 1.2% quarter-over-quarter increase. Importantly, our NAV incorporates our high-quality land bank at cost, which comprises 8.4 million square feet of buildable GLA and does not reflect the embedded value creation potential given our expectations to develop at 9% to 11% NOI yield as we construct and stabilize these projects over the coming years. Our balance sheet remains strong. Liquidity is ample, our leverage is comfortable, and we retain substantial flexibility to navigate current market conditions while continuing to invest selectively. This strength allows us to remain patient and focused on opportunities that deliver attractive risk-adjusted returns rather than reacting to short-term market noise. Our balance sheet metrics remain prudent with a real estate net LTV of 33.6% and regulatory debt service coverage of 4.2x. Our debt is 99% fixed rate with a weighted average tenor of 3.5 years. Subsequent to quarter end, we completed the refinancing of a sustainability-linked revolving credit facility, upsizing it to $200 million and extending its maturity through April 2031. Notably, this refinancing was completed with the lowest credit spread achieved to date of 105 basis points. As of today, total available liquidity stands at $835 million. On the ESG front, we published our first-time S1 and S2 reports, representing a meaningful step forward in our disclosures. We also achieved another LEED Platinum certification with a record score of 91 points for an industrial development that had previously stabilized at a strong double-digit yield, reinforcing the alignment between sustainability initiatives and strong financial performance. We are updating full year 2026 AFFO guidance to be between MXN 2.54 and MXN 2.64 per certificate, primarily reflecting the additional funding expense associated with the Tijuana land acquisition announced during the quarter. AFFO guidance assumes the exclusion of transaction expenses related to the potential acquisition of FIBRA Macquarie certificates. These expenses include financial adviser fees of up to $9.25 million contingent upon the completion of the acquisition as well as additional legal, advisory and other transaction-related expenses. Our distribution guidance remains unchanged at MXN 2.45 per certificate, which represents an approximate 11% increase in annual distributions in U.S. dollar terms based on current FX levels, following a similar U.S. dollar increase last year. This ongoing momentum in distribution growth reflects the underlying strength and stability of our cash flows as well as our confidence in underlying AFFO growth drivers. Of note, FIBRA Macquarie also declared a first quarter cash distribution of MXN 0.6125 per certificate, which will be paid on or about June 18. While near-term market conditions remain subdued, our financial position is strong, embedded value across the portfolio remains significant, and we are well positioned to continue executing with discipline. Simon and I would also like to take this opportunity to acknowledge the tremendous contribution of our team across the FIBRA Macquarie platform, and we remain confident in our ability to deliver sustained growth and value for all stakeholders. With that, we're happy to take your questions. Operator: [Operator Instructions] Our first question comes from the line of Rodolfo Ramos with Bradesco BBI. Rodolfo Ramos: Just a couple, if I may. First, I know you there is limited to how much you can discuss here. But just wondering whether your technical committee will be evaluating the most recent Monterrey tender regarding its fairness and what could be the timeline there? And second, it was a slight quarter-on-quarter occupancy decline, but can you comment whether it was something like an industry-specific or client, just to give us a sense of how the broader circumstances are weighing on that decision process for tenants? Simon Hanna: Yes. Thanks, Rodolfo. Rodolfo, great to hear from you. That's right. We saw FIBRA Monterrey come out this morning with their offer. And so from a process management perspective, we'll also be managing that with -- after 10 business day deadline to -- for the technical committee or the independent members of the technical committee to provide that fairness opinion. So that will be the other next step on that -- on that front. Look, with regards to move-outs, yes, we saw some move-outs through the quarter. I'd say, in general, nothing particularly concerning there and also not really much in terms of a read-through in terms of market specific or geographic specific, sort of a mixed bunch in terms of -- in terms of reasons for move-out, but I'd say no trend to call out. Through all that, we picked up some good leasing spreads as well on the renewals. You would have sort of seen a good bounce back to 13.8% and the expiration profile for the remainder of the year at 7%, we feel very comfortable sort of working through that. So those move-outs, as always, backfilling will be the aim of the game. And we have actually had some success even in this environment in doing some backfilling. Actually, one of the new leases that we did in Tijuana this quarter was a move-out from the fourth quarter. And that I think last quarter as well in Guadalajara, we had a couple of hundred thousand square feet move-outs, and we actually backfilled that the same quarter. So I think it goes to show that good quality buildings with the right approach, you can actually backfill in good order and something that we'll be addressing as part of those move-outs. But as I say, nothing fundamentally too concerning. When you take a step back and actually look at the market overall, I'd say softening backdrop, mildly softening backdrop in terms of the market-wide vacancy picking up maybe 100 bps or so. But again, I'd say nothing that we're too concerned about, given it is a wait-and-see dynamic as we all wait to get through to USMCA renewal, which to be fair is looking more like back end of this year, but maybe it's looking into next year. But when we look about that softening backdrop, again, we feel good about it. Just remembering 94%, 95% as an occupancy market -- number for the market overall. That's fundamentally healthy and actually where Mexico industrial has historically been. So that's something we feel good about. We also are seeing a rather steep decline in new construction starts. So again, as I said earlier, that's helping to just moderate the demand-supply dynamic and importantly, asking rates are holding up. So you saw us working through with that 14% leasing spread, and we feel good about where rental rates are even with that softening backdrop. So yes, we feel good about the rest of the year, albeit we did see a little bit of a slip in occupancy this quarter. Operator: Thank you. This concludes the question-and-answer session. I'd like to turn the conference back to management for any closing remarks. Simon Hanna: Okay. That was quick. And look, thank you, Alicia, and thanks, everyone, for participating in today's call. Along with Andrew, I would like to thank all of our stakeholders for ongoing support, and we look forward again to speaking with you over the coming days and weeks as we go through this quarter. So thanks very much, everyone. Operator: The conference has now concluded. Thank you for joining our presentation today. You may now disconnect.
Operator: Good morning, and welcome to FIBRA Macquarie's First Quarter 2026 Earnings Call and Webcast. My name is Alicia, and I'll be your operator for this call. [Operator Instructions] I would now like to turn the conference over to Nikki Sacks. Please go ahead. Nikki Sacks: Thank you, and hello, everyone. Thank you for joining FIBRA Macquarie's First Quarter 2026 Earnings Conference Call and Webcast. Today's call will be led by Simon Hanna, our Chief Executive Officer; and Andrew McDonald-Hughes, our CFO. Before I turn the call over to Simon, I would like to remind everyone that this presentation is proprietary and all rights are reserved. The presentation has been prepared solely for informational purposes and is not a solicitation or an offer to buy or sell any securities. Forward-looking statements in this presentation are subject to a number of risks and uncertainties. Our actual results, performance, prospects or opportunities could differ materially from those expressed in or implied by the forward-looking statements. These forward-looking statements are made as of the date of this presentation. We undertake no obligation to publicly update or revise any forward-looking statements after the completion of this presentation, whether as a result of new information, future events or otherwise, except as required by law. Additionally, on this conference call, we may refer to certain non-IFRS measures as well as to U.S. dollars, which are U.S. dollar equivalent amounts, unless otherwise specified. As usual, we have prepared supplementary materials that we may reference during the call. If you have not already done so, I would encourage you to visit our website at fibramacquarie.com and download these materials. A link to these materials can be found under the Investors Events and Presentations tab. And with that, it's my pleasure to hand the call over to FIBRA Macquarie's Chief Executive Officer, Simon Hanna. Simon? Simon Hanna: Thank you, Nikki, and good afternoon, everyone. Thank you for joining us for FIBRAMQ's First Quarter 2026 Earnings Call. Before we begin our earnings presentation and open the call to questions, I want to take a moment to address the ongoing offer by FIBRA Prologis to acquire up to 100% of FIBRAMQ's outstanding CBFIs, which commenced on April 7, as well as the potential offers by other third parties that have not yet been formally commenced. As noted in our earnings release, we have published the relevant market notices in connection with the FIBRA Prologis offer and we will continue to do so as required. For clarity and due to legal restrictions, we are unable to comment further or answer any questions on these offers. Overall, we delivered a strong and steady quarter with in-line results from both a financial and operating perspective. Portfolio performance remained resilient, and our operating platform continued to execute effectively against a subdued market backdrop. Our outlook on the Mexican real estate market remains cautiously optimistic. We continue to see some softness driven by an ongoing wait-and-see dynamic ahead of the expected USMCA renewal with market-wide industrial vacancy inching up by approximately 100 basis points during the quarter. At the same time, it is encouraging to see a continued decline in new construction starts, which is helping keeping the overall demand-supply balance in check. Importantly, market rental rates have held up relatively well, particularly in core logistics and border markets. We view the current environment as one defined by timing rather than a deterioration in fundamentals. Turning to our industrial portfolio. During the quarter, we executed new and renewal leases on approximately 1.6 million square feet of GLA, a 12-month high across a broad mix of customers and geographies. Leasing spreads were 13.8%, an overall strong outcome and in line with expectations. This supported an overall rental rate increase of 6.1% year-over-year, while industrial NOI reached $51.2 million, up 4.4% annually, highlighting steady cash flow growth and disciplined cost management. Quarter end industrial occupancy was 94.6%. Underlying customer demand remains stable and leasing activity continues as we look forward to working through a very manageable lease expiration profile of just 7.3% for the remainder of the year. A highlight during the quarter was a new lease in Tijuana, which includes an expansion component for a large first-time Asian entrant into Mexico assembling high-end consumer electronics. The expansion is expected to generate a double-digit cash-on-cash yield. We view this transaction as another encouraging signal on the increasing potential in Northern markets as we move towards gaining greater visibility around the longer-term trade and tariff policy. Our retail portfolio remains stable with sustained new and renewal leasing volume of 22,000 square meters. The modest decline in occupancy during the quarter was attributable to the departure of a single cinema tenant at lease expiry. Excluding this event, occupancy would otherwise have been broadly stable. Retail NOI increased 3.6% sequentially, and we also expect full year retail NOI to steadily increase from 2025 as we work through other low-impact scheduled move-outs during the balance of the year. Turning to growth CapEx. We remain committed to our strategy of allocating capital to our industrial development program, focusing on land acquisition opportunities while taking a disciplined approach on new building starts. During the quarter, we completed our largest land acquisition to date, acquiring a 124-hectare parcel in Tijuana's Boulevard 2000 corridor for $114 million. The site supports the future development of up to 3.4 million square feet of Class A industrial space. Importantly, the park will also include a dedicated 90-megawatt substation currently under construction, providing a significant competitive advantage in a power-constrained market. The transaction was structured with favorable payment terms over 3 years with approximately 35% paid at closing, preserving liquidity while securing a long-term strategic asset. While the land bank will not contribute to NOI in the near term, we believe it will generate some meaningful returns over time and aligns directly with our disciplined development strategy. In summary, while leasing velocity continues to be influenced by broader market uncertainty, our portfolio fundamentals remain solid. Cash returns from the top line through to AFFO are robust, and our asset quality and vertically integrated operating platform continue to differentiate us. Importantly, our long-term investment thesis remains intact. We remain committed to executing our strategy with discipline and delivering value for our certificate holders. With that backdrop, I'll turn it over to Andrew to walk through our financial results and guidance outlook. Andrew McDonald-Hughes: Thank you, Simon, and hello, everyone. From a financial perspective, we delivered quarterly results in line with expectations across our key metrics, including record quarterly EBITDA of $55.1 million, up 6.7% and record quarterly FFO of $38.5 million, up 6.8%. AFFO per certificate was MXN 0.65, up on a sequential and annual basis in underlying U.S. dollar terms, driven by robust same-store consolidated NOI growth of 5%. NAV per certificate increased to MXN 49.7 representing a 1.2% quarter-over-quarter increase. Importantly, our NAV incorporates our high-quality land bank at cost, which comprises 8.4 million square feet of buildable GLA and does not reflect the embedded value creation potential given our expectations to develop at 9% to 11% NOI yield as we construct and stabilize these projects over the coming years. Our balance sheet remains strong. Liquidity is ample, our leverage is comfortable, and we retain substantial flexibility to navigate current market conditions while continuing to invest selectively. This strength allows us to remain patient and focused on opportunities that deliver attractive risk-adjusted returns rather than reacting to short-term market noise. Our balance sheet metrics remain prudent with a real estate net LTV of 33.6% and regulatory debt service coverage of 4.2x. Our debt is 99% fixed rate with a weighted average tenor of 3.5 years. Subsequent to quarter end, we completed the refinancing of a sustainability-linked revolving credit facility, upsizing it to $200 million and extending its maturity through April 2031. Notably, this refinancing was completed with the lowest credit spread achieved to date of 105 basis points. As of today, total available liquidity stands at $835 million. On the ESG front, we published our first-time S1 and S2 reports, representing a meaningful step forward in our disclosures. We also achieved another LEED Platinum certification with a record score of 91 points for an industrial development that had previously stabilized at a strong double-digit yield, reinforcing the alignment between sustainability initiatives and strong financial performance. We are updating full year 2026 AFFO guidance to be between MXN 2.54 and MXN 2.64 per certificate, primarily reflecting the additional funding expense associated with the Tijuana land acquisition announced during the quarter. AFFO guidance assumes the exclusion of transaction expenses related to the potential acquisition of FIBRA Macquarie certificates. These expenses include financial adviser fees of up to $9.25 million contingent upon the completion of the acquisition as well as additional legal, advisory and other transaction-related expenses. Our distribution guidance remains unchanged at MXN 2.45 per certificate, which represents an approximate 11% increase in annual distributions in U.S. dollar terms based on current FX levels, following a similar U.S. dollar increase last year. This ongoing momentum in distribution growth reflects the underlying strength and stability of our cash flows as well as our confidence in underlying AFFO growth drivers. Of note, FIBRA Macquarie also declared a first quarter cash distribution of MXN 0.6125 per certificate, which will be paid on or about June 18. While near-term market conditions remain subdued, our financial position is strong, embedded value across the portfolio remains significant, and we are well positioned to continue executing with discipline. Simon and I would also like to take this opportunity to acknowledge the tremendous contribution of our team across the FIBRA Macquarie platform, and we remain confident in our ability to deliver sustained growth and value for all stakeholders. With that, we're happy to take your questions. Operator: [Operator Instructions] Our first question comes from the line of Rodolfo Ramos with Bradesco BBI. Rodolfo Ramos: Just a couple, if I may. First, I know you there is limited to how much you can discuss here. But just wondering whether your technical committee will be evaluating the most recent Monterrey tender regarding its fairness and what could be the timeline there? And second, it was a slight quarter-on-quarter occupancy decline, but can you comment whether it was something like an industry-specific or client, just to give us a sense of how the broader circumstances are weighing on that decision process for tenants? Simon Hanna: Yes. Thanks, Rodolfo. Rodolfo, great to hear from you. That's right. We saw FIBRA Monterrey come out this morning with their offer. And so from a process management perspective, we'll also be managing that with -- after 10 business day deadline to -- for the technical committee or the independent members of the technical committee to provide that fairness opinion. So that will be the other next step on that -- on that front. Look, with regards to move-outs, yes, we saw some move-outs through the quarter. I'd say, in general, nothing particularly concerning there and also not really much in terms of a read-through in terms of market specific or geographic specific, sort of a mixed bunch in terms of -- in terms of reasons for move-out, but I'd say no trend to call out. Through all that, we picked up some good leasing spreads as well on the renewals. You would have sort of seen a good bounce back to 13.8% and the expiration profile for the remainder of the year at 7%, we feel very comfortable sort of working through that. So those move-outs, as always, backfilling will be the aim of the game. And we have actually had some success even in this environment in doing some backfilling. Actually, one of the new leases that we did in Tijuana this quarter was a move-out from the fourth quarter. And that I think last quarter as well in Guadalajara, we had a couple of hundred thousand square feet move-outs, and we actually backfilled that the same quarter. So I think it goes to show that good quality buildings with the right approach, you can actually backfill in good order and something that we'll be addressing as part of those move-outs. But as I say, nothing fundamentally too concerning. When you take a step back and actually look at the market overall, I'd say softening backdrop, mildly softening backdrop in terms of the market-wide vacancy picking up maybe 100 bps or so. But again, I'd say nothing that we're too concerned about, given it is a wait-and-see dynamic as we all wait to get through to USMCA renewal, which to be fair is looking more like back end of this year, but maybe it's looking into next year. But when we look about that softening backdrop, again, we feel good about it. Just remembering 94%, 95% as an occupancy market -- number for the market overall. That's fundamentally healthy and actually where Mexico industrial has historically been. So that's something we feel good about. We also are seeing a rather steep decline in new construction starts. So again, as I said earlier, that's helping to just moderate the demand-supply dynamic and importantly, asking rates are holding up. So you saw us working through with that 14% leasing spread, and we feel good about where rental rates are even with that softening backdrop. So yes, we feel good about the rest of the year, albeit we did see a little bit of a slip in occupancy this quarter. Operator: Thank you. This concludes the question-and-answer session. I'd like to turn the conference back to management for any closing remarks. Simon Hanna: Okay. That was quick. And look, thank you, Alicia, and thanks, everyone, for participating in today's call. Along with Andrew, I would like to thank all of our stakeholders for ongoing support, and we look forward again to speaking with you over the coming days and weeks as we go through this quarter. So thanks very much, everyone. Operator: The conference has now concluded. Thank you for joining our presentation today. You may now disconnect.
Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Westport's Fourth Quarter 2025 Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. At this time, I would like to turn the conference over to Ms. Ashley Nuell. Ashley Nuell: Thank you. Good morning, everyone. Welcome to Westport Fuel Systems' conference call regarding its fourth quarter and full year 2025 financial and operating results. This call is being held to coincide with the press release containing Westport's financial results that were issued yesterday after market close. On today's call, speaking on behalf of Westport will be Chief Executive Officer and Director, Daniel Sceli; and Chief Financial Officer, Elizabeth Owens. You are reminded that certain statements made on this conference call and our responses to certain questions may constitute forward-looking statements within the meaning of the U.S. and applicable Canadian securities laws, and as such, forward-looking statements are made based on our current expectations and involve certain risks and uncertainties. With that, I'll turn the call over to you, Dan. Daniel Sceli: Thank you, Ashley, and good morning, everyone. I want to begin by addressing recent events, and we appreciate the patience and support of our shareholders as we work through our recent cybersecurity incident. Our priority was to ensure the integrity of our IT systems, business continuity and financial reporting, and we are pleased to confirm that this review has been successfully completed. With this behind us, we're looking forward to executing on our strategy and delivering on the next phase of our business objectives. Turning to our financial results. The past year has been a defining one for Westport, marked by the successful divestiture of our light-duty business, the recent receipt of a $6.5 million payment and further strengthened by Cespira's agreement with a leading OEM to manufacture and deliver HPDI components for a truck trial assessing the future commercialization. These accomplishments, combined with ending the year with over $27 million in cash and very low debt reflect the meaningful progress we have made in sharpening our strategic focus and building a stronger company. The global heavy-duty transportation market is increasingly recognizing natural gas as a practical lower emission solution available today. This is evidenced by Volvo's recent milestone of delivering more than 10,000 natural gas trucks on the road, underscoring the accelerating adoption of Cespira's HPDI fuel system technology and validates the strategic direction we have taken. From a market perspective, the U.K. leads to the adoption of HPDI powered LNG trucks, followed by Germany, Sweden, the Netherlands, Norway and France. Emerging gas markets such as India and Latin America are also gaining momentum with volumes seeing steady growth. When we introduced our proprietary CNG fuel storage and delivery system several months ago, we emphasized its potential to significantly expand our addressable market, particularly in North America. Development has progressed well, and our confidence in the commercial opportunity continues to build. We look forward to showcasing this solution at the upcoming Advanced Clean Transportation Expo, ACT, where we will have the opportunity to show up our technology to industry partners and customers. By integrating advanced high-pressure CNG storage with Cespira's field-proven HPDI fuel system, we match or exceed the performance and efficiency expected from diesel engines with compelling economics in markets where CNG is the natural choice like North America. We believe this innovation meaningfully enables Westport and Cespira to capture new opportunities as we move into field testing. Our GFI brand through our high-pressure controls business has also delivered important operational milestones. The opening of [ our China facility is one ] of the fastest growing hydrogen markets, and in Canada represents a step in localizing manufacturing, reducing costs and improving competitiveness. As the transportation industry continues to balance economic realities with sustainability objectives, we are confident that alternative fuel systems, including Cespira's HPDI technology and our high-pressure components provide real-world solutions that deliver both performance and affordability. With the completion of our strategic transition and only a few milestones remaining, a growing market validation of Cespira's expansion, a path to address the North American market and a clear strategic focus. Westport is excited to drive into this next phase. Now I'll have Elizabeth to run through some financial details and then come back afterwards. Over to you, Elizabeth. Elizabeth Owens: Thank you, Dan. Before I dive into the details, I'll just touch on a few key milestones that has achieved. The first of which is our strong cash position, reflective of the successful divestiture of the Light-Duty segment. As of December 31, 2025, our cash and cash equivalents position increased by $12.4 million to $27.2 million compared to $14.8 million at December 31, 2024. The increase in cash was primarily driven by the sale of our Light-Duty segment, as I mentioned, partially offset by cash used in our operating activities and debt repayments. Exiting 2025 with the proceeds from the disposition of Westport's Light-Duty segment, our long-term debt, including the current portion, reflected a 57% reduction to $2.9 million as at December 31, 2025. This was compared to $6.8 million in the prior year period. Including the long-term debt from discontinued operations, reduction was more than 90%. This improved financial position provides Westport with greater flexibility to concentrate on markets that are best suited to our current strategy. Cespira continues to drive meaningful improvement in our results. In the fourth quarter of 2025, total revenue was $29.3 million, compared to $22.9 million in the same period last year, representing an increase of 28%. This progress is supported by strong market adoption, including Volvo reaching the milestone of more than 10,000 natural gas trucks on the road equipped with Cespira's HPDI fuel systems. We are also encouraged by the continued progress of a second OEM that is currently conducting truck trials. We are excited about the opportunities ahead as we target an improvement in Cespira's capital requirements. Turning to the details of our 2025 results. Westport reported revenue of $23.3 million for the year ended 2025. Compared to $40.7 million in 2024. The 43% decrease in revenue was primarily due to the end of the transitional service agreement for inventory and contract manufacturing between Westport and Cespira. Our adjusted EBITDA for 2025 was negative $17.3 million in as compared to the negative $11.4 million reported for 2024. We reported a net loss from continuing operations in 2025 of $29.6 million compared to a net loss from continuing operations of $31.3 million for the prior year, with the decrease in net loss attributed to lower operating expenditures across R&D and SG&A and a favorable change in foreign exchange rates, partially offset by a full year pickup of Cespira's operating results in 2025 compared to the 7 months in 2024. Looking at our specific business units. High-Pressure Controls revenue for the fourth quarter of 2025, increased 20% to $1.9 million compared with $1.6 million in the prior year quarter and decreased to $8.3 million for the year ended December 31, 2025, from $9.4 million for the prior year. The decrease in year-over-year revenue for the period ending December 31 was primarily driven by the general slowdown in the hydrogen infrastructure development, leading to a slower adoption of automotive and industrial applications powered by hydrogen. In Q3 2025, we kicked off the move of our manufacturing capacity from Italy to our new facilities in Canada and China, which required shutting down our operations. In late Q4 2025, we resumed selling products to our customers to meet the backlog demand from the aforementioned shutdown. Gross profit for the year ended December 31, 2025, decreased by $1.3 million to $0.9 million or 11% of revenue, compared to $2.2 million or 23% of revenue for the prior year. Moving on to Cespira. Total revenue generated in Q4 2024 -- or 2025 was $29.3 million compared to $22.9 million in the same period last year, an increase of 28%. Cespira product revenue of $23.4 million increased 30% compared to Q4 2024, driven by higher volumes. Gross profit was negative $1.1 million for Q4 2025 compared to $0.5 million in Q4 2024, and with a negative variance, driven primarily by an obsolete inventory provision of $1.7 million and a recognized loss on one of our contracts valued at $2.8 million. As I previously mentioned, we had a cash and cash equivalents balance of $27.2 million as at December 31, 2025. Net cash used in operating activities from continuing operations was $14.2 million for the year ended December 31, 2025, compared to $5.8 million in the prior year, an increase of $8.4 million. The decrease in net cash provided by investing activities was mainly driven by $21.7 million in capital contributions to Cespira. And purchases of property, plant and equipment of $2.7 million, partially offset by proceeds from the sale of the Light-Duty segment. As noted, we also strengthened our balance sheet with total outstanding debt of $2.9 million, down from $6.8 million while reducing the complexity of our corporate structure in 2025. Our business is focused on the right markets for us, and we are continually looking at ways to streamline our operations. With that, I'll pass it back to you, Dan. Daniel Sceli: Thank you, Elizabeth. As we look to 2026, we see a transportation market increasingly grounded in economic reality. Operators are seeking solutions that deliver measurable emission reductions without sacrificing durability or operating economics. Natural gas is playing a larger role in that equation, not as a transitional concept, but is a fuel that can compete on performance and cost today. The HPDI platform delivered through Cespira is centric to that opportunity. By pairing compression ignition performance with the advantages of natural gas, including the potential to incorporate hydrogen blends over time, we are providing OEMs and fleets with a pathway that aligns emission reductions with commercial expectations. As I mentioned earlier, Volvo's milestone of more than 10,000 natural gas trucks on the road in over 30 countries, featuring Cespira's HPDI fuel systems, highlights our combined success in helping drive this path of success. We are encouraged by the progress of a second OEM conducting a full truck trial throughout 2026, which we further believe validates additional commercial potential. 2026 will be a pivotal year as we advance demonstrations and fleet trials. Present this exciting new platform at the ACT conference this spring and follow with targeted show-and-tell sessions with Canadian fleets through the spring and summer. Together, these initiatives position us to build momentum across our portfolio and translate technology progress into tangible commercial interest. I can appreciate the investment community's interest in our 2026 outlook. We are focused on delivering disciplined execution, continued advancement of OEM programs and converting technical validation into new commercial opportunities. In our High-Pressure Control segment, we're optimistic that volumes can increase as customers facilities ramp up production, while we actively pursue cost reduction opportunities in China through greater total sourcing and supply chain optimization. With a focused organization and technologies aligned with market demand, we believe 2026 represents an important step forward and we intend to deliver. Thank you. Operator: [Operator Instructions] Our first question or comment comes from the line of Amit Dayal from H.C. Wainwright. Amit Dayal: So Dan, just on the margin side of things, it looks like inventory issues and relocation issues were sort of pressuring margins in the fourth quarter. Do you think we see some bounce back in 1Q and the rest of 2026 on the margin side? Daniel Sceli: Yes, for sure. I think this transition, I'll start with the High-Pressure Controls transition from Italy to Canada and China, launching the two new production facilities, moving the equipment over, managing the inventory transfer starting up, getting the plant certified, which is quite an extensive process, that put a lot of pressure on margins, and we do expect margins to improve. And volumes as well. We're already seeing some pickup in volumes as we move through the year. Amit Dayal: Understood. For the High-Pressure Control segment, can you talk a little bit about sort of how maybe the China market or the Indian market, et cetera, the international opportunities you highlighted could start ramping for you? Like what should we expect in terms of like go-to-market sort of strategy in these geographies? Daniel Sceli: Sure. So I'll start with China. I think everybody knows that China is the fastest-growing hydrogen market. The government goals that they set out are driving volume increases. We're in a bit of a lull right now where volumes globally have slowed down on hydrogen, but we expect them to begin to pick up again at some point here in China. Having our plant there allowed us to compete locally. It allowed us to have local costs, source local suppliers. It's -- for us, it's the right strategy to compete in China for the Chinese market. shipping from Italy or from Canada just didn't make sense. The comment on India. India is really a huge opportunity for Cespira in the long-haul trucking market. India has now put in a multistate highway system. They're investing in clean fuel stations. And we see that a number of trucking OEMs look at India as a beachhead for growth, and that market is going to pick up, we believe, pretty significantly. Amit Dayal: Understood. Just last one for me. Any opportunities or possibilities in the power gen or backup power space for you guys? Daniel Sceli: Well, interesting you asked. So we've been looking into power gen. We currently supply into power gen today. We have a customer that used to be Kohler, Rehlko, that we supply out of our High-Pressure Controls business. we see that opportunity growing with the investments going into Power Gen across North America and, of course, globally, we think that there's an opportunity to build out that business. And are expected to grow there. Operator: Next question comment comes from the line of Rob Brown from Lake Street Capital Markets. Robert Brown: First question is on the OEM trial at Cespira, the second OEM. I know you can't give a lot of detail, but I think you said this year is sort of when the trial is happening. What's sort of the decision point on that? Is it sort of work this year and then just make decisions and then start potentially ramping into a production model or just sort of the outlines of the process would be helpful. Daniel Sceli: Sure. Sure. I mean, I wish I could say who it was, but in this commercial truck world, they're very, very careful about their commercial information. But the trial is ongoing right now, right? There's trucks on the road running there's discussions about expanding it, but we believe decisions will be made in the second half of the year at some point. We don't know the exact timing. It depends when they get the miles on the trucks but our expectation is that in the second half of the year, we're going to start getting feedback. And of course, if it all goes well, we're hoping this is going to lead to a commercial launch. Robert Brown: Okay. Got it. And then back to the High-Pressure Control business run rate. to get a sense of what's the sort of revenue run rate now that you've gotten the production transition? Is it sort of growing off the Q4 run rate? Or is it I guess how much of the Q4 run rate was depressed from that, I guess, just a sense of the run rate in that business. Daniel Sceli: Sure. The Q4 run rate was depressed. Number one, the market has slowed down somewhat. But also with shutting down the equipment in Italy, moving it all to the two new plants. Obviously, we weren't producing for some time while that transition happened. But yes, we do see that market starting to grow we see volumes increasing over what we expected for 2026 already. So it's on a good path, and we believe that the I think specifically the Chinese market is the one that will take off first as the Chinese government puts those goals in place for hydrogen transition in both automotive and in the industrial markets. Operator: [Operator Instructions] Our next question or comment comes from the line of Mr. Eric Stine from Craig-Hallum Capital Group. Eric Stine: Dan, you touched on HPDI in India and in your prepared remarks, Latin America and some other markets. But in terms of in North America, I mean, I know that's a very high priority. You did mention some trials that you are planning or that the joint venture is planning. In Canada. Could you maybe go into that a little bit? Anything you can share? And should we assume then that Canada is kind of the initial spot in North America that you would target? Daniel Sceli: I think if [Audio Gap] for CNG is a Westport product, not a Cespira product. Obviously, Cespira has the on-engine HPDI technology that will be part of the solution. But the -- in the back of cab, High-Pressure storage, smart storage system is a Westport product. We have already got the first truck, Volvo got us a truck, and we've already put the back of cab system on it. It's been running miles developing data. And the reason that is that we're not having to redevelop any of these systems. It's a matter of putting these systems together. And so it's not a huge development project. It's more of a market development that's required. The truck, as I said, is on the road, the truck will be on its way shortly to Las Vegas for the ACT show. I hope you're going to be there, Eric, and see it. We have a booth right next to Volvo there. And as you know, this CNG storage system is primarily focused on the North American market. We will be doing the initial trials in Canada. And -- but we will, at some point, here, be moving to the U.S. for trials as well. Eric Stine: Got it. Okay. I misunderstood that. So then I guess the follow-up then would be just about bringing HPDI, the joint venture, since you just talked about back of cab, but HPDI to North America. And I would assume that, that would be Volvo, right? Daniel Sceli: Well, as a starting point, for sure, but this whole CNG, I mean, HPDI is growing fast globally. The difference is that all the growth of 10,000 trucks are on LNG because that's how those countries receive their natural gas. Natural gas in North America is primarily delivered through compressed, right? It's a CNG market. So what our on-engine system really doesn't care whether it's compressed or liquid, the system adapts to that. the storage system is the big difference going from a liquid storage to a compressed storage. And that's what we're bringing. And the first truck on the road is a Volvo truck. It's their new truck, and we're very excited to have it showing up at ACT. And this is pretty exciting for us. We're finally getting to execute on this strategy. And any growth we have on this back-of-cab system obviously pulls through HPDI for Cespira. Eric Stine: Yes. No, absolutely. Okay. And just housekeeping for my last question or questions. Just I might have missed it, but did you quantify or estimate what you think the move did in terms of limiting Q4 for the High-Pressure segment? Daniel Sceli: Oh, sure. I mean we -- I think we lost probably a couple of months of production. And we had built up some inventory. But when you lose a couple of months production, you got to play catch up. And that coincides with a bit of the market pause that had happened. But we've launched both plants, both plants are up and running and shipping products. So we've gotten through that transition hump through the launch hump, and we're pretty excited about where that's going to go. We have the control in our hands. All right. Thanks, Eric. Well, that's all the questions we have for today. I want to thank you for your time, everyone, and have a great, wonderful weekend. Operator: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day. Speakers, stand by.
Xiuyi Ng: Good morning, everyone. Welcome to CLCT's 1Q 2026 Analyst Briefing. I'm Xiuyi, Investor Relations for CLCT. With me today, we have our CEO, Gerry; CFO, Joanne; CFO Designate, Lintong; and Head of IPM, You Hong. For this meeting, we will start with a brief presentation followed by a Q&A session. [Operator Instructions]. So with that Gerry, please go ahead. Kin Leong Chan: Thanks, Xiuyi. Welcome everyone to CLCT's first Q 2026 business update. Thank you again to making some time this morning to attend this presentation. This is update. So I think it will be relatively short. There'll be more Q&A time later. So CLCT, we are the first and largest China-focused S-REIT. So now, of course, we also have connectivity to the C-REIT market through us jointly listing a C-REIT on the Shanghai Stock Exchange with our sponsor. Our current total asset is SGD 4.5 billion. We have 8 retail malls, 5 business parks, 4 logistics assets. And most of our assets are in Tier 1 and Tier 2 cities. Distribution yield using FY 2025 DPU with the unit price now is roughly about 7.5%, right? That reflects some of the unit price movement from the broad market winners after the start of the Iran war. In terms of our asset allocation, you can see that relatively unchanged. Our retail is still our largest and most resilient asset class, 70% of gross rental income, that's the biggest part. And then the remaining 30% is what we term as more new economy, so business parks 27% and logistics parks smaller at 7%. In terms of the different segments, generally speaking, the retail has been showing relatively more resilient with our AEI effects starting to flow in Q1 of this year. Logistics stabilized, of course, with some rent resets that we have done in 2025. And business parks, we will see that continue to have weak demand. So overall portfolio gross revenue and NPI dropped about 5% and 3%, respectively. And that's mainly due to the divested Yuhuating effect. So encouragingly, on a same-store basis, you will see that our portfolio gross revenue marginally negative at minus 0.4% year-on-year and NPI actually increased 1.3% year-on-year. If we dissect further for retail, again, on the headline revenue, it declined by 7.2%, but again, mainly due to the loss of Yuhuating's revenue, which alone was about RMB 21 million. So without that, if you exclude that on a same-store basis, it narrows to -- the drop narrows to minus 0.5% year-on-year. The other effect is -- for retail is that the completed AEIs started to provide us with new revenue flow. That's about RMB 5 million per quarter, and it was somewhat offset by some of the weakness -- continued weakness we see at Xinnan, Grand Canyon Mall and Aidemengdun. For BP and Logistics, when we combine together the revenue is relatively flat year-on-year. What we have done, of course, we continue to focus on operating efficiency. Our operating costs on a year-on-year basis, we reduced by 3.7% on same-store basis. Next, if you look at some of the retail operational statistics for first Q. Continued growth in traffic and tenant sales. You can see traffic grew by 3.3%. Tenant sales grew by 5.5%. And both of these statistics are generally faster than we have seen in terms of growth than the average of full year 2025 over that full year 2025, which grew about 2-plus percent for the full year 2025. But really, we are continuing the strong momentum that we saw 4Q 2025. Overall, occ cost is healthy, 17%. Again, there's a slight drop in occ cost and that's due to the good healthy sales growth that we have seen. Trade categories that have done well. F&B 4.2%, that's not a surprise, it has been a big category for us. Again, last quarter, I shared the same trends that are driving this F&B segment. We introduced new high-performing trading brands, which are 2 factors for [ shoppers ]. Growth also was broad-based. We have all local favorites, Japanese sushi chains and bakeries all doing well. IT up 8.5%, that's again boosted by consumption voucher as far as we mentioned, we expanded more digital brands during our AEI in Xuefu and Wangjing. Brands like Huawei continue to do very well in our malls. Jewelry & Watches plus 8%, again, driven by the trend to invest in gold. Toys & Hobbies, again, a standout, plus 59.6% this quarter, continued popularity of the collectible toys market. So again, POP MART was 100% up year-on-year. Again, we did very well. [indiscernible] Xuefu going strong. They are up about 58% in terms of sales growth. The other categories that are not in the slide, but I can share a little bit. Last year, we did a lot of supermarket AEIs. So the supermarket upgrading Wangjing share to Xizhimen did well, so those powered our supermarket category. Actually, it's there in the right-hand side. We had strong sales from that RMB 80 million, right? So the growth there is, of course, that double digit since last year's supermarkets, some of them have closed down. And once they were open, this supermarket drove good traffic growth at the 3 malls that we opened. Another category that did well, sporting category, we also opened Decathlon in Rock Square and very good ANTA Guanjun [indiscernible]. So the sporting category this quarter also did very well, plus 46%. One real surprise for me is that the fashion category actually turned positive this quarter, was positive 1.4%, a small positive, and growth was driven by the stronger malls and some of the names that have been going well, most of them, which is basically winter wear, thermal wear. And perhaps it's driven by the winter season. We had a strong overall growth of about 40% sales growth. While no one quarter is in a trend yet, but certainly, this is encouraging because we have had many quarters where we have not seen fashion had a positive sales growth. In terms of occupancy, our malls continue to have high occupancy. So this quarter, we had 97%, with almost all malls are above occupancy of 95% except for Xinnan, which is, of course, we are continuing to reposition. In terms of reversion, similar levels to 2025 at about minus 2% with 2 anchor renewals affecting our reversion number. We are doing some anchor renewals at Nuohemule and Aidemengdun. Business Park occupancy is at 86%, a slight drop from 4Q 2025. Usually, leasing momentum in the first Q is usually slower. But our Business Park assets outperform -- continue to outperform our submarkets despite generally softer environment for business parks. We see improvements in Xinsu and Ascendas Innovation Hub. But they are small -- they are decline in some of the other assets, for example, AIT, Ascendas Innovation Towers' occupancy dropped mainly due to one of the BPO tenants that did not renew upon expiry. We are looking to fill that. Hangzhou Phase 1 and 2 challenging market, which we shared before supply-wise, occupancy drop was from 2 bigger e-commerce tenants that pre-dominated that took up about 4% space of Hangzhou 2. Previously, we also shared that for Hangzhou 2, we had some X master lease service office that -- service office lease that we took back, that's about 55,000 square meters. And then where we subleased now from about 70% last year, we are now up to 74% backfill, right? So we'll continue to backfill that space. Overall Business Park's reversion is at minus 11%. We are, of course, prioritizing occupancy to actively trying to retain our tenants and conversion of the new leasing pipelines. You can see that actually this quarter, we did do quite a lot of leases, almost 60,000 square meters of renewals and new leases in first Q. So we are working hard at it. Logistics Parks, smallest part of our portfolio, 3% of GRI. We can probably say that I think the Logistics portfolio has stabilized. We further improved in Chengdu, driving occupancy of that asset to 96.2%, and also improving the overall logistics portfolio to about 99%. So we feel that rents have almost bottomed up in this Logistics portfolio. We aim to continue to achieve full occupancy at this level. Capital management before I hand it off to Lee to talk about it, I would like to just highlight that in terms of our average cost of debt, this quarter, we have managed to cut it down from 3.3%, where we ended off the year in 2025 to 3.1% by benefiting our efforts from [ RMB ] financing and overall constructive rate environment in both SGD and in RMB. So for this quarter, with the combined efforts, we managed to translate loan interest rate savings of about SGD 2.9 million. So that's about 18% year-on-year drop. So over to you, Lintong. Lintong Yan: Thank you, Gerry. So capital management remain a core strength and priority for CLCT. So our focus is actually very clear. We wanted to maintain a healthy balance sheet and they're actively lowering our cost of borrowing and protect distribution stability across the cycle. So as at March 2026, our CLCT's debt level is slightly higher than 1 quarter ago, following our distribution. That has resulted in aggregate leverage of 41.4%, which still remain comfortably within the regulatory limit. More importantly, like what Gerry has just now highlighted, we actually have achieved year-to-date average cost of debt of 3.1%. This represents 40 basis point reduction year-on-year and 20 basis point reduction versus full year 2025. These are tangible outcomes from active actions taken early in 2025, when we proactively refinanced and shifted funding from higher cost SGD debt into lower cost RMB debt. And also, we have increased our proportion of RMB-denominated debt, which has strengthened our balance sheet against resilience FX -- make it more resilient against the FX movement. So in -- as we deliberately balanced our SGD and RMB debt mix to stay flexible across various macro conditions, I want to highlight that in the small table on the upper right corner, right? That actually shows our distribution sensitivity on SGD and RMB interest rate movement. We now have more floating rate debt in RMB in SGD, right? This actually positions CLCT to benefit from monetary easing in China while being better suited for any potential volatility in SGD interest rate, given the global macro environment. And with lower borrowing costs, that has also strengthened our credit profile. Our interest coverage ratio has improved to 2.9x under stress test scenario, where the 100 basis point increase in average cost of borrowing or 10% decrease in our EBITDA, our ICR, interest coverage ratio, is remaining -- is able to remain comfortably above 2.3x, well above various regulatory threshold. CLCT's debt maturity profile also is very well staggered with annual refinancing kept at around 25% of our total debt, that is to manage our refinancing risk. The only offshore bond that is maturing in 2026 is RMB 600 million, 3.8% FTZ bond, which is due for refinancing in Q4 2026. While CLCT has sufficient committed bank facility to refinance this bond, but we see this as a good opportunity for us to further diversify our cost of funding as well as to refinance our debt and meaningfully lower costs. So we will actually keep unitholders informed about our refinancing efforts in the following quarters. So finally, we have strengthened our natural hedge. Our RMB-denominated debt now represents about 60% of our total borrowing, including other hedging instruments, we have around 78% of our total debt in RMB-denominated form. So in summary, our capital management strategy is to deliver a very clear and measurable outcome for our unitholders, lower cost of debt and stronger resilience to interest rate and FX movement, right? So these efforts underpin our distribution stability and provides CLCT with long-term growth capacity. Over to Gerry. Kin Leong Chan: Okay. Thanks, Lintong. I will just end off with maybe just a summary of our strategy in 2026, which is really a continuation of what we have done in 2025. We're trying to build a portfolio in the long term that aligns with China's focus on domestic consumption and innovation-driven economy. How we are doing it? We create value. We have, in 2025, established a long-term capital recycling vehicle via C-REIT platform. This will continue to support our ongoing portfolio reconstitution. 2026, our immediate target is to expand in -- some expansion in our new assets, especially retail, while continuing to make sure our properties have a stable occupancy. Unlock value, what we have done, of course, is last year, we have recycled CapitaMall Yuhuating. In 2026, our first priority is still to buy an asset to replace, replenish and reconstitute what we have sold in Yuhuating. But we will continue to work on and see whether there are suitable opportunities to recycle some of the noncore or mature assets where we feel that value has kicked. Extract value. Our AEIs, I think it's clear for everyone to see have been successfully completed and helping us in terms of organic income in 2026, right? So that will be -- continue to be a key part for us. We are trying to identify whether we can attract more value from existing assets. And as we look for new acquisition, we also want to see whether the new acquisitions that we are evaluating have potential and room for us to continue to apply our AEI expertise on them. Proactive capital management, I think Lintong has already touched on it. We will continue to drive down our average cost of debt while reducing our FX risk where appropriate. So that's the end of my presentation. I'll hand it back to Xiuyi for the Q&A session. Xiuyi Ng: Thank you, Gerry for the presentation. Now let's proceed to the Q&A segment. We have our first question from Terence. Please go ahead. Terence Lee: Congrats on actually the strong numbers. Actually, I really wanted to ask on Q-on-Q. I noticed that in fourth quarter last year, actually both revenue and NPI did drop in sort of like the mid- to high single-digit number on a Q-on-Q basis in fourth quarter. And then this first quarter, it did improve quite substantially on the Q-o-Q from fourth quarter. So maybe can you share on the Q-on-Q movements in the numbers? That's my first question. Yes. Maybe you can answer this first. Kin Leong Chan: I will answer that, and if there's some additional info that the CFO want to provide, he can do so. For the first Q numbers, I think if you look at this slide, we sort of have already laid that out. Of course, the big effect is Yuhuating, right, in terms of the revenue. And that's -- I think, I mentioned that actually quite for a big number, that's about RMB 21 million that we lost for revenue just because we lost -- we divested Yuhuating. But if you exclude that, you look at the other components, right? We have the AEI effects flowing through. So last year, most of our AEIs are completed, some at the late part of 3Q, some at the late end of 4Q. So most of the income really haven't come in. But this year, we have full contributions from all our AEIs. Just now I mentioned that the swing there is about RMB 5 million per quarter. So that's a key part of why I suppose you saw that retail revenue has on a same-store basis has been quite stable, right? Of course, as I mentioned, it's slightly offset by some of the poorer assets. I'm talking about Xinnan, Grand Canyon Mall and Aidemengdun. So that's basically how we come to about flat, excluding Yuhuating for the retail revenue. Business Parks. Business Parks NPI-wise, actually, if you look at the segmental breakdown, you would have saw that actually Business Parks also improve. Like part of it was because you recall last year, we had been trying to backfill some of the spaces in Hangzhou Phase 2, I mentioned about the service office master tenant, which we took back the leases from and then started releasing up. Last year, we said that we finally managed to lease it up to 70%, but a lot of it was really committed at the back end, right, of the year? And then, again, the income flows and effects started flowing in 2026, right? So that helped basically together with Logistics Park get us to a position where revenue is flat rather than declining in those sectors. And of course, generally, we're trying to maintain cost control. So I mentioned the cost control, and we have saved about 3.7% on a same-store basis. So that's why on overall basis, you can see the NPI is up 1.3%, excluding Yuhuating's effect. Is that... Terence Lee: Yes, that's very helpful. Maybe if I can ask a separate question. I understand that the C-REIT regime has changed quite dramatically. I mean your sponsor is looking at another separate C-REIT. So I wanted to get your views on how the changes impact the existing C-REIT and whether you may look to divest assets via C-REIT or how are you looking at asset divestments? Kin Leong Chan: So two questions. I think one is about the new C-REIT and the relationship with us and the sponsor. Second one is whether we are looking for more securitization or divestment from our portfolio into the new C-REIT. I think those are the two questions. So the new C-REIT format is something that really picked up in concept only end of last year, and it's something that the CSRC in China, the securities regulator, is driving very hard to get going off the back of quite a successful -- already quite a successful C-REIT market that they have right now. And CapitaLand as a very reputable REIT player globally and also in China, right, has been invited to do that sort of the first pilot batch of this new C-REIT format. The differences -- I can let Lintong explain the 2 differences in the short while. But when this was discussed, right, certainly, CLCT was also in the loop. And we also were consulted to see whether we want to have any assets securitized into this vehicle, right, new vehicle that's coming up, which will probably be second and third Q by the time they listed of this year, right. And we decided that since we have done our first securitization quite recently, right, we wanted to pace up the pace of our securitization or divestment, so that our DPU can have some income stability. As you can see from the results, we -- even though Yuhuating's divestment was not that big, we still lost some income. And we wanted to see whether there are opportunities to basically buy some assets to put -- to basically replenish those income before we go on to the next securitization, right? And if you look at the general market for C-REIT, it's actually very buoyant. So we are in no hurry. The market will be there for quite a while for us to take advantage of when we need that liquidity, right? So it depends on whether we have the capital needs, maybe we find very good assets at very good attractive yields that then we may think of activating another round of securitization. You Hong can explain the diverse between a new and old C-REIT as well as what people are seeing in terms of how they work together. Hong You: Yes. So on the new regime, if I may, we can call it commercial C-REIT, just to terminology it differently from the previous regime called infrastructure C-REIT. They are actually quite similar in terms of leverage, the legal structure and all that. I would just say there are 2 to 3 main differences that drives them. One is the speed at which I think the regulatory wanted to move this faster. So I think they have sort of -- the approval window will be shorter because last time, there's NDRC, CSRC sequentially have to approve it. But now I think it's all in the CSRC's purview, so that's number one. Number two, I think asset class, they've expanded into a more bigger real estate focused commercial asset class, namely including office, hotel. Of course, retail are still in it, and all the other more generic type of income-producing real estate are all admitted to this commercial real estate, which previously it was very limited. Number three, I think they've also relaxed certain reinvestment obligations. So I will not go into too detail. But having -- so basically, I think this is welcomed generally by the market as a whole. And from our point of view, I think we are indifferent as to which vehicle is -- can be our offtake vehicle. I think there were also questions on why there are 2 [indiscernible] C-REITs in the -- under CapitaLand's name, I think the regulators also suggest that there could, in the future, be actions there to take care of that, but that will be a next-stage action, yes. Terence Lee: That's very, very clear. And hopefully, we can see more C-REITs to come. That's all I have. Xiuyi Ng: The next question is from Geraldine. Geraldine Wong: Congrats on the more stable than expected set of results. Maybe just tying back to Terence's question on divestment, you'll probably look to phase out a little bit more to reduce DPU impact. Can we also say the same for the existing recycling to your -- to [ CRCR ] in terms of retail assets? Kin Leong Chan: Yes, I think we view it the same actually because it's kind of, I would say, a slew of tools that we have in our disposal because we are part of the same group, right? So we will -- whether it is to the new C-REIT or the old C-REIT, we will place it according to our own needs. Geraldine Wong: Okay. Okay. You also mentioned about acquisition opportunity that you see in other retail assets. Just wondering, would you want to pace that with a divestment? Or if the opportunity is really very interesting, will you actually consider doing EFR given that gearing now is at 41%... Kin Leong Chan: Well, it depends on how attractive the deal and basically the timing that we have basically to complete the deal. So there are quite a lot of permutations, yes. So it really depends. Geraldine Wong: Okay. Okay. Maybe just squeezing in question on Logistics and Business Park. Logistics reversion was a positive surprise. Is this lease specific or really reflecting a potential bottom -- early bottom for the Logistics asset class within China? Kin Leong Chan: I think it's quite been a trend for about 2 quarters already. You Hong can add a little bit more color, but we have tried to communicate that we feel that rentals have really reset, so that's why if you look at the reversions, it's actually just mildly negative in this quarter. Hong You: The reversion mainly come from, if I recall correctly, Kunshan and Chengdu because these 2 are the ones that have a bit of change in leases. But having said that, I think our observation of the market, I think we have alluded to previously as well that we will hopefully be seeing the rent are stabilizing and following 2 years of quite, I would say, drastic drop. Of course, we can't say for the whole China because I think North part of China, Southern part of China may be in a different -- slightly different timing and cycle of the market. But in the 4 cities that we are in, I think this is generally observed. Geraldine Wong: Okay. China, very big. Maybe just on Logistics, right? If you look at your 4 assets, how many percent of the leases are still on the rent that has yet to be [indiscernible] versus the already mark-to-market rents? Hong You: I will say that our leases are generally in the 2, 3 years kind of lease cycle. And then we have more or less done with the [ marketing ], that's my view. Geraldine Wong: Okay. So it looks like one more year to go then. Hong You: No, I would say that we have more or less [indiscernible] to the market, although some of them are 2, 3 years, but I think we have done the big churn in the last 1 and 2 years. Xiuyi Ng: The next question is from [indiscernible]. Unknown Analyst: [indiscernible] from OCBC here. Just a few questions. I noticed that the retail reversion is still negative despite the trade sales going up. So what's causing the divergence? Is it just a timing issue or like tenants still being squeezed? And related to this question is occupancy cost. What should we think about as a steady state kind of occupancy cost like trended lower to 17%? And is this going to trend further lower? And another question I have is on cost reduction, 3.7%. So it is somewhat substantial. What was actually being done to drive that kind of cost reduction? And should we be expecting further cost reduction? Then my third question will be in terms of the cost of debt. So do you have some guidance on where it will go towards the end of this year? Kin Leong Chan: Thanks for the question, 4 questions. So the first 2, I will touch on a little bit before I let You Hong to take the first 2 in detail and then I'll let Lintong answer second 2 in more detail. So generally speaking, the whole China environment is still in a deflationary or environment, right? So prices are not really moving up, right? And that certainly [ keep true ] when you try to ask tenants to increase rent. But of course, for those categories and those malls that we are really well, we have better ability to ask for higher rents, right? This quarter, I spoke about there was -- for the retail, there were some anchors that we renew that affected our reversions. I recall the number without them is minus 1.6%, minus 2%, but still negative. You're right, still on a negative trend or slight negative. And I shared previously, I think last quarter that what I'm -- we believe that sales trend are leading indicator for reversions, right? Of course, the timing you can debate of how much leading indicator it is, right? We have had a year -- almost a year plus or 2 years actually of sales growth, right, that outstrips -- obviously outstrips rental growth, right? So that to me shows actually our tenants are actually in a healthy position, right? That should continue to underpin the strength of our retail portfolio. In terms of the savings, we do work very hard on them. The details, I will let Lintong talk about it. And in terms of both operating expenses as well as our interest, we are working very hard on it. So the first details maybe on the operating side, occupancy costs, maybe You Hong, you want to add more color on that? Hong You: Yes. Thanks. So I think that's a really good question actually. We are also trying to understand and in my conversation with ground team, we are also trying to see whether there's room for us to drive ramp up. So I think the 70% is actually already below the levels of -- before the levels of the pre-COVID. So then again, I think our -- what we hear is that when we talk to the tenants, they are still relatively cautious on upping the rent, although they are able to still do good business, but I think the resistance is there because for one reason is that the they are also sort of in the deflationary environment, trying to promote and do more promotions, do more sales events. So they also felt that the margin -- their business margin is also not as good as the good old days, right? I think that's number one. And number two, I think in terms of the aggressive expansion tenants, what we are seeing is more in the drinking, in the bakeries, some of them still do. But the large format kind of tenants, F&B, fashions are still sort of lacking or rather the willingness to expand is still not there overall. I would say, so we would want to work with them to see how to drive it up. But I think at the moment, we are still seeing the rent being rather subdued, right? So I think that will probably take a bit of time. But hopefully that with now we see the new data on the DPI and all that. Hopefully, the CPI will also be able to go into the positive territory for a longer time, right? I think then people will start to feel that the inflation cycle will turn. I think that will help us generally. Lintong Yan: So for the interest saving, yes, so for this quarter, we are very encouraged to see our cost of borrowing has actually come down. So, yes. So this is actually years of efforts. Since 2025, we have been actually very much focused on lowering cost of debt and also to use the renminbi borrowing to actually lower our overall cost of borrowing. This actually takes time to filter through because we do have some expensive swaps that actually need time to mature and reset. So I think for now, I guess, this level of cost of borrowing, I think we hope to actually hold it there because we still have some floating rate that are actually subject to macro environment, right? But we do hope that we are able to hold the interest rate here at this level. And then we are also looking for opportunities to further reduce our interest rate, right? Take for some example, our FTZ bond that is actually currently the passing coupon rate is 3.8%, right? So this bond is actually coming due. So I think we are able definitely to refinance this bond at below 3% kind of level, even better than that. So -- but this bond will actually -- any refinancing effect will probably be filled in 2027 and when they -- actually interest savings contribute full year, right? And also, we do observe that occasionally, there are opportunities for us to swap our SGD debt into RMB debt through cross-currency swap because the interest rate environments are actually still quite volatile on the long end, right? So opportunistically, we are able to capture some interest savings when we swap SGD into RMB using cross-currency swap. That is actually we might be able to actually pick up a few interest savings here and there. So generally, if you want to look for some guidance, I guess we will be able to keep at this level, like 3.1% kind of level and hopefully can do better. Also want to highlight that earlier, I mentioned our fixed and floating rate debt, right? The ratio is now 65%. And that actually allowed us to enjoy any interest rate savings if the SGD rate actually continue to stay low and then if there's any chance of RMB further monetary easing coming this year. Unknown Analyst: Source of operating costs? Lintong Yan: Okay. Source of operating costs, right? So the team has actually been very focused on the cost measure, right? So a part of our operating costs actually come from revenue-linked expenses because if you look at our cost structure, we have a lot of expenses, including the property tax as well as some of the management fees are actually linked to our revenue. So this part, the decrease -- a portion of it is actually linked to our revenue decrease because we have actually some -- our Yuhuating has been divested. And on the operating front, we have actually seen significant savings in maintenance costs, right? So these are something that we continue to focus on and to actually save the NPI. Kin Leong Chan: Maybe I'll just add a little bit color on that. So the property cost savings, of course, we work indeed very hard actually with our property managers, who, of course, you know is our sponsor, right? So as Lintong said, if you take out the Yuhuating effect, right, if you look at same-store basis, the minus 3.7%, half of it is the revenue-related cost drivers. Some of the costs basically goes and correlates to the revenue levels. The other half, somewhat like, I would say, somewhat like fixed cost, but we have trimmed that down by quite a bit. And the first Q actually, we have made very, very double-digit sort of cuts to those fixed costs on a year-on-year basis. So on a combined basis, that's why you get this minus 3.7%. Xiuyi Ng: We have the next question from Terence Lee. Terence Lee: Terence Lee from UBS. If we look at Page 7, the 1Q year-on-year sales improvements, is there a way to just maybe talk through what would be like from the bottom of the list, like which sectors are more, I guess, worrisome or not performing that well? Kin Leong Chan: Okay. You're talking about trade categories that we may not have shown here. I would say usually, when this question is asked, last quarter, I would say fashion, but this quarter, fashion sort of surprised us a little bit. So the other category is the beauty category, the cosmetics. Again, I think last quarter, I did say within the beauty category about minus single digit, minus, I would say, maybe mid-single digits. But actually, this quarter also not -- it's negative, but it's not so bad, a little bit. I think you also can talk about EVs a little bit that's a big trend. Hong You: Correct. So I think from what we are seeing, the 3 categories that we see year-on-year drop, which is more on the slightly higher side is ranking them vehicle EV sales. And secondly is -- I think EV sales is also reflected in the nationwide consolidation number that was published a while ago. And I think leisure and entertainment also dropped. I think last year, we had a good movie and all that. This year, I think the movie hasn't been -- we haven't seen any big blockbusters, right? So I think that's that. And thirdly, I think home livings, we also -- but that's a very small trade to begin with. But home livings has also seen a little bit of decline year-on-year. I think these are the 3 main ones that we see drop. The rest is a bit more like a mixed bag. There are malls that do better. Also on fashion, I think Gerry mentioned, overall, we see a slight positive. But between more malls, we see differences, right? So some of the strong must do better. I think our [indiscernible] negative. So I think the rest I wouldn't be able to generalize too much, I think. Kin Leong Chan: I mean, in summary, I think this quarter, particularly the positive has more than the negatives. Terence Lee: Yes. I think it almost sounds like the negatives are not that negative broadly, like the range from slight negative to positive as it gets for Toys & Hobbies. Kin Leong Chan: We hope the trend continues. I don't want to call a trend, but this is 1 quarter, yes. Terence Lee: Okay. And next question, remind us of the RMB hedge policy again? And I guess what would be the effective hedge rate on this first quarter results? Kin Leong Chan: Okay. I'll turn that question to Lintong. So the hedge policy and... Terence Lee: FX hedge policy, sorry. Kin Leong Chan: You're talking about the income, right? Terence Lee: RMB to SGD? Lintong Yan: Okay. So we typically hedge -- we look at our RMB exposure and cash flow, right? We typically are forward looking at our upcoming distribution from China, right? We typically hedge about 75% to 90% and then probably 6 to 12 months ahead. So that actually really depends on the hedging cost because I mean, RMB and SGD depends on the tenure that might have some positive carry, which means the forward premium is in our favor. And sometimes the forward premium is actually quite expensive. So we actually look into these hedging costs to decide how much we hedge and for how long we hedge. But generally, it's about looking forward, right so 6 to 12 months and then hedge about 75% to 90%. So as you can see that actually RMB versus SGD recently has actually stabilized. That actually has helped us in terms of our hedging decision as well. Terence Lee: So just if you can help us make our job easier, what would be the effective rate for first quarter or even first half? Lintong Yan: You mean we hedging. Yes. So we hedged about 80% of our forward rate. So our rate hedge is about 5.4%, around that kind of level. Terence Lee: Okay. That's weaker than spot. Lintong Yan: Yes, because some of these hedges was actually done at the second half of last year and then some are actually done at the beginning of this year. So you can actually see that the spot rate has actually strengthened, especially after the [indiscernible], right? So actually towards the March, right, the RMB has actually reached, I think, [ 5.35 ] kind of level. So some of our hedges was actually done before that. Kin Leong Chan: Usually, 6 to 12 months, can do in 6 to 12 months. Terence Lee: Got it. And maybe just going back to the comment by Gerry about wanting to buy first before doing securitization. Just a question on the rationale, like why isn't this more so done at the CLI level? And I guess a little bit more relatedly, related to capital deployment, is there not more value you see in buying back your stock now? Kin Leong Chan: The first question, you were asking why is it not more with the CLI level? Terence Lee: Meaning to say like why -- I mean, if the plan was to so-called like buy or source for, let's say, malls in the market to buy, improve and sell, like why would this not be done at the CLI level? Like why would -- what is the strategic rationale for doing this at the CRCT level? Kin Leong Chan: Okay. Okay. Same strategy. Why CLI is not doing it and why CRCT is doing it? Is that the question? Terence Lee: Or rather, why would it be done at both levels? Kin Leong Chan: I think, first of all, I would say the objective and strategy for China-focused REIT will be very different from the objective and the strategy of global asset management or fund management platform, which CLI is trying to -- CLI is positioned for basically, right? So from CLI's perspective, I'm sure you have heard Paul and Chee Koon talk about it. It not only have China business, they got business basically across different jurisdictions. The asset allocate their business according to where it may bring them the best growth. So it may or may not be China. And in China, they may have different strategies than us. We are quite straightforward, right, because we are China focused. And China for us is Greater China, China, which means Mainland China, Hong Kong and Macao. These are the 3 places that we can look for assets. And we will portfolio reconstitute within these countries across asset class that we currently play in or we may in future, but not -- perhaps not immediate future to look at other asset class, right? So our acquisition, our divestment, our value add would therefore, be contained within China. So that's quite clear for us. I think the other thing that the relationship between us and the sponsor is that the sponsors have different strategies. But one thing that's certain is that they are supportive of our objective. And you will recall, we still have historical ROFRs with the sponsor, right? So when we are looking for assets that we -- assets to basically inject into the REIT, those assets are, of course, up for consideration together with third-party pipeline that we generate from [indiscernible], right? So that's in terms, I think, of the strategy. Second question is unit buyback, right, unit buyback. I think I addressed this in this manner, right? Of course, stock price, it's sort of volatile, sometimes it's down, sometimes it's up, right? And therefore, the trading yield present itself accordingly. Right now, our trading is about 7%. So in terms of capital allocation, right, for the same dollar, which we are using the same gearing headroom, we got to decide for ourselves whether we can find a deal that is basically accretive against the trading yield, right? And that's our ultimate test, right? We sold an asset only end of last year. You Hong is still working hard. Just now, I talked about the pipelines that we have assessed to see whether indeed we can find something that we can buy and add value. Of course, if you buy back our own stock, it could be immediate. But if you buy something that's an asset that's accretive, that means we are basically buying at a yield higher than our trading yield plus, as I said, we want to have some value add in there plus potential to improve on the assets that we buy in. That could actually prove to be a better proposition for the same unit of [indiscernible]. Xiuyi Ng: The next question is from [indiscernible]. Unknown Analyst: I have two questions from me. First, how do you see rental reversions for the Business Park assets trending for the rest of this year? And how is the leasing sentiment like on the ground? Second question is more on aggregate leverage. Was the increase in the total debt a temporary bump to pay out the FY '25 distributions? And what is the ceiling that you'll be comfortable with if you were to acquire an asset and fund it with debt? Kin Leong Chan: First question, I'll let You Hong take, then I'll comment on the second question. Hong You: Yes. On the reversion side, Business Park, I think we -- between assets, we see that since we are still the stronger one, although it also had slight negative this quarter, but the stress really comes from, I would say, Hangzhou. And the situation on the ground, I think we have shared before for the last couple of years, I think there were quite a bit of supply coming on board, but it has sort of I think the last bit of the supply should be already in, right, in that submarket per se. So I think within the submarket, we look at how the other people are doing. I think generally, we are looking at close to 70% already. We are also at slightly above 70%. So I think the kind of competition that we see probably will last a bit longer, but hopefully not that long. So for this year, I still expect that reversion to be stay within this kind of range level. But hopefully, by the time when all the supply glut have sort of been absorbed by the market, I think then we will see a more healthy situation going forward. Kin Leong Chan: On the leverage, indeed, yes, first Q is affected by the fact that we drew on some loans for distributions. So we do expect, over the next few quarters, some money to come back as we extract dividends from our assets in China. So that's something to look out for. In terms of for acquisition, what's our limit? I think generally speaking, yes, the S-REIT environment, although MAS guideline is 50%, most S-REITs will try to contain themselves within 45%, right? And I think that we are now about 41%. So different REITs have different level of gearings. Also a little bit -- we have to look at it a little bit with regards to the -- maybe the cost of debt as well. I think our ICR is still quite healthy, right, a good buffer above the 1.5x required by MAS. So I think generally speaking, our financial metrics still look quite stable, yes. So that will be how I think about basically the leverage that we can take on. Xiuyi Ng: The next question is from [ Joell ]. Unknown Analyst: I just have two questions. The first is regarding electricity prices. I noted from your AGM Q&A is more impacted by coal prices rather than oil prices. I believe coal prices is probably up about 15% higher year-to-date. So I'm just wondering what is CRCT doing? Any proactive actions to handle the higher electricity costs going forward? Kin Leong Chan: Okay. That's the first question. You Hong can take that. I think main thing is basically electricity trend in China as well as I think maybe you can talk about our ability to cut electricity consumption at the ground. Yes. Hong You: I think for the electricity price so far, based on our survey, it has not been affected by the Middle East situation. In China, generally, I think we have seen news that oil price, the gasoline price has gone up, but not the electricity. So I think the government also have -- would want to keep that stable for obvious reasons. So I think that's number one. I think for the ways to reduce consumption, I think this is -- has been always something that we have discussed and hopefully drive. Along -- over the years, I think we have also tapped on, [ for example ], the automation or data analytics to actually help our technicians to be able to drive the efficiency on the same chiller, same electricity level. Of course, the weather -- sometimes weather conditions fluctuate. So I think that can only help. But from our point of view, I think we do what we can in terms of equipping our technicians with smarter and better tools to analyze and to drive the unit rate down. The other thing I may just want to share a little bit that I think this is still [ probably ] coming. I mean we are trying to source our electricity, a portion of it from green renewable sources. In China, some of the cities, this has become available at a rate that's equivalent, not more expensive than the equivalent nongreen energy. So I would say so far, we have been sort of procuring a portion, I think, around slightly above 10% of our energy from the green sources. So I think this is something that we are also watching and experimenting without increasing our costs. Unknown Analyst: That's quite clear. My next question is regarding new leases versus renewed leases. Noted that roughly it's 40% new lease, 60% renewed lease across all your segments. Is there a preference? And also a follow-up on that, any incentives that you're giving on the ground? Kin Leong Chan: You Hong? Hong You: Sure. For retail, I think we would generally like to see a healthy level of renewals, right? It ranges between -- or rather new brands, I would say, right? New brands inject new vibrancies and interesting ideas to the malls. So I think between 40, 50 of new brands is actually quite common. We have seen before, right? In times that's a bit more challenging, of course, then we tend to renew more. But if we have a choice, we do want to get new brands in. That's retail. But for Business Park and Logistics, I think our preference is more sticky tenants, right? So I think generally, the pie will shrink to more fit, I would say, renew, right? So I think usually, we see that figure between 60 to 70 renewal, another 30 to 40 in the new tenants, I mean. Okay. Of course, we do what we can to drive up occupancy and rent. But I think generally, we are also watchful of not going over the line. So I think generally, our save on core, the rent free or -- basically, we do save on core market type of rent-free on incentives. It's quite typical that we have first 1 to 2 months that's for renovation and it could also be some of the market where it requires, it can be about 1 month of rent free that also happens, right? So I think that's something that we will do. Kin Leong Chan: And apart from incentive, I think what we want to do is to be responsive to the tenant needs, right? So in some situations where they need additional power, they need better transportation. We may upgrade power, we upgrade lease for them if the tenant is serious and a strong tenant, right? So these are the kind of things that we do take into consideration. Xiuyi Ng: We have a final question from Vijay. Vijay Natarajan: I have three quick questions. Maybe I'll take it one by one. Firstly, in terms of this Middle East conflict, have you seen any impacts to your portfolio of tenants? Is there any tenants who are exposed to energy, logistics, shipping, et cetera, in Business Parks, Logistics that you are -- that is facing some pressure. And from my understanding, China has a cash flow issue. Are you seeing in terms of rent collection, has this been improving and your rent collection is much more on time at this point of time compared to 1 year before? Kin Leong Chan: Okay. I think for the Middle East conflict, one thing that has really stand out for me is China seems to be quite well controlled in terms of the effect. Utilities, I think You Hong has covered. But that's really tip of the iceberg in terms of they are owning self-sufficiency. Supply chains are being disrupted. But by and large, what we hear in China is things are still available, right? And then in terms of businesses, direct businesses to our tenants, retail, there's actually no issues because just like in last year, when we talked about tariff war, most of our retailers, many of them are local buyers, local sellers, basically selling to local crowd, buying from local producers, right? And the international brands, they do not typically ship from Middle East. Middle East is not a merchandise producing area, right? So retail is not that big an issue. Business Parks, there are a handful who have businesses or sell particularly to Middle East, but that's not a big portion of their business. Nobody really went out of business because of that in our Business Parks. And in terms of Logistics, again, our logistics portfolio, maybe half of it service domestic distribution, right, half of it export facing that's in Shanghai, right? Again, not much to report in terms of disruption from Middle East because they don't have that much business going with Middle East, right? What we do say is second order impacts you cannot ignore, which is in our outlook slide, because petrochemicals, which come from Middle East are a feedstock to some manufacturing inputs for some of the factories in China, for example, plastics and so on and so forth, right? But as many economies and China watches would also inform even that China have a solution because actually, you can produce the same petrochemical with coal, right? It depends on how much in terms of cost of production, basically. But with the prices that the petrochemicals from oil is -- we are talking about, it's making the coal chemicals quite actually a good alternative. So economy and production base is as diversified as China. Actually, we had just one economist spoke to us yesterday. In fact, you would say that strategically it favors China to withstand the pressures that come from the Iranian war. So that's my take on it. Sorry, the second the arrears. No problem with arrears. Hong You: Yes. We don't see any major change in pattern in terms of arrears. Vijay Natarajan: Okay. My second and third question, okay, earlier, you touched upon acquisitions. Maybe can you touch upon which segments you would be looking at and what kind of yield benchmarks you would be looking at for potential acquisitions ahead? And third question is, is there a trend of retail tenants signing a slightly longer lease because I noticed your WALE going up a bit. I mean are the tenants trying to lock in the rents at these levels in the retail segment, especially? Kin Leong Chan: Your first two questions, I will answer. Maybe You Hong can take the last one. The type of assets we're looking at and then the new levels, okay? So actually, we spoke about it, the type of assets that we are looking at. Today, we have 3 asset classes, retail, business park and logistics. We are more focused on the more defensive part, which is retail, right? 70% of our portfolio is in retail. We look at the trends, retail have been more resilient, particularly our sort of our subset, which I call bread and butter, malls, right, not the luxury malls, but maybe more the middle market ones. We are looking more in terms of that segment. But that doesn't stop us from looking at other asset classes. For example, while business park in general are not doing so well, you would have because of the manufacturing drive in China, right, would have seen factories actually doing quite well. And on and off, there may be industrial properties that are not so much decentralized offices, but more of the R&D, more catering to actual production, right, that may be available for sale. Those if they are at the quality of our Xinsu portfolio, which have been very, very strong, right, certainly is something that we can look at. But as a priority, of course, we are -- I think we want to stick to where we add the most value, which is really retail, right? So that's one thing that I can share. The other thing in terms of yield, I think it's very simple. As a REIT, we want to look for something that is yield-accretive. Today, our trading yield is about 7%. That's one way that you look at it. The last deal that we sold for our retail mall, we sold it at NPI cap of about 6-plus percent. So definitely we want to beat those metrics, right, in order to basically, over time, improve the average yield of our assets. You Hong, you want to touch on the next question. Hong You: Yes. WALE, so I don't think we have -- okay. Indeed, some of the retailers do ask for longer locking for both -- I mean, trying to sort of see that the rent is rather favorable and reasonable and also secondly to have a reasonable period of recovery of their investments, right? But we have been more careful in not lock ourselves in if we deem that the rent is [indiscernible]. So I think that will protect us and give us the chance, of course, to go back in terms of negotiating rent on a higher side when the cycle is due. So I think we don't see a big trend in having to lock in very, very long leases, fair to say that. Kin Leong Chan: The bump you see in the first probably is the 2 anchors that we sort of [ resigned ]. Hong You: Yes. Yes. Correct. Correct. Xiuyi Ng: Thanks, Vijay. And thank you, everyone. Since we have no further questions, this concludes our session for today. Please feel free to reach out to me or my team if you have any questions. Thank you all, and have a good day. Kin Leong Chan: Thank you.
Maria Gabrielsen: Welcome to Yara's First Quarter Results Presentation. The presentation today will be held by Yara's CEO, Svein Tore Holsether; and Yara's CFO, Magnus Krogh Ankarstrand. I would like to mention that we have a change in how we do our Q&A session today. Once the presentation is done, we will move straight into the Q&A session. [Operator Instructions] But first, let's start the presentation. It is my pleasure to hand over to our CEO, Svein Tore Holsether. Svein-Tore Holsether: Thank you, Maria. Good morning, good afternoon, good evening, depending on where you're dialing in from. And thank you for joining our first quarter presentation. As always, I'm starting with our safety performance. Our license to operate is creating a safe working environment for all our employees and contractors. And we have a lot to be proud of our performance in the first quarter, but safety is not one of them. We continue to see an increase in accidents, and this has also been the case in April, which means that we will likely see further deterioration as we get into the second quarter. And there is only one responsible for it, and that is me. And I take that responsibility very seriously. I'm now in my 30th year in industry. And what I've learned from safety is that you cannot dictate your way to safety and also that campaigns, they only have a short-term impact. It is what we do every day, every week and every year that matters. And we know what to do. We will continue to work according to our Safe by Choice approach that has now been in place for 12 years. This is our joint commitment to safety throughout the whole organization because at the end of the day, 1.2 TRI, that's a ratio. But behind that, there are 59 accidents, 59 colleagues, someone's mother, father, brother, sister, friend that got injured at work during the last 12 months. We can, and we will bring that to 0. But for now, we need to turn the negative trend. On Tuesday next week, we will have our Annual Safety Day, and that is another opportunity for us to spend time together and get this right. That was the low light. Now let's take a look at some of the key highlights for the first quarter. Yara delivered a strong quarter with an EBITDA, excluding special items of $896 million. This is an increase of 40% compared to last year, and that's reflecting higher nitrogen upgrading margins in a tight market in the start of 2026. And in addition, Yara has increased deliveries to customers in the quarter, reflecting a strong commercial execution. And this also enables us to maximize production volumes and consequently also capital efficiency. First quarter results mostly reflect pre-war markets, but the Middle East conflict has disrupted global fertilizer markets since the end of February. The blockage of the Strait of Hormuz disrupts around 1/3 of global traded urea. It also has other key raw materials for fertilizer production such as its gas, its ammonia, its phosphates, and sulfur. And this supply shock has led to significant increase in global fertilizer prices. And that, coupled with weak crop prices and high regulatory burdens, farmer affordability has increasingly come under pressure. And the high prices are increasing volatility and also risk premiums across the fertilizer value chain and eventually into the food markets as well. As we said at our Capital Markets Day in January, Yara is a battle-proven organization due to our global diversification, our energy flexibility in Europe and also our highly competent workforce. And now that is being put to the test again, and we are demonstrating the strength of our business model where our global system enables us to uphold production and to ensure the continuity of supply. And this means that we are uniquely positioned in the current situation with strong commercial and operational execution in a disrupted nitrogen market. And I want to thank all my colleagues in Yara for their strong performance this quarter. Looking then at the EBITDA variance for the quarter. The increase of 40% since last year mainly reflects the increased nitrogen spreads. Nitrogen prices have seen a significant increase since first quarter of 2025. And gas price changes are typically reflected after 2 months in our earnings. So this quarter, EBITDA is largely based on pre-war market dynamics. Volumes are also up, reflecting strong commercial execution in the season to date. And keep in mind here that we also had a strong fourth quarter on volumes. We continue to see a positive impact on EBITDA from our fixed cost reduction program and a further $18 million down from last year. Return on invested capital has doubled from 6% last year to 12.2% on a rolling 12-month basis. And that's above our through-the-cycle target of 10%. Global fertilizer markets are currently heavily affected by the ongoing conflict in the Middle East. Around 1/3 of globally traded urea is exported through the Strait of Hormuz, but also 1/4 of the world's ammonia as well as 50% of sulfur, which is significantly impacting the availability of phosphate fertilizer. And furthermore, 20% of global LNG trade is disrupted, and that's leading to urea production curtailments as well, such as in India. The disruption to urea availability has led to a significant price increase, so far, 47% since February. And urea FOB Egypt is up even more at 77%. TTF gas prices have also increased, however, less so than urea and phosphate prices. Farmers' situation was challenging before the war driven by weak crop prices and cost inflation across many input factors as well as regulatory burdens and global market volatility, which all add to this pressure, and this is concerning. And those that will be hit the hardest are smallholder farmers in the poorest parts of the world because of lower ability to pay. But it's actually a double hit because it's likely also impacting the farmers where the yield curves are the steepest, meaning that marginally lower fertilizer application will have a higher yield impact. Fertilizers are essential for food production and stable access is really critical for farmers to produce the food that the world needs. Yara's role is to remain robust and to ensure the continuity of our production and also the deliveries to the farmers. Building on long-term operational improvements, our production system has seen a steady increase in output. And this is also our core focus in the current situation. And as you see here, deliveries to customers are also up in the same period. Volumes on this slide are not adjusted for turnarounds, but it's reflecting actual production and actual deliveries. And ensuring a high uptime of our assets is really a key objective, and it improves our capital utilization and also our energy efficiency. In addition, our energy flexibility enables us to import ammonia if needed in order to keep finished goods production running. And this has enabled Yara to be a reliable source of fertilizer in this critical period as well, alleviating some of the pressure on markets and serving farmers around the world. Yara's position is unique globally and the flexibility in our system continues to limit cyclical downside as well as maximizing output in the current situation. And with that, I'll now hand over to our CFO, Magnus Krogh Ankarstrand. Magnus Ankarstrand: Thank you, Svein Tore. As mentioned, EBITDA is up more than 40% on a strong first quarter 2025, predominantly driven by increased nitrogen operating margins before the effects of this ongoing conflict in the Middle East. This translated into a 60% increase in earnings per share as depreciation, interest and tax remained stable. Return on invested capital increased to 12.2% on a 12-month rolling basis, reflecting both increased earnings as well as portfolio adjustments. The quarter saw a USD 35 million increase in operating capital, driven by an increased price environment. However, this was more than offset by an increase in cash from operations, resulting in a significant increase in free cash flow of USD 196 million as net investments were flat. This increase in cash returns is attributable both to the improvements undertaken as well as the constructive nitrogen market in the first quarter. Turning to deliveries. We see an increase of 3% in Crop Nutrition deliveries compared to first quarter last year. This was primarily driven by increases in the Americas, but worth noting that stable deliveries in Europe, comes on top of a strong first quarter last year that saw a 15% increase over the year before and a 6% increase in volumes in Q4 2025. That means that season-to-date deliveries in Europe are up 2.5% and are among the highest in the last 5 years. In Africa and Asia, we saw a reduction of commodity volumes, however, an increase in deliveries of our premium products. And deliveries in Industrial Solutions are down 5% for the quarter, following plant closures in Brazil. However, these portfolio changes have a positive impact on our cash flow. Yara has focused through the last months to ensure both production and supply chains flow in the extreme situation to safeguard deliveries to our customers worldwide, and we have not experienced major disruptions to our production or supplies. This then increases our cash earnings further and strengthens our balance sheet, putting Yara in a robust position in the ongoing market volatility. Cash earnings are partly offset by an increase in net operating capital, which despite the seasonal release of inventory is up due to the increased values driven by prices. We are currently experiencing a strong market for all nutrients, especially nitrogen and phosphate. This increase in Yara's nitrogen and phosphate operating margins and increases the bar for our premiums, which we measure above commodity value for the nutrients. That, combined with lower crop prices in general, exercised some pressure on our premiums in certain markets. For the fourth quarter, strong demand and pre-buying in Europe supported European nitrate premiums ahead of the year-end and premiums in the first quarter of 2026 were comparable to the fourth quarter, but lower than first quarter last year given the higher nitrogen prices in general. NPK premiums are somewhat pressured, and primarily driven by Asia, we see a contraction towards more normalized premium levels at a very high commodity price base. Yara has a robust commercial organization and is on a day-to-day assessing the market environment on how to optimize volumes and margins globally. This also underlines flexibility of our business model and the ability to create value both on the upstream margin as well as the premiums, which also limits the commodity downside through the cycle. And building on that, there is no doubt that the current global situation puts significant stress on supply chains, and this is particularly visible in the fertilizer space. Yara's global reach and flexibility is uniquely positioned to navigate this. The current price environment, coupled with weak crop prices, is already leading to a substantial difference in buying appetite in prompt markets versus off-season markets. Despite moving into the end of the season in the Northern Hemisphere, the significant loss of nitrogen and phosphates as described by Svein Tore, means a supply and demand shortage in several Southern Hemisphere market as well in addition to India being a main driver for demand in the period to come. And due to Yara's global reach, we are able to optimize global deliveries and ensure we can keep our production system running at full speed, also by changing from locally produced to imported ammonia, if necessary, due to gas prices in Europe. And this is vital to keep serving a market in severe shortage of nutrients in our core markets such as Latin America. Ensuring our assets are uninterrupted is a core part of our operational excellence. However, we have had an unfortunate outage in Pilbara since mid-March, expecting to come back on stream in May. That is our ammonia plant that was stopped. In addition, we will execute a long-planned major turnaround in Belle Plaine after the season is over in June. And this will lead to a reduction of approximately 150,000 tonnes of urea in Belle Plaine compared to a full year of production and a loss of 140,000 tonnes of ammonia in Pilbara due to the outage. Diving deeper into this market situation, it is clear that the ongoing crisis in the Middle East has an unprecedented impact on global supply, not only urea and phosphate, but also other raw materials essential for fertilizer production such as sulfur are stranded and limiting fertilizer supply globally. And with as much as 1/3 of urea supply impacted and further supply reductions from Russian plants as well as reduced production in India due to LNG shortages, global availability is severely reduced and in an already tight urea market without spare capacity, significant demand reduction is required to balance the lack of supply. And naturally, market prices go up to balance the market and ration demand. This has been exacerbated by the ongoing season in Europe and the U.S., and it's obviously an extraordinary situation given the crisis in the Middle East. Market development going forward will depend a lot on the duration of the blocked Strait of Hormuz, the level of damage to infrastructure and the ramp-up time required to get back on stream. Demand reduction is a balancing factor as is potential exports out of China. In the medium term, as previously illustrated at our Capital Markets Day, there's a limited number of supply additions from ongoing urea projects, and this already seem to increase market tightness versus historic demand growth. And recently and recent announcements suggest that several of these projects are -- that were announced to be commissioned in 2027 will be further delayed, driven by both the Middle East situation and other factors. Capacity and export out of China is likely to remain the balancing factor in the medium term. And for Yara, this medium-term constructive nitrogen outlook is set to drive further value creation. However, our strategic priorities are designed to increase shareholder value irrespective of market developments. As presented at our Capital Markets Day, our strategic priorities rest on 2 pillars: driving performance and competitiveness and growing from our core. The former is the operationalization of our improvement program, focus on asset utilization, logistical optimization, capital reallocation and commercial excellence, all aimed at increasing our EBITDA and cash flow. Our medium-term goal of diversifying our energy position further remains a core part of that agenda. Meanwhile, growing from our core is key to increase value creation, scale and return to our shareholders. This includes healthy organic growth from recent and future production increases, up to 1 million tonnes on premium products as we announced in January. In addition, this includes realization of recent growth projects such as the NPK expansion in Cartagena, our YaraVita plant in the U.K. and the CCS project in Sluiskil, all to be completed this year. In addition, Yara will explore further growth opportunities linked to our core, all within our commitment to strict capital discipline and focus on cash returns. As mentioned on the previous slide, energy diversification is core for Yara and the collaboration with Air Products is a strong strategic fit to deliver this. The combination of Yara's significant ammonia system, including import infrastructure in Europe and Air Products advanced projects in the ammonia space is a strong strategic fit for both parties. For Yara, the drivers are threefold: access to low-cost gas, asset competitiveness and renewal through scale and the ability to harness carbon premiums. Predominantly through CBAM and with our collaboration with Air Products, we get all of these 3. At the same time, Yara is able to place volumes from Air Products more cheaply and efficiently into the core markets without the significant infrastructure investments otherwise needed. Commercial negotiations are proceeding according to plan with a priority on the NEOM project that is due to commission in 2027, and the U.S. project is progressing according to the previously announced time line. Yara is fully underway to materialize the improvement program announced in January. And summarizing the first part, our cost program that we launched almost 2 years ago, we already have a head start on that. Excluding currency changes, our fixed cost level on a 12-month basis is at USD 2.3 billion, down approximately USD 230 million from the second quarter of 2024, and this incorporates the underlying inflation in those 2 years as well. Going forward, we will include this into our improvement program, which expands the value levers into a range of other areas as well, but having achieved a strong cost control environment upfront provides us with a very solid starting point. And the improvement program remains a core focus going forward, aiming at more than USD 200 million EBITDA improvement by the end of 2027 and USD 350 million by the end of 2030. This includes our 10% ROIC target through the cycle, and we are starting to see strong financial metrics through a combination of market developments and improvements. It is, however, important that our aim of improvements irrespective of market developments. Looking at the last 12 months, we see a significantly increased EBITDA of about USD 3 billion, and accumulated cash flow close to USD 1.2 billion and perhaps most importantly, a return on invested capital firmly above 12%. And with that, I will give the word back to Svein Tore. Svein-Tore Holsether: Thank you, Magnus. The current situation is really unprecedented for the global markets, and the fertilizer industry is no exception to that. Together with the Ukraine war, the current conflict in the Middle East adds to the geopolitical volatility. Yara's business model is well adapted to navigate such volatility. And as we said at our Capital Markets Day, we have improved our resilience, building on our experience over recent years. And our competitive edges are really key in achieving this. The bedrock of this is our scale and global optimization, which is even more vital in the current situation. Operational excellence combined with flexible energy sourcing helps us to uphold finished fertilizer production. And our premium and diversified product portfolio provides a strong foundation helping to mitigate earnings volatility when commodity prices fluctuate. Finally, a disciplined and flexible investment approach, clearly anchored in our strategic priorities, will continue to strengthen our long-term competitiveness. Then to conclude our presentation, it is important to highlight that our ambitions and commitments remain firm despite the current market turmoil, further maturing our resilient business model and delivering on the improvement program launched at our Capital Markets Day back in January. They remain core focus areas. And our long-term goals of diversifying our exposure to lower gas costs and enabling low-carbon ammonia opportunities remain key priorities with a strong balance sheet, capital discipline maintained and a clear commitment to our credit rating, Yara is well positioned to deliver sustainable long-term value creation. And with that, I'll hand back to Maria. Maria Gabrielsen: Thank you, Svein Tore. That concludes today's presentation. We will now take a short break to set up and get ready for the Q&A session. [Operator Instructions] With that, we'll see you in a short bit. Thank you. [Break] Maria Gabrielsen: Okay. Welcome back to everyone. We are now ready for the Q&A session. This is Maria speaking. I'm here joined by today's presenters, our CEO, Svein Tore Holsether; and our CFO, Magnus Krogh Ankarstrand, in addition to our Head of Market Intelligence, Dag Tore Mo. [Operator Instructions] Christian Faitz, please unmute yourself and ask your question. Christian Faitz: Two questions, if I may. First of all, can you remind us how you deal with the volatility in gas prices at this point in time? And are you considering hedging at some point? And how are you secured through the rest of the year on the gas side? That's the first question. And then the second question, obviously, yes, thanks for the helpful slides you had in the presentation and in the slide deck. And you did show, obviously, that a large part of the European -- of the Northern Hemisphere is actually covered in terms of fertilizer demand. But if I was a farmer, I would obviously try to optimize costs and maybe also skip one or the other topping during the season. Is that what you see? And could that also be an inventory issue at some point heading into the '27 season? Svein-Tore Holsether: Yes. It's Svein Tore. I can start with the first and then I'll hand over to my colleagues on the second one. When it comes to gas prices, we're not hedging that. And that's been our practice over a very long time period because we see a very strong correlation between global energy prices and nitrogen prices that we have that flexibility to move with the market. And then we've built in additional robustness in our system by also being able to switch between producing ammonia and then I can use Europe as an example, where it's most exposed. So we don't have to produce the ammonia in Europe for about 75% of our finished goods. We can bring ammonia into Europe, and that gives us flexibility to switch if it should not be economical to use gas to produce ammonia in Europe. For the time being, the upgrading margins from gas to ammonia in Europe are also at a level that justifies continued operation, and we're running at full blast. And should that, for some reason, change, well, then we will do like we did back in 2021 and 2022 to bring ammonia in. And that's part of the strength in our business model where we can utilize the global network that we have on ammonia. We're one of, if not the largest ammonia traders in the world, and we have ships that can transport ammonia across the world, and we're utilizing that to maintain finished goods production. And should we have hedged, then we would have lost some of that flexibility. So that's the reason we have that structure in place. And then I'll hand over to Dag Tore or Magnus on the second question. Dag Mo: Yes. When it comes to, let's say, markets like Europe or North America, in some ways, they are kind of well covered when you talk about the import situation and urea in particular, I think I should mention that we are still seeing nitrogen demand. I mean we are delivering both from Belle Plaine and from our production system in Europe now in the second quarter as well. But if you look at -- if you just look at the urea situation, both the U.S. Gulf, which is far away from the application areas in North America at the moment and in Europe, pricing now is such that they do not match, let's say, the India price or the peak pricing elsewhere. So from that perspective, at the current global urea values, there is very low demand, import demand and probably not the need for it either if you look at relative pricing between nitrates and urea, for instance, in Europe. So in that sense, covered on the application, I think that nitrogen application, most areas that are exposed to the global values today will see some demand destruction more or less, you have kind of -- you have China and India covers almost half of global demand for urea, which are not covering -- which are not following the global market and have their own domestic pricing, which is way below. So that leaves kind of half the global market that has to do the demand rationing in a situation where there are significant supply losses. So if we again take Europe as an example, just to give some more details, I think that the industry deliveries in Europe are fairly stable, season over season. And we see that imports according to Eurostat and the numbers from the European Union, so far this season through March, Europe or EU has imported 4.2 million tonnes of urea, which is down from 4.9 million tonnes of urea same period last year, and there's probably been some declines also in other products or there has been some declines in other products, although urea is the dominant one. So I think that just looking at the current supply situation, it's logical to expect, let's say, a short fall of demand or a drop in demand of 5% to 10%, something like that in Europe probably. On your question of inventories, that is something that I kind of concerned us or we have been trying to follow that as well. And what we hear from the field is that from our commercial units is that the farmers are generally using the fertilizer they have bought. So no big carryover risk there into next season, we think, and that distributors and retailers are also back-to-back mostly so that in Europe, and that is normal, there are kind of regularly -- people are quite careful about not having too much inventories. North America, that can be a little bit different because of the longer lead times on the import side that it could end up with a situation where, let's say, imports are a little bit more than what is needed. So I hope that helps. Maria Gabrielsen: The next question is then from Magnus Rasmussen. Magnus Rasmussen: Magnus Rasmussen, SEB. I wanted to touch upon volumes as well. And I wonder if you can give some comments about what you are thinking for Q2. You stated in the presentation that Europe had among the highest season-to-date levels, but also strong volumes in America in Q1. I think Dag Tore touched upon it a bit as well, but some further comments sort of for Yara specifically as well would be helpful. Also a question on price realization in Q2. I mean we see urea prices skyrocketing and nitrate prices not so much and Profercy also reduced their European nitrate prices yesterday. Your sensitivities cover a mix of different products. Is there anything that we should keep in mind and be aware of in terms of price realization into Q2? And also how do you read the low nitrate prices in Europe relative to urea from, call it, demand or market perspective in Europe? Magnus Ankarstrand: Yes. I can maybe start a bit on the volume side. We don't -- as normal, we don't give any future guiding on volumes as such. I think what we can comment, as we also said in our presentation, is that Yara has a global system. And of course, that's also in normal circumstances, obviously, benefit given the difference between season in the Northern Hemisphere and the Southern Hemisphere. And we think that will be even more so the case this year. And of course, beyond that, I mean, our production levels are a question of whether we are -- whether we have sufficient margin to actually produce at different times. And so in a way, looking at market prices and gas prices throughout the quarter, that will kind of explain that situation. But of course, in addition to that, it's important to keep in mind the fact that we also can import ammonia from -- into Europe if gas prices were to go up. But obviously, as everyone can see right now in the current situation, nitrogen prices have increased a lot more than gas prices. So I mean, so that in terms of what we produce and then ultimately sell, that's really what determines that. And of course, where we sell it depends a bit on how markets develop. And I think on maybe the urea nitrate pricing, I can give to you, Dag Tore. Dag Mo: Yes. I think it's, of course, a bit more challenging for you and others to monitor this now that prices are so extremely high because it leads to some more fragmentation and regional differentiation than otherwise. When prices are more normal, then you can use fairly straightforward sensitivities, right, because everything is kind of correlating very strongly. Some of that is now kind of a little bit distorted. Let's say, if you put in spot prices in the Arab Gulf, that is basically the netback from the India tender which they paid kind of $950, say, there are very few regions now in the world that are willing to pay $100 -- $950 for urea, as you can observe, if you observe carefully in the regional prices that the publications quotes, nothing secret about that. You see that U.S. Gulf is discounted. Even Europe is somewhat discounted. Brazil is discounted. So just putting in, let's say, $910, $920 for Arab Gulf, for instance, is giving a little bit exaggerated picture probably. So that is one thing that, of course, we have to be a little bit careful about. When it comes to Europe, of course, I mean, if you were a farmer now that needs urea for March, would you buy it now, question mark. And of course, that is an understandable dynamic. I think that for a while now, maybe the urea import parity is not really the main driver of nitrogen prices in Europe for a period and that we see already as you were hinting at, right? You have 0, say, round numbers, 0 nitrate premiums right now based on the publication references. And it wouldn't be a surprise if you, let's say, with a starting price for next season that you will see a negative nitrate premium versus urea unless urea comes down a bit. So I think that as Svein Tore was saying, I mean, the farmer affordability is so stretched that I think that there will be more regional differentiation based on what farmers need the product right now and what -- and those farmers that can defer the purchasing to closer to their application season. So a bit more challenging, I think, to be very precise on price realization than normal. Maria Gabrielsen: And just to remind everyone as well, the sensitivities are based on high-level easy assumptions, right, 1-month lag and 2 or 3 market prices in volatile markets and with increased regionalization, like you say, it's natural that they will be less precise than in a more stable market environment, yes. Moving to the next question is from John Campbell. John Campbell: It's John from Bank of America. I have 2 quick questions. So maybe if we continue kind of on the NPK and nitrate premium. If I remember properly, I think second quarter '25 had pretty robust reported NPK, I think it was $265 per tonne. I think you've discontinued the practice of actually quoting the specific figure. But presumably, based on what you're kind of saying, gathering the comments you've made on this call, it sounds like that will be down maybe quite steeply into the second quarter. That was my first question. Second question, just very quickly, any comments or assumptions or expectations for resumption of Chinese exports of urea in 2026? I think Bloomberg had a comment saying that it could be something like 3 million tonnes, which should be down year-on-year, but anything you've heard interesting, given, as you say, it's kind of one of the market balancing areas of supply. Dag Mo: Should I take the China question first. Nobody knows, of course. I think there is discussions ongoing in Beijing as we speak. So our understanding, they are debating this right now. The flow started in July last year, so a little bit of time left for that. We also see that there are quite a few market players that have already started to move products to ports. I mean, effectively removing that product from the domestic market already. And that has caused some reactions both from the government and from the nitrogen association. It seems that are a little bit upset about this development ahead of approval. So that there are even some discussions of maybe that -- whether that could lead to some delays in the export approvals. Let's see how that fits. And I also said you referred to those 3 million tonnes. I've also seen those referred. And to me, I haven't seen anything concrete yet nor from our experts in the market. So I tend to believe that must be some kind of speculation. But I also saw 3 million tonnes mentioned. I would think that would be a first tranche then in that case and not necessarily the total volume for the year. But that's what they also did last year, right? They first approved 2 million tonnes and then they added to that quota as they saw that the domestic market did not react to the export volumes. So I don't think you should conclude -- I wouldn't have concluded that those 3 million tonnes, that's it. But be open that this is a really important factor in the market for the rest of the year. Magnus Ankarstrand: And on NPK premiums, and again, of course, we don't give guiding on premiums, exact premium levels as such. But I think it's fair to say that the last couple of years, NPK premiums have been very high and higher than maybe average over a longer time period. But obviously, now with commodity prices increasing as much as they have and nitrogen, as we talked about, but also phosphates with a significant increase in -- due to -- well, same reasons that for nitrogen in the current crisis. It's also natural that, that puts some pressure on the premium that farmers are -- can pay on top of that, of course, also considering the farmer economics. But -- so even though NPK premiums are somewhat down since last quarter and a year ago, it's still holding up quite well, and we'll see how that plays out, which will depend as well on the commodity development in the next quarter. But of course, for Yara, we -- I mean, we, of course, make money both on the premium as well as the operating margin or the commodity margin. And there, of course, on both end, but also particularly phosphate, of course, there's been a significant increase. And I think also worth to mention in our production system, roughly only 1/3 of our NPK production depends on sulfur in the production system. And of course, sulfur is right now being a significant cost driver in phosphate or DAP production and phosphate prices. That's, of course, an advantage that we have on the margin side. Maria Gabrielsen: [Operator Instructions] The next question is from David Symonds. David Symonds: It's David from BNP. I have 3, I think, please. First one, could you talk about your assessment of damage to Middle Eastern nitrogen and LNG facilities so far? How much do you think we've lost longer term? And if the war ends this weekend, let's say, what would be the time lag before we get back to a more normal situation in nitrogen? Second, could you -- this is more just a modeling question. You very generously gave us the 150,000-tonne number for the Belle Plaine turnaround. Is there an estimate of how much you might lose from the India and Australia outages and curtailments that you announced in the second quarter? And then thirdly, what could the policy response to this current crisis be? Is there an increased likelihood of CBAM suspension for fertilizers in the near term? Do you think we might see reopening of plants as we saw Brazil do with Petrobras? Any thoughts on that would be great. Dag Mo: On the Middle East, it's, of course, hard for us to know. We -- what has been announced is that Qatar has had some damage to their natural gas infrastructure that will take quite some years to repair. We don't think that the fertilizer plant is damaged, so that should be able to restart very quickly. There has been some damage in Bahrain and some damage in Saudi Arabia also we hear, a little bit unclear how much and how long it will last. And in Iran, there is quite a lot of damage to the gas infrastructure, and there are only a few of the plants in Iran that has been able to start up. So -- but to your question about how long time this would take to normalize, I think it's hard for us to speculate around that. It certainly takes some time, how much -- yes, it's hard to estimate. Magnus Ankarstrand: I think on your questions on India and Australia, I mean, on the Indian side, the impact to -- I mean, to our results is fairly limited from the current curtailment there. On the Australian part -- sorry, Australian ammonia plant, as I said, we assessed roughly 140,000 tonnes in total. I think we also said in the market that we expect start-up sometime in the first half of May. So then -- I mean, from a -- you can sort of do math on how much that -- because -- I mean, when the plant went down, so how much of that will be in the second quarter versus the first quarter policy? Svein-Tore Holsether: Policies, here. You mentioned CBAM. I think the last thing that Europe should do right now is to create any uncertainty around CBAM because that's in place in order to create a level playing field so that imported volume pays the same emission cost as European players do. And if there's one region that has felt the consequence of dependencies, it's Europe, look at what happened in the energy sector on the energy crisis and what that meant for households and industries that we're still struggling with in Europe right now. So then -- to then weaken such a vital industry as fertilizer and farming would further emphasize the challenges in Europe. So I think what the policymakers should consider here is rather use the CBAM revenue and redirect that towards farmers to not put a burden on the shoulders of the farmers. They don't have the margins to support this, but we need food production in Europe, and we need a healthy fertilizer production system in Europe as well. And if we're -- as a result of this creating an uneven or not a level playing field, that would maybe come at a very short-term relief maybe, but a very high-cost long term because then we would be even more dependent on imports. So it's important to keep the long term in mind here as well. But any uncertainty on CBAM in Europe for the industry right now will have impact on the ability to invest in long-term projects. But of course, as we look globally and with fertilizer being responsible for half of the world's food production, I understand that this is something that is very high on the agenda for politicians all over right now, but it's important that we balance the short-term need with the long-term implications for that interventions could have. But we really do think that CBAM is an important lever and that in combination with ETS, if you are to reach the Paris Agreement to reach the emission targets for Europe, that needs to stay here. And that's also important for the long term of actually growing food because we also have to solve the climate challenge here. And I would say that one of the occupations hardest hit by climate change is actually farming. They work out in nature, and they work, whether it's floods or droughts or record heat or record cold, that's where they have to produce food. So it is in our interest that we deal with the climate challenge as well, but it's not something that we could just put on the shoulders of farmers. Maria Gabrielsen: Let's move to the next question, which is from Tristan Lamotte. Tristan Lamotte: Tristan Lamotte, Deutsche Bank. Two questions, please. The first one is how high is the risk that the CapEx number that you quoted for central blue ammonia projects has to move up given the developments in the world since you first gave those numbers and given that the final agreement is yet to be signed? And the second question is, I'm just wondering if you could talk about any opportunities for permanent market share gains relating to the conflict. Magnus Ankarstrand: Yes. When it comes to the project with Air Products, as we said when we had the announcement, I mean, the time we spend towards midyear to the next phase of that project, including the preparations of the potential FID is sort of around the contracting market and evaluating the technical side the project together with AP. And I think that work is still ongoing, and there's nothing particular that's happened since then that sort of changed anything substantial in that regard. So I mean, it depends on the market, depends on the bids. And so yes, there's nothing new as such there and sort of things are proceeding according to the plan that we had. I think in terms of market share, I would say -- our primary objective also sort of reflected in our improvement program is to increase organically production output for organic growth from our production system, so up to 1 million tonnes of additional premium products through production improvement and debottlenecking. And in addition, we have a few projects coming online now with NPK expansions in Cartagena as well as YaraVita biological plant in the U.K. and so on. So obviously, that will go into increasing our market share as we sell what we produce. But in addition to that, and also as a part of the improvement program, we are looking at optimizing our global system, taking more market share in our most profitable markets. I think -- and as we also communicated there, Europe is one, not the only, but one core market for us, of course. And I think that is also why it is very important for us to keep production running now as we have, take some risk in doing that. But of course, at the current levels so far, we have good production margin on finished products. We also had good operating margin on ammonia. And if gas prices were to go up further, we also have the possibility to import ammonia and keep finished fertilizer production going. So we believe that Yara as such as a quite strong competitive edge also against competition, also in Europe in terms of being a very stable, reliable supplier for the European market and gaining market share. Svein-Tore Holsether: And to add on, you put it very well, Magnus. And as we said at our Capital Markets Day back on January 9th as well, we said that we're a battle-proven organization, and we've been tested again now. And I want to thank all our colleagues for an outstanding performance where finished goods production is at one of the highest levels we've seen. But one thing is to produce, but also to get it out to our customers as well and it's been an outstanding performance on really working hard throughout our whole supply chain in order to get that done. And we've used the robustness and the flexibility that we knew that we had in our business model before the energy crisis and before Russia's war in Ukraine, but the learnings that we had from that, we've also built in even more flexibility in our system, and that's what we're fully utilizing now to maintain production at high levels, but also moving the product. Maria Gabrielsen: [Operator Instructions] With that, we'll move to the next question, which is from Mazahir Mammadli. Mazahir Mammadli: So 2 questions from my side. Sorry, firstly, as we near the planting season in the Southern Hemisphere and if the situation stays the same, how should we think about the market development, whether it's volumes, demand destructions, acreage decisions and also perhaps some relief from amsul substitution in Brazil from Chinese imports? And my second question is, with the free cash flow that you are generating now and perhaps in the next few quarters, what's the plan first, in the scenario where you decide to go ahead with the Air Products project? And second, in the scenario where you decide not to do that, what would be the capital allocation decision there? Dag Mo: On the first, I think it's hard to -- at least for me here in Oslo now - to have a full picture on exactly how the decision-making is going to be on the Southern Hemisphere by the farmers. What we have heard -- it's logical that the topic is on the agenda, right? We hear from Australia, for instance, where -- which has a peak import season for urea now in the second quarter and maybe one of the regions that are hardest hit by the timing of this conflict. There are some talks about reducing wheat acreage, for instance, to go for maybe barley, maybe some canola, find some other crops that are a little bit less nutrient demanding. And I would think that, that would be also a topic in places like Brazil, Argentina. We know South Africa is struggling with high prices and low margins. So exactly -- I think a good -- very good questions, but I think it's hard for us to speculate on exactly how that will play out. But surely, there will be efforts to try to find solutions that would maybe require less nutrients. Magnus Ankarstrand: To the question on cash flow and capital allocation, I mean, for us, it obviously starts with strong capital discipline and as we outlined in January, investing into U.S. projects, as we said, is a core priority for our energy diversification strategy. And then we outlined there as well roughly over the period up to 2030, how much money we sort of -- or much CapEx we plan to spend on that. I think irrespective of sort of FID decision there, I mean, capital discipline will stay strong. Potentially, we would do other projects, pursue other similar type projects for the same objective, but still with the same discipline. And that's really driven by how much we believe that we can take on at one point in time, not only sort of from a balance sheet perspective, but also to make sure we actually deliver a strong return on those projects. And that's kind of the guiding star for that. And of course, if our cash flow was to increase significantly in the period as well, I mean, that doesn't change our plans on the investment side materially necessarily as such. But of course, then we would look at the levers that we have at hand. And of course, as we've said, additional distribution is also something that we would always consider, right, in such a scenario. And I think also on that note, of course, also important to mention that with the current market volatility that we see, we also, of course, need to keep in mind that there could be changes in the market as well. And I think particularly with what we see now, of course, maintaining a very strong balance sheet is extremely important for our flexibility, both to navigate the market, but also to sort of make shareholder-friendly decisions. But sort of regardless, of course, our capital discipline remains even though our cash flow would increase. But that said, we are sticking to our capital allocation policy, our dividend policy, and we will, as a part of that, always consider additional distributions. Maria Gabrielsen: The next question is then from Angelina Glazova. Angelina Glazova: Angelina Glazova from JPMorgan. I just have one question left actually, and that's on the U.S. blue ammonia project. I am wondering how you think about the time line for mid-2026 FID that you provided us with. Do you view it as a hard deadline? Or do you think that this is a goalpost that can be moved potentially? And the reason I'm asking is that we had quite a detailed discussion on policy earlier on the conference call. And it is a possibility that we might not get final certainty on CBAM regulation in Europe by mid-2026. And I'm wondering, in this case, how would you approach the decision? Would you still make the decision in conditions of uncertainty? Or would you rather wait until we get this final certainty on regulation? Magnus Ankarstrand: Yes. Thank you for the question. I think when it comes to certainty around political decisions, whether it's CBAM or tax rates for that matter, you never get that right. They never get 100% certainty. So I think we, as such, are -- always have to make decisions knowing that there is that level of uncertainty. Everything that's politically decided could, of course, be undecided. That being said, I think sort of the tendency that we see on CBAM now as well, also politically and the signals that are public out there is that the appetite for changing it seems to meet with resistance in many places and importantly, among those European parliament as an example. That being said, when we do a project like this, obviously, we don't base that solely on subsidies or sort of political incentives like that, right? As we've said many times before, basically 3 main objectives. It's lower gas prices, it's increased scale and with that comes lower fixed cost and CapEx per tonne. And then it's tapping into carbon -- sort of carbon margin as well. So all 3 are important and play a role in the business case. Obviously, if you take one away, then the business case is less strong. But I mean, still, for us as a big ammonia producer, the 2 first ones are very important. When it comes to the time line, I think that is our plan, and we work by the plan. But I mean, what's important both for us and for Air Products is to make the right decision. So I mean, if there's outstanding technical matters or any other good reason that it makes more sense to wait a little bit, that's, of course, what we do. I mean there's nothing forcing our hand to make a decision on a certain date. I mean we will make the right decision for both companies, and that is one that is value-creating for all our shareholders. Maria Gabrielsen: Thank you. We only have one more question so far. So if anyone else has a burning question, they should raise their hand now. First, Bengt Jonassen, the line is yours. Bengt Jonassen: Bengt Jonassen, ABG. Just one follow-up question on the comment on the Industrial segment. I think you stated in the webcast that there were some curtailments or permanent curtailments of some capacity in the industrials. Could you confirm that? And how much of the capacity was curtailed? Magnus Ankarstrand: So yes, so it's -- on the volume side, we have made -- we announced last year a few closures of segments in Brazil for the industrial side. In addition to that, we had some smaller production issues as well in Cubatao this quarter that also impacted on the volumes. So it was a bit remiss not mentioning that in the presentation as well. Maria Gabrielsen: It's the hibernation of the sulfuric acid plant in Paulinia which we've mentioned last year, if you remember. Smaller plants as such or a smaller volume impact. Okay. There are no further questions, it seems like. So that means that we will end the Q&A session now. Should you have any need for follow-ups, the IR team remains at your disposal. But with that, thank you for joining, and we wish you a pleasant day. Thank you.
Operator: Welcome to the Indutrade Q1 presentation for 2026. [Operator Instructions] Now I will hand the conference over to CEO, Bo Annvik; and CFO, Patrik Johnson. Please go ahead. Bo Annvik: Welcome, and good morning on our behalf as well. As usual, let's start with some overall highlights from the quarter. We can begin with the demand situation. Order intake continued to improve versus last year. Organically, the order intake increased with plus 1%, with slightly more than half of the companies showing a positive order intake. The strongest segments were medical technology and pharmaceuticals, energy and parts of the process industry. Net sales were unchanged from last year, both in total and organically. Contributions from acquisitions improved compared to the last quarters and was at a good level. EBITA margin came in at 13.3%, in line with the underlying margin last year, and we will comment more on this further on in the presentation. Operating cash flow was also in line with last year. Our companies continue to improve management of working capital. Inventories are lower than last year and the inventory in relation to sales is on a historically low level. In Q1, we managed to acquire 2 larger companies, and we also made one more acquisition in April, adding SEK 625 million in revenue on a yearly basis, and the pipeline is continued strong. We are obviously not satisfied with the overall performance in the quarter. However, there are good progress in several areas, which I will comment more upon throughout the presentation. Looking more specifically at the order intake and sales trends, demand was stronger than last year, but still varied across companies, geographies and segments. Book-to-bill is seasonally strong in Q1 for us, but improved from 105% last year to 107% now. As mentioned, companies with customers within MedTech, Pharma, the Energy sector experienced a strong demand and also parts of the process industry. Order intake for companies with customers in infrastructure and construction and engineering was aggregated slightly down compared to last year. In terms of sales, acquisitions contributed positively with plus 5%, a sequential improvement from the 4 -- plus 4% we had in Q4 2025. However, currency movements had a negative impact of 5% and organic sales was flat, leading to an unchanged top line development in total. We had a stronger order book coming into the quarter, but the sales development was impacted by a weak start of the year, mainly due to the challenging weather and also by the composition of the order book with a higher share of orders connected to the Energy sector and the process industry with longer lead times in general. The sales development gradually improved during the quarter, starting with a weak January and ending with a strong March. Moving into sales per market. In the Nordics, sales was up in Norway, flat in Sweden and Finland and down in Denmark. Flow technology for marine applications, water treatment and the Energy sector were drivers for the positive development in Norway, while the lower sales to Novo Nordisk was the main reason for the decline in Denmark. In the rest of Europe, starting with the Benelux, sales was lower within engineering and in some of the Life Science companies. U.K., Ireland was a good development within, for instance, railway rolling stock. And in Germany, flat overall, but slightly improved situation in the engineering sector. Switzerland and Austria was weaker, mainly due to lower sales within valve for power generation and within the Construction segment. In North America, sales improved compared to last year due to good development within medical technology. In Asia, sales declined due to difficult references from last year in the Marine segment. In terms of profitability, total EBITA decreased 2%, corresponding to an EBITA margin of 13.3% compared to 13.6% last year. However, in Q1 last year, we had some positive one-offs. So the underlying EBITA margin was 13.3%, in line with this year's EBITDA margin. The main reason for the EBITA margin not being on a higher level is the organic sales development in combination with slightly higher expenses. Underlying expenses grew around 1%. But on top of this, we also had some nonrecurring costs for downsizing. Patrik will explain more details in his presentation. But perhaps good to elaborate on the type of companies we have and why some of them haven't reduced more. If we go back to late -- the situation late 2025, then I would say that expectation was that in 2026, we would see better and better order and sales situations. And this could be based on that we had an organic order intake improvement of plus 3%, both in Q3 and Q4 last year. So most companies had a somewhat positive outlook, I would say, for 2026. And we have, as you know, quite a lot of trading companies, and they are, in general, people lean. It's difficult to find qualified replacements. Hence, there was not sort of on top of their agenda to downsize and there is a hesitation to downside if they don't really need to in order linked sort of to the situation that it is difficult to find really good replacement employees. In addition to this, we obviously also have a lot of growing companies, and they need to add people in order to manage their businesses in a professional way. So that's a bit of an explanation, I would say, to why we had a plus 1% expense increase year-over-year. Positive, though, that the gross margin was continued strong, amounting to 36%, very well managed. There will be some more challenges going forward now in quarter 2 raw material price increases. But I am optimistic that our companies will handle this in a good way. We have done that for very many years historically. Looking at the sales development per business area, 2 of them grew organically, Industrial & Engineering and Life Science, mainly as a broad result of the strengthened order book coming into the quarter. In Industrial & Engineering, for instance, railway rolling stock was a sort of positive situation with -- they have had large orders from companies like Alstom, Porterbrook in the U.K. They also had a good situation in terms of specialty chemicals. And I think it's worth to note that they had actually an all-time high order intake in March in the quarter. In Life Science, particular companies within the medical technology had a good development. We usually comment on the single-use business. I think that's still good. And we made a Spanish acquisition or first company in Spain last year, and they are into single-use and the first quarter was all-time high for them. So a good start this year for them in Indutrade. Just to give some other flavors, we have a broad portfolio of MedTech companies. It's everything from -- we sell communication equipment to Swedish hospitals, and that business has grown really well. We have a growing business in Poland. We sell medical equipment to hospitals, also consumables to hospitals. And that's also a growing situation. We have companies on Ireland, which sell medical technology to large international customers and in the quarter now sold successfully to the U.S. So it's not sort of a single company. It's a broad base of companies doing well in medical technology. Infrastructure and Construction and Technology & Systems Solutions continues to be weaker due to demand being subdued on the back of the general market uncertainty and lower investment levels in some customer segments. Process, Energy & Water had a good order book coming into the quarter, but there are generally longer lead times within the energy sector and the process industry. So the minus 3% is more of a timing effect. They now have a record high order book and a good condition for stronger development going forward. And March was actually the second best month ever in terms of order intake for Process, Energy & Water. In general, I would say that the challenging weather in the beginning of the year also impacted the sales development negatively, mainly in Infrastructure & Construction and Process, Energy & Water. If we then turn to profitability for the business areas, it was 3 business areas improving the EBITA margin in the quarter. Industrial & Engineering had the strongest margin development, supported by the gross margin improvements, leverage on the organic sales and margin accretive acquisitions. Infrastructure & Construction has for a longer time, work with restructuring measures and keep costs in a really good way and some divestments to improve its margin. In Life Science, the gross margin further strengthened due to good sales development within the MedTech cluster, as I mentioned, as well as margin-accretive acquisitions contributing positively. Process, Energy & Water was impacted by the lower sales, as I talked about earlier, and the EBITA margin development in Technology & Systems Solutions was mainly driven by lower organic sales together with slightly higher expense levels. Acquisitions, positive situation. So far this year, we have acquired 3 companies, of which 2 slightly larger company for us, with a total annual turnover of SEK 625 million. We are very glad to have welcomed Belman, CAT Ricambi and Axotan to the group. They have all good track record of sustainable profitable growth and are also margin accretive to the group. In 2025, the average company size was slightly lower than a normal acquisition year for Indutrade. And this year, so far, it's slightly higher. This shouldn't be seen as a strategic shift. We are opportunity oriented, as you know, and we act on opportunities we believe to be accretive and successful. Consequently, there will be times when we have periods of larger acquisitions and periods with smaller acquisitions being made. The acquired EBITA was on a high level in quarter 1, as can be seen on the graph to the right, just over SEK 70 million. Also looking at the EBITA margin of the acquired companies, it was on a strong level of 19.5% for the quarter and above 17% for rolling 12 months. Good to note that this includes transaction costs, so the underlying margin is even higher. Our business areas are successful in the acquisition work, being proactive and building pipeline. Our business segment leaders are spending more time on acquisitions now compared to a year ago and the current acquisition pipeline is on a high level. By that, I leave the word over to Patrik to comment more on the financials. Patrik Johnson: Yes. Thank you, Bo. Total growth for orders and sales was 2 -- plus 2% and 0%, respectively, in the quarter. Book-to-bill was positive, as Bo talked about. Orders 7% higher than sales and on or above 1% in all business areas actually, strongest performance in Process, Energy and Water. As previously mentioned, our gross margin was strong at 36% compared to 35.4% last year. Total EBITA declined 2%. Acquisitions had a strong positive impact of 7%, but this was offset by currency movements and slightly higher expense levels in combination with positive one-offs we had last year. And these ones, they were primarily connected then to earn-outs and amounted to net plus SEK 27 million, which corresponds to around 2.5% on the EBITA. If we comment a little bit more on the sort of the expense situation, the total increase in expenses, fixed currency, excluding acquisitions, was around SEK 45 million, corresponding to 2% on the total expense base. But underlying, as already mentioned, it's only half of this, around 1% -- we have had some one-offs connected to layoffs, personnel reductions in several companies. And also last year, the cost level was somewhat pushed down actually because of some LTI provision releases we had. So underlying, it is plus 1%. EBITA margin came in for the quarter at 13.3%, which is then the same as the underlying EBITA last year. We are, of course, not satisfied with the margin, but it's important to note that Q1 is historically a seasonally low margin quarter for us. Going down further in the P&L, finance net decreased with 18%, mainly due to lower interest rates. Tax costs actually increased 5%, but it's mainly due to some onetime effects underlying the tax rate, I would say, is the same as before. Earnings per share was down 4%. Return on capital employed declined slightly to 18%. Capital employed end of the quarter increased with 8% because of the higher acquisition pace since second half of last year and slightly higher working capital, also mostly connected to increased receivables at the end of the quarter. Cash flow from operating activities, seasonally low also then in quarter 1, but was in line with Q1 last year. All in all, group financial position is still very solid with a net debt-to-EBITDA ratio of 1.5x at the end of quarter. So let's elaborate a little bit more on the cash flow. As mentioned, cash flow is seasonally low in Q1, which you clearly can see from the graph, but it was stable. And after CapEx, it was actually slightly higher than last year. Our companies continue to show progress in the management of working capital. I think inventories are lower than last year and inventories in relation to sales on a rolling 12-month basis is actually now on a historically low level. Overall, working capital efficiency is also then slightly better than last year. Cash conversion continue to be on a stable high level and even slightly improved versus last year. Continuing to the EPS, earnings per share situation, and that has developed in a bit weak way the last couple of years, as you know. The driver has been a weak organic development, which is mainly due to the general weaker macro situation that we have experienced and the lower general demand from that. But also worth to note that the higher interest rates compared to a few years back and currency headwinds lately has also then had actually a significant impact on the situation. In the quarter specifically, EPS was down 4% because of the lower operational result and lower interest costs compensated slightly. And we are obviously not satisfied with this -- with the EPS development, but we are now fully focused on coming back to good growth levels in line with our targets. And with that, we will also for sure and deliver EPS growth. And then lastly, the financial position. The interest-bearing net debt increased versus last year and also slightly sequentially because of the increased acquisition pace. However, the net debt ratios are stable and low from a longer historical perspective. Net debt equity ratio at 45% versus 47% last year. Net debt-to-EBITDA was slightly higher than last year at 1.5x, but still on a comfortable level. And if you exclude earn-outs, it was on 1.3x versus 1.2x last year. The financial net debt, which is then the part of the debt that relates to borrowing that needs to be refinanced is also historically low on a level of 1x. So all in all, in conclusion, our financial position is very strong, and that creates a good foundation for continued value-accretive acquisitions and also room for organic growth investments and initiatives. I think I end there and leave back to you, Bo. Bo Annvik: Thank you. So let's summarize some of the key takeaways before we open up for questions. The demand situation improved and the order backlog was further strengthened. Good acquisition contribution, but total sales were negatively affected by currency movements and a flat organic development due to a weak start of the year and longer lead times in the order -- in part of the order book. EBITA margin was in line with the underlying margin last year. The gross margin was on a continued high level. So we expect a good leverage on the organic sales growth when the market improves. Looking ahead, as I said, we have a larger order backlog, and we saw clear improvements throughout the quarter, which is positive. But the general market uncertainty remains on a high level linked to the geopolitical situation. We have a good momentum in terms of acquisitions and a strong pipeline, providing good conditions for a gradual increased acquisition pace. Finally, we are not satisfied with the quarter, but there are positive signs in many areas, and we are fully focused and determined to deliver in line with our financial targets. By that, we end our formal presentation and open up for potential questions. Thank you. Operator: [Operator Instructions] The next question comes from Oscar Ronnkvist from SEB. Oscar Ronnkvist: So I have 3 questions. My first one would be on Process, Energy & Water, the longer lead times that you mentioned. Are those lead times are longer than sort of a normalized situation? Bo Annvik: No. I would say that we have, as you know, a mix of companies in that business area and the segment in the business area is the Energy segment. And there, we have certain companies who sell to power generation facilities and things like that. And that's a usual sort of lead time of minimum 6 months, I would say, to more 12 months and beyond. So that's -- but that's a normal situation. We've had that for many years. Segment, I would say, is -- has potentially grown more than other segments in the business area. So that's why maybe that there is a bit of a shift like this. Oscar Ronnkvist: Perfect. And the next question on the cost development going forward. So do you expect to align volumes and costs in the coming quarters? I think you gave some comments about the Middle East situation, but as you see, potential cost pressure on raw mats, et cetera. But do you expect that to align more in the coming few quarters? Bo Annvik: Yes. We haven't seen much of those price increases in quarter 1. Obviously, a lot of suppliers have brought forward information about cost increases now towards the end of the quarter and early in quarter 2. But as I said, I'm quite confident that our companies are prepared for this and will manage this and transfer those costs to price increases to the customers. So I'm hopeful that we will manage our gross margins in a good way, also going forward. Was that your question? Oscar Ronnkvist: Yes, more on the operational expenses side as well, and if you can see anything on that. I think on the gross margin, your comment about the price increases was good. Bo Annvik: Yes. No, we are -- were not cost conscious in our culture. And it's a weighing situation for primarily, I would say, our trading companies. So as I said, towards the end of last year, I think most of them had a more positive perspective outlook on 2026 and hence, sort of refrain from certain downsizing. Even if there is now uncertainties linked to the geopolitical situation, there is still some sort of underlying optimism that the markets are improving slightly. So -- but obviously, we will be sort of engaged from the Boards in our companies to manage overhead cost situations actively. So it's definitely not -- if anything, it will improve from -- sequentially from Q1, I would say. Oscar Ronnkvist: Understood. Just a final short one, but you say a strong M&A pipeline, but just wanted to hear about the geopolitical turbulence, if that has made any changes in the appetite for M&A as we saw like last year following the Liberation Day. Bo Annvik: Yes. No, we think -- we take every case, case by case. But in general, we are not in general, hesitant right now, I would say. So the plan is to continue, obviously, being professional, obviously, being cautious in case by case. But it's -- as it looks now going to be a high activity level in quarter 2 and onwards. Operator: [Operator Instructions] The next question comes from Johan Dahl from Danske Bank. Johan Dahl: Just a question on the sort of the outlook you presented in Q4. As you know, when you presented the year-end numbers, you talked about the harvesting phase in Indutrade late January, and you conclude now that January was a disappointment to you, guys. Are you able to sort of box in exactly in the beginning of the year what was the disappointment? I mean invoicing is what it is, but was that on cost? Or is that isolated to some certain events? Or was it more broad-based? Bo Annvik: It was a very slow market from a sales perspective in January. And I think you can relate to that also. It's not Indutrade specific, at least not in my perspective, it was quite broad in the industry that it was a harsh winter, I think, and bad weather in large parts of Western Europe. installation companies delaying projects. So for some reason, altogether, then sales in January started out very slow. So it was slower than the general market underlying need, I would say. So it was unexpectedly slow in January, and that created a very weak result. And we weren't able to catch up completely from that situation in February and March. But as you probably have understood by the presentation, March ended in a really strong way, both in terms of order intake sales and profitability. So -- so yes, it's a good trend to have into quarter 2, I would say. Johan Dahl: Got you. Just a follow-up on the one-offs you talked about in the fourth quarter '25. Were you able to sort of box those in the -- towards the end of the year? Has that had any follow-on effects here now during the beginning of the year? And could you also talk possibly about sort of quantifying cost savings that you have carried out here in the first quarter? Bo Annvik: Yes. I would say that those one-offs were -- they are boxed in, but it was linked to 2 specific companies. And when you experience a situation like that, we have changed management, as I've said. Obviously, the situation in those 2 companies is slower, weaker. They need to restart, and we have definitely done that. We have helped them with everything from restructuring to strategic analysis to strategic activity prioritization, growth-oriented activity, basically a new business strategy. So the new MDs are coming in towards a fairly served table in terms of what to do going forward. So we have lost momentum, but compared to what it could have been, I think the momentum going forward will still be a lot better based on all that activity we have done. So yes, that had some impact on our Technology & System Solutions business area. Now what was your other question, Johan? Sorry. Johan Dahl: If you can talk about sort of how much cost you've taken out in terms of sort of rolling 12-month basis, if it's measurable at all? Bo Annvik: Can you comment on that, Patrik? Patrik Johnson: No we are continuously working with cost and number of employees in entities that are struggling with demand. So that we are doing. I don't know if I have a sort of a relevant number on that. But I think we have -- in those on a rolling 12-month basis since sort of mid last year, we have taken down a number of employees in these type of entities with around 200 people then, which is -- you can always do more, but I mean, it's small companies and so on. So I think -- and we have some more coming here in quarter 2. So we are continuously pushing on this parameter. Operator: The next question comes from Zino Engdalen Ricciuti from Handelsbanken. Zino Engdalen Ricciuti: I joined a bit late, so sorry if you have answered this. But looking at high level on the order book, which you have been building up, could you say something about how the composition looks now and what your expectations are in terms of converting into sales? Bo Annvik: Yes. So we have a relatively higher share of the order book linked to the Energy segment and some longer lead time Life Science segments. But you will see sort of positive release effects from this in quarter 2 and the further improvement step in quarter 3 and onwards this year. So it's about to happen, a positive step in Q2 and an even bigger step in Q3. Patrik Johnson: And if I add, if you elaborate a little bit on the order book sort of development and compare it to last year, we have seen order book increases in Process, Energy & Water, Life Science and also Technology & Systems Solutions with the highest increase in Process, Energy & Water. And it's basically flat, you can say, in the Industrial business area and Infrastructure & Construction has actually a lower order book than we had last year. So this sort of this mix change, you can say then, prolongs a little bit the lead time on the order book. Zino Engdalen Ricciuti: Understood. And just on the similar topic, specifically in TSS, which saw a bigger step-up in the order intake, if it's possible to get some color on expected conversion of that. Bo Annvik: Yes, it's not that long in that business area. So it will -- it basically relates to what I said earlier in a bit of a step-up in Q2 and then even more in Q3 and onwards. So it's the same for that specific business area as well, I would say. Zino Engdalen Ricciuti: Very clear. And just a last question on the gross margin, which continued to be strong. It was just interesting to hear more about the drivers behind that. Bo Annvik: I mean it's been strong for many, many years and stable, slightly increasing, and it's part of the Indutrade DNA to really work with pricing and try to manage potential cost increases from suppliers and transfer that to customers, and watch that situation and step-by-step work more and more and more with value-based pricing versus -- yes, just some sort of more simplified pricing approach. So I also talked a little bit about that the war in the Middle East will drive up and has driven up oil prices, which will affect plastics and other raw materials. So there is going to happen even more in this area, I think, in quarter 2 and onwards, but I'm quite optimistic that we will continue to manage the situation in a good way. Operator: The next question comes from Gustav Berneblad from Nordea. Gustav Berneblad: It's Gustav here from Nordea. I thought maybe just to follow up there on the development in Technology & System Solutions. Was the margin weakness basically only driven by the weaker volumes? And should we then sort of expect them to jump back up now and we see volumes pick up in Q2 as you comment on... Bo Annvik: I think they will sequentially improve Q1 to Q2. But it's linked to that -- yes, they are suffering, I would say, as a business area from cautious demand from industrial customers broadly internationally. So it's not going to be a drastically quick pickup and they suffer a little bit from a difficult situation in these 2 U.K. companies and so on. Obviously, we have done the restructuring, as I said, and so on, but it will go -- take some time to improve the situation there to be above average Indutrade levels again. But sequentially, improvements, but not very quickly. So don't expect that they go from 14% to 18% in 2 quarters. That's not going to happen, I don't think, but they will improve. Gustav Berneblad: That's very helpful. And then maybe on the topic of medical technology, Life Science here. I mean, you comment on the single-use products being quite solid. I mean those sounds more recurring, I would assume. So it sounds like the margins here would be rather sustainable unless there are any larger orders you want to flag? Bo Annvik: I think that's a good assumption. Gustav Berneblad: Yes. Is it possible to say anything regarding start to Q2? It sounds like it was a slow start to Q1 and then finished very strongly. So should we anticipate that April started quite solid as well or... Bo Annvik: Yes. We ended the quarter 1 in a really good way. And usually, Q2 is seasonally a good sort of demand quarter for Indutrade companies. So... Patrik Johnson: You have a lot of holidays in April and May, which sort of makes the situation a little bit foggy, but we have no real news of a sort of a demand change. We hope and believe that sort of March 7 will continue with the sort of reservation for holidays, et cetera. Operator: The next question comes from Victor Forss from SB1 Markets. Victor Forss: So just starting off with the nonrecurring downsizing costs. Just wondering if you could break down the split by business area and maybe comment on whether most of those costs are in Technology & Systems Solutions or if they're spread across the board? Patrik Johnson: No, not that much in Technology & Systems Solutions, to be honest. It's a little bit better. I think most part of that is actually in Life Science. They have -- even though they are trending on a good way, I think they -- as all business areas have a few companies that need to work with costs. So that particular -- those particular one-offs I talked about, they are mostly actually in Life Science. And then the LTI costs I mentioned, but those are on a group level. So that's part of the reason why there's a sort of a deviation compared to last year on group level. Victor Forss: Okay. And should we expect any more of this going forward -- or are you sort of done with the larger part of it? Bo Annvik: There will -- I assume always be some smaller restructurings in a difficult market, but I don't expect them to sort of increase at least, if anything, on a smaller level, I would assume. Victor Forss: Okay. Perfect. And then just back to the 2 U.K. companies and Technology & Systems Solutions. Just wondering if we look at the greater picture, is essentially all of the margin pressure coming from those 2 companies still, just given the 4% organic order growth? Or is it sort of spread across the entire segment? Bo Annvik: No, there is not like a delta between 14%, 18% coming from those 2 companies, but they have a significant sort of impact. But then there is a broader set of companies who have more of a flat, I would say, sales situation and weaker EBITA margins than normally. But I'm optimistic, as I said, that they will step-by-step improve during this year and onwards. And the plan ambition commitment from that management team is to come back to the previous levels for sure. Victor Forss: Okay. And just a final one on acquisition multiples because I mean in 2024 and 2025, we saw some acquisitions coming in at higher multiples. And then looking at the acquisitions here in Q1, it seems like you're back on the sort of 6% to 7% range. Just any commentary on future multiples would be helpful. Bo Annvik: Yes. We are where we are, as you said now. And as we predict right now. I think we will be on that level for -- yes, that's where we can close successful deals currently. And I don't foresee any big multiple level increases in the short or medium term. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Bo Annvik: Yes. Then we thank you for listening in and asking relevant and good questions. We close the conference and wish you a great day.
Allison Chen: Okay. Great. So thank you for joining us today. We know it's early start, and we appreciate you for dialing in on time. We have the management team with us here today. We have our CEO, Choon-Siang; Mei Lian, our CFO; Head of Investment, Jacqueline; Head of Portfolio Management, Yi Zhuan; and IR team here with us, we have Nathan, Tami and myself. We have to keep things focused today. So we'll start off with key highlights by Choon-Siang before moving on to the Q&A. With that, I will pass the time over to Choon-Siang. Choon-Siang Tan: Thank you, Allison. Good morning, everybody. Thank you for joining us today. I know it's bright and early, bright and early for me too. It feels like we have just spoken recently, and here we are back again. Okay. Today, we just announced business updates for the first quarter 2026. So the numbers could be a little stale given that we have already spent some time talking about some of the transactions earlier. And also, obviously, we have reported an advanced distribution. So some of you would have if you turn some of your numbers from there as well. But nevertheless, let's go through some of the operating numbers, and then we will take some Q&A. But there are some exciting updates in this business update as well. We will walk through in the subsequent slides. Okay. So first quarter net property income, very healthy, closed the quarter at $314 million, up 8%. But of course, this is -- has a lot of -- we've gone through a lot of changes in our portfolio. So we need to dissect the numbers a little bit. But overall, a very healthy set of financial numbers, as you would have seen from our advanced distribution anyway. Aggregate leverage, 38.5%, down 0.1 percentage points from the end of 2025. Average cost of debt has come down quite significantly from 3.2% as at 31st December 2025 to 31st March 2026. This quarter, in terms of cap market transaction, we issued $300 million fixed rate notes due in 2031, which is a 5-year note at 2.18% on 10th of March 2026. Portfolio occupancy, 95.2%, down 1.7% quarter-on-quarter. I'll spend some time walking you through some of the reasons why the occupancy is down for this particular quarter. I think it's mainly due to actually, I don't think it's a portfolio-wide reflection. It's actually very tenant-specific. The top 3 contributors to the decline in occupancy is actually a tenant in MAC in Frankfurt. We have the largest contribution. In fact, it contributed approximately half of the drop because by NLA, that tenant takes up quite a significant space and that contributed. But the rent on that tenant actually is not very significant. So the contribution was about 0.8% of portfolio occupancy. The rent contribution was actually less than 0.2%. So the impact on the financial is not as significant. Then the second tenant, we have a tenant departure from Funan office, one of the larger tenants that we have there. And also the third tenant contribution is a tenant in Clarke Quay that's on the third floor is an event organizer. Fairly large space, but as you can imagine the flow of Clarke Quay very little rent contribution. So the financial impact is more -- it's not as significant as the drop in occupancy suggests. But I want to highlight that we are very actively marketing the space. So of course, we all know that MAC itself has some challenges in terms of leasing. We actually did improve the occupancy last quarter. But I think when we highlighted last quarter as well, there's always some in and out in terms of the leasing momentum. So we will be working quite hard to try to improve the performance for that particular asset. Clarke Quay, a lot of -- it is work in progress. So the team is curating the tenant mix to try to dovetail with the completion of CanningHill, getting some good traction in the leasing discussion. So there could be some new names that will show up at Clarke Quay over the next few months. And also for Funan, the office tenant probably contributed about slightly over 10% of the Funan office occupancy. So we are also actively marketing that space, which we think is transitional. And the office space is actually quite nice because it's fitted out. So it should take us not too long to lease up that space. Okay. So these are the 3 main -- so it's actually very asset and tenant specific. I think overall, the portfolio is still very healthy as evidenced by the rental reversions, which is still very healthy at 4.4% for the retail portfolio. And for the office portfolio is at 6.1% rental reversion, quite in line with our guidance earlier to be trending around mid-single digits. Tenant sales per square foot, up 2.2% year-on-year, fairly healthy. This includes the March numbers as well even after the start of the Iran war. I think January and February numbers were very healthy, as you can see also from the national retail sales numbers. I think February, they reported 11% increase in year-on-year sales. Of course, there's some Chinese New Year effect. But then even if you combine the January and February sales, I think overall, it was up about close to 4%, if I'm not wrong. So in our malls, we are up about 2.2% per square foot, including March numbers. Okay. Next. Shopper traffic, also very healthy, up 3.2%, so quite in line with the -- I mean, slightly better than the tenant sales. In terms of the updates for first quarter, AEIs that we have previously announced, I think they are all work in progress. Lot One, Raffles City, Tampines Mall, all progressing quite well. Divestment of Bukit Panjang has been completed at the end of February. In terms of utilities costs, I think we have been getting a lot of questions in all of our meetings over the last 1 month. I think happy to reiterate that our utilities costs, energy rates are all locked in across our portfolio. For Singapore portfolio, locked in until end of 2026 at a better rate than what we locked in, in 2025, actually. So this year, we're actually expecting savings from our utilities costs. For our overseas properties, we are locked in as well until 2027, depending on which property and 2028 for some other properties overseas. Next. Okay. So I think we have spent some time over the last few days talking about this transaction already. So I won't spend too much time. We can take some questions as well, but I think a lot of you have already had a session with us on this. But I think the market reaction has been fairly positive. So we are quite happy with that. The placement was well oversubscribed at about -- I think it was about just almost 5x subscribed, just below 5, I think. That allowed us to upsize our placement from $600 million. So that's the key change from the last time we spoke. I think when we spoke, it was based on a $600 million equity offering. Now we have raised $750 million and at a tighter discount than what we originally assumed, which was 2.7%. The price that we did at 2.30% was actually a 2.36% discount to the adjusted VWAP. So all in all, very healthy demand for the offering. As a result of that, there will be some adjustments to the DPU accretion because of the larger equity offering, accretion is at 1.7%. But of course, that also means that it allows us to lower our leverage to 38.7%. I think previously, we reported just slightly over 39%. So that also means that it gives us larger debt headroom for other activities that we wish to pursue at least going forward in the future. Next. Okay. So I think this is the key update for this quarter. We want to also report that we have actually started the process for AEI at Plaza Singapura and The Atrium. I mean we have been looking at this for a while. I think we are now confident to go out and announce this asset enhancement, I think for a few reasons. I think timing-wise, of course, this is not like something that we take it quite lightly, asset enhancement. And this is quite a substantial asset enhancement at $160 million. I think we have always been quite deliberate in terms of the spacing of our asset enhancements, as you guys are familiar by now. We always try to time it with a minimal or execute it in a way that has minimal impact on our cash flows. So that has already contributing -- that has already started contributing to our numbers since February and March. And also that, in fact, give us the uplift in terms of financial performance. That was one of the key contributors to first quarter outperformance also in addition to CapitaSpring and in addition to ION acquisitions. So with Gallileo largely resolved and handed over to the tenant, we think that we are ready to take on another major AEI, which is Plaza Singapura. And most of you are familiar with the asset. It is an asset that has been around for a long time. And I think if you look at the performance of Plaza Singapura on a per square foot basis in terms of rent and sales, I think there is some room that we can value add when you compare it to some of the more neighboring malls in downtown, even within our portfolio. So the idea is to elevate the positioning. There are some infrastructure upgrades that we're doing. There is also a tenant refresh that we are planning. We will also be looking at -- probably looking at some -- transforming some spaces into a more immersive experiential entertainment concepts. This is something that we are exploring at the higher levels so that we are able to draw the crowd to the top floor. I think so that's one of the key feature and objective of this particular AEI. The other thing that we wanted to achieve was also to dovetail with the URA's Master Plan. There is a plan to pedestrianize the Orchard Road stretch in front of the mall. So we want to now plan for the seamless linkage between Plaza Singapura to the Istana Park that is right in front. So we will be doing some upgrades at the front to extend the park experience in so that it creates a more seamless connection between nature and retail. So to minimize the disruption, we do plan to carry out the AEI in phases with the mall remaining open and operational throughout this AEI period. So some of the pictures, I think, in the next page, artist impression. Maybe we go to the next page and show the pictures. So there will be some improvements in terms of the facade, there will be improvements to the drop-off point, creating a better experience. So the inside of the mall, we will definitely be upgrading to make the space a bit more open and also the look and feel and the tenant mix is likely to see significant changes at least for the first and second levels and as well as the top level. Okay. So I think the other thing that is interesting is also we are creating some of these bridges that link across -- I think we -- the idea is also because Plaza Singapura actually is quite a big mall. It's about 700,000 square feet. So the idea is also to create better movement across various parts of the mall. So we have all these link bridges, not only looks good from The Atrium area, but also facilitates the flow, creates a bit more vibrancy to some of the upper floors. So that overall effect on the mall is one of a little bit more exciting and vibrant across every floor and not just focus on the -- I mean today, we know that the basement for Plaza Sing is really doing very well. The ground floor is doing well. What we want to do is also to replicate the experience in the slightly quieter areas of the mall, okay? Okay. So in terms of the financial performance, I will touch on that. Gross revenue, we are up 8%. But of course, this includes the contribution from CapitaSpring, which previously was reported under JV structure. NPI up $314 million. Year-on-year, we are up about 7.9%. So this also excludes 1 month of Bukit Panjang because we have sold it in February. So there's a lot of movements within the numbers. Okay. Next. In terms of capital management, I think we have highlighted a very healthy balance sheet now. We are at 38.5% even with the acquisition and coupled with the equity offering, this is not likely to change significantly. Interest coverage, very healthy 3.8x. I think the key takeaway from this slide is that the average cost of debt has come down to 2.9% from 3.2%. Next, well spread out maturity profile. I think we only have about $450 million of loan left for refinancing for this year. And the rest of the years, I think, fairly healthy. Next year, we have about $1 billion up for refinancing. In terms of occupancy, I think we spent a lot of time at the beginning talking about occupancy. So I won't belabor the point. If you look at our retail, actually, it's generally -- it's come down slightly, but I think the largest contributor to that drop was the Clarke Quay that I mentioned, the Clarke Quay tenant I mentioned, but I think the financial impact is very small. Office, largely because this is a combined look, including Germany and Australia. We can have some detailed breakdown later, largely contributed by Germany. Integrated development, it's down slightly. There are some vacancies in I think this is Funan because it's contributed into the under integrated development. That's the drop that I was mentioning as well in the Funan tenant. Next. Top 10 tenants, no significant changes. I would just add that ECB, which we have put into the footnote will feature as a top 10 tenant going forward, but we're still in the process of handing over the last 2%, 3% of the -- so we haven't included it. Once it's 100% handed over, then we will start including it probably from the next quarter or the following quarter onwards. Next, maturity lease expiry profile, generally still doesn't look too dissimilar from our previous. We have 11% for expiry this year for retail and 5% for office. Out of that, probably 4.3% of the retail and 1.6%, which is about 1/3 each has been kind of resolved in advanced negotiations. Next. Okay. Healthy leasing activity. Despite the decline in occupancy, we still have a very healthy retention rate. For retail, it's at close to 90%, for office, about 70%. And we have had quite a lot of new leases and renewed leases as well, about 339,000 square feet spread across the various trade categories and also for office, about 121,000 square feet. Next. Retail occupancy broken down into suburban, downtown, downtown, as I mentioned, contributed primarily by the drop in Clarke Quay. Next. Our rental reversion of 4.4% for retail broken down into downtown and suburban. Downtown, 3.9%; suburban, 5.1%. Tenant sales, 2.2%, as we mentioned, broken down into suburban growth at 3% and also downtown at 1.7%. Next. Yes. Just some of the highlights on some of the new retail concept that we have, sio pasta, which is a maturing recognized casual pasta concept that just opened in Raffles City, Shiseido at Tampines Mall. I don't know whether you guys have been to Tampines Mall. I think you can see the slowly -- slow upgrade on the ground floor. We have also holded up the Isetan space. I think that's work in progress. So we expect to probably finish that over the next few months. But I think the ground floor area has been done in phases. So you can already see some of the new tenants showing up at the ground floor entrance area. Prada at Raffles City. We also have a new tenant at IMM, BYD, which is on the third floor. So that's quite interesting because it's on the third floor, and we have a massive car park at IMM, so which are able to showcase some of their cars. So fairly interesting concept there. Okay. Maybe we'll just move on. Okay. In terms of the office occupancy, as I mentioned, as you can see here from Germany, the significant drop in office is actually due to Germany from 91% to 83%, but financial impact is, I think, not as significant as what the numbers suggest. Australia, actually, the occupancy has been healthy. As we have mentioned a couple of times, we think that the leasing momentum is still -- is picking up. Occupancy in Australia actually improved from 91.8% to 92.8%. And Singapore, we have touched on, I think, generally quite healthy, slight drop due to the Funan vacancy. The good news is that our average rent continues to inch up from last quarter, 10.95% to 11.00%, 2.2%. Although I'll just caveat that, of course, you guys are aware that we have just announced the sale of Asia Square Tower 2, which is -- has a slightly average -- higher average rent than our overall portfolio. So this number could come down, but that's probably because it's not a like-for-like comparison once we take Asia Square out of the equation. Okay. Next. Focus and outlook. Yes. So I think overall, we are still on a pretty good and healthy space in terms of outlook. I don't think anything significant has changed from our last update. Rental reversions continue to provide the organic growth. CapitaSpring, we are still benefiting from the contribution because it was only accrued -- I mean the additional 55% was only included from 26 August onwards. So this first half of the year, we are likely to see that accretion coming from CapitaSpring. Gallileo, already -- our first quarter numbers have already started recognizing the income. So you can see it in the DPU impact as well. IMM already completed, performing well above our underwriting numbers. So we are very happy with the outcome. If you go to IMM today, you will see that the look and feel of the mall is significantly different from what it was before. So that was an area that we're very happy with. Okay. So I think organic growth and also some of the contribution from the inorganic growth has really done well for us. And going forward, we expect this recent announcement on the divestment of Asia Square and the acquisition of Paragon to continue to build on that momentum with the 1.7% accretion. You can also see that our capital management, Mei Lian's team has done a very good job in terms of our interest rate management. Over the last 1 quarter, we have brought the interest rate down from 3% -- 3.2% to 2.9%. That's actually a very significant tailwind, definitely helped to improve the bottom line performance, and we expect this to continue to contribute because as you can see, last year, we have been reporting even in the second half of last year, we were still at 3.3%, 3.2% average. So this 2.9%, even if it maintains, will be a significant savings compared to last year already. I think energy rates, we've talked about it. Okay. Yes. I think value creation strategy, I think this is the same slide we talked about it earlier at both when we brief on the transaction as well as at the AGM. I won't spend too much time. I think we remain -- the 5 pillars continue to drive our growth, organic asset enhancement, unlocking value through divestments and driving growth. And we have been very consistently unlocking value every year. In fact, we have been doing one divestment almost -- this year, we did 2 divestments. Last year, we did one, the year before we did one, and we have been doing one high-quality and meaningful significant, highly accretive acquisition every year for the last 2 years as well, okay? And capital management, of course, that's an important tailwind. All right. Sustainability, we are on track for most of our indicators. I think we won't spend too much time on that. Next, we just probably -- I think maybe we can start moving to Q&A. Allison Chen: Yes. Okay. I see a few raised hands. Yes. And I'm looking to have somebody other than Mervin. So Mervin, please go ahead. Mervin Song: Congrats on excellent set of results. Just a few questions. I think in prior cost of debt guidance was 3% to 3.1%, delivered 2.9%. Do you have an update for this year? On the Plaza Sing AEI, I'm personally quite excited by it. But at any point in time, what will the impact on occupancy? And is there any extra NLA you think you can activate, especially in front of the property with the new startup park? And in terms of Iran war, have you seen any impact on retail sales given petrol prices high today? Choon-Siang Tan: Okay. I'll take the easy question. I'll let Mei Lian do the first question, and then Yi Zhuan can talk about the Plaza Sing AEI. In terms of retail sales in March, actually, it has not -- we have not seen a significant impact. In fact, I think March sales is up year-on-year. It has decelerated in the sense that the growth rate for January, February is higher than the growth rate for March, but March is still a positive growth rate compared to last year. So it has surprised us as well on the upside. I think a couple of reasons. I think there's also some constraint in terms of flight capacity. So maybe people are not traveling out as much, spending more. And I think in the first few weeks of March, there was not as big of a -- in terms of sentiment, I think maybe there was -- it has not affected sentiment as much, maybe the first 2 weeks and people are expecting the war to end quite soon. So that could also be the reason. But in general, I think if you look at tourist numbers coming into Singapore, that has also improved year-on-year, quite healthy tourism numbers. So that has kind of provided a lift probably for some of the numbers. I think so quite a few confluence of factors that helped to drive the first quarter numbers. But I think to your specific question on whether March numbers, we are down, no, we are still up compared to last year. Mervin Song: About April, yes. Choon-Siang Tan: April, too early to -- I don't think we have the April numbers yet. Okay. Maybe Mei Lian can take the question on interest rate guidance and then Yi Zhuan can take the... Mei Lian Wong: Okay. Earlier on, when we look at the interest rate guidance, we're seeing like around the 3% level. But given the -- what we're seeing in the Sing dollar floating rate movement in the past 2 months, it has generally been trending down. So that kind of allowed us to look at an overall lower cost of debt of below 3%. So guidance for this year, again, based on the current levels will be in the high -- high 2%, high 2%. Yes. So depending on where the rates go, right now, I think, yes, there should be continued looking at a year-on-year savings, yes. Mervin Song: Are you seeing tighter credit spreads or just being maintained? Mei Lian Wong: For some of our loan facilities that are on floating rate, we have actually negotiated for tighter credit spread as well. That is around 10, 20 bps, yes. But mainly the cost savings is really from the floating rate movement. Choon-Siang Tan: Okay. Maybe Yi Zhuan. Lee Yi Zhuan: Yes. Okay. I'll talk about the PS one. So during the course of the whole AEI, the reason why we kind of spread it out a little bit more because the works will be done in phases across the different parts of the property, it will largely remain open. And at any point in time, I think probably it's about 10%, 20% of the spaces that will be affected through the course of it. Nothing more. There will be a very small period, where there's a bit of overlap, but it's probably closer to 30%, but most of the malls will be open actually. The second part will be on the NLA question. Net-net, the NLA will be there about pretty much similar. While we create additional NLA on the ground floor in some of the spaces that we managed to identify, part of the AEI will also include compliance work where we will have and also a bit of upgrading works in terms of amenities, which will take a bit of the NLA away. And second part of it will be that as we know in Plaza Sing, right, the back end of the mall actually is quite deep. Some of the spaces are pretty deep. So rather than taking a big anchor that doesn't generate that much rent, right, we may subdivide some of these to create higher value spaces. Mervin Song: And there's no impact on the therma side of this section, right? Lee Yi Zhuan: At this point, there's no major impact on the therma office side, the tower side. Most of the works in the tower side in Phase 1 is actually more along the ground floor where the entrance arrival is. Mervin Song: Okay. Congrats on the results and recent Paragon acquisition. Allison Chen: Thanks, Mervin. [ Jardin ], you're up. Unknown Analyst: Maybe just back to the portfolio refresh opportunities. Choon-Siang, maybe your thoughts on partaking in further development projects with sponsors. So after Hougang Central, there's still some quota to work with. So will this be something that you are interested in or prefer to phase out a little bit? Choon-Siang Tan: Okay. I don't know whether you're referring to the partial... Unknown Analyst: Very sizable. Choon-Siang Tan: Okay. So I think the way we think about it is, I think, firstly, we must like the location. And I think Hougang was unique in the way because it was underserved and it is in a very dense residential catchment, which we think a retail mall is very likely to succeed. And also the connectivity with the 2 major MRT lines and the connectivity to the interchange certainly helps. And the size precludes other significant competitors from coming in. So [ Bishan ], I think we haven't looked at it in detail, to be honest. But I mean, no harm for us to look at it, but then it will come down to a matter of pricing and whether we think that catchment makes sense for us because we -- the other thing that outcome makes a lot of sense for us because we don't have something in that area. So Bishan, of course, will be quite close to dome Mall. But Bishan is also in a private -- slightly more private residential estate. So the residential catchment is not deep as, say, somewhere like a -- And if I'm not wrong, I think the retail component is so small, it's like 200,000 square feet compared to [indiscernible], which is 300,000. So yes, but long story short, I think we will take a look. Question is whether we will consider -- I think we can consider we have room, but we also have to look at the impact. Obviously, there's no impact on DPU as what we mentioned. There will be an impact on balance sheet. We have already deployed quite a bit of capital to Alqam. We're deploying capital to Paragon and now we are deploying capital to Plaza Sing. So we have our hands full probably for the near term. But let's see the details of the project. Unknown Analyst: Okay. Maybe just one more on the tenant at MAC. Is it tied to the geopolitical tenant -- geopolitical headwinds or the tenant was already thinking of it? And any divestment overseas since you have done quite a number in Singapore already? Choon-Siang Tan: Thanks for raising that question. I was waiting for the opportunity to answer that question. Okay. So the tenant is actually all the airlines, and MAC is next to the airport. So I think, unfortunately, it's not due to any geopolitics. It's not due to any rent reasons or whatever. It's due to the fact that they want to consolidate back at the airport, which is obviously a better location for our airline. So actually -- so that's just unfortunate in terms of the business direction that the tenant took -- so that's where we are. In terms of divestment, yes, definitely, we are looking at divestment. And I think, in fact, we have been talking about this at the last business update and now the Iran war obviously spun us into the works because with interest rate expectations being slightly altered in the European area, it might make divestments slightly more challenging. But nevertheless, I think we are embarking on that process. So we are starting to sound out and getting our feet on the ground to see whether there is an opportunity. So yes, hopefully, we have good news. It's not easy. So I don't want to also raise expectations. Obviously, you guys know in this current environment. In Singapore, it looks like it's a lot easier for capital market transactions, but I think the same cannot be said for the European region. I think the number of capital market transactions that we've been observing in the market is few and far between and not at the kind of sizes that we are looking at. Allison Chen: Rachel? Unknown Analyst: Can you hear me now? Allison Chen: Yes, we can hear you. Unknown Analyst: Maybe just a first question on the reversions. I think it has moderated a little bit by first quarter. So I was just wondering what's your outlook for this year since there was some advanced negotiation on the lease that's expiring this year. Choon-Siang Tan: Okay. Maybe Yi Zhuan... Lee Yi Zhuan: Well, for the reversions, right, generally, I think as I mentioned earlier, for the full year, we are still looking at around mid-singles. Of course, with some of the uncertainties in the wider global uncertainties, right, we probably might be a bit cautious on it, and we will see how this trends. For the retail, actually, largely most of the reversions have been quite strong. I think it was a little bit pulled down by a very specific tenant in a unique location. But by and large, I would say the retail reversions has been okay. Unknown Analyst: Can you give more color on this specific tenant? Lee Yi Zhuan: It's the change of use of a tenant into F&B. And because of the location of the unit, it's actually not where the normal rate is. So that's the reason why for that, in that case, compared to the outgoing use, the reversion is a little bit on the downside on that sense. Unknown Analyst: Okay. Which is it? Choon-Siang Tan: I think you -- so maybe I will also just add, I think while we have guided fairly healthy rental reversions, I think one mall that we moderate because I mean Plaza Sing and TAO, we are likely to go through AEI. So we may have to moderate because when you do an AEI, obviously, it causes -- in the course of discussion and lease renewal with tenants, we also have to be mindful that they will be impacted by the renovation going forward. So we have to be a bit more flexible sometimes when it comes -- obviously, this is obviously only during the transition. So it could impact some of -- specifically for Plaza Sing and TAO, I think. So there could be some moderation in terms of rental reversion, which should not be unexpected. But I think the rest of the portfolio should be business as usual. So there could be some impact because of that. Unknown Analyst: Okay. Just moving to the office reversions. Now that you have sold AST 2, do you expect that the reversions may trend down more? Choon-Siang Tan: No, I don't think so. I mean if you look at -- if we break down our reversions and contributions, I think they are quite evenly contributing. So removing AST 2 should not make a significant impact. Unknown Analyst: Okay. Got it. Then maybe just on the tenant sales side, you mentioned that March was up year-on-year, but is -- do you see any impact on the downtown malls? Are they impacted a little bit more from the war? Choon-Siang Tan: I think it was the reverse, right? I think our downtown did better than suburban, if I'm not wrong. Unknown Analyst: For March this year. Choon-Siang Tan: I think downtown actually did better. If you strip out the numbers for March, I believe downtown we did better than suburban. Unknown Analyst: Okay. Interesting. Okay. Maybe just one last quick one, which is on ECB contribution. How much are they contributing in the first quarter? And how much more should we expect? Choon-Siang Tan: How much are they contributing? Mei Lian, do you have the numbers? I have the numbers, but more on the top line because we have to net off -- just in my mind, we have to net off the funding costs also. Mei Lian Wong: Can we get back to you on this? Yes, because we have to net off funding costs and also provide for tax. Choon-Siang Tan: I think that contribution at the top line is probably about -- I think maybe about -- you want to say about $1.5 million to $2 million a month, if I'm not wrong. I'm trying to digest the DPU side and flow down the bottom line, but we need to do some work around that. And so it's also been about 1.5 to 2 months. So it's not a full contribution. Allison Chen: Can we move on to Upiang, please? Unknown Analyst: Can you hear me? Allison Chen: Yes. Unknown Analyst: Yes. Just on the Plaza Sing AEI, the amount seems quite big. And then how confident are we in securing that 6% to 7% ROI? And also given that, does this also mean that any AEI plans for Paragon will be shelved back because of this? Because when I look at Atrium going down and then Plaza seeing occupancy could also be impacted a little bit in terms of performance. So it does seem like we are in a quite uncertain period and then quite a few major assets could be seeing some -- a little bit of downtime. So that's the first question. And then second is on your retail, suburban seems to be meeting downtown. Do you expect this trend to continue in terms of reversions and also tenant sales? Choon-Siang Tan: I'll take the first question and Yi Zhuan can take the second one. Okay. So in terms of the expected return from Plaza Sing, I think -- I mean, you guys are familiar. We normally don't undertake AEI without a calculation of the financial return. And we have put down here that we are targeting about 6% to 7%. Question is whether we are confident of achieving. I think we have put it on to the slide. We wouldn't have put it there if we are not confident of achieving. That's one. Secondly, of course, but nobody knows this AEI will take -- years. It's also based on a certain assumption. I think -- but based on our track record, if you look at some of the past AEIs in Singapore, like Raffles City, we have done, IMM, we have done, I think we -- safe to say we have firstly, met our underwriting. And secondly, not just meet our underwriting, I think the part of the AEI, the objective is also to transform the mall to make it relevant and to make it able for the current taste and environment and shopping behavior and the new consumer. So all of that is also taken into consideration when we plan an AEI. And I think if you go into -- I think there's no argument that Plaza Singapura has been without AEI for a while, and I think it will definitely be helpful to rejuvenate the space. And also like what we mentioned is also really to dovetail with -- I mean, we have been very deliberate about this. It's not just about, okay, improving the tenant mix and then make it better. It's also -- we want to also think a few years ahead, what will happen to this mall when the pedestrianization of the mall, the road in front comes up. So we want to be positioned when that happens. We will transform the area, and we want to be there and ready when it happens. And I think our portfolio is large. I think we can definitely cushion if there is a bit of downtime. But of course, when we try to do any AEI, we will try to minimize the impact to our cash flow, which is why it will be done in phases so that the downtime doesn't stretch beyond 10% to 20% of the tenants or malls. So question -- so hopefully, that answers your question in terms of whether we are confident. Unknown Analyst: Yes. Can I also check if the construction costs have been locked in? Choon-Siang Tan: Yes. Unknown Analyst: So even if construction cost escalates from now on, your target ROI 6% to 7% is still comfortable? Choon-Siang Tan: Yes. So I think we have also been deliberately trying to upgrade slowly the various assets. I think you have seen that Raffles City was upgraded. Now we are moving on to Plaza Singapura. Then the question in people's mind is, okay, is Paragon next and whether this -- some people may think, okay, we like what you mentioned, if we are doing Plaza Sing, does that mean we have no capacity to do Paragon. I don't think that's the case. And I don't want to jump -- I don't want to prejump the conclusion that we are not doing anything. I think like what we mentioned, it's only been about 4 days since we announced. We want to go in, take a thorough look at what they have done. And there is already an AEI in plan in place, no harm and no skin off our nose to take a look at what they have planned, and we will see whether the plan involves any and how -- you do in phases, whatever they have planned or whatever we want to look at with fresh eyes, we also have to -- obviously, for us, we have to look at it from a portfolio-wide perspective and whether it makes sense for us, both on the asset level as well as the portfolio level in terms of cash flows. So that -- all of that will all have to be taken into consideration. But in any case, so I think Plaza Sing starts third quarter of this year. Paragon completion will only be third quarter of this year probably. So by the time we take over, it's not like we're going to do on day 1. We will definitely have to review the performance, the asset mix. I mean, the tenant mix. And then by the time -- if and when we do take a decision to do anything, it will probably be like possibly 1 year down the road, we're not sure. But I think that's not pre-conclude that it will or will not happen. I don't think I answered that question right now. Unknown Analyst: Okay. Second question is on the retail, the performance within suburban and downtown. Lee Yi Zhuan: So for tenant sales, right, I would say that actually between downtown and suburban, if I just look back at the past few quarters, right, sometimes it will be downtown and suburban. So actually, the 2 of them are really quite closely matched. And I would expect that to kind of go forward in this year also. Of course, naturally, given some of these uncertainties in this few months, right, probably the suburban side, we will probably see a bit more resilience as because with some of these higher cost operating costs and worries over inflation and stuff like that, discretionary spending on large items will probably be a little bit held back for a while, while the day-to-day people still have to spend. So I would say that's the kind of trend that we foresee for the going forward. And I think the related question to this was actually on the reversion side of things. By and large, I would say both retail and downtown -- sorry, for both downtown and suburban, generally, we look at sustainable kind of reversion levels that we go to our tenants. But of course, with downtown, as I think Choon-Siang mentioned earlier, when we do some of these AEI works, right, some of these impact short-term extensions and stuff that we may do to retain a tenant in the near term to kind of time our AEIs a bit better may distort some of these reversion numbers that we may see. Unknown Analyst: Okay. It's just that I noticed your tenant sales have been quite soft in the past few quarters and then reversions have been going up. So just wondering, just a little bit concern on occupancy costs. Yes. Lee Yi Zhuan: I think on occupancy cost year-on-year, we are quite stable actually. This time around, we are around 17.4%, which I believe is 0.1% lower than the previous year. So downtown cost is higher than the suburbans. Suburban, we are looking at high 16s, which is quite actually in line with the market and it's actually quite sustainable. Choon-Siang Tan: And I think the other thing I just want to add that actually 2.2% sales compared to rental reversion of 6%, actually not that out of line because actually 6% rental reversion because it's average over 3 years, actually, it's quite in line with a 2% sales growth. So I wouldn't actually say that it's not in line. Unknown Analyst: Okay. Okay. Last one is, is there any -- do you disclose on ION tenant sales? I think in the past quarters, there was like one small footnote. Maybe I missed that. Choon-Siang Tan: No, it's included. Last time we used to show a footnote as in we strip out the ION because it was not like-for-like. But now ION, we have owned it for a full year already. So there's no need to strip out the effects of ION anymore. So ION has contributed -- ION is in 2025 and 2026 numbers now. So this 2% includes the total sales from ION as well. Allison Chen: Can we go on to Brandon, please? Brandon Lee: Just touching on a bit on occupancy, right? Could you sort of guide us a bit on the forward occupancy for the different like retail office, right? Because when I look at this quarter's numbers, it's kind of quite low. In fact, it's like a 4-year low, right, whether you look at retail office or portfolio. So is that something that you can sort of guide us? Or is this something that we should be concerned about? Choon-Siang Tan: No. So I think quite -- I think I spent some time trying to address this point because I expect this to be an issue and to be raised, which is why I think I have addressed it right from the get-go. So it's actually unique to 3 specific assets that we have and very unique to 3 specific tenants. And the financial impact is quite small because these are all low rent spaces and not one of -- actually half of it -- more than half of it is due to Germany, which doesn't affect our Singapore performance. So I don't -- I won't take this as a read-through on the portfolio to answer your question directly. So no, because at the end of the day, if you look at rental reversion, it's still healthy, which means that we still have the negotiating because we still have the negotiating leverage to negotiate for higher rents. So it's unique to MAC, Germany and unique to Clarke Quay. Clarke Quay, of course, is work in progress until CanningHill gets completed end of this year. Brandon Lee: So if you look at it on a portfolio standpoint, right, should we sort of expect that 95.2% to sort of get back to your usual like 96% to 98% kind of range? Choon-Siang Tan: No, I think we can expect to improve. If you're asking whether this is the new steady state, no, the answer is no. I think we can expect this number to improve. For the simple reason, let's say, for example, today, we were to sell MAC immediately improves and normalizes to that higher level if -- but I would say that as a noncore asset, so we shouldn't even use that as a contributor to look at normalized occupancy. So I do -- but even if we were to include it, we do expect some of these vacancies are very transitory frictional. We do think that the 95.2% is not a reflection of what we are able to achieve with the current portfolio. Brandon Lee: Are you comfortable to share the occupancy of those 3 unique assets? Choon-Siang Tan: Yes, we can. So of the -- I think MAC now we are just trending somewhere above 70%. Clarke Quay, 84%. Funan office was 100%. I think one of the Towers now had vacancy. What is Funan? 87%. But we are quite confident of leasing out that space. So that's a very transitional vacancy. MAC could be a bit more -- take us a bit longer, but I think we will work hard to try to replace or look at divesting at some point. But yes. So those are the 3 assets that probably contributed to this quarter's movement, one of which we are quite confident of re-leasing quite soon, hopefully. But the other 2, I don't think will actually affect the financial because those are very low rent spaces anyway, although they are quite large, and hence, it contributes to the drop. Our financial performance has not been impacted. That's the bottom line. Brandon Lee: Okay. Great. And just going to -- can you talk a bit on Bugis Plaza? I mean, historically, if you look at like CICT, right, when you guys sort of amalgamate your assets and other assets, right, these assets usually get divested, right? So could we sort of expect the same for Bugis Plaza or there should be a wider plan for it given that you really own Bugis Junction? Choon-Siang Tan: Sorry, I don't get your -- you're saying that -- what are you saying about Bugis Plaza? I didn't quite catch your drift. Brandon Lee: Yes. So historically, if you look at CMT, CICT, right, you guys tend to amalgamate the performance of certain assets under other assets, right? And then after that, subsequently, we see you selling those assets, right? Should we expect the same for Bugis Plaza? Is it a noncore asset in your view? Choon-Siang Tan: I think the short answer is no. Lee Yi Zhuan: I think we have also shown that we can sell assets that are not in the others category. So it's not -- it doesn't indicate anything. There was a period of time when there's only so much space and there's only so many buildings you can squeeze into it. So some of the smaller assets tend to be parked under others. Brandon Lee: Yes, yes. Okay. I mean, it's good to know that it's core, okay? So we shouldn't be. Choon-Siang Tan: It's actually a very vibrant area and coming out very nicely. In fact, I see it as a high growth area going forward. Brandon Lee: I'll just end with one last question, right? So if there are opportunities, right, to acquire something that's pretty decent, is CICT sort of open to raising equity more than once a year? Choon-Siang Tan: We try not to. I have been reminded by investors to try not to do that. So we will try not to do that. Allison Chen: Move on to Vijay, please. Vijay Natarajan: Three questions from me, maybe I'll take one by one. Firstly, in terms of the Funan, can you give some bit more color in terms of the tenant who exited. What was the reasons? And how much downtime do you expect for this property? Choon-Siang Tan: Tough question, I leave it to Yi Zhuan. Lee Yi Zhuan: You mean the tenant. Choon-Siang Tan: Funan. Lee Yi Zhuan: So for Funan, the tenant Adidas moving. Actually, it's more of an issue of them trying to consolidate some of the space in terms of the efficiency and their corporate planning. So that was the reason for the move. Vijay Natarajan: And how long do we expect... Lee Yi Zhuan: How long do we expect to backfill it? Well, okay, typically, I would say that if we start from scratch for a tenant of -- because okay, for adidas, right, it's about 28,000 square feet of space. If there's a few ways we can do it. I mean, we subdivide then naturally downtime is a bit shorter, at least for part of the space. But for tenants usually of this kind of size, if they start to look for space, typically, they'll be looking at it around 6 to 9 months ahead of time because they have to plan to move from the previous space. So some of the -- we are already starting talking some interest along the way, and it's really down to how it converts as well as how the negotiations with the other options that they have, right? So it's hard to say for sure, but I would say probably half year. Vijay Natarajan: Got it. My second question is just sharing my observation. I think for a Clarke Quay perspective, it does look like the impact seems to be structural for some time. I mean the asset went a major upgrade after COVID, but still seems to be having a lot more of tenant churn over the last 1, 2 years. Maybe what's your thought on this asset? And would you be willing to divest it? And are you seeing tenant sales improve since last year? Choon-Siang Tan: Okay. So I think Clarke Quay, I won't say it's structural because we have not seen it in its stabilized state. There is definitely a structural difference between the construct of Clarke Quay and some of the other malls for sure. Definitely a slightly different positioning. And of course, it's not a natural mall per se. And of course, now currently it is impacted by CanningHill. I know we have been saying that for the last few quarters, but that is the reality, major construction. We do expect the vibrancy of the whole area would change once you have this few hundred residential units being filled up; and two, hotel blocks being completed. So I mean, hotels generally creates a round-the-clock footfall. So we do expect -- and this is right across the road from them. So definitely there will be some improvements. Whether the improvements will be enough will be one of your questions as well once it becomes stabilized. But we are confident that there will definitely be improvements once that happens. And the challenge with the leasing discussion now is also nobody will commit until they have seen the hotel being completed. That's the reality. I mean, if I were a tenant, I mean, no point for me to take the risk today, I might wait until 6 months later when the hotel is completed. So a lot of the tenant churn is also because a lot of our tenants within Clarke Quay, some of them can be -- some of the movements and the margins is also due to us bringing in shorter leases coming in to fill up the space, create the footfall and vibrancy to that area. But we are doing a lot of things to -- I mean, we have a team that is very focused on marketing the asset. If you go to Clarke Quay, there are a lot of marketing activities going on every weekend. We have now clusters coming in on every Wednesday. We have just done a cycling circuit competition, making use of Clarke Quay natural outdoor roads to create kind of a cycling circuit. We are also -- every time there's a major sporting events, we have organized live shows and all that. So we are making a conscious effort. It's not a natural place where there's natural footfall. So we need to create a more destinational effect to bring in the crowd while CanningHill is being completed. When after completion of CanningHill, we do expect it to have more natural footfall. Yes. So we are making very good efforts. And to your second question on whether we will be open to divesting, I think we have demonstrated our willingness to divest anything, I think, if necessary. I will say that -- I mean, we just divested 2 assets and one of which is fairly large and performing well as well. So I think the question to that is anything is possible, including Clarke Quay as we are divesting Clarke Quay. Vijay Natarajan: If 10% premium, I think, yes, that's what you are alluding to. Choon-Siang Tan: Yes. You hit the nail on the head. I think it's always a matter of pricing, right? But I think the yield is still decent for Clarke Quay based on the current book value. Vijay Natarajan: Okay. My last question, I think in terms of energy rates, you mentioned that this year, you mentioned it is lower than last year. Maybe how low is it for this year compared to last year? And if it normalizes, if you have to go for open market and purchase a contract for next year, should we have to expect a jump in terms of electricity cost and NPA going down. Choon-Siang Tan: No. Thanks for the question. Actually, I also want to take this opportunity to highlight that next year, actually, we do expect utilities cost to come down further. The reason is because although it's not been locked in, we have achieved a better formula. There's -- the formula for utilities cost is always a function of certain input prices. And of course, oil price and gas prices are a key component of it. So even at today's price, if we were to enter into the contract, we are still achieving savings because of the better formula that we have achieved with our supplier. So we do expect savings next year as well compared to this year. Vijay Natarajan: So you're not impacted by external environment or even at this higher price, you can still achieve savings? Lee Yi Zhuan: Yes. Choon-Siang Tan: No, we are impacted because -- but what we are saying is that at the same price -- at the same input price next year, we will achieve savings because of a better formula. But so even though prices have gone up, we will still achieve savings. It takes a very significant increase in the price of oil for us not to achieve savings for next year, and we are not anywhere close to that. Vijay Natarajan: So this is based on the management contract we have signed with calxiaxite? Choon-Siang Tan: No. It's based on our contract with our energy provider, utilities provider. One thing is that we procure energy as a group. So we do have quite a bit of negotiating power. So for example, CICT, Clarke, the whole CLI Group, we are procuring energy as a bulk contract. So as you can imagine, because given our size, we do have some negotiating leverage. So we are able to lock in a better formula for next year. Allison Chen: Can we go to [ Diyash ]. Jian Hua Chang: This is actually Derek from Morgan Stanley. I just assumed another by accident. No, I just want to ask a couple of questions on the cost of debt outlook. I think, Mei Lian, you're alluding to -- it seems like you're alluding to about 10 to 20 basis point savings from the current 2.9%. Does that take into account, I presume, the debt paydown from using proceeds from the raise -- from the equity raise. And when you take on fresh debt for Paragon, is that all taken into account already? Mei Lian Wong: No. We have -- I mean, -- depending on the fixed float assumption for the Paragon debt, we believe that there is some room in terms of floating rate because we continue to see the movement over the past months where floating rate has actually even gone below 1%. So if this kind of continue, there could be even more savings from that anchor. We haven't taken into account the Paragon debt yet, because it will depend on the actual fixing structure. Jian Hua Chang: Is there a rough number that you could -- I mean, could we be looking at 2.5%, 2.6%? I mean I also assume you'll be in lieu of the acquisition coming in, you'll pay down debt first, right, with the equity raise proceeds? Mei Lian Wong: Yes, yes. The assumed debt for interest rate for Paragon debt is about 2.6% to 2.7%, yes. So that could kind of lower the average based on this assumption as well. Jian Hua Chang: And that number actually looks high also compared to what you recently raised at 2.18%, right? So could that number also be a lower number? Mei Lian Wong: We will try to do better. The 2.18% was raised when the fixed benchmark was actually lower than current. So today, if we were to raise the bonds again, it may require slightly higher margin. So it all depends on, first, the timing; second, the tenant that we want to lock in and how much is going to be fixed and float. But generally, we try to keep on an overall basis, at least 70% of our debt portfolio on a fixed basis. Jian Hua Chang: Understood. And if you were to raise fresh debt right now fixed, what will be the number? Mei Lian Wong: Well, probably looking at the secondary trades, close to, say, 2.4%, 2.5%. Jian Hua Chang: 1 Okay. Got it. And just last question, if I may. I think I got some investor queries on the equity raise, why raise at a lower -- at the lower end of the range of the pricing range, given the robust takeup? Choon-Siang Tan: Yes. Okay. I'll take that. Actually, we -- I would say that this is the low end of the range. The low end of range is 2.7%. But you are right, could we have raised it at, say, 2% possibly. But then the quality of the book could be different. So typically, in an equity raise, you guys will be familiar, there will be 3 main types of investors. The first group is what we call the real estate long-only investors. These are the buy and hold investors, right, because they like the assets, they are real estate specialist, they are long only, they buy because they want to achieve the yield that we provide and the growth that we provide going forward. Then there's the hedge funds and then there is a private bank who may or may not buy and hold depending on the valuation, depending on the momentum and depending on the market conditions. So we typically try to allocate a larger part of the book to long-only real estate because these are the investors that will stay with us and grow with us. But of course, these are -- so looking at the book to encourage a larger allocation to debt, that was the reason why we decided to -- but even with the decision, we also are able to bring everybody up from, say, 2.7% discount to 2.36% discount, which was the final price that we did that. And if you look at all of the equity raise done in the last 20 -- I don't know, last 5 years, this is probably the tightest. I don't know whether I can think of a tighter. So I don't think we can say that this is not a tight discount. I think we probably have been spoiling investors a little bit because we went out with a very tight low end in the first place. Most equity offerings will not go out with a 2.7% at the very low end. They typically will go up with 3.5%, 3%, 4%. But we are fairly confident of doing that, and we are able to negotiate because we also want to protect our own downside, and we're able to lock in the underwriting by the banks at 2.7% because our last equity offering was done at 2.7%. And despite that very tight low end, we were able to tighten it further at 2.36%. And I think the other consideration is we also upsize. It's actually very challenging to upsize the equity offering by 25% and still tighten the discount. Usually, you have to choose between the 2, price or quantity. I think that's a very standard trade-off. You want better price, you have to sacrifice on quantity. You want a better quantity, you sacrifice on price, and we are able to achieve both. So it's not -- so I will not actually fully agree with the statement that we are not achieving a tight discount and we didn't -- I think the third thing I will also add is that I think could we have squeezed to say, 2.2%, 2.1%, possibly. But I think we also want to watch the aftermarket performance. We want to make sure that the momentum is maintained to ensure a strong market performance, you also have to allocate and price accordingly. And I think if you look at the post-market performance, I think -- we do think that we did the right thing, and there is definitely some strong market outperformance following the EFR. Unknown Analyst: Just one question on full year DPU growth. Because of the upsized equity issuance in Asia Square 2 that will come in before Paragon acquisitions, are the growth levers that you mentioned sufficient to offset this? Or what are the other mitigating factors on the capital management front such that full year, you're still expecting DPU growth, right? Choon-Siang Tan: Sorry, I didn't get the -- can you summarize the question again? Unknown Analyst: Yes. So equity issuance was upsized. So that will drive dilution. Asia Square 2 loss of income second quarter. This 2 will actually come in before the Paragon acquisition, right? So full year, what are the mitigating factors? And are we still forecasting DPU growth? Choon-Siang Tan: Okay. Okay. Okay. I get what you're saying now. Okay. Firstly, there are 2 potential things. There are quite a few things, right? One is Asia Square divestment is unlikely to close before actually. Asia Square divestment is likely to close after Paragon acquisition because the buyer for Asia Square also needs an EGM and the process takes a bit longer. So we are expecting to close probably at least 1 to 2 months before that, 2 months. So quite counterintuitive, but actually, that is better for accretion. Because before they close, we will have to do a bit of a bridge loan. So if we borrow for 1 to 2 months bridging to bridge the funding gap before we divest Asia Square, that cost of funding is actually lower than the asset yield because we're still earning NPI when -- as long as AST 2 is not being sold, right? So the asset yield at 3% is still better than -- is still higher than the funding cost. And bridging loan we will be borrowing on floating, which, as Mei Lian mentioned, is very -- still today is still very low at about -- the float rise is about 1% today. And spread, you are probably saving a good 1% on the funding cost. So actually, it's more accretive, fairly counterintuitive. But of course, you take a bit of a stretch on the balance sheet for that 1, 2 months, but I think that's okay as long as there's certainty on closing. So that's -- it shouldn't affect -- that part of the equation shouldn't affect accretion, but it can only improve accretion. Second part, I think what you're driving at is also the equity offering being done before the closing of Paragon debt will be dilutive. But of course, we will pay down debt in between. The net effect of both combined together, I think is this dilute -- see, we are buying $3.9 billion. Typically, equity offering makes up a larger proportion of any transaction. But in our case, the equity offering, $750 million is only about, call it, 18 acquisition size. So the dilution impact is actually very small, and it's only for about -- maybe about 2 months. And we are not suffering that entire dilution because we pay down debt. So based on my calculation, plus the accretion that we will get from $2.5 billion, 2 months of bridging loans, actually, the net-net is positive. So we will actually not suffer any dilution. If anything, we will still be fully benefiting from that 1.7% accretion for the year. Allison Chen: We have Mervin, who seems like the last one to go. Mervin Song: Just a question on the retail margins. It fell Q-on-Q and year-on-year. What's causing that given you have some interest cost savings? Choon-Siang Tan: Interest cost savings will not affect retail margin. Mervin Song: Electricity costs, sorry. Choon-Siang Tan: Why the margin go down? Yes, I noticed. Why the margin go down, do you know? Let me think. Was there a change in the portfolio constitution? You sort of BPP, but that's for 1 month. I think the reason is the top line came down slightly on a year-on-year basis because we started AEI. So like, for example, I think Tampines because we did the AEI, I think the margin for Tampines came down because of the top line dropped slightly. So that's one of the key reasons, I think. The other reason, of course, is also Clarke Quay. Clarke Quay, the margins came down because of the significant drop in occupancy compared to last year. So these 2 assets would have contributed to the margin compression. Mervin Song: Any updates on Junction 8 given the change of more commercial? Choon-Siang Tan: You mean like redevelopment plans? Mervin Song: Redevelopment plans or will you take on the office component? Choon-Siang Tan: Well, I think that one is -- that's -- I don't think that will happen anytime soon. If anything, we're in discussion with many, many stakeholders. So we don't have that -- we don't have the clarity now. But Junction 8 is doing very well in the meantime. Yes, sorry, the short answer is no, we don't have anything to provide at this point. No update to provide for Junction 8. Mervin Song: Yes. Just back on the office portfolio, we hosted the IOI properties a couple of days ago, and they said that we could push Asia Square Tower rents towards $13. Is there something you can do on average across your whole portfolio? Choon-Siang Tan: Across our portfolio, that's a tough question because our portfolio obviously has different varying locations and age of building. Obviously, those in -- I think IOI's building obviously is newer than ours. Asia Square, if you compare it to some of our portfolio, is also slightly higher, right? And I mentioned earlier in my presentation that average rent for Asia Square 2 is really higher than our rest of our portfolio. So I think if your question is whether we can do it for the rest of -- I think selectively possible. We are seeing some of the renewals done at those levels for some of our spaces. But I won't say that we can do it for the entire portfolio because there are also big anchor spaces in some of our portfolio. Mervin Song: And in terms of portfolio allocation, like how are you thinking about mix between retail and office, we now have a bit more retail? Choon-Siang Tan: Yes. No, I don't think it was deliberate. It was more -- I think it's a consequence of some of the opportunistic decisions that we made. I don't think if you ask us whether do we design it to be this way? No, we are not deliberately trying to sell office to buy retail. I think we are quite happy with both asset classes. And I think increasingly, the differentiation is not as important. I think what is important for us, even merge both the office and the retail component is what is the most and best construct for our portfolio that will deliver the most stable and highest growth DPU for our unitholders. And I think because we are already so big, so the stability is there. So the question is how to drive the growth. And I think people are more focused on underlying performance -- underlying financial performance than the marginal movement between retail and office. Mervin Song: Okay. Look forward to continued strong results and hopefully high share prices. Allison Chen: Thanks, Mervin. Looks like we have no more questions. So I guess we'll end the session here. Thank you for your time. Have a good Friday and a good weekend. Choon-Siang Tan: Thank you. Mei Lian Wong: Thank you. Lee Yi Zhuan: Thank you.
Operator: Good afternoon, ladies and gentlemen, and welcome to Eni's 2026 First Quarter Results Conference Call, hosted by Mr. Francesco Gattei, Chief Transition and Financial Officer. [Operator Instructions] I'm now handing you over to your host to begin today's conference. Thank you. Claudio Descalzi: Good afternoon. Amid the volatility and disruption to the energy system over the past 2 months, at Eni, we continue to focus on the delivery of financial performance and key strategic milestones. As we set out at our capital market update just over a month ago, we are working to deliver reliable, affordable and lower carbon energy for all our customers. Our industrial strategy anchored to technology skills and long-term investment into top tier assets across a diversified portfolio has, if anything, been further validated in the context of the event of this year. Our investment framework underpinned by strong cash flow and a robust balance sheet supports us in delivering sector-leading growth. As a result, we can also reward our investors through a combination of attractive distribution and the continued rise of the capital value of the business, something that has been reflected by the share price improvement. It's also worth keeping in mind that while energy markets have been highly volatile since March, Q1 average, also higher than the planning assumption set out at our capital market update were well within a historical normal range for our volatile industry. Actually, in euro terms, it was a bit softer than last year. 2026 has seen very positive advancement in strategic terms and Q1 supports this progress with strong financials. I will analyze the financial in more detail shortly, but we reported EUR 3.5 billion of pro forma EBIT, cash flow from operation of EUR 2.9 billion and pro forma gearing at 15%, well within our expected 10%, 15% range. Our pro forma gearing, assuming the full effect of Plenitude Deconsolidation is even lower at 12%. Major strategic events of the year-to-date include probably the ever best start to a year for exploration with an exceptional level of new resources discovered in 7 different countries. The FID of Geng North and Gehem in Indonesia, the dual exploration strategy, realization of a stake in our Baleine discovery. Strong production growth helped by start-up of production at NGC in Angola and first LNG export from the second Congo LNG. And in the transition sector, the agreement to reorganize and deconsolidate Plenitude and advancing 2 new biorefineries at Sannazzaro and Priolo. But before we get into the details of the financials, I will spend a bit more time on what was the most remarkable start of the year for exploration. As you know, we have established a track record as the leading exploration company in the sector, discovering an average 900 million barrels per year over the past 10 years. And while our impact activity is somewhat front-loaded in the first 4 months of 2026, we had already added around EUR 1 billion of new resources. Critically, these new resources also all have a credible and visible pathway to development and production, consistent with our focus on efficient time to market where we are also an industry leader. Our production growth to 2030 is visible and sector leading, and we are building material optionality for the 30s. In Angola, our Azule affiliate, as operator, announced the significant oil discovery of Algaita on Block 15/06, preliminary estimates put oil in place at around 500 million barrels and the presence of an FPSO merely 18 kilometers away promises a speedy and efficient development. In Cote d'Ivoire, the Murene South-1 well significantly extended the proven area of Calao gas condensate discovery, confirming a world-class discovery of up to 5 Tcf and 450 million barrels in place. In Libya, in March, we announced a 2 offshore gas discovery estimated to total more than 1 Tcf in place and closed by the existing Bahr Essalam facilities, enabling rapid tieback. In early April, we announced the Denise discovery in the Temsah concession offshore Egypt. Our preliminary estimate for Denise is 2 Tcf of gas and 130 million barrels of condensate in place and situated less than 10 kilometers from existing production infrastructure. Last, but certainly not least, this week, we announced the giant Geliga gas condensate discovery in the Kutei Basin, offshore Indonesia. Our preliminary resource estimate is in place gas of 5 Tcf and 300 million barrels of condensate, effectively a second Geng because Geliga is close to the undeveloped 2 TCF Gula discovery that includes also an additional 70 million barrels of condensate and thus development synergy plus the same infrastructure and time to market advantage of Geng. There is a clear case for a fast track development of a third major production hub and the significant production and value uplift this implies. Q1 results were consistent with the scenario condition we faced and the positive momentum we are generating in growing the company. But not all the upside of the scenario was captured in this quarter as our downstream and biorefineries were under the traditional maintenance that we execute before the start of the driving season. E&P delivered 9% year-on-year production growth and consistent capture of venture prices. Year-over-year, growth contribution from Norway and Congo were especially notable, and the outcome is after disruption to Middle East volumes in March. GGP pro forma EBIT of EUR 0.3 billion is reflecting the more volatile scenario, and it is consistent with our updated guidance of EUR 1.3 billion in pro forma EBIT. In our transition businesses, pro forma EBITDA of EUR 0.52 billion is consistent with our full year guidance of EUR 2.4 billion. Plenitude that will continue to grow both on clients and new capacity will increase its gross EBITDA by 20% to EUR 1.3 billion, while Enilive will continue to see supportive biorefining margin, and will reach an EBITDA of EUR 1.1 billion, 16% over last year. Our refinery utilization was low, reflecting a major turnaround program, which should position us well for the remainder of the year. Meanwhile, our results in Versalis highlight some evident progress in the reported results of curtailing its losses in line with our plan. Contribution from associates reflected the macro scenario condition with reporting a strong production growth. A higher scenario along the year will enhance the results of our satellites and could improve their distribution and our cash flow, too. The tax rate of 42% was in line with our full year guidance. Cash flow from operation generated was in line with our expectation with good contribution from associated dividend and a cash tax rate of around 25%. Working capital had a large negative impact on cash flow, consistent with the sharp rise in prices in March, but it's not out of the ordinary in that context. We do expect to reverse this in the coming quarters. CapEx was EUR 1.9 billion, in line with the full year amount of EUR 7 billion for the year. Net CapEx was broadly equal to gross with limited portfolio activity in this quarter beyond announcing but not completing the sale of a 10% stake in Baleine in Ivory Coast to SOCAR. After the quarter ended, we completed on the previously announced acquisition by Plenitude of Acea Energy for around EUR 500 million. We paid the third quarterly dividend referring to 2025 in March and repurchased EUR 280 million in share. Shares in issues have reduced by 17% since the end of 2021. Pro forma gearing of 15% incorporates M&A transaction announced but not yet concluded and represent a broadly balanced quarter for cash in and cash out. We expect the consolidation of Plenitude to close in the third quarter with a benefit to consolidated net debt over the following quarter as Plenitude funding is restructured. If we incorporate also this effect, our pro forma gearing is actually at 12%. Updating our guidance for 2026, we confirm the outlook for E&P production with a growth rate of 3% or 4%, incorporating our current assumption for the impact of Middle East disruption. We have also updated our market scenario projection for the year in the context of the current situation, raising full year Brent to $83 per barrel from $70, the TTF to EUR 50 per megawatt hour from EUR 36 as we believe that higher price will be necessary for the refilling of empty storage and refining margin in Europe our term to $8 per barrel from $6. From a financial perspective, reflecting the changed scenario underlying outperformance, we now estimate cash flow from operation, pre-working capital of EUR 13.8 billion, up 20% from EUR 11.5 billion set in March. Applying our proposed updated distribution policy, this implies a share buyback raised by around 90% to EUR 2.8 billion. As previously communicated, this is the floor for 2026 that will be maintained even in the case of future scenario deterioration. Actually, taking into account the current market prices are well above that level, we should expect even further increase in our distribution policy in the coming quarters. Our new policy will be put to shareholders for approval at the AGM on 6th of May. And this concludes my remarks. And along with my colleagues from any top management on the call, I am ready to take your questions. Operator: [Operator Instructions] I now leave the floor to Mr. Jon Rigby for the Q&A session. Jonathon Rigby: Thanks, operator. [Operator Instructions] And we're going to start with Biraj at RBC. Biraj Borkhataria: [Technical Difficulty] How should we think about that EUR 55 million this quarter and what we should assume for the full year '26 and into '27? And then second question is just on Indonesia, and congratulations again on the exploration success. Now that we're closer to the deal closing in Q2, are you able to say what the cash adjustment is set to be net to Eni? Jonathon Rigby: Biraj, can you just rego over your first question because we missed the start of it. Biraj Borkhataria: Sorry. It's the transformation costs, the EUR 55 million you've broken out, what should we expect for the full year? Claudio Descalzi: Okay. I'll leave the question about the transformation cost to Adriano Alfani. On Indonesia, we do expect a cash settlement. And also, you know that we work in this kind of model with some distribution that are related to the capability of funding of this entity stand-alone, but we do not disclose this amount that will be in any case irrelevant. Adriano Alfani: Sure. Thanks for the question. I mean on the EUR 55 million, while we started a new project, we continue to drive efficiency on all the sites that are in transformation. So you should read on annualized basis, roughly EUR 50 million of efficiency that we are going to bring. So you should not multiply EUR 55 million or [indiscernible], but you should discount about EUR 50 million at least of efficiency that we are going to bring. But you need to consider that today, the sites are in transformation for the future, adding value through the new project because we are going to start the new activities. So this is something that in the future will generate value. And by the way, it is incorporated in our CFO for guidance. Jonathon Rigby: Thanks, Biraj. We are now going to go -- sorry, one second. We'll now move -- sorry, apologies. We'll now move to Alejandro Vigil at Santander. Alejandro Vigil: The first one is about the situation in the Middle East in your portfolio. How are you managing the situation and potential impact in terms of your supply contracts, your oil and gas production in general, how you are managing this context? And the second one is about Indonesia. I remember that you were talking about the plateau of the new joint venture of about 0.5 million barrels per day. With the new discoveries, this is now a very conservative assumption? Or you reiterate this 0.5 million as a guidance for the production? Claudio Descalzi: I leave to Guido Brusco to answer both questions. Guido Brusco: First, on Middle East, the impact overall is marginal, both on oil production and of course, on free cash flow. We have limited exposure in terms of production, 3% of our total production comes from Middle East. As far as concerned, the products and LNG also is limited, if not 0 impact on LNG, thanks to the flexibility of our portfolio, the diversified geographical footprint, we could basically cope with the missing volumes coming from Qatar essentially. While for the products, we -- on all the commodities, gasoline, diesel and even jet fuel, we are prepared to honor all our commitments with our customers. So -- on Indonesia, yes, indeed, I would say the -- that assumption was reflecting the status of the base of resources at that time. Of course, having discovered Geliga, which is equivalent in terms of volume in place to Geng and having also another stranded asset there, Gula, which is give and take 2 Tcf, so we can basically replicate another hub in the region. So clearly, this will raise the production target in the medium to long term to more than 500, I would say, 700, 750 might be a reasonable figure. Jonathon Rigby: Thank you, Guido. We're going to move to Josh at UBS. Joshua Eliot Stone: Two questions. One, just on the buyback and your decision to list it. Obviously, I understand there's sort of mechanical nature here given the new cash flow guidance, but more a question of the timing of why you felt now was the time to do it so soon after the Capital Markets Day and your confidence there? And then second question, looking at your macro deck, one thing that does stand out is the gas assumption at EUR 50 per megawatt hour, which is above the curve. You're involved in the market, your storage business. Can you explain maybe why prices haven't moved higher so far? What do you think are the main reasons? And why you set your assumption above the forward curve? Claudio Descalzi: Thank you for the question that are partially connected clearly. We decided to move the buyback because we believe actually that is already evident there is a completely different trend even versus the Capital Market Day. The Capital Market Day occurred in the middle of March. The event at the time were just started once we were presenting our first scenario that was based on clearly a crisis, but that could be solved in a shorter time. There were not yet bombing on the facilities that occurred at that specific time and were expanded in the following weeks. And we see there is a continuous or practically 2 months already inside the crisis. This crisis is not just a matter of reaching a sort of cease fire or peace, but it's also to restart a lot of infrastructure and production facilities, processing facilities that were shut down or were impacted by fire and bombing. So it will take longer. So for this reason, we believe that there is a quite unexpected compliance by the market on the duration of this crisis that appears, I would say, much more impactful that the market is probably evaluating. On the gas specifically, we believe that in a EUR 40, EUR 45 megawatt hour environment with extended shortage of gas, particularly from Qatar because even if Qatar will be able to restart or there will be some kind of agreement in the coming weeks, it will take time to restart all these plants of this facility to restart the flow. You have to consider there is also bottlenecks in terms of tankers or ships and clearly LNG carriers. So the overall process of refilling European storage that completed the winter at the minimum, almost at the minimum 25%. Now we are at 30% and to reach at least 80%, 90% before the start of the next winter will require some price signals that should be increased. Price signals not only in the amount of the first front month value, but also on the structure of the curve that is not supportive. So we believe that both on oil and on the gas, our price deck that we have uplifted is still conservative. Jonathon Rigby: We are going to now move to Alessandro Pozzi at Mediobanca. Alessandro Pozzi: The first one is on the number of discoveries that you've made so far this year. I was wondering there is -- in your capital allocation framework, there is a little room for increase in CapEx. And we all appreciate the need to be disciplined when it comes to CapEx budgeting. And I was wondering, to this point, is CapEx more of an input to your modeling assumption? I mean, you want to stick to that level of CapEx despite the current scenario or there is some headroom for maybe accelerating some of these projects, especially the ones in Indonesia? And the second question on GGP. Just wondering whether you can give us more color behind the increase in guidance and whether that is connected to your higher macro assumptions as well. Francesco Gattei: Okay. I will -- just a very short introduction, then I leave to Guido Brusco and Cristian Signoretto for the two questions. Clearly, CapEx, we are strict to a level of CapEx that we want to keep under certain range. You have to consider in exploration that there are exploration that are occurring inside our business combination or affiliates, associates that are reported in equity. So once you see a discovery in Azule or in Indonesia, this will have a different treatment in terms of CapEx. Then I leave to Guido to explain also why CapEx will be relatively softer in this case. Guido Brusco: Yes. I think there are 2 handles here. One is some of the discoveries are discoveries near infrastructure. So our tieback, which are not requiring massive capital intensity. And I mean those are the ones that, on top of what Francesco said, that are in Angola, like Algaita, like the one in Libya or the one in Egypt, basically, those are tie in with, I mean, low cost. The other angle is the others, which we have made in Ivory Coast and in Geliga. The one in Indonesia, it applies again, the concept that Francesco just illustrated. It is in a business combination. But on those, we can also eventually apply our dual exploration model. So the net CapEx would be even accretive from our perspective. Now Cristian... Cristian Signoretto: Well, on guidance of GGP. So I'd say based on the Q1 results, which were fairly strong and the volume increase and the increase of asset-backed trading that we have seen in a more volatile scenario, we updated the guidance, taking that into consideration. And as we said before, also extending this, let's say, situation and scenario broadly along the next month, given the situation that Francesco just explained before to you. Alessandro Pozzi: Is there any new arbitration that we need to be aware of for the rest of the year? Cristian Signoretto: Say it again, sorry? Alessandro Pozzi: Is there any new arbitration that we need to be aware of for the next... Cristian Signoretto: No. Absolutely, not. Jonathon Rigby: Thanks, Alessandro. Next, we're going to move to Al Syme at Citigroup. Alastair Syme: First question just on gearing. Can you just confirm exactly how much net debt sits in Plenitude that obviously gets deconsolidated in third quarter? And then secondly, just a question around the biofuels market. Obviously, we've seen massive price increases through first quarter. You're putting a lot of growth capital in that business. But also this week, we've seen Europe's largest airline announced cuts to routing because of the price of jet fuel. And yet, I look and see sustainable aviation fuel, SAF, is 40% more expensive than jet fuel. So I wonder how you think about the issue of affordability of biofuels in your forecasting and investment [indiscernible]? Claudio Descalzi: Yes, about the Plenitude amount of debt that we are going to deconsolidate is EUR 2.6 billion. That clearly will be reduced once there will be the increase of capital as a consequence inside the new entity. And then I'll leave to Stefano Ballista to answer about the biofuel and SAF. Stefano Ballista: Yes. No, as you said, the scenario significantly improved. And actually, the main reason for the scenario improvement, it's driven by market fundamentals. It's driven by the demand increase that we are seeing due to the regulation and the mandates that are under deployment. And these are rules, mandates, target that has been defined. If we look at the most recent definition of new target, I'm thinking about U.S. with a new renewable volume obligation, we got an increase of about 60% of demand for the next couple of years. So this is the main reason. The geopolitical situation is going to give a little bit of extra headroom, but marginally compared to the fundamentals. This means actually that the perspective on biofuel is and remain definitely strong. When you look at biofuel, you need to look both at renewable diesel on one side and sustainable aviation fuel. The market is coupled. Sustainable aviation fuel is going to be the only answer to decarbonize the aviation transport. There is no other answer at the moment. And even with a small target in terms of blending, now in Europe, we are about 2%, you can create significant demand, but pretty much affecting marginally the overall cost position. So we've got significant space for improvement, not only on renewable diesel as it's happening, but also on sustainable aviation fuel with a marginal impact on a marginal component -- on one side of the component of the aviation business as a whole. So this is the view on the biofuel. And as I said, there is no other answer actually to decarbonize the aviation sector for a long while. Alastair Syme: Stefano, I mean, Europe's largest airline has basically said they can't afford jet fuel at this price. And I accept the mandate is only 2%, but it's meant to go up. So how on earth are they going to be able to afford a high percentage of biofuel of SAF, if it's 40% more expensive than the price of jet fuel, which they can't afford. It seems to be a conundrum. Claudio Descalzi: Okay. I can -- we can comment about what was the statement. But from our point of view, clearly, the biofuel now a solution to have a resource full in a situation of scarcity. The premium eventually could reflect the impact of the scarcity. And you have to consider the supply chain or the chain of production of SAF is relatively young and small. Once you will have a potential larger market, you have also improved synergies. So the cost position is not just a matter of, let's say, industrial process. It's also a matter of having this process aligned in terms of size and materiality with demand potential. We do expect that after this crisis, there will be as a reply, not only on environmental solution, but also apply towards a potential diversification risk to deploy a larger use of this kind of alternative solution for ships, for airplane and for cars. Jonathon Rigby: Thanks, Francesco. Thanks, Al. We're now going to move to Michele Della Vigna at Goldman Sachs. Michele Della Vigna: I wanted to follow up on your exceptional exploration success. And I believe you've also completed the first deepwater well in Libya and I was wondering what were the early results there? And second, I wanted to come back to aviation, but from a different side, I think we keep reading that we may be short of kerosene this summer. How do you see the situation? And how low do you think inventory days can go before flights are actually starting to be grounded? And how much do you think that in your refineries, you can actually tilt towards more jet fuel production? Claudio Descalzi: I leave to Guido to answer both questions. Guido Brusco: So the one in Libya has resulted in a noncommercial discovery. And -- but it was very important either for us to have a better understanding of the basin, which is quite large, huge, diverse in terms of number of prospects. And so you have to think that this is a block where the last well drilled was drilled by us in the early 2000s. So we are talking of a large basin with quite a number of untapped resources. So it's the first well, but we'll have, for sure, more understanding of the basin. As far as concerning the jet fuel, as I said before, we are prepared to satisfy and honor our commitment with our customer. Of course, the situation is very different and diverse if you, I mean, if you look at the different flight operator and supplier. But as far as concerned, Eni, we are prepared to satisfy our customers. Jonathon Rigby: Thanks, Michele. We're going to now move to Paul Redman at BNP. Paul Redman: Yes. First question is just come back to Enilive. Could you give us some insight into kind of what you've seen in terms of margins, February, March and what you're seeing in April for the biofuel business? And if they're a lot stronger, I was surprised the EBITDA guidance didn't get upgraded. Is this because biofuels is positive for the commercial business, maybe having a few more issues. And then secondly, just on working capital, I think you mentioned in your prepared remarks that you expect this to come down. Could you just talk us through how you expect that to play out? Francesco Gattei: I'll let Stefano to answer on Enilive, and then I will reply on the working cap. Stefano Goberti: Yes. First of all, on the scenario. Actually, the scenario on biofuel improved significantly along the first quarter even before the starting of the conflict. This is what's true in Europe. And it's, as I said before, linked to mandates, so to fundamentals. An example, we got recently approved in Holland, the new GHG target is 28% versus a rate of 14%, and we got no more double counting. So, a good news, to be honest, fully expected. Same in U.S., we got a market significantly increasing, again, linked to fundamental. Even in the first quarter, we got an average on the RIN about $1.5 per RIN. It was less than $1 last year. And now we are about $1.8 after the approval of the new target. So the market was already expecting the new mandate. In terms of output, it has been even better. So this got an extra drive in terms of overall margin. So this is in terms of market setting. In terms of results, a comment. In the first quarter, we got as Enlive as a whole, EUR 220 million of EBITDA pro forma adjusted. This means EUR 50 million above the first quarter of last year. And this has been fully driven by biorefinery performance. It actually, on top of driving the upside, as you said, balanced the partial pressure on retail prices that we are experiencing in Europe linked to fossil fuel prices. On top, I want to highlight that actually in the first quarter, we got Venice under maintenance and upgrading maintenance. So it has been shut down for the whole quarter. And that result has been achieved without that kind of production. Venice is going to come in place during the second quarter. And we're going to be at full potential for the second half, so being the condition of capturing results. Last comment, as I said, we were definitely expecting the improvement of the scenario even in the business plan. So this improvement has been for the majority already crafted in our business plan, that one related to fundamentals. The extra upside, assuming the extra upside is going to last for the time being, this is going to get an additional value that we are capturing and we're going to keep capturing. Jonathon Rigby: Thanks, Paul. So watch this space. The next questions come from Lydia Rainforth of Barclays. Lydia Rainforth: Two questions, if I could. I mean just... Francesco Gattei: No, I would like just to answer about the working capital very fast. The working capital will turn back, will improve immediately in the next quarter and clearly along the year, is subject to the evolution of the spike of the price that we -- let's say, we were -- we recognized in the first quarter. Sorry, Lydia, please continue. Lydia Rainforth: No, no, that was important. Just 2 questions. One, I just wanted to touch on Venezuela and what you're seeing there. And then the second one, sorry, this is more of a long-term thing. But are you seeing in terms of the conversations you're having with host nations, with governments, has anything changed yet? Are they suddenly going, actually, we'd like to accelerate plans around exploration. We want more in terms of energy security. We want you involved more. So just if there's anything -- those sort of conversations, or is it just too early for that at this point? Guido Brusco: On Venezuela, just a month ago, we've signed an agreement, which we call Cardón IV Sustainability Agreement, which would allow us to basically produce sustainably the gas and provide energy to the country. And this implies also future -- so this fix for the future essentially and implies also some activity to do some debottlenecking to the plant to increase slightly the amount of volume to the domestic and to have an export outlet for the larger resources, which Perla carries. Basically, Perla is a reservoir of 20 Tcf. So there is quite a significant potential for an export. On the oil side, we have 2 assets there, one in conventional water and one unconventional onshore. Two things happened. First, a new general license was issued by OFAC, which allows the -- I mean, the operator to carry activity in Venezuela. And second, a new hydrocarbon law was enacted at the end of January this year. And this provides a framework, a legal framework, a fiscal framework to develop in a sustainable way our oil assets. And of course, we are engaging the authorities to make this happen. Jonathon Rigby: And Lydia's second question was on host governments and changing. Guido Brusco: In Venezuela. Jonathon Rigby: More broadly, I think, as well. Lydia Rainforth: Accelerate the exploration. Guido Brusco: Yes. No, I mean, broadly, there is, of course, a positive reaction from government. And we are noticing in several geographies that government are more prone to provide the right enabler for the operator to increase exploration, provide fiscal term to produce stranded resources. Of course, there is a price element which plays a significant role, but many governments are trying to introduce enablers to make it possible. The focus is on energy security, of course, most of them are trying to maximize the domestic production on the government side. On the international oil company side, of course, diversification is another pillar of the strategy. It has proven in the last 5 years that 2 major providers of energy, Russia and Middle East for both oil and gas have failed to or has proven that they could fail to deliver and diversification in other geographies like Far East and South America or America in general and Africa is very welcomed now in the strategy. As Eni, we are very well positioned in these 3 geographies. We had very limited exposure to Russia. We have, as I said before, limited exposure to the Middle East. And if you look at the portfolio in the long term, which we presented also at our last CMU, the Americas, Africa and Far East will play a larger role in our portfolio. Jonathon Rigby: Thanks, Guido. We're now going to move to Martijn Rats at Morgan Stanley. Martijn? Martijn Rats: I've got 2. First of all, I just thought I'll ask you a broad question about demand destruction. It clearly is a topic and with a broad range of views of whether there is and how much oil and gas demand might have been destroyed as a result of these high prices. But I was wondering if you could share a perspective. And to be clear, the nature of the question goes just beyond jet fuel, which is sort of separate topic in its own right. But what do you think is the amount of oil demand that has been destroyed as a result of these very high prices? And the second thing I wanted to ask you is about the Argentina LNG FID. I noticed there wasn't a mention any more of it in the 1Q sort of statement, but that should still be on the schedule for later this year. I just wanted to confirm that. Francesco Gattei: About demand destruction, I think that thinking about demand destruction in a matter of 1.5 months, it's too early. So I think that demand is there. Clearly, there is potentially some small reduction that potential buyers that do not afford, but demand destruction is generally happening in a certain time frame. So for the time being, you see that there is no demand destruction. There is supply destruction. There is storage use and there is some kind of switch wherever it is possible to switch, eventually in certain coal gas plants. But I haven't seen a real material destruction in terms of demand from the data that we can collect. About the Argentina LNG, I leave to Guido for completing the question. Guido Brusco: On Argentina LNG, we are still projecting an FID by the year-end. And just to give you more visibility on the activity, the engineering work is almost completed. The main -- all the major EPC tenders are progressing, and we are estimating to complete by Q2, the majority of those and in early Q3, the remaining. And in parallel, a significant progress has been made also in LNG and NGL marketing as well as on project financing. So definitely, we're setting up ourselves and our partner and all the stakeholders in Argentina to -- for an FID by the year-end. Jonathon Rigby: Thanks, Martijn. And to be clear, it's probably more of a function of a long list of projects that we can't fit in every quarter. Martijn Rats: Excellent. Yes. Jonathon Rigby: Yes. Martijn. Moving on, we've got Matt Lofting at JPMorgan. Matt, have you got some questions? Matthew Lofting: Yes. Two, please. First, it struck me looking at the revised cash flow guidance for 2026 that if we annualize Q1, the new full year targets look comfortably above that. I imagine there's probably some price lagging effects in oil and gas that impacted the numbers in Q1, particularly given prices rallied sharply in March. I wondered if you could sort of share the price lagging impact and how that might come through. And then secondly, obviously unusual in many respects to raise distributions and buybacks so much so early in the year. Obviously, it's an unusual macro situation that we're in, in that context as well. But in the past, you've talked about effectively a sort of a hard floor and a sort of a soft ceiling to buyback revisions. Does that still apply for 2026 against the 2.8 baseline? Francesco Gattei: Yes. About the cash flow from operation results and the fact is clearly the -- as a consequence, you know that in the first quarter, as we mentioned, there were -- and downtime, still some maintenance. So we are not able to capture certain results. Also from the point of view of GGP, there were some benefits that we were able to capture partially but just the last month of the quarter. There is a ramp-up of production in E&P to improve the further benefit along the year. And on the other side, you have to consider that there is distribution from associates that follow in certain cases, quarterly, but in other cases, there are half-year or yearly distribution. So there are various elements that will determine a different distribution in the next 3 quarters versus what we had in the first quarter. The other question was. Yes, the unusual distribution is because we had the policy and we apply the policy. I think that I do expect that this distribution will become potentially even more unusual in the coming quarters if the market persists. Jonathon Rigby: Thanks, Matt. We're going to move to Massimo Bonisoli at Equita. Massimo Bonisoli: Two questions. One on the discovery in Indonesia regarding the SEARAH JV with PETRONAS. In light of the significant discovery in Indonesia, can you clarify whether the terms of the agreement already incorporated the option of the additional resource upside you just discovered ahead of the closing? And the second on the sensitivity table, given the recent increase in volatility in physical commodity markets with widening differential across crude qualities and geographies, do you believe the sensitivities you provided on benchmark prices are still fully representative? Or should we expect some divergence between benchmark movements and your realized profitability in the current environment? Francesco Gattei: On the sensitivity, then I will leave to Guido for the question about Indonesia. On the sensitivity, we gave -- you remember that we're, let's say, applied assuming a broader volatility range. So we're different than the usual sensitivity that we fixed on a shorter size fluctuation. Clearly, volatility and -- sorry, sensitivity is just a theoretical number. We do not capture all the arbitrage also because the arbitrage cannot be modeled because we don't know where this potential gap and the effect that on the physical barrel bottleneck that could emerge. So you keep it as a key reference, but it's clear there will be some specific spot situation where the sensitivity is not applied, but the sensitivity is applied also on 1.7 million barrels per day of production. So that effect is already in a certain way, diluting any specific case. I'll leave that to Guido. Guido Brusco: There are adjustments on the free cash flow working capital, but there are also adjustments on the new resources discovered in the interim period and beyond the interim period. So there are a mechanism in the agreement to readjust value accordingly. Jonathon Rigby: Thanks, Massimo. We're going to move to Fergus Neve at Rothschild. Fergus? Fergus Neve: There's been a flurry of exploration success at the start of this year and the 1 billion BOE of resources discovered is very impressive. I just wanted to know whether there was any color you could give on further wells being drilled this year that we might be looking out for and if there are any others you're particularly excited about? And then secondly, it was positive to see the chemicals result improved sequentially this quarter. How should we think about this improvement in terms of the contribution from the Versalis restructuring and then also the scenario in the quarter? And looking forward to 2Q, do we expect the business to be able to capture any improved margins should they materialize? Francesco Gattei: I'll leave then to Aldo Napolitano for the exploration and Adriano Alfani back for Versalis. Aldo Napolitano: Yes. In terms of program -- exploration program for the rest of the year, -- of course, we had a program this year that was really front-loaded. So many of the high-impact wells have been drilled. And so in 4 months, we have -- so we had the sequence of results that you mentioned. However, we still have some interesting wells to drill during the year, again, in Indonesia, so in the Kutei Basin. So we plan to drill another well, another interesting prospect. And we will have a couple of wells in Egypt and a well in Ghana. So this will complete the wells at least with a certain materiality. There's a large part of our exploration portfolio anyway that is interested by drilling for near-field ILX drilling, so contributing to production in very short term. But in those cases with more limited reserves. Adriano Alfani: So on the chemical side, if we look back to the Q1, the transformation has a positive impact of roughly EUR 100 million. Although we are facing a negative scenario because in the first quarter, clearly, there was a sort of a time lag between what Francesco was talking about before, the effect on the demand versus the negative effect of supply because we had higher cost in terms of feedstock, higher cost in terms of utilities. So at the end, the positive impact quarter-on-quarter at pro forma level is a little less than EUR 100 million because for the effect of the negative scenario, roughly EUR 85 million. If we go in the second quarter, we are putting in place a significant action in addition to further reduce costs and to continue the transformation plan, and we expect the second quarter significantly better than the Q1, also catching some shortage that we see on the polymer market despite still the high cost in terms of feedstock and utilities. Jonathon Rigby: Thank you, Adriano. We're going to now move to Mark Wilson at Jefferies. Mark? Mark Wilson: Okay. My first question is, you say how you can honor commitments to customers, gasoline, jet fuel, diesel, et cetera, totally understandable. And just does that flag the idea that margins can be squeezed given feedstock prices? That's the first question. And then the second one, more general, yes, yet more exploration success, deepwater, talking about additional developments as well. You commented previously, Claudio, on the service market and how there could potentially be tightness. We're seeing service providers talk about renewed developments. So how would you see tightness in that contractor market and any particular services you feel may be under pressure given developments that we're looking at? Francesco Gattei: Yes. About the first question on the margin -- potential risk of margin squeeze, this is -- for us, it's a relative risk because substantially, we are -- in our chain of supply, we can able to cover most of the products that we are delivering to our customers. So from our point of view, we are not in a situation where we have to rely too much on the cargo market. There could be some volumes related specifically on jet fuel, but this is a marginal amount. So for this reason, we do take the commitment. That this is a commitment that is clearly related to our integrated value along the chain. About the contractual services in the oil market, I leave it to Guido. Guido Brusco: Sorry, I have to restart again. So I was talking with the microphone off. So there are 2 elements of -- that are driving cost at the moment. One is driving the short-term cost inflation, and this is mainly driven by the conflict in the Middle East and of course, across the whole oil and gas value chain, higher energy prices, logistics, insurance, commodity costs are increasing, and these are bringing almost immediate cost inflation. But for one moment, let's imagine that this cost pressure will be shortly fixed, assuming that this cost pressure on the short term will disappear. There are, of course, longer-term drivers of cost pressure, an increase -- a general increase in the activity in the upstream. And we've noticed that basically, I mean, if you look at the inflation trends from '22 to '23, '23, '24, up to '25, we already had a 15% cost increase in -- I mean, starting from the 2022. And the pre-war 2026 and coming here, we were in the region of the 3% to 4% of cost increase. But if you add up this short term, which I was mentioning before, the range would expand from 4% to 7%. Of course, this is the average. There are costs which are in the long term, more under pressure like the vessel installation for the deepwater activity and others which are less under pressure like the onshore drilling rig, but this is the general overview that we see in the market. And that is backed up also by sources like IHS UCCI Index. Jonathon Rigby: Good stuff. Thanks, Guido. Thanks, Mark. We're going to move now to Chris Kuplent at Bank of America. Chris? Christopher Kuplent: Hope you can hear me okay. Just 2 quick detailed questions to follow up on. I wonder whether you can talk to us about those exploration blocks that have ended up with BP. Was there a consideration whether to do this with Azule? I'm talking about Namibia, sorry. And maybe you can tell us why not with Azule. And second, even smaller detail, I just wonder whether between your CMD and now, you've changed your expectations regarding receiving dividends from ADNOC Refining. Francesco Gattei: I leave the answer to Aldo for the block in Namibia and then on ADNOC, I will reply later. Aldo Napolitano: So if I understood correctly, so you're talking about the blocks that BP has -- the new blocks that BP has taken in Namibia. So these are real exploration blocks in frontier areas. So for the time being, it's an initiative of BP. So we are, of course, talking to each other, but they are not part of the Azule Energy activity. Francesco Gattei: About the ADNOC Refining, you have to consider that, that dividend is based on 2 activities. One is the one of refining the crudes. The other is related to trading. So these 2 activities clearly have different perspectives under the current crisis. We do not have yet changed any assumption. It's not material in the overall amount of dividend that we received in the year. So I will keep the assumption as it is and it's not -- eventually, we do believe there is a relative hedging between these 2 activities. Jonathon Rigby: Thanks, Chris. Christopher Kuplent: Sorry, the first answer was this was too much greenfield. I'm aware that you are not taking part, but I just wondered why not. Francesco Gattei: So as I said, it's an initiative taken by BP, so based on their geological reconstruction. And so I think the question should be made to BP, sorry. Jonathon Rigby: Thanks, Chris. We're going to move now to Sadnan Ali at HSBC. Sadnan Ali: First of all, could you just remind us of the divestment proceeds you're expecting for the rest of the year? And secondly, I was wondering if there's any further updates or developments in your plans to get back into trading. Of course, the volatile price environment that we're seeing now is a perfect opportunity to capture trading profits, which your peers will benefit from. So I was wondering if the current environment has accelerated your plans at all? Francesco Gattei: On M&A, you know that we have completed Baleine in the first quarter. And also on the other side, we have completed in the acquisition side, HNR, Energea, with Plenitude. We do expect to have a further disposal completed in the -- during the year. You have the one that we announced last year. There will be further opportunity that we are valorizing. We do exploration model, some tail assets or areas that we do not consider core. So there is activity ongoing negotiations that are getting closer to completion, and we do expect eventually to disclose later on. So remain, as we said before, quite material this year. On top of that, you should include the deconsolidation of Plenitude as an opportunity. Clearly, Indonesia is another factor that will benefit from the partial disposal of Indonesia, referring to the 10% that will benefit not only of a scenario that is quite supportive, but also of the new discoveries that are emerging and the overall upside potential that is related to that basin. On the trading, I hand back to you. Guido Brusco: Yes. On the trading, we had a journey which started with step 1 was to include the trading into the overall value chain of global natural resources to try to capture all the margin. This was the step #1. Step #2 was to change the model, to do some transformation internally and turn our trading arm from a pure service provider of the different business to a marketplace where we've optimized our activity in the assets driven by the market needs. And then there is this third stage where we wanted to improve our soft skills in trading. We have a large base of assets. We have refineries, we have storage, we have physical oil, we have physical gas. We have a lot in terms of resources and assets, and we wanted to improve our soft skills. So we started this engagement with other trading players to try to combine the best of the 2, the best of an oil company and the best of a trading company. And this is the objective of the third step, which are -- which is definitely forthcoming. And this scenario, of course, will accelerate it. But despite this contingent situation, we would have done in both cases, yes. Jonathon Rigby: We're going to move to the last question, which is from Bertrand Hodee at Kepler. Bertrand Hodee: I have just one left. On Venezuela, you had outstanding receivables of around $2.3 billion, with an estimated realized value of $1 billion. Do you expect to recover more than the $1 billion because of the new Cardón IV Sustainability Agreement? Guido Brusco: Yes. As I said before, we just signed one agreement, the Cardón IV Sustainability Agreement to fix the future. And now with this new engagement and conversation we are having on how to develop the oil assets, we will fix also the past. Bertrand Hodee: And so how should we think about this $2.3 billion of outstanding receivables? Guido Brusco: There will be mechanisms developed to recover these past dues within the framework of the development of the oil field. Is that more clear? Bertrand Hodee: Yes. So it's not going to be within the Cardón IV JV, but within the new oil framework? Guido Brusco: Or a combination. It's very flexible, but it will be essentially more focused or centered around the oil development. Francesco Gattei: New development that will clearly give more flexibility in terms of cargo that could be used or new revenues that could emerge by production -- additional production. Jonathon Rigby: Think of it as an holistic solution to all the challenges that we have. Thank you, Bertrand. Thank you, everybody, for joining the Q&A and your attention on Eni's Q1. We look forward to speaking to you soon. Have a great weekend. Thank you. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.
Bertina Engelbrecht: Good afternoon. Thank you for joining the webcast of our Interim Results for the 6 months ended 28th February 2026. I'm Bertina Engelbrecht, Chief Executive Officer of the Clicks Group. I am joined by Gordon Traill, our Chief Financial Officer, who is in a completely different time zone. Gordon and I will take you through the presentation of our interim results, and we'll respond to any questions you may have after the conclusion of our presentation. This slide sets out the outline of our presentation. I will, as usual, kick off with a review of our performance of the past 6 months. Gordon will then present an overview of the financial results. I will walk you through the trading performances of our operating business units, starting with Clicks, followed by UPD. And I will then close with the outlook for the group. Please feel free to submit any questions you may have via the webcast platform during or after the conclusion of our presentation. Sue Hemp will read out your questions to which Gordon and I will respond. I will now take you through the review of the period. It has been a tough 6 months. Despite some interest rate relief and signs of a slow recovery in the economic environment, trading conditions remain constrained, especially for middle-income households. Competition intensified as new players entered the market. Traditional players extended into health and beauty categories, giving rise to heightened levels of promotions aimed at capturing a greater share of the consumer's wallet. Over the period, we experienced lost sales exacerbated by low availability due to the rollout of our warehouse management system in the Western Cape DC over the peak trading period. We invested in the expansion of our store and pharmacy network, technology enablement and progress both our people and sustainability agenda. The number of pharmacy drop-ins were, however, lower than planned. In the period under review, we opened our 1,005th store and our 797th pharmacy at Kidd's Beach in the Eastern Cape. We also increased our primary care clinics to 226 as we deepen partnerships with medical funders. Our ClubCard customer membership increased by 800,000 new members over the period to 12.9 million active members and contributed 83.7% of retail turnover. We continue to be recognized as one of the strongest brands in South Africa. UPD delivered strong growth in its wholesale channel and exceptional growth in preferred bulk contracts. And whilst UPD managed every element of its income statement well, it really managed expenses in a disciplined manner. UPD extended its wholesale fleet of pharma-compliant electric vehicles, most of which have been assigned to our owner drivers. This initiative not only supports our cost savings initiative, but also our sustainability agenda. We remain strongly cash generative and in accordance with our capital allocation strategy, bought back ZAR 752 million worth of shares to the benefit of long-term investors. In the period, diluted headline earnings per share increased by 8.1%, and we increased the interim dividend by 8.4%. I now hand over to Gordon, who will take you through our financial results. Gordon Traill: Thank you, Bertina. If we consider the group's financial highlights, group turnover increased by 7.4% from the period. Retail turnover grew by 5.4% and UPD's reported turnover increased by 13% with a strong performance from wholesale and our preferred bulk contracts. The group trading margin at 9.1% was maintained despite increased promotional activity and faster growth of GLP-1s. The diluted headline earnings per share for the group increased to ZAR 6.53 per share, up 8.1% on the prior period. In the 6 months, ZAR 1.9 billion was generated in cash from operations after working capital. The group's return on equity at 45.7% has remained strong. To note that during the period, we carried out buybacks of ZAR 752 million, which will benefit return on equity and headline earnings per share for the full year. And the dividend declared for the period has been increased by 8.4% to ZAR 2.58 per share, slightly ahead of headline earnings. Retail sales increased 5.4% with same stores growing 3.1%. The warehouse management system implementation at our Western Cape distribution center had a short-term impact of ZAR 175 million on sales. This reduced sales growth by 0.9% in retail. The distribution center is now working optimally and is capable of picking as much as our Centurion distribution center, which is 1.5x its size. The distribution business continued to experience low selling price inflation of 1.5%. Nevertheless, wholesale was up 7% and our preferred bulk distribution business up 31.1% performed strongly. Sales to Clicks were up 11.1%, while hospitals were up 2% for the period. Bertina will elaborate on the detail of each business' performance later in the presentation. This slide reflects the group's total income, which has increased by 6.5% for the period. You can see the total income margin in retail was 70 basis points higher due to the growth in private label volumes. UPD's total income margin was down 50 basis points to 8.9%, which was due to the lower SEP increase. Good performance in preferred bulk distribution contracts at a lower margin, partially offset by 2 distribution contracts that were not renewed in the prior year. Overall, the high growth in the distribution business at a lower margin has resulted in the group total income margin being slightly lower by 30 basis points. The cost base in retail increased in the period, partially due to the wage increase of 7%, higher costs from the WMS implementation to ensure service levels in store were maintained and pharmacy openings. Retail costs grew overall by 6.1% with new stores contributing 2% to the cost increase with the lower rollout of stores in the first half. Over the last 6 months, we have added 14 Clicks on Unicorn stores and 17 pharmacies to the group. The IFRS 16 interest charge increased as a result of the number of renewals in the period. Comparable retail cost growth overall was well controlled, up 5.4%. In our distribution business, depreciation increased as a result of investments in the warehouse systems. Employment costs were well controlled and the increase reflects IT contractors being taken on and moving from other costs. Taking other costs and employment costs together, costs increased by 6.8%. Further investments in electric vehicles have been made, and these will be fully rolled out in the second half. Operating costs overall were well controlled. Retail grew trading profit by 11%, with the margin slightly up from last year as the Intragroup turnover elimination, as a result of the unwinding of the Unicorn unrecognized income is taken into account in the prior year. UPD's trading profit increased by 7%, with the trading margin decreasing 10 basis points due to reasons outlined earlier. Overall, the group's trading profit increased by 7.4% to ZAR 2.3 billion for the period, driven by a good performance in both businesses. Inventory levels for the group were higher by 4 days at 89 days. Retail stock days were 8 days higher than last period and increased ahead of underlying sales. Inventory was driven by higher purchases after recovery from the warehouse management systems implementation and investment in new stores and pharmacies. Retail net working capital days increased by 2 days. UPD inventory days at 49 days were 3 days lower than last year and well controlled. Net group working capital decreased by 2 days. This slide shows the movement of cash during the period. As you can see, we started the period with cash of ZAR 3.3 billion reflected in dark blue on the left-hand side and ended the period with ZAR 1.2 billion on the right-hand side of the slide. The group generated cash of ZAR 3.2 billion highlighted in green before the repayment of lease liabilities amounting to ZAR 456 million, working capital outflows of ZAR 1.4 billion and tax payments of ZAR 651 million. ZAR 311 million was reinvested in capital expenditure across the group. Of this amount, ZAR 186 million was invested in new stores as well as 34 revamps and 15 pharmacy drop-ins and ZAR 125 million was spent on IT and other infrastructure. We returned ZAR 1.5 billion to shareholders during the period through dividends and carried out ZAR 752 million of share buybacks. CapEx of ZAR 1.3 billion is planned for the full year. ZAR 662 million will be invested in our stores and pharmacies. This will include 40 to 50 new Clicks stores and pharmacies and 80 to 90 retail store refurbishments. ZAR 594 million will be spent on IT systems and infrastructure. ZAR 88 million of this amount will be invested on UPD IT and warehouse equipment, and we will invest the balance of ZAR 506 million in retail IT systems, including the further rollout of the warehouse management system and online systems. We will continue to grow our retail footprint, grow the number of pharmacies and continue investment in our IT systems. I will now hand over to Bertina. Bertina Engelbrecht: Thank you, Gordon. I will now take you through our trading performances in greater detail, starting with Clicks and UPD. Turning firstly to the retail performance. This slide reflects the retail sales growth and category contributions. Clicks delivered a muted performance with turnover up 5.4% for the period. This was due to intensified competition, a slower rollout of new pharmacies and the short-term impact of the WMS rollout. Sales turnover in comparable stores was up 3.1%, inflation slowed to 2.3% and volume was up just under 1%. Our 60 stores located in neighboring countries showed pleasing growth of 8.8%. I will now briefly turn to each of the categories on this slide. Our positioning as a trusted healthcare provider anchors on customer value proposition. Pharmacy remains a key driver of footfall traffic, repeat visits and market share gains. Pharmacy performance has been driven by the growth in chronic scripts and select therapies such as diabetes, which also influenced the margin mix. Improved availability supported the positive performance in Schedules 1 and 2 with skin health up 9%, preventive health up 13.8% and lifestyle supplements up 18.4%. The strong growth of GLP-1s is continuing with our extensive pharmacy network providing a clear competitive advantage. Front shop health performance was muted but improved margin. Branded supplements grew by 18% and health foods by 20.1%. Private label ranges such as Smartbite Food and OptiHealth, which is our premium supplements range continue to outperform. We launched 70 new OptiHealth stock keeping units and are launching further range extensions this month. A sales decline of 1% in baby reflects the impact of low availability and high deflation in diapers and accessories. We actively defended our market share and improved gross margin due to a higher private label contribution of 29% to baby sales and 56% to the category margin. Although the beauty category remains heavily competed, the biggest adverse impact was due to the WMS implementation in the Western Cape, which is our strongest beauty node. We continue collaborating with suppliers to elevate service levels in our beauty malls and fragrance counters, resulting in those stores delivering results in line with plan. Personal care delivered a strong performance, up 7.9% despite the substantial impact of lost sales. Our partnerships with key suppliers delivered exceptional outcomes. In the hand and body category, sales grew 12.3%, driven by Vaseline, Nivea, Dove, Cetaphil and Sanex. In the body freshness category, our exclusive brands grew 26% as we sold 20 million roll-ons, resulting in over 40 million very fresh armpits. Promotional sales up 12.8% was instrumental in the performance of the personal care category. Although performance in general merchandise was up just 2.9%, we achieved category share gains across cotton and small household appliances. This supports differentiation and improves the margin mix. Interestingly, over the 1-week Black Friday promotional period, we sold the equivalent of 6 months' worth of Toni&Guy hair straighteners. Turning to market shares. Despite the muted sales performance due to intensified competition, low availability and some supply out of stocks, I am proud that we gained market shares in retail pharmacy, personal care and small household electrical appliances, whilst actively defending our market shares in baby and haircare. The retail pharmacy market share gained share to 24.9% despite the delay in the issue of new pharmacy licenses. We nevertheless opened 17 new pharmacies in H1 and have a steady pipeline of licenses. This will enable us to deliver on our targeted number of pharmacies for this year. Front shop health declined by 80 basis points due to supply constraints in core lines, some manufactured product recalls and increased competitive pressure. Despite competition, we actively defended our baby market share with standard gains in baby ready-to-drink up 460 basis points and baby wet food up 140 basis points. We maintained our market share in infant milk but declined in baby diapers, which was down 30 basis points. Our market share loss of 100 basis points in skincare is due to the double-digit decline in a major brand in which we have a substantial share that experienced poor availability and lack of innovation. In response, we have embarked on range and space optimization initiatives and are also reinforcing service levels in our beauty malls and fragrance counters in collaboration with suppliers. We recognize the role that is growing of digital beauty sales and are investing in our e-commerce platform and mobile app to drive personalized customer engagement. We defended our haircare market share, gaining 10 basis points with strong gains in shampoo, hair colorants and hairspray. Personal care gained 60 basis points with strong gains in hand and body, up 80 basis points; oral health, up 60 basis points; and body fresheners up 70 basis points. The gain in market share of 150 basis points in our legacy category of small household electrical appliances is accelerating across every subcategory and every measurement period. Standout gains were recorded in beverage makers, up 300 basis points; food makers up 430 basis points and indoor cooking up 140 basis points. Great Value as a key brand pillar has sustained the group during tough economic conditions such as we are currently facing. Our strapline, "feel good, pay less" and our promotional campaigns resonate and drive shoppers to our stores and our online platform. Promotional sales were up 8.1% and contributed 47.8% of turnover, confirmation of the consumer response to value. In pharmacy, we deliver value with lower-cost generic medicines up 6%, accounting for 58% of sales by value and 72.1% by volume. The weaker value growth of generics is due to the surge in demand for GLP-1 products. In the past 6 months, we returned ZAR 527 million in cashback to ClubCard members to reward them for their loyalty and to ease financial stress. The competitive landscape is evolving due to new entrants and traditional retailers extending into product categories to capture a greater share of the customers' wallet. Competitors are forming novel strategic partnerships to enhance the customer experience. They are also investing in data capabilities to support personalization aimed at shifting customer behavior and to develop targeted loyalty mechanics that enable more precise price investment. We have an African proverb that states, "if the drum beat changes, the dance must change." We have recognized the need to adapt to the new competitive reality whilst remaining firmly anchored in affordable, accessible health care, supported by a [ fit-for-all-types ] customer loyalty program and a focused private label and exclusives portfolio. In fact, our private label and exclusives portfolio is a key strategic pillar. It mitigates against the margin impact of increasing our share of pharmacy, creates a clear point of differentiation based on consumer trust in the quality of our brands and enables us to maintain our total income margin despite competitive pricing pressures. Over the period, we sold 110 million units of private label and exclusive brands. A fun fact is that we sold enough toilet paper rolls to circumnavigate the earth 100 times. The muted performance of private label and exclusives up 4.6% is because 60% of our bath and body sales are accounted for during the peak trading period when we were most impacted by the WMS implementation. We are though reaping the benefits of working with local suppliers to develop ranges in South Africa. This supports the national agenda to drive localization and employment. Our locally produced ranges are continuing to perform exceptionally well with Expert ranges up 35%, Clicks Skincare Collection up 11% and Smartbite food ranges up 40%. Our Made 4 Tots ranges grew 75% due to range expansion and improved formulations. We also pursue differentiation through our service offering and in-store elevations. A big focus in this year will be on elevating our mens' grooming, informed by the overwhelming positive sales impact of our [ Grow Nation ] campaign and strong growth of our Sorbet Man range, up 29% I am excited at the prospect of what our in-store electronic elevation, which is strongly supported by suppliers, will achieve in elevating the customer experience whilst also growing both sales and income. Despite its challenges, The Body Shop remains our fourth most profitable exclusive brands. The improved performance of the newly introduced ranges and improved availability is therefore encouraging. The investment in the premium ARC beauty retail brand continues to add value with the ARC customer spend totaling ZAR 331 million, up 21% over the past 12 months. This is because for every ZAR 1 in cashback that the ARC customer earns at ARC, they spend ZAR 5.72 at a Clicks store. Our loyalty program is a primary demand driver. It underpins customer affiliation, enabling us to defend and grow market shares. The Clicks ClubCard loyalty program, with its strong affinity partners is our most valuable asset, with 12.9 million active members who contributed 83.7% of sales. Over the period, we added a whopping 800,000 new active ClubCard members. Encouragingly, it is the most used loyalty program in the mass market and among the youth. The ClubCard program played a significant role in easing financial strain on consumers during tough times, which is the reason we moved to monthly cashback payments. In the period, our cashback rewards of over ZAR 0.5 billion certainly brought welcome relief to ClubCard customers as the benefits of our affinity partnership with Engen and FNB's eBucks program to single out two. E-commerce, up 17.9% for the period, accelerated strongly in quarter 2, driven by increasing mobile app adoption, personalization enabled by loyalty data and improvements in our fulfillment execution. Our app shoppers contributed 46.5% of online sales with a Click and Collect option contributing 31% of online sales. We fully implemented LEAP, the only modern pharmacy management system in South Africa across all of Clicks. In response to market demand, we are now marketing the LEAP pharmacy software system to third parties. Over the past 66 months, we have, on average, increased our store count by just over 3 stores per month in pursuit of our medium-term expansion target of 1,200 stores. At the half year, we closed on 1,003 Clicks stores, 795 Clicks pharmacies, 2 UniCare specialized pharmacies and 226 primary care clinics. A week ago, we opened up our 800th pharmacy in Oudtshoorn, a rural town which is roughly 5 hours drive outside of Cape Town. Our store location strategy, which remains premised on convenience and proximity to customers is key to our consistently broad appeal. Over 53% of households reside within 5 kilometers of a Clicks pharmacy. We increased the number of primary care clinics to 226 and are also extending our virtual doctor network. In UniCare, we are extending space to doctors and partnering with medical funders to provide first-level triage after hours. We are opening another UniCare greenfield site at the end of this month and completing another UniCare acquisition in May. We remain strongly aligned to the national health care agenda and committed to providing affordable, accessible health care to all. 252 of our convenience format stores are located in lower LSM areas accounted and accounting for 23.4% of turnover. That completes the review of the retail business. I will now provide an overview of our distribution trading performance. Wholesale turnover was up 7%, boosted by the improved purchasing compliance from its core wholesale customers. Clicks accounted for 60.5% of UPD's fine wholesale turnover, up 11.1%. Clicks has improved purchasing compliance of 98% is in line with our internal targets. This is positive for UPD, but less so for competitors who benefited from Clicks byways in prior periods. UPD will continue to benefit from the growth in Clicks as it increases its pharmacy count in H2. The hospital channel remains constrained by controlled supply rather than demand as they manage their ethical generic mix and inventory levels. Purchasing compliance though has stabilized due to improved service levels. Over the period, UPD's market share of the independent acute private hospital channel improved from 30% to 33%. The dedicated hospital key account management structure, which we introduced over a year ago is yielding positive results. The stabilization of Link pharmacies is due to a relaunched Link offer and dedicated resourcing. The revised structure offer to independent pharmacies is beginning to stimulate sales in that channel. Whilst we are pleased with the improved trading performance, expense management, efficiency extraction and other income gains, there remains room for improvement. The delivery of the strategic initiatives outlined next, together with superior service to all of UPD's customers, will deliver the recovery of UPD's wholesale market share. Quality, regulatory compliance and service excellence underpins UPD's performance. Operational stability with the on-time and in-full metric at 96.4% and customer in-full rate at 99.3% resulted in improved purchasing compliance for fine wholesale customers, whilst preferred bulk contracts delivered a truly stellar performance. However, the loss of the 2 bulk contracts adversely impacted total managed turnover. Value growth continues to be impacted by the higher volume growth of generics, which contributed 76.9% to UPD's fine wholesale sales. Our strategic initiatives are progressing broadly in line with plan. I will highlight a few of these. Medical consumables remains a strategic growth opportunity. The acquisition of the medical consumables business to fuel this opportunity has been finalized. We have completed the integration process. The sales targets are being pursued in a disciplined manner, and we have extended our inventory pipeline to ensure that we have the requisite stock mix for scaling this in our core hospital channel as well as the private sector in Southern Africa. In December, a cross-dock facility located at the retail DC became fully operational with the early benefits already evident. This cross-dock facility enables us to service our core wholesale customers in the Pretoria-Noord much more effectively, which will also reduce byways to competitors. In a low-margin business such as UPD, a relentless focus on efficiencies and expense management is critical. Over the past few years, we have worked on route optimization and on reducing our fuel costs through our electric vehicle conversion program. By the end of this month, 86% of our wholesale fleet will comprise of EVs covering 74% of total kilometers covered. Over the past 12 months, fuel as a percentage of transport costs has already reduced from 40% to 35%. UPD's strong top line momentum accelerated in quarter 2, driven primarily by preferred bulk sales. The business will benefit from a stronger Clicks pharmacy opening program in half 2, improving Link purchasing appliance and the ramp-up of medical consumables. Profitability will remain under pressure. Hence, the UPD team are focusing on maintaining service excellence, working capital improvement and disciplined cost management. This completes the review of our trading performance for the period. As always, I am inspired by the proud brand ambassadors in our company. The WMS impact tested our resilience, but our people in our stores, DCs, IT, regional offices and HQ were unwavering in their commitment to getting us through that period. On behalf of our Board and the executive teams, I would like to thank each employee, team and their families for their individual and collective contribution to our results. I will now conclude the presentation with the outlook. It would appear that the only constant is change. In early January, most economists were cautiously optimistic about the economic outlook for South Africa. Because South Africa imports most of its crude and refined oil products, any increases in fuel prices will have a knock-on effect on the cost of transport and food. In turn, this will adversely impact inflation and interest rates, leading to depressed consumer spending. We too will be affected by fuel price increases. The investment to convert more than 80% of the UPD wholesale fleet to EV is already delivering fuel cost savings. This will enable us to mitigate against a fuel surcharge for our customers whilst also supporting our sustainability agenda. In half 2, we will also be absorbing the impact of the very low SEP increase, primarily in UPD but also in Clicks. We, though, have a proven capability to trade positively through constrained trading conditions. This is because of our fiercely loyal ClubCard customers, extensive private label and exclusive portfolio and our strong market shares in defensive retail categories. The investments made in ARC and Sorbet are attracting new customers to Clicks. UniCare is extending its service offering by creating space in its stores for doctors. The colds and flu season lies ahead. In May, we will trial our on-demand, over-the-counter medicine delivery service, which will be fully pharma-compliant. We will achieve our target of opening 40 to 50 new stores and 40 to 50 pharmacies this year based on data-driven insights. Despite some delays, we will open 2 additional UniCare format pharmacies by the end of May and one more by the end of this year, taking our total UniCare count to 5 by the end of this financial year. We are on track to pilot 10 clearly differentiated concept stores in this year. UPD has a clear, targeted plan to grow sales of its higher-margin medical consumables business in its core hospital channel and in the Southern African private sector. Scale is important because it provides the opportunity to pursue efficiency gains. Earlier, I shared some of UPD's strategic initiatives. All our retail businesses and shared services teams are executing plans aimed at stimulating sales and margin improvements as well as sustainable cost management initiatives to create the necessary leverage to enhance profits. We wrestled with the earnings guidance because of the high levels of uncertainty and volatility as a result of geopolitical events, which will impact on inflation, interest rates, consumer spend, supply chains, product margins and costs in the months ahead. These are the factors that weigh on us in setting on guiding for an increase in diluted headline earnings per share for this financial year of between 4% and 9%. That concludes the presentation. Thank you so much for taking the time to listen to us. We are available to take your questions or your comments. So I'm now handing over to Sue Hemp, who will facilitate the Q&A. Sue Hemp: Thank you, Bertina and Gordon. We have a number of questions here from Michael de Nobrega at Avior Capital Markets. Firstly, competition in the drug retail space appears to be intensifying, particularly around loyalty programs. How is the group thinking about maintaining its competitive position? And could this lead to any evolution of the Clicks ClubCard offering over time? Bertina Engelbrecht: I'll take that question. Michael, thank you very much. That's an excellent question. First, I guess I'm buoyed by the increase in our pharmacy market share. That's probably the clearest indication of whether or not we are winning against the heightened competition. But what will be in addition to that? The first is we are excited at the prospect of trialing our over-the-counter on-demand medicine delivery service as we've said in May month. Secondly, we are going to be hitting our target of up to 60 pharmacies in this financial year. Very well on track of this with this, and we already have a fair number of those licenses already in hand. Thirdly, we continue to see the exceptional loyalty of ClubCard within pharmacy. When we talk about ClubCard, 83.7% of total sales. In pharmacy, they're [indiscernible] over 87%. And then fourthly, we are extending UniCare, which is really a specialized pharmacy format, and we are hopeful that by the end of this year, we will get to 5. Definitely, we know that by maybe will get to 4. Sue Hemp: Second question. As the WMS will be rolled out to the Durban DC, what key lessons have you taken from the Cape Town implementation? Should we expect any further disruption during the rollout? Gordon Traill: I can take Durban. In terms of the rollout to the Cape Town, it's not a start-up from 0 again. So any bugs are operational issues but are being earned out. I think the second thing to bear in mind is that Cape Town is, in terms of complexity, our most complex distribution center, and we've tested every aspect of the warehouse management system over the last few months. And we've put in -- moved people from Cape Town to take the Durban staff through how to work with that with the new system. So there's very good change management. So in short, we are not expecting to experience the same level of issues that we had with Cape Town, and it's at a quieter part of the year. I think the last aspect to just bear in mind is the relative size of the DC. So Durban is about 1/3 of the size in terms of Cape Town in volume. So there's a very good plan to mitigate or alleviate some pressure when we go live on the stores that Durban serves. So we expect that Durban the next DC will be successful. Bertina Engelbrecht: So if I may, maybe just add to some of that because I think, Michael, what you're asking is what have we learned? The first, I think that we have learned is take a bit more time to really consider if you've had a delay, where do you go? So complexity of the distribution center, I think, will be one of the key factors that we take into account. And as Gordon said, Durban is the least complex of all of the retail DCs. The second one is have a plan B but also a plan C. The third one, I think, is that we've already put in place work towards our micro-fulfillment centers, which will alleviate the pressure on the Durban DC when we go live. And then fourthly, part of our plan is that if anything were to go wrong, which we do not anticipate at all because we've been stable now for 2 months flat is that we are able to serve our Durban customers -- stores sorry, from both Lea Glen and then also via Cape Town, the Eastern Cape part, which is really serviced out of the Durban DC at the moment. Sue Hemp: His third question. Could you maybe give us a bit of color on the key assumptions, particularly around diesel prices and inflation? Gordon Traill: Well, we did outline the impact of what the diesel price increase is going to be on our bottom line. But I don't think that is the -- that is an impact, but it's not the major impact. It's also what price increases that suppliers are going to be looking to pass through to ourselves and the impact on the wider economy because it's the consumer has less money in the pocket. It's how much are they going to pull back on spend. So just now inflation remains fairly muted. We expect it to go up in terms of the cost price inflations that were passed through or that suppliers want to pass through, we'll always negotiate for a period of time, but it is going to have some -- I think the more worrying impact is the general impact on the consumer going forward. Sue Hemp: His fourth question, the update mentioned rollout of on-demand OTC medicine delivery from May. Could you provide more detail on the scope initial regions? And how do you see this scaling over time? Bertina Engelbrecht: So I mean we're going to do the rollout trial from May, well on track on that. Much of the work, Michael, has been around really understanding the -- how we ensure that we are compliant from the very beginning. We will be first to market with this. And so I think it's important that we do that. In terms of the mechanics of all of that, I mean that's what the team are currently firming up on. When we've got a bit more detail on that, we will let you guys all know about that via Zoom. Sue Hemp: Then his fifth question and the last question of this session, could you elaborate on the delays in obtaining pharmacy licenses and how you expect approval time lines to evolve going forward? Bertina Engelbrecht: How long is a piece of string? There were two things really. I mean there are resource constraints within both the SAPC and the Department of Health. Just in terms of the inspectors, you need a physical inspection of the site. The second one really is that there was a bit of an irregular meeting schedule for some reasons that were completely understandable, such as, for example, tragedies in some of the family members that sit on that licensing committee. But we are really hoping that the meeting schedule will be more regular going forward. The important thing, I think, at this stage is to note that we have a fair number of the licenses to support our rollout program of pharmacies for the remainder of this year. Sue Hemp: And we have two questions on the same topic from Anda Tyali from NVest Securities and Ya'eesh Patel from SBG, both asking for some insight on the retail post-period trading. Has it improved from a circa 3% print from the last 6 weeks of the first half? Gordon Traill: Bottom line is, yes, it has improved from the 3% print. It's still not where we would -- we always want it higher. But it's still fairly early since we've introduced the additional ClubCard rewards at the end of February. So on the deep cut deals, which has been performing particularly well for the products that we put on promotion there, and we're seeing that our suppliers are quite excited about that and wanting to speak to us more about support around those sorts of deals. That's definitely ahead of the 3% that we saw in the last 6 weeks. Bertina Engelbrecht: And maybe then just to add to that. I mean we haven't really had a high level of new store openings since the half. But today, for example, we're going -- we're opening our doors today. I think between -- I think 5 of them today. UniCare actually goes next week on the 28th, our second -- our third UniCare store opens next week on the 28th. Sue Hemp: So you partially answered the first part of Michael Jackson Bank of America's question, which is how is your rewards program performing since implementing changes in Q1 and should we expect an increase in promotional cadence for H2. But he also asked, will this impact gross margin negatively in H2? Or can you offset this by growing private label further? Bertina Engelbrecht: Partially, the offset will always be an ongoing private label further, but it's also going to be about how you use the revised ClubCard offer in a much more selective way, as opposed to broadly. So that's some of the work that the team is looking at the moment. Sue Hemp: Ya'eesh Patel from SBG asks another question. Retail wage increases seem quite high in the context from moderate CPI for now. What led to such a high negotiated increase? Bertina Engelbrecht: It's something that happened more than 2 years ago. So it was a multiyear deal. And most certainly, what we have done is that we have had discussions with the negotiation team. They commence the negotiation with the new deal, which will be implemented in July month. So the process has kicked off. Sue Hemp: Bruce Williamson from Integral Asset Management says, congrats on continued store growth and good results and a very difficult trading environment. In deciding on the split between dividends and a share buyback, what value did you put on the Clicks share? Gordon Traill: We never disclosed what that value is. We do have a model, and we base it on -- we are expected -- our forecast results. And that's put to the Board by management and approved by the Board, but there's never a number that we disclosed. Sue Hemp: Keenon Choonoo from Investec. We've answered a couple of his questions, but he says thanks for the opportunity to ask them. Front shop health growth has lagged pharmacy. Could you provide some color on the competitive pressures faced currently? Which categories and entities do these pressures stem from? Does this mean sustained promotional activity going forward? Bertina Engelbrecht: I don't think sustained promotional activity is required. It essentially has been in the more premium vitamin and supplements range, and that's the reason we're accelerating our range extensions with the within OptiHealth, which is really performing exceptionally well. I may also say, I mean, we've seen a fantastic performance out of GNC over the last couple of months. I spoke to our Head of Healthcare last night, and he had just come back from leave and he came to tap me in the shoulder and said, "Bertina, the team are working really, really very hard on this." So vitamins and supplements, I think we're quite clear in terms of what the area is, but there were -- we had some core lines that were out of stock. And those are some of the areas that we are attending to at the moment. Sue Hemp: Sorry, we're getting multiple questions on the same things. I hope we've answered people's questions. Sa'ad Chothia from Citi has asked if we can give an inflation outlook for half 2 and for FY 2027? Bertina Engelbrecht: The mirror that I'm looking at is super opaque on that one. I mean, kind of just say, I mean the reserve bank kind of signaled that you may be looking at inflation getting closer to 4% to 4.5% by -- probably by around about the end of May. It's unclear to us at this stage as to what that would mean. I mean, clearly, I think suppliers are already knocking on the doors, talking about price increases. All of us in our personal capacities, we have already had some of our domestic service providers talk to us about fuel surcharges. So I think inflation is ticking up, but it really is all going to depend on what happens to not necessarily in this country but what happens in the Middle East. Sue Hemp: Sa'ad Chothia from Citi asks if we're able to share sales and profit of the medical consumables business. Bertina Engelbrecht: There is a plan. The reason we are not talking about any shift in the guidance as far as UPD is concerned is because those plans must now be realized. And so I think it's early days. The team, I must say, have put together a really impressive plan. They've already started engagements with hospitals, both in the acute as well as within the listed hospital space. Let's just say the margin is significantly and substantially higher than what the margin would be within UPD's final wholesale business. Sue Hemp: Kgomotso Mokabane from Sanlam Private Wealth asks, private label growth was only 4.6% despite its margin benefit. What held back the growth in pharmacy private label is still relatively low versus generic volume? What are the main barriers to scaling private label opportunity there? Bertina Engelbrecht: The biggest impact on private label growth over the period was because 60% of our bath and body, which is a massive category for us. Those sales really happen within over the peak trading period. And so that was a major impact. What would we be doing? I mean the constraint in pharmacy would be there's a regulatory process that you have to go through. You will know that we disinvested of Unicorn and we're no longer applicant on any of those products. And so it's the work really that we do with the Unipharma team. in terms of making a broader range available. And there are specific categories such as mental health, which are much more challenging to shift the patient that is on an originator product. Those probably some of the feedback that I give on that. Sorry, the final thing that I was just going to say is, of course, as well, it's the surging growth of the GLP-1s which are all of originated, at this stage. Sue Hemp: Neo Ramodike from Mazi Asset Management says, should the shift to EVs at UPD be interpreted as a move to integrate electric trucks into their logistics fleet? Maybe meaning the retail business as well? Bertina Engelbrecht: Into the retail business as well. I think, Gordon, you must help me on [indiscernible]? Gordon Traill: Yes. Sorry. The trucks that used in UPD are much smaller. We are trialing EVs in the retail fleet, but just now the economics of the larger trucks versus the traditional ICE vehicles aren't quite there just yet. But it is something that we are looking at very closely because the economics in the larger trucks are changing very, very quickly. So a few years ago, the small electric vehicles probably wouldn't have been feasible for UPD, and that's just changed in the last couple of years. That makes it very attractive. And fortuitous, just now given the recent events, but it is something that we are looking at, but we're not quite there yet. Sue Hemp: [ Pieter Drost ] from [indiscernible] Fund Management says the 1,200 stores, medium-term target. How should we think about a longer-term target or runway? Bertina Engelbrecht: Look, I mean, we're going to get to around about at least 1,040 Clicks stores probably by the end of this financial year. So the target achieving the 1,002 target is in sight. And we've said once there's close proximity to that target, we will be providing an updated target. So definitely, there's a clear understanding in our business that, that is not the final target. We will be providing that target upwards closer to reaching the target itself. Sue Hemp: I have a few -- more questions Kgomotso Mokabane at Sanlam. Has the move to a monthly ClubCard cashback changed how you think about promotions and margin management? Also from a customer perspective, what has been the impact on customer frequency and basket size? Bertina Engelbrecht: The cashback monthly payment cycle was really -- we did a lot of research and benchmarked ourselves. And it became clear especially in a constrained economic environment. Customers didn't have enough time to wait for 2 months before they could redeem. And so that's important, I think, to assist the customer. Actually, when we look at it, ClubCard customer contribution to sales is up. In fact, even as I speak, I was just looking at last year's, it's beyond the contribution that I outlined as of the half year period. So definitely, that change in shift in the ClubCard program does seem to be bearing fruits. Sue Hemp: The WMS impacted the DC MPS to have increased their inventory levels with double digits ahead of top line. Can you give some color on clearing inventory out and any potential impact on margins? Gordon Traill: So the inventory that was brought in was really as a result of not being able to get the stock in during the implementation. So we made a decision to push stock into the DC once things have settled down into January. So it's not a impact that we -- the inventory levels that we have shouldn't give rights to a significant need for any sort of markdown or clearance, et cetera. So it's not something that we're particularly worried about at this point. Bertina Engelbrecht: Actually, Gordon, I might make the point to say that given the price increases that we've been looking at, it would be fortuitous that we have the stock. Gordon Traill: Yes. But I think -- we didn't plan on that but it is fortuitous. Bertina Engelbrecht: We didn't plan on that but it is fortuitous. Sue Hemp: Can you give a bit more detail on the 10 differentiated concept stores you plan to pilot? Bertina Engelbrecht: Well, I mean, first of all, why would we even look at this as opposed to saying, you just change a Clicks and make it smaller. It's because we really want to be true to what the Clicks brand is all about integrated front shop and health care offering. The second bit is that Clicks really needs -- I mean, I don't think we've got some smaller stores, but I mean in an ideal world, Clicks really has a store size, probably a minimum of 500 square meters. We can live smaller, but I think it's in very specific lifestyle estates. That immediately constrains where you will be able to put this up. So we believe if we look at some of the most highly -- most densely populated areas in South Africa, where you've got massive transport hubs that those are the areas that we're looking at. And then, of course, we saw in some of the rural areas where the competitors are not. Sue Hemp: And a final question from Kgomotso or there might be some more still coming. But can you give some color on CEO succession planning, particularly in the context of the group's executive retirement policy of age 63? Bertina Engelbrecht: I think I can say I was actually checking the IR, and you didn't mention it, but the Board has asked and I have agreed that I would stay on as CEO until the end of August 2028. And we have started the process of both identifying and preparing succession candidates within the group, which obviously is [ the remit ] of the Board. Importantly, I think to say is that we've reinstated the Nomination Committee. We had the first Nominations Committee here about a week ago, and that is a primary focus of the Chairman and of the Nominations Committee. Sue Hemp: Now Neo Ramodike from Mazi Asset Management has another question. In 2023, you acquired a software company called 180 Degrees. Does this company have anything to do with the WMS? Bertina Engelbrecht: No, we did not, but it had a lot to do with a very successful project called LEAP, which is the only modern pharmacy management system in South Africa. It's really the implementation went extremely smoothly. And of course, now we've got overwhelming demand from the private sector, and we are starting to process to markets and roll that out within the private sector. Sue Hemp: Rendani Magalela from Absa CIB. With regards to UPD, you mentioned subdued performance in the hospital and independent segments. Could you please touch on the strategy to raise the subdued performance? Bertina Engelbrecht: Both in the hospitals really, it's about the difference between value and volume because hospitals are definitely managing their ethical generics mix as well as the inventory levels across their network. So that's the one part. What are we doing to try and increase our size of basket within hospitals? That's really all about the medical consumables. So the engagements have begun in terms of extending that into the hospitals. And we'll -- we are hopeful that we are making and we'll be able to make inroads. In the independent space, the team have just started about 4 weeks ago with the revised franchise offer and the way which has been communicated, and I must say the early uptake is really, really encouraging. So that's good to see that we are able to now look at arresting, not only arresting, but I think improving the performance in the independent pharmacy space. Sue Hemp: A technical question for Gordon from Ya'eesh Patel at SBG. How should we think about the growth in the finance cost line post double-digit growth over in the first half? Gordon Traill: That's really all about the early share buybacks that we did this year compared to the prior year. So the IFRS 16 cost has been coming down. So it was offset by the early buybacks we did in the first quarter. Sue Hemp: We're. We're running out of time, so I'm going to just ask one final question from Jandre Pieterse at Umthombo Wealth. What do you think would need to go right for Clicks HEPS to again grow around 13% to 14% going forward in the medium term? And what is your medium-term target for HEPS growth? Bertina Engelbrecht: Well, I think what needs to go right probably is that we get the pharmacies as expected. That's critically important because it's the anchor and the [ footfall traffic ] driver. Secondly, I would probably say it would be difficult to think that something that operationally we need to do differently, to be honest with you, because I look, for example, just a shrink, it's half of what it was a year ago. I mean, a year ago, we were already best-in-class globally. So I would have said the biggest for me would be to actually get the pharmacy licenses. The final one would be, I think, we're going to have to be pretty tough with suppliers. We've chosen where they invest disproportionately. And I don't think it's only our company. I think it's all of the other retailers that are knocking on those doors and saying, that was most unfortunate, but you long to have to give us the same. Let's see what they do. Now it would seem to me that we could go on for 2 more days with you guys. Thank you so much for the quality of your questions. We have responded to those that we have. Sue will get back to you if we haven't responded. So can I just say thank you once again for your time and all of the best.
Operator: Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Nauticus Robotics Inc. 2025 Fourth Quarter Earnings Call. [Operator Instructions] It is now my pleasure to turn today's call over to Kristin Moorman, Corporate Development Lead. You may begin. Kristin Moorman: Thank you, and good morning, everyone. Joining me today and participating in the call are John Gibson, CEO and President; Jimena Begaries, Interim CFO; and other members of our leadership team. On today's call, we will first provide prepared remarks concerning our financial and operations results. Following that, we will answer questions. We have now released our results for the year ending December 31, 2025, which are available on our website. In addition, today's call is being webcast, and a replay will be available on our website shortly following the conclusion of the call. Please note that our comments we make on today's call regarding projections or our expectations for future events are forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review our earnings release and the risk factors discussed in our filings with the SEC. Also, please refer to the reconciliations provided in our earnings press release may discuss non-GAAP metrics on this call. I will now turn it over to John. John Gibson: Good morning. Thank you, Kristin, and thanks to everyone for joining us today on the call. 2025 was a defining year for us, one where we not only strengthened our foundation, but also began to clearly demonstrate the value of what we've been building. We made meaningful progress across every dimension of the business. Financially, we improved our balance sheet and increased our flexibility. Operationally, the integration of SeaTrepid expanded our capabilities and gave us a stronger, more diversified platform on which to execute. And technologically, we made the most important transition from development into real-world deployment, where our solutions are now delivering measurable results. We are getting a lot of time in the water. At the same time, the market is moving in our direction. Demand for autonomy is accelerating as customers seek safer, more efficient, more cost-effective offshore solutions. We're seeing growing need across commercial, infrastructure and government applications, and we believe Nauticus is well positioned at the intersection of those trends. One area we are particularly excited about at the moment is defense. The global defense industry is becoming an increasingly attractive market for us to pursue not just in the near term, but for the foreseeable future. Governments and defense organizations are placing greater priority on autonomous and remotely operated systems that can improve mission effectiveness, expand operational reach and reduce risk to personnel. Our technology, our software and our offshore operating expertise align very well with those needs, and we believe this creates a compelling and durable opportunity for Nauticus. We're also beginning to extend the opportunity internationally. Our efforts in the UAE with the Master Investment Group reflect growing interest in our technology in regions that are investing heavily in maritime security, critical infrastructure and subsea capabilities. We view that as an encouraging step in expanding our presence in strategically important markets. We have aligned our leadership and organization to capture these opportunities. Jason Close is focused on driving growth and market expansion. Bob Christ is advancing our presence across government and defense channels, and we've strengthened our software leadership with KJ, who is helping to unlock the full potential of Nauticus ToolKITT as a scalable multi-platform autonomy solution. In parallel, we have also enhanced our financial flexibility through the availability of our equity line of credit. We believe that access to capital provides us with an additional tool to support growth initiatives and pursuit attractive opportunities as they emerge while remaining disciplined in how we allocate capital. As we enter 2026, we do so with momentum, a clear strategy and growing confidence in the markets ahead of us, especially in defense. We just attended the Sea-Air-Space Conference in Washington, and we're very pleased to meet with many customers there, where we see a strong fit with our capabilities and meaningful long-term opportunity. Before we get into the results, let me briefly address the reverse stock split that was executed this week. As you know, we completed an 8-for-1 reverse split of our common shares. This action does not change the underlying value of the company or our shareholders' ownership as it's intended to support our listing compliance and provide a more stable trading framework for our shares. Importantly, it has no impact on our capital, our strategy or the progress we're making in executing our business plan. With that, I'll turn it over to Jimena to walk through the financials. Jimena? Jimena Begaries: Thank you, John, and good morning, everyone. In 2025, we took steps to strengthen our balance sheet, successfully addressed our NASDAQ compliance requirements and advance on the integration of SeaTrepid. We believe these actions position us for more consistent execution as we move into 2026. I will now discuss our financial results for 2025. Revenue for the year was $5.3 million, which is up $3.5 million from 2024. The increase in revenue was largely due to the acquisition of SeaTrepid in early 2025. Operating expenses for the year were $29 million, which is up $3.9 million from 2024. The increase was partially driven by higher activity levels associated with revenue growth. Cost of revenue as a percentage of revenue improved by approximately 300 percentage points, reflecting an efficient integration of the businesses. Depreciation expense also increased year-over-year due to the addition of the SeaTrepid asset base. G&A costs for the year were $14.3 million, which is an increase of $0.7 million from 2024. This increase was primarily due to nonrecurring transaction costs related to the SeaTrepid acquisition, which impacted the first half of the year. In the second half, G&A trended towards pre-acquisition levels as we reduced nonessential spending. Net loss for the year was $40.8 million. This is a $94.1 million decrease in net loss from 2024. This variance is largely attributable to $127.6 million loss on extinguishment of debt recognized last year. Adjusted net loss for the year was $31.1 million compared to $26.1 million for 2024. This is an increase in adjusted net loss of $5 million. Cash at the end of 2025 was $7.6 million compared to $1.3 million last year. The increase was primarily driven by proceeds of our at-the-market offering and other equity financing, partially offset by cash used in operations. Shareholder equity at the end of 2025 was $7.0 million compared to a shareholder deficit of $20.4 million in 2024. During 2025, we have worked with our lenders to strengthen the balance sheet, including conversion of portions of outstanding debt into equity, which reduced leverage. In early 2026, we secured additional convertible debt from existing lenders, combined with continued success access to our at-the-market program, this provides liquidity to support the ongoing commercialization of Nauticus' products while maintaining financial flexibility. As we move into 2026, our focus remains on executing against our commercialization objectives and maintaining disciplined cost management. I will now pass the call back to John. John Gibson: Thank you, Jimena. Well, now I'm going to turn it over to our leads that are working on international expansion and the government opportunities. Jason Close will be leading off with updates on our UAE expansion progress, and Bob Christ is going to follow that up with the exciting opportunities that exist in government. Jason? Jason Close: Thank you, John. As we recently announced, I've stepped into a new role focused on growth and go-to-market strategy, and I'm excited to be leading this next phase of the company's expansion. A key part of that strategy is our entry into the UAE and broader GCC region, supported by our recently announced relationship with Master Investment Group. They are both an investor and a strategic collaborator. Their $3 million initial investment with the potential to scale that up to $50 million provides the runway we need to execute on our regional plans. Together, we can establish a strong regional foundation for growth. Our immediate focus is on establishing that solid foundation in the region through market activation. That includes delivering a value-driven message around our solutions, building localized marketing, strengthening our digital presence, developing commercial relationships and putting the right infrastructure in place to support manufacturing deployment and distribution. The goal is to enter the market in a structured way and position ourselves to grow the business in the region as well as globally. We see Ras Al Khaimah as a strategic hub for long-term expansion. It's an active and strategically important market, and it provides a base to expand more broadly across the GCC. As we progress through 2026, my focus is on continuing to build traction in the region and globally while converting this initial investment into long-term growth for the business. With that, I'll now hand the call over to Bob Christ, our Technical Advisory and Government Lead for an update. Robert Christ: Thanks, Jason, and good morning, everyone. We actively participated in the November 2025 Underwater Minerals Conference in St. Petersburg, Florida. There are unprecedented movements on the permitting issue for Subsea minerals. While the UN subdivision, the International Seabed Authority has been studying the subsea minerals environmental issue for 40 years without issuing a single production permit, the current U.S. administration has moved rapidly towards a full regulatory regime for permit issuance under NOAA codes 15 CFR 970 and 971. What this means is that the first ever marine minerals permit within International Waters is expected to be issued in Q3 or Q4 of 2026. We anticipate a gold rush of activity, and we plan on being on that leading edge. On the governmental front, one example, the situation in the Strait of Hormuz moves is aligned with our infrastructure integrity assurance and automatic target recognition capabilities. We have recently hosted several defense contractors at our Florida testing facilities and talks are ongoing. These are new channels of opportunity for Nauticus. The integration of Nauticus ToolKITT onto our Comanche ROV systems has allowed us new autonomous capabilities to differentiate ourselves from competition in the offshore ROV services space. Further, the increase in oil prices has made the offshore wind industry more economically viable, driving further activity from clientele. We anticipate a brisk year in all of our Western Hemisphere offshore oil production -- producing regions as well as domestic U.S. offshore wind. I am very optimistic for this year's first full year SeaTrepid operation under Nauticus umbrella. With that, I'll hand the call back to John. John Gibson: Thank you, Bob. Thank you, Jason. I sincerely wish we had all of our assets in the Middle East right now. We are uniquely situated to achieve many of the goals and challenges that they face. But let's continue. I'd like to turn it over to our sales and operation leads to discuss activities in their departments. First up is Daniel Dehart, our field operations lead for a recap of the 2025 commercial season and plans for the upcoming year. Daniel? Daniel Dehart: Thank you, John. 2025 was a year of meaningful progress and important milestones. The actions we took throughout the year have positioned Nauticus for a stronger and more execution-focused 2026. A key highlight was the acquisition of SeaTrepid, which immediately expanded our operational capabilities, diversified our customer base and established a more consistent revenue stream. Our ROV systems completed successful projects for new clients, reducing our customer concentration, generating revenue while also serving as a platform to deploy our Nauticus ToolKITT software in commercial operations. This marks the first time Nauticus ToolKITT was installed on a light work-class system in the field, delivering enhanced autonomy and operational efficiency. This served as proof of concept as it is opening new opportunities for other manufacturers' ROVs. KJ will provide more details in a few minutes. The Aquanaut system also achieved a major technical milestone successfully operating at depths of 2,300 meters offshore. The vehicle was certified to 3,000 meters, but no deeper tests are planned without a commercial contract. Throughout the year, we transitioned from primarily research and development into funded workflow testing, a critical step toward commercial deployment. The progress made in perception-based autonomy, particularly in vertical inspection applications such as mooring lines, chains and risers represents a significant advancement in the system's capabilities. Another important development was the establishment of a dedicated cost-effective testing environment. In collaboration with Sea Robotics in Stuart, Florida, we secured access to a private lake that has significantly increased our operational tempo. We are now averaging approximately 40 hours per week of in-water testing compared to limited pool access previously. This expanded testing capability has already supported multiple funded projects, including autonomous leak detection and mooring line inspections and allows us to better simulate real-world offshore conditions. The test site has also allowed us to remediate the technical deficiencies that prevented securing 2025 revenue. Customer engagement remains active. Many of the opportunities we advanced in 2025 are now translating into client interest in 2026. Demand for autonomy remains strong. As we look ahead, 2026 will be focused on execution, converting technical progress into commercial outcomes, expanding our customer base and continuing to build on the operational foundation established this past year. We believe we are significantly better positioned to deliver results and create long-term value. With that, I will now turn it over to Steve Walsh, our sales lead for a recap of 2025 and an update on our offshore commercial pipeline for this year. Steve Walsh: Thanks, Daniel, and good morning. 2025, we delivered over 190% year-over-year revenue growth, increasing from $1.8 million in 2024 to $5.3 million. This performance was driven by both new customer acquisition and deeper engagement across our existing customer base. Our customer portfolio spans the full spectrum of markets we serve from super major oil companies and offshore wind operators to small dive companies and municipalities. This breadth highlights the versatility of our offering and provides a strong foundation for sustainable growth. Importantly, this growth is real, repeatable and increasingly driven by long-term partnerships rather than one-off projects. Today, more than ever, customers are demanding continuous reduction in cost, which will be enabled by a broader deployment of Nauticus solutions. To achieve these benefits requires the adoption of the new workloads, utilization of smaller vessels and fewer personnel, which will result in more efficient execution and higher quality data. Delivery of reduced costs through the adoption of these technologies will drive deeper commitment to Nauticus. As we move into 2026, our focus is to build on this momentum by strengthening existing relationships while expanding our presence within key accounts. At the same time, we are pursuing targeted opportunities beyond the Gulf of America where we see strong alignment with our core strengths and proven operating model. Our approach remains disciplined. We are expanding where we have visibility, established relationships and a clear path to profitable growth. These efforts include opportunities along the East and West Coast of the United States as well as in select international markets where we have successfully operated in the past. The combination of sustained revenue growth, expanding customer relationships and disciplined geographic expansion positions us well as we enter 2026. With that, I'll turn it over to KJ Easton, our new software lead for an update on Nauticus ToolKITT progress. Kjerstin Easton: Thank you, Steve. I joined Nauticus earlier this year with a background leading engineering teams in autonomy, AI and real-world deployment. Over the past several weeks, I've been working closely with our engineering and operations teams to understand where our technology is delivering value today and how we translate that into commercial growth. Over the past year, our software platform has made meaningful progress across reliability, operator workflows, autonomy behaviors and post-mission analysis. These improvements are now being exercised in real-world operations. In 2025, we saw a significant increase in in-water testing, and that exposure has improved system robustness and performance. One of the clearest takeaways for me since joining is that our core advantage is not tied to a single vehicle, it's the software platform itself. Nautica's ToolKITT is a modular autonomy layer that can be deployed across multiple types of vehicles with improvements on one platform carrying over directly to others. As we look ahead to 2026, our focus is on translating that capability into repeatable revenue-generating solutions. We're prioritizing applications with clear demand today, particularly inspection and survey workflows such as mooring lines, risers and leak detection. On ROV platforms, we're starting with foundational capabilities like station keeping and navigation, where incremental autonomy can improve efficiency and reduce operator workload. This also creates a path to expand Nautica's ToolKITT across existing third-party vehicles, allowing us to scale through software without requiring customers to replace their systems. We're seeing encouraging signals from field use. Operators report that Nautica's ToolKITT reduces repetitive fatiguing aspects of piloting, allowing them to focus more on inspection quality and data collection. That shift towards supervised autonomy, improves both efficiency and consistency. We're also beginning to see early commercial traction. Our deployment on third-party ROV platforms has opened conversations with service providers and operators. Relationships such as these validate that our software can integrate into real customer workflows beyond our own vehicles. Internally, we're focused on reliability, testability and consistent deployment in the field, strengthening testing infrastructure, deployment workflows and the operator experience to move from demonstration to repeatable operations. Overall, we see a clear path forward, deliver near-term value through targeted autonomy on existing platforms while building toward a broader multi-vehicle autonomy ecosystem powered by Nautica's ToolKITT. We believe this will improve the economics of subsea operations, reducing cost, increasing safety and enabling more scalable deployment. I'll now hand over to Ameen Albadri, our engineering lead, for an update on Aquanaut and electric manipulators. Ameen Albadri: Thank you, KJ. In 2025, we made significant progress advancing the Aquanaut system, working closely with key suppliers and industry experts to further improve performance and readiness for commercial deployment. Our continuous in-water testing is generating valuable data, allowing us to enhance system reliability, optimize operations and drive improvements in maintenance efficiency. Regarding manipulators, we continue to progress our efforts with FET on the Olympic Arm and are currently reviewing design files and manufacturing drawings. We look forward to presenting FET's progress in future calls. Internally, we finished the design of a next-generation fully electric 3 joint manipulator for deployment on Aquanaut as soon as possible. We have completed parts procurement with all components expected to be received by late Q1 into early Q2 2026, keeping us on schedule for a prototype for use on Aquanaut. Finally, our recently announced collaboration with Master Investment Group to strengthen our international growth strategy. This collaboration will support the expansion of our engineering and manufacturing capabilities in the UAE as we build a strong presence in the GCC region. We are currently in the process of setting up our regional business unit and finalizing staffing plans to support this growth. I will now hand the call back to John. John Gibson: Thank you, Ameen, and KJ and Steve and Daniel, I mean, we have such a strong team, and there are a lot of thanks to give out. We emerged from 2025 in a great position, primarily due to our employees. We have a great team here. committed to the company and committed to the success of these technologies and services. And so thank you to all of our employees. Thank you to our lenders who have been very strong in their support. We're excited about the new opportunities with the Master Investment Group and moving into international markets. I'd like to thank our Board. And in particular, I'd like to thank all of those that have invested in the company and have faith in what we're going to be able to accomplish with this platform and the potential that we believe that we're going to be able to achieve. We're confident in both our direction and our positioning. We built a stronger company over the past year, both financially, operationally and technologically. We now have a more scalable platform, a broader customer base and a clear path to improve revenues. The progress we've made is not theoretical. It's being validated in the field through customer engagement through expanding opportunities across multiple markets. What excites us most is the alignment between our capabilities and where the market is going. Autonomy is no longer a future concept. It's becoming a requirement. Customers are demanding greater efficiency, improved data quality and lower operational cost. At the same time, new regulatory and geopolitical dynamics are opening doors in areas like subsea infrastructure, offshore energy and defense applications. We are positioned to lead in this environment. Our focus in '26 is straightforward. Execute, scale and convert opportunity into revenue. We are prioritizing near-term commercial application, expanding our footprint with existing customers and extending our software platform across additional system and partners. We believe this approach is going to allow us to grow efficiently, differentiate meaningfully and create long-term value. We appreciate your continued support and interest in Nauticus, and we look forward to sharing our progress as this year unfolds. With that, operator, I'd like to open the line up for questions. Operator: [Operator Instructions] Our first question is from the line of Peter Gastreich with Water Tower Research. Peter Gastreich: Also to appreciate the detailed updates from your team. So you've had a big year with a lot of promising developments. So congratulations on that and wishing you success as you build on that foundation in 2026. But on to my questions, you have described this year, 2026 as the year that Nauticus would shift from survive to thrive. So looking across ROV services, ToolKITT software, Aquanaut deployments, where are the most executable near-term revenue opportunities? And how are you thinking about the growth cadence for this year? John Gibson: Well, thank you, Peter. There's no question the market has changed a lot since we talked last. The situation in the Middle East has certainly changed how we look at oil and gas even here in the Gulf. So where do we think that there's immediate opportunities? We've got a lot of proposals out to utilize the ROVs. We have good support from the super majors and continuing to adopt where the Aquanaut is and the untethered work and the savings and improvements in efficiency and reduction in cost, reduction in offshore labor for the Aquanaut. So we've got strong discussions going on with them. The ROVs, what we're trying to do, and I would like to focus hone for the next call. I think you won't get much of a technology update next time, it's just going to be a revenue update, the very question you're asking is we're trying to prioritize winning awards for long-term contracts on the ROVs as opposed to transactional work. The same with the Aquanaut. We're looking at now, and this has been not a shift, but just a change in market. If the oil and gas industry's adoption and diffusion rate for the Aquanaut is not picking up quickly, we do see tremendous opportunity to deploy to defense. And so we have moved our efforts over into the defense sector to say that there are potentially long-term opportunities there. We have proposals in for contracts with the government working on projects not unlike what the company depended on 2, 3 years ago. And so we are putting in active proposals and have one pending at the moment. I hope that we prevail them. And so look at us to be stronger on the defense side. And hopefully, we're announcing awards in the coming quarters. Look at us pursuing longer-term contracts, and we talked about the international and some of the international contracts are more attractive in terms of long-term deployment assets as opposed to the transactional work you see in the Gulf of America. And so I'd say ROVs, big demand. I had not really outfitted at the moment to do the ocean mineral type work with them, but easy enough to do and modification of the Comanches that we have. The Aquanaut, the behaviors look at us chasing defense opportunities. It's where we're going to go. We have got to secure long-term profitable contracts to really make the company successful. And so we need to cut back on some of these 10-day, 5-day, 15-day opportunities to see if we can't seek long-term engagements. Peter Gastreich: Okay. Next question is about the MIG. Clearly, that's something that should be transformational for your company. I just want to ask there, what milestones should investors be watching out for this year? And have there been any initial customer introductions made as a result of that? Or is the conflict in the Middle East leading to some disruptions from that perspective? John Gibson: Well, there was a time when I would have been a larger repository on this than today. I don't have the 50 staff working for me to keep up with global issues. But the Middle East conflict is awfully complicated. My anticipation would be oil prices are likely to remain high even if the Strait of Hormuz open up, Peter. We don't really understand the level of damage yet to the infrastructure and whether or not production can come back from the Middle East. That's going to take some time for an assessment to come in. What that is doing, and it will get -- I'll get back to the Middle East is we do see a resurgence of wind work up in the Northeast as people begin to look at alternatives. And so I think that's going to be robust for us as we go forward. We are picking up wind-related maintenance contracts. The other thing that is happening in the Middle East, and it's happening everywhere now is port security looks to be a really robust market. And we're investigating behaviors needed for the Aquanaut not to be engaged in port security. And I think the main thing is there's a big shift going on right now in corporate thinking. What we need is business development leads in the defense sector. And so we're actively recruiting defense leads for business development for defense. We just got back from the Sea Aerospace Conference in D.C. And I can tell you, we're one of the few existing tested sea trial worthy technologies rather than artist renditions, which is the predominance of the show. And we're hugely differentiated in having Aquanaut as an underwater drone with manipulators that is something that is just not at the show. We're well positioned technically on that. And I think that's the reason that we gained such a strong relationship with the Master Investment Group. The opportunity in terms of looking at the securitization of infrastructure and evaluating and inspecting there in the Gulf region, I think excited the Master Investment Group and us. They are working on introduction. So I'm hoping to get back over. And there's a delay in what we anticipated to happen there and our ability to execute in the near term as a result of the conflict. I would have said we would have been over in the UAE working on engagements with customers there and demonstrating the Aquanaut and putting more feet on the ground faster. How long that delay lasts, I don't know. Travel there speculative and our ability to ramp up is just -- is an unknown still, but I think that they are incredibly well connected. They are very excited about what we're going to do in terms of manufacturing additional units. And it's a hugely exciting opportunity that we just have to remain patient on. We're here for the long term, not for the short term. And this is a tremendous long-term engagement with a great partner, and we're going to continue to pursue working there in Ras Al Khaimah. But I think they are extremely excited about what's possible and committed to the company, and we are committed to that region. It's a great firm. It's a great opportunity. They're a great leader for helping us address the issues that are in the Middle East and in the Gulf. And they have a very strong commitment to manufacturing there in UAE, which is driving their strategy in developing the region. Peter Gastreich: And it sounds like when compared to previous expectations that this ocean mineral strategy is really accelerating. Is that correct? I mean, it looks like materially accelerating versus the past. And if that's the case that you're moving forward with the strategy more quickly. Are there any considerations for depth tests or anything like that, that will come with that? John Gibson: For us to be in the ocean minerals, we have to do some modifications to our equipment to increase its depth rating because a lot of what people want to look at is in the 5,000 to 5,500 meter range. And so to be honest, I'm not interested in doing any more testing of equipment. I'm interested in revenue. And so the whole focus here is on revenue generating cash flow for the company. And so while we will pursue ocean minerals, it's going to take a contract with revenue for us to invest in those vehicles. We're not going to do it on spec. And so as soon as somebody comes to us, we can give them a definitive time line, and we know exactly what to do and how long it will take. And if we have funding for that and a contract to support it, then we will pursue it. And we have money available to us to do that. But we need to see -- what we need to focus on now is revenue, not on testing and not on greater depth. We have a sufficient depth range to be out securing contracts now, Peter. That's what we need to do. Peter Gastreich: Okay. Great. And as you think about deploying the ELOC, $250 million ELOC, what types of uses are you actively evaluating? And how should investors think about the pace of that deployment this year? John Gibson: Well, there's no question. I think it can be advantageous to us on some of the behaviors, sensor packages, et cetera, that may be required for the defense sector. And so it's -- they likely don't require a lot of capital, but it would be capital that we could acquire via the ELOC in order to go after specific contracts with the defense sector. And so at the moment, that looks so hot now and in the long term with the increased government spending there that we've got to ramp up on both development internally to match the needs and the missions there as well as on sales because I think that's what's going to strengthen us. So look at ELOC at the moment more for the defense sector with a little bit of capital on spec there and then also for ocean minerals, if we can secure a long-term contract. Operator: Our next question is from the line of Alex Latimore with Northland. Alexander Latimore: Good information all around. I have just a few questions. I'm just going to start with some broad strokes here at the top. You guys have gone over it a bit here, but I just want to see if there's any extra clarification to kind of refine that. But what are your biggest customer opportunities in terms of maybe those long-term revenue contracts in 2026? And then in 2027, what are the most visible there? John Gibson: It's a good question. I appreciate the long-term question because we intend to be in this for the long term. So thank you, Alex. The big opportunities, I mean, when you look at offshore oil and gas, it's super majors primarily and large independents and national oil companies. That's really the only market. You don't have a lot of players there. It's a very narrow market, we have great relationships there. The adoption rate is the biggest issue with those guys. It's making a shift. And with high oil prices, they actually slow down in new technologies. They get on a treadmill of just trying to improve production. And so it's harder to get an audience. They keep doing what they've done instead of changing to better techniques. So in some ways, that is an inhibitor to the adoption of new technology. But anticipate it's national oil companies, and we are talking to them and to their prime contractors where we can be an assistant and improve their solutions. Super majors and it's the very large independents that we're having discussion with on the oil and gas side. We got good discussion with the wind energy over those. In fact, there's potential for trying to address long-term contracts in the wind energy side and maintaining the infrastructure in the Northeast, even in Europe. And so we're discussing those. But the defense sector, when you start looking at the prime defense contractors working with them and for them, it could be very exciting for us. And so we just spent the week with all of the big names in the defense sector in the U.S., and we're going to get a chance to go over to the Middle East and visit with the Middle Eastern defense sectors as well shortly with introductions from the Master Investment Group. I'd say defense is a place we're going to have to spend some business development time and that there's good long-term contracts. A lot of interest from the geophysical sector on us being able to deploy subsea nodes and recover the data from those subsea nodes. We've got several proposals that we're working on in that sector as well. That's, again, longer-term activity, but it's long-term contracts, which is much better than being in the transactional business. When you start on those, it can last for a year or more as opposed to 10 or 12 days. And so we're focused on that. Port security is really interesting. We only need one port to tie up an Aquanaut full time. And so we're discussing opportunities in the port sector as well. But look at defense, it's something where we're going to increase our sales activity. It's great for us long term, '27, particularly. The oil and gas industry, '27, I think, is going to be even stronger than '26 in the market, particularly after we understand what the production capacity is remaining in the Gulf and refining. And while it's longer term, we have a great discussion going on here. It's reasonably easy for us to outfit the Aquanaut and I should have mentioned this for Peter's question on the ELOC to do pipeline inspection and cable inspection on the bottom. We've looked at technologies and they simply bolt on to the Aquanaut. We have the right vehicle and the right capability. It's just a matter of implementing the sensor package and tracking that's required. And we think that's a very straightforward problem to solve. It's not difficult or interesting. It's straightforward. Not trivial, but straightforward. Alexander Latimore: Okay. Great. That's awesome. That's great color. On the defense side, I want to just touch on the opportunity. I know there's a lot of initiatives going around in terms of UUVs. We have the CENTCOM doing maritime border monitoring, you have mining in the Strait of Hormuz, maybe port surveillance in the UAE as well. The Strait of Taiwan is a big concern recently. I'm wondering, can you work around all those problems? And then out of those or maybe something I'm also not touching on, what is the most visible near-term defense opportunity there? John Gibson: The most near term, yes, we have a DIU proposal in that we hope we prevail on. And if that gets awarded, it will tie up a lot of our resources to be a good, strong contract for us. But when you ask about the defense-related side, there are a lot of people pursuing that in different ways. A lot of them have to do more with AUVs that are single propulsion units that do inspection primarily. They've got a little greater speed than what we have. But what we offer is incredibly unique. And I think we're just now getting out to talk to the prime contractors around how to make proposals to their customer, which is the Navy, the Marines, et cetera. We have the ability to do manipulation. This is unprecedented in the AUV market today. We are the pinnacle there in terms of our experience and what we built. We have a new generation of those coming out. We have payload capacity that can actually be accessed so that we can both recover and deploy. And that's also incredibly unique in the sector as well. There's no real competition in that particular space. What you have to do is think about where recovering and deploying can be advantageous and where the use of manipulators can be advantageous. And I think we've got a lot of opportunities that are opening up in defense where deployment recovery is critical, having payload capacity and being a drone. We're not really an AUV. We have the ability to stop, hover, orbit. You can't deploy something if you're constantly moving. And so you have to have the ability to actually -- if you're going to place something with great accuracy, you need the ability that we have to do a bottom lock and hover and orbit and put it in place. So I think that's where we're headed. And we've got to do a good job explaining this to the defense sector, but we are super unique. Alexander Latimore: Awesome. And then on the MIG partnership, can you talk about what the sequence of events looks like between that closing and then the first Aquanaut coming off the production line? And then when do you expect the initial batch of 10 to be ready as well? John Gibson: So while we're excited about the Master Investment Group, and that question is perfect, what we need to do is get the cost per unit down. And what we were doing with the Master Investment Group is saying we don't want to build one, we want to build 10 because if we can purchase in volume and we have the support to do that, then we can greatly reduce the cost of these units, and that improves a profitability and opportunities in the market. And the other one is we needed to move up in the supply chain queue as well. When you're ordering onesies and twosies, you've got a lead time of 12 to 18 months. If you're ordering 10, then you can move that lead time to much, much shorter. So we wanted to get volume pricing. We wanted to get improvement in our position in the queue and greater leverage with the suppliers that we're purchasing from. I think Master Investment Group brings us all of that. They also bring us great relationships in the Gulf and we really thought that would be beneficial to us as well. But how long will it take? I would say the first unit that we would have come off, I would look at an 18-month window for producing the next-generation Aquanaut there in the Middle East. I think that's a very realistic time line. And I think the budgets for these will be greatly improved by having multiple units as opposed to trying to do one at a time here in the shop, which ends up very difficult to support when you build one technology at a time. They tend to vary from unit to unit. What we want to do is build in exactly alike so that we can have the parts that are needed to have robust deployment and high reliability in the field. Alexander Latimore: Great. Great. One final question for me here. This might be my own curiosity, but I'd just love to hear about it. How hard is it to find an underwater deposit for mining? And then also on your side, is there CapEx to set up an underwater mine? Or just anything there would be good. John Gibson: Well, I'm both -- I love underwater mining. And I'm probably a bit jaded, right? I spent 10 years in the mining industry on the Board of Directors, one of the largest lithium companies. So I've got a lot of experience here. And the oil and gas experience is also [indiscernible]. Your biggest issue here is identifying a density of resource that makes the mining profitable. And we right now are in the exploration phase in ocean minerals. We're not in the production phase in ocean minerals. There's a lot of work to do to do production. And that production equipment is going to be $1 billion equipment. It's not going to be a $10 million AUV for you to go down and move the amount of material you'll have to move in order to collect minerals off the seafloor. So on the exploration side, you have a tremendous ability to use an Aquanaut like vehicle to assess the density of the ore and the mineability of the ore and the cost of removing the ore. So I think we're a great exploratory technology. ROVs can do a similar thing, but you're going to need specialized equipment in order to mine that. And then where the Aquanaut will be [indiscernible] is you're going to have to monitor the plumes that are created when you're doing the mining. You're going to have to look at the contamination in the water as a result of mining operations. They're going to need AUVs like Aquanaut in the water to monitor that in order to meet the environmental regulations. So I think we've got a strong presence in the monitoring, business water sampling, assessing the amount of particulates that we're putting into the water column to protect the flora and fauna. So it's ocean minerals still emerging. I think it's a great -- we're at the front end of the tail of that instead of getting up to the big spending in that area. And that big spending is going to be the guys that actually do the production equipment and the mining. Operator: Your next question comes from the line of Robert [indiscernible]. Unknown Analyst: I just have a few questions regarding the $5.3 million in revenue for 2025. If that's correct. I just want to understand how that revenue is broken down. I'm looking at 3 buckets here, like the ROV, AUV, the Olympic Arm, which I don't think is revenue producing and then the KITT software. So could you let us understand how the revenue was produced last year? John Gibson: I can do that, Robert. Predominance of that revenue was ROV related. The revenue, in my opinion, we had a shortfall in revenue and the shortfall was a direct result of pulling the Aquanaut from the field, and we had work where the ROV was allocated to work with the Aquanaut. And so we had -- our scheduling and logistics for the ROV revenue were tied to us doing Aquanaut work when we canceled the Aquanaut work as a result of finding a technical issue with it, then that also hurt our ROV revenue. So we're suboptimal on the ROV revenue for 2025. And we're very suboptimal on the Aquanaut revenue in 2025 because we pulled it due to a technical issue, which was easily resolved, but you don't want to have really a negative event with an Aquanaut when you're moving into an emerging market. And so rather than taking a risk with it, we pulled it back and checked everything and sure enough we fixed the problem, everything looks good, and we're ready to go with both the Aquanaut. But having that Aquanaut failure hurt us because of the planning. When you pull it and you haven't taken other jobs. It was hard to backfill for them when we had a plan to go out and work with the Aquanaut. And so the ROV was suboptimal. On the manipulators, no revenue associated with manipulators. We're currently working with Forum Energy Technology on the next generation. We've got a good royalty agreement with them. I believe they're a great manufacturer and a partner. I don't have an update for you here. I've got an update for you on the next call as to where we are with FET on the manufacture of those manipulators. And then we have a new generation of manipulator that is designed specifically for the Aquanaut that we think will be ready here in just a few weeks, we'll have the first one ready so that we can begin trying to test and deploy on Aquanaut so that we can get that capability to the field with the new generation of manipulator. And manipulators are a hot market. Aquanaut is hugely differentiated. Any kind of electric manipulator in maritime is even more differentiated than the Aquanaut at this point. Unknown Analyst: Okay. And then what about the KITT software? How much revenue was produced? John Gibson: Let's see how to answer that. It's another really good question. I love your questions that make me have to stop and think, Robert. That's a good and bad thing. So some of the difficulty there is not difficulty. It's what we experienced was this. One of the places we thought we had really good opportunity looks like it is an acquisition target. And so as a consequence, they kind of slowed down and stopped talking to us. And we still see them as a huge opportunity, but got timed out due to mergers and acquisitions of the people we're talking to. The second one that we still are in pursuit of is an international opportunity and conversations are live, and we continue to think any day, we're going to get it done. But we've been thinking any day now for a couple of months. And so I'm now getting a little jaded on how easy it is to close some of these international opportunities. But a lot of excitement over it. And we think that the software revenue will emerge this year, and we continue to pursue that. We're excited to have KJ on Board. I think she knows exactly where to go. I also talk to another business development leader that we're actively recruiting that believes that they know exactly where to place this in international markets too, other than the ones that we're currently pursuing. So I would look to seeing software revenues for certain this year. And hopefully, we can reduce the complexity of signing these agreements. But the challenge with software is it's not a software sale like you think of where you go to CompuServe or whatever is open now Micro Center and buy a copy of word. They're making a long-term commitment on their assets to deploy this. And so there's a lot of upfront questions that have to be asked and qualifications for them to do acceptance on a contract, you're asking them to depend upon you for their operating systems for their equipment. So the sales cycle is longer, but these agreements are sticky, sticky. After you get it in there, it will last for 5, 6 more years and you'll have revenue coming in from it for the long term. So they're definitely what we need to pursue because it annuitizes our revenue stream. Unknown Analyst: Sure. And I'd like to learn more about that in the next call, John. So it's safe to say that $5.3 million primarily, I mean, overwhelmingly was the ROVs. John Gibson: Yes, sir. Unknown Analyst: And I think that if I read in the 10-Q -- 10-K that the majority of the revenue came from 6 customers. Is that accurate? John Gibson: That's correct, which was an increase in the number of customers, but we had quite a number of customers, but a lot of them are that transactional work, which is lower margin. We're trying to shift where I'll take customer concentration if I can get long-term contracts. And I'll live with the fact that, that creates risk. I'd just like to see long-term contracts where we've got stability in cash flow. Unknown Analyst: I agree. And so those 6 customers, was that by way of the SeaTrepid acquisition? John Gibson: Yes, primarily. I mean they are customers that we also use the Aquanaut with. And so it's both -- it's the same customer that's looking at both those solutions. It's one of the reasons we valued SeaTrepid is they're calling on the same customers we're calling on for Aquanaut and vice versa. Unknown Analyst: Yes, that makes sense. Okay. Then my last question on the Aquanaut. How many now are through testing and deployed? I think you mentioned 2, John. Is that? John Gibson: We have 2 of them that are in the water and the certification testing is done. We are most likely going to go back into the Gulf of America on work in early night. Unknown Analyst: Okay. Do have either one of those Aquanauts have produced revenue to date? I know [indiscernible]. John Gibson: Daniel, go ahead. Daniel Dehart: Yes. In testing, we have some funded testing on -- that we've used for both the Aquanaut in a more controlled environment. And we have done revenue-generating projects previously in the Gulf for one of the vehicles. But this year, we are having both ready and available to go to revenue-generating projects in 2026. Unknown Analyst: Yes. And you're trying to avoid the 10- to 15-day testing projects, you want that long-term contract on the Aquanaut? John Gibson: And unfortunately, Robert, as they are beginning to make that transition from ROVs to an Aquanaut, they almost all will have that 10 or 15 days to test it. And so our real challenge is getting one to do enough 10- or 15-day test for them to sign a long-term agreement. And that's really the goal. After they've done enough of it, they can just go, we're going to switch over from an ROV to taking an Aquanaut for the full season. And that is the principal target of what we're trying to accomplish. They get confident that they can switch out of using a large vessel and an ROV and they can use an Aquanaut on a sustained basis for the whole season. But unfortunately, we're still in a new technology adoption cycle on Aquanaut and so they want to see it for 10 or 15 days, and then they'll commit -- they talk about the commitment long term. Unknown Analyst: No, I understand. Yes. Okay. And then the pricing around the Aquanaut, I mean, as you mentioned, you're trying to lower the cost with a larger order through MIG versus like a $10 million for a single Aquanaut with a lead time of 12 to 18 months? John Gibson: Yes. I think we've got an opportunity to cut the price of an Aquanaut by 50%. If we build them the same and we order multiple, I think we've got a really good opportunity on volume pricing and design changes that will get the cost of the unit down. Margin on it is going to be excellent. So it's -- you're looking at the vessel reduction. The other thing we haven't talked about on this call, which is still a great opportunity for us, particularly in the defense sector as well as in oil and gas is a combination of leak detection but doing it with vessel less work so that we actually launch from shore, and we're continuing to work towards that solution because we can completely take the vessel out of the equation, which is a $15,000 to $30,000 a day cost for customers. And I think we can capture a large portion of that and then to ourselves and launch from the shore. Unknown Analyst: No, I saw that. I think that's pretty awesome. That's unique. John Gibson: No, it's super unique. I mean it's -- but there's some cool technology out there, too, though, where these guys are beginning to get ranges for some of these small torpedo like not drones. They're not -- they're not competitive with us. But I mean, those guys can go 500 miles, right? I mean that's incredible range out of these really small vehicles with only 1 or 2 sensors on board. We're carrying 22 sensors and manipulators and potentially a payload. So it's very different markets that we're trying to address. Unknown Analyst: Yes. What I don't want to get into the weeds, but what's the distance on the current Aquanaut? I think I read it 150, 150 miles. John Gibson: It's -- we actually -- it's about 240 kilometers. So if you think about it operating from shore, it can go out 40, 50 kilometers and do 100 kilometers worth of work and then come back and still have enough reserve. You don't have to worry about going to patch it with the vessel. And so you want to make sure you've got enough reserve that you can recover at any time without any issue. So imagine this is my best case scenario. Let's take one of the larger fields off of Louisiana, Bay Marchand. It's about 7 to 10 kilometers offshore. It's got thousands of wellbores that need to be addressed from a leak perspective. 7 kilometers offshore, we can travel all day long, come back in, download the data at night and never put a vessel in the water and be close enough to go out there and catch it with a [indiscernible] Ranger if we needed to and tow it back because it's not very far. So it's just a highly efficient operation to conduct for customers. And I think it greatly reduces their cost and improves their quality because they can assess their assets more often at lower cost, reducing their liability. Unknown Analyst: Okay. Well, I look forward to further conversation on that on a future call. John Gibson: Appreciate that. We probably should make that the last question, operator. We've been running for an hour. Operator: Yes. And with no further questions in queue, I will now hand the call back over to CEO, John Gibson, for closing remarks. John Gibson: Again, thank you, all of you that are on the call. Particular thanks to employees. I mean we've got such a dedicated group, and we are getting things done here. I look forward to a call where all we talk about revenue. And so let's plan on that being our next call. I would say the best chance for that is probably our Q2 call because that we get back out in the water in May, and we'll have an understanding of where the revenues are coming from and what we're going to be doing. And so I'm excited to come back to you and focus on revenue and what we're doing in terms of business development and not just the tech update. With that, thank you very much for joining us, and we look forward to speaking again at the Q1 call. Operator: Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.
Allison Chen: Okay. Great. So thank you for joining us today. We know it's early start, and we appreciate you for dialing in on time. We have the management team with us here today. We have our CEO, Choon-Siang; Mei Lian, our CFO; Head of Investment, Jacqueline; Head of Portfolio Management, Yi Zhuan; and IR team here with us, we have Nathan, Tami and myself. We have to keep things focused today. So we'll start off with key highlights by Choon-Siang before moving on to the Q&A. With that, I will pass the time over to Choon-Siang. Choon-Siang Tan: Thank you, Allison. Good morning, everybody. Thank you for joining us today. I know it's bright and early, bright and early for me too. It feels like we have just spoken recently, and here we are back again. Okay. Today, we just announced business updates for the first quarter 2026. So the numbers could be a little stale given that we have already spent some time talking about some of the transactions earlier. And also, obviously, we have reported an advanced distribution. So some of you would have if you turn some of your numbers from there as well. But nevertheless, let's go through some of the operating numbers, and then we will take some Q&A. But there are some exciting updates in this business update as well. We will walk through in the subsequent slides. Okay. So first quarter net property income, very healthy, closed the quarter at $314 million, up 8%. But of course, this is -- has a lot of -- we've gone through a lot of changes in our portfolio. So we need to dissect the numbers a little bit. But overall, a very healthy set of financial numbers, as you would have seen from our advanced distribution anyway. Aggregate leverage, 38.5%, down 0.1 percentage points from the end of 2025. Average cost of debt has come down quite significantly from 3.2% as at 31st December 2025 to 31st March 2026. This quarter, in terms of cap market transaction, we issued $300 million fixed rate notes due in 2031, which is a 5-year note at 2.18% on 10th of March 2026. Portfolio occupancy, 95.2%, down 1.7% quarter-on-quarter. I'll spend some time walking you through some of the reasons why the occupancy is down for this particular quarter. I think it's mainly due to actually, I don't think it's a portfolio-wide reflection. It's actually very tenant-specific. The top 3 contributors to the decline in occupancy is actually a tenant in MAC in Frankfurt. We have the largest contribution. In fact, it contributed approximately half of the drop because by NLA, that tenant takes up quite a significant space and that contributed. But the rent on that tenant actually is not very significant. So the contribution was about 0.8% of portfolio occupancy. The rent contribution was actually less than 0.2%. So the impact on the financial is not as significant. Then the second tenant, we have a tenant departure from Funan office, one of the larger tenants that we have there. And also the third tenant contribution is a tenant in Clarke Quay that's on the third floor is an event organizer. Fairly large space, but as you can imagine the flow of Clarke Quay very little rent contribution. So the financial impact is more -- it's not as significant as the drop in occupancy suggests. But I want to highlight that we are very actively marketing the space. So of course, we all know that MAC itself has some challenges in terms of leasing. We actually did improve the occupancy last quarter. But I think when we highlighted last quarter as well, there's always some in and out in terms of the leasing momentum. So we will be working quite hard to try to improve the performance for that particular asset. Clarke Quay, a lot of -- it is work in progress. So the team is curating the tenant mix to try to dovetail with the completion of CanningHill, getting some good traction in the leasing discussion. So there could be some new names that will show up at Clarke Quay over the next few months. And also for Funan, the office tenant probably contributed about slightly over 10% of the Funan office occupancy. So we are also actively marketing that space, which we think is transitional. And the office space is actually quite nice because it's fitted out. So it should take us not too long to lease up that space. Okay. So these are the 3 main -- so it's actually very asset and tenant specific. I think overall, the portfolio is still very healthy as evidenced by the rental reversions, which is still very healthy at 4.4% for the retail portfolio. And for the office portfolio is at 6.1% rental reversion, quite in line with our guidance earlier to be trending around mid-single digits. Tenant sales per square foot, up 2.2% year-on-year, fairly healthy. This includes the March numbers as well even after the start of the Iran war. I think January and February numbers were very healthy, as you can see also from the national retail sales numbers. I think February, they reported 11% increase in year-on-year sales. Of course, there's some Chinese New Year effect. But then even if you combine the January and February sales, I think overall, it was up about close to 4%, if I'm not wrong. So in our malls, we are up about 2.2% per square foot, including March numbers. Okay. Next. Shopper traffic, also very healthy, up 3.2%, so quite in line with the -- I mean, slightly better than the tenant sales. In terms of the updates for first quarter, AEIs that we have previously announced, I think they are all work in progress. Lot One, Raffles City, Tampines Mall, all progressing quite well. Divestment of Bukit Panjang has been completed at the end of February. In terms of utilities costs, I think we have been getting a lot of questions in all of our meetings over the last 1 month. I think happy to reiterate that our utilities costs, energy rates are all locked in across our portfolio. For Singapore portfolio, locked in until end of 2026 at a better rate than what we locked in, in 2025, actually. So this year, we're actually expecting savings from our utilities costs. For our overseas properties, we are locked in as well until 2027, depending on which property and 2028 for some other properties overseas. Next. Okay. So I think we have spent some time over the last few days talking about this transaction already. So I won't spend too much time. We can take some questions as well, but I think a lot of you have already had a session with us on this. But I think the market reaction has been fairly positive. So we are quite happy with that. The placement was well oversubscribed at about -- I think it was about just almost 5x subscribed, just below 5, I think. That allowed us to upsize our placement from $600 million. So that's the key change from the last time we spoke. I think when we spoke, it was based on a $600 million equity offering. Now we have raised $750 million and at a tighter discount than what we originally assumed, which was 2.7%. The price that we did at 2.30% was actually a 2.36% discount to the adjusted VWAP. So all in all, very healthy demand for the offering. As a result of that, there will be some adjustments to the DPU accretion because of the larger equity offering, accretion is at 1.7%. But of course, that also means that it allows us to lower our leverage to 38.7%. I think previously, we reported just slightly over 39%. So that also means that it gives us larger debt headroom for other activities that we wish to pursue at least going forward in the future. Next. Okay. So I think this is the key update for this quarter. We want to also report that we have actually started the process for AEI at Plaza Singapura and The Atrium. I mean we have been looking at this for a while. I think we are now confident to go out and announce this asset enhancement, I think for a few reasons. I think timing-wise, of course, this is not like something that we take it quite lightly, asset enhancement. And this is quite a substantial asset enhancement at $160 million. I think we have always been quite deliberate in terms of the spacing of our asset enhancements, as you guys are familiar by now. We always try to time it with a minimal or execute it in a way that has minimal impact on our cash flows. So that has already contributing -- that has already started contributing to our numbers since February and March. And also that, in fact, give us the uplift in terms of financial performance. That was one of the key contributors to first quarter outperformance also in addition to CapitaSpring and in addition to ION acquisitions. So with Gallileo largely resolved and handed over to the tenant, we think that we are ready to take on another major AEI, which is Plaza Singapura. And most of you are familiar with the asset. It is an asset that has been around for a long time. And I think if you look at the performance of Plaza Singapura on a per square foot basis in terms of rent and sales, I think there is some room that we can value add when you compare it to some of the more neighboring malls in downtown, even within our portfolio. So the idea is to elevate the positioning. There are some infrastructure upgrades that we're doing. There is also a tenant refresh that we are planning. We will also be looking at -- probably looking at some -- transforming some spaces into a more immersive experiential entertainment concepts. This is something that we are exploring at the higher levels so that we are able to draw the crowd to the top floor. I think so that's one of the key feature and objective of this particular AEI. The other thing that we wanted to achieve was also to dovetail with the URA's Master Plan. There is a plan to pedestrianize the Orchard Road stretch in front of the mall. So we want to now plan for the seamless linkage between Plaza Singapura to the Istana Park that is right in front. So we will be doing some upgrades at the front to extend the park experience in so that it creates a more seamless connection between nature and retail. So to minimize the disruption, we do plan to carry out the AEI in phases with the mall remaining open and operational throughout this AEI period. So some of the pictures, I think, in the next page, artist impression. Maybe we go to the next page and show the pictures. So there will be some improvements in terms of the facade, there will be improvements to the drop-off point, creating a better experience. So the inside of the mall, we will definitely be upgrading to make the space a bit more open and also the look and feel and the tenant mix is likely to see significant changes at least for the first and second levels and as well as the top level. Okay. So I think the other thing that is interesting is also we are creating some of these bridges that link across -- I think we -- the idea is also because Plaza Singapura actually is quite a big mall. It's about 700,000 square feet. So the idea is also to create better movement across various parts of the mall. So we have all these link bridges, not only looks good from The Atrium area, but also facilitates the flow, creates a bit more vibrancy to some of the upper floors. So that overall effect on the mall is one of a little bit more exciting and vibrant across every floor and not just focus on the -- I mean today, we know that the basement for Plaza Sing is really doing very well. The ground floor is doing well. What we want to do is also to replicate the experience in the slightly quieter areas of the mall, okay? Okay. So in terms of the financial performance, I will touch on that. Gross revenue, we are up 8%. But of course, this includes the contribution from CapitaSpring, which previously was reported under JV structure. NPI up $314 million. Year-on-year, we are up about 7.9%. So this also excludes 1 month of Bukit Panjang because we have sold it in February. So there's a lot of movements within the numbers. Okay. Next. In terms of capital management, I think we have highlighted a very healthy balance sheet now. We are at 38.5% even with the acquisition and coupled with the equity offering, this is not likely to change significantly. Interest coverage, very healthy 3.8x. I think the key takeaway from this slide is that the average cost of debt has come down to 2.9% from 3.2%. Next, well spread out maturity profile. I think we only have about $450 million of loan left for refinancing for this year. And the rest of the years, I think, fairly healthy. Next year, we have about $1 billion up for refinancing. In terms of occupancy, I think we spent a lot of time at the beginning talking about occupancy. So I won't belabor the point. If you look at our retail, actually, it's generally -- it's come down slightly, but I think the largest contributor to that drop was the Clarke Quay that I mentioned, the Clarke Quay tenant I mentioned, but I think the financial impact is very small. Office, largely because this is a combined look, including Germany and Australia. We can have some detailed breakdown later, largely contributed by Germany. Integrated development, it's down slightly. There are some vacancies in I think this is Funan because it's contributed into the under integrated development. That's the drop that I was mentioning as well in the Funan tenant. Next. Top 10 tenants, no significant changes. I would just add that ECB, which we have put into the footnote will feature as a top 10 tenant going forward, but we're still in the process of handing over the last 2%, 3% of the -- so we haven't included it. Once it's 100% handed over, then we will start including it probably from the next quarter or the following quarter onwards. Next, maturity lease expiry profile, generally still doesn't look too dissimilar from our previous. We have 11% for expiry this year for retail and 5% for office. Out of that, probably 4.3% of the retail and 1.6%, which is about 1/3 each has been kind of resolved in advanced negotiations. Next. Okay. Healthy leasing activity. Despite the decline in occupancy, we still have a very healthy retention rate. For retail, it's at close to 90%, for office, about 70%. And we have had quite a lot of new leases and renewed leases as well, about 339,000 square feet spread across the various trade categories and also for office, about 121,000 square feet. Next. Retail occupancy broken down into suburban, downtown, downtown, as I mentioned, contributed primarily by the drop in Clarke Quay. Next. Our rental reversion of 4.4% for retail broken down into downtown and suburban. Downtown, 3.9%; suburban, 5.1%. Tenant sales, 2.2%, as we mentioned, broken down into suburban growth at 3% and also downtown at 1.7%. Next. Yes. Just some of the highlights on some of the new retail concept that we have, sio pasta, which is a maturing recognized casual pasta concept that just opened in Raffles City, Shiseido at Tampines Mall. I don't know whether you guys have been to Tampines Mall. I think you can see the slowly -- slow upgrade on the ground floor. We have also holded up the Isetan space. I think that's work in progress. So we expect to probably finish that over the next few months. But I think the ground floor area has been done in phases. So you can already see some of the new tenants showing up at the ground floor entrance area. Prada at Raffles City. We also have a new tenant at IMM, BYD, which is on the third floor. So that's quite interesting because it's on the third floor, and we have a massive car park at IMM, so which are able to showcase some of their cars. So fairly interesting concept there. Okay. Maybe we'll just move on. Okay. In terms of the office occupancy, as I mentioned, as you can see here from Germany, the significant drop in office is actually due to Germany from 91% to 83%, but financial impact is, I think, not as significant as what the numbers suggest. Australia, actually, the occupancy has been healthy. As we have mentioned a couple of times, we think that the leasing momentum is still -- is picking up. Occupancy in Australia actually improved from 91.8% to 92.8%. And Singapore, we have touched on, I think, generally quite healthy, slight drop due to the Funan vacancy. The good news is that our average rent continues to inch up from last quarter, 10.95% to 11.00%, 2.2%. Although I'll just caveat that, of course, you guys are aware that we have just announced the sale of Asia Square Tower 2, which is -- has a slightly average -- higher average rent than our overall portfolio. So this number could come down, but that's probably because it's not a like-for-like comparison once we take Asia Square out of the equation. Okay. Next. Focus and outlook. Yes. So I think overall, we are still on a pretty good and healthy space in terms of outlook. I don't think anything significant has changed from our last update. Rental reversions continue to provide the organic growth. CapitaSpring, we are still benefiting from the contribution because it was only accrued -- I mean the additional 55% was only included from 26 August onwards. So this first half of the year, we are likely to see that accretion coming from CapitaSpring. Gallileo, already -- our first quarter numbers have already started recognizing the income. So you can see it in the DPU impact as well. IMM already completed, performing well above our underwriting numbers. So we are very happy with the outcome. If you go to IMM today, you will see that the look and feel of the mall is significantly different from what it was before. So that was an area that we're very happy with. Okay. So I think organic growth and also some of the contribution from the inorganic growth has really done well for us. And going forward, we expect this recent announcement on the divestment of Asia Square and the acquisition of Paragon to continue to build on that momentum with the 1.7% accretion. You can also see that our capital management, Mei Lian's team has done a very good job in terms of our interest rate management. Over the last 1 quarter, we have brought the interest rate down from 3% -- 3.2% to 2.9%. That's actually a very significant tailwind, definitely helped to improve the bottom line performance, and we expect this to continue to contribute because as you can see, last year, we have been reporting even in the second half of last year, we were still at 3.3%, 3.2% average. So this 2.9%, even if it maintains, will be a significant savings compared to last year already. I think energy rates, we've talked about it. Okay. Yes. I think value creation strategy, I think this is the same slide we talked about it earlier at both when we brief on the transaction as well as at the AGM. I won't spend too much time. I think we remain -- the 5 pillars continue to drive our growth, organic asset enhancement, unlocking value through divestments and driving growth. And we have been very consistently unlocking value every year. In fact, we have been doing one divestment almost -- this year, we did 2 divestments. Last year, we did one, the year before we did one, and we have been doing one high-quality and meaningful significant, highly accretive acquisition every year for the last 2 years as well, okay? And capital management, of course, that's an important tailwind. All right. Sustainability, we are on track for most of our indicators. I think we won't spend too much time on that. Next, we just probably -- I think maybe we can start moving to Q&A. Allison Chen: Yes. Okay. I see a few raised hands. Yes. And I'm looking to have somebody other than Mervin. So Mervin, please go ahead. Mervin Song: Congrats on excellent set of results. Just a few questions. I think in prior cost of debt guidance was 3% to 3.1%, delivered 2.9%. Do you have an update for this year? On the Plaza Sing AEI, I'm personally quite excited by it. But at any point in time, what will the impact on occupancy? And is there any extra NLA you think you can activate, especially in front of the property with the new startup park? And in terms of Iran war, have you seen any impact on retail sales given petrol prices high today? Choon-Siang Tan: Okay. I'll take the easy question. I'll let Mei Lian do the first question, and then Yi Zhuan can talk about the Plaza Sing AEI. In terms of retail sales in March, actually, it has not -- we have not seen a significant impact. In fact, I think March sales is up year-on-year. It has decelerated in the sense that the growth rate for January, February is higher than the growth rate for March, but March is still a positive growth rate compared to last year. So it has surprised us as well on the upside. I think a couple of reasons. I think there's also some constraint in terms of flight capacity. So maybe people are not traveling out as much, spending more. And I think in the first few weeks of March, there was not as big of a -- in terms of sentiment, I think maybe there was -- it has not affected sentiment as much, maybe the first 2 weeks and people are expecting the war to end quite soon. So that could also be the reason. But in general, I think if you look at tourist numbers coming into Singapore, that has also improved year-on-year, quite healthy tourism numbers. So that has kind of provided a lift probably for some of the numbers. I think so quite a few confluence of factors that helped to drive the first quarter numbers. But I think to your specific question on whether March numbers, we are down, no, we are still up compared to last year. Mervin Song: About April, yes. Choon-Siang Tan: April, too early to -- I don't think we have the April numbers yet. Okay. Maybe Mei Lian can take the question on interest rate guidance and then Yi Zhuan can take the... Mei Lian Wong: Okay. Earlier on, when we look at the interest rate guidance, we're seeing like around the 3% level. But given the -- what we're seeing in the Sing dollar floating rate movement in the past 2 months, it has generally been trending down. So that kind of allowed us to look at an overall lower cost of debt of below 3%. So guidance for this year, again, based on the current levels will be in the high -- high 2%, high 2%. Yes. So depending on where the rates go, right now, I think, yes, there should be continued looking at a year-on-year savings, yes. Mervin Song: Are you seeing tighter credit spreads or just being maintained? Mei Lian Wong: For some of our loan facilities that are on floating rate, we have actually negotiated for tighter credit spread as well. That is around 10, 20 bps, yes. But mainly the cost savings is really from the floating rate movement. Choon-Siang Tan: Okay. Maybe Yi Zhuan. Lee Yi Zhuan: Yes. Okay. I'll talk about the PS one. So during the course of the whole AEI, the reason why we kind of spread it out a little bit more because the works will be done in phases across the different parts of the property, it will largely remain open. And at any point in time, I think probably it's about 10%, 20% of the spaces that will be affected through the course of it. Nothing more. There will be a very small period, where there's a bit of overlap, but it's probably closer to 30%, but most of the malls will be open actually. The second part will be on the NLA question. Net-net, the NLA will be there about pretty much similar. While we create additional NLA on the ground floor in some of the spaces that we managed to identify, part of the AEI will also include compliance work where we will have and also a bit of upgrading works in terms of amenities, which will take a bit of the NLA away. And second part of it will be that as we know in Plaza Sing, right, the back end of the mall actually is quite deep. Some of the spaces are pretty deep. So rather than taking a big anchor that doesn't generate that much rent, right, we may subdivide some of these to create higher value spaces. Mervin Song: And there's no impact on the therma side of this section, right? Lee Yi Zhuan: At this point, there's no major impact on the therma office side, the tower side. Most of the works in the tower side in Phase 1 is actually more along the ground floor where the entrance arrival is. Mervin Song: Okay. Congrats on the results and recent Paragon acquisition. Allison Chen: Thanks, Mervin. [ Jardin ], you're up. Unknown Analyst: Maybe just back to the portfolio refresh opportunities. Choon-Siang, maybe your thoughts on partaking in further development projects with sponsors. So after Hougang Central, there's still some quota to work with. So will this be something that you are interested in or prefer to phase out a little bit? Choon-Siang Tan: Okay. I don't know whether you're referring to the partial... Unknown Analyst: Very sizable. Choon-Siang Tan: Okay. So I think the way we think about it is, I think, firstly, we must like the location. And I think Hougang was unique in the way because it was underserved and it is in a very dense residential catchment, which we think a retail mall is very likely to succeed. And also the connectivity with the 2 major MRT lines and the connectivity to the interchange certainly helps. And the size precludes other significant competitors from coming in. So [ Bishan ], I think we haven't looked at it in detail, to be honest. But I mean, no harm for us to look at it, but then it will come down to a matter of pricing and whether we think that catchment makes sense for us because we -- the other thing that outcome makes a lot of sense for us because we don't have something in that area. So Bishan, of course, will be quite close to dome Mall. But Bishan is also in a private -- slightly more private residential estate. So the residential catchment is not deep as, say, somewhere like a -- And if I'm not wrong, I think the retail component is so small, it's like 200,000 square feet compared to [indiscernible], which is 300,000. So yes, but long story short, I think we will take a look. Question is whether we will consider -- I think we can consider we have room, but we also have to look at the impact. Obviously, there's no impact on DPU as what we mentioned. There will be an impact on balance sheet. We have already deployed quite a bit of capital to Alqam. We're deploying capital to Paragon and now we are deploying capital to Plaza Sing. So we have our hands full probably for the near term. But let's see the details of the project. Unknown Analyst: Okay. Maybe just one more on the tenant at MAC. Is it tied to the geopolitical tenant -- geopolitical headwinds or the tenant was already thinking of it? And any divestment overseas since you have done quite a number in Singapore already? Choon-Siang Tan: Thanks for raising that question. I was waiting for the opportunity to answer that question. Okay. So the tenant is actually all the airlines, and MAC is next to the airport. So I think, unfortunately, it's not due to any geopolitics. It's not due to any rent reasons or whatever. It's due to the fact that they want to consolidate back at the airport, which is obviously a better location for our airline. So actually -- so that's just unfortunate in terms of the business direction that the tenant took -- so that's where we are. In terms of divestment, yes, definitely, we are looking at divestment. And I think, in fact, we have been talking about this at the last business update and now the Iran war obviously spun us into the works because with interest rate expectations being slightly altered in the European area, it might make divestments slightly more challenging. But nevertheless, I think we are embarking on that process. So we are starting to sound out and getting our feet on the ground to see whether there is an opportunity. So yes, hopefully, we have good news. It's not easy. So I don't want to also raise expectations. Obviously, you guys know in this current environment. In Singapore, it looks like it's a lot easier for capital market transactions, but I think the same cannot be said for the European region. I think the number of capital market transactions that we've been observing in the market is few and far between and not at the kind of sizes that we are looking at. Allison Chen: Rachel? Unknown Analyst: Can you hear me now? Allison Chen: Yes, we can hear you. Unknown Analyst: Maybe just a first question on the reversions. I think it has moderated a little bit by first quarter. So I was just wondering what's your outlook for this year since there was some advanced negotiation on the lease that's expiring this year. Choon-Siang Tan: Okay. Maybe Yi Zhuan... Lee Yi Zhuan: Well, for the reversions, right, generally, I think as I mentioned earlier, for the full year, we are still looking at around mid-singles. Of course, with some of the uncertainties in the wider global uncertainties, right, we probably might be a bit cautious on it, and we will see how this trends. For the retail, actually, largely most of the reversions have been quite strong. I think it was a little bit pulled down by a very specific tenant in a unique location. But by and large, I would say the retail reversions has been okay. Unknown Analyst: Can you give more color on this specific tenant? Lee Yi Zhuan: It's the change of use of a tenant into F&B. And because of the location of the unit, it's actually not where the normal rate is. So that's the reason why for that, in that case, compared to the outgoing use, the reversion is a little bit on the downside on that sense. Unknown Analyst: Okay. Which is it? Choon-Siang Tan: I think you -- so maybe I will also just add, I think while we have guided fairly healthy rental reversions, I think one mall that we moderate because I mean Plaza Sing and TAO, we are likely to go through AEI. So we may have to moderate because when you do an AEI, obviously, it causes -- in the course of discussion and lease renewal with tenants, we also have to be mindful that they will be impacted by the renovation going forward. So we have to be a bit more flexible sometimes when it comes -- obviously, this is obviously only during the transition. So it could impact some of -- specifically for Plaza Sing and TAO, I think. So there could be some moderation in terms of rental reversion, which should not be unexpected. But I think the rest of the portfolio should be business as usual. So there could be some impact because of that. Unknown Analyst: Okay. Just moving to the office reversions. Now that you have sold AST 2, do you expect that the reversions may trend down more? Choon-Siang Tan: No, I don't think so. I mean if you look at -- if we break down our reversions and contributions, I think they are quite evenly contributing. So removing AST 2 should not make a significant impact. Unknown Analyst: Okay. Got it. Then maybe just on the tenant sales side, you mentioned that March was up year-on-year, but is -- do you see any impact on the downtown malls? Are they impacted a little bit more from the war? Choon-Siang Tan: I think it was the reverse, right? I think our downtown did better than suburban, if I'm not wrong. Unknown Analyst: For March this year. Choon-Siang Tan: I think downtown actually did better. If you strip out the numbers for March, I believe downtown we did better than suburban. Unknown Analyst: Okay. Interesting. Okay. Maybe just one last quick one, which is on ECB contribution. How much are they contributing in the first quarter? And how much more should we expect? Choon-Siang Tan: How much are they contributing? Mei Lian, do you have the numbers? I have the numbers, but more on the top line because we have to net off -- just in my mind, we have to net off the funding costs also. Mei Lian Wong: Can we get back to you on this? Yes, because we have to net off funding costs and also provide for tax. Choon-Siang Tan: I think that contribution at the top line is probably about -- I think maybe about -- you want to say about $1.5 million to $2 million a month, if I'm not wrong. I'm trying to digest the DPU side and flow down the bottom line, but we need to do some work around that. And so it's also been about 1.5 to 2 months. So it's not a full contribution. Allison Chen: Can we move on to Upiang, please? Unknown Analyst: Can you hear me? Allison Chen: Yes. Unknown Analyst: Yes. Just on the Plaza Sing AEI, the amount seems quite big. And then how confident are we in securing that 6% to 7% ROI? And also given that, does this also mean that any AEI plans for Paragon will be shelved back because of this? Because when I look at Atrium going down and then Plaza seeing occupancy could also be impacted a little bit in terms of performance. So it does seem like we are in a quite uncertain period and then quite a few major assets could be seeing some -- a little bit of downtime. So that's the first question. And then second is on your retail, suburban seems to be meeting downtown. Do you expect this trend to continue in terms of reversions and also tenant sales? Choon-Siang Tan: I'll take the first question and Yi Zhuan can take the second one. Okay. So in terms of the expected return from Plaza Sing, I think -- I mean, you guys are familiar. We normally don't undertake AEI without a calculation of the financial return. And we have put down here that we are targeting about 6% to 7%. Question is whether we are confident of achieving. I think we have put it on to the slide. We wouldn't have put it there if we are not confident of achieving. That's one. Secondly, of course, but nobody knows this AEI will take -- years. It's also based on a certain assumption. I think -- but based on our track record, if you look at some of the past AEIs in Singapore, like Raffles City, we have done, IMM, we have done, I think we -- safe to say we have firstly, met our underwriting. And secondly, not just meet our underwriting, I think the part of the AEI, the objective is also to transform the mall to make it relevant and to make it able for the current taste and environment and shopping behavior and the new consumer. So all of that is also taken into consideration when we plan an AEI. And I think if you go into -- I think there's no argument that Plaza Singapura has been without AEI for a while, and I think it will definitely be helpful to rejuvenate the space. And also like what we mentioned is also really to dovetail with -- I mean, we have been very deliberate about this. It's not just about, okay, improving the tenant mix and then make it better. It's also -- we want to also think a few years ahead, what will happen to this mall when the pedestrianization of the mall, the road in front comes up. So we want to be positioned when that happens. We will transform the area, and we want to be there and ready when it happens. And I think our portfolio is large. I think we can definitely cushion if there is a bit of downtime. But of course, when we try to do any AEI, we will try to minimize the impact to our cash flow, which is why it will be done in phases so that the downtime doesn't stretch beyond 10% to 20% of the tenants or malls. So question -- so hopefully, that answers your question in terms of whether we are confident. Unknown Analyst: Yes. Can I also check if the construction costs have been locked in? Choon-Siang Tan: Yes. Unknown Analyst: So even if construction cost escalates from now on, your target ROI 6% to 7% is still comfortable? Choon-Siang Tan: Yes. So I think we have also been deliberately trying to upgrade slowly the various assets. I think you have seen that Raffles City was upgraded. Now we are moving on to Plaza Singapura. Then the question in people's mind is, okay, is Paragon next and whether this -- some people may think, okay, we like what you mentioned, if we are doing Plaza Sing, does that mean we have no capacity to do Paragon. I don't think that's the case. And I don't want to jump -- I don't want to prejump the conclusion that we are not doing anything. I think like what we mentioned, it's only been about 4 days since we announced. We want to go in, take a thorough look at what they have done. And there is already an AEI in plan in place, no harm and no skin off our nose to take a look at what they have planned, and we will see whether the plan involves any and how -- you do in phases, whatever they have planned or whatever we want to look at with fresh eyes, we also have to -- obviously, for us, we have to look at it from a portfolio-wide perspective and whether it makes sense for us, both on the asset level as well as the portfolio level in terms of cash flows. So that -- all of that will all have to be taken into consideration. But in any case, so I think Plaza Sing starts third quarter of this year. Paragon completion will only be third quarter of this year probably. So by the time we take over, it's not like we're going to do on day 1. We will definitely have to review the performance, the asset mix. I mean, the tenant mix. And then by the time -- if and when we do take a decision to do anything, it will probably be like possibly 1 year down the road, we're not sure. But I think that's not pre-conclude that it will or will not happen. I don't think I answered that question right now. Unknown Analyst: Okay. Second question is on the retail, the performance within suburban and downtown. Lee Yi Zhuan: So for tenant sales, right, I would say that actually between downtown and suburban, if I just look back at the past few quarters, right, sometimes it will be downtown and suburban. So actually, the 2 of them are really quite closely matched. And I would expect that to kind of go forward in this year also. Of course, naturally, given some of these uncertainties in this few months, right, probably the suburban side, we will probably see a bit more resilience as because with some of these higher cost operating costs and worries over inflation and stuff like that, discretionary spending on large items will probably be a little bit held back for a while, while the day-to-day people still have to spend. So I would say that's the kind of trend that we foresee for the going forward. And I think the related question to this was actually on the reversion side of things. By and large, I would say both retail and downtown -- sorry, for both downtown and suburban, generally, we look at sustainable kind of reversion levels that we go to our tenants. But of course, with downtown, as I think Choon-Siang mentioned earlier, when we do some of these AEI works, right, some of these impact short-term extensions and stuff that we may do to retain a tenant in the near term to kind of time our AEIs a bit better may distort some of these reversion numbers that we may see. Unknown Analyst: Okay. It's just that I noticed your tenant sales have been quite soft in the past few quarters and then reversions have been going up. So just wondering, just a little bit concern on occupancy costs. Yes. Lee Yi Zhuan: I think on occupancy cost year-on-year, we are quite stable actually. This time around, we are around 17.4%, which I believe is 0.1% lower than the previous year. So downtown cost is higher than the suburbans. Suburban, we are looking at high 16s, which is quite actually in line with the market and it's actually quite sustainable. Choon-Siang Tan: And I think the other thing I just want to add that actually 2.2% sales compared to rental reversion of 6%, actually not that out of line because actually 6% rental reversion because it's average over 3 years, actually, it's quite in line with a 2% sales growth. So I wouldn't actually say that it's not in line. Unknown Analyst: Okay. Okay. Last one is, is there any -- do you disclose on ION tenant sales? I think in the past quarters, there was like one small footnote. Maybe I missed that. Choon-Siang Tan: No, it's included. Last time we used to show a footnote as in we strip out the ION because it was not like-for-like. But now ION, we have owned it for a full year already. So there's no need to strip out the effects of ION anymore. So ION has contributed -- ION is in 2025 and 2026 numbers now. So this 2% includes the total sales from ION as well. Allison Chen: Can we go on to Brandon, please? Brandon Lee: Just touching on a bit on occupancy, right? Could you sort of guide us a bit on the forward occupancy for the different like retail office, right? Because when I look at this quarter's numbers, it's kind of quite low. In fact, it's like a 4-year low, right, whether you look at retail office or portfolio. So is that something that you can sort of guide us? Or is this something that we should be concerned about? Choon-Siang Tan: No. So I think quite -- I think I spent some time trying to address this point because I expect this to be an issue and to be raised, which is why I think I have addressed it right from the get-go. So it's actually unique to 3 specific assets that we have and very unique to 3 specific tenants. And the financial impact is quite small because these are all low rent spaces and not one of -- actually half of it -- more than half of it is due to Germany, which doesn't affect our Singapore performance. So I don't -- I won't take this as a read-through on the portfolio to answer your question directly. So no, because at the end of the day, if you look at rental reversion, it's still healthy, which means that we still have the negotiating because we still have the negotiating leverage to negotiate for higher rents. So it's unique to MAC, Germany and unique to Clarke Quay. Clarke Quay, of course, is work in progress until CanningHill gets completed end of this year. Brandon Lee: So if you look at it on a portfolio standpoint, right, should we sort of expect that 95.2% to sort of get back to your usual like 96% to 98% kind of range? Choon-Siang Tan: No, I think we can expect to improve. If you're asking whether this is the new steady state, no, the answer is no. I think we can expect this number to improve. For the simple reason, let's say, for example, today, we were to sell MAC immediately improves and normalizes to that higher level if -- but I would say that as a noncore asset, so we shouldn't even use that as a contributor to look at normalized occupancy. So I do -- but even if we were to include it, we do expect some of these vacancies are very transitory frictional. We do think that the 95.2% is not a reflection of what we are able to achieve with the current portfolio. Brandon Lee: Are you comfortable to share the occupancy of those 3 unique assets? Choon-Siang Tan: Yes, we can. So of the -- I think MAC now we are just trending somewhere above 70%. Clarke Quay, 84%. Funan office was 100%. I think one of the Towers now had vacancy. What is Funan? 87%. But we are quite confident of leasing out that space. So that's a very transitional vacancy. MAC could be a bit more -- take us a bit longer, but I think we will work hard to try to replace or look at divesting at some point. But yes. So those are the 3 assets that probably contributed to this quarter's movement, one of which we are quite confident of re-leasing quite soon, hopefully. But the other 2, I don't think will actually affect the financial because those are very low rent spaces anyway, although they are quite large, and hence, it contributes to the drop. Our financial performance has not been impacted. That's the bottom line. Brandon Lee: Okay. Great. And just going to -- can you talk a bit on Bugis Plaza? I mean, historically, if you look at like CICT, right, when you guys sort of amalgamate your assets and other assets, right, these assets usually get divested, right? So could we sort of expect the same for Bugis Plaza or there should be a wider plan for it given that you really own Bugis Junction? Choon-Siang Tan: Sorry, I don't get your -- you're saying that -- what are you saying about Bugis Plaza? I didn't quite catch your drift. Brandon Lee: Yes. So historically, if you look at CMT, CICT, right, you guys tend to amalgamate the performance of certain assets under other assets, right? And then after that, subsequently, we see you selling those assets, right? Should we expect the same for Bugis Plaza? Is it a noncore asset in your view? Choon-Siang Tan: I think the short answer is no. Lee Yi Zhuan: I think we have also shown that we can sell assets that are not in the others category. So it's not -- it doesn't indicate anything. There was a period of time when there's only so much space and there's only so many buildings you can squeeze into it. So some of the smaller assets tend to be parked under others. Brandon Lee: Yes, yes. Okay. I mean, it's good to know that it's core, okay? So we shouldn't be. Choon-Siang Tan: It's actually a very vibrant area and coming out very nicely. In fact, I see it as a high growth area going forward. Brandon Lee: I'll just end with one last question, right? So if there are opportunities, right, to acquire something that's pretty decent, is CICT sort of open to raising equity more than once a year? Choon-Siang Tan: We try not to. I have been reminded by investors to try not to do that. So we will try not to do that. Allison Chen: Move on to Vijay, please. Vijay Natarajan: Three questions from me, maybe I'll take one by one. Firstly, in terms of the Funan, can you give some bit more color in terms of the tenant who exited. What was the reasons? And how much downtime do you expect for this property? Choon-Siang Tan: Tough question, I leave it to Yi Zhuan. Lee Yi Zhuan: You mean the tenant. Choon-Siang Tan: Funan. Lee Yi Zhuan: So for Funan, the tenant Adidas moving. Actually, it's more of an issue of them trying to consolidate some of the space in terms of the efficiency and their corporate planning. So that was the reason for the move. Vijay Natarajan: And how long do we expect... Lee Yi Zhuan: How long do we expect to backfill it? Well, okay, typically, I would say that if we start from scratch for a tenant of -- because okay, for adidas, right, it's about 28,000 square feet of space. If there's a few ways we can do it. I mean, we subdivide then naturally downtime is a bit shorter, at least for part of the space. But for tenants usually of this kind of size, if they start to look for space, typically, they'll be looking at it around 6 to 9 months ahead of time because they have to plan to move from the previous space. So some of the -- we are already starting talking some interest along the way, and it's really down to how it converts as well as how the negotiations with the other options that they have, right? So it's hard to say for sure, but I would say probably half year. Vijay Natarajan: Got it. My second question is just sharing my observation. I think for a Clarke Quay perspective, it does look like the impact seems to be structural for some time. I mean the asset went a major upgrade after COVID, but still seems to be having a lot more of tenant churn over the last 1, 2 years. Maybe what's your thought on this asset? And would you be willing to divest it? And are you seeing tenant sales improve since last year? Choon-Siang Tan: Okay. So I think Clarke Quay, I won't say it's structural because we have not seen it in its stabilized state. There is definitely a structural difference between the construct of Clarke Quay and some of the other malls for sure. Definitely a slightly different positioning. And of course, it's not a natural mall per se. And of course, now currently it is impacted by CanningHill. I know we have been saying that for the last few quarters, but that is the reality, major construction. We do expect the vibrancy of the whole area would change once you have this few hundred residential units being filled up; and two, hotel blocks being completed. So I mean, hotels generally creates a round-the-clock footfall. So we do expect -- and this is right across the road from them. So definitely there will be some improvements. Whether the improvements will be enough will be one of your questions as well once it becomes stabilized. But we are confident that there will definitely be improvements once that happens. And the challenge with the leasing discussion now is also nobody will commit until they have seen the hotel being completed. That's the reality. I mean, if I were a tenant, I mean, no point for me to take the risk today, I might wait until 6 months later when the hotel is completed. So a lot of the tenant churn is also because a lot of our tenants within Clarke Quay, some of them can be -- some of the movements and the margins is also due to us bringing in shorter leases coming in to fill up the space, create the footfall and vibrancy to that area. But we are doing a lot of things to -- I mean, we have a team that is very focused on marketing the asset. If you go to Clarke Quay, there are a lot of marketing activities going on every weekend. We have now clusters coming in on every Wednesday. We have just done a cycling circuit competition, making use of Clarke Quay natural outdoor roads to create kind of a cycling circuit. We are also -- every time there's a major sporting events, we have organized live shows and all that. So we are making a conscious effort. It's not a natural place where there's natural footfall. So we need to create a more destinational effect to bring in the crowd while CanningHill is being completed. When after completion of CanningHill, we do expect it to have more natural footfall. Yes. So we are making very good efforts. And to your second question on whether we will be open to divesting, I think we have demonstrated our willingness to divest anything, I think, if necessary. I will say that -- I mean, we just divested 2 assets and one of which is fairly large and performing well as well. So I think the question to that is anything is possible, including Clarke Quay as we are divesting Clarke Quay. Vijay Natarajan: If 10% premium, I think, yes, that's what you are alluding to. Choon-Siang Tan: Yes. You hit the nail on the head. I think it's always a matter of pricing, right? But I think the yield is still decent for Clarke Quay based on the current book value. Vijay Natarajan: Okay. My last question, I think in terms of energy rates, you mentioned that this year, you mentioned it is lower than last year. Maybe how low is it for this year compared to last year? And if it normalizes, if you have to go for open market and purchase a contract for next year, should we have to expect a jump in terms of electricity cost and NPA going down. Choon-Siang Tan: No. Thanks for the question. Actually, I also want to take this opportunity to highlight that next year, actually, we do expect utilities cost to come down further. The reason is because although it's not been locked in, we have achieved a better formula. There's -- the formula for utilities cost is always a function of certain input prices. And of course, oil price and gas prices are a key component of it. So even at today's price, if we were to enter into the contract, we are still achieving savings because of the better formula that we have achieved with our supplier. So we do expect savings next year as well compared to this year. Vijay Natarajan: So you're not impacted by external environment or even at this higher price, you can still achieve savings? Lee Yi Zhuan: Yes. Choon-Siang Tan: No, we are impacted because -- but what we are saying is that at the same price -- at the same input price next year, we will achieve savings because of a better formula. But so even though prices have gone up, we will still achieve savings. It takes a very significant increase in the price of oil for us not to achieve savings for next year, and we are not anywhere close to that. Vijay Natarajan: So this is based on the management contract we have signed with calxiaxite? Choon-Siang Tan: No. It's based on our contract with our energy provider, utilities provider. One thing is that we procure energy as a group. So we do have quite a bit of negotiating power. So for example, CICT, Clarke, the whole CLI Group, we are procuring energy as a bulk contract. So as you can imagine, because given our size, we do have some negotiating leverage. So we are able to lock in a better formula for next year. Allison Chen: Can we go to [ Diyash ]. Jian Hua Chang: This is actually Derek from Morgan Stanley. I just assumed another by accident. No, I just want to ask a couple of questions on the cost of debt outlook. I think, Mei Lian, you're alluding to -- it seems like you're alluding to about 10 to 20 basis point savings from the current 2.9%. Does that take into account, I presume, the debt paydown from using proceeds from the raise -- from the equity raise. And when you take on fresh debt for Paragon, is that all taken into account already? Mei Lian Wong: No. We have -- I mean, -- depending on the fixed float assumption for the Paragon debt, we believe that there is some room in terms of floating rate because we continue to see the movement over the past months where floating rate has actually even gone below 1%. So if this kind of continue, there could be even more savings from that anchor. We haven't taken into account the Paragon debt yet, because it will depend on the actual fixing structure. Jian Hua Chang: Is there a rough number that you could -- I mean, could we be looking at 2.5%, 2.6%? I mean I also assume you'll be in lieu of the acquisition coming in, you'll pay down debt first, right, with the equity raise proceeds? Mei Lian Wong: Yes, yes. The assumed debt for interest rate for Paragon debt is about 2.6% to 2.7%, yes. So that could kind of lower the average based on this assumption as well. Jian Hua Chang: And that number actually looks high also compared to what you recently raised at 2.18%, right? So could that number also be a lower number? Mei Lian Wong: We will try to do better. The 2.18% was raised when the fixed benchmark was actually lower than current. So today, if we were to raise the bonds again, it may require slightly higher margin. So it all depends on, first, the timing; second, the tenant that we want to lock in and how much is going to be fixed and float. But generally, we try to keep on an overall basis, at least 70% of our debt portfolio on a fixed basis. Jian Hua Chang: Understood. And if you were to raise fresh debt right now fixed, what will be the number? Mei Lian Wong: Well, probably looking at the secondary trades, close to, say, 2.4%, 2.5%. Jian Hua Chang: 1 Okay. Got it. And just last question, if I may. I think I got some investor queries on the equity raise, why raise at a lower -- at the lower end of the range of the pricing range, given the robust takeup? Choon-Siang Tan: Yes. Okay. I'll take that. Actually, we -- I would say that this is the low end of the range. The low end of range is 2.7%. But you are right, could we have raised it at, say, 2% possibly. But then the quality of the book could be different. So typically, in an equity raise, you guys will be familiar, there will be 3 main types of investors. The first group is what we call the real estate long-only investors. These are the buy and hold investors, right, because they like the assets, they are real estate specialist, they are long only, they buy because they want to achieve the yield that we provide and the growth that we provide going forward. Then there's the hedge funds and then there is a private bank who may or may not buy and hold depending on the valuation, depending on the momentum and depending on the market conditions. So we typically try to allocate a larger part of the book to long-only real estate because these are the investors that will stay with us and grow with us. But of course, these are -- so looking at the book to encourage a larger allocation to debt, that was the reason why we decided to -- but even with the decision, we also are able to bring everybody up from, say, 2.7% discount to 2.36% discount, which was the final price that we did that. And if you look at all of the equity raise done in the last 20 -- I don't know, last 5 years, this is probably the tightest. I don't know whether I can think of a tighter. So I don't think we can say that this is not a tight discount. I think we probably have been spoiling investors a little bit because we went out with a very tight low end in the first place. Most equity offerings will not go out with a 2.7% at the very low end. They typically will go up with 3.5%, 3%, 4%. But we are fairly confident of doing that, and we are able to negotiate because we also want to protect our own downside, and we're able to lock in the underwriting by the banks at 2.7% because our last equity offering was done at 2.7%. And despite that very tight low end, we were able to tighten it further at 2.36%. And I think the other consideration is we also upsize. It's actually very challenging to upsize the equity offering by 25% and still tighten the discount. Usually, you have to choose between the 2, price or quantity. I think that's a very standard trade-off. You want better price, you have to sacrifice on quantity. You want a better quantity, you sacrifice on price, and we are able to achieve both. So it's not -- so I will not actually fully agree with the statement that we are not achieving a tight discount and we didn't -- I think the third thing I will also add is that I think could we have squeezed to say, 2.2%, 2.1%, possibly. But I think we also want to watch the aftermarket performance. We want to make sure that the momentum is maintained to ensure a strong market performance, you also have to allocate and price accordingly. And I think if you look at the post-market performance, I think -- we do think that we did the right thing, and there is definitely some strong market outperformance following the EFR. Unknown Analyst: Just one question on full year DPU growth. Because of the upsized equity issuance in Asia Square 2 that will come in before Paragon acquisitions, are the growth levers that you mentioned sufficient to offset this? Or what are the other mitigating factors on the capital management front such that full year, you're still expecting DPU growth, right? Choon-Siang Tan: Sorry, I didn't get the -- can you summarize the question again? Unknown Analyst: Yes. So equity issuance was upsized. So that will drive dilution. Asia Square 2 loss of income second quarter. This 2 will actually come in before the Paragon acquisition, right? So full year, what are the mitigating factors? And are we still forecasting DPU growth? Choon-Siang Tan: Okay. Okay. Okay. I get what you're saying now. Okay. Firstly, there are 2 potential things. There are quite a few things, right? One is Asia Square divestment is unlikely to close before actually. Asia Square divestment is likely to close after Paragon acquisition because the buyer for Asia Square also needs an EGM and the process takes a bit longer. So we are expecting to close probably at least 1 to 2 months before that, 2 months. So quite counterintuitive, but actually, that is better for accretion. Because before they close, we will have to do a bit of a bridge loan. So if we borrow for 1 to 2 months bridging to bridge the funding gap before we divest Asia Square, that cost of funding is actually lower than the asset yield because we're still earning NPI when -- as long as AST 2 is not being sold, right? So the asset yield at 3% is still better than -- is still higher than the funding cost. And bridging loan we will be borrowing on floating, which, as Mei Lian mentioned, is very -- still today is still very low at about -- the float rise is about 1% today. And spread, you are probably saving a good 1% on the funding cost. So actually, it's more accretive, fairly counterintuitive. But of course, you take a bit of a stretch on the balance sheet for that 1, 2 months, but I think that's okay as long as there's certainty on closing. So that's -- it shouldn't affect -- that part of the equation shouldn't affect accretion, but it can only improve accretion. Second part, I think what you're driving at is also the equity offering being done before the closing of Paragon debt will be dilutive. But of course, we will pay down debt in between. The net effect of both combined together, I think is this dilute -- see, we are buying $3.9 billion. Typically, equity offering makes up a larger proportion of any transaction. But in our case, the equity offering, $750 million is only about, call it, 18 acquisition size. So the dilution impact is actually very small, and it's only for about -- maybe about 2 months. And we are not suffering that entire dilution because we pay down debt. So based on my calculation, plus the accretion that we will get from $2.5 billion, 2 months of bridging loans, actually, the net-net is positive. So we will actually not suffer any dilution. If anything, we will still be fully benefiting from that 1.7% accretion for the year. Allison Chen: We have Mervin, who seems like the last one to go. Mervin Song: Just a question on the retail margins. It fell Q-on-Q and year-on-year. What's causing that given you have some interest cost savings? Choon-Siang Tan: Interest cost savings will not affect retail margin. Mervin Song: Electricity costs, sorry. Choon-Siang Tan: Why the margin go down? Yes, I noticed. Why the margin go down, do you know? Let me think. Was there a change in the portfolio constitution? You sort of BPP, but that's for 1 month. I think the reason is the top line came down slightly on a year-on-year basis because we started AEI. So like, for example, I think Tampines because we did the AEI, I think the margin for Tampines came down because of the top line dropped slightly. So that's one of the key reasons, I think. The other reason, of course, is also Clarke Quay. Clarke Quay, the margins came down because of the significant drop in occupancy compared to last year. So these 2 assets would have contributed to the margin compression. Mervin Song: Any updates on Junction 8 given the change of more commercial? Choon-Siang Tan: You mean like redevelopment plans? Mervin Song: Redevelopment plans or will you take on the office component? Choon-Siang Tan: Well, I think that one is -- that's -- I don't think that will happen anytime soon. If anything, we're in discussion with many, many stakeholders. So we don't have that -- we don't have the clarity now. But Junction 8 is doing very well in the meantime. Yes, sorry, the short answer is no, we don't have anything to provide at this point. No update to provide for Junction 8. Mervin Song: Yes. Just back on the office portfolio, we hosted the IOI properties a couple of days ago, and they said that we could push Asia Square Tower rents towards $13. Is there something you can do on average across your whole portfolio? Choon-Siang Tan: Across our portfolio, that's a tough question because our portfolio obviously has different varying locations and age of building. Obviously, those in -- I think IOI's building obviously is newer than ours. Asia Square, if you compare it to some of our portfolio, is also slightly higher, right? And I mentioned earlier in my presentation that average rent for Asia Square 2 is really higher than our rest of our portfolio. So I think if your question is whether we can do it for the rest of -- I think selectively possible. We are seeing some of the renewals done at those levels for some of our spaces. But I won't say that we can do it for the entire portfolio because there are also big anchor spaces in some of our portfolio. Mervin Song: And in terms of portfolio allocation, like how are you thinking about mix between retail and office, we now have a bit more retail? Choon-Siang Tan: Yes. No, I don't think it was deliberate. It was more -- I think it's a consequence of some of the opportunistic decisions that we made. I don't think if you ask us whether do we design it to be this way? No, we are not deliberately trying to sell office to buy retail. I think we are quite happy with both asset classes. And I think increasingly, the differentiation is not as important. I think what is important for us, even merge both the office and the retail component is what is the most and best construct for our portfolio that will deliver the most stable and highest growth DPU for our unitholders. And I think because we are already so big, so the stability is there. So the question is how to drive the growth. And I think people are more focused on underlying performance -- underlying financial performance than the marginal movement between retail and office. Mervin Song: Okay. Look forward to continued strong results and hopefully high share prices. Allison Chen: Thanks, Mervin. Looks like we have no more questions. So I guess we'll end the session here. Thank you for your time. Have a good Friday and a good weekend. Choon-Siang Tan: Thank you. Mei Lian Wong: Thank you. Lee Yi Zhuan: Thank you.
Anders Edholm: Good morning, and welcome to this presentation of SCA's 2026 First Quarter Report. With me here today, I have President and CEO, Ulf Larsson; and CFO, Andreas Ewertz, to go through the results and take your questions. Over to you, Ulf. Ulf Larsson: Thank you for that, Anders. And also from my side, a very good morning. So despite the increasing costs and the continued challenging market for forest industrial products, we delivered SEK 1.1 billion on EBITDA level and by -- that's an EBITDA margin of 23% for the first quarter. Segment Renewable Energy had a record high result during the first quarter, and that was driven by electricity prices, strong deliveries and also a very good market for liquid biofuels. Our new wind farm located in Jamtland started operations during the quarter and contributed to a high profitability within the segment. And our high degree of self-sufficiency in strategic areas continue to be an important factor to mitigate higher costs, partly offsetting higher wood raw material and energy costs. Turning over to some financial KPIs for the first quarter. As already said, our EBITDA reached SEK 1.1 billion, and that corresponds to a 23% EBITDA margin. Our industrial return on capital employed came out on 2% accounted for the last 12 months, and the leverage was 2, while our net debt to equity reached 11.9%. And I will now make some comments for each segment, starting with Forest. Stable harvesting levels from our own forest have contributed to balanced supply of wood raw materials to our industries during the period. We have seen a long-term trend of increasing sawlog prices, and they continued up also in the first quarter. However, availability of sawlogs has increased towards the end of the quarter due to the big storm, and that will also gradually reduce prices coming quarters. Regarding pulpwood prices, they have been rather flat for a couple of quarters, and now they have started to come down. When we compare the first quarter '26 with the first quarter '25, sales were up 2%, while EBITDA was up 1%, mainly due to higher prices for wood raw materials. Over to solid wood products. And -- in general, we still have a slow underlying market for solid wood products. We continue to note signs of improvement in the repair and remodeling segment, and we also see a decreased production in Scandinavia and Germany, generating a better supply and demand balance, especially for spruce. Stock levels remain on the high side among producers for pine, but are on normal levels for spruce and stock levels at customers continue to be on the low side. Delivery volumes were lower in Q1 '26 in comparison with the first quarter of '25, but first quarter '25 was an exceptionally strong quarter. SCA stock level of sawn goods is currently on a very balanced level. The price for solid wood products increased by a bit less than 4% in the first quarter of '26 in comparison with the fourth quarter of '25. And this development is in line with what I said when we presented the report for the fourth quarter last year. Sales were 13% lower in comparison with the same quarter last year. EBITDA margin decreased from 16% to 4% due to higher raw material costs, lower deliveries and a negative currency effect. Today's stock level of solid wood products in Sweden and Finland is described at the top left on this slide and is shown in relation to the average for the last 5 years. As mentioned earlier, we note that the inventory level is on the high side, especially for pine, while the SCA inventory level is balanced. As can be seen in the diagram to the bottom left, the Swedish and Finnish sawmill production has been lower than average in the beginning of '26. And in the diagram to the top right, we can note that the export price index decreased in the first quarter. SCA's prices, however, increased due to a better mix. Going into the next quarter, I estimate that prices in the market will increase. On the other hand, increasing freight costs will have a negative effect, resulting in a slight net price increase for SCA. Looking forward, we will probably see a stable development going into autumn with an okay balance between supply and demand. Over to pulp. When comparing the first quarter '26 with Q1 '25, sales were down 16%, mainly due to lower prices and negative currency effects. EBITDA was down 88%, which was also driven by lower prices and negative currency effects. During the third and fourth quarters of '25, demand for NBSK pulp was rather weak and prices were stable at low levels. Net prices on NBSK then decreased further in the first quarter of '26, very much due to the higher rebates in Europe and U.S. At the same time, gross prices increased in Europe and U.S. despite weak demand. In China, demand for NBSK pulp was on a normal level during the first quarter, but prices remained low. The conflict in Middle East is adding complexity in the pulp market, and it also increases the cost pressure. Looking at CTMP, demand was very low in January and February, and prices were at the bottom. However, during March, we saw an improvement in demand and prices started to increase. Inventories of NBSK were on a high level during the first quarter. Hardwood inventories on the contrary were below average level. Finally, CTMP inventories have been on a rather normal level. Moving over to containerboard. Sales were up 4% in Q1 in comparison with the same period last year, driven by higher delivery volumes, somewhat mitigated by lower prices and the negative currency effect. EBITDA was down by 56%, driven by lower prices, negative currency effect and higher energy costs. We have noted a rather soft box demand during the start of the first quarter, but it has since then developed in a cautious positive direction. The retail business remains a positive driver, and we have also seen the manufacturing industry recovering in the beginning of the year. European demand of containerboard has been moving sideways during the first quarter, in line with the box demand. There is no new containerboard capacity expected to start up in the first half of '26, although we can expect a ramp-up effect of new capacity started in '25 with the vast majority coming in testliner. Kraftliner inventories remain above historical average in Q1, as you can see in the graph. During the first quarter, the availability of OCC has been in balance with supply and demand, which in its turn has led to stable prices in the first quarter. Prices for brown kraftliner in Central Europe has during the first quarter decreased with EUR 25 per tonne and for white kraftliner with EUR 20 per tonne. Anyway, we now feel a more solid underlying demand in combination with strong cost pressure. And due to that, we have implemented a price increase of EUR 60 per tonne for brown kraftliner and EUR 40 per tonne for white kraftliner from the 1st of April. Finally, I will say some words about renewable energy. And in the segment, we have had a stronger quarter compared to the same period last year and maybe the strongest quarter ever. And that is, of course, mainly due to higher production and stronger margins in our -- with St1 jointly owned biorefinery in Gothenburg. In addition, we have also had a positive impact from our new wind farm in the county of Jamtland. Electricity prices were high during the quarter, which had a positive impact in our wind business. Our new wind farm, Fasikan, was taken over in time and on budget and has been ramping up production during the quarter. SCA's land lease business is stable at 10.6 terawatt hours according to plan. And this is, as said before, equal to 20% of installed capacity of wind power in Sweden. The market and price for solid biofuels were strong due to cold weather during the first quarter. Anyway, the positive effect was mainly offset by higher costs for raw materials compared to same quarter last year. For liquid biofuels, we have seen continuous high margins compared to previous quarters. The main reasons are the implementation of RED III across European countries as well as strengthened EU control mechanism regarding imported products and feedstocks. In March, we also see additional price increases due to the situation in the Middle East. We expect market volatility in renewable fuels to remain high as Europe ramps up the blending mandates, both in HVO and SAF. And with that, Andreas, I hand over to you. Andreas Ewertz: Thank you Ulf, and good morning, everybody. I'll start off with the income statement for the first quarter. Net sales decreased 8% to SEK 4.7 billion, driven by lower prices and negative currency effects. EBITDA decreased 33% to SEK 1.1 billion, driven by lower prices, negative currency effects and higher cost for wood raw material. EBIT decreased to SEK 543 million and financial items totaled minus SEK 86 million with an effective tax rate of below 20%, bringing net profit to SEK 380 million or SEK 0.54 per share. On the next slide, we have the financial development by segment. Starting with the Forest segment to the left. Net sales were in line with the previous quarter at SEK 2.5 billion. Higher prices for sawlogs were offset by lower delivery volumes to SCA's Industries. EBITDA decreased slightly to SEK 884 million due to seasonally lower harvest from SCA's own forest compared to the previous quarter, which was offset by higher prices for sawlogs. In Wood, prices were slightly higher compared to the previous quarter. Net sales decreased to SEK 1.3 billion due to lower delivery volumes. EBITDA decreased to SEK 49 million, corresponding to a margin of 4%. High costs for wood raw materials and lower delivery volumes were partly offset by higher prices. In Pulp, net sales decreased to SEK 1.6 billion compared to the previous quarter, while EBITDA increased to SEK 40 million, corresponding to a margin of 3%. Lower costs for planned maintenance stops were offset by negative currency effects and lower prices. In the quarter, we took market-related downtime in our CTMP mill due to high electricity prices. In Containerboard, net sales were in line with the previous quarter at SEK 1.7 billion. EBITDA decreased to SEK 104 million, corresponding to a margin of 6%. Lower prices, negative currency effects and higher energy costs were partly offset by lower costs for raw materials and higher delivery volumes. Renewable Energy, we had a record quarter. EBITDA increased to SEK 206 million, corresponding to a margin of 31%. The increase was driven by high electricity prices, the new Fasikan wind mill and higher results in liquid biofuels. On the next slide, we have the sales bridge between Q1 last year and Q1 this year. Prices decreased 4% with lower prices in pulp and containerboard, partly offset by somewhat higher prices in wood. Volumes were flat with higher volumes in containerboard, but lower in wood. And lastly, currency had a negative impact of 4%, bringing net sales to SEK 4.7 billion. Moving on to EBITDA bridge and starting to the left. Price/mix had a negative impact of SEK 255 million. Higher costs from mainly wood raw materials had a negative impact of SEK 111 million. We had a positive impact from energy of SEK 34 million and a negative impact from currency of SEK 203 million. In total, EBITDA decreased to SEK 1.1 billion, corresponding to a margin of 23%. Looking at the cash flow. We had an operating cash flow of SEK 569 million in the quarter. And as you know, other operating cash flow relates mostly to working capital currency hedges and should, therefore, be seen together with changes in working capital. Looking at the balance sheet. The value of the forest assets totaled SEK 104 billion. Working capital decreased to SEK 5 billion. Capital employed totaled SEK 112 billion. Net debt stood at SEK 12 billion and equity totaled SEK 100 billion, corresponding to a net debt to equity of 12%. And we are now almost finalized our large ongoing investment projects. Thank you. With that, I'll hand back to you Ulf. Ulf Larsson: Thank you, Andreas. And just to summarize, I mean, we have had a challenging first quarter. I think we have controlled what we can control in a good way. We see a positive effect from the ramp-up of our big strategic investments, and we are looking forward to the time when we can move over those extra volumes to our main market in Europe and the margin that can create. We have also started up our new wind farm outside Bracke in Jamtland and the project was done on time and in budget. So by that, I think we open up for questions. Operator: [Operator Instructions] We will now take our first question from oannis Masvoulas of Morgan Stanley. Ioannis Masvoulas: Three questions from my side. I'll take them one at a time, if that's okay. First, on containerboard. So you're starting from a fairly depressed EBITDA margin level in Q1. And going into the second quarter, you should be benefiting from lower fiber costs as well as lower power costs. How about other input costs around logistics, chemicals, et cetera? Just trying to understand the overall development into the second quarter on the cost side. And then related to that, is it fair to expect another increase in kraftliner prices in May to help restore margins? I'll stop here for the first one. Ulf Larsson: I'll start with the market and then Andreas will give you the cost perspective. And I guess, I mean, as you realize, we did increase the price for kraftliner from 1st of -- first, we reduced the price by EUR 25 per tonne for brown kraftliner in the first quarter and EUR 20 for white top. And then from 1st of April, we have announced that we will also come through with price increases of EUR 60 per tonne for brown and EUR 40 per tonne for white from 1st of April. And that will stepwise be implemented in the price for the first quarter. I guess we see no price movement in May. We haven't heard anything more from testliners producers. And I think it's fair to say that they have to start and then I believe that kraftliner can come after. So nothing is planned for May. But if we will remain on this level when it comes to gas prices, I guess, we'll see some attempts in -- yes, later in Q2 or in the beginning of Q3. So that's my view. Then Andreas, about the cost situation. Andreas Ewertz: Yes. On the cost side, if we start with pulpwood, the pulpwood will continue to go down slightly in Q2, but very slightly. As we talked about earlier, we have this 6 months lag effect. So the pulp wood prices will go down mainly in the second half of the year. OCC prices are fairly stable. If we look at electricity prices, they're very high in January, February. So depending on how the electricity prices develop, but most likely, it will be lower compared to Q1. And then in terms of transportation costs depending on the oil price development, but the oil price will, of course, affect transportation. So that's the big moving parts. Ioannis Masvoulas: Okay. Then the second question, can you comment about current pulpwood prices? I know you mentioned a slight benefit in the industrial units in Q2, but just trying to understand where are we now on pulpwood prices versus the peak of 2025? Andreas Ewertz: Yes. So pulpwood prices, they went down slightly in Q4, slightly in Q1, but we are talking about maybe 1% to 2% down. It would continue to go down 1%, 2% in Q2. And then you get a larger effect in Q3 and in Q4 because of this lag effect. Ioannis Masvoulas: Okay. And just the last one for me. You talked about the CTMP market where demand remains low, same with prices. Could you give us an update on operating rates in Q1 here and your expectation for Q2? And how are you feeling about this business given the depressed market backdrop? Are you willing to run the asset? I know it's a low-cost mill, but just trying to understand how you're looking at optimizing the business here. Ulf Larsson: Well, in the first quarter, I would say that we have maybe run the CTMP mill at 50% or something like that, I mean, due to high electricity prices and also the margin cost for pulpwood. So that's the case for first quarter. And I mean, CTMP has been a very bad business in the first part of this year. Now we see that the CTMP market is picking up. And I guess one part of it is that short fiber pulp is picking up step by step and maybe we see some kind of substitution. I also feel that we have a better consumption by board customers, not the least. And so I mean, just now, we are running more or less full for the moment being. Of course, we keep an eye on the electricity price. And if it's too high, then we have to close down, but we are rather positive for the CTMP business in the second quarter. Operator: And we'll now move on to our next question from Linus Larsson of SEB. Linus Larsson: I'll start with a follow-up on the input cost side. And if you could maybe elaborate a bit on the pulpwood cost declines that you're seeing in your wood consuming operations over the course of the next few quarters. If you could quantify in any way what you're expecting going into the second half of 2026, please? Andreas Ewertz: Yes. So as I said, now we got maybe 1% down on pulpwood cost in Q1 compared to Q4, while the sawlog prices increased with around 7% in Q1 compared to Q4. In the second quarter, we expect both pulpwood and sawlog prices to go down slightly, but we're talking about 1%, 2%, maybe 3% on pulpwood and 1% to 2% on sawlogs. And then we'll see a bigger effect in Q3 and Q4. But it's hard to say exactly now because it's now we're going to -- in second quarter, then we're going to get more of these storm volumes, of course, will help to get the price down. So we'll see, but we expect a bigger decrease in Q3 compared to in Q2. Linus Larsson: Great. And then -- and I hate to ask this, but if you could maybe please help us dissect the other line, which was weaker in the first quarter? And if you could help us understand what the normalized level might be going forward? And the reason I'm asking is that this is actually where more than the entire deviation compared to consensus occurred. So if you could just help us understand that would be super helpful. Andreas Ewertz: Yes. Firstly, we have a seasonal effect, but the biggest thing is, of course, profit in stock. So when we sell something, for example, from the Forest business to the Wood business, then the Forest segment, of course, makes a profit. But until the Wood division sells that final product, you eliminate that profit. And that's why you have this cyclicality between -- dotted line between different quarters. So because of the increased prices of sawlog and a bit lower delivery volumes in our Wood segment, you have a higher other costs, but that's only periodization between different quarters. Linus Larsson: Great. That's really helpful. And like given what you just said, Andreas, any pointers for what to expect in the second quarter? Andreas Ewertz: I think if you look at the full year, of course then these prioritization effects, I mean, they get canceled out. So if you look at the full year, then you get quite a good picture of the yearly other costs. Linus Larsson: Sorry, what do you mean -- if I look at the past couple of years, that... Andreas Ewertz: Yes, yes, exactly. The past year. Operator: And we'll now move on to our next question from Robin Santavirta of DNB Carnegie. Robin Santavirta: Now in terms of Middle East crisis, you mentioned in the report that it increases uncertainty and of course, the oil price is also higher and you call out this as an indirect negative. But you have high energy self-sufficiency. Do you think you have a competitive advantage to Continental European producers, especially in containerboard? Ulf Larsson: Yes. I mean, we are not dependent on Russian oil and gas or oil at all, more or less. I mean that is, of course, a positive thing. And the other thing is that when it comes to distribution, I mean, we used to say that we have 40% -- degree of self-sufficiency due to the fact that we now produce liquid biofuels in Gothenburg and our part, I mean, account for around 40% coverage of the total cost. So that is, of course, very positive. And as you could see also in this quarter, I think we did the strongest quarter ever for renewable energy and a big part of that was, of course, liquid biofuels. Robin Santavirta: Right. And then also related to containerboard from what I hear from not only you, but from other companies in the market, it seems demand has increased quite significantly in March and April, and it's certainly in containerboard grades in Europe and the start of the year was much slower. What explains the pickup in demand? Is this just pre-buying before prices go up? Or are there other dynamics in play? Ulf Larsson: It's hard to say really. I think one thing can be that you have -- I mean, I guess people, they are securing the raw material supply in different areas due to the geopolitical situations. So that might be one thing. But we also feel that -- I mean, the retail sector has been quite good for a while. And now we feel also that the industrial customers, they are coming back. And I mean, not at least today, I mean, we have seen some reports and also yesterday from some companies. And I mean, they also say that the order inflow is quite strong also from the more heavy industry, which has -- that will have a good impact also on our kraftliner business. So yes, the market is definitely strong just now. The balance is -- still we are a little bit on the high side when it comes to the inventory level. And I mean, we all know that we have a lot of testliner capacity out there, curtailed just now, I guess. And on the other side, if we will -- if gas prices will remain on this level, there still -- I guess, many of them, they lose money. So I guess we will see -- it's a mix between supply-demand and cost pressure and so on. But I guess we can -- we might see some further price increases coming into the autumn. Robin Santavirta: I understand. Finally, just on saw timber. I mean, this market, of course, is tricky. But when I look at log prices in Europe and when I speak to companies there, they complain about scarcity, essentially of sawlogs -- prices of -- log prices that are much higher than you have in Northern part of Sweden. Why wouldn't you sort of have better -- I mean, you're in black figures most of the quarters, even in this tough environment. But could it be a setup where you basically do not need the construction market to come back and still get higher prices? Or is there something I'm missing with the mismatch of sawlog prices in Europe versus Northern part of Sweden. Ulf Larsson: I don't know if I fully took your question, but you talked about price deviation from Northern -- Southern part of Sweden... Robin Santavirta: I mean, they are paying 2x more for sawlogs... Ulf Larsson: No, no, they don't. No, no, they don't. And I think that's a misunderstanding. No. I mean you look at public price lists, and that is, of course, not the price in the market. So I guess, when we do some comparisons, I mean, you don't -- it doesn't really differ too much. And also when it comes to log size, I mean, the log is much more narrow in the Northern part in comparison with the Southern part and so on. So I don't think that delta is -- yes, we are favored. Robin Santavirta: So the price is roughly the same. Ulf Larsson: Maybe not the same, but it's not -- as you say, I mean, it's not the double price. So I mean, I think it's -- and then, of course, now with -- now you have the storm effect, and we haven't seen really the result out of that. You see a big difference between spruce logs and pine. You see also in the end market that now we have a deviation for sawn goods by SEK 300 per cubic meter more or less if you compare spruce and pine to the advantage of spruce, of course. And I guess that's a result of the spruce beetle effect that we had in Central Europe a couple of years ago. So I mean they have a deficit of spruce logs. So it's a more complex market than that. And you cannot really look at official price list. That's my clear message. You have to -- because what we buy in the market is something completely different in many cases, where you have to add premiums and things like that. Operator: And we'll now take our next question from Johannes Grunselius from SB1 Markets. Johannes Grunselius: It's Johannes here. I have two questions. I would like to zoom in on your energy business and the containerboard business. So on energy, you said it already, Ulf, but you had a nice tailwind from higher biofuels. So I was wondering if you could provide some color on what that means. I think your earnings delta were like SEK 60 million Q1 versus Q4. How much did biofuels supported that earnings growth? Ulf Larsson: I can first start with the production. I mean, we are also in the ramp-up phase with biorefinery in Gothenburg, and that is the first thing. We have had record production in that unit, and we are far above design capacity. So that is a very positive thing, of course. And then in addition to that, of course, we have had a very good price development. And then Andreas, you can. Andreas Ewertz: Yes. So if you look in Q4 compared to Q1, the solid biomass pellets and unrefined fuels basically had the same profitability in Q4 as in Q1. So the increase comes from -- roughly half from the wind segment and roughly half from the biofuel business, roughly speaking. Johannes Grunselius: Okay. But what you're saying, it's more of a ramp-up benefits, not sort of pricing benefits. And could you comment on Q2, how we should think about the pricing effect here coming from higher prices? Andreas Ewertz: Both. We got both, higher margin in the biofuel business compared to Q4 as well as good production. And we'll have to see how the market develops. But for energy, I mean, if fuels continue to be high, that, of course, will benefit our fuels business. But then, of course, Q2 is a weaker market for our Solid Biomass segment and Wind compared to Q1. Johannes Grunselius: Got you. And then on containerboard, if you could elaborate a bit on basically operations and also the mix because I assume you're still in sort of a ramp-up phase in Obbola. So do you foresee sort of tangible benefits from more efficient operations in the coming quarters and also benefits from a more commercial mix, if you can elaborate on that one, please? Ulf Larsson: I mean, step by step -- I mean, we produce more in Obbola. And by that, we also will be -- if you count per tonne, I mean, then you will be more also cost efficient. And first, the volume and then we fine-tune the cost level. And this year, as we said before, I mean, we will probably produce around 100,000 tonnes more in '26 in comparison with '25. And step-by-step, we will be more and more cost efficient. So that is one thing. But as you say, I mean, all surplus volumes today, I mean, they are placed in overseas market and the margin is completely different if you have to place those volumes in Asia or U.S. or South America or wherever. So I mean, when the market comes back in Europe, that will, of course, improve the margin quite a lot, I would say. Operator: And we'll now take our next question from Gabriel Simoes of Goldman Sachs. Gabriel Simoes: So I have two. The first one, they're both on the forestry side. But the first one is related to your forestry -- your silviculture cost in the first quarter, which are usually lower. But then I would expect some of that to come back in the second quarter, right? So overall, if you could guide us towards the level of expected profitability on a per cubic meter basis for wood harvested maybe excluding the revaluation, of course, for the remainder of the year and for the second quarter, specifically, that would be very helpful. And then a longer-term or more strategic question here would be basically on the valuation of these forests, right? So the company now trades at a significant discount to the book value of the forest. And I just wanted to pick your brains on whether this is something that bothers you and if there are any measures to try and unlock some of that value of these forests. Andreas Ewertz: Yes, I can start with the seasonality of the forest. I won't go into exact figures, but just to get some flavor. And as you know, we harvest seasonally more from our own forest in Q2 compared to Q1. So that's a net benefit. Then you're absolutely right that in Q2 and Q3, especially, we have our fertilization and silviculture cost because it's then we replant, we do this fertilization. And that's maybe, roughly speaking, what can it be SEK 50 million to SEK 80 million per quarter in Q2 and in Q3. And then, of course, we will see how higher oil prices, of course, will also affect our -- the transportation and harvesting business. So on the plus side, we harvest more from our own forest, will have slightly lower prices, and we will have higher seasonal costs for silviculture and fertilization. Ulf Larsson: And then when it comes to the valuation of the forest and if you plan something to unlock the hidden value of the forest, I mean, we don't. I mean, we have had a couple of big transactions recently. And I mean, they show that the book value is also the market value. And I mean, we trust that. And forest and forest business is a cyclical business. So you have to like that and see opportunities when you have them. And I guess we will -- we are looking forward to what's going to happen now when Stora Enso will split, of course, and that might have an impact on the view of the price of the forest. Otherwise, I mean, we are following continuously the market for -- I mean, the local market for -- when you buy and sell forest estates, and we can just see that we are more or less on the same level as before. So I mean nothing has changed. Operator: And we'll now move on to our next question from Oskar Lindstrom of Danske Bank. Oskar Lindström: Three sets of questions from Danske Bank here. First off, I'm just very curious, are sort of higher oil prices and talk of possible aviation fuel shortages in Europe creating a greater interest from you or from others in your aviation fuel project in -- biorefinery in Ostrand? That's my first question. . Ulf Larsson: Yes. I mean, as you say, just now, it is good profitability in the biorefinery in Gothenburg. And by that, you can say that conditions for the Ostrand project should also be very good. And I guess they are. But that is, of course, a much bigger bet. And as we have also said, this market will be very volatile, and it's also very capital intensive. And I guess if -- before you start a big project like that, you need to have some security when it comes to some kind of offtake agreement or at least the price level for SAF long term. I mean you can talk about resilience and degree of self-sufficiency and things like that, both in the union, but also in Sweden. Will that come? We don't know. And the tricky thing, I guess, with these kind of projects is always the political risk. I mean we are used to take the technical risk, the project risk, and we can handle that. But the challenge is really the political risk. Will something change when we have a new government in place, both in Sweden and in the union and what kind of impact will that have? And that will, of course -- it's more challenging to raise the money needed for such a big projects. Oskar Lindström: But -- follow up on that. I mean, would you be open to doing that as a JV then? Ulf Larsson: Absolutely. I think that's the only solution really. I mean we can provide a fantastic place close nearby Ostrand, lots of synergies. We also have from now the energy supply, which is really important. But maybe the most important thing, I mean, we are maybe the only player in that part of Sweden that can provide with the raw materials, I mean, the feedstocks. I mean, I guess we are a perfect partner in the JV, but this project is, of course, too big for us alone. And -- so we have to talk with some friends if this should come through. Oskar Lindström: Very interesting. My second question is, I mean, continuing on that with the Middle East conflict causing disruptions, as you mentioned. We hear a lot about how this is having an impact on Continental European producers, perhaps especially of containerboard, who are dependent on natural gas and oil for energy. What about sort of -- is it causing other shifts sort of that you're noticing, for example, in Asia or having impacts on logistics, which is causing shifts in the market or in the cost curve that are meaningful for you. Ulf Larsson: Yes, I don't know if we see some structure -- I mean, for everyone, I mean, we see that the freight costs, I mean, they will increase, of course. And in our case, as I said before, I mean, we have maybe a degree of self-sufficiency due to the biorefinery we have in Gothenburg up to 40%, and that is different for different companies. And as you also say, I mean, we are not depending on oil and gas prices as we have a fantastic energy supply situation in not only SCA, but Scandinavian companies. So I mean, that is, of course, in our advantage. But input costs will increase and freight costs, oil, one thing. The other one is, of course, chemicals into the industry. But on the other hand, I mean, that will have, I guess, a bigger impact from plastics and other competing materials. So it's really hard to say how this will turn out. If you will see a big restriction now when it comes to aviation and things like that, that might create the same situation as we had during the pandemic that people they will stay home and build Verandas and do a lot of work in their gardens and the houses and so on that might create some kind of better market for solid wood products. I mean, it's hard to say and it's hard to speculate. We are so focused now on trying to control what we can control. And that is also something that we are very happy in the first quarter. I mean we have had a good production. The cost level is good, very strong energy business. We see a positive effect of those strategic projects that we have launched. And -- but still, we are at the bottom of the business cycle just now, and let's see when it will recover. Oskar Lindström: And my third and final question is more straightforward. In the Renewable Energy division, I mean, you've obviously been able to benefit here in Q1, partly from the ramp-up, of course, which will be hopefully sustainable for the rest of the year, but also from higher prices due to the situation in the Middle East. Are you able to lock in any of the higher prices through hedging or something like that so that we get a little bit of that benefit for the rest of the year as well? Andreas Ewertz: If we start with the wind business, then we don't hedge anything. I mean, that's just our self-sufficiency, so then we're exposed to spot prices. If we look at our solid biofuel business, here I say you have much more long-term stable contracts and they have some spot volumes, but a large share is long-term contracts and they are quite stable prices, while the spot, of course, that moves up and down with the market. And with the biofuel business, there you do some contracts in advance, but not very far. So I would say we are exposed to spot, and that's part of our strategy to be -- have a high self-sufficiency. As I said, on oil, we are around 40% self-sufficient. So there we want to have when the cost goes up or down, our renewable energy income goes up and down as well. So I would say we don't have that long hedge exposure on renewable energy, more spot. Operator: And we'll now take our next question from Andrew Jones of UBS. Andrew Jones: I just got a couple of questions. First of all, on containerboard, you mentioned the first EUR 60 hike through in April, nothing expected in May. The index realized EUR 30. I'm curious what you're seeing from some of your competitors where some of them hiking, but with a bit of a delay, maybe coming through in May? Or like what explains the lower index move? And just to confirm, like are your customers in April already paying that EUR 60? Has that been fully implemented? Ulf Larsson: Good question. And yes, I guess they -- many of them, they have announced price increases from 1st of May. So what you see now in the index is the price hike from SCA. And I mean, as I would say, the major part of our business is also related to the index movements. I mean, we will not get even 50% of this price increase in April, but we will get it in May. So that's the case. Andrew Jones: Yes. Okay. That makes sense. And just on the Wood Products business. I think you guided last quarter to flat price development in the first quarter, and it looks like it went up about 7% on a revenue per tonne basis. So kind of curious what changed versus your initial thought process? And can you give us some guidance on how you see prices developing in the second quarter? Ulf Larsson: Maybe you have a better memory than me. I think I said 4%, and I think we had 4% more or less. But I'm not sure. But anyway, we had a small price increase, but the price development for sawlogs was even higher. So that's also the main reason for the profitability coming down. In the second quarter, I mean, it was a little bit of a disappointment for me. I thought that we should have a higher price increase in the second quarter in comparison to the first quarter. But I guess we will have around 4%, a little bit more for spruce, a little bit less for pine, a little bit more in some markets, a little bit less in other markets. So we try also to work with the mix, of course. And now this quarter, we see that log prices will come down a bit. But on the other hand, I guess that 50% of the price increase will be mitigated by higher freight costs. So it will be a small positive effect from increasing prices and also a positive -- small positive effect from decreasing log prices, I would say, in the second quarter. Andreas Ewertz: And you're right. I mean, as Ulf said, we probably expected prices to be a bit more flat in Q1, but then get a larger effect in Q2. Now we got a bit of that Q2 effect already in Q1. So I think the increase was about the same as we thought, but less -- more in Q1 versus Q4, but less in Q2 versus [indiscernible]. Ulf Larsson: Yes, related to what we said. But my thinking was that we should have a stronger market really in the second quarter. But that has not come through. It is much stronger for spruce than in comparison with pine. So spruce is maybe a little bit better and pine is a little bit less good, I would say. Andrew Jones: Yes. That's clear. And actually, just on the freight question. You have -- I know you have some of your own vessels, I mean, obviously, that probably doesn't protect you from bunker fuel and all that sort of stuff. But I mean, how does -- can you quantify the impact on your freight costs across the various divisions from what you're seeing now and maybe compared to what you think your peers might be paying, but without that self-sufficiency in vessels? Andreas Ewertz: [indiscernible] so figures you can work with, it's that if you took both bunker oil, we took oil for burning and then also diesel for trucks and everything. I think our total exposure is around 130,000 to 140,000 tonnes. And then we get back 50,000 tonnes is from tall oil and that's linked to the fossil price plus a green premium. So there we are self-sufficient at around 40%. And then, of course, [indiscernible] and our pellets business will be also an indirect hedge. But if you remove those, I mean, our total exposure of 130,000 to 140,000 tonnes, minus 50,000, that's around 80,000, 90,000 tonnes of exposure. And of course, this indirect effect from pellets and [indiscernible]. Operator: We'll now take our next question from Cole Hathorn of Jefferies. Cole Hathorn: I'd just like to ask on the pulp markets for softwood pulp in particular. What do you think is ultimately needed to bring down those inventory levels and tighten this market here? Because we've seen some kind of demand shift to the hardwood side. We've still got a lot of inventory levels in China. Softwood futures have come lower. It just seems like quite a disconnected market, softwood versus hardwood. So I'm just wondering what do you think needs to play out over the next few months to help balance the softwood market and ultimately support further pricing? Ulf Larsson: It's a very good question. And I mean we are a little bit surprised ourselves, I must say. I mean, we have heard also talk about interest in implementations in China that swing capacity is now running long fiber and so on. But honestly, I don't know really. But what we have seen is that a positive price development step-by-step for eucalyptus pulp. And just now, I mean, you have a small delta between hardwood and softwood. So I guess that is the first sign that we will see some kind of substitution going forward. But again, when you look at the inventory level, you are still on the high side for softwood and on the low side for hardwood. And also, we have big producers in hardwood, they have announced some curtailments. But on the other hand, we have also heard that some Scandinavian producers, they have also announced curtailments now. But I mean, short term, it's always a question about supply-demand balance. And I guess, the price difference now between short and long fiber, that will help a bit. We see that on CTMP already now, definitely for March, but also, I guess, coming in now in the second quarter, that will help us. I don't feel that we have any structural things that dramatically have changed the situation. I mean, as long as something is a little bit cheaper than something else, I mean, then you try to substitute as much as you can. So I mean, long term, I don't think this is a structural thing. It's more a question about supply-demand. And so let's see, but a little bit annoying, of course. Cole Hathorn: Well, hopefully, we see some capacity closures. But if I look at some of the softwood producers, there's some listed players that have seen their debt trade down. It seems like a lot of the market is really under pressure. If assets do become available, how does SCA think about M&A in that context at the right price? Or are you just comfortable staying with your business in Sweden? Ulf Larsson: Yes. I think our -- I mean, we are an integrated forest company with the industry. And I mean, I have a great respect to move into other geographies if you don't -- can guarantee the raw material supply. So I think the integrated model we have today, I think, has been very profitable over time. And also in relative terms, I mean, we perform well. And as it is just now, we have also done a lot of big strategic investments, and we will be very cautious now. We will focus on, I mean, ramping up what we have started and also to consolidate the balance sheet. And so I mean, for us, no M&As, at least not short term. Operator: And we'll now take our last question from Pallav Mittal of Barclays. Pallav Mittal: So firstly, just following up on oil and appreciate all the self-sufficiency and hedges that you have highlighted. But if I just look at your transportation and distribution, it is almost 25% of your cost base, so say, roughly around SEK 4 billion and diesel is up 30%, 35%. So how do you plan to offset that SEK 1.5 billion cost headwind that you have? And just as a follow-up to this, are you seeing the roadside pulpwood increasing on the back of diesel costs going up? Andreas Ewertz: As I said before, we have around 140,000 tonnes of exposure to bunker oil and diesel and oil in our industries. And roughly that we produce 50% to get back from a tall oil. So there is an exposure of 80,000 to 90,000 tonnes. So of course, I mean, if the prices of diesel or oil goes up, I mean, they will have a 90,000 around roughly exposure, so they can calculate the figure. And then in [indiscernible] that's the pure oil part. And then transportation, I mean, part of our business, I mean, we have our own RORO ships. So there is only the bunker exposure. And of course, [indiscernible], especially to U.S. and there we freight ships. And of course, then it depends on how the market for renting those or freighting those vessels move forward. But to bunker and diesel, our net exposure is around 80,000, 90,000 tonnes. Pallav Mittal: Okay. And then just -- how should we think about your capital allocation now going forward given the pressure on -- I mean, the market and the free cash flow generation? Do you think maintaining dividend is possible in this market environment? Andreas Ewertz: So in terms of CapEx, I would say that we will have around SEK 1.5 billion in current CapEx this year and then around another maybe SEK 400 million, SEK 450 million in strategic CapEx. And then in terms of capital allocation with dividend or with share buybacks or other strategic CapEx, I think that's something for the Board and now we're focusing just on ramping up and getting the cash flow for our investments. Operator: With no further questions on the line, I will now hand it back to the host for closing remarks. Ulf Larsson: And that concludes our presentation of the first quarter report, and we wish -- welcome back in July for our half year report. Thank you very much for joining us today.
Aki Vesikallio: Welcome to Hiab's First Quarter 2026 Results Call. My name is Aki Vesikallio. I'm from the Investor Relations team. Today's results will be presented by CEO, Scott Phillips; and CFO, Mikko Puolakka. As a reminder, please pay attention to the disclaimer in the presentation as we will be making forward-looking statements. Before handing over to Scott and Mikko, let's take a look at the highlights of the quarter. Book-to-bill was positive in all three geographical areas. Our sales were still impacted by low order intake in the U.S. during the previous three quarters. However, our comparable operating profit margin increased sequentially to 13.5%, and we continue to deliver strong cash flow. The new operating model announced in January was successfully implemented in the beginning of April. We also specified our outlook for full year comparable operating profit margin from above 13% to above 13.5%. Let's then view today's agenda. First, Scott will present the group level topics. Mikko will go through reporting segments, financials in more detail and the outlook. After Mikko, Scott will join the stage for key takeaways before the Q&A session. With that, over to you, Scott. Scott Phillips: Greetings, everyone, and a warm welcome to our first earnings report for 2026. I would like to start out sharing 3 developments highlighting our execution of our profitable growth strategy. So during third quarter earnings report, as you'll recall, we shared our plans to reduce our cost by EUR 20 million within this year as a result of the increased uncertainty that has led to a more challenging demand environment in the U.S. as well as the overall development of the order backlog. Consequently, we have announced plans during the quarter to evolve our organizational structure and our operating model targeting to create three positive outcomes. Number one, to evolve to further clarity on our end-to-end accountability through further decentralization by reducing layers of complexity within our overall organizational design. That should help us to attend to a few issues that occasionally come to light in terms of suboptimal customer support. And then third, overall, it allow us and enable us to reduce our fixed cost in line with our plans, which should create much more improvement in our value creation resiliency. So core to our strategy is our aim to lead the sustainability transition for on-road load handling industry. So I'm really pleased to share the second development here in the execution of our strategy, and that's the fact that we have validation in our science-based targets to achieve our commitment to be net zero by 2050. The third development I would like to share with pride is another example of a key outcome-based innovation co-created with our distribution partner, MYCSA, together with key customers in Spain, aiming to optimize productivity for dump-over column lift tippers by developing a new DEL brand lightweight lift gate. So another great example of our focus on developing new innovations together with our customers and our partners that's purpose-built to solve our customers' most challenging problems. So let's get into the headline results of our group financials for the quarter. So starting off with our order intake development. I'm pleased to see that our organic order intake increased by 7% in constant currencies versus the comparison period. In actual exchange rates, order intake reached a level of EUR 402 million or EUR 419 million in constant currencies for an 11% positive variance. ING contributed EUR 15 million in the quarter, so in line with our business plan. And all regions contributed a solidly positive book-to-bill, increasing our backlog sequentially. Now unlike prior periods, we didn't get the advantage of large lumpy orders as we've -- myself and Mikko and Aki have talked about in the past, but rather resulting from a number of increased activities that manifested in smaller order intake or midsized order intake. So no real large orders of note to report within the period. So overall, a good start to the year despite the uncertainty in the macro environment. So let me turn your attention to the regional breakdown of our order intake profile for the quarter. Now as you can see from the table, we had growth in all regions with the exception of Asia Pacific. Europe, Middle East and Africa increasing from EUR 203 million to EUR 207 million or 2 percentage points. The Americas grew by 15% from EUR 145 million to EUR 166 million. And Asia remained relatively flat at EUR 29 million compared to EUR 30 million in the comparison period. Europe continues to show signs of steady demand growth, which we do see in all businesses, but most notably our lifting solutions. The growth in the Americas was primarily driven by ING acquisition, but at the same time, we certainly did not see further declines in the U.S. Now overall, the environment remains highly uncertain with ongoing trade tensions in the U.S. and heightened geopolitical tensions in the Middle East. So let's turn our attention to the revenue results for the quarter. Our revenues were down 7% year-over-year due to the EUR 114 million lower order book we started the period with. Now in line with our expectations, revenues were on the level of EUR 383 million, as you can see on the table on the left-hand side. Our rolling 12-month revenues are now converging towards our order intake level of prior periods at EUR 1.528 billion. Now our share of services and actual exchange rates increased a percentage point due to the decline in equipment sales. However, as Mikko will explain, we had a nice increase in service sales in constant currencies, and ING contributed EUR 13 million in sales or 3% and currencies overall had a negative impact of 4% on group results. Now geographically, our share of sales were impacted by the positive order intake development in the second half of 2025 in Europe, while the Americas was negatively impacted by the decline in the U.S., but partially offset by ING. Now in addition to the increase in Europe, our Asia Pacific region was also slightly up, improving to EUR 26 million or 7% year-over-year. And I'm pleased to see the development of our ECO portfolio sales as they increased by 23% to EUR 176 million or 46% of sales overall. Now with our year-over-year decline in sales, our comparable operating profit was negatively impacted, so I'll guide you through the numbers. For the period, we delivered EUR 52 million on sales of EUR 383 million, which is a 22% decline versus the comparison period. But all in all, a good start to the year. On a relative basis, the group was on a level of 13.5% versus 16% last year. Now the factors most impacting comparability were lower sales in the U.S., lower indirect costs affecting gross profit and lower fixed costs affecting operating profit. Now consequently, our operative return on capital employed declined due to the reduction of profit, items affecting comparability and the ING acquisition. Now Mikko will further guide you through the bridge. Now wrapping up on our quarterly check-in for how we are performing versus our long-range targets. Our last 12 months -- our 10-year CAGR is now at 5% versus our long-range targets of 16% of comparable operating profit, our last 12 months is at 13% and versus our long-range target of greater than 25%, we're in line at 27%, albeit a decline sequentially for the factors that I shared earlier. So with that, I would like to turn the stage over to Mikko to share with you results for the reporting segments. Mikko Puolakka: Thank you, Scott, and good morning also from my side. Let's start first with the Equipment segment performance in quarter 1. So the equipment orders were EUR 284 million during the quarter. This is 10% increase year-on-year. But if we exclude the currency impact, the growth would have been 14%, so in constant currencies. Lifting equipment grew very nicely. Growth came mainly from Americas, like elaborated already by Scott, very much driven by the ING Cranes acquisitions. The delivery equipment orders were flat year-on-year. I would say that taking into account the market situation in the U.S. and the fact that we did not book any major key account or defense orders during the quarter, I would say that the Equipment segment performed well in terms of orders during quarter 1. Sales were EUR 266 million. This is minus 9% year-on-year. And again, if we exclude the currency impact, the decline would have been minus 6%. Lifting equipment actually grew in all three geographies, and the decline in sales is coming solely from our delivery equipment, especially in the U.S. market. The U.S. decline is very much due to the past quarters below one book-to-bill caused by the volatile tariff environment and the delayed decision-making by the U.S. customers. Equipment comparable operating profit was EUR 32 million or the margin 12.1%. And the biggest driver for the lower profitability was the decline in the delivery equipment sales in the U.S. Like I mentioned earlier, equipment profitability was very much impacted by the lower sales as can be seen in the bridge on the right-hand side. Lower sales affected gross profit margin as the gross profit margin includes also fixed production overhead, so the factory overheads. We had a slight positive impact coming from the lower SG&A costs. But I would say that the cost savings from the early announced EUR 20 million cost savings program are not yet visible in our quarter 1 results. Then let's have a look on service performance. And I would say that currencies had a significant impact on services orders and sales during quarter 1. Service orders were EUR 119 million. With constant currencies, actually service orders would have grown 4%. Sales was EUR 117 million. And again, with constant currencies growth would be plus 5%. So in absolute terms and in constant currency services, quarter 1 revenues would be EUR 123 million. Really nice development in our recurring services like spare parts and maintenance. Those sales grew in quarter 1. However, installation services sales declined. So I would say that the recurring services growth was able to offset really nicely both the currency headwinds as well as the decline in the installation services. The number of connected equipment and maintenance contracts also continued to grow in quarter 1. So really nice performance in executing also the services strategy. Services profitability was stable at EUR 28 million or the margin 23.6%. If we look at the services bridge on the right-hand side, services sales growth would have been actually EUR 6 million with constant currencies instead of the EUR 1 million decline as we have reported. Recurring services growth very much offsetting the decline in installation services. And then the negative FX impact, mainly coming from the weaker U.S. dollars offset the volume growth. Next, let's have a look on Hiab's total financials. The overall Hiab profitability decline came from equipment volumes as you were able to see from the previous bridges. Lower volumes affected gross profit margin as the gross profit includes fixed production overheads. Our SG&A costs were stable in constant currencies. Like mentioned, the cost savings program effects are not yet visible in quarter 1. Those start to be more visible in the second half of this year. Currencies had a notable impact on quarter 1 profitability, mostly stemming from the weak U.S. dollar. We booked EUR 11 million restructuring costs during quarter 1 as items affecting comparability. So this is below the comparable operating profit. These items affecting comparability, they are related to the ongoing EUR 20 million cost savings program, headcount reduction, including also the ZEPRO tail lift production move from Sweden to Poland. And our quarter 1 tax rate was 26%. Our cash generation continued on a very good level in total, EUR 75 million in quarter 1. The cash conversion was really high, 186%. Our inventories decreased slightly, but I would say that the main contribution to our cash flow was coming from the net working capital like accounts receivable decline and the VAT receivables collection. So those were the main contributors to quarter 1 cash flow. Hiab has a very, very strong balance sheet with a net cash of EUR 219 million at the end of March. Our gearing was stable at minus 23%. And thinking the target to keep our gearing below the 50% threshold, this would allow us to raise more than EUR 700 million debt. So really strong balance sheet to execute the inorganic growth strategy. We paid the EUR 75 million dividend in April 2. So this is not yet -- the dividend payment is not yet visible in our quarter 1 numbers. And then on the right-hand side chart, you can see that we have only one major debt item that's the EUR 150 million bond, which is maturing in quarter 3 this year. And today, we have also revised or specified our outlook for the 2026 based on a very good start for the year. So we estimate that the comparable operating profit margin for this year exceeds 13.5%. This is up from the earlier above 13%, what we announced in February. The key assumptions behind this outlook are more or less unchanged what we said in February. We expect EMEA to continue to grow. U.S.A., not further declining from the previous quarters. However, the customer decision-making continues to be still slow and difficult to predict. 2026 has started with EUR 114 million lower order book. Also, the March '26 order book was almost EUR 40 million lower than what we had a year ago. We have factored in the outlook also, the EUR 20 million cost savings materializing in 2026, as mentioned, mainly effective from second half onwards. And then our group admin underlying costs would be more or less on 2025 level, plus then approximately EUR 5 million investments in process and systems development, mostly in the second half this year. So with those words, then I would hand the word back to Scott, please. Scott Phillips: Thank you, Mikko. So just closing with a few key takeaways summarizing the quarter. I'd say, first and foremost, we certainly continue to see a gradual recovery in lifting equipment in Europe, Middle East, Africa, which is great to see. Our delivery equipment market in the U.S. is expected to be in a cyclical trough. Third key takeaway is we are on track to achieve our EUR 20 million lower cost level in 2026 versus the prior year. We continue to nicely execute on our profitable growth strategy with a keen focus on where we can take advantage of opportunistic growth. As Mikko mentioned, our strong cash flow and balance sheet position us nicely to catalyze growth in the coming periods. And we're really pleased to see the solid good start to the year in 2026. So with that, I'll turn it back over to Aki. Aki Vesikallio: Thank you, Scott. Thank you, Mikko. With that, we are ready to start the Q&A session. Operator: [Operator Instructions] The next question comes from Antti Kansanen from SEB. Antti Kansanen: And I'll start with a bit of a long-winding one on the U.S. demand. I mean, backing out kind of your Americas orders, the FX impacts and the acquisition impact, it still looks quite good organic order growth for the quarter. Then again, if we look at kind of the quarter, you flag increased geopolitical uncertainties. There was a bit of a back and forth on the Section 232 tariffs and things like that. So how would you kind of describe the demand environment that you saw on the first quarter? Did you start to see a gradual recovery in some sense? Or is it kind of the heightened uncertainties adding kind of an extra layer of slower decision-making versus what you kind of saw going into the quarter? Scott Phillips: Just starting that one off. In the U.S., I think one of the key factors to note is that there was a bigger impact towards the second half of Q1 last year impacting both of our at-scale Delivery Solutions business within the U.S. So we're coming off of, I'd call it, a relatively low comp. So therefore, I'd say that was a driver in terms of the positive variance that you see slightly in the U.S. year-over-year. But on the other hand, I'd say from the combination of still the factors that existed prior to the trade tensions and then subsequent to the trade tensions and even with the geopolitical unrest notwithstanding, we are seeing a bit of stability, albeit as Aki characterized and Mikko as well, that the decision-making is still on a similar level in terms of customers being cautious. Having said that, I think it boded quite nicely for us in the quarter that similar to what we saw here in EMEA, the composition of the order profile in the period was more skewed towards smaller midsized type orders. So the overall activity level was quite strong. And I'd characterize the sales funnel within the quarter also nicely positive variance compared to last year. Having said that, we still have the same level of uncertainty. We have the added variable of geopolitical unrest. So therefore, we're trying to stay quite balanced in terms of managing expectations that -- which is why we made the note of where we think we're in a situation where we don't see it imminently getting worse. And so therefore, I think there is a potential to be stable to slightly improving. And certainly, you see that supported nicely in some of the reports from the truck OEMs. And then as has been noted in some of the analyst reports, there will be a bit of a lag in terms of the impact for our business compared to what you see at the truck OEMs. So the factors at least are lining up to be, I think, skewed more positive versus negative. Antti Kansanen: All right. And then specifically on the changes on the Section 232 tariff start of April, what's your analysis on -- are there any impacts on your clients in terms of truck prices or truck costs? And also what's the direct impact to your specifically? Scott Phillips: Yes. The impact of the change in the tariff code certainly has a negative impact from a customer perspective and that the cost level goes up somewhat. And so we've run through all the analytics and the math, and we've revised our price model vis-a-vis the surcharge as a consequence. So our customers will certainly see that. I don't see it at a level where there would be an imminent negative impact compared to the current demand environment, but certainly an additional factor to consider on behalf of our customers in terms of deploying the budgeted capital within the year. And then as we have highlighted in some of the past periods, one of the key changes that we did see in the U.S. was a tendency to move away from providing longer-term view of demand and capital allocation and rather going to more shorter demand horizons, if you will, in terms of quarter-by-quarter or biannual, if you will. So we still see that trend continuing. Antti Kansanen: Sure. And then kind of talking about pricing and surcharges, how much would you say that the U.S. orders in Q1 benefited from pricing in terms of year-over-year basis? Mikko Puolakka: Yes. The U.S. orders benefited approximately EUR 10 million from the surcharges during quarter 1. Antti Kansanen: All right. That's very clear. And then just a housekeeping question on the savings program on the EUR 20 million. So would I model it correctly if I kind of add a full run rate impact for Q4. So it's a little bit of a benefit on Q3 and then in a similar fashion first half of next year as well on a year-over-year basis? Scott Phillips: Yes, I'd say that's about right. Mikko Puolakka: Yes. Operator: The next question comes from Panu Laitinmaki from Danske Bank. Panu Laitinmaki: I would have two questions around the guidance. So firstly, what kind of triggers the upgrade? I mean, is it that you have now more visibility towards the end of the year? Or was Q1 or what you see in the market better than you were expecting? And then the second one is kind of what kind of -- what are you expecting for the U.S. market for the rest of the year in your guidance assumptions? Scott Phillips: Do you want to take the first part, and I'll take the second part. Mikko Puolakka: So basically, what triggered the specified outlook is that we had, of course, a solid start for the year, and we have now basically 3 months better visibility for the year. We don't see in customers' behavior at the moment any change. So that -- those are basically the elements which basically made us to slightly specify the outlook from above 13% to above 13.5%. Scott Phillips: Yes. And just adding one more to that one, Panu, is also the view that Europe continues on the positive glide path that we've seen. So better visibility to the order book now as we have an additional 3 months coverage, positive variance to the start of the year versus expectation or plan and then the continued good development in Europe and offset, of course, by a more or less stable situation in the U.S. Then the second part of your question was with regards to the U.S. demand, yes. Yes. So in terms of U.S. demand, just to reiterate the prior comments, we certainly see the similar factors coming into the year that we did for the second half of last year, where you had the environment where there was already a bit of a slower level of decision-making, or let's say, a longer time horizon to deploy capital based on changes in the cost levels and the inability of our customers to know, let's say, upon the time of taking possession of the equipment, what their forward-looking cost curves would look like. So then naturally, you would, if you could delay the decision-making until you have better visibility there. We see that continuing within the year. Having said that, we did see a bit of recovery, of course, in the Delivery solution business in the U.S. and activity level bodes well as the composition of the order intake was, again, rather than being skewed towards a few lumpy key account orders, but rather a number of small to midsized orders. So the key account orders are also still in the pipeline. So overall, we see a situation where we feel a bit more comfortable, given that we still have a lack of coverage to the end of the year, which then will further clarify potentially in line with our Q2 earnings report. But for now, given those three factors that I talked about earlier and this U.S. situation that we think is on quite a stable level or we don't see it imminently declining, supported by the data that we're seeing with the truck OEMs, key factor for us to be able to bump up the outlook for the year slightly. Panu Laitinmaki: My final question is on the European market. So it continues to recover, but could you kind of tell a bit more like which segments are looking better for you? And what about construction, which I understood has been still slow, but do you see any pickup there? Scott Phillips: Yes. For us, the quick answer on the construction side is not yet. But what we do see is we see a pickup on special logistics, a bit of infrastructure, a little bit of retail last mile, but significantly, of course, in our Waste and Recycling segment, somewhat offset by a slight decline in the defense logistics, as that's a consequence of timing of fulfilling past very large orders that were won in the past and then the fulfillment schedule is starting to wind down a bit. So overall picture with the exception of construction is all moving somewhat in the positive direction and somewhat steady. We're not seeing big swings period-over-period or sequentially within the quarter, but rather a nice steady improvement. Operator: The next question comes from Mikael Doepel from Nordea. Mikael Doepel: Just starting off following up on the EMEA question there. Any specific countries you would like to flag here that are looking particularly strong where you're seeing some kind of improvement, maybe some early signs into Q2 or any specifics you could add there? Scott Phillips: Yes. If you think about our demand environment in Europe, it very much follows along with the countries that have the highest or the most at-scale GDPs. And those were certainly the countries that had the most positive variance for us within the Europe, Middle East, Africa region. So of course, U.K., France, Germany, Benelux, France, Spain, all were nicely positive. Mikael Doepel: Okay. No, that's clear. And then also coming back to what you mentioned on defense. How would you describe the pipeline there currently? And also maybe a specification, did you book any orders there in Q1? And then the pipeline and potential, how you see it going forward? Mikko Puolakka: Mikael, was your question concerning Middle East or because the line was a bit... Mikael Doepel: On defense, yes, I was asking, did you book any orders related to that segment in Q1? And also how would you describe the pipeline and potential here going forward? Scott Phillips: Yes. A quick answer, yes, we did, albeit I'd say, overall, there was a slight negative variance on the defense orders from the comparison period. Pipeline looks really healthy. And as we've called out in the past, it's challenging to call the timing of converting the orders. But Hermanni, Frank, the team are doing a great job managing the pipeline, and we feel really good about how we're positioned to convert the pipeline. The question is around the timing. Mikko Puolakka: The defense orders were roughly 4% of the total order intake in quarter 1. So as we have said earlier, they are a bit lumpier than the kind of typical commercial orders. So from quarter-to-quarter, it might fluctuate a bit. But like Scott said, solid pipeline and something to come most probably later this year, so yes. Mikael Doepel: Okay. No, that's fair. And then just finally, on the M&A, I think you, Mikko mentioned the EUR 700 million firepower here. How would you describe the pipeline? I mean, which regions would you say are most active right now? And what are the key hurdles to get the deals done? Scott Phillips: Yes. So let me start out and take that question. Pipeline is quite active, as we have consistently called out in the past. Of course, it's always all a matter of timing. Our focus is in line with our focus segments. Similarly, from a geographic perspective, I'd say there's an active pipeline, of course, in both of our core markets, both within Europe as well as the Americas. And of course, that's a critical area of focus for us. At the same time, we continue to look for opportunities to help us scale quicker in regions where we're subscale. And so we still like the APAC region and are investing a lot of time and expense in analyzing and understanding the opportunities in that part of the world. And similarly, we still see opportunities in Latin America as well. Mikael Doepel: Okay. And then just a follow up, I mean, what would you say are kind of the key hurdles to get the deals done? I think you said valuation question more or is it something else that's kind of stops? What are the key kind of things being discussed? Scott Phillips: Yes. Sorry for -- just to give you a bit of context around the history. So the first key factor was just needing to work our way through the merger and then the demerger process, as we were certainly constrained for good reasons to take actions during those years. So post-completion of the demerger, then the key constraint really has just been a matter of timing of working the processes. Operator: [Operator Instructions] The next question comes from Antti Kansanen from SEB. Antti Kansanen: Yeah. Thanks for taking my follow-up, which would be on the U.S. distributor. So Scott, maybe could you talk a little bit about where you are with this kind of a growth strategy, adding the distributor network or expanding the distributor network in the U.S. and expanding geographically? What type of a revenue potential should we think about from these actions in the next, let's say, 12 to 24 months? I mean, if the demand in the U.S. is starting to bottom out, I guess, the fact that you have a wider distributor network today than, let's say, a year ago, would add a little bit of a bigger potential for you going forward? Scott Phillips: Yes. Thank you very much for the follow-up question, Antti. I'd love to provide some color on this follow-up. So quite pleased with where we are relative to executing on our growth strategy in North America vis-a-vis activating a hybrid model, whereas in the past, we were almost entirely direct with the exception of our Princeton branded truck mounted forklifts. So over the past 2 years, we've activated 16 new dealers, of course, very much back-end loaded towards that time period. So great companies at scale. For the first time, it gives us real coverage in all 48 contiguous United States. And so that's a key milestone for us. And then I'd say number two, and I couldn't emphasize this one enough that the quality and capability within these dealers is extremely good and proud that they've elected to work together with us as real partners, and they're going to certainly help our overall growth strategy as well as to develop the overall Hiab brand in the U.S. Now having said that, we're in the mode of developing and going through the training and activating the dealers. And so that's a bit of a step-by-step process. Hard to exactly characterize the amount of positive variance certainly within this year, but we expect some positive variance to our order intake development in the U.S. as a consequence. And over the time series, if I think about '27, '28 and beyond, then that should steadily pick up. We believe that we'll end up somewhere around 20 to 22 distributors overall. So we still are in the process also of adding new dealers in areas where either we're undercovered and/or we're looking for the capability, be it for a lifting solution or a delivery solution as some of our dealers are quite specialized and others are more generalists covering the whole portfolio. Antti Kansanen: Is there any way for me to kind of compare from revenue potential-wise, say, 20 to 22 distributors versus your prior direct model, kind of how much does it expand the addressable market? Or how much kind of a dollar revenue potential would it give you down the road when all are fully activated and selling your equipment? Mikko Puolakka: Difficult. Scott Phillips: Yes. On the spot, no probably, but however, as we work -- progress through subsequent periods, and of course, as we certainly have touch points with all of you that cover our business, we certainly would be able to start to give better and better color on just that point. Operator: There are no more questions at this time, so I hand the conference back to the speakers. . Aki Vesikallio: Thank you for the telephone conference questions. We have at least one question from the iPad. This one is related to the Germany infrastructure package. Did we see any impact in the quarter? How would you characterize the situation or the stimulus money from the German infrastructure package? Is it visibility better, the same or worse than in the beginning of the year. Scott Phillips: Well, certainly, better visibility compared to the beginning of the year. Timing-wise, I'd say, too early yet. But we do anticipate having nice opportunities in the future, and we're starting to get visibility in the opportunity funnel. Aki Vesikallio: Great. How about then the supply chain? Do you see any constraints, especially in the hydraulics or electronics, I think this must be related to the Middle East situation. Scott Phillips: Ones, a great question and it gives me an opportunity to put the spotlight for a second on our supply chain teams. I think they've done a great job, both in terms of our factories and in collaboration with our sourcing team. So really pleased to share that no impact. Now, that picture, of course, looks a lot like the duck on top of the water. But of course, below the surface, there's a lot of activity behind the scenes, both internal to Hiab, but also in our partner network vis-a-vis our suppliers as well as the logistic shipping companies. But overall, no negative impact within the quarter. But a lot of organizational bandwidth that's been redirected to make sure that we secure and stabilize the overall supply chain. Aki Vesikallio: Indeed. The next one here is that do we see any potential considering new trade agreements between Europe and South America or then potentially how about India, do we see any potential there? Will this lead to Hiab's new equipment production service units in the medium term, impacting sales year-on-year growth rate in these regions? Any color you could provide? Scott Phillips: Yes, we haven't seen yet any impact at this point as a consequence of the new trade agreements. However, I would say that markets such as India are a great example of those that we are constantly pulsing and checking for what's the right opportunity for us to better participate in the market? Is that an import opportunity? Or is it a produced local opportunity? And certainly, I anticipate that a market such as this will play a key and ever increasingly important role in the future of our business. Aki Vesikallio: And I think we have still some more questions from the telephone line. So let's turn back to the moderator. Operator: The next question comes from Mikael Doepel from Nordea. Mikael Doepel: Just very briefly a question around your service business. Just talk a bit about how you see the environment there, the dynamics there? I mean, where are we currently on the spare parts capture rate? And how do you see the kind of the overall growth here going forward? Scott Phillips: In terms of the services business, what I would still say is that Mikko and his team are progressively working towards better and better partnership training and development of how to, one, make sure that as a result of having new or current activated connected units that, that gives us great control then over the installed base, which is the first key factor, and that's why that's one of the critical KPIs that we track relentlessly each period. Then that enables to have the dialogue of converting the management of those assets in the installed base wrapped around ProCare contracts that we do both for direct as well as through indirect. And we know that we have a significantly different outcome of capture rate and revenue per unit on those units that are captured in ProCare. And the good news is that our Net Promoter Score and feedback from the customers are on a significantly higher level as well. So the team is doing a good job getting better and better control of the overall installed base. But it will take time as given the top line split between what we sell direct versus indirect. The biggest opportunity for us is to continue to increase the share of capture on the indirect sales side. And so a lot of good progress is being made there. Overall, in terms of the capture rate versus what we shared in 2024, we continue to step-by-step make good improvements sequentially and throughout each period. The limiting factor so far, potentially, and this is a bit of opinion as it's quite variable, has been around the utilization rates of the equipment. And we have seen a lot of variability through the period where some period, some geographies is up and some within the same geographies may be down, and that might have a bit of a factor if I think about the past 2 years. Moving forward, our expectation is that given the age of the installed base, the replacement rate should continue to increase. And at the same time, the level of service events or the frequency of the service events should get slightly increasing as well, which bodes well for our recurring revenue business. So overall, good progress there. When we come back on our next Capital Markets Day, we'll give a lot more color on how we're progressing relative to the three KPIs that we shared in '24 as well as the overall capture rate. And I'd say the last comment I would add is, I think I did share in either Q3 or even in February in the Q4 earnings, our share of recurring revenue is now on quite a good level at around 75%, 76% level. Operator: The next question comes from Tom Skogman from DNB Carnegie. Tomas Skogman: I know you have sensors installed in your equipment. Can you open up a bit what you see, how customers are using the equipment sequentially year-on-year and between different geographies. What can you read about your customers from this? Scott Phillips: We get quite a lot of data-driven insights off of our connected equipment and really pleased by the fact that we are able to provide condition-based monitoring services, so we can see any number of data points from the amount of how they're being utilized, the time under load, the type of loads, whether it's overload, under load, time in idle, even if an operator has not buckled the seat belt and attended to some of the basic requirements around safe operations. So a whole host of variables that we're able to see relative to most of the units that we have connected. And then quite pleased to tell you that at least before the end of the year, you'll start to also see quite a nice uptick in connected units in our tail lift business as well. Tomas Skogman: But what do you see in customer activity, like in the U.S. where we have this kind of both kind of uncertain demand situation. Do you see positive signs in how customer equipment is used, for instance. Scott Phillips: Sorry, now I understand a little better than what you're getting at there, Tom. So in terms of utilization, we see quite a lot of variability. I'd say, overall, we don't see any real negative or positive trends, but some periods, utilization or activity levels are up. And then in the next period, it might be down. So overall, I'd call it quite stable. And I'd say it's the same roughly applies here in Europe as well. In some periods, it's trending more positive and then in another period, it will trend slightly negative. Tomas Skogman: All right. And then about your M&A pipeline, do you have any targets you would like to share? How many companies you would like to acquire this year or how much sales you would like to add in through an M&A in 1 year or 3 years period or so? Scott Phillips: Yes. I mean I'll stick to my same answer as before. I think that given we're a business configured of 6 divisions and a number of business units, I would love to get to a steady state where we're able to do a bolt-on at least 1 per year per division per business unit. And similarly, if you think about then the composition of our business, managing 1 or 2 more transformative or, let's say, business unit or division size acquisitions per year would be a great steady state to get to. But to go from where we are to that steady state, then it's going to take some time as we now are, what, 9 months or so into being able to now action opportunities that we weren't -- we were constrained in action until we completed the demerger. So we'll also share a lot more color on that as we progress towards the next Capital Markets Day. Tomas Skogman: And when is the next Capital Markets Day? Scott Phillips: We haven't set the date yet, but we will share that as soon as we do. Tomas Skogman: But it's already this year, you plan to have it or... Scott Phillips: Yes. My sense is that it's likely to be in 2027, yes. Mikko Puolakka: Not yet decided, yes. Scott Phillips: Yes. Tomas Skogman: Yes. And perhaps a bit more on this service sales target. You have EUR 700 million as a target. I realize this downturn probably was a bit steeper and longer than you expected. But just on a general level, how do you feel about this? Because, I mean, that would really demand exceptional sales CAGR to reach that number. Scott Phillips: Yes, you're exactly right. There is that element if you think about the -- especially on the nonrecurring revenue piece, there is a significant element there of when does the equipment demand recover relative to the way we modeled the demand curve in Q4 '23 when we established the current strategy period. So a lot will be understood depending upon how the balance of this year and the beginning of ' 27 plays out, of course. Mikko Puolakka: But of course, one should still -- if we think quarter 1 service development, so sales up by 5% with constant currencies. At the same time, we saw a decline in the installation services. So if the installation services, i.e., new equipment sales, then attached with the installation sales would improve, then that would, of course, have had in this quarter a nice further addition to service revenues. Scott Phillips: Yes. Tomas Skogman: And then finally, these new U.S. distributors, do they wish that you would expand your product portfolio to some certain direction? Scott Phillips: I think at this point it's too early to tell. They're still in the mode of getting themselves up and running on understanding the scope of the portfolio that they're responsible for, how to work within our processes and systems and with the support staff that's available to them. But I am confident that as we look forward, they will certainly and frequently share insights where they see that we have opportunities to fill gaps within the portfolio. But at this point, I'd say it's too early. Operator: The next question comes from Antti Kansanen from SEB. Antti Kansanen: Just a quick follow-up on the U.S. order side. I mean, I just wanted to get a reminder like last year, your Americas orders declined by 14% on euro basis, but I'm sure that there was a pricing contributor on a positive side. So how much did the volumes last year decline? Or how much your pricing was up with the surcharges and all of that during '25? Mikko Puolakka: The surcharge impact, if I recall correctly, was something like between EUR 20 million, EUR 30 million for last year. A bit less than EUR 30 million, around EUR 25 million, yes. Antti Kansanen: Do you have any view kind of how much the volumes are currently. The order volumes are below, let's say, what you booked on '24, which was kind of the previous peak? Mikko Puolakka: You mean in the U.S.? Antti Kansanen: In the U.S., just trying to kind of think about that if there's a recovery on the market, what is kind of the upside in terms of your order intake, given that your prices are quite much higher now than they were a few years back? Mikko Puolakka: Of course, it's good to remember that the surcharges are something which, I mean, they change all the time as tariffs change. So of course, depends on the tariff landscape, whether one can use that as a, let's say, permanent price increase or we have communicated to the customers that the tariffs will -- if the tariffs change, then the surcharge will change. But all in all, last year roughly that EUR 25 million, let's say, impact in the order intake. It's a bit difficult to -- because to -- because there are so many different products in the U.S. market. There are tail lifts, loader cranes, truck-mounted forklifts. So one cannot count those together. It's like calculating apples and bananas together. So from that point of view, it's a bit difficult to say the kind of volume impact. Antti Kansanen: Sure. I mean, it's a simplification, but it seems like the pricing had a mid-single-digit impact and then that would kind of suggest, almost 20% down on volume. Scott Phillips: That's the right way to think about it, yes. Mikko Puolakka: Yes. Overall, it's the biggest impact is coming from the customers' overall demand, the pricing having a quite small impact. Operator: There are no more questions at this time, so I hand the conference back to the speakers. Aki Vesikallio: Yes. Let's still take a couple of questions from the iPad. So firstly, on the services. So do we always nowadays offer service agreement when we sell a new piece of equipment? And what is our hit ratio with service agreements with new equipment sales? Scott Phillips: The quick answer to that is that's certainly our expectation that it's one of our key strengths. And certainly, if I think about the 50 or 60 customer meetings that I have a year, that's usually the first topic of conversation is services and the availability of services proximity to installed base and the high need to secure uptime as most of our customers are understanding that they're paying a premium on the margin in order to secure the service outcomes that they need to keep them going. So therefore, it's critical for us to offer the services concurrent with the opportunity to sell a new piece of equipment. The hit rate or, let's say, the attachment rate of the service contract varies depending upon region. So I would kind of come back to Mikko's comment earlier. It's a bit -- it's not a great metric if you just aggregate it all together and say, here's our percentage of attachment because it's much higher in certain areas depending upon how we're configured with our own organization and the personnel that we have, but it varies, I'd say that overall, I can say that is one of the key opportunities for us to continue to not only drive our services business, but more importantly, a key factor for us to increase our Net Promoter Score or customer satisfaction. So the teams are working quite diligently together and with our partners to ensure that we feel like we have all the tools, processes and capability and training in order to not only offer the services, but then most importantly, to execute successfully in delivering against those service contracts. Aki Vesikallio: Then we have two more questions this. I think these are quite quick ones. The first one is on the M&A, any preferences in geographical regions? I think you, Scott, already mentioned that we like EMEA, Americas, our key regions, but we also seek for opportunities in the APAC region. So that was the answer already. And then the final one, which one of you remembers the numbers, how large proportion is the U.S. out of our Americas sales? Of course, we provide that on an annual basis, the North American sales, but we don't split U.S. separately. But of course, it's a significant share out of the Americas and also on the North American side. Mikko Puolakka: Yes, I don't remember now the exact percentage, but it's -- I would say U.S. is the majority of the Americas revenues. Aki Vesikallio: Exactly. Scott Phillips: Yes. Yes. A very high percentage. Aki Vesikallio: Yes. And of course, for this year, the rest of the Americas is somewhat higher due to the ING acquisition impact. So the Brazil market is proportionately higher than last year. Scott Phillips: Yes. Aki Vesikallio: Okay. That then concludes our Q&A session. Thanks for the great questions and for the great answers. We will be back with our second quarter results in 22nd of July. So stay tuned. Scott Phillips: Thank you. Mikko Puolakka: Thank you.
Operator: Good day, and welcome to the Hansa Biopharma First Quarter 2026 Earnings Results Conference Call. [Operator Instructions] This event is being recorded. I would now like to turn the conference over to Hansa Biopharma's CEO, Renee Aguiar-Lucander. Please go ahead. Renee Aguiar-Lucander: Thank you very much. Good afternoon, and good morning, everybody, and welcome to Hansa Biopharma's conference call to review the Q1 results for 2026. I'm Renee Aguiar-Lucander, CEO for Hansa Biopharma. And joining me today is Evan Ballantyne, Chief Financial Officer; Richard Philipson, Chief Medical Officer; and Maria Tornsen, Chief Operating Officer and President of the U.S. Please -- next slide, please. Please allow me to draw your attention to the fact that we'll be making forward-looking statements during the presentation. You should therefore apply appropriate caution. Next slide, please. This is the agenda for today's call, and these are the people who will, as I just mentioned, who will be covering the different sections. Next slide, please. So let me start by taking you through an overview of the quarter. As I mentioned in the Q4 report, we expected Q1 to be impacted by the significant number of initiatives, which we rolled out during the quarter, which I'll cover in some more detail later in the presentation. This is intended also that -- this is indeed also what we observed with revenues amounting to SEK 34.6 million, slightly above Q3 of 2025. We know that there will continue to be significant variability between quarters, and I do not expect this to change over the medium term due to the structural issues related to organ allocation in Europe. During the quarter, we raised $30 million in a convertible note, significantly extending our runway. We also paid down the NovaQuest debt by almost $15 million in January as per the restructuring agreement, and we now do not have another payment due until the middle of 2027. We also spent significant time and resources during the quarter compiling the briefing pack to the FDA related to GBS, which we submitted in early April. We're very excited about the fact that our abstract of the ConfIdeS study was accepted for oral presentation at ATC in June. In the quarter, we continued to build out our U.S. leadership team and also initiated our BLA review with the FDA. Next slide, please. In December of 2025, we announced the leadership change of the European commercial organization and initiated a significant reorganization in combination with the rollout of new system support and ways of working. We believe that this was necessary in order to be appropriately prepared for the rollout of a significant amount of data, which we'll be able to share with the physician and patient community starting in Q2 and continuing for the remainder of 2026. I want to thank all of my colleagues in the commercial organization for their leadership, collaboration and ability to adapt quickly as we all know that change is not easy and especially not when it comes in high concentration over a short period of time. However, we have achieved a lot over the last 3 months, and we can now start to see some of the benefits, though it will still take a couple of months for everything to truly get bedded down. Next page, please. I am not planning to provide any detailed guidance for this year, but I would like to share some fundamental components of which we will leverage to successfully navigate 2026. One year into my CEO role at Hansa, I'm glad to announce, and I'm sure that the organization is happy to hear that the changes which were necessary to stabilize the business and position it for growth have more or less been completed. This included the restructuring reduction in force, the renegotiation of the debt facility, raising of equity capital to ensure sufficient runway to read out key clinical data and obtain a potential U.S. approval, strengthening the internal expertise and experience required to successfully build an international and sustainable life science business, clarify and focus the pipeline strategy and last but certainly not least, review, reorganize and adapt the European commercial organization to improve transparency, performance and ensure the effective delivery of key clinical data to the physician and patient community. I believe that the company now is well positioned to benefit from the key events coming up this year, and we look forward to sharing them with you as the year progresses. Q1 was, I said in my report, a transition quarter, but there is no new or different information fundamentally impacting our market, and we have no reason to believe that the performance -- the performance was primarily impacted by the main changes that we rolled out during the quarter. We're also encouraged by the strong start to Q2, which we hope is the beginning of a consistent trend of improvement, which will be further strengthened by the data coming out in Q2. With this, I will hand over to Maria, who will provide some more details on several of these topics. Monika Tornsen: Thank you very much, Renee. Next slide, please. Let me first turn your attention to the European and international markets. In Europe, Idefirix has maintained a unique position since launch. There is no other approved therapy on the European market, which can do what Idefirix does, enabling a life-saving kidney transplant for highly sensitized patients. Across Europe, there are up to 11,000 highly sensitized patients waiting for a kidney transplant today. These patients need to navigate the complexities of finding an organ, and in some cases, that can take up to 12 years. In Europe, we launched with very limited data from only Phase II studies. And over the years, we have built on that clinical experience and now have over 200 patients treated with Idefirix in Europe. 2026 is a very exciting year for our European business as we will finally gain access to additional clinical data, which we know European KOLs are eagerly awaiting. Our Phase II data was published last year. And in 2026, we look forward to releasing additional data from our U.S. Phase III study, ConfIdeS, and most importantly, from our European Phase III trial, PAES. This data will allow us not only to communicate additional data to European transplant centers, but it will also enable us to seek full approval in Europe. In addition, we know that European KOLs are anticipating publishing their own real-world evidence, and we look forward to seeing these data published. Next slide, please. Our Q1 performance was, as Renee mentioned, impacted by the changes we made to our European business. We made those changes as we felt they would be necessary to drive growth in the second half of this year and in future years. Our Q1 product sales was SEK 33.9 million. The performance was mainly driven by France and our international markets. We do not believe this performance is a reflection of Idefirix potential, but rather a short-term impact based on the decisions we made. We have in previous calls talked about the challenges we have faced in Germany with the pause of the Eurotransplant program and in the region of Catalonia, Spain with regional reimbursement. I'm very pleased to report that our targeted efforts have resulted in positive changes. In Germany, the KOLs have submitted new consensus recommendations for publication in an international journal. These recommendations, which will enable German transplant centers to transplant centers -- transplant patients within the ETKAS program, where the majority of highly sensitized patients are listed, have been rolled out to German transplant centers in a webinar, and we anticipate the recommendations will be published in mid-2026. In Spain, we secured reimbursement in the region of Catalonia after months of targeted efforts. The new reimbursement pathway went into effect as of April 1 and post-Q1 close, we have seen our first sale in Catalonia with this new reimbursement pathway. Catalonia is a very important region for Idefirix. In our PAES trial, 1/3 of all enrolled patients came from 3 centers in the Catalonia region. As such, we have significant clinical experience already, and we anticipate this region will be a strong contributor to future sales. In addition to these positive accomplishments, we have also made targeted investments in new systems and activities to drive further growth of Idefirix in the coming years. Let's now turn our attention to the U.S. market. Next slide. We are excited about the potential of bringing imlifidase to the U.S. market. Today, there are approximately 15,000 highly sensitized patients on the wait list for a kidney transplant in the U.S. and 7,000 of those have a cPRA over 98%, making it very difficult to find a matching organ. For the patients with the highest cPRA, they may never receive an organ offer or have to wait over 7 years before they could have a transplant. Unfortunately, approximately 10,000 patients die or become too sick to transplant while waiting and a higher proportion of those patients are highly sensitized. This is where imlifidase can play an important role in reducing the wait time and enabling more patients to have access to a life-changing transplant. Next slide, please. We have recently conducted several market research projects in the U.S., which all confirm the unmet needs for patients and the potential place for imlifidase in their treatment journey. Today, there are no approved treatments for the desensitization of highly sensitized kidney transplant patients and the off-label treatments used are not seen as great options for patients. The burden of dialysis is also very real. Patients who wait for a kidney transplant need to undergo dialysis 3 times a week for several hours each time. That creates an extreme burden on the patient, impacting the patient's quality of life and also contributing to significant costs for the healthcare system. When preparing for a potential launch in the U.S., we know that we need to engage with several stakeholders within the transplant centers from surgeons to transplant coordinators, pharmacists and HLA directors. In particular, the HLA director will play an important role with imlifidase as they are responsible for the delisting protocols and managing the antigen profile of the patient. P&T approval will be critical to ensure access at hospital level. And in our initial research, financial decision-makers and clinical experts believe imlifidase will gain P&T approval given the strong clinical profile of imlifidase. Finally, we believe our initial launch drivers and uptake will likely come from centers with prior clinical experience of imlifidase and from high-volume kidney transplant centers. So let's turn to the next slide and look at our launch preparations. Our launch preparations are in full motion, and we are focusing our efforts on two critical areas: site of care strategy and market access. As I mentioned in the previous slide, we believe our initial uptake will come from centers with clinical experience and from centers who are performing high volume of kidney transplants. We are, therefore, focusing our efforts on the top 100 centers initially in the U.S. Those centers represent approximately 80% of the volume. And among those centers, we have 25 ConfIdeS centers who are accounting for 25% of the volume. These centers have clinical experience, which we believe will be a differentiating factor compared to the European launch where we only had two centers with clinical experience prior to European approval. Our market access activities have been focused on completing our market research and gaining a better understanding of transplant centers' financials. The majority of transplants are paid by Medicare and in particular, those patients who have waited for a long time for a transplant tend to a larger extent, have Medicare insurance. When speaking with financial decision-makers in the transplant centers, they all recognize the significant burden for these patients and the strong value proposition of imlifidase. Our efforts are focused on enabling speed of access at launch and breadth of adoption across multiple transplant centers. As mentioned in previous calls, we know that NTAP, new technology add-on payment and Outlier payments will be important for transplant center economics and prior CAR-T launches are good launch analogs that we are using to model our center engagements. Finally, we have also focused on identifying our distribution partner and other aspects of the supply chain to ensure we can deliver the product to the U.S. shortly after approval. Other activities in the quarter have been focused on building out our U.S. team with a particular focus on market access and medical affairs. Our full commercial build is expected in Q4, shortly before PDUFA. Our medical team are focused on engaging with KOLs and transplant center stakeholders at medical conferences. And we are, in particular, looking forward to the American Transplant Congress in Boston in June, where we will present our full ConfIdeS data, have a Hansa symposium and other KOL engagements. Finally, across the U.S. organization, we are focused on our site of care strategy. As I mentioned earlier, in each transplant center, there are multiple stakeholders we need to engage with from market access to medical affairs and commercial to ensure we have a successful launch. We have developed a strong strategy for how to engage these centers to ensure we know the stakeholders and can best support the incorporation of imlifidase into their treatment workflow once approved. With that, I will hand it over to our Chief Medical Officer, Richard Philipson, for an overview of our pipeline. Richard? Richard Philipson: Thanks, Maria. Next slide, please. I'd like to start by discussing Study 20-HMedIdeS-19, which we refer to as the post-authorization efficacy and safety study or the PAES study. As indicated by the name of the study, this is a post-approval commitment to the European regulatory authority following the conditional approval of imlifidase in Europe in 2020. Next slide. Primary objective of the study is to determine the 1-year graft failure-free survival in highly sensitized kidney transplant patients pretreated with imlifidase to turn a positive crossmatch against the deceased donor into a negative crossmatch. Secondary objectives include the evaluation of renal function, patient survival and graft survival up to 1 year after transplantation. And of course, safety is also one of the secondary objectives of the study. Next slide. Here, we provide an overview of the design of the study. Starting at the top of the schematic, patients enrolled in the imlifidase treatment group were highly sensitized with the highest unmet medical need based on the local kidney allocation system. Patients underwent a delisting step at prescreening to increase the likelihood of receiving a donor organ offer. When an organ offer was received, if the patient was cross-match positive to the organ, then the patient proceeded to treatment with imlifidase and transplantation, subject to meeting required eligibility criteria and converting from cross-match positive to cross-match negative. It was planned to enroll 50 patients into this treatment group. Moving down the schematic, there were 2 noncomparative reference groups. It's important to note that patients were not randomized to these reference groups, and there are no statistical comparisons made between the imlifidase treatment group and the reference groups. Furthermore, patients in these 2 reference cohorts have different baseline characteristics when compared with the imlifidase treatment group. The noncomparative concurrent reference group comprises 50 to 100 contemporaneous kidney transplant patients enrolled at the same sites at approximately the same time as patients enrolled in the imlifidase treatment group. These patients were not sensitized and had a negative cross match to the diseased donor organ offer. Rationale for inclusion of this reference group is to understand outcomes at the same sites when undertaking matched kidney transplants. Finally, the non-comparative historical reference group comprises 100 kidney transplanted patients randomly selected from a patient registry from 2010 onwards. Selection of patients was performed by the registry administrators and was completed prior to the start of the enrollment of the main study. Patients in this cohort were sensitized but to a lesser degree than patients in the imlifidase treatment group and were crossmatch to negative to the donor organ offer. Again, to emphasize, the primary objective to determine the 1-year graft failure-free survival in highly sensitized kidney transplant patients applies to the imlifidase treatment group only. Next slide. In this slide, we summarize the treatment schedule for patients enrolled in the imlifidase treatment group. Following the prescreening and screening steps, patients meeting eligibility requirements and with a positive crossmatch to a donor organ offer were treated with imlifidase. Prior to administration of imlifidase, all patients received premedication in the usual way with intravenous methylprednisolone and then antihistamine. A second dose of imlifidase could be administered within 24 hours if crossmatch conversion was not achieved after the first dose, which is in keeping with other imlifidase trials. Patients converting to a negative crossmatch were transplanted and then immediately went on to receive standard post-transplant immunosuppressive treatment comprising tacrolimus, mycophenolate mofetil and corticosteroids. Transplanted patients also received rabbit anti-thyroglobulin on day 5, rituximab on day 7 and IVIg on day 9 to 10. Next slide. The study enrolled the first patient in May 2022. There have been 22 participating sites in a total of 11 countries in the EU and U.K., and we expect database lock next month. Next slide. Now moving on to discuss Hansa's plans for its next-generation IgG cleaving enzyme, HNSA-5487, which I'll hereafter refer to as 5487. This is a rapidly acting IgG cleaving endopeptidase. This highly specific IgG degrading enzyme that includes all human subclasses of IgG, whether free or bound, antigen or cell membranes and no substrate other than IgG has been identified. Next slide. First, I'd like to provide a brief overview of Guillain-Barré Syndrome or GBS. This is a rare, rapidly progressive monophasic immune-mediated neuropathy where the immune system attacks peripheral nerves often following a viral or bacterial infection. The disease affects 1-2 in 100,000 people annually with approximately 3,500 to 7,000 cases annually in the U.S. There are also seasonal and geographical variations in the disease prevalence. GBS is characterized by rapid onset muscle weakness, tingling and numbness, typically starting in the legs and moving symmetrically upward. Symptoms can escalate to paralysis, breathing difficulties requiring assisted ventilation and consequent immediate hospitalization. GBS is an antibody-mediated disorder in which complement fixing IgG antibodies directed against gangliosides play a key role in the pathogenesis. Disease progression is typically rapid, reaching a nadir within 4 weeks in most patients with many attaining maximal weakness within 2 weeks. Although many patients recover from the acute phase, long-term morbidity is common and approximately 20% of patients remain unable to walk independently at 6 months. Current standard of care treatments include intravenous immunoglobulin or IVIg infusions or plasma exchange in addition to supportive care such as respiratory support and management of complications such as infection and thrombosis. It's estimated that approximately 25% of patients require mechanical ventilation for days to months following the acute autoimmune attack. Next slide. Experience with imlifidase, our first-generation IgG cleaving enzyme followed by IVIg provides relevant clinical precedent for the proposed 5487 development in GBS. Specifically, a Phase II single-arm open-label clinical trial has previously evaluated imlifidase followed by IVIg in patients with GBS enrolled within 12 days of symptom onset and followed for 12 months after imlifidase treatment. In this study, a single dose of 0.25 milligrams per kilogram of imlifidase rapidly cleaved IgG in 28 out of 30 patients. At a group level, treatment with imlifidase followed by IVIg led to early improvement of the patient's functional status. The median time to walking independently was 16 days. Most patients improved markedly in motor function early after imlifidase treatment by 1 week after imlifidase dosing, 37% of patients were able to walk independently. 4 weeks after treatment with imlifidase, 52% of patients were able to walk independently and 33% were able to run. Next slide. Results from the imlifidase Phase II trial in GBS have been compared to patient data from an external prospective cohort treated with IVIg known as the International Guillain-Barré Syndrome Outcome Study, or IGOS. The figure in the slide presents an unadjusted comparison of muscle strength as measured by MRC sum scores between the imlifidase treatment group and the reference cohort, demonstrating the rapid improvement in imlifidase-treated patients. Further, a matching-adjusted indirect treatment comparison or MAIC has been performed. The MAIC confirmed that the patients treated with imlifidase and IVIg walked independently, that is a GBS disability score of less than 2, 43 days earlier than those in the IGOS cohort treated with IVIg alone. In the same MAIC analysis, the median number of days required for patients to improve one grade in the GBS disability score was 6 days for patients treated with imlifidase and IVIg compared to 31 days for patients treated with IVIg alone. And this difference was statistically significant with a p-value of 0.002. Next slide. Now turning to the current status of the program. The first time in human study in healthy participants has been completed. In this study, it was shown that circulating IgG was efficiently and rapidly reduced by a single dose of 5487 by more than 95% within a few hours. There was a positive correlation between dose and duration of reduced IgG levels where a higher dose resulted in a longer duration of effect. In other words, there was a clear dose response relationship. There was also a significantly reduced antidrug antibody or ADA response when compared with imlifidase and the treatment was at least as efficacious as imlifidase in reducing total IgG levels. Furthermore, 5487 was shown to be safe and well tolerated across all tested doses and no serious or severe adverse events were reported from the trial. Based on these data and the clinical experience with imlifidase in GBS, the clinical development program for 5487 in GBS has been designed and submitted to FDA in the form of a briefing document. The response to this submission is expected in May. Based on the current plan, the clinical phase of the development program will start by the end of this year. I'd now like to hand over to Hansa's Chief Financial Officer, Evan Ballantyne. C. Ballantyne: Thank you, Richard. Q1 sales performance. Total revenue for Q1 2026 was SEK 34.6 million, representing a 48% decrease compared to Q1 2025 of SEK 66.3 million. Product sales for Q1 2026 were SEK 33.9 million, also representing a 48% decrease as compared to Q1 2025. We continue to see fluctuation in our quarter-over-quarter performance and quarterly volatility reflects the unpredictability of the organ allocation market. Next slide, please. For Q1 2026, SG&A expenses totaled approximately SEK 106 million and were essentially flat compared to Q4 2025 of SEK 102 million. Compared to Q1 2025, SG&A expense of SEK 76 million were SEK 29.6 million higher. This variance was driven by noncash LTIP expense of SEK 6.1 million, fees associated with securing the convertible note of almost SEK 10 million, investments in commercial activities associated with the U.S. launch and improvements in the company's quality systems. R&D expense in Q1 2026 totaled approximately SEK 57 million and were 11% or SEK 7 million favorable compared to Q1 2024. The decrease in R&D expenses was primarily driven by the wind down in clinical trial activities and restructuring actions taken in 2025. In Q1, the loss from operations was SEK 143 million compared to SEK 125 million in the prior quarter Q4 2025. Next slide, please. Headcount for the period totaled 122 compared to 138 in Q1 2025. Headcount was essentially flat compared to Q4 2025 of 125. Cash used in operations in Q1 2026 totaled SEK 157 million compared to SEK 152 million in Q1 2025. In Q1 2026, cash and cash equivalents totaled SEK 677 million, on March 19, 2026, the company entered into a USD 30 million convertible note purchase agreement with Athyrium Capital Management. The convertible note has a fixed rate of 3% payable on a semiannual basis in cash beginning on September 15, 2026, and a maturity date in March of 2031. This transaction extends Hansa's cash runway and strengthens the company's balance sheet in advance of the FDA approval and a subsequent U.S. launch. And now I'd like to turn the presentation back to Renee for closing remarks and the Q&A portion of the call. Renee Aguiar-Lucander: Thank you very much, Evan. Next slide, please. So in summary, we're looking forward to the continuation of this quarter as it brings many exciting updates for the company, and I'm proud to be able to sit here today and say that we're now operating from a strong and stable foundation with a clear road map ahead. We have a robust financial position with an extended runway and access to multiple future financing options should they be required in the future. We are in full execution mode and with a very experienced team in place, I look forward to the rest of the year with great excitement and enthusiasm. This includes the readout of the PAES study with database lock expected next month. Feedback from FDA regarding the GBS study design, presentation of the ConfIdeS Phase III data at ATC a Capital Markets Day with input and discussions from U.S. and European KOLs covering ConfIdeS and PAES top line data, which we expect will be available by that time. And finally, in Q4, we plan to file for full approval with EMA Idefirix and look forward to the outcome of the PDUFA date in December. Next slide, please. As I mentioned, we hope to share some of this information with you towards the end of this quarter at our Capital Markets Day, which will take place following the ATC conference in June in New York. It will also be possible to follow this event virtually and a full agenda will follow. Next slide, please. So with this, this concludes the presentation, and we can open up for questions. Next page, please. Thank you. Operator: [Operator Instructions] The first question comes from Farzin Haque with Jefferies. Farzin Haque: I wanted to ask on the U.S. approval process. How are the interactions with the FDA going so far? And have they signaled any key focus area or questions during the review of the BLA filing package so far? Renee Aguiar-Lucander: So I will take that question initially and then see if Richard has anything to add. I would say that the FDA BLA review process is going very well. There has not been any kind of, I would say, odd or strange kind of key questions or any kind of area for that matter that would kind of be out of the scope. So I would say that it's really going quite well and kind of as expected. I don't know, Richard, if you have anything to add. Richard Philipson: No, I agree. Everything is going well. It's going as expected, as Renee has said, and nothing untoward so far in our interactions, and we've been able to address any questions from the FDA so far. Farzin Haque: Makes sense. And then for EU sales, the 1Q impact, it makes sense. And for the second quarter, you said that you had a strong start. Any color on the ordering trends, center feedback that gives you confidence that sales will rebound? Renee Aguiar-Lucander: So I don't really want to get into any kind of very specific details on this, and I know better than to kind of assume that what has kind of started really well will necessarily be continuing in the same very, very positive manner going forward. But I would say that we're very encouraged by what we've seen so far. Obviously, it's kind of 20 days into the quarter. So it's -- again, it's not going to be able to kind of judge what the final kind of quarter outcome is going to be. But I do think that what we're seeing is a significantly different trend than what we saw in Q1. Operator: Your next question comes from the line of Douglas Tsao from H.C. Wainwright. Douglas Tsao: I guess, Renee, maybe as a follow-up on what you're seeing so far in the quarter, is this sort of a direct result of some of the changes you made in terms of the commercial organization? And I'm also just curious, are they across all the regions? Or is it again seeing strength in some of the core regions where we've seen pretty good use of imlifidase over the last few years, in particular, France? Renee Aguiar-Lucander: I'll have Maria provide any additional detail, but I would say that I think that this is a kind of -- it's a follow-on from the initiatives that we have launched. I think that, that is clearly how we see it. And again, we don't expect this to -- I mean, we know it's going to take another couple of months for it to be fully kind of implemented and rolled out. But I do think that we have established better kind of transparency, more focus. We provided some system support, some investments, which I think are very important. And with regards to kind of the breadth of that, I'll leave it to Maria to cover the kind of the general just kind of brief trends that we're seeing to date. Monika Tornsen: Yes. I would just echo what Renee said. I mean, we are very encouraged by the trends that we're seeing in the first 20, 22 days of the quarter. It is not unique to one country. Without going into further details, we're seeing that across multiple markets. I think in particular, what I think is critical is what we have managed to accomplish in Spain in the Catalonia region. As I mentioned, that region contributed to 1/3 of the enrollment in the PAES trial. And now that we've resolved the reimbursement there, as I mentioned earlier, we saw our first sales there. And I think that is a very strong sort of indicator of that the actions that we have taken are starting to turn into results. And it will take, as we mentioned before, a few months for everything to settle, but we are seeing that what we are doing is starting to have an impact. And I think that is the most encouraging in this. Douglas Tsao: Okay. Great. And then just if I have a follow-up question for Richard, in terms of the GBS program, 5487, I guess, do you intend that to be a registrational study? And then also, just given the opportunity to redose, is there -- do you see clinical value in perhaps redosing patients, which is something that you weren't able to do with imlifidase in the original Phase II study? Richard Philipson: Okay. So thanks for the questions. We're still at a relatively early stage in terms of the overall clinical development plan. As I mentioned, we have submitted this to the FDA. We are waiting for feedback from the FDA that we're going to receive next month. And I think it would always be our sort of strong wish to be able to put in place a plan that gets us efficiently through to registration, let me put it like that. But we really need to get those comments back from the FDA before we really start kind of explaining how we're going to do that. And I think redosing is an interesting component of a development program. I think for GBS, we're very much focused on that acute treatment. It's an acute disease. So we don't necessarily see in that specific acute scenario a strong need for subsequent repeat dosing. Operator: The next question comes from the line of Romy O'Connor from Kempen. Romy O'Connor: This is Romy on for Suzanne. Two questions. In Q1, Idefirix sales were particularly strong in France. Just wondering if these were at the same level as in Q4 last year and was France not impacted by the new initiatives? And secondly, are you able to expand on the multiple system and process initiatives in Europe? Is it beyond regional authorization in Catalonia and the work that the German KOLs are doing? Renee Aguiar-Lucander: Sure. I will have Maria cover these questions. Monika Tornsen: Yes. Thank you for the questions. So first, when it comes to France, I think France has since launch been a very strong contributor to the European sales, and we've talked about that in previous calls. We haven't gone into the details exactly what we are selling in each country, and I'm not going to do that. But I can say that we continue to see a strong growth in France. And that is attributed to the fact that we have many physicians in France that had early experience with the product. We also had one center that participated in the Phase II trial. So going back to what I mentioned before is that clinical experience is critical, and we have that early on in France, and that has sort of spread into many transplant centers in France. We also know, as an example, that France is about to publish some data from the real-world experience that we look forward to seeing when that gets published. But the sales trend in France continues, and that is very encouraging. And I think it proves that if you put the efforts behind the right type of educational initiatives and you get strong clinical experience, you'll see that growth in the product. So those are some of the things that we are putting in place for other markets as well. And to your second question on systems and processes, these are not just this sort of processes that you asked about in Catalonia and in Germany, but it's also things like CRM systems that we haven't had at Hansa historically. It is new dashboards that enables the teams to have greater insight into performance and numbers and opportunities. So it's sort of a broad across Europe system. And the other thing that we are doing is just trying to drive that clinical education. So we have more pan-European webinars, educational sessions to really drive that clinical discussion and clinical experience and spread some of that positive momentum that we're seeing in countries such as France, but also many other smaller countries in Europe. Romy O'Connor: Great. And if I may, one more. I'm just wondering what we can expect from the confirmatory PAES study and what your thinking is on the impact of Idefirix sales? Renee Aguiar-Lucander: So I think in terms of the -- what we can expect, obviously, we're going to report out kind of top line data. And I think Richard laid out kind of how the study is designed. And that's the data that we're going to share is kind of primary and kind of like the top line data as well as whatever kind of secondary information we might have at the time. As I'm sure you're aware, we are under MAR in Europe. And so we really have to kind of publish the data once we get it, and we don't always have all the actual kind of data at hand when we go out and have to report the actual kind of top line outcome. In terms of kind of the impact, and I think following on to Maria's point, I think my personal view is that this will be very, very important. It will, as always, take a little bit of time to kind of get that information into the kind of hands and minds of kind of physicians and patients in Europe. But I do think that there's a lot of expectation and people are waiting to kind of see that data because it is kind of a truly a European-based kind of clinical experience that we're going to be able to see, which really I don't think has really been the case previously. It's been very small amounts of clinical data that kind of really has come from the European region. And so I think that data together with ConfIdeS, together with the real-world data, I think all of this data is going to just bring additional kind of comfort kind of characterize kind of efficacy and safety of imlifidase and Idefirix. And so I think it's always important in my view, to really be able to share clinical outcomes with physicians, particularly in these kind of situations where there really hasn't been a way of treating these patients before. There isn't a lot of understanding in some places in terms of what do they do with these patients. And so I think having as much kind of clinical information data as we can, I think, will be very impactful in general. Operator: We now have a question from the line of Thomas Smith from SVB Leerink. Thomas Smith: Looking forward to the detailed ConfIdeS data at ATC in June. I was wondering if you could just help frame expectations for the detailed data? Like what additional analyses can we expect to see? And will this include any additional patient follow-up beyond what was available at the top line? Renee Aguiar-Lucander: Rich, do you want to take that? Richard Philipson: Yes, sure. So I mean, we would anticipate a comprehensive description of the outcomes of the study at ATC detailing -- giving more detail around some of the other endpoints that were included in the study relating to outcomes such as antibody-mediated and cell-mediated rejection and antibody responses, et cetera. So as well as some other efficacy endpoints and also, of course, the safety outcomes of the study. We won't -- there will not be any additional follow-up on those patients. The cut of the data occurred last year, and there's been no further cuts of the data since then. So we won't have any additional follow up. Thomas Smith: Got it. That makes sense. And then with respect to the ongoing BLA review and maybe as a follow-up to that point, Richard, can you just remind us, I guess, plans for submission of an additional cut of the data from ConfIdeS to FDA, I guess, when that would take place? And then has there been any indication from FDA whether they would look to convene an advisory committee meeting to discuss the application? Richard Philipson: Okay. So there won't be any further cuts of the data submitted to the FDA other than the standards 120-day safety update. That's a standard part of any submission. So that will be submitted. We've had absolutely no indication of the requirement for an advisory committee. Thomas Smith: Looking forward to the presentation at ATC. Renee Aguiar-Lucander: We are too. Operator: The next question comes from the line of Matthew Phipps from William Blair. Matthew Phipps: Let me also offer my congrats on that late breakthrough for ConfIdeS. I was wondering, as we see data this summer from both the PAES and ConfIdeS, any key differences in the baseline of these patients such as cPRA levels or maybe differences in the post-treatment immunosuppressive regimens that we should keep in mind to help kind of compare and contextualize those data sets? And then I realize it might be too early to discuss this, but I guess, any color on the labeled indication you're seeking in the U.S. or discussions with the FDA around cPRA cutoffs in the label at this point? Renee Aguiar-Lucander: So I'll have Richard talk about, so there are some differences in terms of kind of the patient profiles between the 2 studies, which I'll have Richard cover. We have not yet had any kind of interactions with the FDA with regards to the label. Richard? Richard Philipson: Yes. So can you hear me? Renee Aguiar-Lucander: Yes, I can hear you now. Richard Philipson: So there were some -- essentially in both the ConfIdeS study and the PAES study, patients enrolled into the study are highly sensitized. It is true to say that there were some minor differences in how that is defined dependent on the country in which patients are enrolled in Europe. But overall, they can still be considered to be highly sensitized. And in general terms, the post-treatment immunosuppressive regimens used in Europe and the U.S. were the same. Operator: The next question comes from the line of Georg Tigalonov-Bjerke from ABG. Georg Tigalonov-Bjerke: This is Georg from ABG. I have 2 questions. First, a follow-up on France. I'm curious to whether there was any considerable contribution from lung transplants. And secondly, in which particular regions do you expect particularly strong positive effects from the PAES data? Renee Aguiar-Lucander: Maria, do you want to take that? Monika Tornsen: Sure. So when it comes to France, our contributions in Q1 was attributed to kidney transplant. I'm not aware of a lung transplant as of yet in France. And could you repeat the second question? It was related to PAES? Georg Tigalonov-Bjerke: Yes, sure. I was wondering if you can elaborate on which particular regions you would expect particularly strong positive effects from those data, for example, PAES with many patients included in the trial, but -- yes. Monika Tornsen: Yes. I mean that is a great question. And I think if you look back to how the product was launched in Europe, we only had 2 centers that have participated in the Phase II trial. So across Europe, there has been many physicians and transplant centers that have been waiting for additional data. As Richard mentioned before, we have 22 centers that have participated, and they are one of the largest centers in Europe. I would say all of them are waiting for this data. And they obviously know they've seen the product used in their clinic, but they're waiting for that pool data of the 50 patients being rolled out. So I expect this to have a positive impact across all markets. I think for France, it will confirm what they already know. I mean they have a lot of experience in France. But we know that there are many markets where physicians have been waiting for this and to see the outcomes of a larger trial with European patients. I think this will have a positive impact across all of our European -- the largest markets, the U.K., but also some of the smaller markets where there may be 1 or 2 centers in each clinic. So that is why, as Renee mentioned before, like having the PAES readout this year, more data from ConfIdeS in June, that is why we are very excited about the opportunity in front of us in Europe because this is really what the physicians have been waiting for, for a very long time. Operator: We now have a question from the line of Richard Ramanius from Redeye. Richard Ramanius: I have a follow-up question to one I asked at the last Q&A regarding your accounting definition of sales, namely how representative are your quarterly revenue figures of real-world use of imlifidase in actual transplantations? Renee Aguiar-Lucander: Evan, do you want to take that question? C. Ballantyne: Sure. Yes. We recognize revenue on the transfer of product from Hansa to a potential hospital. So I think the revenue recognition reflects actual sales very well. Richard Ramanius: I was wondering the transplantation could occur much later than the actual sales. So how do actual transplantation track revenue? C. Ballantyne: So most of our customers pay us within pretty common terms of 30, 60 or 90 days once the product has been transferred. And some of our customers, a small portion, pay us based on transplantation. And we break accounts receivable into 2 groups, groups that pay us on standard terms are current accounts receivable and groups that pay us based on transplantation are categorized as noncurrent. Renee Aguiar-Lucander: I think this is obviously an issue in terms of the fact that we can't -- because they have to have the product available because obviously, by the time that they decide to delist a patient, there is not known the time period that will elapse between the act to delisting a patient and receiving an organ is completely unknown. So that could be a couple of days, it could be a couple of weeks, it can be a couple of months. But obviously, once kind of the drug has been used, obviously, it's generally replaced immediately by the hospital. But there isn't really a way of kind of having a 100% kind of immediate kind of connection because you will have to have some of that -- just have it accessible because the time lines are so short that this is not a drug that you can just kind of order once you actually have the organ in the clinic. So hopefully, that addresses your question. Operator: We now have a question from the line of Christopher Uhde from SEB. Christopher Uhde: I have a few, if I may, but stop me if we're running out of time. The first one is on Germany and Eurotransplant. And maybe if you could say anything about what your expectations are for the guidelines, what they'll actually contain with respect to use of Idefirix or perhaps what we should be watching for? And then a follow-on to that would be then what are your expectations in terms of the time to actually implementing any such changes? That's my first question. Renee Aguiar-Lucander: Maria, do you want to take that? Monika Tornsen: Sure. So the consensus recommendations that have been put together in Germany have been written by all the major key opinion leaders in Germany. They have rolled them out among the clinics on a webinar in March, and they have -- so they have the German version of those guidelines in their hands right now. They have submitted it in English for -- to an international journal to be published. And it's -- we are not controlling the publication, but our expectations is probably mid of this year that we will see that publication in English. But in addition to the webinar that was held in March to discuss these new recommendations, our German team are also hosting different roundtables and KOL sessions with immunologists, with transplant surgeons, et cetera, to discuss the practicalities of these guidelines. But the good news here is that all of the German KOLs are standing behind the guidelines. They put their name behind those recommendations. Christopher Uhde: And so -- are we to understand that it's basically to begin to reuse Idefirix in... Monika Tornsen: Yes, yes. So yes, so this -- sorry for not answering that question. So the guidelines are written keeping in mind the ETKAS program in Germany. As we mentioned before, the priority program was paused by the German Bundesärztekammer. However, 2/3 of German highly sensitized patients are in the normal ETKAS program. So this consensus guidelines practically speaks about how to use Idefirix within that ETKAS program. Go ahead. Christopher Uhde: No, sorry, I guess you feel free to add. But otherwise, my second question would be on what are your expectations for how the PAES study data will look out -- look like? Renee Aguiar-Lucander: That's the crystal ball question. So I guess that, I mean, I'm happy to have Richard also weigh in on this. But I mean, I think at this point in time, there's been a lot of transplant taking place with this drug. I think that what we've seen is a very, very consistent behavior of this drug. It is highly targeted. We know what it does. We know that it works. And so I think my view is that we certainly don't expect any surprises from the PAES study at all. And -- but obviously, we don't have any access to the information. We don't have -- we've not seen any part of any data. So obviously, we are kind of in the same place as you are in terms of we'd be very interested in seeing it. But again, I feel very comfortable with all of the kind of clinical experience and what we've seen in other clinical trials and also obviously, in real world. So again, I don't expect any surprises there. But Richard, I don't know if you have another crystal ball that you can look at. Richard Philipson: I don't have a crystal ball, but I agree. I mean I think we don't expect any surprises. The outcome of the ConfIdeS study was -- we were really pleased with the outcome of that study. As I've said in answering a previous question, the patient populations are very similar in the ConfIdeS and the PAES study in terms of patients receiving imlifidase in the PAES study. So I think we haven't got a crystal ball, but agreeing with Renee, I mean, I really don't anticipate any surprises. Christopher Uhde: Great. And then if I could ask then third question would be on Italy and Spain and the outlook there in terms of the rollout across the remaining regions. How do you see that progressing in terms of, let's say, the time line? Renee Aguiar-Lucander: Maria, do you want to take that? Monika Tornsen: Yes. So Spain and Italy are obviously 2 of the important markets in Europe. What I am observing are positive changes in those markets, both in terms of the rollout of reimbursement, which in both Italy and Spain is first on a national level, but then on a regional level. And we have made progress in all of the key regions where the major transplant centers are. I'm also seeing more physicians sort of adjusting to delisting patients and understanding how to delist. And I'm also observing more utilization in -- by meaning more centers that are starting to adopt the product post the sort of PAES trial enrollment finishing. So I think those are sort of positive lead indicators. Both Italian and Spanish physicians are obviously waiting for the data. They participated in the PAES trial. So I think that will be important as we get the data middle of this year, both from ConfIdeS, full data and also PAES part of our actions in both Italy and Spain is making sure that all of these centers that both participated in the PAES trial and did not that they have access to this information. I think that will confirm again the clinical confidence in the product. But we're seeing positive momentum, I would say, in both markets. So I'm sort of cautiously optimistic about the future in those markets. Christopher Uhde: And if it would be okay to squeeze in one last question. I'd just like a little bit more -- if you could explain a little bit more the CAR-T analog that you mentioned for the U.S. That's it for me. Monika Tornsen: Sure. Happy to. Yes. So imlifidase will be an inpatient drug in the U.S., meaning it's being used in the hospital setting. Obviously, as the patient is going through a major surgery. The CAR-Ts were also used inpatient. And that means that the way the products are paid and reimbursed is very similar. So like the reimbursement pathway that they took when they launched will be very similar for imlifidase. Specifically, these drugs are covered by DRG codes as an inpatient drug. And when they launched the CAR-Ts, the DRG code, I think Renee will correct me, was very low, around USD 40,000. And the hospitals needed to apply for Outlier payments. And in addition, the manufacturers of those products applied for NTAP, new technology add-on payment to give that extra reimbursement to the hospitals. And eventually, after a few years, they got their own assigned DRG code. So when you think about how imlifidase will be used in the U.S., it will be inpatient. We will apply for NTAP, new technology add-on payment. The hospitals will do Outlier payments, with Outlier payments to CMS. So that's why we say that the CAR-T launch and the uptake of the launch and how it was managed from an access and reimbursement perspective is a very good analog to look at if you want to sort of think about how the financials work for these inpatient drugs in the U.S. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to CEO, Renee Aguiar-Lucander for any closing remarks. Renee Aguiar-Lucander: Thank you very much. Thank you very much for listening to this Q1 review, and we definitely look forward to our Q2 review, where we will have a lot of things happening between now and then. So thank you again. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to XVIVO Q1 Report for 2026. [Operator Instructions] Now I will hand the conference over to CEO, Christoffer Rosenblad; and CFO, Kristoffer Nordstrom. Please go ahead. Christoffer Rosenblad: Thank you so much. Good morning and good afternoon, everyone, and welcome to XVIVO's earnings call for the first quarter of 2026. We can go to Slide #2 and just -- today's presenters are me, Christoffer Rosenblad calling in from the 2026 ISHLT Conference in Toronto, Canada; and Kristoffer Nordstrom, CFO calling in from Philadelphia in the United States. And with that, we can go to Slide #3, financial at the glance. So we see that the first quarter of this year showed a 23% organic top line growth. This is equivalent to an 18% organic top line growth if we adjust for the U.S. CAP trial revenue compared to the same quarter last year. EBITDA was kept at a healthy level, resulting in a positive cash flow for the second consecutive quarter. The CFO, Kristoffer Nordstrom will get more into the details on sales, gross margin and EBITDA later in this presentation. Short on the segments. Both the thoracic and abdominal segment are growing rapidly in both regions, which are North America and Europe. The lung market trend we saw in Q4 last year continues into 2026 with a good lung market with good underlying growth. And we see that a larger sales footprint supporting more customers is paying off. I'm also very pleased with the strong kidney sales in the quarter, partly fueled by the Canadian launch and a growing interest in the United States. We will come back later in this presentation on the progress for the service segment, the actions we have taken and how we will execute to become the preferred partner to all the transplant teams. And with that, we can go over to the highlights of the quarter, and we can actually jump straight to Slide #5, where we see the highlights. Very, very busy quarter. We took many important steps last year and this quarter, and we have passed many important milestones that led to actually another record quarter, which is the first highlight. Secondly, we also had the very important OPO EVLP hub pilot has been very successful and is now up and running. And it partly explains the increased lung sales we see in this quarter. So far, the progress is ahead of our internal plan, and we have identified 4 to 5 more OPOs in the rollout pipeline plan, whereof the second OPO in that plan will be onboarded already now in Q2. In parallel, we are continuously investing in more feet on the ground in the United States to enable a closer customer relations with the growing number of EVLP partners we see. And we also can report that the 60-patient CAP is now fully included during the quarter. We had an extreme high interest from trial centers to use the heart technology. And to satisfy their needs, we have -- to use the XVIVO Heart Assist, we have asked the FDA for an extension of the CAP, so they can use it again, under the ID we have. And if we look at #5, it's a testament to how well the XVIVO Heart Assist performed, and it's best shown with the real-life experience in Australia. So during Q1, the penetration increased to 52% for DBD heart, and we are happy to announce that we did our first DCD heart in Australia now as well. It's a very important milestone and makes us convinced that we should aim for the XVIVO Heart Assist to become the global gold standard for preservation of all hearts. And while we're waiting for the last part of the CE-mark for heart, we should mention that both the machine and disposables are already CE-marked, more and more European agencies are approving the XVIVO Heart Assist for compassionate use. And we actually saw sales in Europe picking up already now in Q1. This is again an indication that the European transplant teams can't wait for the device that optimize heart preservation and enable more hearts to be used for the patients waiting for new hearts. In our service business, we saw good progress in the Flowhawk part of it with high growth and new customers opting to use the communication software. Already now, 6 out of 10 of the largest transplant program in the U.S. opted to use Flowhawk since it simplifies the transplant process and reduces overall cost in the process. The organ recovery business is now ready for growth, and we have a positive outlook for the rest of the year. We offer NRP if needed and we see an increased interest to use the XVIVO organ recovery service. I had many, many good conversations during this ISHLT, for example. And with all those highlights, we can go to the deep dive into the highlights on Slide #6. So as I said earlier, I'm right now in the middle of the ISHLT conference, which is the biggest lung and heart transplant congress in the world. And after spending time here, it is clear that XVIVO is by far the innovation leader in the field of both lung and heart transplantation. For example, the XVIVO Heart Assist was featuring 2 late-breaking news sessions that was very well attended and increased interest from clinics who want to use the heart device. And I kind of go into those. We have some press releases regarding those, but I will go into them later in the next slide. I also want to highlight that very soon after this meeting, we will have our heart symposium, which will be really, really interesting to see. But already this Wednesday, we had the lung symposium, so the XVIVO industry-sponsored lung symposium, which was a great success really, had extremely high attendance, created a lot of interest from future customers to start up EVLP program. And it was also very clear that with new innovative technology on the market, the field of lung transplantation has improved significantly over the last decade. So one example over the last 5 years, the number of DCD lung transplantation has more than tripled. But more so, if we look at the patient outcome, that also improved. And over the last 10 years, the 1-year survival for ECDs, extended criteria and DCD lungs has gone from 85% to above 90% and is now on par with what we call normal lungs. And there, we see that the adoption of EVLP has been key to enable safe use of those extended criteria organs. But let's jump into the 2 highlights in the late-breaking news session from XVIVO. So we go to the next slide, which is #7, and it was the U.S. PRESERVE Trial that was presented. Again, the clinical result from investigational use is positively surprising us on the heart side. The trial was performed at 14 clinics in the U.S., and they enrolled a total of 141 patients. The U.S. study aimed to prove that extended criteria heart as described on the slide here, could safely be transplanted using the XVIVO Heart Assist. I'm happy to announce that the study met its predefined efficacy and safety endpoints. The sub-analysis or the analysis of the secondary endpoint showed also that severe PGD was only 7.9%. Severe PGD is the leading cause for early late mortality in heart transplantation. I will come back later here on the importance of it when we look over the European data. And next step is that we will now finalize the file for submission to the FDA for their review. And then we can turn to Slide #8, which is the other late-breaking news, which was a very well-received presentation from the European DCD direct procurement experience with DCD Heart. So the trial was a single-arm, proof-of-concept trial, a total of 40 adult heart transplants recipient across 4 European transplant centers in Belgium and the Netherlands were enrolled. And the primary endpoint for patient survival at 30 days was 98%, which is very high. And the secondary endpoint of severe PGD was only 5%, again, showing that the right preservation of heart keeps complications after heart transplantation low. I also want to mention looking forward that if the method of direct procurement is widely accepted by the heart transplant community, it would significantly reduce cost in the transplant process and simplify for the transplant teams around the world. And with that, we can go into the EU trial, which is now in a publication during Q1 this year. I again want to mention this is the first randomized controlled trial with superior endpoint that was ever performed in the field of heart transplantation. So no one dared to try this before, but we did. It is also the first clinical trial to establish a link between preservation method, severe PGD reduction and reduced 1-year mortality. And we can see this at the data, if you look at the little box of data that both mortality and severe PGD have a clear link, and I will explain that link. So in the analysis of the trial data, it was noted that the ex vivo group had a reduction of severe PGD by 76%. So 20% in the control group and only 5% in the XVIVO group. It was further noted that the mortality after severe PGD was approximately 40% in both groups, leading to an increased survival of 6% in the ex vivo group versus the control group. We can also note here that the primary endpoint showed statistical significance at day 365, which is good. With the experience we have seen in Australia with more than 50% of all DBD hearts now being preserved on the XVIVO Heart Assist and those 3 trials that I just went through that we have recently presented, the body of evidence in favor of the XVIVO Heart Assist is increasing significantly, which is great news. And with that, I will go over to the regulatory update on Slide 10, and we can actually go straight to the Slide 11, which is the usual overview of our regulatory processes. So the U.S. heart trial was fully included in record time, and we now passed the 12-month patient follow-up and you saw the result of that during the late-breaking news session of ISHLT and the press release we sent. We are now preparing the regulatory file. And when ready, we will submit the file to the FDA for their review. The CE-marking process in Europe is ongoing, and we are awaiting feedback from one competent authority. But again, as stated earlier, the heart box and disposable part of the product are already CE-marked, and we have passed the EMA consultation, and we're now waiting for the last consultation. Again, I also want to note, we are ready to launch when the product is fully approved. So we have a launch plan ready. We have staff recruited and the interest from clinics in Europe is very high. And as I stated earlier, we actually saw some sales already from compassionate use this quarter. But unfortunately, the European heart clinics are suffering badly from the lack of alternatives to the XVIVO Heart Assist. So we are working really hard with our notified body to get the final CE-mark. But we are happy to see and hear all the engagement from our heart transplant clinics in Europe who just want to get it up and running. Also to mention, and we mentioned before that the Australian and possible Canadian approval will follow on the CE-mark. So we will use that as a base. I will come back to the U.S. liver update in the next slide, actually, so we can go straight to that slide. And Slide #12 and the liver regulatory status. So we have previously reported that the Liver Assist has been granted breakthrough device designation by the FDA. We have an approved IDE and the CMS funding approved. We could have started a trial last year, mid last year. We did decide to temporarily post activities for the liver PMA process to investigate the alternative regulatory route. And we are right now in preparation for FDA QSA meeting where the possible regulatory route will be outlined further. And the company, and I will come back and inform all investors of the next step in the U.S. liver regulatory investigation and later, so of course, in the -- when we report the Q2 report in July, we will give an update. And with that, I hand over to our CFO for going into the financial performance of XVIVO. Kristoffer Nordstrom: Thank you, and happy to do so, Christoffer. So the financials for the first quarter. This was a record sales quarter with clear signs of growing momentum, as Christoffer mentioned, especially in our core business and across all main markets. For the first -- for the second quarter in a row, the strong sales momentum translated into a positive net cash flow despite continued investments into our clinical and regulatory processes. So we're very happy about that. Net sales in Q1 were SEK 241 million, and organic growth was 23% and 18% excluding the heart trial revenue from the CAP. Gross margins were 71%, while thoracic margins remained strong, the gross margins in abdominal and services were softer, which will be explained when I go through each business area here in a little while. Our continued focus on cost consciousness continues to translate into healthy EBIT and EBITDA levels. EBIT was 13% and EBITDA 21%. The quarter was impacted by SEK 7 million in heart go-to-market preparations, nonrecurring items, which explains the increase in administration costs. Setting this initiative aside, the underlying EBITDA in Q1 was 24% and was more in line with what we saw in Q4 last year. So moving over to Thoracic. So the thoracic business area accelerated in Q1 and delivered record sales of SEK 160 million. Organic growth was 27% and excluding heart trial revenue, 19%. In regard to lung, the momentum for EVLP continues to evolve positively. EVLP disposables grew 56% in Q1 and the main customer segments, the centralized perfusion hubs and larger key accounts grew double digits. And we're very satisfied with the early phase of the perfusion partnership that we launched in Q4 with PSI as we now have proof of concept from the first OPO EVLP hub. 10 EVLPs have been performed since the introduction of this program with good learnings and great collaboration. We also have a second OPO that was onboarded in early April, and we are hopeful that this partnership will be equally successful, of course. So this is a very exciting initiative that can have a significant impact for lung transplant patients on the waiting list in the U.S. and can have a strong impact on the EVLP adoption over time. In regard to heart, Q1 was a very good quarter. The CAP trial, as Christoffer mentioned, in the U.S. included its last patient. Australia and New Zealand continue with extraordinary market penetration on the compassionate use. And finally, what is very encouraging is that we now have a handful of countries in Europe as well where hospitals have worked hard to get the temporary special permits in place to be able to use the technology. All this in wait for the CE-mark approval, of course. Gross margin, 83%, in line with last year, and this means that we have successfully increased prices to offset impacts from tariffs and also from a weakened U.S. dollar. So overall, thoracic experiencing a good momentum. Moving over to abdominal. Abdominal continues to deliver good quarters. Net sales were SEK 66 million and equaling an organic growth of 24%. Liver sales grew 12% in local currencies to SEK 45 million. Kidney was the shining star of the quarter in abdominal and sales grew 63% in local currencies. We see a growing interest for Kidney Assist Transport in the North America, both in the U.S. and Canada, and Q1 brought new accounts both for clinical and research use. With a few important congresses coming up here in Q2, we are optimistic that the good traction for abdominal will continue as the year progresses. When it comes to gross margin in Q1, the gross margin was 54% versus 63% last year. The decrease was mainly a result of a larger portion of kidney sales versus liver, but also a larger portion this quarter of sales to lower-priced markets such as Asia, South America and Eastern Europe. Once again, a solid quarter for abdominal as we continue to build the market for liver and continue to take market share in kidney. Moving over to services, our last business area. Net sales were SEK 60 million, representing a negative 10% organic growth. The 2 areas, Flowhawk and Organ Recovery Services showed mixed results. Flowhawk showed an impressive growth of 62% as a result from both new customer acquisitions and upgrades and renewals. In Q1, the largest transplant program in the United States decided to implement Flowhawk. That's a true feather in the CAP for the Flowhawk team, which means the software is now embedded into the day-to-day practice at 6 out of the 10 largest transplant programs in the country. And with continued investments into Flowhawk, we believe it truly has the potential to become the future golden standard of transplant workflows and secure communication in the field. Organ recovery showed yet another quarter with a negative growth, minus 10%. And as I stated during the Q4 earnings call, we last year put a surgical organization in place that will enable us to return to growth in 2026 and beyond. Today, we have surgical capacity to significantly increase the case volume. And with ISHLT this month as a starting point, our focus from now on will lie heavily on marketing and sales execution. Gross margin decreased to 18%, and this was purely due to the lower case volumes for organ recovery at the same time as we incurred fixed operational costs, keeping our surgical teams on call 24/7. But with an increase in cases, our gross margins will improve to more sustainable levels. EBITDA. So profitability was strong for the second consecutive quarter, 21% and excluding nonrecurring costs, it was 24%. So rolling 12, we're at 20%, and we are on a positive trajectory on the rolling 12 KPI. In the following quarters, we will continue to manage our operating expenses with discipline and ensure resources are directed toward initiatives with clear commercial returns. Investments will mainly be directed to sales and clinical field force to capture the significant market opportunity that lies ahead of us being an all-organ company. And my final slide for the day here, cash flow, and we're ending with a positive -- some positive news here. So for the second consecutive quarter, we ended up with a total positive cash flow. Operating cash flow was SEK 65 million, mainly driven by good sales momentum, of course. And the cash flow from investments was minus SEK 55 million. But all in all, we ended up for the second quarter in a row with a positive total cash flow. And we have SEK 308 million on hand when we closed the quarter. And with those final remarks, Christoffer, I will give the word over to you again. Good luck with the end of the conference here. Christoffer Rosenblad: Thank you. And with that, we go into the outlook and a little bit into the future of what will happen this year and also what will happen in long term. And we can go to Slide #21, really focusing on this year and activities we have for this year. And again, we are going to continue to build salesforce and build new partnerships, especially in the U.S. to enable the OPOs and clinics to recover more lungs by EVLP adoption through a combination of a service model and staying very, very close to customers. In parallel, we just heard from our CFO that we will increase our service offering and better tailor to customer needs. Now we are offering NRP procurement from an increased footprint of surgical teams that can stay close to customers and recover organs with higher quality. We will continue to work closely with competent authorities in Europe to be able to use the heart box as much as possible already now, and we are aiming to obtaining a CE-mark as soon as possible and waiting for the last part there. Another key milestone now with the data from the U.S. PRESERVE Trial presented at ISHLT, we will now submit the regulatory file to the FDA for their review during the summer. And we also talked about the Liver Assist. We come back with more information on the regulatory route, but we know that it's soon becoming the liver gold standard in Europe, and we save hundreds of lives every quarter using Liver Assist. And now we want to continue to support clinics in Europe and also give the U.S. clinicians the ability to actually use the Liver Assist and have the same success we have seen in Europe. And we go to the next slide, 22 and a little bit longer-term outlook, and I want to state this every call for this is the reason here. We know that a lot of patients with end-stage organ failure are dying every day. Some of them are on the wait list, but the majority never even make their waitlist. So the demand for transplant is according to our analysis, approximately 10x of today's supply. We also see that the sales value of machine perfusion that improves patient outcomes and safely increase the usage of donated organ versus cold storage is also approximately 10x in terms of value. So we see a market opportunity with this almost 100x of what we see today. And we know that the machine perfusion and the service model have a proven track record, and that's really been clear here when we were in ISHLT of increased the number of organs used for transplantation and actually safely increase them with improving survival rate as well. And we also know that we see a growing DCD organ pool. In many countries, it's above 50%. We know here in the U.S., it is now hitting the 50% mark, and we have clear evidence that machine perfusion is -- you need to use them to safely address the DCD organs. And XVIVO, we want to change the paradigm on transplantation by innovation. And we want to be very clear that we believe that innovative products and innovative perfusion and preservation solution is the key for the future. And we do have a unique very innovative and world-leading product in the market or under IDE trials. So we believe in the longer term that we will lead this market due to innovation over time, enable lower cost in the transplant process, and we think that, that will be very important going forward. And with that, we turn to Slide 23 and open up for questions. Operator: [Operator Instructions] The next question comes from Simon Larsson from Danske Bank. Simon Larsson: Yes. Firstly, maybe on the U.S. heart theme, I noted in the press release from Wednesday that you are planning to hand in the file to the FDA later this year. But could you give us any more details on when that might be, would be helpful. Christoffer Rosenblad: Thank you. Good question. We are sitting with the file right now. We don't -- I don't have an exact time line, but it will be somewhere during the summer. So I will come back when I have a better time line, but it's somewhere during the summer. So it's not the end of the year, it's earlier than that. Simon Larsson: Yes. Understood. And maybe it's a bit sort of speculative at this point, but would you expect the FDA to sort of summon an advisory committee ahead of a potential approval? Or yes, what's your thinking around that dynamic? Christoffer Rosenblad: I can't speculate on what the FDA wants. We have to hand in the file and see what the feedback is and follow their process. It will be more or less impossible to speculate on what will happen or not. But I know last time we had an expert panel meeting, we fared very well on the lung side with [ 10-0, 10-0, 10-0 ]. So we know how to do this, and we are confident that we can answer any questions the FDA might pose to us. Simon Larsson: Yes, fair. Fair. And I know you said in the beginning of the presentation, Christoffer, that you aim to make the heart box standard of care for all hearts basically. But if you could help us understand the scope of the hearts that you will address in the U.S. maybe to begin with? Will you be focusing on the sort of marginalized ECD, DCD hearts or older donors? I mean any help slicing the market opportunity and what you will target first would be also interesting to hear. Christoffer Rosenblad: That's a great question. I mean we can only market what we get on the label and the label will be pending the FDA review process. So it's hard to say exactly. But if we look at the PRESERVE Trial and the inclusion/exclusion criteria there, it is exactly those hearts we're talking about. It's DCD heart, extended criteria heart. So that's either due to more than 2-hour preservation and a couple of factors -- a couple of risk factors or more than 4 hours. So we will definitely target those hearts. We will also -- we see an increasing interest here from U.S. clinicians. So we will have a quite broad target when we launch the product to make sure that we can reach all clinics as soon as possible after day 1 of the launch. Simon Larsson: Makes sense. And maybe then the final one from my end. Turning a bit to the lung part of the business. Obviously, the EVLP part is doing very good here. Could you say anything about the pipeline, how it looks for new accounts, both in terms of new centers, also OPOs, of course. And also if you're happy with the revenue generation from the new XPS accounts that you signed last year, and also maybe your visibility for the lungs here in the coming, let's say, couple of quarters as well? Christoffer Rosenblad: What I know here from ISHLT is that there is a growing interest for an EVLP program, and we do see great progress now, both an underlying market growth where we see that more and more data is getting published showing that using EVLP for extended grafts or DCD graft has a really positive impact on the overall survival and that we use more organs. So in general, there is a good underlying trend for the lung market. The other thing which we are working with is to put XPS into more hands, so to say, so we can do it and especially the hub model that 1 OPO with 1 center pumps lungs for a larger area, which we have seen has been very successful for. So we have a positive outlook. But again, looking into the future, it's impossible. But what we can see so far it looks very good. And especially, I'm really encouraged after all the meetings we had here in both the lung symposium and all the customer interactions from here from ISHLT, so we see positive outlook. Operator: The next question comes from Ulrik Trattner from DNB Carnegie. Ulrik Trattner: Thank you very much and a few on my end. And I'll start off with the abdominal gross margins. And Christoffer, you touched upon this. But I also note that the gross margin was kind of equally low in Q4. So is there FX related to this since you moved your manufacturing to Sweden from the Netherlands? Or is it just market product mix that we should expect to revert here in the short term? Christoffer Rosenblad: I can start a little bit high level and then Nordstrom, if you want to pitch in on this one. But if we take high level, it is -- there is today in the at least the abdominal [ fees ], slightly lower gross margins in Europe versus the U.S. So it's partly a regional mix that we hope over time we will grow out of. Also, we are moving production right now and have not reached full scale in production that we want. So it's not, let's say, call it, a quick fix, but we diligently work to improve the gross margin for our abdominal portfolio in the next quarters and years to come. So we see a gradual improvement, is my belief. Kristoffer Nordstrom: I'll just add as well, Christoffer, that we do expect to see the growing gross margins for abdominal. What will impact that is, of course, when we start to see a stronger ramp-up in the United States. It was a good quarter in North America abdominal sales this quarter, but it was partly research sales that over time, of course, will translate into more clinical sales, so to say. But it's still very much of a European business with some regions with lower pricing. Ulrik Trattner: Okay. Great. And on to sort of prospects going ahead and the [ SUB-Q ] meeting that you have scheduled. So what is your ambition going into this? You can obviously go down a few routes here. But are you aiming to use the European data in order to get approval as you did for kidney or 510(k)? What is sort of the most feasible and reasonable pathway forward here? Christoffer Rosenblad: It's a great question. I mean, of course, we're aiming that, but we will have a dialogue with FDA. We had a very positive meeting earlier this year, and we will continue in a more official QSUB meeting with them to get a firm route forward. We, of course, aim to leverage as much of the European data as possible. But we would also be in listening mode and see what the requirements from the FDA is. So there would be good dialogue that we have started that is very good and positive, but we also have to be humble that the FDA is deciding in this case. So we will argue our case and see what comes out of it. Ulrik Trattner: And just correct me if I'm wrong, but wouldn't it be beneficial on your end to actually generate some U.S. data prior to launching it, given sort of the -- I mean, hindsight, what we have seen with the kidney launch that U.S. data is of high importance in order to reach higher volume. Potentially a 510(k) would be the preferred route on your end? Christoffer Rosenblad: Yes. I mean the good news with the 510(k) route is that the, let's say, burden of proof is lessened. It's more towards safety than efficacy, but you're right. In either way, whatever the FDA says we need to do a trial, if it's, let's say, before or after. So we will do a clinical trial in the U.S. to make sure that the American users can replicate the European data that is extremely good for it to be believable. And you're right, with the kid experience, we learned that very fast that launching a product without U.S. data will not make it fly. So we have to do something either way. But we're still aiming to leverage as much as possible of the very positive European data. It is by far the largest body of clinical data we have for short, long term, all sorts of graphs, which are very positive. So that's, of course, our aim. Ulrik Trattner: Great. And a question on the CAP program. As you went from 4 patients in Q3 '22 and now further 6 here in Q1. And I would assume that the interest has not come down post ISHLT. So how quickly can you get a sort of reapproval or expansion of your CAP program in the U.S. Christoffer Rosenblad: We're aiming as soon as possible. So yes, it is under review from the FDA, and they will come back to us soon, according to what they said. So -- but again, it's hard to speculate on the FDA time line and the work burden they have. But what we can say is that, yes, the interest is extremely high from U.S. clinicians before the ISHLT and before those 2 presentations, and it has increased significantly after. So that is very clear. Ulrik Trattner: And can you give some type of indication on just the penetration per the sites who are actually active in the CAP program? Are they using it on all of their parts that are being transplanted? Or is it just a portion of them? Or can you give us any more sort of insight that would be very interesting. Christoffer Rosenblad: Yes. That's a good question. We should remember right now that this is a scarce resource for them. There is a limited number of patients. So they only use it on the worst grafts and the sickest patients where they see no other use right now. So we should remember that. But we can see in some CAP centers that is quite high penetration. And then the testimonial I get when I'm here from the users is that this is so easy to use, it's really plug-and-play, and the hearts are in an excellent condition after being in Xvivo Heart Assist. So it's -- some have quite high penetration, but we should remember that it would be higher if we would have an approval or let's say, it's an unlimited use because now it's capped to number of patients. And I think it's more interesting to look to the Australian situation where there is an uncapped continuous access protocol. So it is similar, but it is uncapped. And there, we see that it's 50% for DBDs and now we're starting with DCD. Ulrik Trattner: Sure. Yes. And just on the data that you have generated here lately and presented. Obviously, a positive outcome in the U.S. and 4 additional patients in Europe on HOPE. Are you adding this to the European regulatory agencies and have this in any way sort of increased your confidence in obtaining approval for the heart box here in 2026. Christoffer Rosenblad: The straight answer is yes. I mean, the feedback we get from those compassionate use is that, yes, we don't see any alternative on the market for any graft, pediatric, adult, DCD or DBD. So it's really encouraging to see medical agencies in Europe, looking into the file, clearly state, there is no alternative. We need compassionate use for this product. And so yes, the straight answer is, yes, we get more confident, the more we talk to medical agencies and the more we talk to clinicians of how important this is. And -- but again, the regulatory process is a regulatory process. And it's hard to speculate. But definitely, we are -- due to this, we are more confident, yes. Ulrik Trattner: Great. And last question on my end. Did you mention that you had found 4 to 5 OPO targets to sort of be integrated into an EVLP program. I just too -- if I heard that clearly. Christoffer Rosenblad: Yes, 4 to 5 are identified in the pipeline right now, to clarify that. So we have done our first installment, very successful ahead of plan. We are doing our second one. I think while we speak or at least very soon after ISHLT. And then there is a rollout plan, which is, to some extent, will be resource limited but we have a clear plan, and we're going to make sure that we are successful in every installation. So we're going to make sure that we are there. And we are also increasing our internal resources to be able to handle an increased growth and increased interest from OPOs, where, in all honesty the XPS and the STEEN Solution was developed in the beginning for this target group of OPOs. So it's great to be back home again, so to say, and see the OPOs using it. Ulrik Trattner: Okay. Great. And essentially, it's an acceleration at sort of a maintained pace even with your sort of limited resources. Christoffer Rosenblad: Yes. So we will try to accelerate as fast as possible, but we will be very conscious that we want to have the right quality of people both from our side, from our partner side and from the OPO side to make sure that each and every OPO program is a successful program where the clinicians really get the audience they so deserve for the patients on the waiting list. So we'll be very cautious on keeping a high quality. Operator: The next question comes from Jakob Lembke from SEB. Jakob Lembke: So my first question is on the strong EVLP sales here in Q1. So I'm wondering if you can sort of elaborate a bit more across the different customer groups, sort of your single one large customer, other U.S. customers as well as ex U.S. during the quarter? Christoffer Rosenblad: Yes, definitely can do that. It is one, an underlying market growth where we see an increased interest to making more lung transplantations. And we see a changing organ pool where more and more organs become extended criteria or DCD. So that's the underlying growth we see fueling the interest. So we see both a, let's call it, an underlying growth from existing customers, and we see that we now add new customers as well, which are slowly becoming more up and running. And we see, of course, the fast uptake in the pilot of the OPO that was -- so those are let's say, the 3 reasons. We also see that we're increasing the sales footprint. In other words, number of feet on the -- close to customers. We can see an increased usage. So it's a direct link there. Jakob Lembke: Okay. And then also, I'm wondering if there was any sort of large orders or timing effects impacting the strong Q1 sales for EVLP? Christoffer Rosenblad: I think it was fairly -- we saw the trend in Q4, and I think that trend continued into Q1. We didn't see any huge, let's call it, seasonal effect or up stocking, destocking during either this quarter this year or Q1 this year or Q1 last year. Jakob Lembke: So I guess my question then is it fair to assume then that this is sort of a new base line for the EVLP consumables? Christoffer Rosenblad: Yes, I think that's a fair assumption. I mean we do see an increasing interest, and we do foresee that we will continue to grow new -- both existing and new EVLP programs, absolutely. Jakob Lembke: Good. Then I also have a question on heart and the compassionate use in Europe. I'm wondering if you can elaborate a bit on sort of how freely the centers can use the product right now? And also if you can share how many centers that are live and if you have any more that you think will go live soon. Christoffer Rosenblad: Yes. I think to start with when we talk about compassionate use, there are, of course, limitations to it. And also, this is being Europe, so it's different country by country. Some are more hopefully soon here is going to be more Australian like and some will be more restricted in terms of when you can use it or not. So it's hard to give one answer to that question because it's many countries, but we do see that more and more countries are opening up for this opportunity, and that is very, very positive. That's the key message. And then we, of course, hope that we don't need this and get the CE Mark very soon, but we see that we can keep the high interest and continue to save patients where there is no alternative to the XVIVO Heart Assist, which is the case right now. Jakob Lembke: Okay. And then I'm also wondering if there's been any new or recent dialogue with the notified body or the competent authority regarding CE Mark? And also, if you expect to get the approval then in the early summer. Christoffer Rosenblad: We are in dialogue with our notified body. To clarify, we are not in direct contact with competent authorities in this case because they have asked for a consultation, and we are in contact with notified body. So the answer is yes, to the notified body. There has been contact. We -- from what we heard from them, yes, we should expect something here in early summer or summer. So that's the latest we heard. So we are crossing our fingers and provide all the information we possibly can to make sure that we can get a good decision. Jakob Lembke: Okay. And then as a final question, sort of a follow-up to the earlier discussion about the potential label of the heart product in the U.S. I'm thinking that the FDA must surely also include or consider the data you have gathered outside of the U.S. sort of the European randomized 2-arm trial and as well as the Australian trial. So I guess it must be a very broad label because you have, I mean, the most broad -- the broadest data of any machine perfusion product out there, right? Christoffer Rosenblad: To start with, we're extremely proud of all the data we have. And every time we do something with XVIVO Heart Assist, the clinical outcome is better than we could expect from it. So we're very proud of it. It's hard to speculate on the FDA and what they will do. We will, of course, submit all data for their review -- I mean, the lowest bar is for safety reasons. And we do -- we will argue that it should be taken into consideration at least for a future label discussion. But it's hard to speculate on the ruling from the FDA, so to say, regarding the label. But if we look at the inclusion/exclusion criteria in the United States PRESERVE Trial, it will cover the majority of donated hearts as it is already today. So that would be -- that in itself will be an extremely good label. Operator: The next question comes from Filip Wiberg from Pareto Securities. Filip Wiberg: First, I think I just would like to follow up on a prior question about the strength in EVLP this quarter. So I suppose like the largest customer explains some part of the strength at least. Given that, I'm just trying to get a better sense of the risk of ending up in a similar situation that we had last year with the destock. And you said that you don't think there are any stocking effects this quarter, but could you please just talk a little bit about that and the visibility for this largest customer? Christoffer Rosenblad: Yes, that's a good question. I mean we have very good visibility and very good dialogue with our largest customers, and we could see that they grow actually as much as other customers during Q1. But like we are, they are also depending on the underlying market growth, so to say, but we have a very good 1 year visibility into what they aim to do. And -- but they are for the same reason, as we are, dependent on the underlying market growth. And we saw that last year. In Q2 last year, it was that we got a dip during 1 quarter. So if the momentum we see now that we believe will continue, we have good visibility. Filip Wiberg: Good. We talked a little bit about the gross margins here, but perhaps one on thorax, which was actually okay this quarter. But I'm just thinking about it going forward now when EVLP is growing, Perfadex becoming a smaller part. So will you be able to defend the gross margin you've had when EVLP continues to grow and takes a bigger share and then also how you believe it's going to be affected when you launch heart in both Europe and in the U.S. Kristoffer Nordstrom: That is our goal to defend the thoracic gross margins. You have a point that I mean this quarter was extraordinary when it comes to EVLP portion out of sales, right? So -- and we have a lower margin on EVLP than on Perfadex. But we also see the growing -- the growth initiatives in the U.S., we have good prices on those and speaking about the hub model for EVLP. And also, we have not yet decided on the heart price in the U.S. as well, which will be a contributor to the gross margins going forward. So we feel for thoracic that we are in a good spot. And we will work to continue to defend also the abdominal margins here in 2026, of course. Christoffer Rosenblad: I don't know, but the bigger picture is also that for our thorax products, so heart and lung, we can have more of a global price list. So we don't see any regional differences if you compare, and we're not yet there for our abdominal products. So that's something we need to work on, of course. But we are more confident. And of course, with the heart, there is always when you start up production, there is always slightly lower, but I am confident that we very soon can get the heart up and running and reach scale in production. Filip Wiberg: All right. Good. Perhaps another one to you Nordstrom about the EBITDA margin, you stated it was 24%, excluding U.S. heart activities. But I think you said as well that there was a nonrecurring cost this quarter. So could you elaborate a little bit about that. Was it only related now to Q1 and nothing going forward? Kristoffer Nordstrom: Thank you. Good question and perhaps deserves some clarification, and this also ties into one of the questions I see here in the chat as well. So no, it's the same thing. So what I referred to as noncurrent was the SEK 7 million that we spent on foundational heart launch preparations consultancy work to prepare for the U.S. heart launch. So for us, that was a foundational activity, a bit of a onetime. I think the other investments we will do going forward, which we have touched upon in early calls as well is really to build out the U.S. organization to prepare for the launch. And I think that will be more of a linear step-wise growth in OpEx in marketing and sales. But overall, on EBITDA, I mean, last time I checked the consensus, I think that's kind of where we are aiming to land for the full year 2026. Filip Wiberg: Okay. Good. So just to be clear, admin costs, do you expect that to come down from Q1 levels, but that increasing the selling expenses going forward? Kristoffer Nordstrom: Correct. Filip Wiberg: Okay. Good. Just last question. I was curious around the next step in direct procurement DCD. So the study Filip Rega presented, like what are going to be the next step in this. I suppose there will be more studies required to get the surgeons confident in using this approach? Or what do you have to say about that? Christoffer Rosenblad: Yes, there will be many steps in this. The first one, we hope that Filip Rega can submit a paper on how to do this. So we get a standardized approach to direct procurement. Then this was, of course, a very important step to make this data public and also to get the interest up for direct procurement. But what we've seen is that the uptake is pretty fast once you got the hang of it, and you've done it. And the interest to avoid all complicated other process you would have to do, such as NRP or very expensive machinery in DCD hearts is avoided. So you reduce cost, you reduce complexity, et cetera. So the interest to go this route was during the late-breaking news was extremely high. And there was, unfortunately, not enough time for questions, but we will revisit that during our heart symposium today. So hopefully, more people can ask questions. And then again, this is a technique that spreads really surgeon to surgeon, so they will talk to each other and train each other and get more and more confident over time. Operator: The next question comes from Ludwig Germunder from Handelsbanken. Ludwig Germunder: I would like to follow up with another question on the EVLP and in line with some questions already asked, but I would like to hear if you could say something about or you see the recovery in terms of how much is recovered now in EVLP. Are we back at previous normal levels? You mentioned this is fair to assume as a new baseline in EVLP consumable sales. But do you see any more recovery to do before you're back at some sort of [ pre ] levels after last year? Christoffer Rosenblad: No, I think we -- not so much recovery. We have to be very aggressive and find new customers and new concepts, which satisfy the needs from American surgeons, such as the OPO model. So we will continue to build on what we have, so to say, on the foundation we have now established during Q4, Q3 -- sorry, Q4 and Q1. I want to mention that last year, there was a tough period for lung transplantation in terms of the number flattening out, and there was a lack of resource in the system. But again, the system reacted quickly. I think we reacted quickly to give them alternatives, alternative resources with partnerships. So I more look at it as a forward-looking exercise. Ludwig Germunder: Okay. I see. And then I have a question. I'm not sure if you mentioned it, I apologize if you did. But on the CAP study for heart you filled the 60 hearts that you were allowed to do. You previously mentioned that you could possibly get another 60 hearts. Can you comment anything on the status around that now? Christoffer Rosenblad: I can't comment further than I already did. We have applied for another 60, and we do hope that FDA come back as soon as possible, but it's -- we have to understand, we are under an IDE and the FDA are deciding what we can do and not do, during an IDE. Unknown Executive: Should we continue? Or would you like to end the call? Christoffer Rosenblad: Continue. If the last few questions, if we can keep them short. I know we're over time and I actually have to leave for another meeting, but I see there are 2 more analysts who have questions. So I do want to give them the opportunity to ask those questions. But I will be very brief. Operator: The next question comes from Oscar Bergman from Redeye. Oscar Bergman: Just wondering, R&D costs of SEK 37 million, if that should be considered sort of a baseline going forward? Or are there any one-offs that make maybe the last couple of quarters a better baseline? Kristoffer Nordstrom: Yes. Good question. Yes. I think it could be used as a baseline for the rest of the quarters here this year, but you will see a significantly lower spend on the other type of CapEx, material assets. We're building out the -- we are very soon done with investments into our -- increasing the product capacity. So I think all in all, you will see lower CapEx in 2026 than you saw in 2025, which means that we are optimistic that we should be able to end the year on a cash positive level here, which would be the first time in Xvivo history. Oscar Bergman: And then when you have the CE Mark in place for the heart product? Will you be able to implement any price changes in Australia and New Zealand -- and if yes, roughly how much? And will it be immediately after the CE Marking? Christoffer Rosenblad: To start with, the CE Marking will be the base for the approval in Australia, but we still need to go through a review process there to start with. Now we have fixed reimbursement. So with increasing body of evidence in terms of health and hospital economics, we will, of course, improve reimbursement levels, and the chance of doing that is a lot higher after an approval, so to say. Now you get what you get, so to say, during an unapproved product. So that's a job that will start. It will not be immediate. So you do have to work with reimbursement in each country. Operator: The next question comes from Ed Hall from Stifel. Edward Hall: Just quickly on lung and how we should think about it for the rest of the year. So I think you've outlined the underlying existing customers, the new customers are growing and obviously, looking at Q2 and Q3 or weaker comps? Or is there anything that you would point out to show, anything that I may be missing outside of the trends that you've already outlined? And that would just be my first question. Christoffer Rosenblad: Thank you, Ed, for that question. I do think that there will, of course, be seasonality like in any business depending. And we're also depending on the number of donors going for EVLP, but we do see -- and I still state that we do see an increased interest for lung transplantation in general and for EVLP, in particular, based on the body of evidence we see now that we -- for example, it was the presentation here during ISHLT, which show that you can better outcome on both DBD and DCD for EVLP, if you standardize your EVLP program and EVLP protocol. So if you have a very clear inclusion criteria, you actually get better results from using EVLP than standard of care. So I think this growing body of evidence speaks for EVLP increasing as an indication of all lungs. Edward Hall: Perfect. No, that makes sense. And then just a final question from my side. Just wanted to get your thoughts on how transplant surgeons are thinking about the trade-off between sort of the increased ECMO use that we saw in the PRESERVE data for some of the DCD implants versus what actually came out with lower severe PGD. From your talks that you've had this week at the Congress, is there any initial thoughts you could comment on there? Christoffer Rosenblad: No, but I think that everyone was surprised that the data was as good as it was because both the donor pool and the patients were very marginal, so to say. So this was better than expected from many of the trial centers. So that was really good news. I think that we saw still a low level of severe PDD was really good. I think that would be the leading indicator for us and that we also could see that we could replicate that in survival data, really strengthen the whole belief for what this product can do once it's on the market. Edward Hall: Perfect. Okay. So that makes sense. So it sounds like actually the lower PGD rate is really the driving force in that trade-off. That's how I should think about it. Christoffer Rosenblad: Thank you very much, everyone. Sorry for going a little bit over time. We will now end the call and move to the last slide where we want thank you so much for today and we meet next time on July 14.