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Operator: Hello, and welcome, everyone, joining today's Kimberly-Clark de México First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this call is being recorded. [Operator Instructions] It is now my pleasure to turn the meeting over to CEO, Pablo Gonzalez. Please go ahead. Pablo Roberto González Guajardo: Thanks so much, Nicki. Good morning, everyone. I hope you're all doing well, and thanks for participating on our call. We had another strong quarter and a good start to the year with record revenue behind a strong performance in our Consumer Products businesses, double-digit increases in gross profit, operating profit, EBITDA and net income and EBITDA margin at the top end of our range. Our strategies and actions are having the intended impact, spearheaded by strong commercial and operating execution, and we continue to make progress on our KCM+ innovation, growth and transformation strategy. More on that after Xavier takes you through our first quarter results. Xavier? Xavier Cortés Lascurain: Thank you. Good morning, everyone. During the quarter, our sales were MXN 14.3 billion, a 3.6% increase versus the first quarter of 2025 and an all-time high. Total volume was up 3.7%, driven by consumer products, while price/mix was flat. Net sales were boosted by consumer products, which grew 5.4% with a 3.7% volume increase and 1.7% price and mix growth, while away-from-home decreased 1.3%. Exports were down 6.8% due to lower hard rolled sales, while converted products grew 15.8%. Sequentially, Consumer Products grew 1.4%, mainly volume driven, while away-from-home and exports grew 10.1% and 6.2%, respectively. Cost of goods sold decreased 1.1%. Our cost reduction program once again had very good results and yielded approximately MXN 450 million of savings during the quarter. These savings are mainly at the cost of goods sold level. They were generated through a combination of global fiber contracting initiatives, changes in sourcing and the use of alternative fibers, product redesigns and the introduction of new raw materials in nonwoven fabrics, diaper geometry redesigns to improve material efficiency and logistics and distribution efficiencies across our network. These initiatives reflect ongoing actions across procurement, product design, manufacturing and logistics. In addition to these actions, compared to last year, virgin and recycled fibers, fluff, superabsorbent materials and resins compared favorably. The FX was also lower, averaging around 15% less than last year. Gross profit increased 11.1% for the quarter. SG&A expenses were 10.2% higher year-over-year and as a percentage of sales were up 100 basis points. Distribution expenses were higher, while we continue to invest behind our brands and work to improve our footprint and streamline logistics operations. Operating profit increased 11.9% and operating margin was 23.2%. We generated MXN 3.8 billion of EBITDA, a 10.1% increase year-over-year with EBITDA margin at 26.7% at the upper part of our long-term range. Cost of financing was MXN 439 million in the first quarter compared to MXN 295 million in the same period last year. Net interest expense was higher since we earned less on our cash investments. During the quarter, we had a MXN 9 million foreign exchange loss compared to a MXN 14 million gain last year. During the quarter, in early March, considering that maturities of recent years have been paid from cash, we issued Certificados Bursátiles for MXN 10 billion through 2 placements. The first placement was for MXN 8 billion with equal amortizations in years '10, '11 and '12, and the second placement was for MXN 2 billion with a 2.6-year term. This allowed us to benefit from favorable conditions and improve our debt maturity profile. Net income for the quarter was MXN 2 billion, a 10.2% increase. Earnings per share were MXN 0.68, a 13.3% increase. We maintain a very strong and healthy balance sheet. Our total cash position as of March 31 was MXN 20.4 billion. Our net debt-to-EBITDA ratio was 0.9x with EBITDA to net interest coverage of 9x. With that, I turn that to Pablo.Thank you. Pablo Roberto González Guajardo: As mentioned, we had a strong start to the year despite still subdued economic growth and private consumption. We expect growth to improve as the year progresses, spurred by job creation and higher salaries, together with increased spending in anticipation of and during the World Cup. We expect consumer products businesses to continue to lead the way, Professional business stabilizing during the second quarter and growing during the second half of the year and parent roll sales still trailing due to more tissue required for consumer product sales, but becoming less of a drag as the year goes on. With respect to raw material costs, fundamentals support lower dollar prices versus last year, but we will experience some months of higher costs, both sequentially and in some cases versus last year, stemming from the oil shock the world is experiencing. We hope the impact will be limited in both strength and duration with prices returning to underlying market fundamentals. In the meantime, we're focused on price realization. We just implemented price increases in most of our businesses averaging 4%, and we'll continue to apply our revenue growth management capabilities. And we'll continue to be focused on operational efficiencies and ensuring another good year in cost reduction efforts. Of greater importance, we continue to make good progress on our KCM+ strategies. Our core businesses are performing well, and our diamond categories are accelerating growth behind consumer-centric, relevant and differentiated innovation together with greater engagement and improved commercial execution. Further, we're making inroads in private label and have identified opportunities to strengthen the North American supply chain together with our strategic partner. When it comes to new areas of growth, in the coming quarters, we will be working to consolidate and to increase efficiencies in adjacencies. Further, we continue to make progress on pet food and are actively analyzing the Kenvue opportunity. All in all, our KCM+ initiatives focused on accelerating growth are going well. Equally important, we have specific initiatives to develop our skill set, better utilize data to define consumer needs and engagement, work closely with our retail partners to remain a supplier of choice and continue to improve and where needed, transform our end-to-end cost structure in an increasingly dynamic environment. Effectively deploying and efficiently utilizing the most advanced technology solutions is the fundamental layer to support and drive all these efforts and time is of the essence. We hope these comments provide a good picture of where we stand and why we are so excited about KCM's present and future. With that, let me open the call for questions. Operator: [Operator Instructions] We'll take our first question from Ben Theurer with Barclays. Benjamin Theurer: Two quick ones. So first, if I remember right, about a year ago, the strategy over summer in terms of campaigning, promoting, you took a little bit more of a hands-off approach, a little bit more on the back, not as aggressive as in prior years. So just wanted to understand with the announcement you just had the 4% price increase on certain products that you're pushing, what should we expect from you guys as we go into the summer promotional campaign that usually kicks off by the end of the second quarter? That's my first question. And I'll have a quick follow-up. Pablo Roberto González Guajardo: Sure, Ben. Thanks for the question. We will follow the same path as last year, meaning we will not be as aggressive as in the past, although one thing that is happening is that the summer promotional season continues to expand in length. It's pretty much has already started here in mid-April. And it might have to do with the World Cup and all of the retailers wanted to get ahead of that event. But we're starting to see more promotion out there. But in our case, we continue to be more disciplined about it to ensure we can keep the value of our categories. Benjamin Theurer: Okay. And then a quick follow-up on the commodity cost side because I kind of like missed the commentary because obviously, you do have some exposure to oil price derivative products. So I just wanted to understand how the current surge in oil prices is kind of like affecting you on what might be more like, call it, a petro-exposed or just oil derivative exposed raw material cost pressure. Pablo Roberto González Guajardo: Yes, we are seeing some pressure on oil derivatives. But so far, and given where things stand, we believe it will be limited both in strength and duration. But that's where it stands right now. And as it is, it would have some impact, of course, on our cost and our margins, but we don't think it will be significant. Now things can change, of course, but where it stands right now, again, limited in both strength and duration. Operator: Our next question comes from Bob Ford with Bank of America. Robert Ford: Pablo, can you comment a little bit about how clients and competitors are responding to your 4% price hike? And when it comes to the North American production footprint with Kimberly-Clark Corp, how should we think about the magnitude of the opportunity as well as the economics of that? And is there a role for you in the very short term to help address the inventory loss that Kimberly-Clark Corp suffered in California? And then lastly, how are you thinking about Kenvue Mexico with respect to the final deal terms and the closing date? Pablo Roberto González Guajardo: Sure. Thank you, Bob, for the questions. First, on retailers and competitors responding to our price increases. I mean we're right in the midst of implementing those. It was really at the end of March, early April. We haven't seen anyone respond so far, not unusual because you know they always lag. Now it might be a little bit more difficult this time around to see that response and to even have this reflected quickly. Because again, we're already starting with the summer promotional season. And although we're going to be more disciplined, that always has an impact. So we expect that as this season goes through and we get into the third quarter, then we might see competitors react and our own prices reflect fully on going forward. When it comes to the U.S., I mean, we continue to have very good meetings with our partner to understand our regional footprint and what's best for everyone and how we can have the most competitive and efficient footprint in the region. And we're finding really good opportunities that I think will take a little bit of time to materialize, but we're seeing some very interesting opportunities, both for them and for us, and we continue to work on those going forward. And I think some of them will start to materialize end of this year, probably next year. Hard to tell the magnitude of the opportunity. We believe it's important. But again, we're starting with a couple of projects to make sure this goes the way we all expect and continue to look for opportunities. In the short term, yes, we are helping them bring back their inventories given what happened in the warehouse in California. So in the short term, we'll be helping with that. And then when it comes to Kenvue, we are in the process of the due diligence of the business and we're starting our discussions with our partner on the business. As you know, they're moving forth with their integration plans. And as part of that, we're discussing with them what would be next for KCM Mexico. I expect that we will have a more complete analysis and discussion with them probably May, early June and hopefully have a decision by the end of this quarter or early next quarter on whether we move forward with this or not, but things are looking good. Operator: We'll take our next question from Renata Cabral with Citigroup. Renata Fonseca Cabral Sturani: Congrats on the results. So my first question is related to costs and a follow-up actually. As considering the current level of the FX, it's natural we consider that those margin improvements can carry over along the year, but we are now in a situation of volatility in terms of raw material prices. Just to check the view regarding this margin trend along the year broadly, if you can? And the number two is related to the consumer division that had a growth of 5%. We see the slowdown in the Mexican economy. If you can give us some color in terms of a category that is doing better, would be great as well. Pablo Roberto González Guajardo: Thank you, Renata. Well, first, on the cost side, yes, you're right. I mean, the FX will continue to be a tailwind. And again, if raw materials were driven at this moment for by fundamentals, we would continue to see improvements, and that would also be a tailwind. But again, we're experiencing this uncertainty right now with the oil shock and the impact that, that's having on all derivative commodities. So that will have an impact, but we still believe that we have enough with our efficiencies, our cost reduction program and the FX to continue to post margins within our target and most likely at the upper range of our target even with that cost impact. Now if that goes away, then we could see further improvements throughout the year. When it comes to the market, yes, it still feels, as I mentioned, the economy is still stagnated. I mean we are not seeing great growth and domestic consumption is still pretty subdued. And we continue to see the same dynamics in our categories as we saw second half of last year. So that's soft volume growth and some pricing in most of the categories, particularly on the core categories, that's bathroom tissue, diapers, napkins, a little bit more growth in categories that have further room for penetration like incontinence and wipes, et cetera. So no changes really there on the dynamic on the categories. So all in all, given where the categories stand, our results of 5.4% in consumer products and I think particularly 3.7% in volume, we believe those are pretty strong given that there's not a lot of volume growth in the categories. So that also means that our shares are strong, and we continue to make inroads with the innovation we're putting out there in the market. So good start to the year, and we feel good about where we're positioned and a lot more coming in terms of innovation and commercial execution to continue this trend that really started in the second half of last year with consumer products. We had a very strong 3 quarters sequentially in Consumer Products, and we hope we can get that to continue. Operator: We will move next with Alejandro Fuchs with Itau. Alejandro Fuchs: Pablo, Xavier, and team, congratulations on the results. My question is just a very quick one regarding the MXN 10 billion increase in debt that you posted during the quarter. I wanted to see maybe, Xavier, if you can elaborate a little bit more on what the use of proceeds is -- and if this has anything to do maybe with, as Pablo was mentioning, a potential deal with Kenvue and KC in the U.S. in the second half of the year, maybe. Xavier Cortés Lascurain: Alejandro, in principle, the placement was not tagged to anything directly. As you know, we usually like to renew debt in advance when we see an opportunity, given the size of the deals that you need to do for them to be efficient. We prefinance, let me use that word, 2 or 3 years ahead. And the last 2 debt payments that we did came from our cash. Having said that, if we were to do anything in terms of M&A coming forward, this places us in a good position to be already prefinanced for that. I hope that answers it. Operator: [Operator Instructions] We will take our next question from Antonio Hernandez with Actinver. Antonio Hernandez: Congrats on the results. Just a quick one regarding Away from Home that continues declining. What is your perspective here? Do you see any data that reflects an overall improvement, maybe how you started the quarter versus how you ended the quarter? Pablo Roberto González Guajardo: Thanks for the question, Antonio. Look, Away from Home was lower versus last year, but it did have an important sequential improvement. So we see the business starting to improve. As I've mentioned in prior calls, this is a business that suffered more the effects of the slowdown of the economy and the adjustment in inventories by the trade. And we continue to see some of that. But again, our volumes are starting to improve sequentially. And we believe this might be -- the second quarter might be still a little bit flattish. But given where we see inventory levels at this stage in the trade and our plans going forward, we expect this business to grow in the second half of the year. So it's had a little bit of a rough patch, but I think it's coming under control and the right trend. And again, second half, we should be growing the business nicely. Operator: And at this time, there are no further questions in queue. I will now turn the meeting back to Pablo Gonzalez for closing comments. Pablo Roberto González Guajardo: Well, nothing more to say. Just thanks so much for participating in the call. We really, really appreciate it. And as always, if there's further questions, you can certainly reach out to us, and we'll be more than glad to talk to you. So thanks again, and have a great rest of the week. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect. Pablo Roberto González Guajardo: Thank you, Nicki.
Operator: Welcome to the Corbion Q1 2026 Results Conference Call. [Operator Instructions] Please note that this call will be recorded. I would now like to hand over to Mr. Alex Sokolowski, Head of Investor Relations. Please go ahead, sir. Alex Sokolowski: Thank you, operator. Good morning, and welcome to Corbion's First Quarter 2026 Interim Management Statement Conference Call. This morning, we published our Q1 2026 results. The press release and presentation can be found on our website, www.corbion.com Investor Relations Financial Publications. Before we begin, please note that today's discussion will include forward-looking statements based on current expectations and assumptions. These statements involve risks and uncertainties that may cause actual results to differ materially from those expressed. Factors beyond our control, including market conditions, economic changes and regulatory actions can impact outcome. Corbion does not undertake any obligation to update statements made in this call or contained in today's press release and presentation. For more details on our assumptions and estimates, please refer to our annual reports. This is Alex Sokolowski, Head of IR. And with me on the call are Olivier Rigaud, Chief Executive Officer; and Peter Kazius, Chief Financial Officer. Now I would like to hand the call over to Olivier. Olivier? Olivier Rigaud: Thank you, Alex, and good morning, everyone, and thank you for joining us today for Corbion's First Quarter 2026 Earnings Call. Let me get straight to the point. As we outlined in February, the first quarter reflects phasing effects, primarily Nutrition, and the very strong comparison base in Functional Ingredients & Solutions. Against that backdrop, we delivered group sales of nearly EUR 294 million and an adjusted EBITDA of EUR 37.8 million with a margin of 12.9%. While this is below last year's exceptional start, it's fully in line with our expectations. And importantly, it doesn't change our confidence in the year end. In fact, what we are seeing now is encouraging. April trading confirms that momentum is building, and we expect a clear acceleration in both volume and earnings as we move through the year. Let me highlight what is driving that momentum. In Functional Ingredients & Solutions, we delivered stable sales of EUR 236 million against a very strong prior year. Underneath that, volume and mix were positive, supported by continued strong demand for natural preservation solutions and the solid growth in Biochemicals and Lactic Acid to PLA. While margins were temporarily impacted by mix, we expect a steady improvement from Q2 onwards. This will be supported by lower sugar costs and disciplined cost reduction execution. Growth will continue to be driven by structural demand for food safety solutions and increasing adoption of PLA, particularly in 3D printing and as dynamics in fossil-based plastics evolve. In Health & Nutrition, Q1 sales of nearly EUR 58 million reflects phasing into the remaining of the year. The fundamentals here are strong. Demand remained robust. Fish oil prices are going up. Our contract positions are intact, and we expect a normalization of sales and volume growth from the second quarter onwards. Our Biomaterials business continues to build momentum and delivered a second record quarter in a row delivering growth across orthopedics, drug delivery and aesthetics. On the TotalEnergies Corbion joint venture, we also achieved organic growth and our divestment process is progressing as planned. At the group level, margins were impacted by mix effects and temporarily lower operational leverage in Q1. These are timing-related factors, and we expect a clear improvement as volume ramp-up and cost measures take effect. This bring me to cost discipline. In a macroeconomic environment that remains volatile, particularly with well-known geopolitical tensions, we are acting decisively and have implemented a focused cost reduction program. Turning to cash flow. Q1 free cash flow was negative at EUR 15.7 million, and as expected, given seasonal patterns. We remain fully confident in delivering EUR 85 million to EUR 90 million for the full year. Looking ahead, we fully reaffirm our 2026 outlook. We continue to target 3% to 6% organic sales growth and adjusted EBITDA margin of around 17% and strong cash generation with performance weighted towards the second half. This will be driven by sustained demand in natural preservation, normalization in nutrition, improving PLA market conditions and disciplined execution of our cost reduction initiatives. While uncertainty in energy and input cost remains, we have robust mechanisms in place, and are actively managing volatility through pricing, hedging, sourcing and operational control. So let me close with this. Q1 reflects timing and conversion effects, not the strength of our underlying business. Our fundamentals are strong. Momentum is building, and we are executing with discipline and focus. We are confident in our ability to deliver on our commitment for 2026. With that, let us move now to questions. Alex Sokolowski: Thank you, Olivier. [Operator Instructions] Our first question this morning comes from Wim Hoste, KBC Securities. Wim Hoste: Yes. I have 3, please. The first one is on the raw materials versus pricing dynamics. I know there's significant hedging on sugar and energy and some of the other components. But can you maybe quantify or elaborate a little bit on the kind of headwinds you're seeing maybe also on transportation costs or logistics issues, et cetera? And then also, what kind of pricing initiatives you put against that? So that's the first question. The second one is on foods. Can you maybe elaborate on the contract wins that are mentioned in the press release? What kind of products, geographies are we talking about regarding these contract wins? And then third and last question would be on the progress with the PLA divestments. Can you maybe elaborate a little bit on the process, the number of interested parties, the alignment with Total on that? So those are the questions. Olivier Rigaud: Okay. Thank you, Wim. I will answer the food and the contract wins, and Peter, the points on the raw material pricing and the PLA. Let me start with your second question on contract wins. Basically, what we see in foods are twofold. One is related to our natural preservatives and primarily related to some specialties in there on clean label. You might remember, we discussed during our CMD about the new EU listeria regulation, that is getting implemented in July this year '26. So we've been actively working on this, and this is bringing very nice upside, primarily related to our natural vinegar systems. And we see that really already starting in Q1, but accelerating over Q2 as customers are preparing to switch to new preservation systems. Amongst others, we see strong momentum in seafood. That is one. The second one is more U.S.-related where back on the GLP-1 trend, we've had a couple of major wins on high-protein functional systems for our bakery business. And we have been able to build some inventory to prepare for the big launch in Q2 on that front as well. These are the -- amongst the two major drivers of these food ingredients contract wins, you know, that we discussed about in the press release. Now to you, Peter, for the 2 other questions. Peter Kazius: Yes. So if you look on a raw material perspective, Wim, then you are right that in sugar, we have kind of full visibility for the coming periods, and look fully hedged for this year and also hedged into 2027. I think the other key components, which I would like to call out, which relates to the Middle East is, of course, energy prices and therefore transport prices, as well as if you look to the Middle East, then sulfur is playing a role as well and we use sulfuric acid in the production of lactic acid. Now, if you look to the three components: energy, and you can find it in the annual report is around 7% of input cost, is well hedged. So for the remaining part of the year. So I would say minimal exposure on that one. In transport, we do see some exposure, and I think the exposure is mainly on the sulfuric acid part of the equation, which how we currently view and look to it, we were talking here on a number in this year of up to EUR 10 million. And we are indeed taking pricing actions and mechanisms in the market, and that's a combination of prices, surcharges and all the rest. So that's a bit the current outlook, Middle East impact, I would say, from a cost perspective. Then on your question on PLA, I would like to stay a bit higher level, but we are progressing nicely and on track. And I indicated in the Q4 call that we anticipate to bring more news by mid-2026 because I don't want to hamper or jeopardize the process itself. Alex Sokolowski: Our next call this morning comes from Robert Jan Vos from ABN AMRO. Robert Vos: I have a few questions as well. Based on what you said about pricing in FI&S in Q1, still slightly negative, but the mix plus phasing of input cost materials, should we anticipate positive pricing in the forthcoming quarters? That's first on FI&S. Second one is maybe elaborate a little bit on the softness in the North American market? Then moving to H&N. You say that you expect volume mix growth to return to positive in the next quarters compensating for Q1. So my question here is, do you expect -- because Q1 was pretty negative, do you expect positive volume mix growth for H&N in the full year? And related to this what about pricing in H&N in the coming quarters? And my final question, the cost savings. Can you elaborate a little bit on this? What is the amount that you expect for this year that you can take out of your model? How is it split per division? And are there upfront costs related to this? Olivier Rigaud: Thank you, Robert Jan. So I will discuss the answer on North American softness and the H&N. Whilst Peter, you can take pricing and cost savings, yes. So let me start over, Jan, with the softness on North American market. Indeed, we are exposed to some large categories as bakery and meat there. And we've seen, of course, the inflation impact and tariffs impact in the U.S. to some large customers, that impacted already Q4 last year. And we've seen some continuation of that in some of these categories. Although I have to say lately, when we look at retail numbers, you would say bakery is leveling off. So it's not declining anymore, whilst the meat sector is still declining in the U.S. Now as I said, it's unequal. We see, indeed some of these developments, as I just mentioned, in a very specific area being the natural preservation in the clean label. There is still underlying quite a lot going on related to MAHA on clean label development, primarily on preservation specialties. And nothing new, but the continuation of the fortified proteins compounds that we see. So yes, as you know, it's a big market for us. It's a mixed bag. On the meat side, it's more negative than in bakery where things are stabilizing. There is a new spot which is a bright spot for Corbion emerging in the U.S. being around culinary, where it was part of also our strategy to develop business in culinary. And I mentioned just before on the previous question that, indeed, we also spread around this Listeria antimicrobial systems now primarily based on vinegar. So we see really strong sales of vinegar-based preservatives across the board, not just in Europe, but also in North America. On the H&N expected return, there, as we said, indeed, we see already a much better momentum starting in Q2, and we have a very good visibility as we speak now on Q2. As you know, and we explained primarily going into aquaculture, this is a concentrated market with 5 large players, and it's really phasing to one of these customers that we knew upfront, that is now kicking in as from Q2 on one side. But the reason why -- I mean -- and to your question, we expect a positive volume mix growth for the year. And we see a few strong underlying drivers. First of all, as we said, we've been able to renew the expired longer-term contract. So we have a good contracted position for the year. That's one thing. We are developing nicely into adjacent market, being human nutrition, and also we have very nice development into the shrimp market as well as we speak in the Asian markets. So that's the second driver we see supporting our growth this year. And obviously, on pricing, we see also nice upcoming impact on -- later on this year, non-contracted part of our business, supported by a fish oil price increase. You might have seen now the final quota for Peru has been officialized and is 36% lower than last year. So that is obviously driving fish oil price up, which is a nice support going forward for a non-contracted part of the business. What also these lower quota do say, just to close that point, is basically that the famous fish oil gap we've discussed many times and also at CMD was anticipated to be around 50,000 tons shortfall for fish oil, is more likely going to be much higher than the 50,000 tons for this year. Again, we are tracking that every day, but so that -- what makes us feeling really comfortable on our H&N for this year. Peter? Peter Kazius: Yes. So your point on the pricing, Robert Jan, it was indeed negative in Q1, driven, by the way, by lactic acid pass-through mechanism to the joint venture, with a bit of positive even in some other areas. The price uptake, which I just discussed related to the Middle East, is not included in Q1 and will be only as of Q2, but mainly in the second part of the year. So I anticipate a mild negative in Q2 and then basically returning into positive. If you look in terms of the acceleration of our cost savings program and if I look a bit on the timing and the impact of that, then the saving program, together with the sugar basically, if I look to an impact Q2 already versus Q1, I anticipate an increase of around EUR 5 million. It will be mainly in Functional Ingredients & Solutions and a bit and Health & Nutrition. I want to make one additional comment because you did ask, sorry, I forgot. In terms of kind of additional costs, we did incur some additional costs in Q1 in anticipation basically of this program. Robert Vos: Okay. That's very helpful. One follow-up maybe. Now that you mentioned that there were some costs taken in Q1. I also saw that depreciation and amortization was EUR 23 million in the quarter, which appeared a bit high. Is that a proxy for the remaining quarters? Or did it include some impairments in Q1? Peter Kazius: No, it includes some small adjusted items related to two different elements. One is the divestment process of PLA, as you can imagine. And the other one, which is good news, which you will not see basically in our numbers, but only in -- sorry, H1 is that we had a positive tax outcome in a discussion with the Spanish authorities, which would have a positive impact of around EUR 5 million in terms of tax this year, and we incurred some costs, which are also included in that part. So if you look from a depreciation element specifically, it's around just above EUR 22 million, which is in line basically with kind of the trend in Q2, Q3, Q1 and Q4. Alex Sokolowski: Our next question this morning comes from Fernand de Boer from the Degroof Petercam. Fernand de Boer: Fernand de Boer, Degroof Petercam. Actually I had one question. If I look to the drop in EBITDA in FI&S, you can say, okay, part is because of ForEx, maybe the mix was negative, but still, there is an absolute decline of EUR 10 million. So could you help me out a little bit on the bridge because I can understand maybe that food sales were quite negative in that respect. Peter Kazius: So if you look to the absolute EBITDA, indeed, it is a drop. There indeed currency in it, as you know, because it was $1.05 basically in last year, and it is $1.17 in the U.S. dollar in the average of this year. Then if you look to the delta, there is indeed a kind of negative impact in the equation of mix, price and volume. There is, if you compare to last year, of course, a bit of inflation in that one. We did have some additional costs as I indicated. And the other one is, and it's maybe a bit technical accounting wise, but we do share the kind of bill of SG&A, across the different segments. So that means if you have a reduction of your overall sales, it's also impacting basically the absolute number in... Alex Sokolowski: Our next question this morning comes from Setu Sharda of Barclays. Setu Sharda: Yes. So one question on the volumes, given the soft Q1 start and the ongoing inflationary pressure on end market, on customers, has your base case assumption for the volume growth changed in either division and how sensitive is your FY '26 guidance to a slower-than-expected volume ramp-up in Health & Nutrition? And my second question is on the fish oil contracts. Could you clarify how much of your Nutrition business is currently sold on a spot basis versus under contracts? And when do the existing contracts typically come up for renegotiation? And could you provide like more color on how you are approaching contracting in context of volatile fish oil prices? And my third question is on if you can give more info on the trading, how has been the Q2 trading till date in both in FI&S and Health & Nutrition? And are you already seeing some sort of recovery that you are expecting? Olivier Rigaud: Yes. Thank you, Setu. So on taking your question on H&N and fish oil, basically, if you look to the way we are ramping up the H&N volume and primarily the omega-3, which is the large chunk there, what we see is that, again, across the year -- last year, if you remember, on customer phasing, we had a kind of U-curve and this year it's more a V-curve in terms of the contract. And this is, of course, the pattern -- the ordering pattern of this business, which is volatile quarter from a quarter to another, although we have this now firm contract position for the year, but we have a great visibility on this contracted part. And then, as you know, we are adding more stable sales and predictable sales in both pet nutrition and human nutrition that is now nicely ramping up. So we have -- and there, we have also very good visibility. So if I look to the fully contracted position, this year is very similar in H&N than last year, where we have around about 2/3 of our business and their longer-term contract and 1/3 that is open. To your pricing question, obviously, what is open going forward, we have already proof of evidence that we can pass on already some price increases over the next 3 quarters. And these are roughly double-digit price increase on the open contract related to fish oil. Now, where fish oil is going, as you know, we've seen fish oil prices going from the low $3,000 per ton, now around $4,500, $4,600 sometime. And this is what we are translating. On the long-term agreement, to your second question, we are really not looking to align our pricing on fish oil only. The aim of the game during this 2 to 3 years deal is to have visibility on margin because then we are hedging our sugar. And we do not want to play the commodity game that fish oil is about. So it's about giving really visibility and security of supply to fuel the supply gap to our key customers. And some of them, of course, do share that view, others less, but this is the way we approach it. Now, on the renewal, to your question, we had a contract that was ending by end '25 that we have renewed, and the others we are ending in '26. So it means that we would probably start next multiyear negotiation for the next years in the course of the summer to renew these type of contracts because they're all ending now by end of '26. So that's, I mean, again, what I could say on that. On the inflationary pressure, this is, I mean, a difficult one because, of course, I mean, we see our customers trying to push also price to retail and to their consumers. Now, with what Peter explained and what we are facing with the Middle East crisis and how we're going to push also our sulfuric cost and extra freight costs, these are really pricing we are implemented wherever now we have open contracts, but the vast majority will be implemented as from early H2. So this is what we have and what we are planning. But quite a lot of conversations are going on. I have to say that, on freight, it's different from FI&S than H&N. In H&N, on this large aquaculture contract, we have freight clause in all these contracts where we pass immediately any freight surcharge. It's a lot more limited in FI&S where you have this lag. There's going to be a 3-month lag to push these prices as from the end of July, early August. Setu Sharda: That was helpful. Just one question, like because -- do you see any -- like how is the trading update until now, like have you seen the recovery in Health & Nutrition? Olivier Rigaud: No, it's a pretty good. We have very good visibility on Q2, very good, and it's really a very strong start of Q2 there. So I'm feeling really good, feeling really confident what we see in both divisions actually already in April. Alex Sokolowski: Okay. Our next question this morning comes from Karel Zoete from Kepler Cheuvreux. Karel Zoete: I've had two questions actually in relation to the FI&S business unit because the margin has been, of course, a bit lower than expected in the quarter. But if we zoom out, it's been a couple of quarters in which profit margins are declining instead of going up towards the 14% to 15% ambition level. So in relation to that, what are the incremental savings efficiencies, et cetera, you try to capture now? And the more longer-term question then is the positioning of the business. Where are you losing market share? Or is it simply the exposure to more mature categories in the U.S. that have been under pressure? Peter Kazius: Okay. Let me do the first one in terms of the longer-term trajectory and then Olivier can take the market one from that perspective. And you are right, that you see basically a kind of negative momentum if you look quarter after quarter. And I don't want to be -- but there is always a bit of volatility around it, frankly speaking, a bit of phasing. And I don't want to basically go to all these details. But if you look to Q2, and let's start with that. Then I did mention we anticipate a kind of EUR 5 million impact of sugar and cost reduction savings, of which the majority will be in FI&S, and that will lead to a kind of sizable margin improvement as of Q2, following actually an improvement into Q3, Q4. So with that one, I think that in terms of Q1, we reached the bottom, Karel, from a longer term perspective. If you then say the ambition level is still there, I anticipate for the full year to be higher in terms of FI&S margin than last year, but not to the 15%. Olivier Rigaud: Karel, so on the cost positioning of the business, this is a very valid question. So if you look to the entire FI&S, basically, I'm taking it outside the lactic to PLA that is a longer-term formula contract to the other pieces, basically there is this natural preservation specialty that is where we invest in growth, which is high margin, high growth. And we see even a lot more options around the lactic derivatives, but also the vinegar, the antioxidant and a lot of food ferments that are growing the mold inhibitors. So this is the part we really want to grow and focus on. And this is where we are investing in resources, as well. There is the functional systems that basically is transitioning right now from a pure bakery-only play, where we want to specialize in something that has close synergies with preservation, meaning enzyme cocktail shelf-life extension, and this is a business we are now really simplifying as part of the cost program as well to really simplify SKUs and focus on the high end. So this is really one of the big angle of our cost optimization program that Peter mentioned. And then you have what I call the basic derivatives, lactic -- plain lactic acid that is commoditizing where we basically changed the governance, where we run this business now since January with a new team in a very lean base. And that's the business we also are looking to now restructure, leveraging basically where we have the lowest cost plant in Thailand and primarily the new lactic gypsum-free plant. And this is not where we're going to invest going forward. So the aim is really to have this gradual shift in portfolio to the preservation specialties and restructure the functional systems into the shelf life extension and less exposure to bakery-only business going forward. So that's, I mean, our mission there. Now, as you know, there is still a large chunk of these commoditized lactic acid or less differentiated, if I would say, which is where I think pricing discipline is important, but also cost management. And back a minute to the FI&S margin, as Peter alluded before, we started this program. We presented our new Chief Operating Officer ambition in the CMD as well, where as part of also the new ExCo governance, he kicked off a major program that we embarked on. And of course, in Q1, you see the cost of that program is not a benefit yet. But that's fine, we are planning to develop more around that during our H1 results. So that is to come. Alex Sokolowski: Our next call this morning comes from Sebastian Bray at Berenberg. Sebastian Bray: I have two, please. You have talked about, Olivier, the pieces of movement in terms of last expiry of long-term contracts in '26 for algal oils. If everything were to remain the same as it is today and spot prices for fish oil were to remain the same, assuming that the contracts expire and are then re-struck, is the pricing effect from algal oils for 2027, roughly flat? Or is it different to that? My second question is on the ongoing negotiations regarding PLA divestment. Are there any dissynergies to think of here? Because the current setup of contracting is that there is almost an over-the-fence style cost-plus agreement. Is a buyer interested in, let's say, renegotiating that? Or do the economics in all likelihood remain intact as they are for supply of lactic acid to the PLA JV post divestment? Olivier Rigaud: Thanks, Sebastian. So your H&N question is very relevant. Now, you know, what we said publicly in the past is that these long-term contracts were at that time negotiated between $4,000 and $5,000 equivalent, yes. So obviously, we need to understand the fish oil price dynamic in the coming months when we're going to be at the table of negotiation in the summertime. Now, having said that, if you compare the fish oil price volatility, we know it has been picking up to $8,000 or $9,000 and going down as low as $2,000 in the past. We believe this type of price level are the longer-term sustainable price at the margin we have and we need going forward, and you know this level. So I mean, again, it's a difficult answer because, indeed, obviously, as we are growing volume, we have better and better operational leverage and we should get better margin as we go at this price level between $4,000 and $5,000. And we believe these are the longer-term right level of prices. Now let's see where the fish oil price development going to be over the next month, but again, for these contracts, we want to disconnect from fish oil volatility. On the PLA dissynergies, obviously, you know, and this is not -- I'm not pitching that, of course, the sale of that business, but the combination of this PLA factory next to the largest lactic acid plant in the world and the lowest cost one is very powerful for any new owner of that business. Now, obviously, there is a long-term agreement to supply lactic acid that is in place until 2035 and that would survive any change of control of the PLA JV. And for Corbion, whether we own part of the JV or not, it's a very nice plant filler because this business is, as you know, in these huge lactic acid factories, operational leverage is very important and you really make -- and start to make a lot of money when you run above 80% to 85% capacity. And for us, this plant is a guarantee that we run at really very high capacity rate. So it's quite critical. We remain the supplier, and it's the way also to buffer our two lactic plant on sites, yes. So we see it as, I think, a very nice addition. And actually, it's a deal and a contract with very little, if any, cost. It's a pipeline. So yes, on the front face, the margin might look low, but it has such a huge operational leverage impact on the rest of the lactic that we sell to the preservation and other categories that it's very important. So there are no specific dissynergies that we see from that deal. Alex Sokolowski: Our next question this morning comes from Reg Watson at ING. Reginald Watson: I'd like to come back to the cost cutting, if I may, Peter. Thank you for giving us the EUR 5 million delta between sort of Q1 and Q2. Could you break that down a bit, please? How much of that is the absence of the costs you had to take in Q1? And how much of that is the cost saving? And how much of that is the sugar? And a follow-on question from that is, how do you expect this to build through the quarters in the year? Is this a one-off cost-saving exercise? Or do you see further benefits to come in the coming quarters? Peter Kazius: Yes. No, thanks. So the EUR 5 million, by the way, relates to sugar and cost reduction activities. So it's not even reversing the other basically element. This is a kind of recurring benefit, and I actually think it will increase over the second half of the year as well. Reginald Watson: Okay. And then to that, in terms of the language and Olivier, Peter, feel free either of you to answer this. You mentioned that the sales strength in Q2 is expected to "more than compensate for Q1." As analysts, we're too hung up on quarterly volatility, if we look at first half in the round, do you expect them to deliver positive volume for -- sorry, positive sales with particular volume mix for the business as a whole? Peter Kazius: So if I look for, let's say, the business as a whole in terms of volume mix, then for the first half, I do anticipate indeed a kind of positive elements. If I look in the combination a bit, then Health & Nutrition, I see a recovery, but that is around kind of the same. If you look in terms of price, I think I alluded in terms of FI&S, I anticipate in Q2, still a mild year-on-year price reduction, driven by lactic acid to PLA and then basically reversing of that trend in the second half of the year, driven by the growth which we made on Middle East and partly pricing that's true. In terms of Health & Nutrition, if I pick pricing, then we had a kind of 4% pricing delta. I anticipate a mild kind of price erosion during the remainder part of the year. Reginald Watson: And then final question from me. How is the ramp-up of the gypsum-free lactic acid plant going? Where are you at on continuous capacity utilization? Olivier Rigaud: So Reg, so where we are, as you know, the plant is designed on 125,000 tons of lactic acid. We are now approaching really the 100,000 tons type of level on that plant, yes. And it's also important that -- because we've discussed that in the past as well. It's also because these are significant additional volume we put in the market that we -- it's important we also put that in the market wisely, also making sure that, yes, we do not come with large volume that would necessarily impact our margin anywhere. So there is a conscious ramp-up that we have as well on this. Obviously, the sooner we can fill it, the better, but we see a very nice upside on the remaining part of the year on basically PLA that is requiring a lot more globally. And that's, I would say, to me, quite an important statement because, as you know, the conversion ratio usually between lactic and PLA is 1.4. So you need 1.4x lactic to PLA. So when PLA grows, it's really accelerating massively the need of lactic acid. And we see that for our JV, but we see that also for Chinese players right now. And that's something that when we look to the whole balance of lactic market, it would be really helpful to see how Corbion can leverage on one side, the fact that we have a competitive position because we are gypsum-free. And we know our main competition is Chinese. The second is, if you look over the last 6 months, there is quite a positive trend in the favor of Corbion when we look to the carb cost, the sugar -- the Thai sugar cost versus Chinese cost and all our competitors in China are on corn. So the ratio is again back in favor of Thai sugar since September last year. So it's already 2 quarters. And that, I think, going to support also Corbion margin going forward. Reginald Watson: Okay. So I'm really pleased to view that you're running that plant at 80% capacity utilization because that must be driving efficiencies in terms of variable cost of production, et cetera. So that must make it probably the most cost-efficient plant in the world for lactic acid, Am I wrong with that? Olivier Rigaud: No. You're right. But primarily right now with the Middle East, this is the only plant in the world with no sulfuric acid because this -- the whole story about, of course, as you know, conventional lactic process is that you are using lime and then you need sulfuric to precipitate into gypsum. Reginald Watson: Yes. Olivier Rigaud: And the reason why we developed that process over the years is to have no gypsum, hence, you don't need sulfuric. So that's a big competitive advantage, primarily these days with what's happening in the Middle East. Reginald Watson: And then does that mean then that the cost benefit of the ramp-up is now already included in the numbers? Or should we continue to see more benefit to come from any further utilization, any further ramping of this, through the year? Olivier Rigaud: We have already factored in, in our outlook what we think we're going to achieve in terms of capacity this year. So the rest, we keep for '27. Alex Sokolowski: Very good. And our last question this morning comes from Eric Wilmer at Van Lanschot Kempen. Eric Wilmer: Yes, two remaining questions, brief questions, actually. Given that sugar prices or sugar costs actually have come down year-on-year, might this actually result in market dynamics and forcing lower product pricing for functional ingredients during the remainder of this year? And maybe on customer behavior, are there any signs of -- given the current disruptions, customers stocking up your product, you mentioned sulfuric acid supply chain issues. And maybe actually also a third one then on transportation costs. You talked about obviously increasing them. I was wondering to what extent are customers receptive, different from what they may read. Energy costs have actually started to come down a bit again. And I've been hearing that this is not always a very straightforward discussion. Olivier Rigaud: No, I think, Eric, so good point. So basically, I think, we have -- except -- I mean, again, in a few large U.S. contracts, and of course, the joint venture of PLA and sugar-related costs is not something we have really widely spread. So obviously, key customers do track, of course, input cost. But in terms of competitive dynamic, today, it's getting really about, as you know, our critical competitors in lactic are in China, and they are based on corn. So the important is to look to the Chinese corn versus New York 11, Thai sugar or Brazilian sugar. So that's one. And this is what plays in the competitive dynamic. On stocking, we -- I mean, we don't see that because -- of course, the situation has been heavily complexified with tariffs and still is. And what we see is that the advantage of Corbion being the only lucky producer having a plant in each geography is really helpful for us. So there are different dynamics if you look to the U.S., where we have our plant in Blair, Nebraska, in Brazil, in Campos dos Goytacazes, in Thailand. So we do not anticipate any extra customer stocking. On the opposite, we see people being so tight on working capital that we have a lot of rush orders, a lot of last minute which are creating other issues. So that's what we see. And on freight cost, yes, of course, as I said, Health & Nutrition is very different than FI&S. In Health & Nutrition, all the large contracts do have a freight clause that we review on a quarterly basis. So if freight costs are, let's say, improving or declining in the next quarter, we would apply it and vice versa. In FI&S, it's very different. And as you know, we have a big route that is impacting Corbion, where most of the European lactic acid is freight from Thailand to Europe. And this is a very large volume because this is the feedstock for all the derivatives we are making into our Spanish and Dutch operations. So that's an important one for us, where basically, we have more choices than to push these extra freight cost to the market. And this is what Peter explained what we are busy doing and what we have to do. Alex Sokolowski: Okay. This concludes our conference call this morning. Thank you all for your attendance and questions, and we look forward to discussions at upcoming conferences in the next weeks. Please note that we will hold our Annual General Shareholders Meeting on May 13, 2026, in Amsterdam, and our Q2 half year '26 results on July 31. Information on both meetings is available on the Investor Relations page of our website, and we look forward to engaging with you again. Operator, you may close the call. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Metro Inc. 2026 Second Quarter Results Conference Call. [Operator Instructions] Also note that this call is being recorded on April 22, 2026. And I would like to turn the conference over to Sharon Kadoche, Director, Investor Relations and Corporate Finance. Please go ahead. Sharon Kadoche: [Foreign Language] Good morning, everyone, and thank you for joining us today. Our comments will focus on the financial results of our second quarter, which ended on March 14. With me today is Mr. Eric La Fleche, President and CEO; Nicolas Amyot, Executive VP and CFO; Marc Giroux, Chief Operating Officer; and Jean-Michel Coutu, President of the Pharmacy division. During the call, we will present our second quarter results and comment on its highlights. We will then be happy to take your questions. Before we begin, I would like to remind you that we will use in today's discussion different statements that could be construed as forward-looking information. In general, any statement which does not constitute a historical fact may be deemed a forward-looking statement. Words or expressions such as expect, intend, are confident that, will and other similar words or expressions are generally indicative of forward-looking statements. The forward-looking statements are based upon certain assumptions regarding the Canadian food and pharmaceutical industries, the general economy, our annual budget and our 2026 action plan. These forward-looking statements do not provide any guarantees as to the future performance of the company and are subject to potential risks, known and unknown as well as uncertainties that could cause the outcome to differ materially. Risk factors that could cause actual results or events to differ materially from our expectations as expressed in or implied by our forward-looking statements are described under the Risk Management section in our 2025 annual report. We believe these forward-looking statements to be reasonable and pertinent at this time and represent our expectations. The company does not intend to update any forward-looking statements, except as required by applicable law. I will now turn the call over to Nicolas. Nicolas Amyot: All right. Thank you, Sharon, and good morning, everyone. I will go directly to our Q2 results as Eric will comment on the status of the current strike in our Quebec operations. Q2 sales reached $5.1 billion, an increase of 4.1% versus the second quarter last year. Sales were positively impacted by new store openings, same-store sales growth as well as the transfer of one significant pre-Christmas shopping day to the second quarter this year. Front store sales -- or food same-store sales grew by 1.8% in the quarter, up 1.5% when adjusting for the Christmas shift. On the pharmacy side, same-store sales grew by 5.1%, supported by a 6.1% growth in prescription sales and a 2.8% growth in front store sales. Similar to food, when adjusting for the Christmas shift, front store sales were up 2.3%. Our gross margin reached $1.03 billion or 20.1% of sales in the quarter. This compares to 20% in Q2 last year. Part of the increase is attributable to productivity gains recorded in our distribution centers. As mentioned on the last call, our operations are back to normal in our Toronto distribution center. Operating expenses were $538.9 million in the quarter, up 3.4% year-over-year. As a percentage of sales, operating expenses were 10.5% versus 10.6% in the second quarter last year, reflected continued cost discipline. The asset disposals recognized in the second quarter of 2026 generated net gains of $20.4 million, of which $20.1 million was attributable to the disposal of out-of-service warehouses. EBITDA for the quarter amounted to $508.6 million. That's up 10.3% year-over-year and represented 9.9% of sales. Excluding the gain on sale from the disposal of out-of-service warehouses of $20.1 million, adjusted EBITDA stood at $488.5 million, up 6% year-over-year, reaching 9.6% of sales, an increase of 16 basis points over the second quarter of 2025. Depreciation and amortization expense for the quarter was $144.3 million, up $8.2 million. The increase in depreciation and amortization is mainly due to the increase in retail network investments, including right-of-use assets as well as ongoing investments in technology. Net financial costs for the quarter were $37.3 million compared to $33.4 million last year. The increase is mainly due to higher interest expense on net debt. On February 25 this quarter, the company tapped the bond market and issued a 5-year $350 million note bearing interest at a rate of 3.469%. We used the proceeds of the offering to repay debt under our revolving credit facility and for general corporate purposes. Including this financing, our debt-to-EBITDA ratio stands at about 2.2x. Our effective tax rate of 24.6%, which continues to benefit from the Terrebonne DC tax holiday is similar to the effective tax rate of 24.5% in the second quarter last year. Adjusted net earnings were $236.5 million in the quarter compared to $226.6 million last year, an increase of 4.4%, while adjusted fully diluted net earnings per share amounted to $1.11 versus $1.02 last year, up 8.8% year-over-year. Our capital expenditures in Q2 totaled $85.3 million, consistent with last year. After 24 weeks on the food retail side, we opened or converted 6 stores and carried out 4 major renovation projects for a net increase of 141,000 square feet or 0.6% of our food retail network square footage. Under our normal course issuer bid program, as of April 2, we have repurchased 2.9 million shares for a total consideration of $279.8 million at an average share price of $96.47. In closing, we delivered solid Q2 results, supported by strong sales growth and good expense control. On this, I will now turn it over to Eric for additional color on our Q2 results. Thank you. Eric La Flèche: Thank you, Nicolas, and good morning, everyone. Before turning to the results, I will provide an update on the strike that started on March 30 in our Quebec operations and which is impacting produce distribution to our stores in Quebec. We are obviously disappointed by the strike now in its fourth week. We have been back at the bargaining table since April 8 and remain determined to reach an agreement that takes into account the needs of our employees and those of our customers while ensuring the long-term competitiveness of our company. As in any situation of this kind, the first days of the labor dispute required adjustments while our contingency plan was being fully implemented. Our contingency plan is now in place and our stores, although not in perfect condition, are generally well stocked. The strike has impacted our sales, especially given that it happened the week before Easter. We will be able to specify the financial impact once the dispute is settled. Turning to our second quarter results. We delivered solid results driven by strong revenue growth and good expense control as our teams continue to offer the best value possible to our customers in all of our banners. We are very pleased with our discount store expansion plan that is fueling our food sales growth and with the continued strong momentum in our pharmacy business. In Q2, sales grew by 4.1%, adjusted EBITDA by 6% and adjusted earnings per share by 8.8%. Total food sales were up 3.6% and food same-store sales were up 1.8%. In pharmacy, we had another strong quarter with 5.1% total same-store sales growth on top of 7% last year. Our discount banners continue to perform well with same-store sales growth exceeding that of Metro, together with the continued contribution of new store openings and conversions. Our internal food basket inflation was in line with the reported food CPI of 4.3%. We continue to see inflationary pressures on certain commodity prices, namely in the meat category, in addition to higher-than-usual CPG vendor cost increases. Our teams remain highly focused on cost mitigation initiatives through supplier negotiations and pricing discipline with the objective of offering the best value possible to our customers. During the quarter, comparable store customer traffic was slightly lower, offset by growth in the average basket. Absolute traffic across the network increased, supported by new store openings. Promotional activity remains elevated and private label sales continued to outperform national brand, contributing to our gross margin performance. Competitive environment remains intense but rational. Online sales grew by 19.8% in the quarter. Growth is being driven by third-party marketplaces, the ramp-up of click and collect services and delivery within our discount banners. We are pleased with the sales performance of our own services and third-party marketplaces, which are recording similar growth rates compared to last year. Turning to pharmacy. Prescription sales were up 6.1%, driven by continued organic growth, specialty medications and GLP-1s. Commercial sales grew by 2.8%, led by cosmetics and health and beauty categories, partly offset by a softer performance in OTC. The cough and cold season was compressed this year. It peaked earlier and was shorter in duration. Our retail CapEx plan is on track as we successfully opened 3 new stores in Q2, including 2 discount stores. Halfway through F '26, our food retail network square footage growth increased by 0.6%. And over the last 12 months, it increased by 1.9% as we execute our new store opening plan, mostly in discount and mostly in Ontario. On the pharmacy side, after 2 quarters, we have completed 15 out of the 35 renovation projects planned for F '26, including 7 pharmacies with our new concept. So to conclude, we're confident that our effective merchandising programs, strong private label offering, our Moi program, consistent execution at store level as well as our ongoing collaboration with our supply chain partners will allow us to continue to grow and deliver long-term shareholder value. Thank you, and we'll now be happy to take your questions. Operator: [Operator Instructions] And your first question will be from Mark Carden at UBS. Mark Carden: So to start, your food inflation was essentially in line with the 4% plus purchase from store CPI. Just as inflationary pressures persist, have you seen any sequential changes in customer behavior? Are they leaning even more heavily into discount? You called out the strength there in your release. Are you seeing any incremental uptick on trade down within your stores? Just any changes on that front? Eric La Flèche: No real changes, very consistent customer behavior as we've been reporting over the last several quarters that I tried to outline in my opening remarks. Yes, discount is growing faster. People are searching for value in all of our banners, not just discount. Private label is up, penetration remains elevated. So it's very consistent. Food inflation is driven a lot by the meat category. And as I said, CPG cost increases. I would sum it up that way. Mark Carden: Great. That's helpful. And then as a follow-up, just given where fuel prices are today, historically, have you guys seen any demand destruction or consumers taking units out of their baskets when prices at the pump cross a certain threshold or any broader shifts in food shopping behavior at your stores? Eric La Flèche: We don't have a specific number to report to you, but energy prices pressures, fuel price pressures contribute to affordability crisis and contributes to customers searching for value in everything that they buy, including food. So it's just one more element that puts pressure on the customer, and we're well positioned with our multiple store formats and growing discount formats to address those customer needs. Operator: The next question will be from Michael Van Aelst at TD Cowen. Michael Van Aelst: I just wanted to start by following up on the competitive question. So last quarter, you pointed to competitive -- the competitive nature of the industry has seemed to spook the stock a little bit. But you suggested that it's intense but rational. So that doesn't seem like anything different than what you've said in the past. But do you feel that the moderating trend of normalized same-store sales growth from Q1 to Q2 reflects an increasing competition or a consumer that's under more pressure and therefore, trending down more or cutting back on tonnage? Eric La Flèche: Tonnage in the whole market is flat to down. So clearly, there's pressure on the consumer side. So I think it's a general market dynamic of lower low consumption and people being careful. The competitive environment, as I said, it's intense. We are competing with large players. Everybody is looking for market share, and it's competitive out there, the way it's always been. Last quarter, I was perhaps referring more to the square footage growth and people opening stores. That creates some noise in the market, but nothing abnormal and nothing that we've not seen before. And we're, like I said, well positioned to compete. Michael Van Aelst: Okay. And then just on the fuel cost increases. I know you mentioned your comments relative to the consumer impact. But as far as your cost impact, I know you have a lot of third-party distribution. So are you seeing fuel cost surcharges already? And if so, are you able to pass those on? Or should we expect that to have some pressure on margins? Nicolas Amyot: Yes. Maybe I'll take this one, Michael. I would say that from a fuel cost increase perspective, two sides to the story. On the products that we buy from the supply chain, so far, we have not received that many price increase requests, only a few actually. And we're negotiating the conditions and trying to delay the impact that this might have on food pricing. Obviously, the situation, as everybody knows, is very volatile, and we don't know how long it's going to last and how it's going to unfold. So -- but at this point, nothing to say per se on cost of product. In terms on our own distribution side, the cost of fuel is impacting our activity to distribute food and drugs to stores and pharmacies, and that's pretty direct. So we've started feeling it, and that the current elevated pricing of fuel you could imagine a $5 million-ish per quarter impact if everything was to hold as the situation is today. So that's obviously, everything else being equal, more pressure that we need to manage. Michael Van Aelst: So in the past, I think you said you typically pass on these higher fuel costs in your distribution system. Is that something you're already working for? Or you're looking for other ways to offset? Eric La Flèche: Well, it's part of our cost structure, and we have to manage and keep our prices competitive in the market. Over time, we expect that higher costs like that will be reflected, but it hasn't started to happen yet. Operator: Next question will be from Mark Petrie at CIBC. Mark Petrie: I know you're not going to give specific numbers, but obviously, the strike impact is on people's minds. So hoping you can give us some qualitative comments just with regards to how Quebec or Ontario might be tracking differently in Q2 so far? And if you can give us some sense of the incremental costs that are incurred as a result of your mitigation strategies? Eric La Flèche: Like I said in my opening remarks, we're going to keep the impact for a later date in due course when we have the full tally. Like I said, we lost some sales. When you lose sales, you lose the bottom line. So clearly, it has had an impact. There are direct costs to set up a contingency plan. So we will communicate in full transparency when we're in a position to do so, but I don't want to give at this time any color. This is a strike that's affecting our Quebec business, not our Ontario business. So let's be clear on that. But it is having an impact. The contingency plan is better every day. Stores are looking better every day. And we are, I think, decent -- we're not perfect, like I said. There's maybe some small varieties missing from one store to another or from time to time. But generally, our stores are looking okay, looking good, and we can answer most of the customer needs in our Quebec stores. So hopefully, we'll settle the strike. But like I said, we need to be competitive. The demands at the table are not reasonable and can't be accepted. So we will we are patient, and we will preserve our long-term competitiveness. Nicolas Amyot: Maybe, Mark, just a quick comment. I think in your question, you referred to Q2, but it's really Q3 for us, right? The strike started on March 30. So it's going to be no impact in Q2. It's going to be impacting us in Q2. Eric La Flèche: In Q3. Mark Petrie: Yes. Yes. Understood. totally understand. I guess one other question. I'm just curious if you can share any trends or data with regards to the impact of buy Canadian and how some of the most affected products and categories last year have been performing as you lap sort of the biggest impact last year. Marc Giroux: Mark, it's Marc here. We said in the last few quarters that buying Canadian, there was still elevated sales on Canadian product, but it has softened over the last few quarters. So buying Canadian continues to be of interest for consumers, but we have not seen a significant increase of sales year-over-year on Canadian product right now. Mark Petrie: Yes. Okay. But as you're lapping the big sort of initial surge last year, are you seeing outright declines in any of those sort of most affected categories? Marc Giroux: No, I would say that it's pretty stable, Mark. Operator: Next question will be from John Zamparo at Scotiabank. John Zamparo: I wanted to ask about the pharmacy side of the business and prescriptions in particular, that saw same-store sales accelerate this quarter. I wonder if you could add more color on what you're seeing from your GLP-1 sales. I think you listed that third among the drivers of growth. Is that to say it was less of a driver this quarter against prior quarters? And does Coutu capture a similar level of market share on GLP-1s as it does on the rest of its pharmacy business? Nicolas Amyot: I'm sorry, I missed the last part around market share. John Zamparo: Yes. The second part of it is, is the market share on GLP-1 similar to the rest of the pharmacy business? Nicolas Amyot: Yes. Perfect. You are correct in saying when we listed it as organic specialty and GLP-1s. GLP-1s is a slightly less strong contributor to same-store sales growth as the other 2. Despite that, it is considerable and it's continuing to grow at a very strong pace, especially as new generations of GLP-1s are coming to market, and that's driving a lot of the growth right now in the GLP-1 sector. In terms of share, we are definitely holding our normal share and even for some molecules outperforming, I'd say. John Zamparo: Okay. Understood. And then back to the grocery business, the growth from e-commerce continues to be robust. I wonder if this sustains at or around these levels and if the e-commerce business continues to grow, does that eventually create a drag on gross margins? Or is profitability from these sales roughly in line with the overall consolidated number? Marc Giroux: That's a good question. We believe that e-com growth will normalize at some point as the market matures. But as you're pointing out, we continue to see strong growth on both food and pharma. E-com has a lower contribution -- e-com sales has a lower contribution as brick-and-mortar sales. However, we've been able with our e-com model to mitigate those -- that profitability gap with efficiency and multiple efficiency strategies, and we will continue to do so. That's what allowed us to continue to deliver the type of EBIT growth as a business as a total. So we'll continue to leverage our flexible model to meet customers where they are. More and more customers are moving to same-day delivery and our model and fulfillment model allows us to meet that demand from customers, and we'll continue to be focused on, as I say, efficiency, not only in e-com, but in our overall business. Hopefully, I've answered your question. Operator: [Operator Instructions] Next is Chris Li at Desjardins. Christopher Li: I was wondering if you can provide some sort of very high-level colors on how the food gross margin performed during the quarter. I know in the opening remarks, you referenced private label and some DC efficiency as being positive. But just at the overall level, like did the gross margin in food, was it largely stable? Or did it improve slightly? Eric La Flèche: We don't segregate between food and pharma on the gross margin. But like I said, private label contributes, lower shrink contributes, better forecasting contributes. So I think the teams did a good job to protect and slightly grow gross margin, and we're pleased with that performance. Christopher Li: Okay. That's helpful, Eric. And then maybe a follow-up just on the Moi loyalty program in Ontario. It's been, I think, in the market for 1.5 years now. Just where are you on your journey to leverage the enhanced data analytics to deliver more personalization and effective promotions in Ontario through the new program? Marc Giroux: Thanks for your question, Chris. It's Marc here. Moi continues to perform well and sales penetration continues to increase and digital customer engagement continues to increase as well. So we're satisfied with the progress we're making on Moi in Ontario and in Quebec, in food and pharma in Quebec. We've been leveraging data for a number of years even before the launch of Moi in Ontario with our partner, dunnhumby. We use that data in our merchandising team to optimize promotion, to optimize assortment and make sure that we have the right commercial strategy to meet the customers. We've been doing that before Moi and now are continuing to do it with Moi. On personalization, since our launch, as more and more customers engage digitally, we can have direct digital contact with them and deliver personalization directly to different channel. So as Moi progresses, our reach in terms of personalization increases. As for Quebec, the program has been in market now for a few years in both food and pharma. And with our multiple banners and high penetration of Quebec household, the extent of our reach and personalization is greater in Quebec and the cross-shopping and the impact of cross-shopping in Quebec is greater as well. While we see cross-shopping and the benefit of cross-shopping in Ontario as well, to give you an example, in Quebec, as consumers shop food and pharma, they spend 100% more with our business as a whole through all of our stores and different channels. So we'll continue to focus on increasing reach, increasing digital reach so we can continue to drive personalization. There's still opportunity for us in both markets, more in Ontario as the program continues to grow. Operator: And at this time, gentlemen, it appears we have no other questions registered. Please proceed. Sharon Kadoche: Thank you all for your interest in Metro, and please mark your calendars for our third quarter results on August 12. Thank you. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude the conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines. Enjoy the rest of your day.
Operator: Greetings. Welcome to Century Communities First Quarter 2026 Earnings Conference Call. [Operator Instructions] Following the presentation, we will conduct a question-and-answer session. [Operator Instructions]. Please note this conference call is being recorded. I will now turn the conference over to Tyler Langton, Senior Vice President of Investor Relations for Century Communities. Thank you. You may begin. Tyler Langton: Good afternoon. Thank you for joining us today for Century Communities Earnings Conference Call for the First Quarter 2026. Before the call begins, I would like to remind everyone that certain statements made during this call may constitute forward-looking statements. These statements are based on management's current expectations and are subject to a number of risks and uncertainties and that could cause actual results to differ materially from those described or implied in the forward-looking statements. Certain of these risks and uncertainties can be found under the heading Risk Factors in the company's latest 10-K as supplemented by our latest 10-Q to be filed shortly and other SEC filings. We undertake no duty to update our forward-looking statements. Additionally, certain non-GAAP financial measures will be discussed on this conference call. The company's presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Hosting the call today are Dale Francescon, Executive Chairman; Rob Francescon, Chief Executive Officer; and Scott Dixon, Chief Financial Officer. Following today's prepared remarks, we will open up the line for questions. With that, I'll turn the call over to Dale. Dale Francescon: Thank you, Tyler, and good afternoon, everyone. We are pleased with our first quarter results given continued market pressures, which intensified even further beginning in early March. While demand at the start of the quarter was roughly in line with year ago levels, geopolitical issues and increased economic uncertainties, coupled with higher interest rates and gas prices, further eroded consumer settlement, which weighed on our order activity most meaningfully in March, typically the highest sales month of the quarter. Despite these macro challenges, our operations continued to perform well. Our first quarter adjusted gross margin increased by 140 basis points sequentially, and we grew our first quarter ending community count by 4% versus the prior quarter. We also continue to effectively manage our inventory levels with our finished specs at the end of the first quarter, down 16% sequentially and 31% year-over-year. We also continue to be encouraged by bipartisan efforts to address the shortage of affordable housing and are still well positioned for growth when demand improves. Based on our current owned and controlled lot count, we have the ability to grow our deliveries by 10% or more annually once market conditions improve. So long as slower market conditions persist. We will continue to balance pace and price, control our cost and inventory levels and return capital to our shareholders through dividends and opportunistically repurchasing shares at what we view as very attractive levels. In the first quarter, we repurchased approximately 2% of our shares outstanding at the beginning of the year, at a 27% discount to our book value and increased our quarterly cash dividend by 10% to $0.32 per share. I'll now turn the call over to Rob to discuss our strategy, operations and land position in more detail. Robert Francescon: Thank you, Dale, and good afternoon, everyone. Starting with sales, while in the fourth quarter of last year, we focused more on pace versus price, -- we took the more balanced approach in the first quarter 2026 that we outlined on our conference call last quarter. The quarter started off on a relatively healthy basis with our absorption rates in January, roughly flat on a year-over-year basis. . In line with typical seasonality, we also saw sequential increases in absorption rates in both February and March. That said, our absorption rate in March declined on a year-over-year basis as the conflict in the Middle East as well as higher gas prices and interest rates weighed on home buyer settlement and we ended the quarter with net new orders totaling 2,379 homes. We were pleased to see our traffic increase each month during the first quarter, with March levels up 13% over January, and we continue to believe that there is solid underlying demand for new homes. We are also optimistic that any interest rate relief and improvement in consumer confidence will unlock buyer demand and drive our conversion rates higher. Additionally, our cancellation rate of 12.2% in the first quarter was below the levels we experienced throughout most of 2025, demonstrating the commitment of buyers once they have made the decision to purchase a home. Our order activity so far in April has trended better than March with orders also improving sequentially over the past several weeks. We delivered 2,013 homes during the first quarter and our incentives on these homes averaged approximately 1,250 basis points, down roughly 50 basis points from fourth quarter 2025 levels. Within the first quarter, our incentives on closed homes were at the lowest level in January and increased as the quarter progressed as we look to maintain an appropriate pace as macro headwinds intensified. Assuming current market conditions, we expect incentives on closed homes in the second quarter of 2026 to be similar with first quarter levels. In the first quarter, adjustable rate mortgages accounted for roughly 30% of the mortgages that we originated by volume of principal, a further increase from fourth quarter 2025 levels of approximately 25% and well above first quarter 2025 levels of less than 5%. Receptivity of our buyers to arms has been increasing. And this increased adoption of arms could help partially address the market's affordability challenges. While incentives are weighing on our margins, our operations continue to perform extremely well in the first quarter. Our direct construction costs on the homes we delivered declined by 2% on a sequential basis. Our cycle times averaged 114 calendar days down 15% from 134 days in the year ago quarter. Our finished lot costs in the first quarter decreased by 1% on a sequential basis and we continue to expect our average finished lot costs for 2026 to be 2% to 3% higher than fourth quarter 2025 levels. In the first quarter, we started 2,749 homes in advance of the spring selling season and remain focused on managing our inventory levels, ending the quarter with less than 3 finished specs per community. Our average community count was 309 communities in the first quarter, and we ended the quarter with 316 communities, up 4% on a sequential basis. For 2026, we continue to expect our average community count to increase in the low to mid-single-digit percentage range on a year-over-year basis. We ended the first quarter with nearly 60,000 owned and controlled lots with our total lot count roughly flat on a sequential basis as we continue to proactively manage our land position. In 2026, we expect our land acquisition and development expense to be in the range of $1 billion to $1.2 billion. We have the ability to reduce this number if market conditions warrant without impacting our near-term growth prospects or accelerate if market conditions improve, given the strength of our balance sheet. As we have stated over the past several quarters, the attractive growth profile and cost position of our land is also underpinned by a traditional land option strategy that is both flexible and reduces risk with minimal exposure to land banking. The flexibility of our option agreement has allowed us to adjust terms in many cases and increasingly achieve lower prices as sellers have started to adjust their expectations. At the end of the first quarter, only 11 of our 316 communities or roughly 3% utilized a land bank. As a result, we have much more control over the pace at which we start homes rather than having fixed takedown schedules and higher interest costs influence our pace. Additionally, our current option lot count of 24,000 lots is secured by deposits that totaled just $97 million or less than 4% of equity. We remain focused on controlling our costs, maintaining an appropriate sales pace and preserving the ability of our favorable land position to drive meaningful growth so that we can take advantage of improved conditions when the market rebounds. I'll now turn the call over to Scott to discuss our financial results in more detail. John Dixon: Thank you, Rob. In the first quarter, pretax income was $33 million and net income was $24 million or $0.84 per diluted share. Adjusted net income was $26 million or $0.88 per diluted share. Home sales revenues for the first quarter were $734 million with our average sales price of $365,000, roughly flat on a sequential basis. . Our deliveries of 2013 homes were impacted by the reduced order activity that we experienced in March. For the second quarter 2026, we expect our deliveries to range from 2,200 to 2,400 homes with further sequential increases in both the third and fourth quarters. In the first quarter, land sales and other revenues totaled $33 million and generated a profit of approximately $11 million, driven primarily by a single transaction in our Southeast region. Our first quarter 2026 GAAP homebuilding gross margin of 17.8% increased by 240 basis points over fourth quarter 2025 margins of 15.4%. Our first quarter margin benefited by 90 basis points from a reduction to our warranty accrual and rebate collections in excess of previous estimates, but was impacted by 10 basis points of purchase price accounting. Our adjusted gross margin in the first quarter was 19.7% compared to 18.3% in the fourth quarter of 2025. The sequential improvement in our adjusted gross margin was primarily driven by lower incentives. For the second quarter 2026, we expect the most significant driver of our adjusted homebuilding gross margin to continue to be incentives needed to generate an acceptable sales pace, which, as Rob noted earlier, we currently expect to be similar to first quarter levels. SG&A as a percentage of home sales revenue was 15.8% in the first quarter and impacted by lower-than-expected deliveries. Assuming the midpoint of our full year 2026 home sales revenue guidance we expect our SG&A as a percent of home sales revenue to be roughly 14% for the full year 2026, with SG&A as a percentage of home sales revenue of 14.5% for the second quarter. Revenues from financial services were $22 million in the first quarter, and the business generated pretax income of $8 million. Revenues benefited from a fair value adjustment associated with an increase in our locked loan pipeline and mortgage servicing rights portfolio. We currently anticipate the contribution margin percent from financial services in 2026 to be similar to 2025 levels. Our tax rate was 26.8% in the first quarter of 2026, and we expect our full year tax rate for 2026 to be in the range of 26% to 27%. Our first quarter 2026 net homebuilding debt to net capital ratio was 30.5%, and our homebuilding debt-to-capital ratio was 32.2%, basically consistent with the prior year quarter. We ended the quarter with $2.6 billion in stockholders' equity and $886 million of liquidity. During the quarter, we increased our quarterly cash dividend by 10% to $0.32 per share and repurchased 617,000 shares of our common stock for $40 million at an average share price of $64.82 or a 27% discount to our book value per share of $88.75 as of the end of the first quarter. Given the impact of the conflict in the Middle East with lower consumer confidence and higher interest rates and gas prices adversely affecting our order activity we are reducing our full year 2026 home delivery guidance by 5% and now expected to be in the range of 9,500 to 10,500 homes and our home sales revenues to be in the range of $3.5 billion to $3.8 billion. In closing, we are pleased with our performance in the current environment as we effectively balance the pace and price and manage our costs and inventory levels. We increased our quarterly dividend and bought back 2% of our shares outstanding in the first quarter and will continue to be opportunistic with buybacks while continuing to position the company for future growth. With that, I'll open the line for questions. Operator? Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. Your first question comes from Alex Rygiel with Texas Capital Securities. Alexander Rygiel: Good evening, gentlemen, nice quarter. Couple quick questions here. So I appreciate the commentary with regards to sort of reducing spec inventory and whatnot sequentially and year-over-year. Can you comment on how you think your competitors in your markets have adjusted their spec inventory? And how do you feel about spec inventory just broadly across all your portfolio? John Dixon: Yes, Alex, this is Scott. So generally speaking, I think we -- think we're pretty optimistic with what we see from a market perspective in terms of the level that our specs are out there. from a finished perspective, especially as we kind of compare back to maybe this quarter or mid last year. So generally speaking, I think we're comfortable with most markets with where the overall finished spec inventory is at. From our perspective, really a focus area to really ensure at a community level, we feel like we're in a pretty strong position from pricing as well as consumer demand. And so that's really where the focus has come from our perspective on our finished count inventory at the end of the quarter. Alexander Rygiel: And a few years back, we were, I don't know, fairly on a fairly regular basis, you were entering new geographies or new markets. I feel like that message has slowed a little bit here. At what point do you think Century sort of reaccelerate such geographic expansion? Robert Francescon: Well, I think the focus, Alex, was to get a larger geographic reach in the past. We're now in over 45 markets coast to coast, and we like the markets we're in. As far as new markets, we continue to look at new markets. But candidly, our biggest focus is growing within our existing footprint -- and because when you look at our size of company, we actually have -- that's 1 of our competitive advantages is we have a large geographic reach. But the key is really to start growing deeper in each 1 of those markets to be in top 10 if we're not already in a top 10 position or in a top 5 position or even higher than that within the market. So that's really what our focus is. We would still look at new markets, but that would come secondary to growing in our existing markets. Operator: Next question comes from Natalie Kulasekere with Zelman & Associates. Natalie Kulasekere: Have you received any communication regard cost increases or field surcharges from your vendors? And if you have, do you think it's something that could be negotiated? Or do you expect a reacceleration in cost inflation towards the latter part of this year or even heading into next year? . Robert Francescon: Well, to date, we've been able to avoid price increases. And sequentially, our costs were down 2% on our direct. With that said, of course, there's a lot of headlines on oil and petroleum products, diesel fuel and all of that. And that runs through various channels, as you know, within the home building SKUs of people we use. But with that, so far, we've been able to hold off on that. Is that something that's going to be a topic in Q3 and Q4, don't know. We hope that this is short-lived and everything gets back to normal on those prices. But to date, what I can tell you is we've been able to avoid price increases as it's related to oil. Natalie Kulasekere: All right. And are you able to provide more detail about the land sales? I know you said it was a single transaction in the Southeast, but are there any more in the pipeline? And how should we kind of look at this line item going forward? . John Dixon: Sure. Natalie, really just an opportunistic item that came up in the Southeast that we went ahead and took advantage of. So it's so much more of an opportunistic transaction that came our way in the first quarter that we wouldn't have executed on. And it was a community where it was a larger community. These were back half lots that we did not need for the foreseeable future. So it made sense to pay that investment down. . Operator: Your next question comes from Jay McCanless with Citizens. Jay McCanless: So just wanted to kind of pick through the regions. It looks like Southeast you saw a jump in closing or gaining closings there. The West is doing a little better. were some regions of the country affected more than others? And maybe what have you seen so far in April in terms of regional strength versus weakness? . Robert Francescon: So the Southeast still remains really strong. Within that, Nashville would be 1 of our top markets. Austin, we're seeing some green shoots coming out of Austin. And candidly, on the West, the Bay Area has probably been the slowest or the weakest market that we're experiencing right now. But generally, the Southeast has been very good. . Jay McCanless: Okay. That's good to hear. And then as we -- as you think about trying to hold the line on pricing, I mean, right now, is it still pretty aggressive incentives out there. You said 12.5%, I think, this quarter, you're expecting maybe the same for second quarter. I guess, what are you seeing out of competitors? Are they still leaning in pretty aggressively on incentives as well. What's happening there? . Robert Francescon: I think that definitely the market is driven by incentives, of course. In terms of the peak on that, hopefully, it was like Q4 end of last year and things are tempering slightly. We're at 50 basis points less. We think we'll be flat in Q2, still remains to be seen. I think other builders are messaging the same thing that there is a little bit of a pullback, but when you look at some buyer uncertainty out there with everything that's going on, it's a needed thing today to move passes. . Operator: Your next question comes from Michael Rehaut with JPMorgan. . Michael Rehaut: Thanks. Good afternoon, everyone. Wanted to kind of get a sense for sales pace in April. I'm sorry if I missed those comments earlier. But sales pace for the first quarter rather, was down about 9% year-over-year, and it seems like it maybe got worse throughout the quarter, if I also heard that right. If you could give us any kind of sense of how April is trending and I guess I have a follow-up as well. . Robert Francescon: So just going back to Q1 January started out kind of roughly flat year-over-year. Incrementally, we picked up pace from February versus January and from March versus February. However, March with a lot of the things that were happening within the marketplace, our year-over-year was actually down quite significantly for March. So we didn't have another way to say we didn't have as good of March as we had hoped for based on the Mid-East conflict and all that. When you look at April, April has actually started out better than March and we're trending higher in the month of April. So that feels good right now. . Michael Rehaut: So when you say trending higher, do you mean higher sequentially or year-over-year or both? . Robert Francescon: Both. . Michael Rehaut: Okay. No, that's good to hear. And I guess it kind of leads me to the second question. With the expectation that incentives will be flat in 2Q versus 1Q. Is that something that you think can hold as long as sales pace also kind of holds on a year-over-year basis? Or are there markets that you're kind of watching right now in terms of inventory levels or competitive trends that could potentially make you rethink the incentive approach if sales pace doesn't hit a certain level? Robert Francescon: Well, of course, Michael, it's always fluid. But right now, we feel fairly comfortable where the market is that from an incentive basis, we will be flat at worst from where we were in Q1 to where we'll be in Q2. As far as markets, it really goes down to the subdivision level, and you could have a market that is good, but you have a subdivision that may need additional incentive or less incentive. And so that just really plays out at the individual subdivision level. But all in all, we think right now, incentives are going to be flat from Q2 to Q1. Operator: [Operator Instructions] As there are no more questions, we will now turn the line back over to Rob for some brief closing remarks. . Robert Francescon: Everyone on the call, thank you for your time today and interest in Century Communities. To our team members, thank you for your hard work, dedication to Century and commitment to our valued homebuyers. . Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Per Brilioth: Okay. Hey, welcome, everybody. This is our -- as in we are VNV Global. This is our Q1 investor call. And I'll kick things off. We have like this usual summary page, which is the next one. Yes, NAV $462 million, which is down a bunch since the end of last year. And as we tried to sort of highlight in the narrative in the report, it's because of market and the peer group, the public sort of peer group from which we take multiples, they're down a lot. In some cases, there are names that we use that are down like 30%. And that's the main driver because the portfolio at large is doing really well. And as I wrote sort of -- if that sort of peer group multiple that we download and multiply with what we see at our companies, if that would have been flat this quarter, the NAV would have been up since the end of last year. So -- but this is how we value the portfolio. And it's no -- can sort of change that from quarter-to-quarter even if we don't think it sort of reflects the reality of the value here. And so we're subject to that volatility. And sort of if we -- if the second quarter were closed today, it would have been up. We'll see where it closes. But we're basically subject to that volatility. That volatility has taken the NAV down, but it's not reflective of what's going on in our portfolio. And I don't know if one sort of just has a go at trying to put the big sort of high-level reasons for why this peer group is down. I think it sort of falls into 2 main buckets. One is this fear, uncertainty, combination of those and what AI will do to a bunch of software companies. And as we've been on and on about before, we really don't see that as relevant even sort of -- it's the other way around for our portfolio companies is that we feel that these companies in our portfolio, they benefit from the emergence of AI platforms, models, that whole new toolbox in so many ways. I mean, the combination of hardware sort of proprietary data sets and sort of a customer base that sort of goes directly onto the platforms without any intermediaries. And just the ability sort of these sort of new ways of writing code and software, et cetera, is so beneficial basically for these companies. So -- and then the other one, of course, is I think you'll agree with me is this sort of are we heading to a recession, energy prices are up, inflation is up, interest rates are high because of inflation, that whole thing. And the point there is that we have sort of strong elements of countercyclicality in our portfolio. So in tough times, you use these products more. It's most intuitive around BlaBlaCar. We'll come back to that, but it's there basically. So yes, so with that sort of long-winding intro, I thought we'd sort of kick off this -- we'll take you through the numbers and touch a little bit upon the different names. So Bjorn, do you want to run us through the numbers? Björn von Sivers: Sure. So starting off sort of the overall portfolio. Here is a simplified sort of breakdown of the balance sheet. So as Per mentioned, NAV down to $462 million, down 15% over the quarter in dollars to $3.61 per share. In SEK, that's SEK 34.25 per share or down 12% over the quarter. Total investment portfolio amounted to $503 million, consisting of sort of $486 million of investments and $17 million worth of cash. Important to note that sort of we have an additional $30 million of cash and cash equivalents, but in liquidity management investments. So all in all, we're looking at sort of cash, cash equivalents and liquidity placings in the range of $47 million, borrowings down to $45.7 million as per quarter end. Continue to trade as a significant discount to NAV as of today, sort of 49% discount. And moving down to the sort of big drivers over this quarter is, of course, the larger constituents of the portfolio and just going through sort of the few largest ones here. So BlaBlaCar, obviously, the largest driver, down 27% or $44 million to $120 million for the holding, primarily driven by depreciating multiples over the quarter, both driven sort of from the overall rapid developments and uncertainty coming from the AI space, but then also, of course, from the geopolitical tension, whereas BlaBla sort of part of that peer group is in the OTA travel-related marketplaces that's been hit a lot. Same goes for Voi, that's also down over the quarter based on multiples. It's the order of sort of 16% or $20 million. HousingAnywhere here actually valued on a new transaction, we participated with EUR 1 million and then another sort of $1.5 million sort of converted from earlier convertible investments we held. Numan and Breadfast based value on transactions were relatively flat, a little bit of FX on Numan. And then Bokadirekt down roughly 10%, also driven by contracting multiples. All in all, these 6 names represent SEK 26 per share or sort of on an aggregate basis, 77% of the NAV. And again, sort of ended the quarter with $70 million of cash and cash equivalents and $30 million in liquidity management investments. Also sort of during the quarter, we bought back another close to 500,000 VNV shares and also a small amount of the outstanding bonds, which I'll come to now, which we also sort of announced today that we announced a partial buyback offer of the outstanding bond up to a transaction cap of SEK 275 million. This is to sort of effectively take down the gross debt and also lower the interest expense going forward. We launched this today and we'll hopefully have sort of the outcome sometime next week. With that, I thought I hand back to Per and we'll touch a little bit more deep in the larger portfolio holdings. Thanks. Per Brilioth: Yes. And yes, the structure of the portfolio looks very similar to what you've seen before. And so nothing really to comment here. But if we flip to the next page, this portfolio, as we've been on and on about, trades at sort of roughly half of the reported NAV. And as we -- as I think it's clear, we think it's -- we think that NAV is attractive, cheap. And hence, we've been buying back stock as we think that, that's the absolute best thing one can do with shareholder money. Our sort of aim is absolutely to continue doing that. And the reason being, as the next slide shows, as you've seen before, is that this is a portfolio that at large is positive, is earnings positive, is profitable. The slight downtick from a year ago is because of the absence of Gett, which is a profitable company. But at large, this company -- this portfolio is profitable and not sort of craving a lot of money to stay alive. And so that's not a reason for saving money to sort of put back into the portfolio names. We can use the money we have to buyback stock. And this profitability does not come at the expense of growth. We've made a new slide, which is the next one, just to -- which sort of you'll recognize it from earlier that this portfolio continues to grow over the past sort of is it 3 years, you've got a CAGR of nearly 30% across these 6 top names in terms of revenue growth, and it's turned from being slightly negative profitability to positive. So big change there. And as we try to highlight here also just as a reminder of how markets move around, these 6 names are -- those 6 names back in '23, this quarter, first quarter of '23, we had them in our NAV at $446 million and total NAV was like $800 million back then. And we now value them at $358 million. And so despite that sort of big shift in loss-making to profitable and very, very sort of steady growth. This last quarter, that portfolio grew by some 25%, still but marked lower. The overall NAV is, of course, lower also because we've sold some stuff to pay down debt. So I think that's a useful reminder of where we've come from and where we are today, both in terms of sort of quality of the portfolio, but also how we market. Yes. If we then go into the bulk of the portfolio, there's nothing really new around BlaBlaCar. This is a good summary, I think, around how they sort of closed 2025. EUR 2 billion of GMV is a sizable number. I know GMV is not revenue, but it's -- and as you remember, a bunch of their markets are unmonetized yet and some of them are really coming strong into monetization like Brazil now, but others remain unmonetized, waiting for liquidity to sort of further improve. But still GMV, that's a tool that many people use to sort of value these kind of sort of platforms, et cetera. And if you use that number and to where we're marking it today, it's 0.4x GMV, which I think is fair to sort of categorize as attractive. Certainly, in my mind, that is. And if you go to the next page, we also have a BlaBlaCar that's doing really well at the start of 2026. They have had a strong start. And -- and also of late, we've really seen this element of countercyclicality in the business model where oil prices go up, it's -- energy prices go up at large, driven by oil prices now. The activity of BlaBlaCar goes up because it's more expensive to drive a car and you're more prone to get other people into fill those seats. You do that through the BlaBla platform. So BlaBla gets more business and the graph on the right sort of highlights that. I think that's sort of all for BlaBlaCar. If we -- let's go and talk about Voi. Dennis, do you want to run us through Voi? Dennis Mohammad: So Voi closed a record 2025 with EUR 178 million of net revenue. This is up 34% year-over-year and adjusted EBITDA of EUR 29.3 million, which is up 70% year-over-year and adjusted EBIT of around EUR 3.2 million, up from essentially breakeven in 2024. So a very significant improvement across the board in the P&L. As we alluded to earlier, the company during the year also did a tap of EUR 40 million on the existing bond framework to fund the growth CapEx for 2026. And they also secured an RCF with Danske Bank and Swedbank here in the Nordics for EUR 25 million, which is still untapped, but provides additional financing flexibility should they need it. In Q1 of 2026, we've written down the value of our stake in Voi by 16%. This is primarily driven by peer multiples trading down as Per has already talked about earlier, but in part also driven by FX as the dollar has depreciated against the euro during the quarter. Operationally, Voi has had a strong start to the year. It continues to win tenders in Q1 alone. They won tenders in the Netherlands, in France, in Germany and in Norway. And they've started to roll out their new fleet of e-scooters, the V9 scooter and e-bikes, the E5 and EL2 across the streets of Europe. So putting to use the bond money that they raised at the end of last year. The company will issue their Q1 report on Monday next week, that's on April 27. So more information will be available then. I see we already jump to the next slide, which is good. As Per wrote about in the intro to the report, when Voi issued its bond in 2024, it pioneered the financing model that industry peers have since either replicated or attempted to replicate. We have now received the first public financials from one of those peers and the comparison truly reinforces our conviction in Voi's strategy and in their execution. As you can see in the numbers here on the graph, while Voi grew revenues by 34% year-over-year and generated reported EBITDA, different from adjusted EBITDA, but reported EBITDA of EUR 19 million and EUR 24 million of cash flow from operations, the European peer here saw a revenue decline of 16% year-over-year and on essentially the same revenue base generated negative EUR 13 million of EBITDA and negative EUR 20 million of cash flow from operations. We've excluded EBIT here as the peer change methodology on this metric during the year, so making a like-for-like comparison difficult, but that number was heavily negative as well for the peer. As I said, we are convinced that Voi strategy and execution is the best in the industry. And I think one additional data point that supports that is when looking at the revenue generation per vehicle end day on the right-hand side of this slide. So Voi generating EUR 3.94 per vehicle in a day in 2025 and the peer down at EUR 2.88 in revenue per vehicle per day. We can see here that, that's a 37% more revenue generation per vehicle at Voi. And I think this really shows how Voi's investments across the full platform, everything from hardware, where they have their own proprietary IT module, high-capacity swappable batteries to software where they use machine learning for fleet optimization. They have a very strong fleet and inventory tracking system. And lastly, operations where they have best-in-class fleet sourcing, fleet management, maintenance and eventually resell is truly paying off. With that, we go to the final slide, where there's really nothing new to report. They've seen continued growth on top line and improvements on profitability across the board, as I alluded to earlier. As also mentioned, their Q1 report is out on Monday. So we encourage you to keep an eye out on their IR website then. If we then jump to the next company being HousingAnywhere, HousingAnywhere has had a good first year under Antonio Intini, who joined as a CEO roughly a year ago after having senior roles at both Immobilare and before that, Amazon. Looking at their 2025 financials, the company closed the year with continued growth on top line and positive adjusted EBITDA, which is a big improvement on the year before. In Q1, as Bjorn mentioned, HousingAnywhere closed a financing round where VNV participated with EUR 1 million and where previously held convertible loan notes were converted to equity. With this new funding, we think that the conditions are in place to push growth harder from here, and we look forward to following that transaction, which was done around the VNV mark at year-end last year. If we then finally go to Numan. Numan closed a very strong 2025 with north of 125% growth on revenues and positive adjusted EBITDA. As we've spoken about in the past, their weight loss vertical has been a key driver of this growth over the past couple of years and 2025 was no exception. In Q1 2026, the company has continued to grow, albeit we have seen growth come down from the levels it's seen in past years, primarily driven by some price changes in the market for GLP-1 in the U.K. which initially led to some stockpiling behavior ahead of the increases and then some slightly lower activity following. But as I said, they're still growing year-over-year in Q1, and we value Numan on the back of a transaction that they closed last summer. However, should we have valued it on the back of a peer group model this quarter, it would have been roughly in line with the mark we currently carried at. Finally, this company continues to invest in its unified Numan 2.0 platform, which we believe is a key driver to long-term LTV growth and patient retention, and we look forward to seeing the results from those investments in the quarters to come. That's it on Numan. Handing it back to you, Bjorn. Björn von Sivers: Thank you. I'll finish off with sort of a short comment on Breadfast here, who continue to see strong growth in its core e-commerce business and also sort of initial promising dynamics in its fintech offering. During Q1, the company announced sort of the final tranche of their $50 million funding round, which they completed sort of majority of last year, but the final tranche sort of closed in Q1. So company is funded and continues to grow well, hence, sort of flat valuation still based on this transaction. And then finally, on the top 6 here, we have Bokadirekt, who is also sort of down during the quarter, primarily driven by multiples, but on sort of that side, continued strong performance, strong profitability. Bokadirekt also announced a small acquisition during the first quarter. They bought a company called Zoezi, which is sort of a niche SaaS player for gyms and personal trainers, which will add both sort of top line and profitability to the company. And with that, I think we're through the top 6 names, and we'll head to a Q&A. Björn von Sivers: And as a reminder here on the Zoom, please use the chat function or the Q&A function in Zoom and we'll try to address them. And I believe we have a few questions. We could start with this one for you, Per. Perhaps, once you do the partial bond redemption, what do you think is the remaining headroom to repurchase shares? Or put it differently, how do you weigh sort of the bond redemption versus share buybacks going forward? Per Brilioth: Yes. We -- our target is to sort of -- our goal for a long, long time, as you know, and which we sort of achieved now with the sale of Gett, this has sort of become debt-free and not to sort of be burdened by paying a coupon to -- because of the debt we have. So this is just a continuation of that. But at the same time, we absolutely aim to have liquidity to make use of this sort of gift that the market is giving us of valuing us where we are and put shareholder money to work at that. So -- and we've been active around that, and we do it in the way we do it, as I think you've all sort of seen, we try to -- or we do sort of highlight in press release what we bought the previous week. So I think it's fair to expect us to continue doing that and to sort of and also to fund that. Now this partial bond redemption sort of leaves a little bit of cash. We're still net cash, but -- or yes, barely, but we are -- but it leaves liquidity to continue to do that. So that's good. And when we get to the sort of the end of the duration of this bond, then we -- during that sort of period, we see that we will have completed several more exits. There's an ongoing sort of process, some driven by us, some driven by sort of things at large that will provide us with liquidity. So it's too early to talk about that because nothing is done until it's done. But I feel sort of assured that we will have sort of ample liquidity both to sort of retire this bond at full and then and to buy back stock. But nothing is done, unless it's done, but this redemption leaves us with, I think, a good balance of liquidity to sort of make use of what we want to do here in the market. Björn von Sivers: Another question here on BlaBlaCar. You mentioned profitability at BlaBla briefly. Could you give us some color on how this would scale if the higher activity levels from March were to persist during the year? Does the increased activity sort of translate into higher profitability as well? Per Brilioth: For sure, it does. And we're unfortunately not at liberty to share sort of any further details as much as we would like. We're not at liberty to do that. So -- but for sure, this drives sort of revenue -- business revenue and higher sort of earnings. So it is a positive for sure. Dennis Mohammad: Maybe I can add there, Per, without saying too much to your point, we're not at the liberty to do so. But the core carpooling business that they run operates at north of 90% gross margin. So any kind of revenue coming outside of what you have anticipated covers the fixed cost is already covered, so you get a pretty high contribution on the bottom line from that. So to Per's point, the answer is yes. Per Brilioth: Yes. No, well described, Dennis. So yes, I hope that answers that question. Björn von Sivers: And then sort of a follow-up question sort of on buybacks of shares and bonds sort of given the volatility in the markets and contracting multiples, aren't you sort of more eager to increase buyback levels of the share? And/or if not, are there other plans for sort of additional investments in the existing portfolio companies or new funding rounds? Per Brilioth: There's sort of just having a go at that question, the different parts of it. So there's nothing major. None of the large ones sort of have any large rounds going on. There's small bits and pieces that we have been -- where we've been active in the portfolio, but they're really sort of on the marginal side of things. So not a big sort of draw on liquidity. And yes, no, I mean, if we -- if we had liquidity to do more now, we -- I absolutely would be a strong advocate of doing more in terms of buybacks. I think it's very attractive. I really, really believe that our NAV will be able to deliver serious returns over these coming years. And so if we have sort of liquidity to do more, we'll do that. But sort of obviously need to balance that liquidity, but very eager to sort of participate in the way we're doing now. So it's that balance that you may feel is keeps us doing this at a frustratingly timid kind of level. But it's -- yes, it's necessary to do it that way. If we can accelerate some exits that are at NAV or around NAV, then of course, it makes a lot of sense to do those and then sell. But it's -- nothing is done unless it is done. I feel very strongly that we will be able to sort of complete some further exits and hence, we'll have liquidity to do more, but got to keep an eye on that balance. Björn von Sivers: Another question here, specifically sort of on the Voi valuation, maybe for you, Dennis, other than sort of contracting multiples, what has sort of -- what levers have been moving around on that in the model? Dennis Mohammad: So the multiples are the -- is the primary driver. As you know, we value in the next 12 months. So we've moved 1 quarter forward. So the NTM outlook is obviously higher than it was in the previous quarter since the company is growing. But you also have FX, as I alluded to earlier, the dollar has depreciated against euro. So that's one negative contributor. And also net debt. And in the case of Voi, we don't simply take cash minus debt. We look at what obligations the company has with the existing cash. In this case, it's CapEx investments for 2026, where they've improved the kind of -- they've improved payment terms significantly over the past couple of years. So cash outflows happen during the year to a larger degree than everything going out when you place orders. So it's a combination of FX, net debt, but primarily, as said, multiples. Björn von Sivers: Thank you. With that, I don't think we have any further questions at this point in time. But as always, feel free to reach out over e-mail, and we'll try to be helpful. And other than that, I'll leave it to you, Per, for any final words. Per Brilioth: Nothing more to add, frustrating quarter because of all the stuff that we've talked about, but we feel really positive about the portfolio and the opportunities that we have here. . So yes, when is our next report Bjorn, it's -- we're looking at July 14, the National Day in France. So that's when we will speak next. Thank you, everyone. Dennis Mohammad: Thank you. Björn von Sivers: Thank you.
Michael Green: Good morning, and welcome to this presentation of Handelsbanken's results for the first quarter of 2026. We can conclude that the bank reported yet another solid quarter. Operating profit increased by 9% compared to Q4 and the ROE amounted to 14%. The main income lines, NII and fee and commissions were stable. While the lending growth in Sweden was held back a bit by a general slow Swedish economic growth, it was again very encouraging to see that the lending growth trend in the U.K. and the Netherlands continued both on the household and on the corporate side. This has now been a consistent trend for more than a year. The savings business continued to perform well with market shares of net inflows into mutual funds far exceeding the market share in our books in both Sweden and in Norway. Cost efficiency is always a top priority in the bank. And again, we saw expenses declining. The net asset quality remained very strong with more or less insignificant credit losses once again. The capital remains robust. The anticipated dividends for the quarter earnings were increased a bit in order to calibrate the CET1 ratio to 17.2% or 250 basis points above the regulatory requirement compared to the 285 basis points in the previous quarter. The anticipated dividends amounted to SEK 2.93 per share or 91% of the earnings generated in the quarter. When we look at the longer-term value creation for our shareholders, this solid Q1 report fits well into the picture of the bank's resilient business model. As illustrated in this graph, the growth in equity per share plus dividends has not only been consistently stable over the past decade, but also growing with an average of 14% per year. And if zooming in on the past 5 years, the average growth rate has been even higher at 15%. And not to forget, this has been achieved in a decade, which includes everything from negative interest rates, Brexit, a pandemic, war then in the Ukraine, inflation and interest rate spikes, stresses in the real estate sectors, et cetera, et cetera. This is what we strive at always generating for our shareholders and also what the shareholders should expect from a bank like us. This stability is, of course, not achieved by coincidence and not just of our way of working. It's a result of the chosen markets and geographies. Our four home markets share the following common traits. They are all stable democracies with large economies, rule of law applies and the political and regulatory landscape are stable. It also helps if there are culture similarities and shares of values. Not only the assets, but also the cash flow from our customers are stemming from stable Western European economies. In such markets, the Handelsbanken model has a chance to stand out with a unique offering and a higher customer satisfaction than our peers. It is, of course, also essential that there are large bases of potential customers with the right risk profile and that we have a demand -- and have a demand for our offering, hence, offering material scope for long-term profitable growth at a suitable risk level in stable markets. And just to add a small remark, given the recent themes into the financial markets, we have no exposures to private credit. Before going into the financials for the first quarter, just some comments on the recent business development in these four home markets. Starting with Sweden, which accounts for 76% of the profits in our home markets. Handelsbanken is the largest lender in Sweden when summing up household and corporate lending. It's therefore fairly natural that the soft general economic growth in Sweden translates into fairly flat lending volumes in the past quarters. Deposits are growing somewhat, but the key growth is seen -- clearly seen in the savings business, where we consistently for the 1.5 decade, have seen market share of net inflows into our mutual funds far exceeding the market share of our outstanding volume by more than 2x. In the U.K., we had a long period after Brexit with declining lending volumes, mainly due to customer amortizations exceeding new lending. Since more than a year, the trend has clearly shifted to a consistent lending growth quarter-by-quarter on both the household and the corporate side. Also, deposits have increased over the past years as well as the savings business. The U.K. is a market where the customer satisfaction really stands out the most when comparing with our peers in the market. In Norway, we stated 2 years ago that we needed to see a better balance between lending, deposits and savings, and the situation has improved since. While lending volume have dropped over the past year, mainly due to intense competition, growth has been seen in deposits and in particular, in the savings business. Over the past 2 years, the market share of the net flows into mutual funds in Norway has been more than 2x the market share of the outstanding volumes. This means that we are deepening the relationships with existing customers and adding new customers, which bodes for improved profitability over time. And finally, the Netherlands. Just like in the U.K., the distance to peers in terms of customer satisfaction is particularly large. Lending growth has been very strong, as you can see in deposit -- and despite the drop in deposit last year, the longer trend has also been positive. And what is even more positive is that we now see also -- we now also register a sound growth in the savings business with steady growing assets under management. Now if we look closer at the financials of the fourth quarter compared to the previous quarter -- the first quarter, sorry. ROE amounted to 14% and the CE -- cost/income ratio was 39.5%. In Q1, a VAT refund of SEK 1.1 billion was booked. An adjusted basis, the ROE was 11.7% and the cost/income ratio 42.8%. Operating profit increased by 9%, but declined on an underlying basis by 3%. NII and fee and commission were marginally down, headwinds mainly related to day count effects and FX. Income increased by 3%, but declining by 3% on an underlying basis. Credit losses amounted to SEK 35 million or 1 basis point. Regulatory fees decreased as the previous quarter included a booking of a charge for the interest-free deposits at the Central Bank. Now if we switch over and look at the quarter compared to Q1 last year. NII declined by 13% and 10% adjusted for currency effects. The decline is related to lower margins in the wake of lower short-term market rates. Net fee and commission income, on the other hand, increased by 7% adjusted for FX effect. The key driver was again the savings business and strong inflows and positive market developments. All in all, total income dropped by 6% on an underlying basis. Underlying expenses dropped by 1% despite the annual salary revision that comes into force on January 1 each year and also the general cost inflation. Last year, we had a net credit loss reverses and the regulatory fees were flat year-on-year. All in all, the underlying operating profit was down by 12%. Now if we take a closer look at the NII development compared to the previous quarter, we see that NII dropped by 1%. Volume growth contributed with SEK 20 million in the quarter due to lagging effects on interest margins from lower short-term market rates in the previous quarter, the net of margins and funding contributed negatively by SEK 67 million. Deposit guarantee fees were lower this quarter, the decline being explained by fees being elevated last quarter as the final bill for that year was received and paid. The day count effect due to 2 less days in the quarter and the currency effects due to a stronger krona on average has created some headwind, as you can see. Net fee and commission income dropped slightly in the quarter. The bulk of fee and commissions related to the savings business, especially in the mutual funds business. The positive effect on fees from the strong net inflows were, however, offset in Q1 by a negative day count effect as well as negative mix effects with an increased share of the AUM asset under management in lower fee funds. Other fees were seasonally down. The high market share of net inflows into mutual funds have added significant customer asset under management under -- to the bank over time. As illustrated in this slide, the bank has now accumulated net inflows into Swedish mutual funds at almost 2x the run up over the past decade. This success comes not only from appreciated offering and strong performance in the funds over the years, but also the bank's distribution capacity where advisers are close to and have deep relationship with our customers parallel to an appreciated offering and distribution in our digital channels. Now over to the expenses. A trend of increased cost was broken in 2024. And since then, the expenses have trended down despite annual salary revisions and general cost inflation. The bank is now in a good position in regards to cost efficiency. As illustrated in Q1 when costs continued down on both quarter-on-quarter and year-on-year, it's deeply rooted in our culture and among our employees to always look at new ways of becoming even more efficient. Next slide show our asset quality and credit losses. Over the past decades, credit losses have been very low, which they should be in the bank with our risk appetite. Since the outbreak of the pandemic in 2020, the sum of all credit losses has been SEK 50 million or on an average, SEK 2 million per quarter. And that includes the period from the pandemic, sharp savings -- sharp swings in policy rates and inflation, the disruption of supply chains following years -- following the war in the Ukraine and Middle East, et cetera, et cetera. Still more or less no credit losses. If we compare the credit losses to our closest peers, the bank also stands out over the decade. In particular, in volatile times, difference in underlying asset quality has shown. In Q1, the credit loss ratio was 1 basis point. Perhaps needless to say, asset quality remains very strong. The bank is in a very solid financial position. Credit risks, funding risks, liquidity risks and market-related risks are prudently managed and the capital position is strong. The anticipated dividend in the quarter of SEK 2.93 per share equals to 91% of the earnings in Q1 and is yet another step to gradually adjust the capital position in the bank. The CET1 ratio now stands at 250 basis points above the regulatory minimum compared to the 285 basis points in the previous quarter. The bank should, however, always be considered one of the most trustworthy and stable counterparts in the industry. This is also the view by the lending rating agencies who rate the bank the highest among comparable rates globally. And this view was again confirmed and further enforced last evening by Moody's, who upgraded the bank's baseline credit assessment rating to A1 from A2. This put the bank in a very exclusive group of only a handful of privately owned banks globally with the highest BCA rating by Moody's. Finally, to wrap up, Q1 was a solid quarter with increased operating profit and ROE, although including a positive contribution from a one-off VAT refund. Q1 NII and fee and commissions were stable and costs declined. We see lending now growing consistently in the U.K. and the Netherlands and also in the savings business broadly over the markets. Our way of doing bank is appreciated by customers where they experience close relationship with us, and it's also seen in the external surveys in all of our well-chosen home -- stable home markets. Asset quality remains just as strong as it should for a bank with our risk appetite and the capital position is very strong, and we took another step down in the target range by anticipated dividend equaling to 91% of the earnings in the quarter. Finally, I'm also happy for our shareholders that has seen share price reached an all-time high during the quarter. And with those final remarks, we now take a short break before moving into the Q&A session. Thank you. [Break] Peter Grabe: Hello, everyone, and welcome back. This is Peter Grabe, Head of Investor Relations speaking. And with me, I have Michael Green, CEO; and Marten Bjurman, CFO. As always, we would like to emphasize that we appreciate that if you ask one question at a time in order to make sure that everyone gets a chance to ask their questions. With those words, operator, could we have the first question, please? Operator: [Operator Instructions] And your first question today comes from the line of Magnus Andersson from ABG Sundal Collier. Magnus Andersson: I was just wondering regarding the -- in total, SEK 6 billion in AT1 capital you issued late in Q1 '26, whether the main reason was to be able to go down further in your management buffer or if you expect the higher volume growth going forward or a combination of both? And related to that, also, if you could confirm that the coupon will be taken directly in other comprehensive income rather than in NII... Marten Bjurman: Magnus, this is Marten speaking. Yes, I had a little bit of a difficulty hearing your first part of your question, Magnus. But I assume that you talked about the AT1 that was issued late in the quarter and booked in Q2. And it's fair what you said, it's correct what you say that this is an equity instrument. It will be booked in the equity and the interest rate, if I may call it that, the coupon, that will be booked also in the equity, yes. Magnus Andersson: Okay. And also the reason for it that you have your next call in March 2027 of USD 500 million. What was the main reason for doing this now? Was it to be able to go down the management buffer volume growth? Or... Marten Bjurman: Well, there are various components into that equation, Magnus. But obviously, we didn't have a full box of the AT1, if I may call it that. This provides flexibility to the bank. And as you know, the 2 outstanding AT1s, they are in U.S. dollar. This one is in Swedish krona. So yes, it's -- and then we take it from there. We'll see. But the main reason is that it provides flexibility for the future. Operator: Your next question today comes from the line of Markus Sandgren from Kepler Cheuvreux. Markus Sandgren: I was thinking about you, Michael, you mentioned that you're going down gradually in terms of capital buffers. Can you give some guidance on -- I know that the Board is deciding what you will pay out. But since you have gradually reduced this buffer in your accrual of dividends, where are we heading within the range, please? Michael Green: Yes. This is Michael speaking. I don't think you should read that much into the adjustment this quarter. But it's -- the bank is in a position where we are running the bank very operationally strong and we have a cost -- the cost in place and all that. So we have gradually come down in our target range. And when we look at the world outside and we compare what's going on there with how our customers behave in terms of risk, we don't see anything that really sticks out. So our customers, they are in very good shape. And the risk we allocate for is taken care of in our internal risk models. So I don't see the need for having SEK 285 million now. So we will -- we just take it down to SEK 250 million. And then as you just said, we decide where to go when we come into the -- what we anticipate now for the year, and then we take the decision in the Board for how we recommend the -- for the shareholders to -- on the dividend side when we come into the Q4 report. Markus Sandgren: Yes, so I understand. But what do you mean by that, you shouldn't read too much into that you change it because you do change it because you think it looks good. So there must be some message in that. Michael Green: Because it looks good. Marten Bjurman: So but let me underline a little bit also. Again, I think bear in mind where we're coming from. We have -- we're coming from SREP plus 5% or 6% and then we took it gradually down, as you know. And we felt the need to guide a little bit to say that reinforce that the message that, yes, we have this interval, it is set, and we are slowly moving into that. Now as we are within the interval, we don't feel the need to guide that much further on a quarterly basis. So you shouldn't expect us to draw the line anywhere within the range. Now we are in the range, it feels great. Operator: Your next question today comes from the line of Gulnara Saitkulova from Morgan Stanley. Gulnara Saitkulova: On your cost outlook, please, could you walk us through the key moving parts in your cost base for the next 3 quarters that we should be aware of, specifically, where do you see flexibility for further cost reductions versus what could be the areas of additional cost pressure? You previously mentioned that you have completed the centralized cost-cutting program, but do you expect more efficiencies to come through from elsewhere, for example, from the local branches? And if you look at your headcount, it's down 1% quarter-on-quarter. Do you expect any further reductions in the number of employees to come through? And how should we think about your Oktogonen contributions going forward? Marten Bjurman: Okay. Well, maybe my answer will be a little bit disappointing to you because we will not guide on the costs going forward. But it's very true what you say. We have that initiative behind us now. We have no plans of broadcasting yet another of those initiatives. But rather, we are staying very true to our culture, our model where every employee within the bank is extremely cost cautious and very sensitive to increases in costs. And this quarter was extremely successful when it comes to cost as well. It was even to me, a little bit surprising actually. But again, I think that you shouldn't expect it to go further down. We are at a level now where we are extremely confident that we can run the bank the way we want. We have resources to spend and invest where we want to spend and invest. And -- but this model is extremely decentralized. We will not interfere with our home markets. We will not interfere with our branch office managers. So ultimately, they decide. So therefore, we cannot guide any further. Gulnara Saitkulova: And what about the headcount? Marten Bjurman: Headcount number is basically the same, maybe a little bit boring answer. But still, if a home country wants to expand in terms of number of employees, they are free to do so if they have good reasons to do it. So I don't foresee any big shifts either upwards or downwards in terms of full-time employees. Michael Green: And just to add on, when Marten says we -- the decision-making for resources, both in headcounts and other cost initiatives that they could happen throughout branch networks and product or whatever. It's not that we don't guide and we don't steer, but we follow them closely. So it's a very sharp following up in terms of cost efficiency and the returns on the investment we do. So it's not do as you like. It's do what you think is necessary, and we will keep a very close track on what's going on. Operator: Your next question today comes from the line of Andreas Hakansson from SEB. Andreas Hakansson: So a little bit of a follow-up here on costs. I mean you've been reducing cost continuously now for, it feels like 8 quarters roughly. And I mean, when we speak to quite a few banks, they see that there's a lot of IT investments relating to AI and whatnot. And when we speak locally and we hear people gossiping or talking, it doesn't sound like you are clearly ahead of the pack in terms of those investments. So is it a risk that you have underinvested now over the last years because a lot of the savings have come from IT, if nothing else? Marten Bjurman: The short answer is no, I don't think so. I think it's more of a matter of how you're running your development within the IT space. We were heavily dependent on consultants for a very long time. We have now -- we are now at another place in terms of that mix between employees and consultants. So that's one thing. But the other thing is that we are running our IT development in another way now. We have much more control, generally speaking. In terms of AI, are we lagging behind? Are we the first mover? I don't think it's in our nature to be the first mover in terms of trying out different AI solutions. That being said, though, I'm extremely confident that we have navigated through these challenges and opportunities the right way so far. It's a broad area. It opens up a lot of opportunities, not only for the bank, but also for our customers. We're following it closely. We have quite a number of initiatives that are all the way from ideas to fully implemented and up and running successfully. So it's a broad range of initiatives. So I'm not worried for that matter. Andreas Hakansson: So as a CFO, it's not that you want more resources, but Michael thinks you need to slow it down still? Or what's the balance between you? Michael Green: No, no. We don't -- the balance is very good between my CFO and myself. So -- but just for the record, I totally embrace the technology and the development of that, and that's a very wide area, and we invest largely in things that we need -- that we see could fit well into our customers and also for ourselves in terms of efficiency reporting, whatever. So I'm very interested in that, and we have a quite good pace actually. So I don't really have the feeling that you described in your first question that we lag. I don't think we lag. I think we do it in a very balanced way in the way we see it from my perspective. Operator: Your next question comes from the line of Shrey Srivastava from Citi. Shrey Srivastava: My first is actually on the positive side, you've got the second consecutive strong quarter for loan volumes in the U.K. What is the profile of the new customers you're attracting versus the U.K. incumbent? Has it materially changed versus your existing customer profile? Marten Bjurman: Thank you. No, no, it hasn't changed. It's basically the same. It's the corporate lending growth that you see in U.K. is very pleasing and the trend is continuing. So very pleased with that, generally speaking. In terms of our customers, it's no new mix of customers. We are very true to our model in terms of providing financing to businesses that we understand that have strong cash flows, a strong repayment capacity and all that. So no, the short answer is no. We don't have any new features into our model in providing financing to our customers. Shrey Srivastava: Right. And my second one is, can you explain this 50 basis points negative impact on the CET1 ratio from other factors, including claims on investment banking settlements and rounding on? I don't believe it's ever been called out before explicitly. So I'm wondering why it was so large this quarter? Marten Bjurman: Well, it is large this quarter due to natural reasons because I think that, that business where this derives from is typically slowing down in Q4. So when you compare the 2 quarters, this looks quite hefty. But it's not. I think if you take this level, it could be a natural level for the coming quarters. And I think you touched upon it in your question where it comes from. This is coming from the market making in the capital market side of the bank. So this is really short-term claims. These are coming from market making and deals that are between settlement date and trade date basically. So very short-term claims on our customers, majority in the fixed income space. Shrey Srivastava: Okay. So this was a bit larger than you'd expect given the seasonality if you look versus the past few years? Marten Bjurman: No. I mean, this portion that I just explained is maybe 1/3. The other 2/3 are so many items in so many parts. So it must be considered a regular quarterly volatility, many, many smaller items in that. So I'm not surprised where we are. But again, you have to compare with a regular quarter. And in this case, Q4 might not be that one. Operator: Your next question comes from the line of Namita Samtani from Barclays. Namita Samtani: I just wondered, it's just another quarter where Nordea is growing its Swedish corporate lending by 4% quarter-on-quarter and Handelsbanken volumes are flattish. So I just wondered why you're allowing another bank to take market share from you so much so that you're not even growing the Swedish lending book in the quarter? And just a follow-up to that. I just also wondered why there's appetite to grow in commercial real estate in the U.K. and Norway, but not in Sweden just based on how you grew this quarter. Are the competitive dynamics different in Sweden versus Norway and the U.K. Michael Green: Yes. So the -- first of all, we don't allow competitors to take business from us. We compete every day and you win and you lose some. In our -- from my perspective, the volumes that we've seen leaving the bank has mainly -- or absolutely the vast majority is -- it goes to the capital market side. So it's not that any other bank is competing with us, and we do not have the capacity to compete that. So that's how it is. And I'm not going to comment on Nordea's growth. That's -- I don't know what they do there. But I think growing the lending book, it comes -- when you have market shares like we do in Sweden, you tend to grow, as we've said before, in line with the real economy growth in this country. If you want to grow more over time, you need to be very aware of pricing and risk, and we are conservative in that sense. So we follow our customers. If they invest, we will grow with them. And we will gladly compete and take business from our competitors. But in general, we grow in Sweden with our very, very strong corporates and private individuals. And if you look at the market right now when it comes to corporates, what we see from our perspective when we talk to our customers is that they are a bit reluctant now to invest both when it comes to investing in factories and production, but also invest in real estate right now. So it's a bit on a standstill due to the uncertainty in the surroundings. And when it comes to the private individuals in Sweden, we see a small pickup when it comes to buying new houses, and we have quite a strong inflow when it comes to that market, when it comes to the transition market when they buy houses. So we don't see a problem with this. We -- in Sweden, we follow our customers when they grow and when they're not growing. When it comes to the -- as you probably noticed in the U.K. and the Netherlands, we have the opposite. We have a quite strong growth there because the market share we have is quite low. And that's what you should expect, and that's what I'm expecting with high ambition in these countries. Namita Samtani: Sorry, could you just comment a bit on the differences in the commercial real estate U.K. and Norway versus Sweden? Is it more competitive in Sweden? Michael Green: No, I think there are competition everywhere we are because we're very strong and transparent countries with strong competitors. So I don't think any -- there is any difference there. Operator: Your next question today comes from the line of Sofie Peterzens from Goldman Sachs. Sofie Caroline Peterzens: Here is Sofie from Goldman Sachs. I was just wondering how we should think about the net interest income in the other division, given that it was up 41%, I think, quarter-on-quarter. Could you just comment on kind of what's the normalized run rate? Are there any headwinds or tailwinds we should kind of be mindful of? And also, I know you don't guide on rate sensitivity, but if you could just help us kind of think about how we should model potentially higher rates in Sweden and also elsewhere in Europe, what the kind of moving parts are? Marten Bjurman: Yes. A number of questions there. And the sensitivity to policy rates, yes, obviously, when we have -- as we had in this quarter, policy rates turned down late in the previous quarter, we will have an effect. And generally speaking, as you know, we benefit from higher rates rather than lower. So -- but in the meantime, we have lag effects that you know of when these rates are cut. And it varies a little bit between countries. But yes, generally speaking, we should expect now that, okay, policy rates were expected to go down further in U.K. and in Norway. Now we don't -- we're not so sure anymore. Some say flat, some say even a little bit of a pickup. Obviously, we will have an impact of that. It will take a little bit of time to bleed through that effect through the books as with all banks, I guess. So that's where we are, and we don't guide any further than that. Sofie Caroline Peterzens: But in terms of the other division, like -- yes, do you have any guidance on how we should think about the contribution from there because it's very difficult to model on a quarterly basis, plus 40%. So is there any way we could kind of think about how to think about the kind of volatility in this division going forward? Peter Grabe: Yes. This is Peter speaking. You can say that there are mainly two reasons. One is within the treasury department where actually both of these two items are within the treasury department. And it goes up and down in between quarters and it's connected to what's allocated to the different segments. On a group basis, everything, of course, nets out. But occasionally, you allocate out more from Central Treasury and sometimes you allocate out slightly less. And then furthermore, it's also a result of the -- of what you generate in our liquidity portfolio, i.e., the returns on the assets we have in the liquidity portfolio, which means that it can go up and down somewhat in between quarters. But I think overall, you should see it as more of relating to components that generally are sort of intertwined with the allocations out to the respective segments. Operator: Your next question comes from the line of Riccardo Rovere from Mediobanca . Riccardo Rovere: Sweden loss cut rate in September, so say, around 6 months ago, would you say that now the balance sheet on the assets and liability side has absorbed the loss cut made by the Riksbank 6 months ago? Or should we expect a little bit more tail in the coming months? Marten Bjurman: Yes. Generally speaking, yes. I think we have seen most of the effect, not all, but most of the effect for sure. So that's the short answer. Riccardo Rovere: And let's assume for a second that short-term rates remain where they are. I mean, STIBOR goes up a little bit in the quarter. That I suppose nothing of that is eventually visible in these set of numbers, I would say so. Am I right in saying so? Marten Bjurman: I'm very sorry, I didn't catch your question fully. Would you be able to repeat... Riccardo Rovere: Yes, yes, sure. The STIBOR month was a little bit higher in the -- especially in the month of March. Let's assume for a second that, that remains. I think it was 9 or 10 basis points higher in the month of March. Let's assume that, that stays for a while. Is it fair to assume that in set of numbers, we have not seen anything from this 9 or 10 basis points higher level on STIBOR 3 months. Michael Green: I think it's what we usually say. I mean the reason for us being with silent here is that it's difficult to give you a straight answer on that question. I mean, obviously, as we always say that there are tons of factors that play in when we talk about the development of net interest of funding and margins. STIBOR is, of course, one component. But how a particular STIBOR movement in between months or quarters directly will affect the NII is very difficult to guide on. And as you know, we prefer to stay away from guidance -- sorry, Marten, please go ahead. Operator: Your next question today comes from the line of Emre Prinzell from Nordea. Emre Prinzell: I know you touched upon this, but just to double check here, what do you need to see for Swedish lending growth to meaningfully pick up in the next few quarters? I mean we're expecting Swedish GDP to grow maybe 2.5%. Should we therefore see a read to you that you ought to grow 2.5% in Sweden? Or what's a reasonable way of looking at this going forward? Marten Bjurman: Yes. Great question. Yes, I would love to grow 2.5%. That would be perfect for us. And as Michael alluded to earlier, we have seen 1 or 2 tickets leaving the book in this quarter, not to other banks, but to the bond market. That happens, it can happen. And what will it take for us to really set off the corporate lending? Well, I think -- and we've been talking about this quite a bit also during previous quarters that generally speaking, we will need the economy to pick up speed in terms of the recovery phase that we are in. And everything that is disturbing that picture is obviously not good for business. So if we have globally, even if it's not evident in our books, but the appetite or the demand for credit needs to pick up speed. That's where we are. We are not growing on our own. We are growing with our customers. So if they have a need, then we support them, obviously, it's not more fancy than that. Operator: Your next question today comes from the line of Johan Ekblom from UBS. Johan Ekblom: I just wanted to pick up on some of the earlier comments you made around costs and AI, right? So I think in response to one question, you said, look, the staffing decisions are made at the branch level. And at the same time, you feel like you're doing kind of enough in terms of technology and AI. But when we think about that, I mean, surely, technology and AI are investment decisions that had to be made at a central level and the benefits of AI are expected to largely come through in the -- in the form of lower staff needs. So does that create a tension in your decentralized model? Do you think you are as well equipped to reap the benefits of AI as maybe some of your peers that run more centralized business models? Michael Green: So Johan, thank you for the question. I appreciate that because this is actually a very good point. When it comes to decentralized way of working and resources, that refers mostly to the branch business. And when it comes to decision-making in terms of infrastructure program, AI investments, which is obviously a larger ticket. that's been taken care of within the management of the different areas, but also, of course, with the Head of IT, sorry. And we discuss that both me and Marten when it comes to these large investment programs that we run to make sure that we don't have any problem with holding back on time when it comes to develop new facilities, new prospects for doing business or creating efficiencies. So this is not a decentralized way of working. The -- what we should do comes from business and from IT. And then Marten and I and Head of -- Anton Keller, Head of IT, makes decision when it comes to the more heavy investments in this. So there's not a decentralized way of doing what you like when it comes to IT investments. Johan Ekblom: But do you not need full buy-in from the organization on adoption to make the investments work. Michael Green: Yes. But that's not a problem because if the reason is correct and right and logic and good for the bank, everybody will buy in. That's up to us to really make sure that the people understand why we do this. And I don't have any -- not once have I felt or heard that there is going to be difficulties in explaining the rationale when it comes to IT investment and spending because that puts the bank in a strong kind of competition position, which will be necessary all the time for a company to grow. So I don't think there is any problem with that, actually. Operator: Your next question today comes from the line of Max Jacob Kruse from Bernstein. Jacob Kruse: Just one question then. So this quarter, you hiked your mortgage rates very late in the quarter and STIBOR moved earlier. Could you just talk a bit about what you saw in the quarter in terms of timing effects? And maybe you could touch on as well any kind of balance sheet hedge offset you have there? Marten Bjurman: We saw none of those effects is the short answer. So yes, that's it. Jacob Kruse: And sorry, how is that -- I thought your list price would be determining the kind of role of the negotiated rates or the rates on mortgages. And obviously, your STIBOR, any kind of swaps into STIBOR would have moved. So why would you not see any impact? Marten Bjurman: We reset the interest rate for mortgages the 1st of April to start with. So it's first every month is the cycle, if you will, where we reset these interest rates. Michael Green: I'll just add that the price we get from the business when we do business with our private customers when it comes to mortgages is not -- it's -- the discussion stems from the list price, but it's not where we do business. So the cost for our branches when it comes to -- the funding costs for our branches, that it's volatile. It comes from where the market rates are. And they will then push and they do business where they find there is a profitability. So this -- the list price is just the way we start with the list price. We never do business on list price. So the volatility in short rating -- short interest rates are taken care of in the day-to-day business on the branches. Jacob Kruse: So just to clarify then, so the STIBOR moves are -- the STIBOR moved in the quarter, you say your pricing on the list price changed on the 1st of April because I guess your list price changed at the end of March. But I understand that your front book is a negotiated rate. But surely, as people roll towards -- if I have negotiated the rate, that will move with the list price. I think it will not move, but that plus the discount will be the role. So I don't quite understand how you can have STIBOR moving up and list prices staying stable without having any impact in terms of... Michael Green: So when you roll your 3 months interest rate period, we have another discussion with the customers. And then we set the new price for the next coming 3 months. So I don't really understand your concern there. Jacob Kruse: Maybe I'll catch up with you. Yes. Operator: We will now take our final question for today. And the final question comes from the line of Andreas Hakansson from SEB. Andreas Hakansson: And sorry, some follow-ups since we could only ask one question. So a follow-up and a real question. And it's back to, I think it was Namita asked about the commercial real estate exposure. I mean you're one of the most commercial real estate heavy banks around. And if we look in this quarter, the only growth is coming from commercial real estate, I think, in all markets, while other corporate banking is declining. Is that a strategy that you're happy with given that, I mean, the profitability of a CRE loan is normally lower than other types of corporate banking given what you can do around it and so on. So are you steering the bank in this way? Or is it just happened to work out like this? Michael Green: So Andreas, we don't steer the bank in which customer to pick and choose. That's for the branches to do. If they find it suitable or they find the risk suits us well. We have products that could solve problems for a corporate or real estate company, we do that. So it's the steering from my side. This is the way the bank is run. We make sure that our branches are in a position to compete and then they choose which counterpart they want to do business with. And this is how the balance sheet will ends up in that case. So it's not a -- it's not a choice from my perspective on where to do business. We try to compete on all segments. We compete on industrials or we compete on commercial real estate business. It's up to the branches to do that, to choose. Andreas Hakansson: Yes, that's fine, but the branches is quite significantly steered by a cost/income ratio and want to keep costs low, as you discussed earlier. But if they would then go after some other types of corporates where the margin could potentially be thinner and the cost-income ratio would be higher and then the benefits of doing some other type of business could be taken in the markets division in Stockholm. So is the branch really the ones that would drive a higher profitability type of lending since they are driven by costs? Michael Green: Yes, I say they are because what we do when we do business on the ancillary business, for example, within FX or other parts of the Investment Bank, that's been taken care of by refund, if you put that way to the branches. So everything comes down to the branches P&L anyway. So that's just good. So we do... Andreas Hakansson: But eventually... Michael Green: Sorry. Andreas Hakansson: But eventually, but you might have to live 2 years with a low margin until you do that business because you have to be committed to the company and so on. Michael Green: No, no, that's not how it works. So you get instantly repaid from the investment bank when they do their trades or their interest rates derivatives or whatever. That comes the month after. So that's not the way it works when we steer the bank. Andreas Hakansson: Okay. Then finally, on your loan-to-deposit ratio in Norway at around 300%. If rates now start to go up in Norway, which seems to be expected, is that a positive or negative for you guys? Marten Bjurman: It will eventually be a positive thing, Andreas, but it will take a little bit of time to adjust, obviously. So yes, but it's positive long term, yes. Michael Green: We will immediately benefit from the deposit side, of course. So that will give a boost. But then it's all about adjusting the lending book as well to the new market rate. Andreas Hakansson: Yes, I was thinking that some of a very deposit-rich bank could afford to compete on the margin on the lending side, given that it makes so much more on the deposit side, will you guys have flipped the other way around. Michael Green: Yes. But that's the way it has been for many decades now when it comes to the business and how we compete in Norway. So that's nothing new. Operator: That was our final question for today. I will now hand the call back for closing remarks. Peter Grabe: All right. Thank you, everyone, for all the questions and for those of you who listened in. And as always, you know you can always reach out to the Investor Relations department for any further questions and follow-ups. With those words, we wish you all a very good day. Thank you very much.
Operator: Hello, and welcome to the Royal Vopak First Quarter 2026 Results Update. [Operator Instructions] This call is being recorded. I'm pleased to present, Fatjona Topciu, Head of Investor Relations. Please go ahead with your meeting. Fatjona Topciu: Good morning, everyone, and welcome to our Q1 2026 Results Analyst Call. My name is Fatjona Topciu, Head of IR. Our CEO, Dick Richelle; and CFO, Michiel Gilsing, will guide you through our latest results. We will refer to the Q1 2026 analyst presentation, which you can follow on screen and download from our website. After the presentation, we will have the opportunity for Q&A. A replay of the webcast will be made available on our website as well. Before we start, I would like to refer you to the disclaimer content of the forward-looking statements, which you are familiar with. I would like to remind you that we may make forward-looking statements during the presentation, which involve certain risks and uncertainties. Accordingly, this is applicable to the entire call, including the answers provided to questions during the Q&A. And with that, I would like to hand over the call to Dick. D.J.M. Richelle: Thank you very much, Fatjona, and good morning to all of you joining us in the call this morning. I would like to start with the key highlights of the year so far. We've had a strong start of the year, where we saw a healthy demand for our services, which is reflected by our continuously high occupancy rate of 91%. Our financial performance remains strong. Proportional EBITDA grew by 4.1% compared to Q1 2025, and that is the result adjusted for negative currency translation and divestment impact. Importantly, we were able to convert 76% of this EBITDA into operating free cash flow, resulting in an operating cash return of 16.6%. We also made good progress on executing our growth strategy. In West Canada, the construction of our REEF LPG project export terminal is progressing well. And in the Netherlands, approximately 90% of the 4th tank construction at Gate terminal has been completed. The project is on track to be commissioned within budget and on time at the end of Q3 2026. In addition, we took an investment decision in the Netherlands to repurpose capacity at our Europoort terminal for the storage of pyrolysis oil and another FID in Spain to expand the capacity in Tarragona. Finally, despite the increased volatility in the market related to the Middle East conflict, we are confirming our full year 2026 outlook, subject to ongoing market uncertainties and currency exchange movements. As per our current assessment, we anticipate the financial impact of the ongoing conflict will be absorbed by our strong underlying business performance and is within the range of our full year 2026 outlook. However, we do see that the uncertainty has increased, which is what I will talk about in more detail in the following slides. First, look at the market dynamics. Before diving into the results, I'd like to provide some context on the conflict in the Middle East. It has caused a historic supply side shock across global energy and manufacturing markets. This presents a major challenge for some of our customers. Broadly speaking, supply-side substitution has not been sufficient to offset the loss of physical products normally sourced from the Gulf countries. This has triggered significant commodity price volatility and forced a redirection of energy flows, domestic and -- towards domestic and transportation sectors, further impacting industrial demand. As a result, we see cautious customer sentiment and increased uncertainty. Let's take a closer look at how this impacts our business, starting off with our exposure to the region. We own and operate 4 storage terminals across the Middle East, with strategic locations in Saudi Arabia and the United Arab Emirates. In terms of financial exposure, around 5% of our proportional EBITDA is generated by these terminals, and they represent around 4% of our capital employed. Our terminals in Saudi Arabia are linked to industrial clusters, while our Fujairah terminal in the Emirates located outside the Strait of Hormuz, functions as an oil hub. The conflict has had severe impact on the industrial activity in the Gulf countries because of physical damage to the production facility and production halts. As a result of the closure of the Strait of Hormuz, Fujairah, despite its strategic location, faces reduced product flows. In terms of indirect exposure, to substitute for the loss of product volume from the Middle East, we see a rebalancing of trade routes emerging. While our infrastructure facilities facilitate the rebalancing of global trade flows, throughput levels are impacted by reduced products in the market. We do see that this presents a major challenge for some of our customers impacting their business continuity. While with our well-diversified portfolio of terminals, we've proven to be resilient against geopolitical tensions as well as energy market volatility and disruptions in the past. Our diversification is a structural strength, allowing our network to serve the evolving supply chain and energy security needs of our customers and partners. In addition, with the shift of our portfolio towards gas and industrial terminals, the duration of our contracts has increased significantly, reducing our exposure to short-term volatility. However, we are resilient, but we're not immune. The conflict in the Middle East introduces variables from shifts in global trade routes to heightened security risks and regional price shocks that we are not insulated from. We continue to monitor these developments to protect our operations and our customers' interest. Now let's take a closer look at our results for the different terminal types we operate. We see an overall strong performance with higher results compared to Q1 of last year when adjusting for the impact of currency translation and divestments. It's important to highlight that Q1 results had limited impact from the Middle East conflict. We saw a strong performance of our chemicals and oil terminals, which was primarily driven by increased throughput combined with strong contribution from growth projects. Our industrial terminals performed broadly stable year-on-year. However, due to the contribution of growth projects, we saw a slight increase compared to Q1 2025. For our gas terminals, we saw a slight decline year-over-year, which is primarily related to disruptive gas supply from the Middle East conflict. All in all, this has led to a proportional EBITDA of EUR 295 million and a strong operating cash return of 16.6%. Notwithstanding the volatility and uncertainty on the market during Q1, we continued to execute on our growth strategy. In the United States, at our Deer Park terminal, we commissioned repurposed capacity for biofuels. And in Spain, our Terquimsa joint venture with FID to expand its capacity to address market needs as well as further solidify its leadership position. Last but not least, we've taken a final investment decision to repurpose capacity at our Europoort terminal in the Netherlands for the storage of pyrolysis oil. This is an important step in our continued commitment to the energy transition and is strengthening and further integrating our industrial partnership at the Europoort. Since 2022, we've committed around EUR 1.9 billion to grow our base in gas and industrial terminals and to accelerate the energy transition. Around EUR 650 million of this is already commissioned and is contributing to the financial results. Around EUR 1.3 billion is still under construction. We expect to commission around EUR 775 million near year-end related to mainly Gate, the 4th tank and the LPG export terminal in Canada. In the period 2027, 2028, we expect to commission around EUR 325 million and around EUR 175 million in 2029 and beyond. This is based on the FIDs that we've taken so far. The already commissioned growth projects as well as the growth CapEx under construction will further reinforce our long-term stable return profile and diversify our revenues. Looking ahead, we remain well positioned to achieve our long-term ambitions. We've shown strong business performance in recent years and the market indicators for storage demand remain firm, supporting the delivery of growth projects and the resilient performance of our existing business. This is reflected in our long-term ambition. We have an operating cash return ambition for an annual range of between 13% to 17% and are well on track to invest EUR 4 billion growth CapEx through 2030. Also, as announced during our full year 2025 results, we are distributing around EUR 1.7 billion to our shareholders through year-end 2030 via a progressive dividend and a multiyear share buyback program. With that, I'd like to hand it over to Michiel to give more details on the Q1 2026 results. Michiel Gilsing: Thank you, Dick, and also from my side, good morning to all of you. As Dick mentioned already, we have had a very strong start of the year. We reported a healthy occupancy rate, increased our EBITDA and further improved our free cash flow generation. These results highlight the strength of our well-diversified portfolio, particularly in times of increased uncertainty and volatility. Simultaneously, we continue to invest in attractive and accretive growth projects while returning value to our shareholders. Let's take a closer look at the performance of the portfolio. Our operating cash return was broadly stable at 16.6%, compared to the 16.8% in Q1 2025, driven primarily by the negative effect of currency translation in our free cash flow. On an autonomous basis, excluding currency and divestments, our proportional operating free cash flow per share increased 7.1% versus Q1 2025. Demand for our services remained healthy, reflected in a proportional occupancy rate of 91%. Adjusted for currency movements and divestments, proportional EBITDA increased by 4.2% which we will detail further in the next slide. Moving on to our business unit performance overview. Excluding negative currency exchange effects of EUR 15 million and EUR 2 million divestment impact, our proportional EBITDA increased by 4.2% compared to Q1 2025. A large part of this growth can be explained by the strong EBITDA contribution of EUR 9 million from our growth projects, particularly in the U.S. and India. The performance across the network was relatively stable as regional headwinds are balanced by robust activities at our major oil hubs in the Netherlands and Singapore. We are continuously focused on generating predictable growing cash flows to create value for our shareholders. Compared to Q1 2025, we have seen our proportional operating free cash flow grow by 7.1%, adjusted for currency translation and divestment impact. This is primarily driven by the autonomous improvement of our proportional EBITDA and the reduced share count following our share buyback programs. Moving from the cash flows to our financial position. Our proportional leverage, which reflects the economic share of our joint venture debt remained stable at 2.6x. If we exclude the impact of assets under construction, which do not contribute yet to the EBITDA, the proportional leverage is at 1.99x, which is the lowest level in over 5 years. Our ambition for the proportional leverage range is between 2.5 and 3x. To facilitate the development of growth opportunities that enhance our operating cash return, Vopak's proportional leverage may temporarily fluctuate between 3 and 3.5 during the construction period, which can last 2 to 3 years. This is all in line with our disciplined capital allocation framework. Our capital allocation framework consists of 4 distinct pillars aiming to maintain a robust balance sheet, distribute value to shareholders, invest in attractive growth projects and yearly evaluate the share buyback program. As announced during our full year results, we are distributing around EUR 1.7 billion to our shareholders through year-end 2030 via a progressive dividend and a multiyear share buyback program. In addition, we have the ambition to invest EUR 4 billion on a proportional basis by 2030 to grow our base in gas and industrial terminals and to accelerate towards energy transition infrastructure. That brings me to the outlook for full year 2026. As mentioned by Dick, the market indicators for storage demand remain firm, supporting the delivery of growth projects and the resilient performance of our existing business. However, we do acknowledge that the market has become significantly more volatile following the conflict in the Middle East. For now, we expect that the financial impact of the ongoing situation is absorbed by our strong underlying business performance and growth project contribution. This gives us the confidence to reaffirm our full year 2026 outlook with the proportional operating free cash flow projected at around EUR 800 million and a proportional EBITDA expected to range between EUR 1.15 billion and EUR 1.2 billion. Bringing it all together in this slide, we are off to a strong start of the year with solid cash generation. Our portfolio remains well positioned to cater for increased volatility in the market. And last but not least, we continue investing in attractive growth opportunities while returning value to our shareholders. And with that, I hand over back to you, Dick. D.J.M. Richelle: Thank you, Michiel. And with that, I'd like to ask the operator to please open the line for questions and answers. Operator: [Operator Instructions] And now we're going to take our first question, and that question comes from the line of Kristof Samoy from KBC Securities. Kristof Samoy: First of all, congratulations with the results. I have 2 questions to start with. If we look at the ongoing conflict in the Middle East, there are, let's say, 2 factors at play there, which impact your business. First of all, positively, you have the rush for energy molecules, so energy security. On the other hand, you have uncertainty, which impacts the FID process that you are undergoing for certain projects. So my first question would be, how is the process looking for Australia right now? Has FID become less likely? Or although more likely given the fact that Australia can simply import oil from its own -- from another region in their country. And secondly, if you could comment on EemsEnergyTerminal and the potential extension there because we have seen the news that Exmar is progressing with the vessel conversion. And then the second question, we know that throughput rather than guaranteed offtake is more of a key driver for revenues in India. If we look at the drop in proportional occupancy rates in the Middle East and India, could we say that this drop is still mainly linked to the Middle East and that the drop linked to throughput in India has yet to be reflected in the numbers? D.J.M. Richelle: Kristof, thanks for the questions. Yes, maybe on your first question related to Australia and EET and then specifically on the timing of them, I think for Australia LNG project, the way we would look at it is and what we can see at this point in time, the need for that project is set by the local Victoria state for gas, and that's just for electricity generation. So that is a need that is almost independent of what happens in the rest of the world. They have a very strong need to find substitution for current gas supply offshore that is depleting. So there's no indication at this point in time that there is a fundamental change in -- that there is a fundamental change in the time line of that project. So we still expect to get back with more information towards the end of this year. I think that's around VVET. So that's the Australia energy project and maybe to EET. So EemsEnergy, the extension over there process is still ongoing. Yes, we've seen Exmar making the announcement. We are not there yet to make any announcement. As you know, we run an open season on the recontracting of the capacity post the end of the current contract by fourth quarter next year. And that is a moment that we are still working through or a process that we are still working through. And once we have news to share, we will come back to the market and share that. I think then maybe to the lower occupancy rate, it has more to do with the fact that the Fujairah capacity in the first quarter was lower in terms of also out-of-service capacity. Then had a direct impact of what's happening in India. I think still, if you look at Q1, it's a bit early to see the effect of any of the disruptions from the Middle East directly in our business in India. But indeed, the flows of LPG that flow to India have a lot to do with the source of origin, and that's the Middle East. Kristof Samoy: Okay. But for EemsEnergy, you do not experience a change of attitude with your partners in terms of the run-up to the FID being taken given everything that's going on in the Middle East. D.J.M. Richelle: No, I think many parties take for processing like this, a long-term approach. They know that the capacity is available in 2028. As you know, a lot of the flow that was coming from Qatar is taken out. That has a massive impact, but it is also expected to have a massive impact for, as they call it, a bit of extra supply that was expected to come in towards the end of this decade. So you could almost argue that with all the repair and restoration that is going on, it pushes out that supply -- extra supply a little bit further out in time, and it doesn't necessarily have an immediate impact on, for instance, product that needs to leave the U.S. and needs to find a home in Europe. So I think it's a bit of a long answer to say, for now, we do not see a material different approach of potential customers towards EemsEnergy. Operator: Now we're going to take our next question. And the question comes from the line of Thijs Berkelder from ODDO. Thijs Berkelder: Congrats with the strong Q1 performance, especially in chemicals. Can you maybe further explain why chemicals was so strong? And related to that, can you explain what you now see happening in your Deer Park and European chemical operations given recent Middle East events? Second question relates to the strong performance in Rest of World. Can you explain where that is coming from? D.J.M. Richelle: Thanks for that. I think on the Chemical side, I would say, overall, Deer Park has done quite well in the first quarter, and the same goes for Vlaardingen specifically that actually participated and contributed quite strongly to the results in the first quarter. When it gets to the conflict and the impact of chemicals as such for our network, I think Deer Park, although we do not see it yet fundamentally, but Deer Park or the U.S. in general, you would expect that they will benefit a bit from the fact that the U.S. as a chemical producer has quite a competitive -- a strong competitive position in the current global landscape. So we expect that, that will result in at least continued healthy demand for our services, especially Deer Park. I think that's one. So I would say strong performance there. I would say if you change that to Europe, particularly, I would say, Belgium, it's still hard to see, but quite a lot of the flows that are moving into Belgium are flows that come from the Middle East. It's a very strong market for Middle Eastern producers to sell product in Europe. That is subject to the disruptions as a result of the conflict. And what you see over there is, obviously, there's a lot of people that are trying to take positions, traders that try to take positions in that market to try to supply the demand for the end product that continues to be there. So it remains to be seen how that effect is going to balance out. Too early to tell in that sense for Belgium. If you look at it overall for the rest of the portfolio, I think what we said, it's still healthy demand on the main oil hubs, in the first quarter, Singapore Strait, strong, Rotterdam, high occupancy, high activity, so pretty strong over there and fuel distribution, quite healthy across the board in the first quarter. So I think we are pleased if we look back at the first quarter. And I think as we said, the outlook for the rest of the year given everything that's going on is within the range of what we said already in the first -- in February when we announced the 2025 results. Michiel Gilsing: We also had a few growth project contributions in the U.S. and India, which also helped on the Chemical side. So that has led to an increase versus Q4 2025 as well. Thijs Berkelder: Yes. And rest of the world primarily driven by Belgium then? D.J.M. Richelle: Not necessarily. No, not Belgium, I would say. I think if any, Belgium is a bit under pressure first quarter. I think rest of the world, just healthy across the board, not a particular region, I would say that jumps out. As I said, oil stable and relatively strong and just a positive good start of the year. China, quite well. So nothing particular that jumps out, Thijs, in a extreme way. Operator: Now, we're going to take our next question. And the question comes from the line of Philip Ngotho from Kepler Cheuvreux. Philip Ngotho: I have 3 questions, if I may. The first question is on China and North Asia. If I look at the consolidated numbers, I see the occupancy rates. It was already low last year, but it actually dropped further to 55%. So I assume it has to do with the Chinese terminals that are just generating or have low occupancy rate. I was wondering if you could share any -- because in the past, I think you also mentioned that the chemical market in China has been weak, and it seems that occupancy rate continues to drop further there. Do you have any -- what are the projections for those assets there? And could we be thinking of anything if it remains structurally weak to -- that you might take some portfolio actions there? The other thing that I'm wondering about is what portions of earnings is really dependent on throughput levels rather than really take-or-pay contracts? And the last question I have is if a client would declare force majeure and you have a take-or-pay contract with that client or client is impacted by force majeure and with the take-or-pay contract, what happens to that take-or-pay contract? Do you actually -- can you still incur revenues on that? Those are my 3 questions. Michiel Gilsing: Philip, maybe start on the China side. Yes, if you look at the consolidated occupancy, effectively, that's only one terminal. So we have a portfolio of 8 terminals in China. So that doesn't give you a very representative picture of China. Dick already mentioned, the China results were actually quite good and slightly above our own expectations. Indeed, that terminal is the Zhangjiagang terminal, which then has a relatively low occupancy because it's in a very competitive market, and it's one of the distribution terminals. Most of the terminals we have in China are industrial terminals. So basically backed by long-term take-or-pay type of contracts. So you see that the overall portfolio is quite healthy. We don't have any immediate portfolio actions, we're going to take in China. To the contrary, we commissioned last year a new terminal in China. So that is an add-on to our portfolio. We still see quite a few growth opportunities in industrial terminal locations. And overall, the returns in China, if you compare it to the rest of the portfolio is quite healthy, and we're quite capable of distributing our dividends from China back to the Netherlands. So that's maybe on the China side. On the earnings side, yes, there is always a component of throughput income. So even in contracts which -- where people buy, let's say, effectively the capacity, we still have an opportunity that if throughputs are at a higher level than expected that we will charge additionally for excess throughputs. So approximately 10% of the earnings are throughput related in some locations, more throughput related than in others. For example, location like Belgium is much more activity related than in another location. And some of the locations like I just mentioned, some of the industrial or some of the gas contracts are very low in terms of throughput dynamics. So that's maybe only a portion of the earnings, which is throughput related. And Dick, on the first, force majeure? D.J.M. Richelle: Yes. So force majeure, Philip, what we see happening is that some of our customers are declaring force majeure, but they are declaring it in all those cases towards their customers. So an inability sometimes to get product out of a region in order to deliver it to a customer that is further away that is not necessarily related to the type of services that they -- or obligations that they have towards us in the storage contract and arrangements that we have. So we obviously have to follow this case by case and understand very clearly what some of the situations of our customers are in this respect. And as was indicated, I think, in the presentation already before, we need to kind of like be prepared for those discussions because if that customers are under serious stress and under duress, we have to sit down and understand what we can do to support them. But legally speaking, the force majeure, there's very clear guidelines of what and how that applies in the contract obligations and responsibilities between the storage provider and our customers. Philip Ngotho: Okay. Very clear. Just one follow-up. So far, have you had any clients where you already had to sit down and renegotiate terms? Or given that they were just faced with difficulties or challenges? D.J.M. Richelle: It's no comment on that. And the reason for saying it, I don't want to go into individual discussions and official, it's -- I think it's a bit of a gray area where there is -- obviously, there are customers that say we're under a lot of stress, can we talk versus how official that is and how official those negotiations are. I think this is part and partial of what we've seen in previous crises. We are confident that we can manage through that. We're close to our customers and see where and when we can support them while at the same time, respecting and safeguarding the interest of Vopak, which is we made investment in certain infrastructure to support our customers in good times and in bad times. So no details. Operator: Now we'll go and take our next question. And the next question comes from the line of Quirijn Mulder from ING. Quirijn Mulder: On the whole situation in the Middle East. Can you give me an idea about, let me say, the first panic in the first week of March compared to what the situation is now? Are the customers still scrambling for products and has its impact on your throughput in, let me say, mainly in the Far East? So can you give me a view on what's in reality happening and what is -- you take a cautious stance on the second quarter. And it looks like that, okay, the March was not the issue, but maybe April is more an issue than March. Can you give any feeling on what's the current situation for many customers and also the impact on your business? D.J.M. Richelle: Yes. Quirijn, thank you for that question. I think first and foremost, as we already said, key priority for us is to make sure that people are safe and have been safe throughout the course of the conflict. The noncritical staff we leave away from the facility. We take noncritical staff not with a permanent resident in that region, take them out and move them back to their countries of origin. That has all been done. We monitor obviously the situation very closely, purely from a safety and security point of view and do whatever we can to support our partners and our people over there. I think that's in the first -- that's the first instance and first priority. If you look at it, what's happening at the moment, I think a few things to mention here. The amount of information that comes out of the region is limited. That's -- so what the exact damage is outside and far outside of the perimeter of the facilities that we operate is not publicly known, and it's also not always known to us. I think the second element is if you look at it physically what's going on, people would like to remove product in a safe manner, if that's possible as soon as possible in some instances, as we particularly have seen in Fujairah, while at the same time, making sure that now that the cease fire is in place, increased activities are happening to make sure that as much as possible, business continues as possible, as usual, with demand for fuel oil, demand for some of the products that need to be moved in and out, and that is, I wouldn't say all back to normal of how it was before because that would be too strong a statement simply because the product is not always available. The product that comes out of the region is hampered and is limited and restricted. But slowly but surely, as we speak now, things are -- people are trying to get back to normal and resume as much as possible, normal operations with a cautious view and a clear view on the uncertainty that's happening in the region, as you can imagine. Quirijn Mulder: Yes. And that's in the region, but there's a ripple effect, let me say, elsewhere in the Far East. So let me say, the situation in Australia and Sydney, et cetera. And let me say, for example, in South Africa, as you mentioned, in Pakistan. Is there anything you can update us on that -- on the development there? D.J.M. Richelle: Yes. So we continue -- what you see, Quirijn, is that things literally move quite volatile and hectically kind of like almost from week to week. So let's take South Africa, maybe as an example, dependent very much on imports from the Middle East. So in the first weeks of the conflict, you see product on the water still finding a home in South Africa. So first 2 weeks, it was almost business as usual. Then you have a period where there's no new supply coming simply because the supply was choked coming out of the Middle East. So then there's actually a bit of panic in the local market, what's happening and how can we supply new product. And then after a week, 2 weeks, you see that there's alternative supply coming into the market from different parts of the world. And for instance, West Africa is then becoming one of the suppliers of South Africa, which is then supporting. Over time, it obviously needs to work out what it does to total volumes once things start to settle down. But the challenge is it's never clear of when things really start to settle down. And I think that's what we are working through. So it's -- I think that's the best way to characterize it. And I realize you maybe want to have maybe sustainable longer-term view of where this is trending to. That's simply too hard to say at this point in time, and we continue to support where possible. And I think if I can take it one notch up, the general confidence that we have in the fact that we operate these critical assets at strategic locations that support the primary needs in local economies continues to give us a lot of confidence on the medium- to longer-term outlook for our network, but we have to navigate through the current circumstances. Quirijn Mulder: But I understand, let me say, if I look at the second quarter and especially in the month of April, then thus far -- okay, there's a lot of uncertainty, but it's not very concrete impact there, if I understand. There's not that you see, let me say, really impact from, let me say, the business happening on your -- the business happening on your business, in fact. Is that correct? D.J.M. Richelle: I think it's -- what we are saying is that with a lot of uncertainty and volatility in the market, we are certainly not immune for the supply shocks that are currently happening, Quirijn. This is not a relative easy exercise between brackets, easy exercise of rebalancing the remainder of the flows to the world. There's simply also a shortage of product in some regions, and that will have effect on the flows that are coming through some of our terminals, while at the same time, there's, in some instances, a rush for a particular storage position for a particular product because product is trapped and you need to find an intermediate source of storage. So I think it's too early still to tell. We haven't closed April yet. It's way too early to tell what the impact then will be. The assessment that we made is the assessment for the full year 2026, which is reflected in our outlook. And there, we think that we are capable of absorbing the negative impact of the conflict in the outlook that we've already presented. Michiel Gilsing: Yes. Because on outlook -- you may assume on the outlook that obviously -- well, the first quarter was relatively strong. So if you compare it to the outlook we have given, it's at the higher end of the outlook, if you would have 4 of these quarters, but then we still have some growth coming on stream and some positive currency exchange compared to Q1. So yes -- and that will compensate for the potential impact of the conflict, what we feel could be the potential impact of the conflict today because it's very hard to make an assessment. We don't know, let's say, how long this is going to last, how severe this is going to be. But we feel that where we are today and what we know today, that those compensating factors are sufficient to absorb, let's say, the impact of the Middle East. Operator: Now we're going to take our next question. And the question comes from the line of David Kerstens from Jefferies. David Kerstens: I have 2 questions also about the conflict in the Middle East. And maybe specifically on Fujairah, can you give an indication how occupancy trended in the month of March? And given that this is a hub location, do you see any impact from reduced product flows in Fujairah elsewhere, for example, going to Asia into Singapore, will there be a knock-on effect on occupancy levels there as well? And Dick, I heard you say you will see global trade flows rebalancing, I think in response to the former question, you talked about new supply coming out of West Africa. And also, you have a very well-balanced portfolio. Does that mean that you also see terminals that are seeing positive effects from the current conflict in the Middle East? D.J.M. Richelle: Yes. So I think individual occupancy level for particular months, let's refrain a little bit from that or we want to refrain from that. I think VHFL, as we said, total occupancy has gone down quite a bit in -- towards the end of the first quarter. And we see that around 8% of that capacity in Fujairah is out of service simply as a result of some of the damage that we've seen in Fujairah. So that is something that we have to repair and get back into service. The impact that, that has for the rest of the network, it's not necessarily that the immediate flows from Fujairah are moving to all other terminals throughout the network. So I think Singapore has its own dynamic, and it is impacted by the fact that there's products not flowing from the Middle East to Singapore, but that has different sources than to potentially repair that with. And we haven't seen up until now a big impact in, for instance, Singapore for the demand for oil storage. If there are positive elements in the outlook for some of our terminals, I think we mentioned already the effect in Deer Park. We see increased -- quite some increased activity in the Europoort as well. But I think you have to also understand this particular case, it's very relatively straightforward sometimes to assess what is not going well and what the direct impact is, it will take time for us to assess where we see some of the upsides coming from. I think it's simply also harder to predict that at this point in time. Operator: Now we'll go and take our next question. And the question comes from the line of Jeremy Kincaid from Van Lanschot Kempen. Jeremy Kincaid: I just have one question on your guidance. You obviously reconfirmed it today. But within that, there was -- it seems like there's some positives and negatives. On the negative side, clearly, there's the disruption from Strait of Hormuz. But on the positive side, you talked to FX. And I think the other key thing was some growth projects coming in. I assume this doesn't refer to the Europoort terminal or the Spanish development that you're working on because those seem to be -- will be operational in 2027. So can you just talk to what those growth projects are and what's changed from when you last gave the guidance? Michiel Gilsing: Well, definitely that, in the growth projects are not these projects you mentioned indeed. So the growth project, the major one, which will come on stream this year is tank #4 here of the LNG import facility, the Gate terminal here in Rotterdam. So that is still within budget, but also within its original schedule. So we would be able to commission it on time. That is the latest outlook we can give. So that's going to be the major positive contribution. There's a few other projects, but these are relatively smaller compared to the tank #4. Indeed, foreign exchange is a positive element. And then, effectively, what happened is the underlying business performed a bit better in Q1 than we expected. So as a result, if we wouldn't have had the Middle East impact, then obviously, there was -- there could have been a likelihood to basically adjust the outlook upward. But yes, the Middle East conflict basically brings the outlook to the level we have given to the market for both free cash flow as well as the EBITDA. Free cash flow is still healthy. So if you look at where we were last year and where we anticipate to be this year, we should still be able to report a strong cash flow, and that's obviously the main driver for value creation. So yes, basically, I hope that answers the question, Jeremy. Operator: Dear speakers, there are no further questions for today. Dear analysts, thank you very much for all your questions. And that does conclude our conference for today, and have a nice day. Fatjona Topciu: Thank you. D.J.M. Richelle: Thank you very much. Good day. Bye-bye.
Tom Erixon: Hello, and welcome to Alfa Laval's first quarter report. Fredrik and I will share some time going through the details. Because of today, we also have an AGM starting relatively soon, we need to limit this call to 45 minutes. So our apologies if our Q&A session is slightly short. With that, let me, as always, go to some first introductory comments before moving on to the presentation. So first, overall, we felt we had a stable quarter, well in line with our expectations. The pattern of a strong transactional business and a hesitant project business continued in the quarter. Second, the implementation of the new operating model continued in a high pace with adjustments to the financial reporting, management appointments and consolidation in various areas. The financial weight of the changes during this process was limited in the quarter. And then finally, with the war in the Middle East, our main priority has been employee safety in the region and appropriate customer support in difficult times. The financial impact on Alfa Laval was limited in the first quarter and medium term, the energy crisis may provide both some downsides and some upsides across the world in terms of our customer base. So with that, let me go to the key figures. We started '26 well with order intake growing sequentially and with a 6% organic growth compared to last year. Sales was on the low side, partly because of a very high invoicing towards the end of 2025. Despite the lower invoicing and big currency movements, the margin improved slightly to above 18%, mainly due to a positive mix. Moving on to the Energy division. Demand was as expected on a very high level across many end segments, and with a continued recovery of volumes in HVAC, including the heat pump market. The data center business was as expected, strong and continued to grow in the quarter. Going forward, we are now starting to build the data center order book for 2027. We are, of course, concerned for our customers in the Middle East with the damage inflicted on critical infrastructure. The rebuilding process in the region is not clear to us at this point, but we are ready to put all available resources to support the regional needs in the years to come in this very critical situation. Then to the Food & Pharma division. Demand was firm with a 9% organic growth in the quarter. While the transactional business was on a new record level, it was gratifying to finally book sizable oils and fats projects in Brazil, including biofuel components. The outlook for biofuel projects is improving gradually with a viable project pipeline going forward. The consolidation of the BU structure continued in the quarter and in addition to building the future growth platform for the Pharma business. In the Ocean division, we remained as expected on a lower order intake pace compared to the record last year. But at the minus 12% organic decline, it was still a good quarter and better than expected. Ship contracting at the yards was very active due to high freight rates and longer shipping routes. It had a positive effect on orders in general and for cargo pumping specifically. In this application, we are now starting to build the order book for 2028. The energy crisis may trigger additional offshore projects outside of the Gulf to gradually compensate somewhat for the shortfall of volumes. It may impact our offshore business in a positive way going forward. The margin remained stable at around 22% based on the solid order book, which will continue during 2026. Then on to Service. On group level, we remained at about 30% of orders in Service for the Ocean division higher due to the slightly lower capital sales and for the Energy division, the opposite at 25% of total orders due to significant growth in capital sales, especially on the data center side. Volumes were perhaps a little bit on the low side overall and flat compared to last year. We expect to regain the growth path in service going forward. In the Ocean division, there is a negative effect though from sanctioned ships that we cannot serve amounting to about 5% of the global fleet at this point. In addition, there is significant stress on ships and crews in the current crisis, which may delay some service work further. In general, though, as I said, we expect to return to growth in the year. A couple of comments on the top markets and regions. As you know, China and the U.S. are 2 top markets in some time, and both developed well in the quarter with the U.S. on a new all-time high. Our expansion plans in both markets continued with full speed with several site investments in both countries. We also added a smaller Chinese heat exchange companies to the group, supporting their growth plans as well as creating a better coverage of the Chinese market for Alfa Laval as a whole. In terms of the regions, please note that the numbers includes currencies, so they're not the organic. They are the overall growth numbers. And as mentioned, North America and Latin America had a very strong quarter with significant growth, especially in the North America. Europe was flattish with the exception of Eastern Europe that grew well in the quarter. Middle East and India, both faced headwinds due to the ongoing crisis and the energy crisis, and that was reflected in the order intake at this point. And in fact, both India and Southeast Asia are the 2 regions with the biggest short-term exposure to the energy crisis at this moment. Finally, Northeast Asia had a good quarter overall. But of course, they are impacted by the very high marine orders from Q1 last year. Other than that, China and Northeast Asia developed well in the quarter. So that's a summary where we are on that. And I'd like to hand over to Fredrik for some further details. Fredrik Ekstrom: And thank you, Tom. So moving on then to some comments around orders received. But before I start I have some additional comments on order intake and a quick word on the change. We have adopted an order intake approach that reflects new orders in the quarter only, meaning revaluations of the order book are not deducted from the order intake. This is highlighted and explained in more detail in Note 1 referring to accounting policies in the quarter 1 report. And now to some additional comments on order intake. A clear impact on the comparability of figures is currency rates, where the SEK has appreciated against both the euro and the U.S. dollar over the last 12 months. This impacts the comparability with almost 10%. The structural component is related to acquisitions and mainly due to volumes of the acquired Cryogenics business. Organic growth in the quarter exceeded 6% with the Energy division accounting for a good part of that increase with growing data center volumes and a recovery in the HVAC end markets. Food & Pharma also noted a strong organic growth intake in its 2 largest markets, oils and fats and dairy while the Ocean division remained stable with a normalized marine pumping systems order intake. The order book closed in the quarter at SEK 48.7 billion compared to the SEK 48.3 billion at the year-end 2025. SEK 32.1 billion of this is scheduled for invoicing this year. The current order book supports a continued good invoicing level and the order book is assessed to be in line with current input cost levels and the book-to-bill in the quarter was 1.11. On to sales. Currently, we are only experiencing minor disruptions to our supply chain related to the escalated geopolitical tensions, primarily the conflict in the Middle East. Once again, we are impacted by currency with almost 9% negative comparability. Organic growth at almost 2% with a structural contribution of 3.8%. The aggregate impact is negative with 3.3% with a quarter sales level of SEK 15.9 billion. This level, which is somewhat lower than expected, is affected by delaying -- delayed invoicing of projects to a minor extent, transportation disruptions, particularly related to the Middle East and normal seasonality from quarter 4 to quarter 1. Our gross profit margin was on a high level of 39.9% compared to 37.5% in quarter 1 2025. The positive data can be traced to an accretive invoicing mix of transactional business and service, a strong factory in engineering result and good purchase price variances from cost levels set in our standard costing. On the cost side, S&A increased with 1.9% in the quarter and R&D with 4.2%. Approximately SEK 75 million cost increase in the quarter was related to the new divisional structure. Amortization of step-up values increased to SEK 174 million, reflecting the acquisitions made during 2025 with majority related to the Cryogenics business. Taxes also landed within guidance range and operating income in the quarter landed at SEK 2.7 billion. And finally, an EPS of SEK 4.59 with the majority of the deviation stemming from lower invoicing and currency impact. Adjusted EBITDA of almost SEK 2.9 million was, as previously mentioned, supported by a strong factor in engineering result, positive purchasing price variances and an accretive invoicing mix of transactional business and service, negatively impacted by currency with SEK 264 million and SEK 75 million related to the new divisional structures and strategy initiatives. 18.1% adjusted EBITDA margin in the quarter exceeded the 17.7% in quarter 1 of 2025 and is well above our target level of 17% over a business cycle. On debt levels, they have increased from quarter 1 last year, reflecting the financing of the Cryogenic acquisition. In the quarter, we have an MTN bond of EUR 300 million that has matured and been repaid. SEK 1.2 billion in commercial papers was issued, and we expect to issue a further amount of commercial papers during the coming quarter to cover the upcoming proposed dividend of SEK 3.7 billion. Net debt in relation to the last 12 months EBITDA was just shy of 0.7. The increase in lease liabilities reflects the balance sheet impact of renewed long-time leases for some of our operating footprint. Cash flow in the quarter saw a strong EBITDA contribution of SEK 3.7 billion. Working capital change had a negative impact of SEK 1.5 billion, where the majority comes from the building up of work-in-progress inventory and a strategic buildup of buffer inventories for some commodities that we believe are at risk of disturbance from the disruptions that are caused by the conflict in the Middle East. Capital expenditures were somewhat below guidance at SEK 529 million and yielded a free cash flow before acquisitions of SEK 708 million. Acquisitions in the quarter accounted for a cash flow impact of SEK 565 million, stemming from the majority share acquisition of the Chinese heat exchanger manufacturer and a SEK 50 million share in Industrikraft. Finally, the contribution of financing activities is related to the repayment of the EMTN bond of EUR 300 million and the issuance of commercial papers of SEK 1.2 billion. Finally, some financial guidance going forward. We expect CapEx to remain high but stable within a range of SEK 0.6 billion to SEK 0.8 billion in the next quarter and a whole year level within the range of SEK 2.5 billion to SEK 3 billion. Amortization on about the same level of quarter 1 with SEK 175 million and in the next quarter and SEK 600 million for the entire year. And finally, a tax interval of 24% to 26% for both quarter 2 and the entire year. And with that, I hand back to Tom for some forward-look commentary. Tom Erixon: Thank you, Fredrik. And while history is clear, obviously, forecasting in today's environment is somewhat complicated. We don't consider that the looming energy crisis and the war in the Middle East is having any major impact on our outlook in this moment in time. In general, we are somewhat more optimistic about the year now than when the year started about a quarter ago. And demand specifically sequentially for this year in the second quarter is expected to be on a group level, somewhat higher than the first quarter. And on a divisional level, we expect the Energy division to remain on the current all-time high level in the second quarter. We expect demand in the Ocean division to be higher than in the first quarter and we expect the Food & Pharma division to remain at approximately this level with both some upside and perhaps downside depending on how larger projects are materializing in the quarter. So that's where we are in terms of our forecasting in a crystal ball. And with that, I'd like to open up for questions. Operator: [Operator Instructions] The first question comes from the line of Daniela Costa from Goldman Sachs. Meihan Yang: It's actually Meihan here. I just want to have 1 question on data center business. What is the percentage of the energy businesses is data center now? And do you see a difference on the order intake trend on liquid cooling versus air cooling? And what's the ASP difference on those 2 products for you? Tom Erixon: If we move back 1 quarter, we then stated that the 12-month rolling order intake on the data center side amounted to approximately SEK 2 billion. If we move up to this quarter, now 1 quarter later, the ongoing rolling 12 months is at around SEK 2.5 billion. Obviously a bit higher in this quarter specifically, but over the last 12 months, that's what it is. So it's a clear growth trajectory as we have indicated earlier. We remain on that growth territory right now. I don't have in my head the split between air and liquid cooling, but what we have in the plans, and it's pretty clear is that we will have fairly slow, but still a meaningful gradual shift towards water cooling in the incoming orders. But I believe we are still clearly in the majority of the air cooling if I take it from the hip. We can confirm to you later on. But I think that's where we are. Operator: The next question comes from the line of Kim John from Deutsche Bank. John-B Kim: I'm wondering if you can help us kind of square the circle here. If you look at Clarksons data, I think you had some pretty good activity in tanker contracting. I'm trying to think about that and the cadence of your order intake, not just for Q1, but potentially through the rest of this year. Is that something that would have shown in your numbers at some point in time? Or is this still to come or am I misinterpreting here? Tom Erixon: No, I think we came in a bit stronger on the order book for new contracting in this quarter than we had expected when we started. As you know, the outlook -- your outlook was a little bit gloomy when the year started. I think right now, we are at the -- the count is at around 500 ships this year so far, which is significantly higher than last year at the same date. And so it looks like we are coming into a decent year of contracting and we saw a little bit of those effects and a little bit higher product tanker contracting than expected in the beginning of the year. And in March, we had a bit of effect on that, and we may very well have something on that kind also in Q2. Operator: The next question comes from the line of Gustaf Schwerin from Handelsbanken. Gustaf Schwerin: I have a few. Maybe starting with the invoicing level in Q1. Can you give us a sense of the magnitude of sales delay here? And also if this is an effect of customer decisions or something else? That's the first one. Tom Erixon: I'd be a little bit careful in sort of using the delay. What you should be aware of is that after the SEK 19 billion in invoicing in Q4, obviously, sort of we went a bit all in on the invoicing side towards the end of the year, and that had some spillover effect into Q1. We are shipping products on normal delivery times a normal delivery commitments without any major disruptions on our side. I think the difficulty we sometimes have is to predict exactly the percentage of completion. And so those payment schedules, typically they don't get accelerated. But for various reasons, in larger projects, the execution of those projects, they moved the time line a little bit here and there in terms of commissioning and final payments. And so I don't want to -- it's not an -- we're not looking at an operational problem. It's just a bit of seasonality between Q4, Q1, and perhaps not a perfect bridge to the timing of invoicing in the number of projects. Gustaf Schwerin: Okay. Secondly, on energy orders, clearly stronger than we had expected and also better than the comments you had back in Q4. I mean the main positive delta there is data center. Is there something else that's stacking out? Tom Erixon: I think there was a lot of things sticking out actually. I think the transactional business in Food & Pharma went to a new all-time high after a fairly strong Q4. That was not exactly in our mind at the time. The slight improvement on the ship contracting side was not exactly in our mind at the time. And maybe even the HVAC side, although we saw a turn already in Q4 last year. We picked up a bit better on that as well. So I think that there have been a number of contributing factors. So it sounds like I'm all super happy with all of the order intake. It's not -- that's exactly true. If we have 1 miss in the quarter, I think that is related to the service side, which is flattish compared to last year. There are some maybe small structural temporary reasons around that. So we feel fairly committed that we're going to return to a growth path for the rest of the year. But as an individual quarter, we didn't quite see the organic growth in service that we've been used to for the last 6, 7 years. Gustaf Schwerin: Perfect. Just lastly, the comment in the CEO letter around escalating cost inflation and you potentially considering price increases by midyear. I mean, how should we read that? As we stand now, do you foresee a material change in your cost base Q2 versus Q1? Tom Erixon: It is a reflection that the energy crisis we are going into is clearly, macroeconomic-wise continuing to drive an inflationary environment that has been higher than we've been used to for a long period of time, and we haven't got the grips with it. And this process that we have of escalating energy prices is not helpful in the current inflationary environment. We see specifically issues in part of our bill of materials. We see a bit of challenge on the logistical cost, and we are just not prepared to passively watch that escalation go on. And we are, by the way, not sure that this problem is over. And we are now returning back to some sort of normality on the energy side. So I think we created a bit of inflationary way ahead of us. And as we did last time when we had this problem, we will prefer to deal with it proactively rather than afterwards. But it's no -- it's nothing specific on Alfa Laval's sourcing mix or exposure that puts us in a different position than anybody else. I think you will see a number of companies doing the same thing. Operator: The next question comes from the line of Andreas Koski from BNP Paribas. Andreas Koski: Two questions. First on HVAC, where you're seeing the recovery continuing. Can you -- do you have a good feeling of how the distributors' inventory levels are today? Is there a possibility that we will see both end market demand improving at the same time as the distributors have to restock a lot after the destocking that we have seen over the many years? Tom Erixon: I'm looking at Frederik. Listen, I think I think we are -- when we look at the... Andreas Koski: I can ask it this way instead, if you want. I mean when we look at HVAC in the past, we were at a quite high level. And I think the heat pump business was at a total of around SEK 3 billion, and now we've been below SEK 1 billion when it comes to the heat pump business. So is there a possibility that we will reach the previous peak that we saw a few years ago in the... Tom Erixon: I think -- all right, let's take it from there. I think we actually peaked at around SEK 2 billion, if I remember correctly. And we've been partly down in the pace that has been below SEK 500 million. So this has been a really significant destocking. And we've seen now for a couple of quarters that the volumes are picking slowly up, and they were picking up a little bit faster in Q1 than before. But I don't think there's a lot of inventory, certainly not excess inventory in the systems right now. I think we are looking at -- we're looking -- we are still on less than half of the peak. So I think we are balanced with the market. I think the big question for us is how much? There's a number of questions as to the current energy crisis, how will it affect our business in offshore? How will it affect the electrification, the move to heat pump and a number of other areas. And so there are some upside coming from the current energy crisis in terms of energy resilience and diversification that may put some extra volume growth into the market. But otherwise, we expect a fairly slow growing heat pump market in Europe. And we expect to be maybe back towards the -- the then record levels early as 2030 or so. So it is -- that's our main business case. But of course, we may see increased subsidies and increased push again, higher gas prices and so on, that is again favoring the heat pump market. So it is kind of an upside, but I would not look at that upside as more than maximum SEK 1 billion or so, if I were you. Andreas Koski: Okay. Great. And then coming back to Gustaf's questions about potential price increases. And you mentioned that you're seeing inflation picking up. But can you just remind us how you are impacted by the tariffs? And if there will be an incremental impact for you because of the updated Section 232 tariffs? Fredrik Ekstrom: Yes. So as Tom expressed, I mean, the inflation that we're seeing is probably ahead of us, and it comes in the form of being -- staying close to our suppliers, and there's a signaling that for a lot of the energy-intensive inputs that we have into our products that, of course, that's being driven up by the current energy prices. That's one part of your question. And to the second part of your question, yes, there has been a shift in the so-called Section 232 or an update of it. I believe it was the second of April that the update went through. Our assessment when we look at it and we look at it from the different product groups and the different supply chains that we have is that it's fairly neutral for us. We don't see that we have a big impact neither negatively nor positively. There are some negatives and some positives, and they weigh out in the end. But of course, we keep a close eye on this. And you have to remember that when I say different supply chains. We have everything from delivering finished units to delivering components for assembly in the U.S. to spare parts and then there's whole host of supply networks around there that come from Mexico, Europe, China and so forth, it's a little bit different, but our assessment as it stands today is that it doesn't imply any major changes to the cost of tariffs as we have it today. And to be clear, from the new level that was set after the previous round of tariffs was deemed illegal. Andreas Koski: Understood. And then lastly, on the updated way of how you will present your order intake and that you will not include cancellations and revaluations. When you write about the order book in the text, in the report, will you there mention if you have had revaluations and cancellations? Or will we just see the order book development basically? Fredrik Ekstrom: Yes. No, you will see the order book development for certain. And referring to that change, I will remind you that when we went into quarter 1 last year and we had the big movements of the NOK and the U.S. dollar, in particular, to pumping systems where we had a revaluation of backlog that was reflected in our order intake at that point in time of almost SEK 800 million. And so the critique or the feedback that we got from the market was you're not really reflecting the demand and the new orders as you get them on the market if you're actually netting out revaluation. So this was a little bit a response from our side to say, let's align ourselves with the way the market is getting this information from other peer companies. So it was a little bit in response to that. So we don't see it as anything dramatic. I think the new number clearly reflects what the real demand is on the market and what the new orders in the quarter are. And I take on board your feedback on whether we should include it into the backlog in the report. Andreas Koski: No, because there is -- when I look at it now, there is a possibility that you have had some cancellations, which would also be interesting to know about, actually, because the order intake was SEK 1.6 billion higher than sales, but your order book only increased by SEK 400 million in the quarter. And that's why I was wondering if you would have mentioned in the text if you had cancellations or revaluations, but I understand that you... Fredrik Ekstrom: But I take it with me and just to answer the question, the lion part of that change is revaluation due to currency. Operator: The next question comes from the line of Klas Bergelind from Citi. Klas Bergelind: Sorry, I joined a bit late, maybe you covered some of this. So first, on Ocean, the higher demand you see into the second quarter. I'm trying to understand the dynamics between cargo pumping versus offshore and then rest of Ocean. Is this a step-up you see in cargo pumping or in the other categories, i.e., ex Framo? The reason for asking is that it typically take some time from contracting improvement until you see improved orders outside Framo. So that dynamic would be interesting. Tom Erixon: Yes. You're asking for a lot of granularity here. So I'm a little bit hesitant to meet your question too much. But as I indicated before, part of a slightly stronger order intake in the ocean than we perhaps expected for Q1 was related to higher product tanker contracting that had some effects at Framo. And it's possible that, that, to some degree, will continue. But don't keep me hostage for doing product-by-product prophesies. All in all, we see a slightly more favorable environment on it, and then you have to do a little bit of your own risk assessments there. Klas Bergelind: All right. Fair enough. My second was on the heat pump side. Did you say that there is a quarter-on-quarter improvement already in your orders now within HVAC? Or is this a sentiment improving? It feels a bit early that we would have a broad-based improvement in heat pump orders. I mean maybe in certain countries, but I'm just interested in what you said there. And sorry, I was late on the call, maybe you talked about this. Tom Erixon: Yes, we did but no problem. But there has been, over the last couple of quarters, a clear improvement in the volumes. Now I would say that the big part of that has been the completion of the destocking process, which was getting completed towards the end of last year as far as we could judge. And if we were correct in the depletion of excess stock towards the end of this year, then the first quarter order intake on heat pumps were reflecting a better production plan and a stronger production plan at our customer site in terms of their expectations into Q2, Q3. So we had a pretty clear growth at that point in time. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Tom Erixon for any closing remarks. Tom Erixon: Thank you very much. Thanks for being. It's a very busy day for all of you guys. So we appreciate taking the time and we're going to be off to AGM. And so hopefully meet some of our investors there. So thank you very much for your attention, and see you next quarter. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your line. Goodbye.
Operator: Good day, and welcome to QuantumScape's First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Sam Kamara, QuantumScape's Senior Director, Investor Relations. Please go ahead, sir. Sam Kamara: Thank you, operator. Good afternoon and thank you to everyone for joining QuantumScape's First Quarter 2026 Earnings Call. To supplement today's discussion, please go to our Investor Relations website at ir.quantumscape.com to view our shareholder letter. Before we ,I want to call your attention to the safe harbor provision for forward-looking statements that is posted on our website as part of our quarterly update. Forward-looking statements generally relate to future events, future technology progress or future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize. Actual results and financial periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. There are risk factors that may cause actual results to differ materially from the content of our forward-looking statements for the reasons that we cite in our shareholder letter from 10-K and other SEC filings, including uncertainties posed by the difficulty in predicting future outcomes. Joining us today will be QuantumScape's CEO, Dr. Siva Sivaram; and our CFO, Kevin Hettrich. With that, I'd like to turn the call over to Siva. Siva Sivaram: Thank you, Sam. First, an update on our Eagle Line. This is our highly automated pilot production line to demonstrate scalable production of our solid-state lithium metal battery technology. In Q1, we completed the installation of the Eagle Line and commenced start-up operations. We are producing initial volumes of QSE-5 cells. We have been working to continuously improve all aspects of Eagle Line functionality, such as equipment uptime, line throughput control systems and process stability. We've been integrating advanced AI models into the Eagle Line, and we have seen substantive progress on cell quality and reliability. We believe that the increased production capacity at the Eagle Line will help drive a virtuous cycle of higher data volume, more rapid learning cycles and enhanced quality. In Q2, we plan to ramp QSE-5 cell production to support customer programs across automotive and other applications. Development work for EV applications remains our core focus and our largest source of customer billings. We continue to work closely with the Volkswagen Group's PowerCo as we advance through the phases of our automotive commercialization road map. The next phase is field testing. Sales from the Eagle Line will be put through a demanding set of real-world test conditions, and that some feedback will be used to learn and iterate. Beyond our work with Volkswagen. In Q1, we shipped cells to an automotive JDA partner for testing. We continue to work through our 2 JDAs with top 10 global automotive OEMs to bring our solid-state lithium-metal technology into their vehicle programs. In addition, this quarter, we successfully completed our technology evaluation with another top 10 global automotive OEM customer. Their engineers performed hands-on testing of our technology and ran competitive benchmark against other solid-state technology approaches. With the success of this effort, we are moving into the next phase of this engagement: joint development activities with the ultimate goal of deploying QS technology in their automotive and other applications. Next, an update on our QS ecosystem. This is the cornerstone of our capital-light business model. By teaming up with world-class companies across the value chain, we can bring our technology to global scale faster and more efficiently. These alliances are a force multiplier for our commercialization efforts as we distribute our technology know-how to trust it partners. We continue to work closely with both Murata Manufacturing and Corning on scaling up production of our solid ceramic separator using our groundbreaking Cobra process to build a global value chain necessary for our gigawatt tower scale production of QS technology. Our ecosystem partners are also investing in QS proprietary hardware and systems to produce our ceramic separator. We see this as a clear sign of their commitment to our ecosystem as well as a source of customer billings. In Q1, we recorded our first customer billings from our ecosystem. Next, a word on new markets. We believe our high-performance solid-state design has compelling attributes to address the evolving energy storage needs of AI data centers, where conventional lithium-ion technology faces safety and performance limitations. Driven by massive compute demand, data centers are transitioning to 800-volt DC designs, and adopting power systems architecture and technology from the electric vehicle industry. We see this as a natural fit for our no-compromise solid-state battery. In-rack energy storage and power delivery is a large and fast-growing market, and the higher energy density of our battery technology can enable increased compute density for AI factories. In addition, we have seen strong customer interest in our battery technology from global players in the military, aerospace and government sectors. Our battery technology unlocks step-change improvements in both energy density and power simultaneously. Combined with the superior safety of our solid-state design, this is a highly attractive combination for these advanced applications. Our anode-free architecture also has supply chain benefits for these customers. Conventional lithium-ion batteries require graphite that is almost exclusively sourced from China. In contrast, our battery design is graphite-free, eliminating a major pain point for defense applications. To conclude, I want to take a moment to look at the big picture. The world's energy system is experiencing rapid change. The way we produce, store and use energies are going a once-in-a-century transformation. From electric vehicles and AI data centers to grid storage, drones and aerospace, the future of the world economy is being built on electrification, electrotech. To give just one example, the speed of change and growth in the AI data center market is breathtaking. The technology of the past is struggling to keep up and innovations in energy storage are essential to this transformational change. Thanks to our years of careful planning, consistent execution and constancy of vision, QS is in the middle of this electrotech story. From geopolitical disruptions to the energy system and supply chain risks for critical materials to the explosive growth of electrification across the world economy, the tailwinds for our technology have never been stronger. We believe we have the differentiated technology, world-class team, ecosystem partners and customer relationships to capitalize on this revolution. Even as we tackle the challenges still ahead, our dedicated team is motivated by a market opportunity that is global in scale and growing every day. We look forward to updating you on our progress over the months to come. With that, I'll turn things over to Kevin for a word on our financial outlook. Kevin Hettrich: Thank you, Siva. GAAP operating expenses and GAAP net loss in Q1 were $109.2 million and $100.8 million, respectively. Adjusted EBITDA loss was $63.2 million in Q1, in line with expectations. For full year 2026, we reiterate our adjusted EBITDA loss guidance of between $250 million and $275 million. A table reconciling GAAP net loss and adjusted EBITDA is available in the financial statement at the end of the shareholder letter. Capital expenditures in the first quarter were $10 million. Q1 CapEx was primarily composed of final payments related to the Eagle Line. For full year 2026, we reiterate our capital guidance of between $40 million and $60 million. Customer billings for Q1 were $11 million, representing a mix of customer development activities and ecosystem partner payments. Customer billings as a metric represents the total value of all the invoices issued by QS to our customers and partners in the period regardless of in treatment. As a reminder, customer billings may vary from quarter-to-quarter due to fluctuations in activity as we progress through various phases of engagement. Customer billings is a key operational metric meant to give insight into customer activity and future cash inflows. The metric is not a substitute for revenue under U.S. GAAP. We ended Q1 with $904.7 million in liquidity and will remain prudent with our strong balance sheet going forward. As always, we encourage investors to read more on our financial information, business outlook and risk factors in our quarterly and annual SEC filings on our Investor Relations website. Sam Kamara: Thanks, Kevin. We'll begin today's Q&A portion with a few questions we have received from investors or that I believe would interest investors. Siva, you've outlined our strategic blueprint and laid out our 2026 goals. With the first quarter behind us, can you drive the progress on our core annual growth? Siva Sivaram: Thank you, Sam. The Eagle Line is central to us. We are using the Eagle Line to demonstrate scalable production so that our licensing customers can take our technology and scale it up. You can measure progress in 2 ways, the technical side and the commercial side. On the technical side, the Eagle Line is making the expected progress as we ramp up. The team has been doing great work together with PowerCo. The day-to-day is all about getting the detail right, equipment uptime, line throughput, control systems, process stability and so on. The improvements we have made in reliability are enabled by some of our new AI models that take data from our metrology make determinations of the quality faster, more accurately and more consistently than a human could possibly do. This enables an accelerated feedback and feed-forward loop which drives the continuous improvement cycle faster. We shipped samples in Q1. And in Q2, we'll be ramping to support more shipments. That's the technical side. On the overall commercial side, we have great customer traction across major geographies in the automotive business, Europe, North America and Japan. We are working closely with VW on field testing in the near term, leading to large-scale production transfer. We have shipped cells to an auto JDA partner, successfully completed the technology evaluation with an additional top 10 automaker. All told, that 4 of the top 10 that are well engaged in our auto [indiscernible]. We are seeing our ecosystem business model also gaining momentum. Our ecosystem partners are making investments in hardware and systems to make our technology, which shows their commitment to the opportunity. Not only that, but these investments are beginning to flow through into QS customer billings. Our work on automotive ecosystem engagements and the higher throughput of the Eagle Line comes together to give us the resources that we need to go after some new markets faster. Sam Kamara: Thanks, Siva. On the new markets you've described, what makes the opportunity in AI data centers and defense interesting? Siva Sivaram: Sam, we think the opportunity for our technology in AI data centers is obvious and compelling. It's early days, but right now, I would call it a great addition to our automotive portfolio. It ticks all the boxes. The size of spend in the market, the growth, the product market fit and our ability to create and capture value. The requirements for in-rack power solutions align well with our technology. You need better energy density to increase the compute density of the data center. You need the power performance, charge and discharge, to provide power smoothing for these AI workloads, which from the battery's point of view is almost like being on a racetrack. And safety really matters for a data center, where operating temperatures are higher and a fire in a GPU rack could easily cost millions in damage and downtime. Our differentiated technology allows us to do things traditional lithium-ion cannot do. Better performance with better safety lets you get closer to the system and provide power over the last meter. We are setting up for this opportunity as well as other markets like military, aviation and space. We have added Ross Niebergall to the Board and Dr. Mark Maybury as an adviser to help us with these opportunities, and their expertise and networks are extremely valuable. We are really excited about these new markets, and we'll be shipping samples from Eagle Line to meet the increasing inbound customer interest. Sam Kamara: Kevin, we report first customer billings from ecosystem partners this quarter. Can you explain why that milestone matters and what it demonstrates about the longer-term economics of our business model? Kevin Hettrich: Our first customer billings from ecosystem partners are an important milestone for 3 reasons. First, this is an indicator of ecosystem investment in our technology platform. We believe this accumulation of investment by partners is an amplifier that is a strength of our capital-light business model. Second, these billings are an additional source of cash flow to the company as we transfer equipment, processes and know-how that enable our partners to move faster while retaining QS ownership of the core technology. Third, similar to our business model with customers, we plan to earn longer-term ecosystem licensing payments and royalties. We believe these ecosystem payments will be an important driver of shareholder value creation. As a reminder, we define customer billings and total value of all the invoices issued by QS to our customers and ecosystem partners during the period regardless of accounting treatment. This is an operational indicator rather than a substitute for GAAP revenue. The amount and accounting treatment can vary by agreement by quarter. But taken together, we believe they demonstrate growing external validation of our technology and the flexibility of our business model as we scale. Sam Kamara: Okay. Thanks so much, Kevin. We are now ready to begin the line portion of today's call. Operator, please open up the line for questions. Operator: And our first question for today comes from the line of Winnie Dong from Deutsche Bank. Yan Dong: I was wondering if you can potentially qualitatively characterize the ramp of QSE-5 production in 2Q. It seems like there's going to be some steep, I guess, quarter-over-quarter improvement in terms of the output, but I was wondering if you can characterize it as perhaps like qualitatively or even directionally? Siva Sivaram: Winnie, yes, we are building the ramp of the Eagle Line in Q2. As you would expect with a highly automated lines such as the Eagle Line, once we have installed and started beginning the initial volume of cells, we need to continuously improve the uptime, the throughput, the control systems, the process stability, all of this to continuously improve. And then there is an ongoing demand for samples from our automotive customers and from these new markets that we are attempting to enter, and these demands pile up. So Q2, we'll begin ramping, and we'll continue to go up satisfying these demands through the rest of the year. That gives you a good feel for how fast we are ramping the Eagle Line, Winnie. Yan Dong: Okay. Got it. And then second question is on the expansion to new markets. It seems like you think the sales can really be used for energy storage and data center. Maybe can you talk about some of the potential investments that you may need to put into this, and then what kind of time frame we're looking at in terms of launching a potential product for that? Is it -- does it need like some substantial change in terms of the technology and products? Or is it an easy sort of like transfer into that market? Siva Sivaram: Yes. That's a very interesting question, Winnie. Most of the learning from automotive business transfers here. The data center market is going into the 800-volt architecture. And many of the requirements are very similar with respect to energy density and power density and cycling life, et cetera. However, the most important thing we have to offer in addition is the safety and the no-compromise nature of the product, meaning you don't have to sacrifice performance for safety. You can have the product as close to the compute as possible. This is what we mean by last-meter power. And in all of these AI data centers and the AI factories, what you need is to be able to maximize the compute density. And so the ability of ourselves to be close and deliver high-quality last mile last meter power is what makes us very attractive. And it is a natural transition from the automotive product to the data center product. Kevin Hettrich: And Winnie, I'm happy to take the capital allocation part of the question. As you know, our strategy is to develop technology platforms that serve multiple markets. The bulk of the investment goes into developing platform. It's more incremental to tailor our product and to engage customers and where we see incremental investment opportunities in the best interest of shareholders, of course, we're going to go after them. We're very excited about the new high-value markets that we mentioned in the letter in our remarks. And as a reminder, one of our goals, number three, is to expand into high-value markets. our annual operating plan and the financial guidance upon which base already contemplate that. And in today's call, we reiterated our adjusted EBITDA guidance, our CapEx guidance. And we also reiterate that we are tracking to our year-over-year increase in customer billings, all reiterated on today's call. Operator: And our next question comes from the line of Ben Kallo from Baird. Ben Kallo: Congrats on the first billings. Just maybe on the last question, if you could expand just would it be similar in a license model? Or is it something that you could do under [indiscernible] the expanded purview that you guys did a while back? Siva Sivaram: Ben, it's exactly correct. So we will be looking at both of those. Initially, the samples will come out of the Eagle Line. Additionally, PowerCo has 5 gigawatt hours of capacity tenor markets outside the automotive. And we will continue to find other opportunities for these markets as well. And so all of these are, as you said, right in our path of how we want to take it through. The ecosystem also plays a big role. Our ability to ramp the separated production from either Corning or Murata helps with this. And we expect to see the same phenomena to happen with our equipment and materials partner who all will help us with this ramp. Ben Kallo: And then just taking to that, just moving on to the other auto OEMs that you're working with, could you just talk about kind of what -- if there is kind of a view on the progression of turning those to the formal licensing partner with the JDA and the formal licensing partner like a time frame or any kind of like what they're looking for to solidify that relationship? Siva Sivaram: Yes. Ben, thank you. Thanks for the question. Yes, upfront, I want to say, 4 of the top 10 auto OEMs level are now actively involved with us across the major geographies North America, Japan and of course, Europe with Volkswagen. And in all cases, we are carefully going on the progress with evaluation to joint development working towards licensing. As you know, Volkswagen is the most advanced in that relationship. The others are well on their way for us to progress towards a license from that. And all of these, of course, run through the Eagle Line. The Eagle Line makes the difference in our ability to sample and move this process along towards licensing. Operator: And our next question comes from the line of Mark Shooter from William Blair. Mark Shooter: Congrats on all the progress this quarter in the Eagle Line and the new auto engagement. So regarding the OEMs and the field testing as the next step, my understanding is that you'll need to size up the cell from the QSE-5 to fit into VW's unified cell architecture. So do you still need to do that for field testing with them? Or are they now taking the QSE-5 to field test? Or is another customer that you're working with, leapfrogging VW and beating [indiscernible]? Siva Sivaram: Mark, big interesting question. Yes, we are field listing with the QSE-5. As we demonstrated with the Ducati bike last year and onwards, they will be field testing. But you are absolutely right, we have the unified self to work with, and they are working closely with us to design that still as well. And I expect that each one of our OEM customers will want their specific form factors as well. And we work with each of them. This is one of the biggest advantages of the licensing business model is that our separator can handle all these form factors, but they -- I will be working with us on how to ramp on their specific needs. Mark Shooter: Great. Siva, that's very helpful. Switching to some other markets here. it's very evident where you're trying to go by the people you've added to the Board with the former military defense contractors. So I'll ask about the potential drone market in aerospace and defense. Your auto sample cell, the QSE-5 has a significant performance advantage for autos, but I'm wondering if there's some juice left per se. And if you were to redesign that for a drone spec because drones they require a higher specific energy density, but also they don't need as much cycle life. So I'm wondering if there is an [indiscernible] term like separator thickness and cell packaging where that could give you some torque on some performance improvements. Siva Sivaram: You are 100% correct, Mark. One of our goals for this year is go beyond QSE-5. As we keep repeating, we are just at the start of this S-curve. There are many levers still left to move us up the performance curve. And please allow us to come and show you what we are developing sometime later this year. And they'll be applicable not just to the drone market but to all other markets as well. So we will continue to push the technology frontier for all of this. The separated technology, the ceramic separator is the key to our sales architecture and its performance, and we will continue to evolve in all fronts to make the self-adapted to different applications. Operator: [Operator Instructions] Our next question comes from the line of Mark Delaney from Goldman Sachs. Unknown Analyst: You've got Ayush Ghosh on for Mark Delaney. On billings, how should we think about the potential increases in billings going forward, considering you recorded the first billings from the Go system and also with the new JDA and other non-auto end markets? Kevin Hettrich: Ayush, thank you for the question. In fiscal year 2025, we recorded approximately $19.5 million in customer billings. In Q1 '26 on this call, we recorded $11 million in the quarter. If you recall, our guidance is to increase billings year-over-year 2026 compared to 2025. And we reiterate that guidance today. Unknown Analyst: Got it. And then separately, you also mentioned you transitioned from the technology evaluation to the JDA with the top 10 OEM and congrats on that. Can you sort of speak on some of the benchmarking tests what they were and how QS performed and also what some of the initial feedback was? Siva Sivaram: Yes. I would love to talk about it. These are hands-on in-lab evaluation by these customer engineers in our pilot facilities. They spend a lot of time working with us, making the cells and measuring them here. And they have a lot of experience in solid state in their own labs and of course, all OEMs [ kick ] the tires from around the world. And these are top 10 OEMs. They are not novices to this technology, and they get actively involved with this. And for us to feel good about moving to the next stage, that makes us feel good and sort of ratifies our own confidence in how far we have been in this differentiated technology. Operator: And our next question comes from the line of Laisha Zaack from HSBC. Laisha Zaack Carrillo: Can you hear your me? Kevin Hettrich: Yes. Laisha Zaack Carrillo: I just have one very quick on timing. I wanted to know how this is going into these new markets changed the time frame that you've set for your automotive goals? Are they like -- are these new possibilities on some of the human capital that you does on [indiscernible] and the teams that you have established for automotive? Or are you going to start to expand your workforce, your teams, your resources, like how does this work? How should we take on it? Siva Sivaram: Laisha, a great question. The automotive marketplace still remains an important focus for us. We are adding these additional markets to our automotive portfolio. We are adding customers in the automotive marketplace. 4 of the top 10 are joining us. So it is not like we are taking our eye away from the ball with respect marketplace to automotive. However, these new big growing marketplaces with respect to data center and different set of space are very good fits for our product. So as Kevin mentioned earlier, at the start of the year, we had looked at these markets and appropriately sized our resourcing for this as part of our annual operating plan. So we have well resources, and we'll continue to invest as needed. This is not an either or. We are looking at both of these opportunities with capturing and -- creating and capturing careful the value. Operator: Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Siva Sivaram for any further remarks. Siva Sivaram: Thank you, operator. Finally, today, I want to recognize the entire QS team for their execution and thank our shareholders for their continued support. We look forward to updating you on our progress in the months ahead. Thank you. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Operator: Good day, and welcome to the Preferred Bank First Quarter 2026 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touch-tone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Mr. Evan New. Please go ahead. Evan New: Hello, everyone, and thank you for joining us to discuss Preferred Bank's financial results for the first quarter ended 03/31/2026. With me today from management are Chairman and CEO, Li Yu; President and Chief Operating Officer, Wellington Chen; Chief Financial Officer, Edward Czajka; and Deputy Chief Operating Officer, Johnny Hsu. Management will provide a brief summary of the results, and then we will open the call to your questions. During the course of this conference call, statements made by management may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on specific assumptions that may or may not prove correct. Forward-looking statements are also subject to known and unknown risks, uncertainties, and other factors relating to Preferred Bank's operations and business environment, all of which are difficult to predict and many of which are beyond the control of Preferred Bank. For a detailed description of these risks and uncertainties, please refer to the SEC-required documents the Bank files with the Federal Deposit Insurance Corporation, or FDIC. If any of these uncertainties materialize or any of these assumptions prove incorrect, Preferred Bank's results could differ materially from its expectations set forth in these statements. Preferred Bank assumes no obligation to update such forward-looking statements. At this time, I would like to turn the call over to Mr. Li Yu. Please go ahead. Li Yu: Thank you very much. I am very pleased to report first quarter net income of 31.3 million dollars, or 2.53 dollars per share. This quarter's net income was negatively impacted by the placement of a large relationship into non-performing status. If you recall, in February and March, we issued a press release informing all of you that we placed a nine-loan relationship on a nonaccrual basis. This relationship consists of two C&I loans of a small 2 million dollars, and the rest are all commercial real estate loans in a total amount of 177 million dollars on a nonaccrual basis. Shortly after the announcement, we were able to sell one loan at par of 9.4 million dollars, and on April 1, we sold another two loans at par for 48.5 million dollars. So as of today, we have effectively reduced the relationship by approximately 50%, and we will continue our progress in the second quarter and in the third quarter. Hopefully, by that time, we should have substantial resolution of this situation. Loan growth was a moderate 1.1% sequentially, and deposit growth was a moderate 1.2% sequentially. Market competition, especially in pricing, has been very severe. It seems to me that the war in the Middle East is trending toward a more stabilized basis. I assume, hope I do not mislead you; we should concentrate on economic affairs in the ensuing months. Our net interest margin was 3.57% for this quarter, which is down from 3.74% in the previous quarter. Again, the reversal of interest income is the main reason. Since this reversal of interest income is nonrecurring, we are very hopeful, especially when there seems to be no imminent rate movements, that our net interest margin will rebound in the ensuing quarters. Operating overhead, or noninterest expense, has been stable, and we will continue to keep it on a stable basis in the future. For your information, the Bank has repurchased roughly 400 thousand shares of our common stock for total consideration at roughly 89.90 dollars per share. Thank you very much. I am ready for your questions. Operator: We will now open the call for questions. We will now begin the question-and-answer session. To ask a question, please press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. We will pause momentarily to assemble our roster. The first question will come from Matthew Clark with Piper Sandler. Please go ahead. Matthew Clark: Hey, good morning, everyone. Just on the loans held for sale, the move there. I am assuming 48.5 million dollars of that is the two loans that you sold on April 1 at par, but I want to confirm that and also what else is in there. And any pricing thoughts on the other two? On deposit costs, I want to get a sense for where your deposit costs were in March and your thoughts on competition going forward along those lines. Just remind us how much you have in CDs coming due in the quarter and the rate it is rolling off at, and the renewal rate that you expect. And lastly, on the expense run rate going forward, how should we think about noninterest expense? Edward Czajka: Yes, you are correct. Part of that 76 million dollars is the two notes sold at par on April 1 totaling 48.5 million dollars. There are two other notes in there that we are actively marketing at this point as well to sell the notes. That is why they are placed in held for sale. On deposit costs, they are coming down, but not at the same velocity they were in Q4, so the pace of decline is starting to slow. For your record, March deposit cost was 3.10% overall. In terms of maturities, we have 1.35 billion dollars maturing in the quarter at a 3.89% rate. Those will likely be put on at similar rates, maybe a little bit lower, but we are getting close to the point where we are reaching stagnation in terms of the rolling off of CDs to newer, lower-priced CDs. On expenses, we were at roughly 23.5 million dollars for the quarter. Over 1 million dollars of that was heightened payroll tax related to bonus payout and related to stock vesting, which both occurred in the first quarter. As we go forward into Q2, I am looking for something in the high 22 millions to low 23 millions. Matthew Clark: Great. Thanks again. Operator: The next question will come from Gary Tenner with D.A. Davidson. Please go ahead. Gary Tenner: Thanks. Good morning. I wanted to ask on loan growth. The production must have been pretty decent this quarter just to have the defined growth of loans held for investment and loans held for sale. Can you talk about production, competition, and pricing? In terms of the activity levels and quality of credit that you are seeing come through, how does that look today? Li Yu: Pricing is all over. We are still facing a lot of people pricing below 6% on a fixed-rate basis. We cannot afford to do that. Especially when the movement of interest rates is unclear at this point in time, we have not been getting the rate cuts that were previously forecast. So most people have been, frankly speaking, doing long-term fixed-rate loans lower than we want to do them. On the quality side, we see the quality pretty much in the same situation. I do not think the industry has been loosening on quality. Based on my colleagues, they have been very much controlling themselves in that aspect, and likewise, obviously, we try to do that too. Gary Tenner: Alright. Thank you. Operator: The next question will come from Andrew Terrell with Stephens. Please go ahead. Andrew Terrell: Hey, good afternoon. I want to start on the margin. The 3.4 million dollars interest reversal seems like that is 19 to 20 basis points of margin or so. As that normalizes in 2Q, if we add that back in, it gets closer to, like, a 3.75% type margin, so similar to your fourth quarter. Is that how you are thinking about 2Q? Or how else should we think about trends of the NIM going into 2Q and then throughout the year? And on the note sales, good to see you get out of them in April at a pretty good price. When you talk about resolution of the remainder of these credits by the third quarter timeframe, is note sales the primary avenue, or are there other plans on the nonperformers? Edward Czajka: I think you are directionally correct but probably about five basis points high there. The margin for March came in at 3.71%. We are looking for something in that area as we go forward. With the sale of the note on April 1, we are going to recoup some interest that we reversed out, so that will be a little bit of a tailwind for Q2. It might be a little higher than that, but right around the 3.70% number is probably good for us. Li Yu: Obviously, note sale is the quickest and best for us if we can get the price that we want to get. That is really also a pricing issue for us. Each loan has its different nature—most clearly, the loan-to-value ratio based on appraisal. Normally speaking, when the situation is narrow, you do not get as good pricing as loans with a bigger margin. In the meantime, the other resolution process, which is foreclosure, is still going on. Right now, most of the loans have filed bankruptcy or started that process, so we have to deal with bankruptcy too. It depends on what the bankruptcy judge is awarding. They might award certain cases more time to sell it or to operate it, to reorganize it. To the extent we can get them immediately, we will resell them. Each property has a different resolution nature—not necessarily very predictable. Andrew Terrell: Understood. Thank you. And just one more on the competitive backdrop. If I add back in the held-for-sale loans this quarter, it looks like you were tracking mid–single digits. In this environment, is that a decent cadence through the year for loan growth, or are we more likely to see some compression? Li Yu: About three months ago, I said internally we were guiding ourselves to do high single-digit growth. However, we did not know there would be a war involving Iran. Whether and how much that changes things, we do not know. Plus, the administration is presenting more changes in many aspects that usually relate to banks. We are bouncing backwards and forwards in terms of our internal expectations. We have to be realistic. When wars are going on and petroleum prices go through the roof, you are not going to sustain the same loan demand as in a peacetime situation. All we can do is stay alert, but we still hope this will be a growth year for Preferred Bank. Andrew Terrell: Great. Thanks so much for taking the questions. Operator: The next question will come from David Feaster with Raymond James. Please go ahead. David Feaster: Hey, good morning, everybody. I wanted to follow up on the growth discussion. Could you help break down the dynamics behind the slower growth we are seeing? It sounds like we may be seeing somewhat of a slowdown in demand. Is that a fair characterization? Any commentary on how payoffs and paydowns have been playing into this and where you are seeing the most opportunity within the pipeline to grow loans right now? And then shifting to credit, you have been very active managing credit and worked through a lot of issues. Do you think we are at or near an inflection here? Are you seeing continued migration, or is some of this broader macro? Is credit at that point yet, or is it still pretty uncertain? Li Yu: I think demand slowdown is a foregone conclusion. Just think about when oil is going to 100 dollars per barrel. When products are related—various products related—the short-term and long-term effects are hard to measure, and the supply nature also makes it immeasurable. Definitely that is a factor; we may not see it all yet reflected in our economy. That is what we are discussing in-house at Preferred Bank. On credit, I do not know if in the past we have been this busy on credit. This transaction is really the inflection point on current attention. It has been a group of loans that was performing pretty well until some irregular withdrawals were found—I guess everybody knows—by Western Alliance Bank; they published an announcement, and the whole thing started to go sour from that point on in the next several months to the point we had to call it nonaccrual, and we have to resolve that immediately. Other than that, our total credit picture has remained stable. I can send you the FDIC statistics about our ten-year charge-off ratio; we are probably lower than the average of the banking group. So we are not struggling about credit in the past, but we are struggling about this group of credits right now. David Feaster: You are still sitting on a lot of excess capital. You have been more active with buybacks. How are you thinking about capital priorities today, especially with the stock moving a bit higher from where you repurchased more recently? And given the current rate backdrop and the market looking at the Fed on pause, has your thinking on managing rate sensitivity shifted at all? Li Yu: There are two groups of investors. One group represents more active traders. Their idea is that if you have enough capital, you just go do the buyback as much as you can immediately. Then we have another group of long-term investors—probably their position in the Bank hardly moves a lot in the past ten years—and we also have rating agencies. Both of them seem to say, you need to play it safe on your capital. Look at the future economy, look at your earnings focus, and determine on a flexible basis what you can do year by year. Our Board decided security is above all. So we are leaning toward our long-term shareholder viewpoint. On rate sensitivity, my feeling is that within the next few rate moves, Preferred Bank is near neutral in asset sensitivity, particularly because of a lot of the time deposits—our TCD portfolio. Under the current status, where the rate is not moving, actually our TCD rate we are paying is slowly improving each quarter, albeit very slowly because of market competition. We are not fearful about the economy yet. With all the things happening—war is one of them—what will that do to our economy? Are we going to have a recession ahead of us, low growth, or high growth? This question is puzzling almost everyone at this point in time because of a lot of uncertainty. So this year, the challenge is, in my opinion, to stay flexible. Edward Czajka: Similarly, we have not really changed much in terms of the balance sheet profile in the last twelve months. Since we hit the higher rates in 2023, we started doing more fixed-rate loans. The percentage between fixed and variable on the book is about the same as it has been—about 75/25 variable to fixed. Along with that, we try to get more and more of our large corporate deposit accounts—interest-bearing checking and money market—tied directly to Fed funds. To the extent we can tie them to Fed funds, it makes our asset-liability matching, as Mr. Yu said, closer to neutral than the asset sensitivity we had going into 2021–2022 when we were highly asset sensitive and took advantage of all the rate hikes. We are kind of on a pause in terms of changing the balance sheet and want to keep it where it is right now, with flexibility. If this war continues and inflation creeps up, we may not be looking at rate cuts as the next rate change from the FOMC. We want to stay flexible, and what we have always done is keep both sides of the balance sheet short, and that way we can react to anything. David Feaster: That is helpful. Thank you. Operator: This will conclude our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Li Yu: Thank you so much for your interest in Preferred Bank. We hope what we have described today is our roadmap for the next few quarters and that we can produce even better financial results in the next period of time. Thank you very much. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, and welcome to the Royal Vopak First Quarter 2026 Results Update. [Operator Instructions] This call is being recorded. I'm pleased to present, Fatjona Topciu, Head of Investor Relations. Please go ahead with your meeting. Fatjona Topciu: Good morning, everyone, and welcome to our Q1 2026 Results Analyst Call. My name is Fatjona Topciu, Head of IR. Our CEO, Dick Richelle; and CFO, Michiel Gilsing, will guide you through our latest results. We will refer to the Q1 2026 analyst presentation, which you can follow on screen and download from our website. After the presentation, we will have the opportunity for Q&A. A replay of the webcast will be made available on our website as well. Before we start, I would like to refer you to the disclaimer content of the forward-looking statements, which you are familiar with. I would like to remind you that we may make forward-looking statements during the presentation, which involve certain risks and uncertainties. Accordingly, this is applicable to the entire call, including the answers provided to questions during the Q&A. And with that, I would like to hand over the call to Dick. D.J.M. Richelle: Thank you very much, Fatjona, and good morning to all of you joining us in the call this morning. I would like to start with the key highlights of the year so far. We've had a strong start of the year, where we saw a healthy demand for our services, which is reflected by our continuously high occupancy rate of 91%. Our financial performance remains strong. Proportional EBITDA grew by 4.1% compared to Q1 2025, and that is the result adjusted for negative currency translation and divestment impact. Importantly, we were able to convert 76% of this EBITDA into operating free cash flow, resulting in an operating cash return of 16.6%. We also made good progress on executing our growth strategy. In West Canada, the construction of our REEF LPG project export terminal is progressing well. And in the Netherlands, approximately 90% of the 4th tank construction at Gate terminal has been completed. The project is on track to be commissioned within budget and on time at the end of Q3 2026. In addition, we took an investment decision in the Netherlands to repurpose capacity at our Europoort terminal for the storage of pyrolysis oil and another FID in Spain to expand the capacity in Tarragona. Finally, despite the increased volatility in the market related to the Middle East conflict, we are confirming our full year 2026 outlook, subject to ongoing market uncertainties and currency exchange movements. As per our current assessment, we anticipate the financial impact of the ongoing conflict will be absorbed by our strong underlying business performance and is within the range of our full year 2026 outlook. However, we do see that the uncertainty has increased, which is what I will talk about in more detail in the following slides. First, look at the market dynamics. Before diving into the results, I'd like to provide some context on the conflict in the Middle East. It has caused a historic supply side shock across global energy and manufacturing markets. This presents a major challenge for some of our customers. Broadly speaking, supply-side substitution has not been sufficient to offset the loss of physical products normally sourced from the Gulf countries. This has triggered significant commodity price volatility and forced a redirection of energy flows, domestic and -- towards domestic and transportation sectors, further impacting industrial demand. As a result, we see cautious customer sentiment and increased uncertainty. Let's take a closer look at how this impacts our business, starting off with our exposure to the region. We own and operate 4 storage terminals across the Middle East, with strategic locations in Saudi Arabia and the United Arab Emirates. In terms of financial exposure, around 5% of our proportional EBITDA is generated by these terminals, and they represent around 4% of our capital employed. Our terminals in Saudi Arabia are linked to industrial clusters, while our Fujairah terminal in the Emirates located outside the Strait of Hormuz, functions as an oil hub. The conflict has had severe impact on the industrial activity in the Gulf countries because of physical damage to the production facility and production halts. As a result of the closure of the Strait of Hormuz, Fujairah, despite its strategic location, faces reduced product flows. In terms of indirect exposure, to substitute for the loss of product volume from the Middle East, we see a rebalancing of trade routes emerging. While our infrastructure facilities facilitate the rebalancing of global trade flows, throughput levels are impacted by reduced products in the market. We do see that this presents a major challenge for some of our customers impacting their business continuity. While with our well-diversified portfolio of terminals, we've proven to be resilient against geopolitical tensions as well as energy market volatility and disruptions in the past. Our diversification is a structural strength, allowing our network to serve the evolving supply chain and energy security needs of our customers and partners. In addition, with the shift of our portfolio towards gas and industrial terminals, the duration of our contracts has increased significantly, reducing our exposure to short-term volatility. However, we are resilient, but we're not immune. The conflict in the Middle East introduces variables from shifts in global trade routes to heightened security risks and regional price shocks that we are not insulated from. We continue to monitor these developments to protect our operations and our customers' interest. Now let's take a closer look at our results for the different terminal types we operate. We see an overall strong performance with higher results compared to Q1 of last year when adjusting for the impact of currency translation and divestments. It's important to highlight that Q1 results had limited impact from the Middle East conflict. We saw a strong performance of our chemicals and oil terminals, which was primarily driven by increased throughput combined with strong contribution from growth projects. Our industrial terminals performed broadly stable year-on-year. However, due to the contribution of growth projects, we saw a slight increase compared to Q1 2025. For our gas terminals, we saw a slight decline year-over-year, which is primarily related to disruptive gas supply from the Middle East conflict. All in all, this has led to a proportional EBITDA of EUR 295 million and a strong operating cash return of 16.6%. Notwithstanding the volatility and uncertainty on the market during Q1, we continued to execute on our growth strategy. In the United States, at our Deer Park terminal, we commissioned repurposed capacity for biofuels. And in Spain, our Terquimsa joint venture with FID to expand its capacity to address market needs as well as further solidify its leadership position. Last but not least, we've taken a final investment decision to repurpose capacity at our Europoort terminal in the Netherlands for the storage of pyrolysis oil. This is an important step in our continued commitment to the energy transition and is strengthening and further integrating our industrial partnership at the Europoort. Since 2022, we've committed around EUR 1.9 billion to grow our base in gas and industrial terminals and to accelerate the energy transition. Around EUR 650 million of this is already commissioned and is contributing to the financial results. Around EUR 1.3 billion is still under construction. We expect to commission around EUR 775 million near year-end related to mainly Gate, the 4th tank and the LPG export terminal in Canada. In the period 2027, 2028, we expect to commission around EUR 325 million and around EUR 175 million in 2029 and beyond. This is based on the FIDs that we've taken so far. The already commissioned growth projects as well as the growth CapEx under construction will further reinforce our long-term stable return profile and diversify our revenues. Looking ahead, we remain well positioned to achieve our long-term ambitions. We've shown strong business performance in recent years and the market indicators for storage demand remain firm, supporting the delivery of growth projects and the resilient performance of our existing business. This is reflected in our long-term ambition. We have an operating cash return ambition for an annual range of between 13% to 17% and are well on track to invest EUR 4 billion growth CapEx through 2030. Also, as announced during our full year 2025 results, we are distributing around EUR 1.7 billion to our shareholders through year-end 2030 via a progressive dividend and a multiyear share buyback program. With that, I'd like to hand it over to Michiel to give more details on the Q1 2026 results. Michiel Gilsing: Thank you, Dick, and also from my side, good morning to all of you. As Dick mentioned already, we have had a very strong start of the year. We reported a healthy occupancy rate, increased our EBITDA and further improved our free cash flow generation. These results highlight the strength of our well-diversified portfolio, particularly in times of increased uncertainty and volatility. Simultaneously, we continue to invest in attractive and accretive growth projects while returning value to our shareholders. Let's take a closer look at the performance of the portfolio. Our operating cash return was broadly stable at 16.6%, compared to the 16.8% in Q1 2025, driven primarily by the negative effect of currency translation in our free cash flow. On an autonomous basis, excluding currency and divestments, our proportional operating free cash flow per share increased 7.1% versus Q1 2025. Demand for our services remained healthy, reflected in a proportional occupancy rate of 91%. Adjusted for currency movements and divestments, proportional EBITDA increased by 4.2% which we will detail further in the next slide. Moving on to our business unit performance overview. Excluding negative currency exchange effects of EUR 15 million and EUR 2 million divestment impact, our proportional EBITDA increased by 4.2% compared to Q1 2025. A large part of this growth can be explained by the strong EBITDA contribution of EUR 9 million from our growth projects, particularly in the U.S. and India. The performance across the network was relatively stable as regional headwinds are balanced by robust activities at our major oil hubs in the Netherlands and Singapore. We are continuously focused on generating predictable growing cash flows to create value for our shareholders. Compared to Q1 2025, we have seen our proportional operating free cash flow grow by 7.1%, adjusted for currency translation and divestment impact. This is primarily driven by the autonomous improvement of our proportional EBITDA and the reduced share count following our share buyback programs. Moving from the cash flows to our financial position. Our proportional leverage, which reflects the economic share of our joint venture debt remained stable at 2.6x. If we exclude the impact of assets under construction, which do not contribute yet to the EBITDA, the proportional leverage is at 1.99x, which is the lowest level in over 5 years. Our ambition for the proportional leverage range is between 2.5 and 3x. To facilitate the development of growth opportunities that enhance our operating cash return, Vopak's proportional leverage may temporarily fluctuate between 3 and 3.5 during the construction period, which can last 2 to 3 years. This is all in line with our disciplined capital allocation framework. Our capital allocation framework consists of 4 distinct pillars aiming to maintain a robust balance sheet, distribute value to shareholders, invest in attractive growth projects and yearly evaluate the share buyback program. As announced during our full year results, we are distributing around EUR 1.7 billion to our shareholders through year-end 2030 via a progressive dividend and a multiyear share buyback program. In addition, we have the ambition to invest EUR 4 billion on a proportional basis by 2030 to grow our base in gas and industrial terminals and to accelerate towards energy transition infrastructure. That brings me to the outlook for full year 2026. As mentioned by Dick, the market indicators for storage demand remain firm, supporting the delivery of growth projects and the resilient performance of our existing business. However, we do acknowledge that the market has become significantly more volatile following the conflict in the Middle East. For now, we expect that the financial impact of the ongoing situation is absorbed by our strong underlying business performance and growth project contribution. This gives us the confidence to reaffirm our full year 2026 outlook with the proportional operating free cash flow projected at around EUR 800 million and a proportional EBITDA expected to range between EUR 1.15 billion and EUR 1.2 billion. Bringing it all together in this slide, we are off to a strong start of the year with solid cash generation. Our portfolio remains well positioned to cater for increased volatility in the market. And last but not least, we continue investing in attractive growth opportunities while returning value to our shareholders. And with that, I hand over back to you, Dick. D.J.M. Richelle: Thank you, Michiel. And with that, I'd like to ask the operator to please open the line for questions and answers. Operator: [Operator Instructions] And now we're going to take our first question, and that question comes from the line of Kristof Samoy from KBC Securities. Kristof Samoy: First of all, congratulations with the results. I have 2 questions to start with. If we look at the ongoing conflict in the Middle East, there are, let's say, 2 factors at play there, which impact your business. First of all, positively, you have the rush for energy molecules, so energy security. On the other hand, you have uncertainty, which impacts the FID process that you are undergoing for certain projects. So my first question would be, how is the process looking for Australia right now? Has FID become less likely? Or although more likely given the fact that Australia can simply import oil from its own -- from another region in their country. And secondly, if you could comment on EemsEnergyTerminal and the potential extension there because we have seen the news that Exmar is progressing with the vessel conversion. And then the second question, we know that throughput rather than guaranteed offtake is more of a key driver for revenues in India. If we look at the drop in proportional occupancy rates in the Middle East and India, could we say that this drop is still mainly linked to the Middle East and that the drop linked to throughput in India has yet to be reflected in the numbers? D.J.M. Richelle: Kristof, thanks for the questions. Yes, maybe on your first question related to Australia and EET and then specifically on the timing of them, I think for Australia LNG project, the way we would look at it is and what we can see at this point in time, the need for that project is set by the local Victoria state for gas, and that's just for electricity generation. So that is a need that is almost independent of what happens in the rest of the world. They have a very strong need to find substitution for current gas supply offshore that is depleting. So there's no indication at this point in time that there is a fundamental change in -- that there is a fundamental change in the time line of that project. So we still expect to get back with more information towards the end of this year. I think that's around VVET. So that's the Australia energy project and maybe to EET. So EemsEnergy, the extension over there process is still ongoing. Yes, we've seen Exmar making the announcement. We are not there yet to make any announcement. As you know, we run an open season on the recontracting of the capacity post the end of the current contract by fourth quarter next year. And that is a moment that we are still working through or a process that we are still working through. And once we have news to share, we will come back to the market and share that. I think then maybe to the lower occupancy rate, it has more to do with the fact that the Fujairah capacity in the first quarter was lower in terms of also out-of-service capacity. Then had a direct impact of what's happening in India. I think still, if you look at Q1, it's a bit early to see the effect of any of the disruptions from the Middle East directly in our business in India. But indeed, the flows of LPG that flow to India have a lot to do with the source of origin, and that's the Middle East. Kristof Samoy: Okay. But for EemsEnergy, you do not experience a change of attitude with your partners in terms of the run-up to the FID being taken given everything that's going on in the Middle East. D.J.M. Richelle: No, I think many parties take for processing like this, a long-term approach. They know that the capacity is available in 2028. As you know, a lot of the flow that was coming from Qatar is taken out. That has a massive impact, but it is also expected to have a massive impact for, as they call it, a bit of extra supply that was expected to come in towards the end of this decade. So you could almost argue that with all the repair and restoration that is going on, it pushes out that supply -- extra supply a little bit further out in time, and it doesn't necessarily have an immediate impact on, for instance, product that needs to leave the U.S. and needs to find a home in Europe. So I think it's a bit of a long answer to say, for now, we do not see a material different approach of potential customers towards EemsEnergy. Operator: Now we're going to take our next question. And the question comes from the line of Thijs Berkelder from ODDO. Thijs Berkelder: Congrats with the strong Q1 performance, especially in chemicals. Can you maybe further explain why chemicals was so strong? And related to that, can you explain what you now see happening in your Deer Park and European chemical operations given recent Middle East events? Second question relates to the strong performance in Rest of World. Can you explain where that is coming from? D.J.M. Richelle: Thanks for that. I think on the Chemical side, I would say, overall, Deer Park has done quite well in the first quarter, and the same goes for Vlaardingen specifically that actually participated and contributed quite strongly to the results in the first quarter. When it gets to the conflict and the impact of chemicals as such for our network, I think Deer Park, although we do not see it yet fundamentally, but Deer Park or the U.S. in general, you would expect that they will benefit a bit from the fact that the U.S. as a chemical producer has quite a competitive -- a strong competitive position in the current global landscape. So we expect that, that will result in at least continued healthy demand for our services, especially Deer Park. I think that's one. So I would say strong performance there. I would say if you change that to Europe, particularly, I would say, Belgium, it's still hard to see, but quite a lot of the flows that are moving into Belgium are flows that come from the Middle East. It's a very strong market for Middle Eastern producers to sell product in Europe. That is subject to the disruptions as a result of the conflict. And what you see over there is, obviously, there's a lot of people that are trying to take positions, traders that try to take positions in that market to try to supply the demand for the end product that continues to be there. So it remains to be seen how that effect is going to balance out. Too early to tell in that sense for Belgium. If you look at it overall for the rest of the portfolio, I think what we said, it's still healthy demand on the main oil hubs, in the first quarter, Singapore Strait, strong, Rotterdam, high occupancy, high activity, so pretty strong over there and fuel distribution, quite healthy across the board in the first quarter. So I think we are pleased if we look back at the first quarter. And I think as we said, the outlook for the rest of the year given everything that's going on is within the range of what we said already in the first -- in February when we announced the 2025 results. Michiel Gilsing: We also had a few growth project contributions in the U.S. and India, which also helped on the Chemical side. So that has led to an increase versus Q4 2025 as well. Thijs Berkelder: Yes. And rest of the world primarily driven by Belgium then? D.J.M. Richelle: Not necessarily. No, not Belgium, I would say. I think if any, Belgium is a bit under pressure first quarter. I think rest of the world, just healthy across the board, not a particular region, I would say that jumps out. As I said, oil stable and relatively strong and just a positive good start of the year. China, quite well. So nothing particular that jumps out, Thijs, in a extreme way. Operator: Now, we're going to take our next question. And the question comes from the line of Philip Ngotho from Kepler Cheuvreux. Philip Ngotho: I have 3 questions, if I may. The first question is on China and North Asia. If I look at the consolidated numbers, I see the occupancy rates. It was already low last year, but it actually dropped further to 55%. So I assume it has to do with the Chinese terminals that are just generating or have low occupancy rate. I was wondering if you could share any -- because in the past, I think you also mentioned that the chemical market in China has been weak, and it seems that occupancy rate continues to drop further there. Do you have any -- what are the projections for those assets there? And could we be thinking of anything if it remains structurally weak to -- that you might take some portfolio actions there? The other thing that I'm wondering about is what portions of earnings is really dependent on throughput levels rather than really take-or-pay contracts? And the last question I have is if a client would declare force majeure and you have a take-or-pay contract with that client or client is impacted by force majeure and with the take-or-pay contract, what happens to that take-or-pay contract? Do you actually -- can you still incur revenues on that? Those are my 3 questions. Michiel Gilsing: Philip, maybe start on the China side. Yes, if you look at the consolidated occupancy, effectively, that's only one terminal. So we have a portfolio of 8 terminals in China. So that doesn't give you a very representative picture of China. Dick already mentioned, the China results were actually quite good and slightly above our own expectations. Indeed, that terminal is the Zhangjiagang terminal, which then has a relatively low occupancy because it's in a very competitive market, and it's one of the distribution terminals. Most of the terminals we have in China are industrial terminals. So basically backed by long-term take-or-pay type of contracts. So you see that the overall portfolio is quite healthy. We don't have any immediate portfolio actions, we're going to take in China. To the contrary, we commissioned last year a new terminal in China. So that is an add-on to our portfolio. We still see quite a few growth opportunities in industrial terminal locations. And overall, the returns in China, if you compare it to the rest of the portfolio is quite healthy, and we're quite capable of distributing our dividends from China back to the Netherlands. So that's maybe on the China side. On the earnings side, yes, there is always a component of throughput income. So even in contracts which -- where people buy, let's say, effectively the capacity, we still have an opportunity that if throughputs are at a higher level than expected that we will charge additionally for excess throughputs. So approximately 10% of the earnings are throughput related in some locations, more throughput related than in others. For example, location like Belgium is much more activity related than in another location. And some of the locations like I just mentioned, some of the industrial or some of the gas contracts are very low in terms of throughput dynamics. So that's maybe only a portion of the earnings, which is throughput related. And Dick, on the first, force majeure? D.J.M. Richelle: Yes. So force majeure, Philip, what we see happening is that some of our customers are declaring force majeure, but they are declaring it in all those cases towards their customers. So an inability sometimes to get product out of a region in order to deliver it to a customer that is further away that is not necessarily related to the type of services that they -- or obligations that they have towards us in the storage contract and arrangements that we have. So we obviously have to follow this case by case and understand very clearly what some of the situations of our customers are in this respect. And as was indicated, I think, in the presentation already before, we need to kind of like be prepared for those discussions because if that customers are under serious stress and under duress, we have to sit down and understand what we can do to support them. But legally speaking, the force majeure, there's very clear guidelines of what and how that applies in the contract obligations and responsibilities between the storage provider and our customers. Philip Ngotho: Okay. Very clear. Just one follow-up. So far, have you had any clients where you already had to sit down and renegotiate terms? Or given that they were just faced with difficulties or challenges? D.J.M. Richelle: It's no comment on that. And the reason for saying it, I don't want to go into individual discussions and official, it's -- I think it's a bit of a gray area where there is -- obviously, there are customers that say we're under a lot of stress, can we talk versus how official that is and how official those negotiations are. I think this is part and partial of what we've seen in previous crises. We are confident that we can manage through that. We're close to our customers and see where and when we can support them while at the same time, respecting and safeguarding the interest of Vopak, which is we made investment in certain infrastructure to support our customers in good times and in bad times. So no details. Operator: Now we'll go and take our next question. And the next question comes from the line of Quirijn Mulder from ING. Quirijn Mulder: On the whole situation in the Middle East. Can you give me an idea about, let me say, the first panic in the first week of March compared to what the situation is now? Are the customers still scrambling for products and has its impact on your throughput in, let me say, mainly in the Far East? So can you give me a view on what's in reality happening and what is -- you take a cautious stance on the second quarter. And it looks like that, okay, the March was not the issue, but maybe April is more an issue than March. Can you give any feeling on what's the current situation for many customers and also the impact on your business? D.J.M. Richelle: Yes. Quirijn, thank you for that question. I think first and foremost, as we already said, key priority for us is to make sure that people are safe and have been safe throughout the course of the conflict. The noncritical staff we leave away from the facility. We take noncritical staff not with a permanent resident in that region, take them out and move them back to their countries of origin. That has all been done. We monitor obviously the situation very closely, purely from a safety and security point of view and do whatever we can to support our partners and our people over there. I think that's in the first -- that's the first instance and first priority. If you look at it, what's happening at the moment, I think a few things to mention here. The amount of information that comes out of the region is limited. That's -- so what the exact damage is outside and far outside of the perimeter of the facilities that we operate is not publicly known, and it's also not always known to us. I think the second element is if you look at it physically what's going on, people would like to remove product in a safe manner, if that's possible as soon as possible in some instances, as we particularly have seen in Fujairah, while at the same time, making sure that now that the cease fire is in place, increased activities are happening to make sure that as much as possible, business continues as possible, as usual, with demand for fuel oil, demand for some of the products that need to be moved in and out, and that is, I wouldn't say all back to normal of how it was before because that would be too strong a statement simply because the product is not always available. The product that comes out of the region is hampered and is limited and restricted. But slowly but surely, as we speak now, things are -- people are trying to get back to normal and resume as much as possible, normal operations with a cautious view and a clear view on the uncertainty that's happening in the region, as you can imagine. Quirijn Mulder: Yes. And that's in the region, but there's a ripple effect, let me say, elsewhere in the Far East. So let me say, the situation in Australia and Sydney, et cetera. And let me say, for example, in South Africa, as you mentioned, in Pakistan. Is there anything you can update us on that -- on the development there? D.J.M. Richelle: Yes. So we continue -- what you see, Quirijn, is that things literally move quite volatile and hectically kind of like almost from week to week. So let's take South Africa, maybe as an example, dependent very much on imports from the Middle East. So in the first weeks of the conflict, you see product on the water still finding a home in South Africa. So first 2 weeks, it was almost business as usual. Then you have a period where there's no new supply coming simply because the supply was choked coming out of the Middle East. So then there's actually a bit of panic in the local market, what's happening and how can we supply new product. And then after a week, 2 weeks, you see that there's alternative supply coming into the market from different parts of the world. And for instance, West Africa is then becoming one of the suppliers of South Africa, which is then supporting. Over time, it obviously needs to work out what it does to total volumes once things start to settle down. But the challenge is it's never clear of when things really start to settle down. And I think that's what we are working through. So it's -- I think that's the best way to characterize it. And I realize you maybe want to have maybe sustainable longer-term view of where this is trending to. That's simply too hard to say at this point in time, and we continue to support where possible. And I think if I can take it one notch up, the general confidence that we have in the fact that we operate these critical assets at strategic locations that support the primary needs in local economies continues to give us a lot of confidence on the medium- to longer-term outlook for our network, but we have to navigate through the current circumstances. Quirijn Mulder: But I understand, let me say, if I look at the second quarter and especially in the month of April, then thus far -- okay, there's a lot of uncertainty, but it's not very concrete impact there, if I understand. There's not that you see, let me say, really impact from, let me say, the business happening on your -- the business happening on your business, in fact. Is that correct? D.J.M. Richelle: I think it's -- what we are saying is that with a lot of uncertainty and volatility in the market, we are certainly not immune for the supply shocks that are currently happening, Quirijn. This is not a relative easy exercise between brackets, easy exercise of rebalancing the remainder of the flows to the world. There's simply also a shortage of product in some regions, and that will have effect on the flows that are coming through some of our terminals, while at the same time, there's, in some instances, a rush for a particular storage position for a particular product because product is trapped and you need to find an intermediate source of storage. So I think it's too early still to tell. We haven't closed April yet. It's way too early to tell what the impact then will be. The assessment that we made is the assessment for the full year 2026, which is reflected in our outlook. And there, we think that we are capable of absorbing the negative impact of the conflict in the outlook that we've already presented. Michiel Gilsing: Yes. Because on outlook -- you may assume on the outlook that obviously -- well, the first quarter was relatively strong. So if you compare it to the outlook we have given, it's at the higher end of the outlook, if you would have 4 of these quarters, but then we still have some growth coming on stream and some positive currency exchange compared to Q1. So yes -- and that will compensate for the potential impact of the conflict, what we feel could be the potential impact of the conflict today because it's very hard to make an assessment. We don't know, let's say, how long this is going to last, how severe this is going to be. But we feel that where we are today and what we know today, that those compensating factors are sufficient to absorb, let's say, the impact of the Middle East. Operator: Now we're going to take our next question. And the question comes from the line of David Kerstens from Jefferies. David Kerstens: I have 2 questions also about the conflict in the Middle East. And maybe specifically on Fujairah, can you give an indication how occupancy trended in the month of March? And given that this is a hub location, do you see any impact from reduced product flows in Fujairah elsewhere, for example, going to Asia into Singapore, will there be a knock-on effect on occupancy levels there as well? And Dick, I heard you say you will see global trade flows rebalancing, I think in response to the former question, you talked about new supply coming out of West Africa. And also, you have a very well-balanced portfolio. Does that mean that you also see terminals that are seeing positive effects from the current conflict in the Middle East? D.J.M. Richelle: Yes. So I think individual occupancy level for particular months, let's refrain a little bit from that or we want to refrain from that. I think VHFL, as we said, total occupancy has gone down quite a bit in -- towards the end of the first quarter. And we see that around 8% of that capacity in Fujairah is out of service simply as a result of some of the damage that we've seen in Fujairah. So that is something that we have to repair and get back into service. The impact that, that has for the rest of the network, it's not necessarily that the immediate flows from Fujairah are moving to all other terminals throughout the network. So I think Singapore has its own dynamic, and it is impacted by the fact that there's products not flowing from the Middle East to Singapore, but that has different sources than to potentially repair that with. And we haven't seen up until now a big impact in, for instance, Singapore for the demand for oil storage. If there are positive elements in the outlook for some of our terminals, I think we mentioned already the effect in Deer Park. We see increased -- quite some increased activity in the Europoort as well. But I think you have to also understand this particular case, it's very relatively straightforward sometimes to assess what is not going well and what the direct impact is, it will take time for us to assess where we see some of the upsides coming from. I think it's simply also harder to predict that at this point in time. Operator: Now we'll go and take our next question. And the question comes from the line of Jeremy Kincaid from Van Lanschot Kempen. Jeremy Kincaid: I just have one question on your guidance. You obviously reconfirmed it today. But within that, there was -- it seems like there's some positives and negatives. On the negative side, clearly, there's the disruption from Strait of Hormuz. But on the positive side, you talked to FX. And I think the other key thing was some growth projects coming in. I assume this doesn't refer to the Europoort terminal or the Spanish development that you're working on because those seem to be -- will be operational in 2027. So can you just talk to what those growth projects are and what's changed from when you last gave the guidance? Michiel Gilsing: Well, definitely that, in the growth projects are not these projects you mentioned indeed. So the growth project, the major one, which will come on stream this year is tank #4 here of the LNG import facility, the Gate terminal here in Rotterdam. So that is still within budget, but also within its original schedule. So we would be able to commission it on time. That is the latest outlook we can give. So that's going to be the major positive contribution. There's a few other projects, but these are relatively smaller compared to the tank #4. Indeed, foreign exchange is a positive element. And then, effectively, what happened is the underlying business performed a bit better in Q1 than we expected. So as a result, if we wouldn't have had the Middle East impact, then obviously, there was -- there could have been a likelihood to basically adjust the outlook upward. But yes, the Middle East conflict basically brings the outlook to the level we have given to the market for both free cash flow as well as the EBITDA. Free cash flow is still healthy. So if you look at where we were last year and where we anticipate to be this year, we should still be able to report a strong cash flow, and that's obviously the main driver for value creation. So yes, basically, I hope that answers the question, Jeremy. Operator: Dear speakers, there are no further questions for today. Dear analysts, thank you very much for all your questions. And that does conclude our conference for today, and have a nice day. Fatjona Topciu: Thank you. D.J.M. Richelle: Thank you very much. Good day. Bye-bye.
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