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Luc Van Ravenstein: All right. Good morning, everyone, and welcome to the Elementis 2025 Results Presentation, and thank you for joining us. Great to see you. In terms of agenda, I'll begin with our highlights for the year and Kath, our new CFO, will then run you through our financial performance. Then I'll take you through our strategic progress over the past year and finally, to our outlook for 2026. And we'll then open for questions. It has been quite the year. Looking back 10 months into the job, I'm really proud of everything we've achieved together. We delivered strong profit growth and margin expansion despite soft demand environment, and that's a clear proof of the quality and resilience of our business. From a strategic perspective, the sale of the Talc business and launching our Elevate Elementis strategy were more than milestones. They set the foundation for this company can achieve when we focus and move forward as one team. And we're making solid progress across all of our strategic priorities, such as innovation sales up to a record of 16.4% and 0 lost time accidents. So lots of positive momentum. You might remember a version of this slide from our last half year result presentations. Our portfolio has fundamentally transformed over the past years. We've reshaped Elementis into a pure-play specialty chemicals business, focused on our 2 segments, Personal Care and Coatings. Selling Talc was a major step in making this happen, and it was my first priority when I started as CEO. And with Chromium sold in 2023, we exited these commoditized capital-intensive businesses, and it was absolutely the right decision. It allows us to focus on our core strengths and capabilities. As you will have seen this morning, I'm pleased to share that we've agreed to sell our pharmaceutical business to ABF, and this sale is in line with our strategy as well, further sharpens our focus. More on this on the next slide. In November, we added Alchemy to the portfolio, a fantastic bolt-on right in our personal care sweet spot. It's a fast-growing, high-margin business that strengthens our position in skin care and cosmetics. So this is the new Elementis. We're a company with a unique position built on 3 real differentiators: hectorite, rheology and formulation solutions. And we're really pleased with the shape of the portfolio, and we're well positioned for growth. So we announced today that we reached an agreement to sell our noncore pharmaceutical manufacturing business to ABF. Last year, the business made $35 million in revenue. Our pharmaceutical business was originally acquired as a part of SummitReheis in 2017. It manufactures antacids and pharmaceutical excipients from our Ludwigshafen site in Germany. And while the business has performed well, it's clear that it no longer fits with our strategic focus. And because of that, the sale we announced today is the best outcome for both the Pharma business and for Elementis. It's a straightforward, clean transaction. It will reduce our capital intensity and on a pro forma basis, will deliver an uplift to 2025 group operating margins. We're working towards the completion in Q2. With the Talc business sold, we accelerated the delivery of all of our 2026 financial targets by 1 full year, which is a fantastic result. And with Elevate Elementis, we shared our new targets, mid-single-digit revenue growth, operating margins of more than 23% and 3-year operating cash conversion to be above 90%, ROCE, excluding goodwill, of more than 30%. And our proven track record gives us the confidence that we can meet these targets and be among the top of our peer group. Moving to sustainability. Next slide. Starting with safety, which is fundamental to how we operate. Last year, we achieved our first 0 lost time accidents since 2019. That's a big milestone. On the environment, we continue to make good progress. The divestments of Talc and Chromium have significantly reduced our carbon footprint, which is now nearly 80% lower than 2019. And we continue to transition to a more sustainable and responsible business. For example, at our hectorite mine, we moved to almost entirely renewable energy from a 0% base last year. Finally, on people, we've made a lot of changes in the organization with Fit for the Future, which was a big reorganization for us. And the engagement scores actually improved with voluntary attrition down by 40%. We're well below industry average now. But for me, even more importantly, I see it when I visit our sites, how proud the team is when I visit the Newberry, which is where we have our hectorite site or when I visit the new Porto team. And with that, I'm delighted to hand you over to Kath, our new CFO, to cover our financial performance. Katharina Helen Kearney-Croft: Thank you, Luca, and good morning, everybody. Before I begin, I'd just like to share some initial reflections of my first few months in Elementis. I've been here for 4 months now and 2 months as the CFO, and I've been genuinely impressed and frankly, relieved by what I've seen. I've had a really warm welcome with lots of people taking time out of their busy schedules to help me on-board. And it's clear, everyone is working with real commitment to unlock the full potential of Elementis. I've had the opportunity to visit locations in the U.K., Europe and U.S.A., and I really enjoyed learning about the business. There's nothing quite like the manufacturing environment, seeing products being made and looking to see what we're talking about in the meetings. And the real highlights for me have been hands-on in the Alchemy lab and visiting the hectorite mine. What has really stood out is the passion, dedication, commitment and pride of our people. They care deeply about the company and rightly so. And I'm confident that we can continue to build on these strong foundations, demonstrating that we have opportunities to grow revenue and profit and continue to generate strong cash and returns. When I look at the macro backdrop for 2025, we could be standing here looking at a very different set of results, and I'm definitely glad that I don't have to present that. Despite the challenging market, we have made good progress in 2025, and the team have done a fantastic job. And it's in this context, I'd like to cover the results for the prior year. Following the sale of Talc, the 2024 P&L and cash flow figures have been restated for continuing operations and used for comparison purposes. I wanted to show a brief overview of the metrics for 2025. Most of these will cover in the following slides, so we won't go into detail here other than highlighting. Despite a small decline in group revenues, we delivered strong growth in adjusted operating profit and a 150 basis point improvement in margins. In combination with lower net finance costs and a lower number of shares following the buyback, adjusted earnings per share was up 14.2% to $0.137, an outstanding performance considering the challenging operating environment that Luc referenced earlier. And as we turn to look at group revenue, you'll see that despite the backdrop, we delivered a resilient performance with overall revenue down 1% on a reported basis and 1.9% on a constant currency basis to $597.5 million. Bridging from 2024, we had a favorable FX tailwind of approximately $5.2 million. Volumes were down $5.6 million due to the weak demand environment in Coatings, resulting in a reduction of $14.1 million, and this was partially offset by volume growth in Personal Care of $8.5 million. On pricing, we delivered $7.8 million across both businesses, a testament to the specialty nature of our portfolio. Of note, a combination of proactive pricing, procurement agility and supply chain optimization actions helped us to fully offset the direct impact of tariffs in the year. And we believe the latest news on this topic, at least of Saturday, 21st of February, will continue to leave us in a neutral position. Turning lastly to mix. This was down $13.7 million, primarily due to a combination of one-off sales in Coatings of $3.4 million in 2024, not repeated in 2025, along with the continued softness in industrial coatings and decorative end markets. And AP actives saw strong growth in lower-priced but margin-accretive products as well as a consumer-driven shift from aerosol to roll-on formats in LatAm. As we turn our eyes to adjusted operating profit, we delivered strong growth, which increased 4.6% to $126.7 million. Within this, we benefited from favorable FX of $1.9 million. Lower volumes had an adverse impact of $1.9 million and the net price impact after offsetting inflation was $10.5 million. These headwinds were mitigated by the ongoing delivery of our self-help initiatives, which led to $18 million of total cost savings in the year and more to come on this shortly. As noted earlier, our strong profit performance helped drive higher margins, increasing 150 basis points to 21.2%, so let's take a look deeper into the reporting segments. Starting with Personal Care. Revenue was up 2.4% to $224.5 million with strong growth in skin care and cosmetics, offsetting a slight decline in AP actives. Looking at the regional performance, we saw higher revenues in EMEA and Americas with Asia flat compared to last year. Adjusted operating profit was up strongly at $72.8 million or 16.9% and importantly, brings the absolute profitability of the Personal Care segment in line with the Coatings segment. This improved profitability was driven by improved volumes and pricing alongside cost savings. The higher profits in turn helped to drive higher margin, which is up 410 basis points to 32.4%, including the benefit of one-off volume and cost savings in H1 previously noted at the half year. And lastly, on this slide, I wanted to highlight that our results in 2025 included the pro rata contribution from the recent acquisition of Alchemy, a small quantum for the year given the late acquisition timing, but meaningful strategically. And now moving on to the Coatings segment. We delivered a resilient performance with revenue of $373 million compared to $386.4 million last year, with a decline in Coatings partially offset by strong performance from our Energy business. The year-on-year decline was impacted by the benefit of high-margin one-off sales in Q4 2024. The drop-through from the lower revenue led to a lower adjusted operating profit of $70.4 million. However, the combination of higher pricing and our self-help actions supported the operating margins, finishing the year at 18.9% compared to 20.3% in the year before. You will recall at H1, we highlighted some operational challenges at St. Louis that were holding back our Coatings performance. Whilst there's still progress to be made, I wanted to share positive news that the debottlenecking program at St. Louis is progressing well and leading to improved performance, which Luc will cover more fully later. Last year, we successfully completed the balance of our 2-year $30 million cost savings program by delivering $12 million via our Fit for the Future restructuring and supply chain initiatives. In addition to this, we announced in July a further $10 million in savings that we were aiming to deliver over the remainder of 2025 and 2026. These are net of planned additional R&D spend, which will increase our total spend from 2% of revenue to 3% over the next 2 years. As we announced this morning, we have delivered $6 million of savings already, and we will deliver the balance of $4 million by the end of 2026. Our cost saving programs have reduced complexity and improved operational efficiency. We will continue to proactively identify opportunities to streamline our cost base and capture further efficiencies as we deliver on our growth agenda and become a simpler and leaner company. Now taking a look at free cash flow. A key feature of this business is its strong cash flow generation. And I'm pleased to report that we generated good free cash flow of $41 million in 2025 compared to $51 million in the prior year. Looking at the key components, higher adjusted EBITDA was more than offset by the working capital outflow in the year, driven by higher receivables due to lower debt factoring and strategic inventory build. We also had higher CapEx as we increased our investment to support adjacent market growth and capital investment in support of the St. Louis improvement program. As a result of these movements, our adjusted operating cash flow was $104.7 million compared to $123.2 million in the prior year. As we move down the cash flow statement, it's worth calling out 2 items. Firstly, our cash taxes were lower by $4.4 million, primarily due to an IRS refund received relating to a 2024 claim to utilize net operating losses for prior periods. And also adjusting items were $6.7 million lower as the Fit for the Future program finished during the year. Our balance sheet remains robust. And whilst leverage ticked up to 1.3x, this was after acquiring Alchemy and returning cash to shareholders. Looking at the key movements from left to right, we started the year with a net debt balance of $157.2 million, adding back the free cash flow of $41 million as well as the proceeds from the Talc sale of $52.5 million, we had an increase in cash available for distribution of $93.5 million. Of this amount, we returned $79.1 million through our first buyback program and the 2024 final dividend and the 2025 interim dividend. The share buyback program led to the purchase and cancellation of approximately 4% of our issued share capital. In October, we completed the disposal of the disused Eaglescliffe site for a negative cash consideration of $11.1 million. I would like to specifically note the strategic divestment of both Talc and the Eaglescliffe site have enabled us to significantly reduce our environmental liabilities and provisions. In November, we completed the acquisition of Alchemy for a total upfront consideration of $20.1 million. Taking off the FX of $11.4 million, we ended the year with a net debt balance of $185.4 million and a net debt-to-EBITDA ratio of 1.3x. Our aim is to maximize return on invested capital while maintaining a strong balance sheet and strategic optionality. In relation to investments, our CapEx program will be focusing on investing in growth and productivity. We will also invest in R&D and have plans to increase total spend here from 2% to 3% of revenue. To complement these organic growth investments and as we demonstrated with the acquisition of Alchemy, we will selectively pursue bolt-on acquisitions whilst maintaining a strong balance sheet. On dividends, our policy is for a payout ratio of around 30% of adjusted earnings. And as we announced this morning, the Board has recommended a final dividend of $0.03, taking the full year dividend for 2025 to $0.043, up 7.5% from last year and represents a 31% payout ratio. In considering future additional returns, we will assess several factors, including prevailing market conditions, our existing progressive dividend policy, the investment requirements of the business and our desire to maintain a leverage around 1x net debt to EBITDA over time, which we anticipate we will achieve on an organic basis in 2026. In light of the announcement of the pharmaceutical manufacturing business disposal, our expectation is to distribute the net proceeds to shareholders following completion. and we will provide a further update upon closing. And lastly, for your reference, we've included some technical guidance for 2026 on Slide 19. So with that, I'll now hand over to Luc, who will take you through our strategic progress over the last 12 months and the outlook for the year. Thank you. Luc Van Ravenstein: Thank you, Kath. For those less familiar with Elevate Elementis, this is our new strategy. We presented that in July. The plan is simple. We have 3 strategic priorities. First, top line growth, and this is about focusing on what we do best in the areas that make Elementis unique without the distractions of Talc and Chromium. Our objective is to grow revenue by mid-single digit over the medium term. And in the next slides, I'll share a view of our growth opportunities and our progress in 2025. The second priority is about service delivery. Our ambition is to be best-in-class and the first choice for our customers. We've made some great progress, and I will show that later. Third, simplification and agility. We're building a simpler and leaner Elementis that empowers colleagues, makes us more agile and allows us to execute at pace. Delivering against these 3 priorities is what will drive value creation and will help us to deliver the new medium-term targets. So looking at our first priority. For us to grow and unlock our full potential, it is important to focus on what makes Elementis unique and what will allow us to win. We call these our winning differentiators, and let me briefly touch upon them. Hectorite, this is a very special asset. It's a white mineral that comes from our mine with long-term reserves. It has really unique properties because of its chemical composition and its platelet structure. We don't just sell hectorite. We modify it, add value to it, for example, by making preformulated gels for cosmetics, and our customers love its efficiency. You only need a tiny amount to get a big effect. It's natural, and it delivers the kind of premium skin feel that consumers are looking for. Rheology, this is the science of flow. It's what's needed to stabilize ingredients in a paint can. It's also what makes sunscreen spread evenly on a skin. And here, Elementis is the global leader. Formulation Solutions, this is our expertise built up over the years of our customers' formulations. It's how our people work together with our customers to improve the performance of a paint or a skin care product day in, day out. And our colleagues in the labs have worked at AkzoNobel or Estee Lauder. They talk our customers' language, and that's a huge benefit. Now we operate in big attractive markets, as you can see here. Our focus, though, is to target these niche areas where our winning differentiators set us apart. And we work together with our customers to improve their products. For example, in skin care, we're replacing synthetic additives by hectorite, giving a more premium texture. And in industrial coatings, we help the transition from solvent-borne to high-performance water-based formulas. I'm not going to go into the detail of all of these here, but the point is we are using our expertise and our unique portfolio to help our customers make better and more sustainable products. So lots to go for in our current markets. And outside of our existing markets, there is a large new adjacent space for us that we're tapping into as well. We're using the same model, and we have entered areas that we're going to scale. One example is hectorite for geothermal energy. And here, because the wells are extremely deep, you're facing ultra-high temperatures at which hectorite is stable. We're using our formulation knowledge and existing customer relationships to grow with this market. We had our first sales in 2025 and have a number of field trials planned for this year in the U.S. and Germany. So lots of exciting opportunities and potential for growth. So we're focusing on the right areas, building on our winning differentiators, but what levers are we pulling to now bring in this growth? First, we're investing more in R&D, 50% more. For example, in application knowledge to support customers, and we're building a hectorite center of excellence. We're already seeing the benefits. Last year, innovation sales reached a record of 16.4%. That has doubled in the last 5 years. We launched 19 new products, of which we sent more than 1,500 samples to our customers. Some of the innovation highlights from last year on the right-hand box. We launched DEOLUXE, our patent-pending non-metal-based active, and this is looking quite promising. Several large customers are testing, and we expect the first sales in the second half of this year. We also launched a number of new hectorite products, BENTONE ULTIMATE, also patent pending. It's a highly active hectorite technology that delivers exceptional skin feel, mostly for lipstick and mascara. And in coatings, we launched THIXATROL 5050W for metallic pigment orientation and waterborne automotive coatings. So lots of excitement around innovation. And next, we're covering more customers directly, also local and regional accounts. We want to understand firsthand about their needs. And we've made good progress last year. We now service about 67% of our customers directly. We're also building a local-for-local footprint, and this reduces cost and increases reliability. More and more customers are demanding local supply, particularly in China. So this is how we're going to look at growing organically. To complement our organic growth, we're looking at bolt-on acquisitions, but in a very disciplined way and only when it fits our strategy, which does not depend on M&A. But the acquisition of Alchemy is a great example. In November last year, we announced the acquisition of Alchemy right in our Personal Care sweet spot. And Alchemy develops innovative rheology modifiers for personal care. They are fully natural and can fully replace synthetic raw materials in cosmetics. And the business has done really well in recent years, delivering double-digit revenue growth and operating margins in line with our Personal Care business. And we're bringing on a team with incredible expertise in this market. We're already working together on new products, including with hectorite, quite a nice synergy. The point is, with Elementis behind it, Alchemy can scale faster, leveraging our global sales network as well as our application capabilities. It's a great example of how bolt-ons can strengthen our core and accelerate growth. To make the most of this growth agenda, we need to be the best supplier to our customers. An important measure is On-Time-In-Full. And in July, we shared our target to deliver a 20% uplift over the medium term. And I'm pleased to share that we're now already halfway, and we'll stay focused on this. Second, we talked about St. Louis in July, one of our largest sites, and we have been dealing with some backlogs there. We had a big opportunity, 30% by unlocking capacity. I've made some leadership changes there, brought some experienced people back, and we're seeing the results, a 20% improvement since the first half of 2025. That puts us 2/3 the way there. At the end of the day, all of this comes down to customer focus and mindset, whether you work in sales, R&D or in the plant. And with some of the changes we've made, we have a new top-notch customer service center in Porto, we've seen a 50% reduction in customer response times. We've also received external recognition that you can see on the screen, which is a great acknowledgment for the team. We're building a simpler, leaner Elementis. And to us, this means driving agility, faster execution and responsiveness, so we can scale and deliver more value to our customers. And we've made good progress. We've streamlined our organization and leadership team. We've eliminated the stranded costs related to Talc. And some of these things were low-hanging fruit like reducing office spaces that we didn't really need. And some things took more coordinated effort like qualifying 50 new suppliers that led to quite significant procurement savings. Looking ahead of 2026, we're not done here. There'll be more procurement savings to come. We're making our supply chain more efficient, and we'll continue to move towards a local-for-local model. This is a continuous journey. All right. On to our last slide, outlook. While we remain mindful of the recent geopolitical uncertainty, we're confident in another year of progress. We're seeing great momentum and excitement building in the business. And I'm pleased that we've made a solid start to 2026 and our priorities for the year are clear: deliver organic growth through R&D and customer intimacy, achieve best-in-class customer service levels; and lastly, drive operational efficiency and continue to deliver cost savings. And the team and I are fully focused on delivering this plan. Thank you very much. And with that, let's move to Q&A, please. Everybody could please say their name, speak to the microphone, so that folks on the call know who you are. Thank you. Vanessa Jeffriess: Vanessa Jeffriess from Jefferies. Just wondering if you could speak first about how the first quarter has started given weather in the U.S. and improving beauty markets and how you think about seasonality for the year given coatings is normally stronger in the first half, but we're probably not going to see much improvement soon. Luc Van Ravenstein: Hi Vanessa Jeffriess from Jefferies, thank you for that question. We had a solid start of the year which is encouraging -- Q4 was relatively soft. So solid start in coatings as well, which particularly was softer in Q4. And the seasonality is -- we expect it to be quite typical, 52-48 balance. So yes, encouraging start. Vanessa Jeffriess: And then just on your new growth areas, great that you were able to execute on Alchemy. But how do you think about the mix between achieving that growth from bolt-on M&A and not diluting margins, given I can't imagine there's much out there making the margins you are. Luc Van Ravenstein: Yes. Absolutely. Look, this is an organic-led strategy. So we're really focusing on organic growth, which there are great opportunities in our existing segments, as we say, Personal Care and Coatings as well as these new areas that we talked about. It really is organic-led. Look, we work with many, many companies out there, such as Alchemy. We knew that for a long time, this company -- those could be nice new arrows to our bow. But again, it's really organic-led. You're right, our margins are in a nice spot. We're driving them up further. And it's difficult to find companies that are actually accretive to our margins. Alchemy was one of those, by the way. So we're very happy to use them to grow faster. Vanessa Jeffriess: And then just on pharma. I know that you didn't give profit, but based on past commentary, I would guess that, that's making probably 10% margins. So it seems like you sold at a multiple similar to your own group multiple, which is interesting. I think since your undervaluation, but what else is left in the group do you think that is making similar margins and could be sold? Luc Van Ravenstein: I think you're absolutely spot on in terms of your analysis around the margins and what we did there with pharma. So for us, this was a really good step from a margin and a CapEx perspective, but also from a strategic perspective, most importantly. Pharma was really an activity that it's a really great piece of business, but it doesn't fit with us. Looking at the rest of the portfolio now, we're really pleased with the portfolio we have. We don't have any other business in this kind of margin area. So yes, right now, it's about growth really. That's what we're focused on. We're pleased with the portfolio. Kevin Fogarty: Kevin Fogarty from Deutsche Numis. If I could kick off firstly on innovation. So you called out some several examples of progress, I guess, in new rheology markets. It feels like you're making sort of more progress there perhaps rather than the current ones. It's obviously sort of quite a different sale in terms of new markets rather than the current. I just wondered if you could sort of talk a little bit about that process. And sort of I guess, culturally, how is that different in terms of what you're trying to do there relative to what Elementis has done in the past? You're at 16% in terms of innovation sales. Just thoughts on the 20% target you've got out there? And just secondly, if we can think about Personal Care, just if you could frame the benefits from cost savings perhaps during the year. Any thoughts on Personal Care Asia and dynamics there during the year would be quite useful and just sort of confidence on retaining the margin, which is clearly at a significantly higher level than in the past? Luc Van Ravenstein: Yes. Thank you, Kevin, for those questions. Perhaps I can take the first couple and then Kath, you can help me on the third, if you don't mind. Thank you. So in terms of the new markets, so indeed, look, we have a large market in Personal Care and Coatings where we have great opportunities for growth. We talked in July, for example, about replacing some of the synthetic additives in sun care. That's our existing markets, huge opportunities. And if I look at our growth going forward, probably the largest piece of growth is actually going to come from those existing markets. We have exciting opportunities in new markets for sure as well, where, frankly, we've started to look into only relatively recently. Some of these opportunities, we will actually be able to address and bring in with our current sales force, application knowledge, et cetera. I gave a little example of geothermal. So geothermal drilling is actually -- is happening a lot with our existing customer base already, the Schlumberger of this world. So we have the access to customers. We have the knowledge of deepwater drilling through our oil and gas business. So that's an opportunity we'll bring in with our existing setup. Other opportunities, for example, we've identified a new opportunity for hectorite to remove PFAS out of wastewater. That's really interesting, but we're not going to build a whole sales force and application knowledge to -- for wastewater removal. So there, we might work with a partner, right? So I think for these new opportunities, very large, some of them will bring in with our existing knowledge. Some we will build, some knowledge we'll build, for example, in the construction market. And some we'll just have to partner up with other people. So that's the way I look at that, but a lot of innovation coming from our existing markets. Your second question was around innovation and about our path towards the 20%. Absolutely key indeed, because if you think about everything we do in innovation, innovation sales typically generate 5% to 10% higher margins than the rest of our sales. So it's really important. It also helps us to -- in our relationship with our customers and our relevance to our customers. So we've made great steps last year, 200 basis points up to 16.4%. We foresee to further progress that with all the activities that are ongoing towards indeed our medium-term target of 20%, but we're making some good progress and the investment in R&D, which sometimes is also simply about bringing that application knowledge in is going to help. Your third question was around Personal Care, particularly Personal Care Asia. For us, Personal Care in Asia is still a relatively smaller business compared to the European and the U.S. Personal Care business. We had some movements in Personal Care in the first half last year, Korea, color cosmetic market is a big one for us, and there was some order timing for which H1 was relatively softer. We had a better second half of the year. So we continue to see good momentum. What I would say is in the fourth quarter, we did see in antiperspirant some softness, particularly from some format changes in Latin America, as I think Kath referred to. So aerosols moving to roll-ons. That's for the antiperspirant business. But in general, we see good momentum. We're very happy with the margins. As said, Alchemy is accretive there or it is actually in line with our Personal Care markets margins. I don't know, Kath, if you want to add anything on the margin point that Kevin was asking about. Katharina Helen Kearney-Croft: So I think last year, we made good progress with the Fit for the Future finalization and the start of the new cost savings. Personal Care specifically also benefited from the closure of the Middletown site. So that is directly related to Personal Care. But from the other perspective, a lot of it ends up being in allocations because we've got joint plants and back office, which ends up being allocated. Angelina Glazova: Angelina Glazova from JPMorgan. I have 2 questions. First, I wanted to ask about the midterm targets on margins for 23%. You have already talked us through some drivers for growth that you see in the midterm. How should we think about Elementis bridging the gap in operating margins from current level to target of 23% plus? And do you see any particular drivers as more important relative to others? And then there is also clearly a difference in margin profiles between the 2 divisions. So how do you see that developing? And is there anything maybe for the Coatings business where you see those actions that could help lift the margins? And then secondly, looking at 2026, are there any particular items in terms of cash flow generation, net debt development that we should be mindful of? Luc Van Ravenstein: I'll kick-off with the first question and then if you don't mind, to complement and go on to the second question. So in terms of the margin development, look, we made a nice step in the right direction. Actually, selling the pharma business is going to help us, like Vanessa just said, a little bit more. Look, this is really about growth. And as we just discussed, we're growing in areas that are actually margin accretive. Hectorite, we're actually looking to selling more hectorite and growing that double digit. So that's going to help the mix. That's going to help our margin development. Obviously, we're taking some more cost out this year, but there is a limit to that at a certain point. We're really -- the big reorganizations are behind us. We have Fit for the Future behind us. So this is about high-margin growth. Obviously, we continue to look at how we can do things more efficiently. We'll always think about how we can do things at a lower cost and having Kath come in with a fresh pair of eyes a couple of months ago has also really helped in that respect. But it is about growth and about high-margin growth, and that's the way we're going to really get to that 23% plus level. Kath, anything to add? Or you want to go to the second part? Katharina Helen Kearney-Croft: Well, I think it's also related to the profiles in Personal Care. It has got higher margins and higher growth, and therefore, that would naturally generate some accretive margin. Luc Van Ravenstein: Yes, good point. Katharina Helen Kearney-Croft: With respect to cash flow and net debt, so Page 19 has some technical guidance. We're flagging CapEx will be between 4% to 5% in 2026. We will also expect a small working capital outflow in the year. I referenced in my script that we still had some factoring at the end of 2025, we will not be factoring in 2026. And so that will naturally unwind. And then with the sales increase that we're expecting, we will need to fund that. I think from a sort of just big picture, we are expecting to be circa 1x leverage on an organic basis by the end of 2026. And when I say organic, I'm ignoring the sale of the pharma business because as we said, we expect to give the net proceeds back. Unknown Analyst: This is Madhumanti Sanyal from CaixaBank. So I want to know if there is -- if you think there is a strong synergy between the Coatings and the Personal Care business, like if Coatings continues to show lower-than-expected performance, would you consider a sale of the Coatings business without affecting the performance of the Personal Care business? Luc Van Ravenstein: Thank you for the question. Look, Coatings and Personal Care are different markets, right? So our customers in Coatings are Sherwin-Williams and PPG and AkzoNobel and in Personal Care, you talk to L'Oreal and Estee Lauder. So the markets are different. But in terms of how we operate at Elementis, there's a lot of synergies. So most of our manufacturing plants are actually multipurpose and multi-market plants. So they service both markets, so both Coatings and Personal Care. Our plant in Livingston in Scotland and the U.K. is about half-half Personal Care, Coatings. So in that respect, there's a lot of synergies. Also, if you look at the products that we manufacture and the knowledge that we have in our laboratories, we talked about rheology, we talked about hectorite, all of that ends up in both Coatings and Personal Care. So the product knowledge, the manufacturing footprint synergy, these businesses are intertwined. So no. But I would add to that as well is that we're actually quite pleased with the performance of Coatings. If you look back at Coatings, where we were 7, 8 years ago, the margins of the Coatings business were in a bad year, 10 percentage points around that. In a good year, it was 14%, 15%. Right now, in a low demand environment, we're at 18.9%. So we're actually quite pleased with the Coatings performance, and we're excited about the opportunities ahead. Operator: I've got some questions from Sebastian Bray at Berenberg. Has there been any change in the energy business that led to the strong performance as you've highlighted, despite the oil price decline? One. Second question, what are management's thoughts on additional buyback after receiving proceeds from the sale of the pharma business? And thirdly, are there any signs of the recovery in hectorite sales in Personal Care? Did these grow in 2025? And if not, why this was the case? Luc Van Ravenstein: Shall I take 1 and 3 and you do 2? Katharina Helen Kearney-Croft: Sounds good. Luc Van Ravenstein: All right. Let's do it. So Energy business, we're actually very pleased with the performance of the Energy business. And it is a relatively small business, give or take, $40 million, but it did very, very well last year. One thing that Sebastian might remember, we closed our Charleston site in the U.S. back in 2019 or early 2020, and that was at the time a purely energy-focused business, or plant, I should say. We moved the manufacturing of those products to St. Louis. So that helped us in terms of margins. That's one thing that helped us. I would also say that by doing so, we really transformed the energy business, which if I look --when I joined Elementis 14 years ago, it was a much larger business. But now we really focus this business, one on manufacturing only from St. Louis, focus on hectorite. Why on hectorite? Because we really have a unique winning differentiator with hectorite because it works very well for deepwater drilling. So if you go very deep, you have to drill at temperatures of 250, 280 degrees Celsius and hectorite is stable at those temperatures. So we refocused the team. We have a smaller portfolio. And actually looking at last year, we've had a lot of success indeed in difficult conditions for drilling such as deepwater. We talked about the geothermal energy opportunity. So that's what we're doing here. Smaller business, relatively small team, close the plant down to do cost out and focus on the areas that make Elementis unique. And we'll continue to do that actually. The third question was around Personal Care and hectorite. Yes, we have grown. Obviously, last year, with the markets being a little bit soft, also the Personal Care growth was low single digits also in hectorite. But if I look at Personal Care, again, I'm turning the clock back 14, 15 years ago when I joined, this was a $30-or-so million business. We actually reported it at a certain point under oil and gas, you wouldn't believe that. But that was a purely hectorite business. And we understood where else we could sell hectorite in Personal Care in adjacent areas. So looking at the last 5, 10, 14 years, hectorite in Personal Care has grown really, really nicely. Last year was relatively lower growth, but still growth. But looking at the opportunities ahead in Personal Care as well, replacing synthetics, which continues to be very, very exciting opportunity, entering skin care, which is a $20 million or so business for us now, we're going to scale that, lots of exciting opportunities. Katharina Helen Kearney-Croft: So I think with respect to the question on share buybacks. So as we said this morning, following the sale of the pharma manufacturing business, upon closing, we expect to distribute those funds to shareholders. We also have the target of net debt to EBITDA of about 1x, we expect to be there by the end of 2026. So that will give you a signal of what we're expecting in this year. And then as we look forward, we'll continue to take into consideration where we are on leverage and expectations. Operator: Sorry, I've got to pretend to be Anil now. Anil Shenoy from Barclays has sent 2 questions as well. We didn't see any guidance on 2026. So are you happy with where the consensus is at for adjusted EBIT? And if so, could you help to bridge the gap between 2025 EBIT to 2026 consensus EBIT. What are you assuming in terms of growth? And what are you assuming in terms of savings? Luc Van Ravenstein: Shall I do the first part and you the second? Katharina Helen Kearney-Croft: Okay. Luc Van Ravenstein: All right. Thank you, Anil, for those questions. Look, we had a solid start of the year, like we just mentioned. So we're quite happy with that. And therefore, comfortable with the consensus. In terms of the bridge EBIT '25, '26, I mean, Kath, do you want to add on that? Katharina Helen Kearney-Croft: So as I mentioned, we expect the incremental $4 million in savings to come through. We do expect volume growth, so we'll get some natural leverage and some margin accretion continue to drop through, and that's how we're moving from 2025 to 2026. So sort of steady as she goes with the additional cost savings. Operator: And just some last questions from Chetan Udeshi from JPMorgan. Are you expecting Q1 sales to be up compared to last year? And secondly, we didn't see volume growth this year. What are your expectations for volume growth for '26? Luc Van Ravenstein: I think for Q1, as I said, we made a solid start. I think the most important is that if you look at where we -- the exit rate of Q4 last year was relatively softer. So we're happy to see good progression after that. For the full year, again, back to the previous questions from Anil, we're comfortable with where consensus is. We are looking at a typical balance between H1, H2, which I think also can help Chetan in terms of his modeling. Anything to add, Kath? Katharina Helen Kearney-Croft: [indiscernible] but I would just note the geopolitical situation has weakened. So we have an expectation, and we hope we will deliver that, but some things are out of our hands. But we will maintain our focus on our strategic targets. Luc Van Ravenstein: Yes, we're 2 months in. It's early days. Good point. Unknown Analyst: [Technical Difficulty] Luc Van Ravenstein: Not so much anymore, actually. When we own Talc, I had the Dutch gas price on my phone here. I was tracking it every half an hour, and I didn't get a lot of sleep. Luckily, we don't have that business anymore. And we are in specialty chemicals. So if you look at how we generate our margins, it's about adding value to our customers' formulations rather than trying to squeeze out a cent on our costs. So very much a different situation than where we were a year ago. Good question. Thank you. And we'll continue to monitor. I mean, I think perhaps one of the things to add, we continue to monitor the situation, the situation that Kath mentioned, obviously, that the recent occurrence in the Middle East. And if our input costs go up, we typically look to price to compensate for that input cost increase, definitely. Thank you. Good question. No more questions? Katharina Helen Kearney-Croft: Can we just get a mic to you? Vanessa Jeffriess: Sorry, just to clarify what you just said that you're happy with consensus sales and EBIT, but you've got the loss of Pharma business, which is $35 million sales and $3.5 million EBIT, right? Katharina Helen Kearney-Croft: So that's on a pre-adjustment for pharma, but I do suggest that people wait until it actually closes before adjusting numbers. Operator: I am seeing no questions on the conference line. So with that, thank you very much. Luc Van Ravenstein: Thank you, everybody. Katharina Helen Kearney-Croft: Thank you.
Operator: Good day, and thank you for standing by. Welcome to the Scandinavian Tobacco Group Full Year 2025 Results Conference Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Torben Sand. Please go ahead. Torben Sand: Thank you, and good morning, and welcome to Scandinavian Tobacco Group's webcast for the Full Year and Fourth Quarter 2025 results. My name is, as said, Torben Sand, and I'm Director of Investor Relations and External Communications. And I am today, as usual, joined by our CEO, Niels Frederiksen; and our CFO, Marianne Rorslev Bock. Please turn to the next slide for today's webcast agenda. Niels will start the presentation by giving you a brief overview of the highlights, including a snapshot of the key financial data. Niels will also summarize a few of the highlights from our new strategy that we launched last year, Focus2030. Then Niels will move on to share more details on the performance of our product categories before Marianne takes over and give you an update on the financial performance in our 3 reporting divisions. Marianne will also give more details about the financial performance, including comments on cash flow, leverage and capital allocation. Niels will conclude the call by giving some insights into the expectations for the full year 2026. After the pre-prepared presentation, we will conduct a Q&A session where we will be pleased to take any questions you might have. Before we start, I ask you to pay special attention to our disclaimer on forward-looking statements, which can be found on Page #3 in this slide deck. Now please turn to Slide #5, and I leave the word to our CEO, Niels Frederiksen. Niels Frederiksen: Thank you, Torben, and welcome to the call. 2025 became a challenging year for Scandinavian Tobacco Group with a combination of external disruptions and internal operational issues. Tariffs and lower consumer sentiment in the U.S. directly impacted our handmade cigar business and the category experienced fierce price competition, both in retail and in the online distribution channels. Our machine-rolled cigar business continued to be under pressure, while our investment in our nicotine pouch business delivered good contributions to the group's financial performance. Throughout the year, we have concentrated our efforts on protecting our market positions, integrating Mac Baren and growing our handmade and nicotine pouch businesses. And given the difficult circumstances, I am satisfied with our results for the year despite having to reduce our full year expectations in May as a consequence of the increased tariffs. 2025 was a year where we launched our new strategy, Focus2030, and we released new financial ambitions, and we adapted a new more flexible shareholder return policy. At our Capital Markets Day on November 20 last year, we unfolded the new strategy but today, we will also provide a few highlights on this later in the call. We expect 2026 to be a year where geopolitical uncertainty will remain a market condition and economic growth will be challenging. For Scandinavian Tobacco Group, this means that our main priorities in the year will be to stabilize earnings in our machine-rolled cigar and smoking tobacco business and inject new energy and growth into our strong handmade cigar business. We will also continue to grow our promising nicotine pouch business. Now please turn to Slide #6. Let me now share a few financial highlights for the year. Marianne will give more details about the financial performance and the quarterly development later in the presentation. But reported net sales were DKK 9.36 billion compared with our guidance of DKK 9.1 billion to DKK 9.2 billion, and the EBITDA margin before special items was 19.8% compared with our guidance of 19.5% to 20.5%. Overall, this results in an EBITDA before special items in line with our expectations. The free cash flow before acquisition came in more than DKK 200 million below our guidance due to a delay in the collection of certain receivables due to the SAP implementation in Europe. The issue has been solved and as the deviation is a phasing issue, the free cash flow will be equally positively impacting 2026. Marianne will give you more details in her part of the call. Adjusted earnings per share were DKK 10.8, in line with our guidance of DKK 10 to DKK 12 per share. Please turn to Slide #7. On 20th November, we launched our new 5-year strategy in connection with the Capital Markets Day, and you can find a recorded version of the event on our website. The purpose of Focus2030 is not only to create value by executing the strategy but also to develop a company that is even better positioned to deliver value beyond 2030 and we are confident that we can do so. We've defined 3 strategic priorities, each important for us to deliver on the ambitions for Focus2030. Firstly, to create a sustainable and stable machine-rolled cigar and smoking tobacco business, primarily focused on Europe. Secondly, to grow our attractive handmade cigar business anchored in the U.S. but with a stronger global footprint. And thirdly, to build a larger nicotine pouch business with even more upside in an attractive category. And in the process, we intend to turn the declining earnings trend around and we have -- sorry, in the process, we intend to turn the declining earnings trend around that we've seen over the past 3 years and create value for consumers, employees and shareholders. The new strategy is anchored in our strong brands and strong market positions across our diversified portfolio. However, the market conditions and the strategy call for us to allocate resources differently going forward to ensure that we focus on and capture what we see as the largest growth opportunities. And our power brands strategy is tailored to facilitate this. The strategy addresses the areas that we need to fix because they are not performing up to expectations, but also the areas where we do well and where we need to push further to deliver even better results, all with a combined ambition to build a sustainable and growing company with more potential beyond 2030. We also introduced new financial ambitions, which are to significantly improve the return on invested capital from about 7.9% in 2025 to more than 11% in 2030, to deliver an incremental increase in EBIT and a free cash flow generation exceeding DKK 1.2 billion in 2030. Acquisitions as well as divestments of less core assets will continuously be evaluated, assuming these potential transactions support our strategy as well as our financial ambitions. The shareholder return policy has been adapted to be more -- to a more flexible dividend payout ratio policy based on 40% to 60% payout ratio against adjusted earnings per share, supplemented by share repurchases when the projected leverage ratio allows. Please now turn slide to Slide #8. To meet our financial ambition and the objectives in Focus2030, we need to deliver on 3 strategic priorities. Growing handmade cigars will be defined as growing net sales as well as delivering incremental profit growth to the group. The key growth drivers are expected to -- the key growth drivers are expected to be delivered by a combination of increasing our market share of own brands in the U.S. from approximately 13% to more than 15% in 2030 as well as through an expansion in our retail network. This expansion will be driven by our power brands, which in 2025 have 5% overall market share. Stabilizing the machine-rolled cigar business requires a focus on protecting profits and cash flow. The path to success is offsetting the structural volume decline in the categories through price management and market share gains. Mitigating structural market trends through intensified market share focus is reflected in the ambition to increase volume market share in key European markets from 26.8% in 2025 to more than 29% in 2030. And a key component to the profit growth will also be through simplification of our portfolio by almost 50%. Finally, accelerating our nicotine pouch business is expected to deliver important contributions to the group's growth in net sales and profits in Europe. We expect to build on existing market share positions in Sweden and in the U.K. but also in other markets where our capabilities within distribution and access to the market provide us with an advantage. Now let's turn 2 slides -- to Slide #10. Machine-rolled cigars and smoking tobacco comprised 50% of group net sales in 2025 with handmade 35%, nicotine pouches at 5% and others at 10%. Others include accessories and bar sales, amongst others. For the full year, organic net sales growth was minus 3%, where handmade cigars delivered flat organic net sales, machine-rolled cigars and smoking tobacco minus 1% and nicotine pouches a negative 17% growth. However, the organic growth for nicotine pouches does not reflect the underlying progress of our power brand, XQS, which delivered a high double-digit organic growth. The negative growth for the category was significantly impacted by the discontinued online distribution of ZYN from the second half of 2024. For the first time, we are giving details on the gross margin structure for our product categories. For the group, the gross margin before special items was 44% for the full year of 2025. The product category machine-rolled cigars and smoking tobacco delivered a 51% margin, handmade cigars, 41% and our nicotine pouch business, 36%. Going forward, we intend to share these details in order for you to get a sense of the progress we make in our strategic priorities. Now let's move on to each of the categories, and please turn to Slide #11. The market for handmade cigars in the U.S. continued to contract in 2025 by an estimated mid-single-digit percentage. For 2026, we expect a 4% total market volume decline rate. We still estimate the underlying longer-term decline rate to be a lower single-digit number. For the full year 2025, reported net sales decreased by 4% for the category with organic net sales being broadly unchanged. Reported growth was impacted by the development in currencies. Increasing organic net sales in retail and pricing were offset by underlying volume declines in the U.S. market and by international sales. Gross margin before special items have been on a declining trend for the past 2 years. For 2025, the margin was 41.4%, with the main drivers for the decline being fierce competition in our online distribution channel, and negative impact from increasing tariffs and consumers trading down. The data illustrated in the chart show the development in the last 12 months data, not the specific quarterly data. For the fourth quarter, our category performance was 1% organic net sales growth and was positively impacted by business-to-business sales in the U.S. and continued growth in our retail stores. The sales of handmade cigars to U.S. wholesalers and distributors, the business-to-business market continued to recover in the fourth quarter and delivered a 6% increase following a low single-digit growth in the third quarter. Sales in our retail stores continued to increase, driven by new store openings, although the same-store sales were slightly down due to a temporary rebuild of our largest store in Dallas, Texas. And finally, our online sales of handmade cigars were broadly unchanged, where sales to our international markets decreased during the quarter. Now please turn to Slide #12, and we'll talk about machine-rolled cigars and smoking tobacco. For machine-rolled cigars and smoking tobacco reported growth in net sales was 2% for the full year. The growth was impacted by the acquisition of Mac Baren from the second half of 2024, while organic growth in net sales was slightly negative by 0.5%. The gross margin before special items was 50.8%, broadly in line with the full year of 2024. But as the graph also indicates the last 12 months margin declined -- sorry, the last 12 months margin declined significantly throughout 2024, primarily as a result of the high volume decline rates we experienced in machine-rolled cigars throughout 2024. In that context, the stabilization of the category margin is encouraging, although still not satisfactory. The current margin level remains negatively impacted by changes in product and market mix as well as disruptions caused by our SAP rollout in Europe. With the financial ambitions we have communicated, we need to protect and improve the margin, not only for machine-rolled cigars but also for smoking tobacco. For the fourth quarter, organic net sales for the category were unchanged, comprised by a low single-digit growth in machine-rolled cigars and a low single-digit decline in smoking tobacco. Now let me give you an update on the market share development in our machine-rolled cigars. The total market for machine-rolled cigars in Europe is estimated to have declined by 1.2% in the full year of 2025 based on preliminary data for our 7 key markets and with the decline rate for the fourth quarter estimated to be 2.8%. The data can deviate somewhat quarter-by-quarter and year-by-year from the underlying trends, and we don't regard 2025 market development as an indication of a sustainable improvement. Our base scenario of 2% to 3% structural decline rate is maintained, and for 2026, we expect a 3% market decline in Europe. Measured by our market share, we experienced a stabilization in the fourth quarter compared with the third quarter. The market share index was 26.3% for the fourth quarter and 26.8% for the full year of 2025. As mentioned with the Focus2030 strategy, we will invest in strengthening our positions as stronger market share positions are crucial to deliver long-term value in the category. With this, please turn to the next slide. So moving on to next-generation products, which comprises our nicotine pouch business and currently accounts for 5% of group net sales and slightly less of gross profits. For the full year 2025, reported net sales growth was 2% and organic growth was minus 17%. However, these data points do not give the full picture of the positive development we experienced for the category. The full year growth was significantly impacted by the discontinued distribution of ZYN in the U.S. but the reported growth rates were also impacted by the nicotine pouch portfolio we acquired from Mac Baren in the middle of 2024 and the ongoing streamlining of the brands, ACE and GRITT now being sold in fewer markets. Importantly, our brand XQS delivered 55% organic net sales growth and the market share in Sweden increased from 7.8% in 2024 to 12.3% in 2025. And by the end of 2025, the market share was above 13%. Our market share in the U.K. also improved during the year, although it is still only close to 1%. The category gross margin before special items was broadly unchanged at the level of 35% for the full year 2025 compared to 2024. As a result of the continued expansion of XQS to new markets and with investments to increase market positions, the EBITDA margin was only slightly positive for the year. During the fourth quarter, our nicotine pouch business delivered 42% reported net sales growth and 37% organic net sales growth. XQS -- the XQS brand delivering 87% organic growth, driven by a strong performance in the U.K. and Sweden. With this, I will now leave the word to Marianne for more details on the financial performance, please turn 2 slides to Slide #15. Marianne Bock: Thank you, Niels. In 2025, the commercial division Europe Branded comprised 36% of group net sales, North America Branded & Rest of the World, 33% and North America Online & Retail 31%. For the full year, organic net sales growth for the group was minus 3%. Europe Branded delivered minus 1%; North America Branded & Rest of the World, minus 5%; and Online & Retail, minus 4%. For Online & Retail, growth was impacted by the discontinued distribution of ZYN from the second half of 2024. In the table, we have shared an overview of the margin structure for each of the divisions measured by gross margin before special items as well as EBITDA before special items. For Europe Branded, the gross margin before special items was 48%. North America Branded & Rest of the World delivered 46% and Online & Retail, 38%. These differences in margin by division reflect product and market mix and for Online & Retail business being a direct-to-consumer business, whereas the 2 other divisions are business to business. The group margin was, as already mentioned, at 44%. Measured by EBITDA, the margin differences are even wider with Online & Retail delivering the lowest margins, while North America Branded & Rest of the World delivered the highest margin, primarily as these markets do not have own sales organizations. We'll now move to each of the divisions. So please turn to Slide #16. I will begin with Europe Branded. For the full year, reported net sales grew by 6%, largely due to the acquisition of Mac Baren in the third quarter of 2024. Organic net sales growth was slightly negative as increased sales of nicotine pouches were offset by declines in machine-rolled cigars and smoking tobacco. During the year, our gross margin before special items decreased from nearly 49% in '24 to 48% in '25. The decline was driven by changes in product mix with a strong growth in net sales of our nicotine pouch brand, XQS and lower sales of smoking tobacco. The same factors contributed to a decrease in the EBITDA margin, which fell from 21% in '24 to 19.8% in '25. Overall, profit margins for Europe Branded are affected by shifts in product and market mix as well as disruption in product availability. Reported and organic net sales growth for the fourth quarter was 6%, driven by both nicotine pouches and machine-rolled cigars. However, declines in both gross margin and EBITDA margin were due to the rapid growth of nicotine pouches compared to other product categories. Now please turn to Slide #17. For the full year, reported net sales decreased by 4% and organic growth declined by 5%. The acquisition of Mac Baren contributed positively to reported growth, while the weakening of U.S. dollar against the Danish krone has a nearly equal negative impact. The full year gross margin before special items decreased from almost 51% in '24 to 46% in '25, primarily due to changes in product and market mix. This was most notably affected by lower sales of high-margin machine-rolled cigars and smoking tobacco products. For the fourth quarter, reported net sales for North America Branded & Rest of the World fell by 12%. Organic growth was negative by 7% as growth in handmade cigars could not offset a high single-digit decline in machine-rolled cigars and smoking tobacco. The category other, which includes sales of accessories and similar items, also experienced negative growth during the quarter. The decline in the gross margin during the fourth quarter was even steeper compared to the full year decrease as the quarter was compared to a particularly strong fourth quarter in 2024. Additionally, lower sales of machine-rolled cigars were primarily driven by reduced sales in our high-margin markets in Australia and Canada. These dynamics were also the main factor behind the significantly lower EBITDA margin before special items during the fourth quarter, impacting not only North America Branded division but also the group margin for the period. Now please turn to Slide #18. For the full year, North America Online & Retail reported growth in net sales decreased by 8%. Organic growth was down 4% but excluding the discontinued distribution was slightly positive. Underlying organic growth included gains in our retail stores, while our online business experienced a slight decrease. In retail, we are seeing the benefits of opening new stores over the past year. However, same-store sales were marginally lower due to a renovation of our largest store in Fort Worth, Texas, as Niels mentioned earlier. Competitive pressure remains strong in the online channel but our pricing strategies are gradually improving our market share. Throughout the year, both gross margin and EBITDA margin were affected by the intensified promotional activities aimed at expanding our market position. For the fourth quarter, reported net sales decreased by 8.6%, primarily due to currency fluctuation. Organic growth was down 0.5%, with retail achieving 7% growth and online business showing a slight decline. Gross margin and EBITDA margin before special items in the fourth quarter were impacted by the high level of promotional activities, which have continued into 2026. I'll now move to an update on group financial performance. Please turn 2 slides to Slide #20. Throughout the presentation, details regarding developments in net sales, gross margin, EBITDA margin have already been given. Now I would like to provide a few additional comments on select financial details and key metrics. In 2025, special items amounted to negative DKK 200 million compared to DKK 279 million in '24. These costs can be divided into DKK 130 million for the SAP implementation and DKK 70 million for reorganizations and the integration of Mac Baren. We expect special costs in '26 will total approximately DKK 275 million before gradually tapering off in '27. Higher net financial costs were driven by both increased net debt and the refinancing of our corporate bond, which took place in September '24. We refinanced our existing EUR 300 million bond, which matured in '24 with a new facility of similar DKK 300 million. However, the new bonds were issued with a coupon interest that was almost 3.5 percentage points higher, reflecting the prevailing market rates at that time. Financial costs, including exchange losses, increased by nearly DKK 100 million compared to 2024. We have already addressed the effect of the discontinued distribution of the ZYN nicotine pouch product, which negatively impacted group organic net sales by 1.3%. This implies that the underlying decline for the year was 1.8%. Finally, I'd like to address the decline in return on invested capital, which is a key KPI for us as we strive to meet our new financial ambition. Return on invested capital decreased to 7.9% from 9.4% in '24, while our ambition is to achieve a return on invested capital above 11% in 2030. Excluding the impact of special items, which are included in the calculation, return on invested capital was 9.3% in 2025, almost similar to '24. The decline in return on invested capital for the year was primarily due to lower EBIT as invested capital remained broadly unchanged at DKK 14.5 billion. Please turn to Slide #21. Niels mentioned in his opening remarks, the free cash flow before acquisitions was approximately DKK 200 million below our guidance. The free cash flow was DKK 595 million compared to DKK 931 million in '24, and our guidance range was DKK 800 million to DKK 1 billion. In the fourth quarter, free cash flow before acquisitions was DKK 147 million compared to DKK 604 million in the fourth quarter of '24. The lower cash flow during the quarter relative to our expectation was due to delays in collecting of receivables associated with our ERP implementation in Europe. This issue has now been resolved. Payments are beginning to be recovered, and we anticipate working capital will return to normal levels during the coming months. The delayed payments are expected to have a positive effect on cash flow during the first half of 2026. The effect on working capital during the fourth quarter resulted in an unusually negative contribution from changes in working capital with a reduction of DKK 17 million in the quarter, which was DKK 180 million lower than the positive contribution during the fourth quarter of '24. Typically, working capital changes are positive in the fourth quarter of the financial year. Other factors contributing to the lower cash flow in the fourth quarter included a reduced EBITDA and higher taxes paid, which in the illustration is included in investments and other. Now please turn one slide to Slide #22. In the fourth quarter, the leverage ratio increased from 2.9x by the end of third quarter to 3x by the end of 2025. The increase is due to a decline in EBITDA before special items compared to the fourth quarter of last year. Compared to '24, the leverage increased from 2.6x. Throughout '26, we remain fully committed to lowering the leverage ratio and working towards our target ratio of 2.5x. This is a top priority for us this year, and if our earnings come under greater pressure than anticipated, we will take necessary steps to ensure the leverage ratio is reduced. Now please turn to Slide #23. In November, we announced our capital -- new capital allocation policy, which is guided by a leverage target of 2.5x. This target determines the level of investments and shareholder payout, giving us the financial flexibility to pursue growth opportunities while delivering shareholder returns. It also emphasizes our commitment to maintaining an investment-grade credit rating. We transitioned to a payout ratio-based dividend policy, ensuring dividend distributions are closely aligned with our underlying financial performance. The dividend payout ratio is set between 40% to 60% of adjusted earnings per share. This approach will take effect with dividend allocation related to the '25 financial results and will impact the dividend proposal for the upcoming Annual General Meeting in April. Since our listing in 2016, we have consistently delivered on our shareholder returns and intend to continue doing so. Given the current leverage ratio, we believe it is prudent to propose a dividend payment of 2025 in the low end of the payout range. The Board of Directors plan to propose a dividend payout per share of DKK 4.5 corresponding to a payout ratio of 42%. As we normalize our leverage in the coming years, we intend to create greater capacity for share buybacks, which continue to be an essential component in our overall capital allocation policy. With this, I will now hand the presentation back to Niels. Please turn 2 slides to Slide #25. Niels Frederiksen: Thank you, Marianne. For 2026, we expect the consumer trends to be unchanged for most of our product categories and markets and broadly similar to historic trends. We do appreciate that uncertainties are elevated and the risk for external disruptions remain high. However, we believe we have established good control of our internal processes and operations following the implementation of the SAP solution throughout Europe, and we are now well prepared to execute on our new strategy. For 2026, we expect group net sales growth at constant currencies to be in the range of minus 2% to plus 2%. The expectation reflects that total market volumes for machine-rolled cigars in Europe will decline by 3% and consumption of handmade cigars in the U.S. will decline by 4%. Improving our market shares, growing our U.S. retail and nicotine pouch businesses are expected to offset the volume declines in our core combustible categories. For 2026, we expect the EBIT margin before special items to be in the range of 13% to 14.5% compared with the 14.9% in 2025. The expectation reflects that 2026 will be a year of stabilization and where we will continue investing to facilitate our long-term ambitions in Focus2030. Pricing is not expected to fully offset the impact from cost increases, changes in product and market mix as well as our increased promotional activities to protect and improve our market share positions. On a more technical note, an increase in the amortization of trademarks of approximately 1 percentage point on the EBIT margin before special items is expected to be largely offset by an expected higher income from certain duty refunds. The increase in amortization reflects the group's new strategic direction with stronger focus on power brands, implying that brands outside the scope of power brands going forward are classified with a finite useful lifetime. For 2026, the free cash flow before acquisitions is expected in the range of DKK 950 million to DKK 1.2 billion, reflecting the expectations for net sales and margins as well as the delayed payments from trade receivables, which Marianne talked to, impacting cash flow positively in 2026 with an expected effect on cash flow during the first half of this year. Now this concludes our presentation for today's call. I'll now hand the word back to the operator, and we are ready to take questions. Thank you. Operator: [Operator Instructions] And now we're going to take our first question over the audio lines. And the question comes from the line of Niklas Ekman from DNB Carnegie. Niklas Ekman: First question is regarding the guidance for 2026 because at the Capital Markets Day in late November, you talked about an ambition for a low single-digit growth of EBIT. And it looks now like even the upper end of the full year guidance suggests a decline and the low end, a quite significant decline. So can you elaborate a little bit on this? Is there anything that has worsened since the Capital Markets Day in November? Marianne Bock: Thanks for the question. So when we talk about a low single-digit increase in EBITDA, it is over the strategy period. We are believing that 2026, which we also said at the Capital Markets Day is what we call a year of stabilization. We need not only to stabilize the internal disruption that we have seen in '25 but we also need to stabilize both our handmade cigar business and our machine-rolled cigar business. And that will entail investments into regaining market share but also in promotions. So we still believe that over the strategy period, we will see low single-digit growth in EBIT. But in '26, we could see a decline. Niklas Ekman: Can I also ask about your view on margins and potential cost reductions and particularly given the quite steep margin decline we've seen in recent years. You've now have margins that have dropped below pre-COVID levels and the guidance for '26 suggests a further decline. Are you in a stage now where you are looking more actively at your cost base again and maybe at initiating more significant cost reductions in order to curb the margin decline? Or what's your view on that? Marianne Bock: Yes. Thanks again, Niklas. So if we talk margins in '26, margins in '26 will also be impacted by mix, which means that our nicotine pouch business, we expect to grow but we are also seeing declines in our fine-cut business that has very high margins. When we talk about cost programs, we announced at the Capital Markets Day a cost program of DKK 200 million over the coming years. We are, as we speak, executing on these cost programs. We have full plans in place for those DKK 200 million, and we will see that coming in, during '26 and also '27. I would also say that if we see markets are worsening compared to our expectations, we will, of course, look at our cost levels. Niklas Ekman: Okay. Very clear. I'm also curious, when I look through the report, you used to talk a lot about the growth enablers. And now you talk more specifically about next-generation products and the retail stores. Is this a definition that you have removed? And is this because you don't -- you no longer see the international handmade business as a major growth driver? Niels Frederiksen: Yes, it's a good question, Niklas. I think that with the new strategy, you can say that retail expansion and nicotine pouches still play a central role. But the growth in international handmade cigars is still important to us, but we have prioritized doing well in handmade cigars in the U.S. more. So referring to the growth enablers as we originally defined them makes less sense. We now want to be more focused on stabilizing earnings in the machine-rolled cigars, smoking tobacco, growing the handmade with a focus on the U.S. and growing nicotine pouches. So we will try to articulate the degree to which we succeed with these things in a different way than referring to the growth enablers. Niklas Ekman: Very clear. And just a final question. Am I right to assume that buybacks are quite unlikely in '26. When I look at your leverage ratio and your aim to get net debt below 2.5x EBITDA, I guess the only way to get there is if you stick to dividends and not buybacks. So buybacks are unlikely in '26. Is that a right assumption? Marianne Bock: I think the short answer is yes. Operator: Now we are going take our next question, and the question comes from the line of Sebastian Grave from Nordea. Peter Grave: I apologize for those being broadly in the same line of Niklas. But I'll start off with a question on the margin here. So for the guidance of '26, you're guiding for quite steep margin declines compared to '25, even from a fairly low starting point in '25. And I know you talked about increased investments in market shares. But I mean, on the flip side, I would assume that you should see some tailwind from Mac Baren synergies. There should also be some SAP efficiencies and cost takeouts as highlighted in the Capital Markets Day. So at least in my view, it looks like underlying the margin pressure here is way more pronounced than what is -- we can see from the highlighted numbers here. So could you maybe help me understand how this works and how exactly this aligns with your articulated ambitions of protecting earnings in the short term? Marianne Bock: Yes. Yes. Let me start out, Sebastian. And first of all, thank you for asking questions, and then Niels can also elaborate. But if you look at our guidance range, both when we look at top line and also margins, it is quite wide ranges if you compare to our business. And it is a signal of uncertainty on our total markets, how they're going to develop but also uncertainties in the external world. So we are anticipating a slight decline in margins in '26 due to the reasons that I mentioned to Niklas. We are on track on the synergies for Mac Baren. You talk about SAP synergies. There will also come synergies in on the SAP implementation. But as we are still rolling out, we're focusing on that rather than executing on those synergies for now. Niels Frederiksen: Yes. I can add, Sebastian. I think when you look at Europe and machine-rolled cigars, you have the area where you have a lot of mix of product and market. The thing that is, let's say, not new but is more sustained and we can also see it continuing into 2026 is the promotion pressure applied across all sales channels in the U.S. So even though we take price increases and we continue to have a high focus on that, margins are under pressure simply to stay competitive, both on a, let's say, a brand level to regular retail and on an online level competing in the U.S. So these are some of the key dynamics that are in play and which we are obviously working very closely to improve but that is what is reflecting the margin pressure that Marianne also referred to. Peter Grave: Okay. So what I'm hearing you saying, Niels, is that you are in a difficult consumer environment in a structurally declining category with fierce competition. And hence, is there any reason to believe that invest in these currently elevated investments in market shares that they should taper off in the near term, i.e., in '27, '28? Niels Frederiksen: Yes. I think that the way to think about this is that market conditions have intensified, if I can put it like that. And our strategy aims at protecting and enhancing market shares, and that comes with a higher promotion pressure. Our job over time is to let's say, improve or lower that promotion pressure and still do well on market shares but it requires the market conditions to improve. So you can see the combination of total market declines and the -- let's call it, the fight for market share is what is putting the pressure on the market. And we have, of course, an expectation that over time, that will normalize. We've not seen promotion pressure like this and downtrading on this for some time. Peter Grave: Okay. That is fair. And my last question is going back to the ambitions of harvesting some DKK 200 million efficiency gains as you talked about in the I understand that some of these ambitions have already translated to initiatives but can you maybe help explaining how much of the DKK 200 million is already reflected in the '26 guidance and how much we should expect beyond that? Marianne Bock: Yes. So I would -- for the '26, I would think it in the level of around DKK 100 million. Peter Grave: Okay. Okay. So half of the efficiency gains... Marianne Bock: Sorry, Sebastian, then going into '27, we'll be closer to DKK 200 million but probably not fully, and we'll see the last part coming in, in '28. Operator: [Operator Instructions] And we're going to take our next question on the audio line. And it comes from the line of Damian McNeela from Deutsche Numis. Damian McNeela: The first one is on Canada and Australia because I think in the press release last night, you called out challenging conditions there and the impact that, that's had on the business. You did mention in the presentation. Can you talk a little bit about what's happening in those markets and what the outlook for this year is, please? That's my first question. Niels Frederiksen: Thank you, Damian. And if I start with Australia, for those that follow the industry closely, it's maybe no surprise that we have seen an explosion in illicit trade. So a lot of tobacco companies, including ours, have seen earnings decline by quite a bit in Australia. And this is, let's say, increased for us in the sense that we had because of regulatory changes, a relatively higher sales in 2024 than in 2025. So the net impact of Australia on our profitability is quite distinct. So Australia is very much about a total market that is going illicit. And we are not losing market share, but basically losing volume simply because the legitimate market is lower, and it's a high profit market as we debate that will be discussed. For Canada, the situation is a little different. Also here, our market share position is strong and broadly unchanged. But in Canada, there is a -- from time to time, a larger sales into the Indian districts and the government have restricted some of those licenses they issue for selling in Indian districts, and that has affected our sales in Canada in 2025. So those are the 2 main explanations around Canada and Australia and them being among our highest margin markets does affect the average margin and total costs. Damian McNeela: Yes. And just as a follow-up on that Canada point, that's likely to remain the case for the medium term, is it? Niels Frederiksen: It's been -- over the years, this has been an on and off issue. So there's nothing wrong with selling in the Indian districts but they need licenses and sometimes the government takes it away from them and then a period passes and they get reinstated. So we are still of the view that they may come back but there's no guarantees around it. Damian McNeela: Yes. And so the guidance assumes no return for those... Niels Frederiksen: Yes. Yes. Damian McNeela: Yes. Okay. And then in MRC Europe, it looks like margins have stabilized, but market share losses have continued. I was just wondering whether you could sort of call out some of the competitive dynamics in your -- a couple of the bigger markets that you operate in. Just to give us a sense of how the business is performing now that the sort of ERP system is up and running and fully implemented? Niels Frederiksen: Yes. Let me try to give a few examples. So 2 of the key markets in our strategy is France and Spain. And as we have been resolving the inventory availability issues up until the end of 2025, we are seeing that market share is responding positively into 2026 but it's also us recovering from a low level. So we are still saying we have to be patient around how fast we can regain market share into 2026. But at least in these 2 markets, you can say that we have inventory availability back to where we would like to have it. When you look at other key markets in Europe, the situation is a little different. We have markets like the U.K. where there is a higher decline rate of machine-rolled cigars, and there's also a shift from regular machine-rolled cigars where we are strong to increasingly small cigars where we are competing up against some of the larger tobacco companies. So even though those categories grow, the mix in margin become again a net negative. When you then look to the Central European markets of Benelux and Germany. Here, we are, again, still concentrating on getting customer service levels back to where they need to be. And also here, you have in certain markets, this new dynamic of consumers shifting between what we call mainstream small cigars and little cigars, which are also cigars but sold at a lower price and typically in 10-pack cigarette type packaging formats. So it's -- what I'm really saying is it's quite a complicated picture when you look across the markets. What's important to remember is we have really strong market positions in many of these places, France, Spain, Benelux, U.K., and that's what we're trying to leverage to get the market share back. Marianne Bock: And then you were also asking about the competitive situation. And here, we are seeing -- which we've also seen over the years that our competitors are reluctant to take the same level of price increases, which we think is necessary to cover both volume decline and cost increases. Damian McNeela: Okay. So that hasn't changed at all. Marianne Bock: No. Niels Frederiksen: No. Damian McNeela: No. Okay. And then just on -- I guess this is a slightly more philosophical one. You've changed guidance from EBITDA to EBIT margins. I was just wondering if there was anything behind that decision to do that. Torben Sand: Yes, maybe I can answer that. First of all, we believe also now where we have a more distinct and clear focus on return on invested capital, it goes more in line with giving a guidance on EBIT. Secondly, the EBIT level also includes what we have seen in the past few years, increased investments and therefore, depreciation in especially our retail business. And then we have also noticed from kind of studies we have made with the market that it's a more common practice to guide on the EBIT level. So that's the key reasons for us changing that. Damian McNeela: Yes. Okay. That's clear. And then perhaps if I may, one last one, just on the XQS brand. Can you just sort of give a sense of the areas of focus for growth? I mean, obviously, Sweden is pretty strong already. Do you see increased investment behind the brand through the course of '26? Niels Frederiksen: We are seeing increased investments behind the brand, Damian. If you look at the geography, we talk a lot about Sweden. We talk a lot about the U.K., which are 2 important markets for us but we also consider, let's say, Scandinavia at large, and we are opening a new subsidiary in Norway later in the year. They will, of course, also include nicotine pouches in their portfolio. Finland is also in the focus area and certain Eastern European countries. So we are focusing on the European geography to build momentum also outside of Sweden. Operator: Thank you. Dear speakers, I have no further questions. Please continue. Torben Sand: Okay. Yes. Thank you. And I was simply just going to close off the call now. Thank you for listening in. Thank you for the questions. And yes, we will meet again in May after our first quarter results. Thank you, and have a good day. Operator: This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.
Axel Lober: Good morning, everyone, here in Darmstadt at the Merck Innovation Center and from Darmstadt into the world and a warm welcome to our annual of Merck press conference. My name is Axel Lober, I'm Head of Communications of Merck, and I'm here today with our CEO, Belen Garijo; and our CFO, Helene von Roeder, and both will walk you through our results of 2025 and of course, talk about our outlook for 2026. So as always, -- both Helene and Belen will give some insights first before we dive into our Q&A session a little bit later. And with that, already, I'd like to ask to the stage, Belen Garijo. Belen, the stage is yours. Belén Garijo López: Thank you, Axel, and good morning, everyone. Thank you for taking part in our full year press conference, whether you are here in Darmstadt or following us virtually. As Axel mentioned, Helene and I will provide an overview of our business performance for 2025 as well as an outlook for '26. After this, we look forward to your questions. So let me start by summarizing 2025 in a few messages. First of all, we delivered on our financial guidance. Second, our diversified business and regions was a source of strength. And last but not least, we are positioned in major growth areas such as health and AI, and these will be strong platforms for future growth. Before we dive into the numbers, let me reflect on 2025. We recognize that the ongoing crisis, the geopolitical tensions and rather global challenges have become the new normal, our new reality. The recent developments in the Middle East once again demonstrates how quickly political uncertainties can escalate, this is obviously a very concerning situation. And as you can imagine, the safety of our employees and the safety of our partners in the region is a top priority for us right now. We are in close contact with our teams on the ground. And at this moment, we see no material impact, both at the employee level or in anything that relates to our logistics and distribution. Now let us deep dive now on 2025. Our achievements are made possible by our more than 62,000 dedicated colleagues globally and our recently expanded Executive Board team. I want to take this opportunity to extend my heartfelt gratitude to the entire Merck team for their commitment, for their creativity and for their dedication. Thank you so much, everybody. In 2025, as you know, we strengthened our Executive Board, welcoming Danny Bar-Zohar, Jean-Charles Wirth and Khadija Ben Hammada to the team. We also announced that Kai Beckmann will be my successor as the CEO of Merck. And most recently, Benjamin Hein has been appointed as Kai's successor as the CEO of Electronics. Let me now highlight some of our business sectors in 2025. First, in Life Science, we continued to invest on both capability and capacity. In 2025, we opened our new EUR 100 million facility in Blarney in Ireland. And this site produces critical filtration technologies that are used in advanced therapies and is expected to create over 200 jobs by 2028. We are also strengthening our innovation capabilities, including in the next-generation biology. This is illustrated through the strategic acquisitions that we have announced as HUB Organoids and the JSR chromatography business in Life Science. Those are excellent examples of how we are reinforcing our portfolio leadership strategy. Organoids provide earlier predictive insights into human biology and help researchers identify promising candidates faster and make better informed decisions when it comes to clinical development. And of course, this leads to faster clinical progress and hopefully, to improve outcomes for complex diseases like cancer as well as genetic disorders. You can see an organoid 3D dome as an exhibit here. Now in the health care sector, we are making strategic moves to strengthen our position in high-growth areas. In July 2025, we completed the acquisition of SpringWorks in the U.S., establishing rare diseases as a new strategic growth pillar for Merck. In October, we announced an agreement with the White House to increase access to approved IVF therapies. This will strengthen our presence in this highly attractive market while providing affordable access to innovative fertility treatments on their -- and to families on their journey to parenthood. You will also see Pergoveris Pen, one of our key IVF treatments in today's exhibit. In December, we received an approval for pimicotinib in China for treating symptomatic tenosynovial giant cell tumor, which is a rare tumor that affects joints, tendons or the bursae. This is PV's first global approval and a significant step in strengthening our leadership in rare tumors, which will stay a key growth drivers for us. Now let's look at electronics. In 2025, we seized new opportunities for our electronic business and gain benefit from the growing artificial intelligence demand. In August, we also completed the sale of Surface Solutions, allowing Electronics to become a pure-play business in semiconductor solutions. At the end of 2025, the acquisition of Unity-SC already contributed to our organic growth for the first time since we acquired the company. In December, we also inaugurated a EUR 500 million Semiconductor Solutions megasite in Taiwan. Therefore, Electronics is well positioned to meet the rising demand from artificial intelligence. It is important to note that Merck is involved in 99% -- yes, 99% of chips that are produced worldwide. We supply materials and chemical solutions for many of the critical steps in chip manufacturing process. In our exhibits today, you can see 3 different types of transistors that are essential for chip production. To give you an idea of a scale, the Apple M1 Max chip contains approximately 57 billion transistors, all packed into an area about the size of the chip of an index finger. The technologies and services that we offer to the semiconductor industry are one of Merck's key growth drivers. Let me now give you an example of how Merck delivers on future technologies because as a science and technology company, we drive innovation by bringing technologies together. A great example is our partnership with imec on organ-on-a-chip technology, which combines our expertise in biology with advanced semiconductor chips to simulate human organ functions using living cells. This allows scientists to test medications safely and effectively without using animals. Making also drug development faster and even more reliable. You can see this technology once again among our exhibits today. All these achievements demonstrate what I said at the beginning, and this is our strategy to drive growth through innovation is working. Our diversified businesses and regions is giving us significant resilience and strength. Our in-region for-region approach provides global flexibility while meeting local needs. And we are well positioned in major growth areas also for the future, and those are semiconductors, rare diseases and advanced therapies. Today, Merck stands strong with a clear focus on 3 growth drivers: Process Solutions in Life Science, rare diseases in health care and semiconductor solutions in Electronics. And this is once again a strong platform for future growth. Now let's move on to the financial performance of 2025 that Helene will further detail. We have delivered on our guidance spot on despite a tough 2025 that was marked by significant geopolitical challenges in major markets and importantly, very strong currency headwinds. Net sales were around stable at EUR 21.1 billion. And throughout the year, strong negative foreign exchange effects weighed on net sales and EBITDA pre. These effects largely resulted from the exchange rate development of several ASEAN currencies as well as the U.S. dollar. Overall, the group EBITDA pre was EUR 6.1 billion, up by 5.6% organically. Now let's look briefly at some of the highlights from Q4 of 2025. In Q4 2025, our group organic sales came in at a solid 2.6% growth. We delivered profitable growth, once again supported by all the 3 sectors with group EBITDA pre up 3.1% organically. In Life Science, a strong order intake momentum in Process Solutions fueled the growth in the business sector. The organic sales growth in healthcare was driven by strong growth in our CM&E franchise alongside contributions from Mavenclad and from Fertility. Both Mavenclad and Pergoveris achieved double-digit growth. Although Electronics reported a decline in organic sales due to headwinds from our DS&S business, our semiconductor material business achieved its strongest quarter of the year in Q4. It continued to benefit from strength in artificial intelligence and the advanced nodes markets. Based on this result, we will propose a stable dividend of EUR 2.2 during our general meeting -- Annual General Meeting in April 24. And now let's take a closer look at the numbers for the full year 2025, and it's my pleasure to hand over to Helene, who will walk you through our 2025 financial performance. Helene, welcome on the stage. Helene von Roeder: Thank you very much. And a warm welcome also from my side. So if you look at our net sales in '25, they came in around stable. And our organic sales growth was really dampened by foreign exchange effects of around 4%. Foreign exchange had a significant negative effect across all sectors, mainly driven by the U.S. dollar as well as Asian currency. Our Life Science business, if you look at it, grew organically driven by sustained demand from our Process Solutions customer that drove order momentum. Healthcare delivered solid organic performance despite market pressures. And Electronics recovered towards the end of the year, thanks to AI-driven demand in our semiconductor solutions, although full year organic sales were slightly down. EBITDA pre was EUR 6.1 billion, which actually corresponded to a margin of 28.9% of net sales. And with that, let's take a look at our business sectors, and I'm starting with Life Science. Life Science has returned to growth, delivering organic sales growth of 4%. And as mentioned earlier, this growth was driven primarily by double-digit organic growth of our Process Solutions business that saw the market normalize and move beyond the destocking phase finally this year. EBITDA pre rose 3.9% on an organic basis but due to foreign exchange effects, EBITDA pre remained around stable at EUR 2.6 billion. Now despite the challenging environment, the EBITDA pre margin remained stable at 28.8%. What we have seen is slightly higher R&D expenses as well as ramp-up costs for recent site expansions, which reflect our increased investment in innovation. And this investment is absolutely crucial as it serves as a key driver for our future growth and differentiation in the market. Moving on to Healthcare. Net sales in this sector climbed 3.7% organically. Foreign exchange effects, however, had a negative impact of 4.1%. Growth was primarily driven by our CM&E franchise, which grew a stellar 7% as well as strong contributions from our multiple sclerosis treatment, Mavenclad and Fertility treatment Pergoveris. And as Belen just mentioned, we announced an agreement with the White House in October to enhance access to approved IVF treatment from EMD Serono. Our complete fertility portfolio has been available since beginning of February 2026 on trumprx.gov and the new fertility instant savings website. And of course, in the U.S., we are working towards approval of Pergoveris, a fertility medication already available in 75 countries. All in all, EBITDA pre came in at EUR 3 billion for the business, which is up more than 11% organically. Once again, foreign exchange effects partially offset the strong organic growth. And with that, let's look at the Electronics sector. Now Electronics experienced the slight organic decline of 0.6%, which was mainly driven by our DS&S business caused by prolonged delays to large customer projects. Merck expects DS&S to stabilize in '26 and to return to growth in the medium term. But despite this temporary headwind, our semiconductor materials business remained the main growth driver for Electronics. It delivered strong high single-digit organic sales growth for the year, thanks to increased demand for high-value materials that enable AI chip systems and advanced nodes. Advanced nodes refer to the latest semiconductor manufacturing processes, allowing for smaller feature sizes and the development of the most powerful chips. EBITDA pre was 9% lower, mainly due to onetime adjustments we reported in the second quarter of '25, as you may remember. And with that, let's take a look at our guidance for '26. Before I share the '26 guidance, note that there's 3 key assumptions underlying this guidance. First, regarding portfolio changes, our forecast reflects the SpringWorks acquisitions as well as the Surface Solutions divestment. And both of those will show portfolio effects in the first half. They will contribute to organic performance in the second half. Second, product scope. This guidance assumes no sales in the U.S. of Mavenclad from March '26 onwards amid generic competition. What it also excludes is the positive effects from a potential U.S. launch of Pergoveris. And third, my favorite topic, currencies. We expect a more volatile foreign exchange environment again in '26. And we assume negative FX effects to continue. Of course, the main drivers are U.S. dollar developments, but we also observe various Asian and emerging market currencies extremely volatile. And with the evolution of currencies, please bear in mind that we expect for Q1 a disproportionate headwind coming from currencies relative to our full year FX guidance. Now with these 3 underlying assumptions in mind, we are expecting group net sales of between EUR 20 billion and EUR 21.1 billion, which is based on an organic sales development of minus 1% to 2%. Group EBITDA pre of between EUR 5.5 billion and EUR 6 billion. And with that, let me walk you through the sector breakdown for '26. Starting with Life Science, our largest business, we confirm mid-single-digit organic sales growth. And that is very much in line with our projections from our Capital Markets Day, which was held in last October. We include in our assumption the continuation of the strong performance in our Process Solutions business. And across Advanced and Discovery Solutions, we anticipate gradual improvements in biotech funding and academic research stabilization in -- as well as an evolving market environment in China. With that, moving on to Healthcare. There, a challenging year is ahead of us amid life cycle challenges for key brands, and that is in particularly Mavenclad. On the other hand, we expect growth in the remainder of the portfolio, including CM&E, Fertility and above all, the rare diseases, which will become, as already said earlier, organic in the second half of '26. For Electronics, we anticipate continued strong growth in our semiconductor materials business, while our DS&S business stabilizes going forward. And with that, I would like to hand it back for Belen for closing remarks before we take your questions. Belén Garijo López: Thank you, Helene. So let me first summarize our results and highlights on what 2025 has truly shown us. In the face of a multitude of challenges, we have delivered on our guidance. We also demonstrated our strength of our diversified strategy across businesses and regions, and we believe we are sitting a strong platform and in the right growth areas, semiconductors, artificial intelligence, rare diseases, advanced therapies, which, as I have said before, are a strong platform for growth -- for future growth. And this was not by any chance. It was the result of a strategy built to endure and to build a resilient team that consistently delivers. As many of you mentioned to me at the beginning of the meeting, today is my last conference -- press conference with Merck. When I joined Merck in 2011, the company had just begun an unprecedented period of transformation. You may remember those days, I do. Alongside major acquisitions like Sigma-Aldrich and Versum, I took on the task of transforming our Healthcare business for a new era of patient care. When I became CEO in 2021, none of us could have imagined the volatile world we would have to navigate together. A global pandemic, remember, I call myself a COVID CEO, the artificial intelligence revolution and the geopolitical fragmentation reshaping entire industries. Through it all, Merck just not only survived, but I believe we also thrived. We shifted from growth driven by acquisitions to disciplined capital-efficient growth. And today, our earnings are rising faster than our sales. Our leverage is failing and our -- every euro is working harder. The numbers tell the story. We invested over EUR 7 billion in more than 30 new and expanded sites worldwide. We deployed over EUR 4 billion in strategic acquisition and divestments, and we didn't just weather the storm, we emerged stronger. I am absolutely confident that Merck will continue this successful trajectory under Kai's leadership. And why? Because Merck is very well prepared and have very solid foundation for the next growth cycle. We have proven we can execute with discipline. We bridge the physical and the digital world. We turn science into solutions that matter for patients and customers. And we know that the future belongs to those companies that can navigate complexity and deliver results. And this is exactly what our company does and will continue to do. And I want to use this opportunity as well to say a heartfelt thank you to our teams around the world and of course, to the executive team that has been working with me in recent years. And to you, thank you for covering our story. Thank you for holding us accountable, and thank you for your trust. Overall, thank you for this journey. And with this, Helene and I are ready for your questions. Over to you, Axel. Axel Lober: Thank you, Belen. So we are now transitioning into our Q&A sessions. [Operator Instructions] So we have now 3 chair, I suggest we use them, so Helene, if you would like to join us on stage again for the Q&A session. And I see already -- and I knew it, one hand up from Sonja Wind from Bloomberg. Sonja Wind: I would be curious what you think about some analyst comments who said that Merck gave a deliberately conservative guidance because of the early Mavenclad like that it's not included from March on and also Pergoveris that it's not included in the guidance. Do you agree with that assessment? Is there more upside for earning upgrades if all goes well? And my second question would be on the deal with Trump on the drugs. Can you give a bit more color on how much -- like what is the size of that financial impact on the earnings? How much does it matter because it's only a certain patient group? Belén Garijo López: The agreement -- Sonja, the agreement with the U.S. administration, you mean? What is the impact? So I will take this. Perhaps you want to start with the guidance. Helene von Roeder: I do that. So overall, I mean, what do we guide? We guide the things that we have under our control and that we can actually see and predict properly. And in both of the things, it's like both Pergoveris, we are in discussions, we are talking, but it's unclear exactly how that will shape. I'm sure Belen will say that in a second. Mavenclad, the problem is we don't know how many generics will come when and at what point in time. And as a result, this is a guidance which reflects our current knowledge at this point in time as it should really. Belén Garijo López: So for the agreement of the U.S. administration, we have signed 2 agreements, and we believe that this is a real win-win-win. It's a win first for the patients who are going to have access to IVF at affordable prices. It's a win for the administration because with our agreement, they have been able to also start this novel approach through the -- from Rx to sell directly to patients. And it's a win for the company because we were already offering our treatments through different channels. And financially, there is not a huge impact to -- under the agreement. The second agreement is the one that is going to make us exempt of tariffs for pharmaceuticals during 3 years. So with this, you can imagine that we are extremely satisfied with the agreement, and we are actually hoping that as part of this agreement, we will also get the approval for Pergoveris in the U.S. at some point in time in 2026. Axel Lober: And the next question comes also here from the room from Patricia Weiss from Reuters. Patricia Weiss: Some questions around Mavenclad. The strong effect comes something of a surprise even though the patent loss was known. Why no sales at all in the U.S. instead of fewer? And how much of the EUR 1.2 billion in last year was in North America? And what is the higher burden this year ForEx or Mavenclad? And it's your main product in healthcare. So what does that mean for the division? And which successor candidates are ready to fill this gap? Helene von Roeder: So maybe I'll start with the Mavenclad question and then move -- Belen will take the successor candidates, et cetera. So yes, roughly 50% of the sales in Mavenclad were U.S. with 50% roughly in Europe. At this point in time, when we look at the U.S., we have a number of generics lining up. We -- they could be starting to sell tomorrow. And as a result, this is how we look at our guidance to basically say we don't exactly know when the sales are going to start and how it's going to impact our sales. I think when you look at the guidance, this is basically how we see the world going forward. So I don't think I need to add anything around that. And maybe, Belen, you want to do the successor products. Belén Garijo López: Well, I mentioned already the acquisition of SpringWorks has given us a new growth pillar. SpringWorks will contribute to organic growth, as Helene mentioned, as of the second half of 2026. But if you take the portfolio impact of the SpringWorks acquisition, it's already pretty nice and it's contributing 5% of portfolio growth already. So we are confident that SpringWorks will bring healthcare to the midterm guidance that we have communicated before progressively with 2026 being a year of transition in relation to the Mavenclad loss of exclusivity in the U.S. Axel Lober: Thank you. Patricia, does it answer all your questions? Perfect. So we don't have a question online yet. And here from the room, I see a question over there. Shan Weiyi: I'm Shan Weiyi from XInhua News Agency. And I would like to ask a question about the global investment. And due to the current rising geopolitical tensions, and you have already mentioned about the agreements with the U.S. administration, I would like to ask about whether you are considering a change in any other investments or strategic focus in different -- in any other markets like Europe or China? Belén Garijo López: Absolutely. I mean we have mentioned several times our significant investment in our region-for-region approach. And this includes all the major regions. Keep in mind that our main source of revenue already for the group is coming from Asia Pacific. And of course, this is a very important growth avenue for Merck. And we will continue to operate in this geopolitical context very much as a global company, but with a region-for-region approach. Axel Lober: Thank you. And we have a question from an online participant. So we have [indiscernible] from Handelsblatt. Unknown Attendee: Just a quick one. I'm a bit confused about the issue of U.S. tariffs. Did Merck pay tariffs on imports into the U.S. in 2025? And if so, will you demand a refund and take legal action to get it? Belén Garijo López: We are not thinking about refunds. So I mean, the situation of tariffs in the U.S., as you may know, has recently changed with the Supreme Court decision. But this is not changing or having an impact on the agreement that we have signed with the U.S. administration that I mentioned already. For 2025, you want to comment? Helene von Roeder: Yes, so as you know, pharma tariffs under the Annex II were exempt. So we didn't pay any tariffs in the pharma area. However, there were products in the Life Science area, which were not exempt. So we did pay tariffs in '25 and also small imports that we've seen in electronics, which were subject to tariffs. As Belen just said, I'm not sure how the refund regime will be on the back of the Supreme Court. So definitely nothing to be put in any guidance short term. And then let's see how exactly the world pans out now post the recent announcements, Supreme Court, et cetera. That one at the moment, it's pretty unclear how this will be. Belén Garijo López: But our agreement is basically out of this Supreme Court decision. So it holds. Axel Lober: So I'm looking into the room. Do we have further questions here from the live audience in Darmstadt. And [indiscernible]. Unknown Analyst: Just to bridge the time gap. Just a personal question for you. Belen Garijo, looking back, what's the most important task that you achieved here at Merck? And what would you have liked to see unfold, but now you like the time because you're leaving? Belén Garijo López: I think I have been privileged to work with this company for 15 years. I still remember my times in healthcare, and we need to remember that, as I mentioned, when I came in 2011, we -- we're starting an unprecedented transformation and the turnaround of healthcare. In 2017, we launched 3 products to the market, Mavenclad, Bavencio and Tepmetko. If you look at how will we refocus on pharma to be able to diversify the company, I feel very proud that, that transition that I supported that transition actively from healthcare to find this globally diversified business that I fight in 2021. I feel particularly proud of everything that we have done on culture, talent and people. And of course, the financial performance that we have delivered is stellar because if you look at the period between 2020 and 2025, our business -- revenues grew by 20%. Our earnings grew faster, and our debt has been going down. So of course, there are many other things that we could have done. But if you look at the overall picture, I feel extremely proud of what we have achieved together in the last 15 and even 5 years. Helene von Roeder: And because Belen is very humble. I mean, you're looking at a CEO who has steered the company through unprecedented volatility in a very safe way. And actually, if you look at how we're set up now for the future, especially on the back of our local-for-local strategy, immunizing us from all of these geopolitical changes, that is like a real feat. And I think we're all here at Merck super grateful for everything that Belen has done. Belén Garijo López: Thank you, Helene. Axel Lober: And we have a follow-up question, Sonja from Bloomberg. Sonja Wind: Yes. My question is about the strategic review in the CDMO business. How is that progressing? And what is your plan there? Belén Garijo López: Go ahead. Is future looking -- so I mean, we have looking at -- let me say that we are looking at all the options, and we will communicate once a decision is made. But clearly, this is what we can say today. I don't know if you want to... Helene von Roeder: No, I think it's ongoing. I mean we've announced clearly that we're looking at this. Yes, you'll get news if they're ready to be announced. Axel Lober: And [ Tania ] [indiscernible]. Unknown Analyst: Just one task, it didn't succeed. It was a deal for the Life Science business. Is this a task for your successor, Mr. Beckmann now? Or do you step away from this? Belén Garijo López: I mean you have to have -- you will hear from Kai what is the agenda. I'm confident that the focus on Life Science will stay because, I mean, Life Science is our most important business. So -- but I would really wait to hear directly from Kai because he is the one that will be in charge as of May 2026. Axel Lober: Thank you. Do we have further questions here in the room? Looking left and right. There's a bit of an overweight from questions from that side. If not, also online, we don't have any questions, maybe last call. We have a question from Focus Money from [indiscernible]. Unknown Analyst: I have one question concerning healthcare. So the last few weeks, we have seen very conflicting messages from the FDA, to say the least, especially concerning rare diseases. So first question, how have Merck's interactions with the FDA been through the last month -- months? And second question is more broadly, what does it mean for the healthcare business if somehow goalposts are moving and there are new regulations concerning how a study has to be done or how many studies have to be done? Belén Garijo López: We are very close to the regulatory agencies, not only to the FDA and particularly to the FDA because, of course, as part of that agreement that I mentioned before, we are having discussions on the Fertility franchise and another products. Overall, I see some of the news coming from the FDA as positive, if at the end, confirm that they will be a bit more open to grant approval with less studies or with a lower -- I don't think they will lower the bar anyway for the evaluation of risk benefit of any new drug. But in particular, just to be brief on our orphan drugs, we are confident that this is the environment in which we can expect not only support from the regulatory agencies, but also encouragement to continue to invest and investigate new solutions for patients given that orphan drugs and rare diseases are huge unmet medical needs. Axel Lober: Looking into the room, and we have a question from [ Ralf ] from Darmstadter Echo. Unknown Analyst: First question is the personal question to Belen Garijo. Have you been surprised becoming the next CEO of Sanofi? Then I would like to know your plans for the headquarters in Darmstadt. I think your last big investment program is over or will be over in the next time. I'm not sure what will be next in Darmstadt. And I would like to know your plans for the employees in Germany and in Darmstadt? Belén Garijo López: Look, we are highly committed to Darmstadt. We have been investing in the last decade, a significant amount of EUR 1 billion. Here, this is our hard quarter. We repeat and repeat that because this is very important to us. So we have given good signals of this and our plan for Darmstadt, you will have to further discuss for future years with my successor. I don't know if he want to comment, but is to continue to make sure that becoming a global company, we operate our company from our headquarter. As for my personal question, I always said I keep all my options open. And that's the only thing I can continue to repeat. Helene von Roeder: And maybe I take a little bit on the Darmstadt. I mean we continue to invest. You see the number of construction cranes if you walk around the site. And we're laser-focused on bringing more business into Darmstadt. And now I will do something slightly mean because we also need German politicians and German politics to finally deliver on the simplification agenda. It is very clear that we are frequently faced with the discussion around can we put things here into Germany, which we really want. Belen said, a headquarter. But then if you actually look at the delays around getting permissions at the entire red tape that we have in Germany, it is not helpful. So if you could maybe include a big plea from our side, please deliver on the simplification, that would be great. Axel Lober: Thank you. Looking online, we don't have a question online into the room, further follow-up questions here from the audience. Maybe one last check. See a lot of smiles, but no raised hands, also not online. So I would say this concludes our press conference this year. A big thank you to all of you joining us here in Darmstadt today. Also a big thank you to everyone online for joining us virtually. I'm looking forward to seeing all of you during our Annual General Meeting on April 24, live and in color from Frankfurt from Jahrhunderthalle and of course, to our Q1 webcast on May 13, online as always. So please take care. See you soon and all the best. Thank you. Belén Garijo López: Thank you.
Operator: Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the DHL Group conference call. Please note that this call will be recorded. You can find the privacy notice on dhl.com. [Operator Instructions] I would now like to turn the conference call over to Martin Ziegenbalg, Head of Investor Relations. Please go ahead. Martin Ziegenbalg: Thank you, and a very good morning from my end to everyone participating in this call. Thank you for your interest. As the title says, I have with me here our group CEO, Tobias Meyer; and our Group CFO, Melanie Kreis. We will start with the presentation, starting by Tobias and following with the Q&A. And with that, over to you, Tobias. Tobias Meyer: Thank you, Martin. Good morning, everybody. Thank you for your interest in DHL. 2025 turned out to be a bit different from the macro assumptions than many had told us. But despite that, we delivered on guidance, particularly through effective cost and yield management in all of our divisions. So that for the full year, EBIT increased to EUR 6.2 billion, and we have a 8% year-on-year growth in the earnings per share. We continue to generate good cash flow. You will have seen that cash flow, free cash flow, net M&A increased to EUR 3.2 billion and execute our policies -- our finance policy to provide good shareholder returns. As it relates to the outlook, I think 2025 really made us in many aspects, a better company and we have a more solid base to tackle the opportunities that our industry offers that's what we will stay focused on the 1 side, resilience in a volatile world, and we expect 2026 to remain volatile, but execute on our growth initiatives. With that, on the next page, you see some key numbers that you will already have absorbed on EBIT ROIC up 20 basis points, free cash flow I mentioned. We also delivered on the nonfinancial growth that we set ourselves with employee engagement of 82, realized decarbonization factor of 2.1 million tonnes. That's slightly above our target as well. And the cybersecurity rating at really top of the range, top of our peer group with 780. We do remain committed to attractive shareholder returns on Page 4 of the presentation, you see our historical dividend increase. We thought that after waiting through the period of post-COVID normalization, it's now the right time to get back into a gradual increase of the dividend and stay on top of the corridor that we set ourselves in terms of the payout ratio. We also stay committed to our share buyback programs. We have EUR 1.5 billion of remaining to be spent. So also continuity on that side. As it relates to the development of the operating environment, Page 5 gets an indication what we dealt with in the year of 2025, the example of DHL Express, the weight per day development on the destination U.S. lanes stands at minus 26% for the entire year. You obviously see the significant drop after the changes in U.S. tariff policy, the so-called Liberation Day and the impact that, that had. But it's also important to note that the rest of the world has been very resilient. So we do see growth out of several origins in Asia. We are very engaged to also increase our competitiveness on intra-European trade. So that worked out well. But it is a world that is quite heterogeneous as it relates to growth trends and the resulting actions we have to take as it relates to capacity management. We do believe that Strategy 2030 on the next page is still a very fitting answer to the challenges that the world poses to us. Our top line growth accelerators remain extremely relevant from an industry focus, but also from a geographical focus, our geo tailwind 20 set of countries are really those where things are happening in a positive sense. So we remain very committed to that program, but also the profitability accelerators obviously had to be a big focus in 2025 as it relates to the adjustment of capacity, but also our structurally orientated Fit for Growth program really delivered very, very well. We're very happy with that. And also the group set up the alignment of the legal structure is very well underway. To deep dive a little bit into some of those profitability accelerators on the following Page 7, you see a Fit for Growth execution. We were faster, also needed to be faster on some measures, aviation airfreight, particularly significant structural reset in Europe and the U.S. through network redesigns, air to truck, but also structural levers in the optimization of our fleet and aviation setup, which partners we operate with that all made us more efficient. The fleet renewal, obviously, being a part that many of you are familiar with. On the ground side, ground operations, warehouse, sorting and handling Similarly, and more broadly as it relates to the divisional relevance, we executed that very well. P&P in the first half, significant adjustments also, given the flexibility of the new postal law that were executed very swiftly and I think overall very well. And there's the longer-term trend of standardization, automation and robotics, which remains very relevant for us across the divisions and will deliver additional benefits. Support functions, a lot and a deep dive on that a little bit on AI, the digitalization we have been driving for many years provides an excellent basis for that. We continue to be frugal as it relates to discretionary spend and especially overhead. We do this in a very continuous way to really create lasting sustainable impact for us. This is not a short-term exercise. We want to create a better company. And I think that's what we did in 2025. Again, this will continue into this year with some additional benefits to be seen. As it relates to the deployment of technology, AI is also very relevant for us. I think we are very excited by this technology, but we don't get carried away by that excitement, but have I think a very clear focus on where we deploy own resources where we have in-house engineering, these are particularly areas that are bespoke to us or have high opportunity for deeper integration of AI functionality. So we're working on agentic multimodal models. I think the entire industry is excited about the deployment in customs. That is definitely the case for us as well. Customer service as well. What's important to us is efficiency is great. But the opportunity is way beyond that, that we get in customs better compliance, better documentation, a better value proposition for our customers in recruiting similarly great efficiency gains by helping the process, but what we're really looking forward to is hiring more fitting people for the respective roles. In vehicle maintenance and repair, this is an area where we will have double-digit million impact in Germany alone by just having AI know the condition of the vehicle, know what we can bundle when we do repairs with maintenance and execute that in a much more stringent way with the repair shops. So these are those areas which are not so often talked about but really have a significant impact. What is a big program for us into 2026 is the delivery buddy to bring AI onto the hand scanner of the courier and thereby provide better guidance about specific locations, share the experience that we've collectively built up in the organization about the specifics of a premise of a location of a city, that's something that will make our service not only more efficient, but also truly better. And that's the part where we deploy own resources to really deeply reengineer the process and integrate AI into our platform. And number two, we are more opportunistic deploying what is offered to us. We have great partners. Not all partners in this space deliver great value, but we found some, and that's developing very well. And then we also spend a lot of time on people and culture to ensure we have great engineers. We have great managers that know how to make use of this technology, and we have a workforce that is ready to adopt it. We want to have our own value-add in this space. This is why we're ramping up resources as it relates to AI practitioners on use case implementation, as it relates to trained experts in our IT services, shared service functions with also deep technical expertise that can help us to make this part of our journey. So that's what we're looking for to integrate AI deeply in an industrial scale into our processes. And this is why we're looking forward really to a decade of AI-driven improvements across multiple processes where we are very focused from a group perspective on some projects that are of broader relevance for our divisions across. In terms of top line accelerators on the following page or update on the programs that most of you will be familiar with, e-commerce, our focus areas remain the same, which means for Express the top end of the spectrum in terms of value, in terms of urgency, whereas P&P and e-com play in the standard parcel space, which is scale-driven. We had changes in the year of 2025. In our European footprint, we continue to drive that. We want to be part of the consolidation play in Europe and offer a really great pan-European service where there are few that spend, that entire spectrum. Geographic tailwinds, I talked about, it's 20% of group revenue and there are some countries where we really want to further broaden our footprint. Life science & Healthcare, great progress in terms of the setup, you will see significant investments in equipment and infrastructure. This will take time to execute. This is an industry that is rather conservative due to quality reasons but this also makes this a sticky business once it's converted. So that's something that we remain very excited about, but also now it takes time to build this unique offering that we are shooting for. Data center and new energy, more opportunistic in the sense that we have a lot of those capabilities that are needed, significant growth with hyperscalers in 2025 and also with new energy particularly in those specific areas like battery transportation, also battery storage solutions, which have high requirements when it comes to safety and compliance. And those are areas where we particularly grew also in wind energy, which is more in industrial projects type of engagement. That's an area that developed very, very positively in 2025. This is also why we are confident despite the geopolitical turmoil, that 2026 will be a good year for us. On Page 10, you see the guidance for this year. We are shooting for EBIT for the group in excess of EUR 6.2 billion. You see the split up for DHL P&P and group functions, free cash flow in excess and around the EUR 3 billion mark with gross CapEx between 3% and 3.3% and the tax rate as per usual, around 30% and also our midterm outlook unchanged. So overall, a year behind us that surely had its volatility and changes in the macro environment, I think we can say that we adjusted well to that and enter 2026 with a platform and business base that gives us confidence to execute along our strategic priorities. And with that, over to Melanie for some more details on the divisional performance and the financials. Melanie Kreis: Thank you very much Tobias, and good morning, and a very warm welcome to all of you dialing in also from my side. I will start my part with a quick recap of the last quarter, Q4 2025, where we have seen the expected seasonal acceleration. When you look at our biggest EBIT contributing division, DHL Express, we have now seen the sixth consecutive quarter of EBIT growth adjusted for nonrecurring items. So that's a very encouraging development. And for me, that shows the effectiveness of the yield, cost and capacity measures executed by the DHL Express team. Post & Parcel Germany and DHL e-commerce have also achieved another successful peak season locking in the highest operating contribution of the year in the fourth quarter. So for these three network divisions, the strong Q4 performance, hence, reflects the usual seasonal volume increases, but also continued cost focus and our targeted peak season surcharge mechanisms. For DHL Forwarding Freight, the market circumstances, especially in ocean freight, are well known. Beyond that, we clearly see independent of cyclical swings, further structural improvement potential for this division with a similar scope for accelerated digitalization as Oscar De Bok has successfully implemented at DHL supply chain. Speaking of which, DHL Supply Chain has delivered top and bottom line growth in the quarter and for the full year, showing the intact structural tailwinds in the business, both from the demand side with another year of strong new contract signings as well as from automation and digitalization benefits on the cost side. This has also contributed to the 7% operating EBIT increase for the full year '25, as shown on Page 12. As you know, and as we have disclosed transparently, we had a series of nonrecurring items this year, mainly cost of change related to our successful Fit for Growth program, but also net effects from M&A and some other topics. Stripping these items out, we managed to increase group operating profit by 7.1% year-over-year to EUR 6.2 billion. And that has also set the minimum level of EBIT we want to achieve in 2026 as Tobias has just shown on our guidance page. 2025 EBIT was, however, up also year-on-year on a reported basis at 3.7%, as you can see on Page 13. The operating profit increase, together with the benefits of our ongoing share buyback program has driven an 8% increase in reported earnings per share for the full year 2025. So that is only slightly below our 10-year CAGR of 9% for earnings per share growth. Group ROIC increased 20 basis points year-over-year in '25 also reflecting the ongoing investments in our growth initiatives that Tobias explained earlier. And this is also nicely visible in our cash flow summary on Page 14. We again spent close to EUR 3 billion on net CapEx and close to EUR 1 million on net M&A as we invest in those topics that will drive our accelerated growth going forward. At the same time, strong CapEx discipline on any capacity-related investments is one of the main drivers for our once again strong cash generation. Free cash flow, excluding M&A, came in ahead of target at EUR 3.2 billion and has allowed us to also return significant amount of capital back to our shareholders in the form of our regular dividend and our share buyback. Also here, the factual 10-year view speaks for itself, as you see that we achieved a structural step-up in our cash flow conversion. And I would really like to reiterate that point. Quite honestly, also because we still see a lot of valuation models looking back at 10 or even 12-year average valuation multiples. So you see on the left side of Page 15, our 10-year step-up on EBIT and free cash flow. What I think is, however, at least as important as the absolute increase in these numbers, is the structural transformation that our group has accomplished in the last decade. For me, that means that DHL shareholders do not only invest in a company with higher EBIT margin and cash flow, our shareholders are owners of a structurally improved company. In terms of business mix, earnings and cash flow resilience and what is not to be underestimated, and agile, adaptable and international culture that has allowed us to successfully navigate through all external volatility over the last years. Before I finish, a quick reminder regarding the process on One of the last technical steps of this historic group transformation. Our planned alignment of legal structures is progressing fully on schedule subject to the AGM vote on May 5th, we will, hence, this year, also officially renamed the listed group entity into DHL AG, the P&P Germany operations, legally becoming the Deutsche Post AG subsidiary similar to the status of the other divisions. So all on track here and in line with our plans and intentions as previously explained. And that already brings me to three quick conclusions from my side on Page 17. We expect further profit growth in 2026, while the dynamic circumstances required continued close steering of costs, yield and CapEx. This will allow us to keep a good balance between attractive shareholder returns and continued targeted investments into growth. Because in the end, you can't shrink to greatness. We are, therefore, fully focused on leveraging growth opportunities in those countries, trade lines and sectors where our logistics expertise will allow us to drive sustainable, accelerated growth as outlined in our Strategy 2030. And with that, we are looking forward to your questions. Operator: [Operator Instructions] We'll take our first question from Alexia Dogani with JPMorgan. Alexia Dogani: I'll ask three if that's okay. Just firstly, on Express, Clearly, your efforts this year have been focused on improving cost competitiveness to regain market share from airfreight, can you give us a little bit of progress in which verticals you're already managing to do that? Or is this something that we have to look forward to in 2026. Secondly, on your Fit for Growth achievements this year. I believe the structural cost out was around EUR 600 million. That's ahead of what had been indicated before of basically slightly ahead the cost of change charges. Can you discuss what went better and you were able to achieve these savings earlier? And then thirdly, could you give us some comments on the current situation in the Middle East, perhaps kind of the first derivative effects of the market being closed, but also potentially if the duration of that market being closed for longer what are the implications for airfreight capacity globally translation to Express and any kind of other relevant comments there? Tobias Meyer: Yes. Thank you, Alexia, for those three questions. On the first one, indeed, steps to cost competitiveness in Express are very favorable. We would look at the task at hand, so to say, differently. It's not about regaining from airfreight. The way and what we're trying to do is more if you look at the 40-year trend of the integrated industry, the integrated industry has taken share from the general air freight market. We started as document companies then went into different verticals over time, kind of an S-curve transformation, not entirely dissimilar from what happened in e-commerce. And since COVID, the integrated industry is not back on that trend. And that's what we are trying to do with smart industrial growth to focus particularly on B2B verticals to hone the business model of Express with additional features, but also the attention to industry verticals. That has now been initiated and that should lead over the quarters to a gradual increase in the weight per shipment. And some of those elements will definitely take effect this year. Some will take later as it relates to cold chain transport, for instance, in Express. This is something that is yet to come from its effects. As it relates to Fit for Growth, absolutely, we are ahead of the original plan, particularly in Europe for Express, but also for P&P, those adjustments went quicker than we had originally maybe slightly conservatively foreseen. So that's particularly the area also in the United States, the adjustments needed were executed very swiftly. And also on the technology side, some of the programs that we have been driving went indeed very well from an executional point of view. So it's fully in swing especially as it relates to those more tech-dependent programs. That's what's going to support the progress in 2026 and provide us with a very healthy base also for further growth, which obviously is what we intend to do in Express and beyond in 2026 against a still volatile environment, which then also brings me to your third question on the Middle East. Now how those things develop is not easy to see. Definitely, the current situation is heavily constraining air activity in some countries, but also obviously, ocean-going vessels through the Strait of Hormuz are constrained. What happens now operationally is we had some partial opening of airspace and airports to move planes out obviously, Saudi is largely open or open we have, and that helps us a lot on the Express side a very well-established road network in the Middle East, which enables us to bring cargo to those airports that are open. That's very vital at presence to keep the region connected. And I would expect that to continue and further expand if constraints in some countries like Bahrain, Kuwait and UAE, those constraints would remain for longer. On the Ocean side, that will have consequences especially if cargo is offloaded to enable vessels to move on loops that do not include the ports of the Gulf region. Some carriers have started such offload processes. This creates some chaos that needs to be dealt with. As you know, that's also sometimes an opportunity because it creates urgencies for certain cargoes, but it's too early to see how this unfolds. If the constraints would stay longer, there's definitely a lot of work to be done. Alexia Dogani: And when you say offloaded cargo, I mean that cargo, how will it find its way to the region? Is it just a move to potentially air or road to clear the inventory? Tobias Meyer: Well, that might take -- might require different cargo to replace that because those offloads would then happen in a port that is typically not in the region or might be in the region and then you could obviously use road transport offloads more on the Asian side on the Indian subcontinent would then require ultimately to load it on a vessel that has a string into the Gulf, but that would mean significant delays. So that's what we start to see now. I think it's really too early to tell whether that is a phenomenon that takes a broader hold so far, people have more taken a wait-and-see mode, but that can last for another couple of days, not a couple of more weeks. Operator: Our next question comes from Muneeba Kayani with Bank of America. Muneeba Kayani: Melanie and Tobias. So first question around the moving parts on the guidance, please. So the Fit for Growth had kind of over EUR 600 million benefit last year. So is it right to think that your guidance assumes kind of a EUR 400 million benefit from Fit for Growth in 2026. And then related to that, what have you assumed in terms of your cost of change assumption in '26 compared to the EUR 245 million that you had last year on reported EBIT. So that's the first question. And then Secondly, if I could follow up in terms of the Middle East, specifically, we've heard earlier this week that 18% of global capacity in air cargo was impacted. We've heard that come down to something like 8% yesterday. Would you agree with that in terms of market impact. And then specifically for DHL, is your capacity impacted like do you have planes in the Middle East? And how do you see the fuel spike impact on the Express business, please? Melanie Kreis: Yes. Thank you very much. Muneeba, let me start with the guidance question and the moving parts there. Yes, I mean, of course, there are numerous external factors, the whole macro situation. There are some known topics like the fact that in P&P, we have a year without a price increase. So many moving parts. With regard to the Fit for Growth questions, yes, I can follow your math that if we say we finish kind of like the EUR 600 million in '25, there should be something like EUR 400 million left for '26. I think we also have to be conscious of the fact that particularly in the first half of the year, we will still see the annualization of some of the headwinds from '25 on the currency side, the tariffs, the de minimis abolishment. So like in '25, we will also need Fit for Growth benefits to help us compensate for those. With regard to cost of change, I mean, if we come up with new good ideas for further improvements and there is some cost of change attached to it. We will, of course, do it. However, I would expect that to be an order of magnitude which will not warrant a separate flagging the way we did it in '25. So more of a return to this being included in our normal reported figures. Tobias Meyer: Yes. And on the Middle East, I've seen those numbers as well. We will not engage in that discussion because it changes day by day, hour by hour. We had plans in places that were closed. That's been a discussion whether you can move the plane out empty or whether that location reopens. Again, that's very dynamic. It's clearly not yet over. So some impact is going to be there. I think what's more relevant is the question of spillover from ocean freight and what happens on the ocean freight side because some of those countries are highly dependent on essentials. The region is not self-sufficient on food, for instance. So that is something that will be significant if the ocean freight situation does not change over the coming days. Air cargo operations, as I said, for us, we have flexibility. We have a broad footprint in the region. And what happens in each location can change hour by hour. Melanie Kreis: Yes. And I think on the fuel surcharge, as you asked for that specifically. I mean, we have a well-established mechanism. So there are then some time elements in a period of rising fuel price, but by and large, we have well-established mechanisms in place to deal with that. Operator: Next question comes from Jacob Lacks with Wolfe Research. Jacob Lacks: So your slides show U.S. TDI import trends remained weak through December. Has there been any improvement since the start of the year, just given the ruling against IEEPA tariffs and some better readings in the macro indicators? Or has the step down in tariff rates not really been enough to incentivize new demand? And then a follow-up. One of your competitors last month discussed the goal to mix more towards cross-border freight in Europe over the next few years. Have you seen any change in the competitive parcel environment in the European TDI market? Melanie Kreis: Okay. I think on the impact of the Supreme Court ruling, that's too early to see a real impact. I think everybody is now working through the implications. So in terms of what we saw going into the year was more of a continuation of what we had already seen in the fourth quarter. With regard to the European competitive situation, we haven't seen a change on the ground. So we also saw these announcements that in terms of material impact on our daily business, we haven't seen it. Tobias Meyer: And overall, I think the -- particularly in the B2B market, it's a very healthy setup in Europe. As Melanie said, no significant changes. I think we have an excellent offering. If you look also at our presence in secondary markets, the connections via Leipzig are unmatched by any competitor. So the service aspect of that, I think, gives us some confidence on the TDI side and DDI overall, as it has in recent years, outgrown. So the cross-border element has outgrown domestic markets. That's the case in B2B, but also in B2C. And we see those segments very positively also into this year. Operator: Next question comes from Marco Limite with Barclays. Marco Limite: Hello. Hello, can you hear me? Tobias Meyer: Yes. Marco Limite: Okay. I have a follow-up question on Iran. So actually a few questions from Iran. First of all, whether you can disclose what percentage of your group revenues or EBIT is directly exposed to the Middle East? Is the first question. Second question, when we think about disruption, clearly, volumes into the Middle East are going to be disrupted and are going to change. To what extent, the Middle East tensions also affect other trade lanes, for example, I don't know, Europe to China, for instance. Is there any, let's say, transit and offloading reloading of cargo in these regions and so on. So does that affect also Europe to other Asian countries operations. And then when we think, I mean, thinking about the potential disruption coming from the Middle East, again, how do you -- what's your sense about the potential positives coming from better pricing versus headwinds coming from demand? Do you think you are going to be more exposed to positive from disruption or to the negative coming from demand? And just a final question, very quick on cost savings. Clearly, EUR 600 million is above the previous guidance. Just curious whether the step-up versus the previous guidance as to be, let's say, attributed only to Q4? Or you have been running on a higher rate since Q2? And what is the run rate in Q4 in the context of the EUR 1 billion? Tobias Meyer: Yes. Thank you for your questions. So our presence in the Middle East varies by division. We have relative to the GDP size of the region, it's slightly higher in Express. It's lower in supply chain to name the two extremes. As strategic as these conflicts are and as regrettable, given what we do and the segments we are in, we typically benefit from this turmoil than we have exposure to the downside. I think this is just a learning from past situations. The main reason, and I think you already heard that in the answering of previous questions, is that those disruptions spill into the airfreight from ocean or land transport surface transport into Air and Express. And people tend to rely on providers like us and with our significant footprint in the region, we are often the go-to party. That has been the case with the recent floodings in Morocco, which have driven volume massively. Now you're not going to see that in your numbers because Morocco overall is too small. But it's just to make the point around the -- in principle effect this has on supply chains and the need for our services. For ocean, especially the tying up of vessels is reducing supply. There has been some concerns about supply-demand balance with the Red Sea, the Suez route reopen. I think that's off now or at least further shift it into the future that such vessel routings would be accessible for the great majority of ocean liners. So that it has an impact on Europe to China as it relates to lead times and the competitiveness of ocean freight lead terms or the airfreight lead times, but also on the supply-demand balance in the container, the cellular vessel space. So far on the Middle East, any follow-up questions on this are welcome. On our Fit-For-Growth program. Indeed, we have been executing this very well across the year of 2025. Now the measurement of those things is not on a daily basis for all of those initiatives. So it is now with the year-end that we have taken stock and we see that we are significantly ahead of what we had originally planned, and we see this again very positively. It's speed, but it's also the impact that we have in some areas is ahead of what we originally thought. But that has been an outcome of the work throughout the year of 2025. Melanie Kreis: And we had already flagged in Q3 in November that we were ahead of schedule. But of course, also the importance, given the importance of Q4 and the peak season. We then really saw that those structural cost improvements also held during the peak season. And that, of course, then also drove up the overall performance towards the end of the year. Martin Ziegenbalg: Okay, Marco? Marco Limite: And yes, just on the run rate of cost savings because I think there is a bit of confusion this morning out there whether the EUR 600 million is the run rate versus the EUR 1 billion or the EUR 600 million is the achieved cost savings and therefore, that's in the bridge to '26, we just need -- we need to plug EUR 400 million more. So if you could clarify whether EUR 600 million is the run rate in Q4 or the achieved number in so far. Melanie Kreis: Yes. So the EUR 600 million is what we achieved gross in 2025, excluding the cost of change. And so in a very simple calculation that should leave around 400 to come now for '26. Tobias Meyer: And obviously, if it's a little bit more, we won't stop the measures just because we said it's EUR 1 billion. Operator: [Operator Instructions] We'll take our next question from Cedar Ekblom with Morgan Stanley. Cedar Ekblom: I've just got a question on if you could reflect on the volume performance in the Express business, particularly in the context of volume growth in broader airfreight cargo, I understand the points around sort of weight per shipment rather than just shipment count, but this sort of persistent trend of lower express trends or flat at best and air freight -- general air freight cargo growing continues to sort of play out quarter-over-quarter. And I'd just like to sort of hear how you are perceiving the relative trends in those two categories and how we should think about that over '26 and possibly a bit further out. I think sort of the debate around is Express structurally impaired relative to history, remains quite alive in the market. And with the volume positions that we've had, I wonder if you've got a view on how to sort of debate that question or respond to that question. Thank you. Tobias Meyer: Yes. So Cedar, I think a fair question given the market developments that you characterized, I do not think that DHL Express has a share versus our traditional competitors in the Express space. If you look historically, these waves a little bit between Air Freight and Express have happened before. It's particularly now kind of post COVID, the e-commerce normalization that has impacted us, but also the broader industry, which is why the broader integrated industry, I think is the key driver of why we have lost a share or a point of market share also in the broader market. And it is absolutely our objective to get back on to a track to outgrow the broader airfreight market as we have done as an industry for the last 40 years. We target that through specific verticals, but also a broader and engagement more on the B2B side, that has not shown effects yet in the fourth quarter. So that's something which we would only see now in 2026 as that program gets implemented. We had good discussions with the management team with the broader management team around that. I think DHL Express is very in its usual way, a very structured set up to address that, but it will only unfold as we go through the year. In some of the verticals, and we said that also with Strategy 2030, and its execution, some of those verticals, particularly Life Science and Health Care and Cold Chain Express will take some more time until that infrastructure and equipment is ready. So that will not happen this year. This is more for the years to come. Melanie Kreis: And maybe just to add from my side, we have this on Page 5 in the deck, we have talked about it before, where I mean you can see that actually weight per day rest of world was already just flat in 2025. And obviously, our clear focus is to now get rate per day back into growth territory. And we think that weight per day will be the more relevant KPI to look at for Express. A, which also drives a lot of the economics of the division in terms of associated revenue per shipment in terms of weight load factor on the aviation side and so on. But it will then also give a good comparison to the relative performance vis-a-vis the air freight market, and that is what we will focus on in '26. Martin Ziegenbalg: Thank you, Cedar, and we've got another caller waiting. Operator: Our next question comes from Alex Irving with Bernstein. Alexander Irving: Two for me, please. First of all, you've heard from some of your peers about how they're deploying AI in their business and why they in particular, stand to benefit. Own platforms, data, quality and so on. You spoke earlier on about some of your aims during the presentation, but what factors give you the right to win from AI? And what are the main actions you're currently taking here, what's the impact you expect those to have gross and net after any sharing gains with customers. Second question, you're nearing into the simplification project and subject to AGM approval, the carve down of P&P. How committed are you to the ongoing ownership of all 5 divisions? What conditions must these divisions satisfy to remain owned by DHL. Thank you. Tobias Meyer: Yes. Thank you for these questions. Starting with AI, I think for us, what's important we are not in the -- don't have the approach to think that putting a AI sauce source over everything creates great benefit. This is a task that ultimately is technical. This is a major transformation as the induction of the PC into our business world and will have a similar size, if not larger, benefits. Now why we think we have the right to win and we'll have a net benefit. This is a technology where scale will matter to a greater extent. And we have some applications I mentioned what we intend to do and are implementing on the hand scanners, where also across the divisions, we can deploy similar technology and reap those benefits. So we see AI as a driver of scale benefit, increasing scale benefits, but also it will benefit companies more that have a well set up, well structured IT landscape, and we very much believe we have that, especially in Express and Global Forwarding, and in P&P, but also in supply chain, where Oscar in his previous role, has driven a standardization of warehouse management systems and so forth for many years. We have a great track record as it relates to use of data, become a much more data-driven company. So that is a foundation that we can now build on. Now we know that others also claim that. So here, I think as often, it's in the execution that will prove who can really make benefits from that. Again, I think we know very well what we are doing. And we are striving to use this technology at industrial scale for efficiency, but also effectiveness reasons. And that's what we're very much focused on. This will take time to implement for companies. This is always harder than for consumers to adapt to new technology. But we are absolutely sure that we will stand to benefit. As it relates to the commitment to owning the different divisions, we, I think, have addressed this multiple times across the portfolio. We do think that the portfolio does make sense, but we also have a clear success criteria for the different divisions that we operate in. You asked specifically for P&P, where, again, we think we are the right owner for that business. We need to have the right regulatory conditions that enable us to self-fund the division to self-fund the transformation from a letter centric to a parcel-centric company where we have progressed much, much further than many others with our great offering on the parcel side and significant market share that we do have in Germany. So that success factor for us is currently clearly fulfilled. And in the other divisions, we obviously are closely monitoring our performance versus peers. In some areas, we are top of the list. And in other areas, we have more work to do. But with a clear plan to close those -- that gap. So we are committed to the portfolio that we currently own. Martin Ziegenbalg: Okay. Very good. Thank you, Alex. I think we've got a follow-up from Alexia. Operator: Yes. Our next question comes from Alexia Dogani with JPMorgan. Alexia Dogani: Some follow-ups. I actually have again 3 -- 2 very quick ones. Just firstly on Express, can you let us know when you would consider putting emergency surcharge or a war disruption surcharge, if that will be part of the consideration. Then secondly, would you give us some kind of short comments about Q1 kind of notwithstanding the normal seasonality of the business, should we kind of be looking out for anything specific? And then kind of my real follow-up question is Melanie, you discussed a little bit about kind of historic performance, valuation. And obviously, growth is very important for kind of the sector that you are in, I guess, would you consider any other means to accelerate growth? I mean we've discussed your M&A strategy in the past, which is much more kind of bolt-on. Would you consider something a little bit more transformation that you could basically put more capital at risk? Or do you see at the moment kind of the return of cash and kind of levering up the balance sheet slightly as the most prudent kind of capital allocation near term? Tobias Meyer: So I'll start with the first two, then Melanie being specifically addressable comment on the third question. So on the Express, we do implement emergency surcharges depending on the local situation, that is typically country specific, and that's what's also happening in this context. We particularly use that to pass on higher cost, either through insurance or other. So we will handle that also in this, and we're in the process of doing so in this situation that is unfolding in the Middle East. Overall, I think and I tried to express that I think we exited 2025 with really good achievements and at a good momentum. I think also, personally, I feel about 2026 quite positive, knowing that the turmoil is often something that stands to benefit us. It's not always to describe why that is, but that has been historically the case. And that's why even though the macro situation, we are not so optimistic on that the per se, the macro environment is going to be very favorable. I'm quite optimistic about 2026 based on the achievements on the cost side, on the structural improvements, but also what the current environment means for our industry and specifically our portfolio of businesses, and that's how with the mindset that we enter and are engaged here in the year 2026. Melanie Kreis: And to your third question, yes, as I showed in the presentation, we have significantly improved profitability and cash generation and also the composition of where earnings are coming from, where we now want to double down on is how to accelerate also growth. And of course, profitable growth. The focus will remain on organic growth opportunities. We are convinced that there are ample opportunities out there also in the current environment. We are going to double down on those. And we will continue using M&A more as an add-on supplement. So no fundamental change in strategy. Martin Ziegenbalg: Thanks, Alexia. And we have Andy Chu joining the call. Andy Chu: Just one question for me, please. I guess the market always worries for DHL particular around any sort of crisis, and we seem to be lurching from one crisis to another. But I guess, historically, you've shown some really great flexibility, resilience, probably most recently COVID being the best example. So could you just give us a favor maybe just using Express -- could you just give an example, maybe using Express as to how quickly you can make adjustments to your network, just examples of flexibility because it just strikes me that this business is -- has a proven track record of tremendous resilience. Tobias Meyer: Yes, Andy, thank you for that question. Which is more a comment that I would absolutely agree to and especially in the Middle East, I mean, we have a very strong presence there. We have colleagues there that were already in the region during the second Gulf war, where we also still already had a significant presence due to historical reasons. We even had a monopoly in Saudi for some time. Obviously, that's not the case anymore. But our presence there is very strong. Express with its setup also of different airlines has flexibility that others do not have. Now location by location that requires work, traffic rights, aircraft change in registry or this doesn't happen by itself. But over the decades, I think we have built that muscle that capability and I think are somewhat unique in our industry in that setup and capability set. And that's why, indeed, I would echo the confidence that you also expressed in your comment, the confidence that as tragic as this military conflict is and the crisis that it triggers it's not bad historically for our setup and does not harm in any way, our confidence about 2026. Melanie Kreis: Maybe just two quick points to add from my side. I think one thing which is remarkable, our express aviation setup is that we have now shown over the last years, the capability that we can flex up quite rapidly if that is required globally on specific trade lanes that we can likewise also flex down key contributor, of course, also to the fact that we had 6 consecutive quarters of EBIT growth in Express despite the top line headwind. And the complementary element is also going back to Alexia's question, we have also shown that on the pricing side, we are able to smartly price given the circumstances with elevated risk surcharges if and where needed. Martin Ziegenbalg: Andy, thanks for your call. We just passed the 60-minute mark, but we still got time for a follow-up question by Marco. Operator: Marco, please unmute your line. Melanie Kreis: Marco, we can't hear you. Martin Ziegenbalg: Still working on it. Operator: Marco, please go ahead. Marco Limite: I think you can hear me now. Just One more question, which is a bit more longer term. So if we look at your overall OpEx line of EUR 75 billion. I mean clearly, that's fairly big one. And my question to you is whether you see further opportunities in terms of cost savings on top of the EUR 1 billion program you are running at the moment. And in the context of that whether you think that there are cost synergies potential from maybe in the future, better integrating divisions and therefore, achieving extrapolating cost synergies across divisions as one of your big competitor is doing in the U.S. Tobias Meyer: Yes. So thank you for this question, which is obviously not easy to answer across all the spectrum of what we do. I would definitely say that our drive for efficiency will continue. That is basic frugality. We're a logistics company, we're not a bank, and we should look like a logistics company, we should not look like a bank. But more importantly, the obsession with efficiency in processes and having great processes with an adequate amount of technology that in supply chain, supply chain is going to be the first business that has a significant impact with robotics. We are already leading in the deployment of robots. It will change the business. It will add a different revenue stream robotics as a service to what we do, similar to what we did with Real Estate Solutions, which is a great contributor of the successful path that we have taken with supply chain. So those elements are very important next to AI, not to forget that the physical part of AI being manifested in robotics is also very, very relevant for us. In Express, I think we're on a great path to make the best service in the industry more affordable, and that will give us broader access to certain markets and companies and is underpinning our drive for industrial growth. Also, in Europe with the expansion of our road network and that related offering across the continent, that's a driver of growth as well. As it relates to divisional synergies, yes, we will have those on the technology side. We'll be very careful with operational integration that harms our value proposition. Express has a different value proposition than the standard parcel business, and we will not ever damage that value proposition. The spreadsheet might tell you something different. But experience tells us that, that setup that we have, particularly with Express is working very well for us, is working very well for our customers. Collaboration is what's going to happen, but this very cost and efficiency minded synergy, we will remain very careful because we see with our own experience, but also what happens across the industry that the detrimental effects on value proposition are often outweighing the benefits. So on the technology side, yes, on the collaboration side, absolutely, yes, you also see this in Europe between e-commerce, P&P, and also increasing the e-commerce and Express. We often talked about the great collaboration we have on the aviation side between Express and Global Forwarding, the joint plans we have there in terms of Life Science and Health Care. You might have seen the health logistics plan that Express operates, which is also used for DGF for Global Forwarding cargo. So we'll collaborate value proposition and efficiency, but we'll be very careful to integrate with the sole mind of cost synergies. Marco Limite: And what did you mean when you said making Express more affordable? Tobias Meyer: Well, I mean, we have undertaken significant steps to enhance productivity through technology, but also through streamlining processes, especially in Europe and the U.S., and we're also growing in the European road offering, DDI significantly. So that is what I mean. It doesn't harm our value proposition as it relates to the time defined offering, where we will always put quality first, but it gives us access to some segments that we haven't been serving to that extent in the past. Martin Ziegenbalg: Great. Thanks, Marco, for that follow-up, and that concludes our Q&A round. We're looking forward to seeing you over the next couple of days and weeks on roadshows and conferences. And to close off the call, I hand over for closing remarks to Tobias. Tobias Meyer: Well, thank you all for your interest. Again 2025 was not an easy year as it relates to the macro. I think we've managed as well. And I feel this leaves us really in a position where we enter 2026, and we operate in 2026 despite, again, a very volatile environment with great confidence that we will offer great service to our customers during the year of 2026 with the initiatives that we've put forward, and we get back on the track of growth through the measures that we've described and talked about in this call, but also beyond the divisional strategies that we have presented. This is going to be the focus in 2026 to add the growth component through what I believe was a good bottom line management, that's what we are 100% focused to do and confident to achieve. Thank you.
Operator: Good morning, ladies and gentlemen, and welcome to the Vermilion Q4 2025 Conference Call. [Operator Instructions] This call is being recorded on Thursday, March 5, 2026. I would now like to turn the conference over to Dion Hatcher, President and CEO. Please go ahead. Anthony Hatcher: Thank you. Good morning, ladies and gentlemen. I'm Dion Hatcher, President and CEO of Vermilion Energy. With me today are Lars Glemser, Vice President and CFO; Darcy Kerwin, Vice President, International HSE; Randy McQuade, Vice President, North America; Lara Conrad, Vice President, Business Development; and Travis Thorgeirson, Director of Investor Relations and Corporate Planning. Please refer to our advisory on forward-looking statements in our Q4 release. It describes forward-looking information, non-GAAP measures and oil and gas terms used today, and it outlines the risk factors and assumptions relevant to this discussion. Vermilion had an impactful year, positioning ourselves as a global gas producer with top decile gas prices, lower cost structure and a long-duration asset base capable of delivering sustainable free cash flow for decades to come. In 2025, we delivered record production and marked a pivotal year in our company's history through strategic A&D activity, particularly the acquisition of the high-quality assets in our core Deep Basin area. And the disposition of noncore assets in Saskatchewan and the United States, our portfolio is now focused on liquids-rich gas assets in Canada and premium priced gas assets in Europe, building one of the largest land footprints in the Deep Basin, along with our growing liquids-rich gas business in the Montney has sharpened our operational focus. This allows us to improve our cost structure and more importantly, higher profitability in our Canadian portfolio. In Germany, during Q1, we brought online the first well of the deep gas exploration program, Osterheide, and progress the build-out of infrastructure to facilitate the production from one of our largest European gas discoveries, Wisselshorst, which we expect to bring online by mid-2026. In the Netherlands, we successfully drilled 2 wells with multiple prospective zones and brought them on production in Q4. The long runway of future prospects we've identified in Europe with finding and development costs of approximately CAD 1.50 per Mcf, represents an opportunity for profitable organic growth in our domestic European gas business. These core assets drove another strong quarter in Q4, both operationally and financially. Production of 121,308 BOEs per day was ahead of guidance. This was partially driven by highly productive wells in the Deep Basin, where 3 of the most productive gas wells in December were Vermilion owned and operated. Production also benefited from record volumes in the Montney as well as outperformance from the Osterheide well in Germany, which had 40% higher production compared to the third quarter and generated approximately $8 million of free cash flow in Q4 alone. Strong realized gas pricing of $5.50 per Mcf or double the AECO benchmark was driven by our direct European gas exposure, where TTF prices averaged $15 per MMBtu in the quarter. Our realized gas prices also benefit from enhanced market diversification in Canada and a sophisticated hedging program. On the operational side, we apply a continuous improvement mindset to the areas within our control, safety, production and cost management. I'm excited about the progress by each team across the business. In Canada due to the improved operational scale, high-quality assets, our unit operating costs are now the lowest in over a decade, which improved our corporate unit costs, now the lowest since 2020. Investments in infrastructure such as the Mica facility and development initiatives in Germany are expected to deliver an increase in excess free cash flow over the next few years. The long duration of our asset base and our commitment to disciplined capital allocation, when combined with only 153 million shares outstanding, positions Vermilion to add meaningful per share value. Moving to reserves. Vermilion's total proved plus probable or 2P reserves increased by 36% from the prior year, reaching 592 million BOEs. This growth was driven by a combination of organic development and the Deep Basin acquisition, which closed in February 2025, partially offset by the divestment of the United States and Saskatchewan assets in mid-2025. We added 86 million BOEs of proved developed producing or PDP reserves and 201 million BOEs of 2P reserves in 2025. Our average finding, development and acquisition costs, including future development costs, were $14.91 per BOE for PDP and $7.71 per BOE for 2P. That's a recycle ratio of 1.8 to 3.5x, respectively. These recycle ratios highlight the capital efficiency and strong returns of our reserve additions. It's also worth noting that PDP reserves do not include any volumes or present value associated with the Wisselshorst discovery well on the Bommelsen license, whereas the 2P reserves include approximately 7 million BOE or 43 Bcf related to our 64% working interest in the initial discovery. We have identified up to 6 additional drilling locations on the Bommelsen license that currently have no 2P reserves assigned, representing significant further upside for European reserves. We remain on track to spud the first 2 of these locations in early 2027 with long lead equipment ordered, the drilling rig secured and permitting progressing as expected. By applying the learnings from the previous program, we anticipate lower cost and faster cycle times resulting in these wells being on production in the second half of 2028. The 2P reserve life index was 14 years, in line with our historical averages. Our internal estimate is we have 1,700 drilling locations across our 1.3 million net acres of land that's in the Deep Basin and Montney and only 23% of these are included in our year-end reserves. Also of note, internal estimates of initial gas in place related to exploration and development prospects in Europe are minimally included in our year-end reserves. We believe there's significant upside to our European gas reserves given our 1.4 million net acres land across Germany and Netherlands combined with our track record of exploration success. Across our portfolio, the combination of book reserves and additional internally estimated locations provide long-term visibility for future production and cash flow. Before-tax net present value of our 2P reserves discounted at 10% using the 3 consultant average pricing as of Jan 1, 2026, and deducting year-end net debt, is $23 per basic share, well in excess of our current share price. I will now pass to Lars to discuss the Q4 results in more depth. Lars Glemser: Thank you, Dion. Vermilion generated $241 million of funds flow from operations in the fourth quarter. An active quarter of drilling saw $192 million invested in exploration and development capital expenditures, resulting in free cash flow of $49 million. Production averaged 121,308 BOE a day with a 69% weighting to natural gas. In Canada, we executed a 3-rig drilling program in the Deep Basin, drilling 16 and bringing on production 17 liquids-rich gas wells. We made the deliberate decision to defer the start-up of several highly productive wells that were drilled and completed in the third quarter into mid-Q4, allowing us to capture stronger realized gas prices and maximize returns. As Dion noted, these were some of the most prolific wells in Alberta. In the Montney, we drilled 4 gross and net liquids-rich gas wells, which are scheduled for completion and start-up in Q2 2026. Combination of strong Deep Basin well results, the return of previously shut-in production and record Montney performance drove a significant increase in production in Canada. Normalized for disposition activity, our Q4 production was more than 5,000 BOE per day higher than in Q3 with a lower unit cost structure, improving cash flow netbacks and overall profitability of our Canadian operations. International operations averaged 30,137 BOE per day in the fourth quarter, consistent with Q3. New production in the Netherlands and increased gas output in Germany largely offset natural declines in Ireland, Australia and Croatia. Vermilion completed and brought online 2 gross or 1.2 net natural gas wells in the Netherlands during the fourth quarter. We also advanced permitting and technical work in the Netherlands to facilitate the drilling of 1 gross or 0.5 net wells in 2026. Our approach to European development remains disciplined, leveraging our long-standing operating experience and strong regulatory relationships. In Germany, infrastructure development for the first Wisselshorst well, which is a 0.6 net ownership to Vermilion continued during the quarter, with first production expected mid-2026. The Osterheide well brought on earlier in the year saw an increase in production, averaging 10 million a day or 1,600 BOE a day for the quarter. Germany continues to be a key region for Vermilion, providing direct exposure to premium European gas markets and development upside. On the balance sheet, we accelerated our debt reduction during the fourth quarter by selling a portion of our ownership in Coelacanth Energy, which resulted in $42 million of incremental debt reduction and a realized gain on disposition of $12 million. We continue to hold a 10% ownership in Coelacanth. Returning capital to shareholders remains a core priority. Our strong free cash flow generation and disciplined capital allocation provide the foundation for sustainable dividends and opportunistic share buybacks. Our debt reduction trajectory has been accelerated with the sale of the Coelacanth shares and an increasing commodity price environment. This allows us to continue to be opportunistic in our balance of further debt reduction and returning capital to shareholders. As we continue to grow our asset base and improve profitability, we are confident in our ability to deliver attractive shareholder returns over the long term. I will now pass it back to Dion. Anthony Hatcher: Thank you, Lars. Prior to my closing remarks, I want to take a moment to thank our staff in Australia. In Q1, our Wandoo platform was impacted by a category three cyclone, which resulted in minor damage than the delay of the planned crude export lifting. We do budget for cyclone downtime each year. And fortunately, it's been more than 5 years since we've had an experience of a direct storm event. Again, thank you to our staff for their hard work and commitment to safety and the lead up during and after the cycle event. In addition, our team has worked very closely with the regulator on the integrity of our asset, including planned maintenance of the export system, which is already included in our budgets. In late February, we exported over 300,000 barrels of crude following the cyclone-related delay, and we're in the process of restoring production on the Wandoo B platform. So on the back of the record 2025 annual production and strong Q4, while factoring in Australia cyclone-related downtime, we are providing a Q1 outlook of 122,000 to 124,000 BOEs per day. We expect production in the first half of 2026 to be in line with recent levels with lower Q3 production reflective of the planned maintenance as outlined with our budget release. The recent run-up in global gas prices offer as a reminder that in a commodity-based business, being able to sell your product for more offers a substantial advantage. Our unique portfolio offers direct exposure to European gas, where inventories are well below the 5-year averages and the current price is over $20 per MMBtu as well as Brent crude, both of which have been impacted by recent geopolitical events. In closing, it has been a very active year, high grading our portfolio and advancing major projects. Through this busy time, we have outperformed on the operational side, and that comes down to the exceptional work of our employees and contractors. This is an exciting time at Vermilion. The strategic road map to 2030 as outlined in our recent Investor Day. Multiyear plan reflects a disciplined approach to long-term profitability designed to generate meaningful per share excess free cash flow growth even under a flat commodity price environment. The higher free cash flow growth will support debt reduction and increased shareholder returns. Our asset base offers longevity, capital allocation flexibility, our top decile realized gas price, along with significant upside driven both by our operational excellence and our large resource position. We remain committed to operating with discipline, maintaining a strong balance sheet and investing in high-return projects that drive value for our shareholders. With that, we'll now open the line for questions. Operator: [Operator Instructions] Your first question comes from Menno Hulshof with TD Cowen. Menno Hulshof: At your Investor Day in December, you talked about material free cash flow inflection starting in 2028. And at that time, I believe you were anchoring to something close to strip gas prices and oil prices that were generally north of $70, which could now prove conservative. So with that in mind, how would you frame free cash flow inflection in 2028 relative to what you were talking about in December? Anthony Hatcher: Thank you, Menno. I appreciate the question. You're right. When we went through the Investor Day, we used $70 WTI, $3.50 AECO and CAD 13 for TTF, and using those numbers, and to your point, the inflection is driven by the ramp-up in Germany volumes with the gas that we see coming online there, but also, of course, the Montney, where we've nearly built out the kit and we'll get our production up to 28,000 BOEs a day. And with that, we'll see the higher production, lower capital. So we were running at about $2.70 per share of excess free cash flow at that time, which was, again, based on that price deck. But maybe I'll pass it over to Lars, if you want to kind of tie that price deck to potential upside from where we are today. Lars Glemser: Yes. No, it's a good observation, Menno, in terms of the run-up here that we've seen recently. And so we've updated the slide in our slide deck. This would be Slide 13, to show what the impact of the run-up in commodity pricing is here. So we're showing FFO for 2026 around $950 million. That's a 40% increase to our excess free cash flow. Some of these near-term price moves haven't necessarily rippled through the curve yet. So that's something that we'll monitor. We stress the business as well as look at upside to the business on multiple price decks, but we are capturing a pretty decent portion of what we've seen here in the last week or so in terms of the commodity price run-up. Menno Hulshof: Yes. I mean I was just -- I guess my second question ties exactly into what you were just describing, and it's a standard hedging question. Like there's a lot of backwardation. There's limited liquidity the further out you go. Are you getting anything done today? Are you looking to capitalize on that? Capitalize is a wrong word, it's a horrible situation, but are there opportunities to hedge further? And is there a scenario where you hedge more aggressively than you have in the past? Lars Glemser: Yes. Menno, Lars here again. So we're about 50% hedged on European gas for 2026, 53% on oil and then 45% on North American gas. Some of the recent hedges that we've put in place, specifically on oil have had participating structures. So calls that are -- allow us to participate in this rally. On European gas specifically, we have been active hedging this past week, locking in some of the price increases here. In the past, I'm not saying that this will be the playbook here, but in the past, we have taken our hedge percentage on a commodity up to 70% if we see an opportunity to lock in revenue as a result of significant price increases. So that is something that we'll continue to look at as a team. We will also continue to monitor periods like 2027, 2028 as well to see if some of these moves are going to be structural throughout the curve and take advantage if there is something to take advantage of. Operator: Your next question comes from Amir Arif with ATB Capital. Laique Ahmad Amir Arif: Just 3 quick questions. Just first on the Deep Basin well outperformance. Just curious, is that -- are you targeting more Tier 1 locations or specific zones? Or do you feel that this recent well outperformance relative to your budget or your type curve can continue through the rest of '26? Anthony Hatcher: Thanks, Amir. I'll pass it over to Randy. He can't wait to answer this question. Randy McQuade: Yes, thanks. So yes, this really is kind of a continuation of the positive results that we showed in the Investor Day, where we had the strong kind of IP30 rates from the second half of 2025 drill program. That's continued to perform. And then when you take the results from our current 3-rig program where we're currently drilling, we brought on an additional 14 wells and they've also exceeded expectations. So it's worth noting that in that well mix, we have quite a wide range of well types and production areas. So that really does speak to our depth of inventory. We're not -- as you mentioned, it's not all Tier 1 locations. We are also drilling proof-of-concept wells. So it speaks to our depth of inventory and really the efforts of everybody on the Deep Basin teams to continue to achieve these strong results. Laique Ahmad Amir Arif: Okay. So it sounds like there's a good chance for these well outperformance to continue above the type curve. Would that be a fair comment? Randy McQuade: Yes. It's very -- yes, based on the results to date, yes. Anthony Hatcher: Yes. I mean, I think we've got 40, 45 wells, Amir, for the program, and we're first quarter into it, but everything we're seeing in the first quarter is encouraging. So we can provide more updates as we go. But to Randy's point, I think the team is doing an excellent job with the locations they are selecting and the execution. So as we get more data, we can revisit where we are. Laique Ahmad Amir Arif: Okay. Those are great results. Second question, just on Australia, can you provide a little more granularity on when do you expect Australian volumes to ramp back up to previous production levels? Anthony Hatcher: Thanks. I'll pass it to Darcy Kerwin, our VP International and just talk with -- on Australia, the kind of plan there to kind of watch -- maybe a little more color on what happened, but more importantly, the plan to restore production here. Darcy Kerwin: Yes. Thanks for that, Amir. I'll start by giving a bit of background on the issues that we've been having in Australia. So in December of last year, while we're performing inspection and maintenance activities on our export system, we did have a small leak on one component of that system. Now at the time, the system was not exporting. We were isolated for maintenance. But nonetheless, we did have a release of residual crude oil from that part of the system. We liaised pretty closely with the regulator, both with our initial spill response and then subsequent repair plans for that system. That did require an approved diving campaign to address the issue that we had. That diving campaign was completed by mid-January. On February 6, we did receive a notice from the regulator that limited the use of this export system, kind of a standard regulator response kind of in a situation like that. And then later that same day, we did receive their approval to complete a planned loading after we formally responded to their issued notice. So in parallel to all this, we had a tropical cyclone that had been building offshore Australia, and we did have a direct hit from category three tropical cyclone on the weekend of February 7. That shut in both our production operations and our export systems, which did delay an export that we had planned. We've conducted the damage assessments and are completing necessary repairs at this point in order to restart production operations on Wandoo B. We did manage to successfully complete an export of over 300,000 barrels last Friday, so February 27. A little bit more longer term, we had already planned and budgeted for the replacement of portions of this export system. And we had a completed engineering, received bids in 2025. We've committed to fabrication starting this year in offshore installation in 2027, and that's kind of now a formal commitment we've made to the regulator to do that. Anthony Hatcher: Thanks, Darcy. And then with respect to Q1, we've assumed minimum volumes, Amir, post the early Feb shutdown. So in our Q1, we effectively -- we just want to diligently give the guys some time to restart, which we're in the process of doing. So going into Q2, we expect things to be back to normal. But at this point, we want to be conservative for Q1. Laique Ahmad Amir Arif: Okay. So but by 2Q, you should be fully ramped back up? By the end of 2Q for sure, around there? Anthony Hatcher: That's our plan. Laique Ahmad Amir Arif: Okay. Okay. Sounds good. And then just one final question. Just noticed some negative technical revisions on the 1P, 2P side in both North America and international. Could you just provide a little color behind. Anthony Hatcher: Just want to make sure I heard you there, Amir, negative technical revisions on the international side? Laique Ahmad Amir Arif: It was on both the international and the North American side. There was some negative technical revisions on 1P and 2P. So just some color around what was driving that. Anthony Hatcher: Okay. I'll pass it over to Lara, she'll take that one. Thanks. Lara Conrad: For sure. Thanks, Amir. So really, when we at the negative technical, this is a result of us high-grading our reserves book, really primarily as a result of the M&A activity. So when we think about in Canada, the team in Canada under Randy have done a great job of high-grading locations, part of why we saw those great results in the Deep Basin. And so now we've shifted our reserves book to reflect that. So really, the negative technicals are because we've replaced locations with locations that we see as having better profitability. And you can really see this because when you look at the numbers, we've added 4x as much volume through drilling extensions as we removed in our technical revisions in the Deep Basin. So a net positive overall, but negative from the ones that we replaced. As far as the international side of the book, we did have some minor negative technicals in the Netherlands, Germany and France. And this is really to do with, again, shifting development plans between wells as well as our capital allocation decisions, prioritizing drilling in Canada and the Deep Basin and Montney and in Germany over development opportunities in France. So just really making sure that our reserves book matches our long-term plans as an organization. Laique Ahmad Amir Arif: That makes a lot of sense. So it's mostly locations that have been taking out, not really production performance on existing wells. Is that fair? Lara Conrad: That's correct. Yes. Operator: Your next question comes from Jeremy McCrea with BMO Capital Markets. Jeremy McCrea: Maybe just probably back to Lara here. Can you give me a sense of what the M&A market looks like here now? Just in terms of how many deals have you potentially looked at? Is there more deals potentially to come, you think? And then I've got one more follow-up question here as well. Anthony Hatcher: Thanks, Jeremy. So just general M&A wherever, but maybe, Lara, do you want to provide a commentary there? Lara Conrad: For sure. We've got a really great portfolio when it comes to looking at M&A opportunities, especially on the back of the Westbrick acquisition. I think whenever you do a rejig of your portfolio, it opens up further opportunities. So I'll give the standard M&A response. We look at everything. And when we have something to talk to, we'll let you know. But do you think there's going to be some interesting opportunities, both in Canada and in Europe. You've seen us core up the portfolio. Vermilion has done some divests recently, which is a little bit different than historically, but we're really trying to create that focused portfolio. So M&A will be part of that when we see the right opportunities. Jeremy McCrea: Okay. And maybe just a bit more follow-up with Amir's question here earlier. When these better wells were coming out of the Deep Basin, was there anything -- I know you talked about like the geology looks good and you have a lot of Tier 1, but was there anything different that you did on the drill or completion design that led to the better results? Or was it just almost 100% geology? Anthony Hatcher: I'll just give a quick answer and pass it on to Randy if he wants to elaborate. But no, I think it's the rock, Jeremy. As you know, the history is we've developed our legacy land position over the years, and I think the teams did a great job of working that land base harder. Effectively now they've got a bunch of new inventory and high quality. And you put the, I would say, the high-performing teams of Vermilion and Westbrick together and that range for us has found a lot of opportunities, ability to extend wells and again, just make things happen. But I think it's really the rock quality we're seeing. But Randy, anything I missed there or... Randy McQuade: Yes. The only other thing I would add is the ability -- the combination of our 2 land bases plus all the deals we've done, we've done lots of swaps and Crown land sales that have created a bit more of land. So we're able to drill optimal locations as opposed to previous where we weren't. So I would say on the drilling completions, nothing different than what we've done. We've continued to perform, costs come in where we expect them to come in. So that's all good. It really comes down to geology and optimal from the land position. Anthony Hatcher: Thanks, Randy. Operator: Your next question comes from Dennis Fong with CIBC World Markets. Dennis Fong: My first one is just around Osterheide. Obviously, that's fantastic to see the incremental uplift in terms of the production. As I recall, there is -- I think from your Investor Day, you highlighted a little bit about infrastructure and kind of local gathering constraints. Can you talk towards we'll call it, the durability of the higher throughput and kind of what some of the considerations happen to be? Anthony Hatcher: Thanks, Dennis. I mean, I'll give a quick answer and then pass it to Darcy to elaborate. But I mean, I think the guys have positioned it well where we've got the well set up to be able to deliver and we've seen higher demand, which, again, probably no surprise with the situation in Europe, and it's been pretty steady here into the new year as well. But Darcy, what am I missing there? Darcy Kerwin: Yes. I think that covers it. I would add, Dennis, the kind of infrastructure constraints that we had assumed are probably not as negative as we assumed initially. So we expect that the production rates that we have seen as of late will continue flat kind of through 2026. There is some day-to-day kind of market variation depending on who's buying and sending gas to different points. But overall, I think there is more capacity in that part of the system than we had assumed and the market seems to have a desire for that gas. So I think we expect that, that will stay flat. Dennis Fong: Okay. Great. And then does that also bode well then for some of the opportunities you were discussing around Wisselshorst? Darcy Kerwin: Yes, I think it does. Now it's not a direct same kind of tie-in point, but I think we were again quite conservative on our assumptions on both the infrastructure and what the market in that area would take. But I think directionally, it's going in the right direction. And yes, I think we hope to see the same results on kind of Wisselshorst takeaway as we've seen in Osterheide. Dennis Fong: Great. My second question, really shifting focus to the Netherlands. It's obviously great to see that you received the permits there, helping kind of confirm the timing of your drilling in the region later this year. Maybe more broadly, can you -- and obviously understanding it's still incredibly early stage, can you talk to any shifts in terms of regulatory government discussions and discussions around kind of permitting time lines? I know that's been, we'll call it, a -- not point of friction, but a bit of a bottleneck in terms of the pace of activity that you guys were looking to pursue in some of these regions. How has it been shifting? How has that been evolving through time? And has there been kind of an uptick even this past week? Anthony Hatcher: Yes. I'll pass it back to Darcy to walk you through. Darcy Kerwin: Yes. I think, Dennis, certainly, the messages that we're constantly trying to send out about the benefits of domestic production in Europe is maybe falling on more open ears all of a sudden. So that can only be good for us. You asked specifically about regulators sticking to time lines. I think we have seen and heard commitments, especially from the Dutch regulator about sticking to their own time lines and just kind of -- we have been quite successful lately in building up a nice pipeline of opportunities, both in the Netherlands and Germany. And just as a reminder, we drilled 2 wells in the Netherlands and Offenhausen in Q3 of last year. We discovered 16 Bcf of gas there at an F&D cost less than $1.50. And then we brought those wells on production in Q4, right? So it was a pretty quick cycle time. We brought Osterheide on as planned in 2025. As you mentioned, that continues to have strong production volumes and had record volumes for us in Q4. We're progressing well on Wisselshorst with gas plant installation and the pipeline tie-in. We're still on schedule to start up mid this year. That's again a significant discovery with. Our net share is 43 Bcf there. On plan to drill 2 additional wells in the Netherlands in 2026, plans to spud 2 more wells in Germany in early 2027. And I think probably one of the biggest differences, and you would have saw that in the Investor Day is the opportunities that we're drilling. They're more step-out exploration type opportunities. They're bigger. If we look at kind of the last 30 wells that we've drilled in Europe versus the next 30, they're kind of 2.5 to 3x the size of what we've drilled over what was a pretty successful decade of exploration drilling there with a 70% success rate. We'll continue to work with the regulators and the stakeholders to develop support for additional domestic gas production. We think it's a strong message. It has security of supply implications that I think people are starting to listen more and more to. Operator: [Operator Instructions] Your next question comes from Josef Schachter with Schachter Energy Research. Josef Schachter: Congratulations on Germany and Netherlands. I'm wondering about Ireland. Have you done any more work there? And is there much opportunity to maybe do some future drilling there? And then maybe if you can give us some idea of Croatia, if there's any further work that you're doing that might open up some opportunities in like '26 or '27 for growth in those areas. Anthony Hatcher: Thanks, Josef. I'll just give the high level on Ireland and Darcy, please fill in the blanks. But quick answer is, we don't see any drilling activity in Ireland. Darcy just talked about, in particular, Germany, those prospects that are 30 Bcf, they're onshore. It's a bit about 50 an Mcf to drill those from a cap. So what that means, Josef, like when we look at it from a capital allocation, we really like Germany, and it just streams so well. But Ireland is a great asset, the team is optimizing. It's super steady and generates strong, strong free cash flow. But no plans internally to allocate capital to drilling in Ireland, just given the strong opportunities that we have in Germany. But Darcy, anything to add there? Darcy Kerwin: Yes. I think, Josef, our focus, certainly in Ireland has been on the existing well stock that we have and making sure that, that plant is as efficient as possible, and we have the highest recoveries we can out of those wells that are currently drilled. Anthony Hatcher: And then with our activity over the last couple of years here in the coring up. We are progressing the potential divestment of some of the assets in Croatia. I know we can't say a lot, but Lara, any color to add to Croatia or CEE? Lara Conrad: Yes. I think -- I mean, we announced that we'll be exiting those areas. And so for Croatia and like in specific, there are nice drilling opportunities there. And we just decided, as Dion just said, we really like Germany. And so you have to make tough decisions around where you're going to focus your portfolio. So from a Croatia perspective, I think there are some lovely opportunities, but they're not opportunities for us, and that's why we're divesting and focusing elsewhere. Operator: There are no further questions at this time. I will now turn the call over to Dion for closing remarks. Anthony Hatcher: With that, thank you again for participating in our Q4 call. Enjoy the rest of your day. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Operator: Good morning. We would like to welcome everyone to Canadian Natural's 2025 Fourth Quarter and Year-End Earnings Conference Call and Webcast. [Operator Instructions] Please note that this call is being recorded today, March 5, 2026, at 9:00 a.m. Mountain Time. I'd now like to turn the conference over to your host for today's call, Lance Casson, Manager of Investor Relations. Lance Casson: Thank you, and good morning, everyone. Thank you for joining Canadian Natural's 2025 Fourth Quarter and Year-end Results Conference Call. As always, I'd like to remind you of our forward-looking statements, and it should be noted that in our reporting disclosures, everything is in Canadian dollars, unless otherwise stated, and we report our reserves and production before royalties. Also, I would suggest to review the advisory section in our financial statements that includes comments on non-GAAP disclosures. Speaking on today's call will be Scott Stauth, our President; Robin Zabek, COO of E&P; and Victor Darel, our Chief Financial Officer. Additionally, in the room with us this morning is Jay Froc, COO of Oil Sands. Scott will first run through our strategic updates and our strong operational performance that once again included numerous production records in the quarter and annually. Next, Robin will provide highlights of our growing high-value reserves that are significant when compared to other major oil and gas companies. And Victor will summarize our strong financial results and our significant return to shareholders in the year, along with details on the enhancement of our free cash flow allocation policy. To close, Scott will summarize prior to open up the line for questions. With that, over to you, Scott. Scott Stauth: Thank you, Lance, and good morning, everyone. 2025 was the best operational year in the company's long history of maximizing value for our shareholders. We set several new production records, lowered operating costs, and capital expenditures came in under our previous forecast. We grew our production organically as well as completed several accretive acquisitions. These include the Palliser Block assets, Southern Alberta, liquid-rich Montney assets in the Grande Prairie area, as well as increasing our ownership in the Albian mines 100% through an asset swap. We achieved record annual production of 1,571,000 BOEs per day in '25, resulting in year-over-year growth of 15% or approximately 207,000 BOEs per day from 2024 levels. We also showed continuous improvement in our safety record with our total recordable injury frequency at the lowest levels ever. Our teams continue to be focused on safe, steady applications with a goal of no harm to people and no safety incidents. Specific to some of the annual operating highlights, record annual total liquids production of approximately 1,146,000 barrels per day, an increase annual liquids production of 141,000 barrels per day or 14% from 2024 levels. 65% are our liquids production at SCO, light crude oil or NGLs. Strong total corporate liquids operating costs of $18.44 per barrel. Record Oil Sands mining and upgrading production of approximately 565,000 barrels per day of zero decline SCO with upgrader utilization of 100%, including the planned turnaround at AOSP. Industry-leading Oil Sands mining and upgrading operating costs of $22.66 per barrel. Record thermal in-situ production of approximately 275,000 barrels per day of long life, low decline production and primary heavy crude oil production growth of approximately 88,000 barrels per day, which is 11% growth from 2024 levels. This reflects strong drilling results from our multilateral well program. Operating costs in our primary heavy crude oil operations averaged $16.68 per barrel in 2025, a decrease of 8% from 2024 levels, primarily reflecting lower operating costs from multilateral production. Record natural gas production of approximately 2.5 Bcf per day, an increase of 400 million per day or 19% from 2024 levels. In December, we received regulatory approval for our Pike 2 70,000 barrel per day SAGD Growth Project opportunity. Shifting to our quarterly results. Q4 2025 was equally impressive with numerous records, including record quarterly production of approximately 1,659,000 BOEs per day. Record total liquids production of approximately 1,215,000 barrels per day, an increase of 125,000 barrels per day or 12% from Q4 2024 levels. Record Oil Sands mining and upgrading production of approximately 620,000 barrels per day of SCO with upgrader utilization of 105%. Industry-leading Oil Sands mining and upgrading operating costs of $21.84 per barrel. Within our thermal areas, production from the first Pike 1 pad came on production ahead of schedule in December. Current production from this pad exceeds our expectation at approximately 27,000 barrels per day with an SOR of approximately 1.8 xas we target to keep the production at the Jackfish facilities at full capacity. Second Pike 1 pad will come on production in the second quarter. Canadian Natural's reserves are significant when compared to other major oil companies, which support long-term growth opportunities. Year-end 2025 total proved reserves and total proved plus probable reserves increased by 4% and 3% respectively from year-end 2024 levels, another strong year of reserve replacement with very strong F&D costs. Robin will provide additional color on our year-end reserve shortly. Strong execution across our large, diverse asset base continues to provide significant opportunities to create shareholder value in 2026 and beyond. This is evident by our increased production, cash flow, and reserves achieved in 2025 through accretive acquisitions and organic growth, which gave the board of directors confidence in their approval of a quarterly dividend increase of 6.4% and the enhancement of our free cash flow allocation policy by adjusting our net debt targets, accelerating direct returns to shareholders. Victor will explain in more detail in this finance section this morning. In addition, we completed a strategic acquisition in Q1 of '26, and as a result, we are increasing the midpoint of our 2026 production guidance by 20,000 BOEs per day with a range of 1,615,000 BOEs per day to 1,665,000 BOEs per day, and we are reducing our '26 capital, operating capital forecast by $310 million to approximately $6 billion. We continue to progress our defined short and medium-term growth strategy development in our conventional EMP assets. Our drill to fill pad additions and FEED capital on both the 70,000 barrel per day Pike 2 Greenfield project and the 30,000 barrel per day Jackfish Brownfield expansion project. As part of our long-term growth strategy, we are deferring FEED capital for the Oil Sands Jackpine Mine expansion opportunity at Albian that was included in our 2026 capital budget. This approximately $8.25 billion project is being deferred due to lack of finalization of government regulatory policies around carbon pricing and methane, which creates uncertainty and economic burden for our long-term growth investment. Once there's more certainty on improved regulatory policy, improved timelines, and additionally egress, we will reassess the economic viability of this project. Complementing the accretive and opportunistic acquisitions completed in 2025 and in Q1 of 2026, we have plenty of organic growth opportunities within our large, diverse asset base. We will leverage our portfolio of opportunities to continue creating long-term shareholder value while maintaining flexibility to manage the pace of these development opportunities and continue to maximize shareholder value. Now I will turn it over to Robin to provide additional details on our year-end 2025 reserves. Robin Zabek: Thank you, Scott. Good morning, everyone. I'll start by reminding everyone that 100% of Canadian Natural's reserves are externally evaluated and reviewed by independent qualified reserve evaluators. Our 2025 reserve disclosure is presented in accordance with Canadian reporting requirements using forecast pricing and escalated costs on a company working interest or royalties basis. As you just heard from Scott, 2025 was another very strong year for Canadian Natural, with that strength including the company's reserves. For December 31st, 2025, total proved reserves are 15.9 billion BOE, representing a 4% increase compared to 2024. Total proved plus probable reserves increased 3% to 20.75 billion. Through a combination of organic growth and accretive acquisitions, Canadian Natural replaced 2025 production by 218% on a total proved basis and 212% on a total proved plus probable basis. To put that in context, that's more than 1.2 billion BOEs of reserves added in each of the proved and proved plus probable categories. As you heard from Scott, we've done that while achieving industry-leading finding, development, and acquisition costs. For 2025, our FD&A, including changes in future development cost, was $3.64 per BOE for total proved and $2.42 per BOE for total proved plus probable, underscoring the strength of our extensive diverse assets. Highlighting one of the attributes that differentiates Canadian Natural, approximately 73% of total proved reserves are from long life, low decline or zero decline assets, resulting in a total proved reserve life index of 31 years and a total proved plus probable RLI of 40 years. Notably, at year-end 2025, approximately 50% of the company's total proved reserves are high-value SCO and mining bitumen reserves with zero decline and a total proved RLI of 39. In summary, our 2025 reserves continue to reflect the strength and depth of Canadian Natural's diverse asset base, the predictability of the company's long life, low decline reserves, and our proven ability to create value through organic growth and accretive acquisitions. I will now hand over to Victor for the financial highlights. Victor Darel: Thanks, Robin, and good morning. The fourth quarter full year 2025 results were excellent, with record operational performance, which also reflected the impact of the acquisitions we did in 2024 and 2025, and which contributed to similarly strong financial performance. The strong execution by our teams in 2025 has resulted in adjusted net earnings of $7.4 billion or $3.56, and adjusted funds flow for the year of $15.5 billion or $7.39. Quarterly performance was equally strong, with adjusted net earnings of $1.7 billion or $0.82 per share and adjusted funds flow of approximately $3.7 billion or $1.82. Net earnings of $5.3 billion this quarter or $2.55 per share was higher than the operational earnings related to the accounting for the AOSP asset swap, which resulted in a non-cash gain of approximately $3.8 billion after tax this quarter. Following the asset swap, where we assumed the entirety of the interest and control of the AOSP mines, we accounted for the transaction in accordance with the relevant requirements and recognized an adjustment from the previous carrying value to its fair value in accordance with GAAP. In doing so, we demonstrated the significant value that has been created in those operations since the acquisition of the initial interest in AOSP in 2017. As Scott mentioned, the accretive acquisitions in late 2024 and throughout 2025, including the AOSP asset swap in November of this past year, have increased reserves, production and cash flow while contributing to net debt reduction of approximately $2.7 billion at year-end 2024, with net debt at approximately $16 billion at the year-end 2025. In 2025, the company returned approximately $9 billion to our shareholders, including direct returns of approximately $4.9 billion in dividends, $1.4 billion in share repurchases, and additionally the $2.7 billion in net debt reduction I just mentioned. As we end 2025, our balance sheet is strong, with quarter-end debt to EBITDA of 0.9 xand debt to book capital coming in at 26%. Liquidity was also strong at over $6.3 billion at year-end, reflecting undrawn revolving bank credit facilities and cash on hand at end of period. Demonstrating the continued performance of and their confidence in our business, the board approved a 6% increase to our quarterly dividend, bringing the annualized dividend to $0.52 per common share. This marks 2026 as the 26th consecutive year of dividend increases by Canadian Natural, with a compound annual growth rate of 20% over that time, demonstrating the sustainability of our business model, our strong balance sheet, and the strength of our diverse, long-life, low-decline reserves and asset base that Robin spoke to. Additionally, the board of directors have, effective January 1st, 2026, adjusted the net debt target level in our free cash flow allocation policy, which results in an acceleration of the next increase to shareholder returns. When net debt is below $16 billion compared to the previous target of $15 billion, we will increase shareholder returns to 75% of free cash flow generated and managed on a forward-looking basis. When net debt levels reach $13 billion compared to the previous target of $12 billion, we will target to increase shareholder returns to 100% of free cash flow generated. Our robust funds flow generation and strong balance sheet demonstrates our industry-leading cost structure, large reserve base, high quality, long-life, low-decline assets, and our commitment to continuous improvement and reliable execution. These factors, along with the company's track record of delivering strong shareholder returns, support significant long-term value creation for Canadian Natural and its shareholders. Our financial flexibility and low maintenance capital requirements demonstrate a track record of execution and allow us the opportunity to provide strong returns to shareholders going forward. With that, Scott, I'll turn it back to you. Scott Stauth: Thanks, Victor. In summary, our strong 2025 results and our growing reserves are supported by safe, reliable and consistent operations. Our commitment to continuous improvement as part of our effective and efficient operations is driven by focusing on cost improvement, margin expansion, and strong execution. This is combined with our increased production guidance and accelerated shareholder returns. We are set up to continue to return real value to our shareholders in the near, medium, and long term. With that, I will turn it over for questions. Operator: [Operator Instructions] Your first question comes from the line of Dennis Fong from CIBC World Markets. Dennis Fong: Congratulations on a strong quarter and year. My first one here is really you guys have shown a track record of applying CQ best practices on kind of new assets you've acquired or taken over operatorship of. And as you alluded to in your prepared comments, really a focus on continuous improvement. Can you talk to some of the opportunities you're looking to chase down or that you're seeing now that you control 100% of the Albian mine? And how does that maybe interact with Horizon on a go-forward basis? Scott Stauth: Yes, Dennis, I think if you recall, we did have a bit of this discussion at the last quarter. We had estimated an instantaneous savings of about $30 million and an annual savings in around $30 million per year, $30 million to $40 million per year. It's just really about the synergies of being able to utilize the equipment and the people resources, the contractors back and forth at the mine sites in a more efficient manner than we would have otherwise been able to do so before. Better utilization of your service providers allows for more efficient practices and ultimately more efficient costs. You know, over time, Dennis Fong, it's fairly evident to be able to see the reduction in operating costs from 2017 going right through to the acquisition of Chevron 2024, and we continue to make improvements in the operating costs from that point going forward here, just through our continuous improvement methodology and also, you know, significant increase in production in the range of 50,000 barrels a day since 2017. You know, we had made some significant gain certainly before the acquisition of Chevron, and at this point in time, we'll be working more on the continuous improvement portions of that where small dollars add up to big dollars. Dennis Fong: Great. . Really appreciate that color. My second question shifts here a little bit. It's obviously great to see the confidence in the board or from the board on the current strength of the balance sheet and the potential acceleration of returning free cash to shareholders. Can you talk towards a little bit around where the discussions may have gone in terms of we'll call it bookends or ensuring kind of key metrics that both management and the board focus on in terms of determining some of these factors, as well as maybe touching on some of the flexibility that you still have in the capital program, obviously either higher or lower, given the volatile commodity price environment that we're in today. Scott Stauth: Yes, Dennis, it's really about the robustness of our balance sheet. On the backs of the synergies created through these recent acquisitions, we've been able to achieve increased cash flow, lowering the operating costs, increasing the production. All of those things combined don't necessarily lead towards bookends per se, Dennis, but what they do is show a continued improvement to the overall strength of our balance sheet, primarily providing additional cash flow. That's resulted in the board taking a look at all of the acquisitions that we've done, combined with the way we've been able to effectively and efficiently manage our capital development programs through organic growth, have really provided that stepping stone to get to change the net debt levels for the free cash flow policy and obviously continue to increase our dividends. Dennis, not really about bookends, but just part of the ongoing continued growth of the company, both organically and through acquisitions that have strengthened the balance sheet and have set us up for continued strength through strong commodity prices, lower commodity prices or any cycle. Operator: Your next question comes from the line of Patrick O'Rourke from ATB Capital Markets. Patrick O'Rourke: Maybe just a little bit more on the capital side of the equation here. Obviously, the bulk of the capital that came out was, it seems like with respect to Jackpine. I just wonder what opportunities there are still remaining for the rest of the year. I think back to years past, we were looking at a sort of a weaker gas tape right now. Are there any opportunities to potentially shift some capital from the liquids rich gas portfolio towards some of the short cycle oil here remaining in 2026? Scott Stauth: We always carry that nimbleness, certainly when we're looking at our capital allocation. Seeing good returns, strong returns with strong liquids pricing on the liquid rich natural gas activity areas that do compete. If you look at it, Patrick, we've got payouts in our multilaterals 12 months or less, very comparable payouts to 12, 13 months or less on the strong liquid rich gas areas. They're very competitive with each other. I think what the way to look at it is we have a very well-balanced rig program across all of the areas. We're working very hard to ensure that we don't sort of apply any self-inflicted inflation in the areas in which we're operating in. We do that by having that balanced rig program. We continue to monitor the commodity prices. We have about 21 rigs working, very well balanced across the entire basin here. Looking at strong returns, we're not spending money on dry gas activity. We're really focused on the value returns. I don't see us making significant changes to that a whole lot. We do have the capacity to be able to increase the heavy oil multilateral potentially to a small percentage. Again, we're running very well balanced. We're not creating inflation. We're making sure we're keeping up with the efficiencies in our drill times. People are very focused, and we wanna keep the momentum going in that direction. Patrick O'Rourke: Okay, great. Just thinking about the operational performance, sort of one thing that really stuck out to me was the 105% upgrade or utilization in the quarter. Just wondering how you think about how repeatable this is, does that open sort of the pathway to a potential rerate on these assets going forward? Scott Stauth: Patrick, we'll see on a go-forward basis here. I think you've seen some strong production in the fourth quarter. That's not unique, in compared to previous years. Strong efficiencies, running into the fourth quarters, coming out of turnarounds and so forth. You know, 105% is certainly very strong. And 620,000 barrels a day is extremely strong production levels. We're happy with, in the range of 600,000 barrels a day is very strong efficiencies and utilization. You know, we certainly strive to continue to work towards maximizing and overutilizing the facilities from a utilization perspective. I doubt it's gonna lead us to a rewrite. We'll look at that some point down the road at Horizon, potentially when we bring on the 6,300 barrels a day of SCO from the NRU project. Until that time, Patrick, I think we're pretty happy with where our capacities are rated at. Operator: Your last question for today comes from the line of Neil Mehta from Goldman Sachs. Neil Mehta: Congrats on a good quarter as always. I had some more macro questions, so I want to get your perspective on the environment that we're in right now, where there's a lot of volatility. There's talk of, obviously, the Venezuela barrels coming to the market. At the same time, we've got some disruptions here in the Middle East in terms of supply. How you are seeing real-time that flowing through into the heavy markets and how that shapes your near-term view around TIWCs? That's a good starting point, and then I have follow-up on gas. Scott Stauth: Yes, Neil, I think if you look back a month or so ago with the potential to increase the volumes into the US Gulf Coast, the differentials to WTI did widen out. We did see increased barrels of Venezuelan barrels coming into the US Gulf Coast for processing. Now as to your point, there has been some tightening in the market with the recent developments in the Middle East. We're seeing differentials swing back down, probably about $1.50 to $1.60 lower than they were. Approximately tighter than they were, excuse me, about a month or so ago. For us, it's all about continued focus on our operating costs and ensuring that we can be competitive in all the markets, and that we also have a diversified portfolio. We've got 256,000 barrels a day, and we've got that well diversified between the U.S. Gulf Coast and the West Coast of Canada here. Continue to focus on those types of opportunities for diversification of our portfolio and continue to focus on our operating cost to ensure that in the long run, rather than just on the short-term thinking, that in the long run, we can manage and excel and be competitive in any market condition. Neil Mehta: And to the extent we are in a firmer market condition as the world is now pulling on heavy barrels maybe a little bit harder, does that change the way you think about your near-term activity, or you kind of have to stay level loaded just given the long-term planning assumptions? Scott Stauth: We have to go by long-term planning assumptions, Neil. You know, there's ebbs and flows that are caused by various different factors. Obviously a major factor going on right now in the Middle East, but also what times in the year, there's factors of turnarounds that happen in the U.S. refining complexes. You know, again, the thinking has to be long-term and ensuring that we're achieving the best net backs that we can with our portfolio. Neil Mehta: And then that's a follow-up is just natural gas. I think a number of us have been waiting for AECO to get firmer, and it just seems like production is ever flowing. Just how do you guys think about this cleaning itself up? As you guys look at the AECO balances, is this a structural issue or is there line of sight to better pricing on the Horizon? Scott Stauth: Well, I think it's evident that you're seeing with LNG Canada, processing in the range of about 1.5 Bcf, not yet approaching full capacity, but not that far away from full capacity. You're seeing the market is suggesting that the system is full. That's likely coming through the development of, a lot of liquids rich gas production and some producers, drilling with potentially, lower liquids, gas production as well. A very strong, supply market. We continue to see on a go-forward basis that those conditions will remain tight, over time. Canada really needs additional LNG export capacity and the projects to be approved in an expeditious matter, so we can take advantage of prosperity for all Canadians by increasing our gas production and our exports, and providing a product the world truly needs. Operator: We have an additional question coming from the line of Greg Pardy from RBC Capital Markets. Greg Pardy: Scott. I was not gonna let you off that easy. Look, just maybe I may have missed this. It's, it's kind of a question for Victor, but effectively, are you at 75% payout now? I.e. post everything in terms of the updated budget, year-end numbers, the acquisition and so forth. Is the debt at a level where it's now triggered that higher payout or is that still to come? Scott Stauth: Yes. So to your point, Greg, at December 31st, we were below 16%. Under the policy, we would have achieved the target for sure. Of course, as a result of that target increase returns here in 2026. As you know, we do that on a forward-looking basis. We model the script and the cash flows for it as we look at the policy over the course of the year. Of course, keep in mind significant volatility in pricing, we're all aware. Under the current policy as just announced, strong pricing we're seeing we'd be very solidly there in Q3 with slightly higher and slightly lower debt over the course of the first and second quarter. Hopefully that helps. Greg Pardy: Yes, yes. No, exactly from a modeling perspective. Operator: There are no further questions at this time. So I'd like to turn the call back to Lance Casson for closing comments. Sir, please go ahead. Lance Casson: Thank you, operator, and thanks to everyone for joining us this morning. If you have any questions, please give us a call. Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the LEG Immobilien Full Year 2025 Conference Call and Live Webcast. I am Valentina, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Frank Kopfinger, Head of Investor Relations. Please go ahead. Frank Kopfinger: Thank you, Valentina, and good morning, everyone, from Dusseldorf. Welcome to our call for our full year 2025 results, and thank you for your participation. We have in the call our entire management team with our CEO, Lars von Lackum; our CFO, Kathrin Kohling; as well as our COO, Volker Wiegel. You'll find the presentation document as well as the annual report and documents within the IR section of our homepage. Please note that, there is also a disclaimer, which you'll find on Page 2 of our presentation. And without further ado, I hand it over to you, Lars. Lars Von Lackum: Thank you, Frank. Good morning, everyone, and thank you for joining our analyst and investor call today. I am very proud to share that 2025 has been an outstanding year for us. We have delivered AFFO of EUR 220.5 million, marking a 10% increase, the highest level in our company's history. This performance is a clear reflection of our disciplined execution, our strong portfolio and our willingness to capture opportunities, like we did with BCP. Building on this success, we are proposing a dividend increase of 8% to EUR 2.92 per share. This reflects the full 100% payout of our AFFO, a strong signal of both cash generation as well as our financial health. We have also made solid progress on the balance sheet. Our loan-to-value ratio has improved to 46.8%, and we remain on track to reach 45% in 2026. This improvement was supported by a 3% positive valuation effect, which is backed by our own disposals and markets building higher confidence, although admittedly, markets remain at lower transaction volumes. On the portfolio side, we have completed or agreed on the sale of 3,100 units in 2025. These disposals further optimize our balance sheet and the efficiency of our portfolio. We are well on track with further disposals in 2026. The planned sale of the Glasmacher development plot in Dusseldorf has made significant progress. Renowned real estate developer, Hines signed a purchase option for the site with LEG just yesterday. We confirm our 2026 guidance with AFFO expected between EUR 220 million and EUR 240 million. We will grow cash generation also this year, while weathering higher interest costs as well as lower subsidies. Looking further ahead, I am equally excited about our midterm growth outlook. From 2028 to 2030, we see strong potential driven by a substantial part of units running off subsidization in 2028 and by the creation of a new operating model based on comprehensive digitalization across our business. These initiatives will not only strengthen our competitive position, but at the same time, create long-term value for all stakeholders. In summary, 2025 has been a year of achievement, strategic progress and measurable results. We have delivered growth, improved resilience and positioned ourselves for an even stronger future. Thank you to our teams for their dedication and to our investors for their trust. The foundation we have built today ensures that the years ahead will be just as successful. Let's now turn to Slide 6 and the 2025 financial highlights, a year that truly embodies our theme of promised and delivered. We entered 2025 with a clear set of targets, and I am proud to say we did not just meet them, we partially exceeded them. Starting with the net cold rent. We closed the year at EUR 919.9 million, representing a 7% increase year-over-year. This growth was supported by a healthy 3.5% like-for-like rent increase, but equally by the successful integration of BCP, which added 9,000 high-quality units to our portfolio. This integration was executed seamlessly and has already begun contributing to earnings as planned. On operating profitability, our adjusted EBITDA margin came in at 78.1%, well above our planned level of 76% and even above our improved guided level of roughly 77%. Those 110 basis points of outperformance reflect both our tight cost discipline and our continued success in driving efficiencies across operations. Moving to our earnings metrics. FFO I reached EUR 481.5 million, a 5.2% increase, lending right above the midpoint of our guidance range of EUR 470 million to EUR 490 million. Even more impressively, AFFO grew by a strong 10% to EUR 220.5 million, lending smoothly within our improved guidance range of EUR 215 million to EUR 225 million. This marks a record high for the company. And speaking of returns, our dividend proposal of EUR 2.92 per share reflect a 100% payout ratio of AFFO. Year-on-year, this is an increase of 8% and ensures that our investors benefit directly from these strong results. Let me now turn to one specific growth driver going forward, our subsidized units coming off restriction from 2028 onwards. Today, we have around 30,000 subsidized units that are still subject to rent regulation under the so-called cost rent regime. These units are currently rented out for about EUR 5.40 per square meter, which is significantly below market levels. By comparison, the relevant market rent for a similar mix of units is roughly EUR 9 per square meter. This means there exists a rent gap of more than 60%. As these units get off restriction, we can start closing that gap in a controlled and sustainable way like we have done with smaller numbers of subsidized units over the past years. In general, we will apply the 15% or 20% rent increase on all units getting off restriction depending on whether they are based in tense or non-tense markets. However, the cost rent adjustments executed in 2026 as well as the new lettings in 2026 and 2027 absorb parts of that maximum rent increase potential. As of today, we assume that this limits the rent increase potential to around 12% in 2028. On the portfolio level, that alone translates into about 1 percentage point to our overall rental growth in 2028. And importantly, the effects do not stop there. We expect spillover effects into 2029 and beyond as further adjustments and relettings will deliver further rent growth. This will become a recurring and predictable growth driver for our residential portfolio as it will take quite some time until we can close the gap towards market rent level. In short, as soon as these restrictions expire, we are going to not only unlock immediate rental uplift, but also secure a long-term structural growth contributor. That will support our earnings trajectory well beyond 2028 until the gap towards market level is fully closed. Let me now turn to our second midterm growth driver that will become equally important to LEG's value creation going forward, our technology and digitalization agenda. Our industry environment has changed fundamentally. The regulatory framework in the German residential real estate sector is becoming even more restrictive, whether in terms of rent regulation, energy efficiency requirements or tenant protection. The traditional levers for operational optimization are reaching their limits. This makes it even more important to identify new sources of efficiency and value creation. And we are firmly convinced that technology and digitalization represent the most significant untapped lever available to us today. We have made a very deliberate strategic choice in how we approach this. We are dedicated to building a completely new operating model by making the best use of technology and digitalization, not just implementing software, but truly embracing it and redefining the way we serve our tenants. We manage our buildings, we steer our contractors. Rather than diverting resources to building proprietary software, we pursue a disciplined Buy & Partner strategy. And we have chosen 2 world-class partners to execute on this vision. The first one is ServiceNow. With ServiceNow, we are building an end-to-end system architecture that spans our entire operative value chain from customer service to technical operations to administrative processes. This gives us the flexibility to deploy AI at every touch point along that chain rather than in isolated pockets and thus enables us to drive automation to unprecedented levels. We are, to our knowledge, among the first residential real estate platforms globally to adopt ServiceNow as a core platform, and we see this as a genuine competitive advantage. The second is SAP. We have made a consequent commitment to building on the most modern ERP system available in the market. In fact, we have been operating on the latest version of SAP since the end of 2024. This positions us ahead of many peers who are still facing complex migration journeys. Together, SAP and ServiceNow form our central tech backbone, enabling not only system consolidation and process standardization, but critically the systematic scaling of AI across our operations and administration. Our technology investments are designed to drive AFFO and FFO I optimization along 3 core value drivers: efficiency, top line and investment management. The first focus will be on efficiency, streamlining our customer-facing technical and administrative processes with best-in-class AI-powered solutions. Beyond that, we see meaningful opportunities to leverage technology for revenue growth and smarter capital allocation across our portfolio. We are investing meaningfully in this transformation with the bulk of spending concentrated in the near-term implementation phase. This is a conscious front-loading of investment. From 2028, we expect these initiatives to turn cash flow positive, building to a contribution of more than EUR 10 million in AFFO from 2030. In short, in an environment where traditional optimization levers are increasingly constrained, we are building the technological foundation that will make LEG a more efficient, more scalable and ultimately more profitable platform for the years to come. And with this, I hand it over to Volker for some insights into the operations. Volker Wiegel: Thank you, Lars, and good morning to everyone from the shiny AI future back to 2025 and specifically to our rent development. As we mentioned earlier in the year, rent growth followed a different quarterly trajectory compared to last year. After 9 months, we were at 3.1%, but I'm very pleased to report that, as promised, we delivered fully on our guidance range of 3.4% to 3.6%. We closed the year right at the midpoint of 3.5% like-for-like in-place rent growth. At year-end, the average in-place rent of our residential portfolio stood at EUR 7.04 per square meter on a like-for-like basis. This compares to EUR 6.81 in the previous year. The drivers behind this growth were well balanced. 2% came from rent table increases and another 1.5% from modernization and reletting activities. Looking across our market segments, stable markets showed the highest momentum with 3.8% like-for-like rent growth, while higher-yielding markets grew by 3.1%. Our free financed units specifically saw rent increases of 4%, which reflects the underlying strong momentum in the market. Specifically, we saw rent table publications in Hilden with 11%, Wilhelmshaven with 7% and Leverkusen with 5%. However, the growth momentum seems to have reached its maximum level, while years with higher rent growth are reflected in the published rent tables, lower growth rates will limit this development going forward. As expected, there was no effect yet from the cost rent adjustment for the subsidized portfolio in 2025. Importantly, this growth came with an ultra-low vacancy. Our like-for-like EPRA vacancy rate remained at 2.3%, virtually unchanged versus last year, confirming the strong demand we continue to see across our markets. Looking ahead, for the current fiscal year, our goal is to deliver 3.8% to 4% like-for-like rent growth as already indicated with our Q3 numbers. The cost rent adjustment should contribute around 40 to 50 basis points to that result. Moving on to our investments in 2025 on Slide 10. Our guidance for the year was to invest more than EUR 35 per square meter, and I'm pleased to confirm that we exceeded that target coming in at EUR 36.11 per square meter. In absolute terms, we invested slightly more than EUR 400 million into our portfolio, an increase of 10% year-on-year. This increase to the prior year was largely driven by the integration of the BCP portfolio where we had to accelerate necessary investment measures. Looking at the composition of investments in more detail. CapEx accounted for EUR 228 million or EUR 0.46 per square meter, while maintenance represented EUR 175 million or EUR 15.65 per square meter. Altogether, this brought the per square meter figure up by 6.2% versus last year. Our capitalization ratio remained broadly unchanged at 57%. With substantially lower new construction activity, recurring CapEx still increased by a moderate 2%, reaching EUR 261 million. Overall, 2025 was another year of disciplined and targeted portfolio investment. We delivered above guidance, managed the BCP integration successfully and continued to invest responsibly in the quality and long-term value of our housing stock. For 2026, we are guiding for investments of more than EUR 35 per square meter, which remains similar to the investment level of 2025. Let me now touch on one of our operational growth drivers, our value-add businesses. These operations are a key pillar of LEG's strategy and a reliable growth driver for the company. They allow us to generate additional earnings beyond pure rent growth, while at the same time, those improve service quality and efficiency for our tenants. I'm very pleased to report that in 2025, we achieved strong FFO I growth of around 20% in this segment, increasing from EUR 50 million in 2024 to around EUR 60 million in 2025. While others in the market are still talking about the value-add additions, we are delivering real results. The foundation of this success lies in our technician and craftsmen services, our project management and electrical service units and of course, our energy and heating business as well as the multimedia business. In particular, we are very optimistic about the continuing growth of our energy services, which benefit from the ongoing focus on energy efficiency and shift towards heat pumps as well as our small repairs and in-house maintenance business. Beyond these established value-add services, we are also building momentum in our Green Ventures. These include new climate-focused services such as RENOWATE for serial refurbishment; termios, with smart thermostats for hydraulic optimization and dekarbo for the installation and maintenance of heat pumps. It is important to note that the Green Ventures are not yet included in the financial numbers shown on this chart, but they will become a meaningful growth contributor over the next few years. Between 2024 and 2028, we strive to generate a cumulative contribution of around EUR 20 million from our Green Ventures. To sum up, our value-add business combines stable cash flows, operational synergies and sustainability, while our Green Ventures offer the chance to participate in one of the fastest-growing segments in our market, decarbonization of real estate. They significantly enhance the resilience and profitability of LEG's business model and will continue to be a strong source of earnings growth forward. Let's now take a look at our disposals in 2025 on Slide 12. In total, we completed or agreed on sales for around 3,100 units and a total of more than EUR 250 million. During the year, we sold 2,252 residential units for total proceeds of around EUR 190 million. After deducting financing redemption fees and taxes, net proceeds amounted to roughly EUR 100 million. The transaction market remained subdued throughout the year. Overall, investment volumes in the German residential sector declined by about 4%. Even more telling, the share of large-scale transactions above EUR 100 million fell sharply from 63% in 2024, down to just 34% in 2025. You find additional information for the transaction activity in the German market on Slide 29 in the appendix. Against this challenging backdrop and while maintaining our strict disposal discipline, we are very satisfied with the year's outcome. All in all, disposals were executed at or above book values, fully in line with our policy of value-preserving capital recycling. The chart on the slide shows the units that have been transferred in 2025, but there's more to come. Year-to-date, we had already signed additional sales contracts for roughly 950 units, representing around EUR 70 million in proceeds. These transactions will transfer in the first half of 2026, and we already issued a press release about the majority of them in early January. Within these transactions, we also made strong progress on the Glasmacher district development plot in Dusseldorf. This would certainly contribute to our deleveraging strategy. As already described by Lars, we were able to agree with Hines on an option to buy the plot. The next step will be an agreement between Hines and the city of Dusseldorf. In case that works well, we expect to sign the deal by end of September, the latest. However, please be aware that the sales proceeds will follow the progress made in the building permission process. Moreover, we continue to advance our broader disposal program of up to 5,000 units, including around 1,400 units in Eastern Germany. Overall, our selective approach, i.e., focusing on sales of smaller portfolios or even single multifamily houses in the current market environment clearly demonstrates our ability to deliver on disposals. We remain focused on execution, disciplined pricing and support to our balance sheet as well as improvement of the overall quality of our portfolio. And with this, I hand it over to Kathrin. Kathrin Köhling: Thanks, Volker, and good morning also from my side. Let us now look at Slide #13, which covers our most recent portfolio revaluation. The results clearly confirm that market conditions are stabilizing. They also reflect the upward trend seen in leading market indicators such as the VDP Property Index and the German Real Estate Index GREIX. While the VDP Index recorded an increase of around 5.3%, the GREIX showed an increase of 4.8% for 2025. Against this backdrop, our portfolio valuation result in the second half of 2025 posted a 1.8% uplift, which was even stronger than the 1.2% increase we saw in the first half of the year. Altogether, for the full financial year 2025, we saw a valuation result of 3%, demonstrating clear upward momentum. Further details can be found in the appendix on Slide 30, where we show valuation changes by market segment. Our gross yield now stands at 4.8%, which continues to offer a comfortable spread versus bond yields, an important buffer in a still cautious investment environment. On a net initial yield basis, excluding incidental acquisition costs, we stand at 4.3%. The average gross asset value per square meter amounts currently to EUR 1,710, ranging from about EUR 2,320 in high-growth markets to EUR 1,190 in higher-yielding markets. Overall, the valuation result confirms that the correction phase of the past 2 years is behind us. We remain confident that this recovery path will continue into 2026, driven by renewed investor interest, more stable financing conditions and the intrinsic strength of the German residential sector. The trend has turned positive and the positive outlook is being supported by the view of major real estate experts such as CBRE, JLL as well as Moody's. Let's turn to Slide #14 and take a closer look at the development of our AFFO in 2025. We ended the year with an AFFO of EUR 220.5 million, representing a 10% increase year-on-year or about EUR 20 million higher compared to the prior year's EUR 200.4 million. The main driver behind this growth was, as expected, higher net cold rent. Altogether, this contributed roughly EUR 60 million. From that, about EUR 28 million comes from organic rent growth and another EUR 49 million from the acquisition of BCP. These positive effects more than offset the EUR 17 million negative impact from disposals. Net cash interest rose by EUR 12 million, driven by the increase in debt due to BCP and by higher refinancing costs. Still, I would like to highlight that we were able to keep our average interest cost at a very competitive 1.66%, which is an excellent outcome given the current interest rate environment. In addition, our Green Ventures still in their early investment phase, had a temporary negative impact of EUR 4.2 million on AFFO in the reporting period. Maintenance and CapEx spending amounted to about EUR 13 million more after subsidies, reflecting the enlarged asset base. To sum up, 2025 was another solid year of strong growth and recurring cash flows, underlining both the resilience of our operating platform and the profitability contribution from the BCP integration. Finally, let's turn to Slide #15, which highlights LEG's financing structure and key figures, starting with our loan-to-value ratio. We closed 2025 at 46.8%, coming down by 110 basis points year-on-year. That puts us well on track to reach our target of 45% during 2026. This continued deleveraging is driven by our solid cash generation, disposal proceeds as well as valuation effects. In addition to LTV, another key indicator, especially with regard to our bond covenants is the interest coverage ratio or ICR. Our ICR stands at a very strong 4.3x, and also all other bond covenants have ample headroom. For those interested in more detail, we've provided the full overview in the appendix. Our average interest cost increased modestly by just 17 basis points to 1.66%, still a very low level in today's market environment. At the same time, the average debt maturity remains comfortable at 5.5 years. Our liquidity position remains very strong, with more than EUR 800 million available as of year-end 2025 and undrawn revolving credit facilities of EUR 750 million. As already discussed in the last earnings call, all debt maturities for 2026 are covered. At the beginning of this year, we redeemed our EUR 500 million bond, and we are now evaluating refinancing options for the 2027 maturities, including the next bond, which comes due only in November 2027. We'll continue to take an opportunistic and disciplined approach here, depending on market conditions. All in all, our balance sheet is resilient. Our maturity profile is well structured, and we are in a very strong financing position with ample flexibility going forward. And with this, I'll hand it back to Lars. Lars Von Lackum: Thanks, Kathrin. Let me conclude today's presentation, with a brief summary of our guidance for 2026, as shown on Slide 16. These targets were already introduced with our Q3 2025 results, and I'm happy to reconfirm today that our guidance remains fully in place. For 2026, we expect a further improvement in our cash generation with AFFO between EUR 220 million and EUR 240 million. That represents continued growth on top of the strong performance we delivered in 2025. In line with that, our FFO I is expected to come in between EUR 475 million and EUR 495 million, supported by an adjusted EBITDA margin of around 78%. On the operational side, we target like-for-like rent growth between 3.8% and 4%, driven by our solid rent dynamics, targeted modernizations and the cost rent adjustment for subsidized units. Our investment volume will again exceed EUR 35 per square meter, ensuring that we maintain the quality, energy efficiency and long-term attractiveness of our housing stock. On the balance sheet, we remain fully committed to further deleveraging. With our LTV expected at around 45% by year-end 2026, we are well on track to achieve this. As announced, we plan to distribute 100% of AFFO to our shareholders, reflecting both our strong cash flow generation and our disciplined capital allocation approach. We will propose a dividend of EUR 2.92 either in cash or shares, the latter depending on the market environment. Beyond the financials, we also continue to make measurable progress in sustainability. In 2026, we target a CO2 reduction of about 7,600 tonnes. And by 2029, we aim to lower our relative CO2 emission saving costs per ton by 20%. To sum it up, LEG remains on a clear and consistent path, generating reliable cash flow, maintaining financial discipline and building long-term value for our shareholders and tenants alike. As we've said before, cash flow remains king and the best metric to steer our business. Our 2026 guidance once again underlines the strength and resilience of our business model. And with this, I come to the end of our presentation, and we are now looking forward to answer your questions. Operator: [Operator Instructions] The first question comes from Marios Pastou from Bernstein. Marios Pastou: I've got 2 questions from my side. So firstly, on the 5,000 unit disposal pool. Can you provide an update here on the progress you're having with current discussions? I think on the last update call, you mentioned you were in exclusivity in East Germany. So any comments on the progress there would be helpful. And then secondly, on the slide with the 16,000 units coming off restriction in 2028. Based on your prior experience when adjusting the rents, do you foresee any vacancy risk here, the uplift being 15% or 20% depending on the cap level seems like quite a step change in one go. So any comments there will be helpful. Lars Von Lackum: Marios, thanks a lot for your questions. So with regards to the 5,000 units disposal portfolio we have on the market, around 1,400 units are in Eastern Germany. So for parts of it, we are in exclusivity. And unfortunately, still the transaction times are much longer than initially expected. This is partially due to the financing and the more stricter view of banks with regards to real estate. Those processes still take much longer than we had forecasted. So therefore, yes, there are still portfolios in exclusivity. And certainly, we hope that we can close those over the course of Q1 and Q2. With regards to the remaining 5,000 units, we are selling those in smaller portfolios as well as single multifamily houses exactly as Volker has laid out during his presentation. So it is unfortunately not the case that we see bigger investors or transaction liquidity to have increased since the beginning of the year. So let's wait how the discussions at MIPIM next year -- next week will look like. It might certainly be that this brings additional liquidity to the market. With regards to the subsidized units, which run off, you might have seen that most of those which are getting off restriction are those in the high-growth markets. So the non-tense markets account for around 2/3 of those units getting off restriction. So therefore, I have full confidence in Volker and his team that they will relet those very quickly and easily because the undersupply in those markets is quite strong. Volker Wiegel: And even to add up, we don't see the risk of higher -- significantly higher fluctuation. Of course, there will be some fluctuation, but not in a way that we will not be able to cover it. And on Slide 27 in the appendix, you see the spread to the market rent, and you see that it's hard to find a substitute which is at the previous cost. Operator: The next question comes from Veronique Meertens from Van Lanschot Kempen. Veronique Meertens: A few from my side. So first, on the Dusseldorf land plot, could you please elaborate what you exactly meant with the time line you see for the sales proceeds of this disposal because I didn't fully understand it. Lars Von Lackum: Veronique, thanks a lot for the question. So unfortunately, first of all, let me say that certainly, we have a U.S. investor on the other side. So confidentiality requirements are quite strict. I try to give you as much of an insight as possible as of today's stage. So we have signed a purchase option with Hines yesterday, and they can make use of that call option until the end of September. If they are agreeing to that call option, we have a fully laid out contract with regards to the acquisition of the plots. So that contract will then be signed immediately and all those terms and conditions are pre-agreed, certainly including the price and the payment pattern. The payment pattern then foresees that a certain part of the sales proceeds will be paid by year-end, and the remaining payments will depend on the progress of the building permission process. And that is what I can disclose as of today. Veronique Meertens: Okay. That's clear. And then maybe that also rolls into my next question. So your LTV target is still 45%. It sounds that you're not probably get all the proceeds of this disposal in '26. So how strict is that target? How do you expect to get there as in what have you assumed in terms of disposals and value gains? And also, are you willing to sell at a discount if that means that that's what's necessary to meet that target? Lars Von Lackum: Yes. So Veronique, as you know, we have currently 5,000 units in the market. We will strictly stick to the levels which we were sticking to for all the previous years, which means we are not willing to sell below book value. So that is what we have executed over the last -- much more difficult years, and we will also stick to that guidance for this year. In order to arrive at those 45%, certainly a contribution comes from the sales proceeds, and we are also seeing a positive development in the market. Let's wait whether that is consistent over the year. Certainly, we now have a big war in the Middle East. If that tends to be longer than initially assumed, that certainly might have an impact. As of today, and looking into whatever we heard at least, it might be not that, that war is extending for weeks. So therefore, if that's not going to happen, we are quite confident that we can reach our 45% target. And this is, as of today, what we are now striving for, and we are quite confident to reach that within 2026. Operator: The next question comes from Andres Toome from Green Street. Andres Toome: You have a pretty clear focus on disposals for the next 12 months or so, it seems. But I was just wondering on the other side of it, if large disposals in the market today require "portfolio discounts", then is there a case where you can see actually accretive acquisition opportunities yourself to be a buyer, which would be financed through an equity raise? And I guess I'm particularly thinking about some of these news flows around open-ended funds for German residential that need to fulfill their redemption needs. Lars Von Lackum: Yes, Andres. And thanks for your question. So with regards to our own acquisition activity, I think we have just acquired a big portfolio, BCP, 9,000 units, integrated that fully. Certainly, we are being offered bigger portfolios on a regular basis. I can tell you that we have not seen any of those willing sellers to give in on price. So therefore, there was nothing comparable with regards to any acquisition opportunity with regards to the quality and also the pricing of the BCP portfolio. Looking at our share price, I think it would be very, very difficult to identify anything which in the current market would then really end up with an accretive value for our shareholders, making the next acquisition. So therefore, our focus currently is strictly on deleveraging, reaching that 45% target, getting sales executed. Andres Toome: That's clear. And then maybe related to this, maybe not in terms of pure straight equity raise, but are you perhaps seeing any options where the seller would accept LEG shares as a buying consideration? I think we've seen some of these examples in other geographies in Europe, but I wonder if there's any discussions around that in Germany. Lars Von Lackum: So currently, we haven't had that discussion with any of the willing sellers. Andres Toome: Understood. And then my final question was just on the points you made around AI. And I think one of the points you highlighted was gaining also some revenue upside. I just wanted to understand how does that work in a regulated residential market? What are the levers you can pull beyond the regulatory constraints you already have in putting through in place rent increases? Lars Von Lackum: Yes. As you know, Andres, the number of criteria with regards to the rent tables can be up to 100 for a single rent table. So the qualitative criteria, which you need to take into consideration is quite a long list. Certainly, being more precise on those different criteria can certainly give you additional upside to just mention one of the examples with -- which certainly gives you an additional rental potential to be realized if you are using more AI. Operator: The next question comes from Thomas Neuhold from Kepler Cheuvreux. Thomas Neuhold: I have 2. The first one is a follow-up on the Gerresheimer project. I understand you're bound by NDA. But I was wondering, would you be able to sell the land plot at or above book value? Can you comment on that? Lars Von Lackum: Yes, so the book value is at around EUR 71 million, and we've been able to realize a substantial uplift on that if we get the sales contract signed end of September. Thomas Neuhold: Good. The second question is on the regulatory environment. I was wondering, if there have been any recent important news on the planned change to the rent regulation. Did you hear anything important? Lars Von Lackum: Yes. So if you look at the current discussion in Berlin, I think on a federal level, you might be aware that there are still discussions on how the regulation for refurbished apartments will look like, how index rents will be limited and also how those pure payments are being regulated. So those are the 3 big issues the Social Democrats are currently forcing through. And from our perspective, that is already a given and that's going to be agreed. With regard to the city of Berlin, there's certainly a lot of discussion and let's wait of what's going to happen now. As you know, we do not own a single unit in Berlin. So we will be not affected by whatever is being decided or at least being discussed in the upcoming election in Berlin. Operator: The next question comes from Kai Klose from Berenberg. Kai Klose: I've got 3 quick questions, if I may. The first one is on the -- actually, the first 2 are on the AFFO statement. Could you indicate or give more details on the increase for the nonrecurring special items from EUR 16 million to EUR 33.9 million and if there will be a similar level or similar increase in '26? Second question is on the green investments, which -- investment income from Green Ventures, where you mentioned that this will leave the investment phase in '26. So can you read that there will be a positive contribution to the AFFO in 2026? And the third question would be on maintenance. You mentioned there was an increase in '26 -- '25 because of the BCP portfolio. Has this been -- this increase only in '25? Or can we expect slightly higher levels because of ongoing work for BCP -- ex BCP assets in '26? Kathrin Köhling: Thanks, Kai, for your questions. With regard to the first one on the nonrecurring special items, this was a special case this year because of BCP. Obviously, we had some integration costs that took place this year, and that's why this number was higher than in the previous year. As long as we don't buy another BCP this year, this should be lower next year. Volker Wiegel: On the second question on Green Ventures, yes, we expect a positive result will not be record high. And of course, there's more risk in these ventures as it's new, but we expect a positive result and yes, expect breakeven. Lars Von Lackum: And to conclude the round here, so with regards to the maintenance expenditures we had in 2025, we do not expect an additional expenditure on the BCP portfolio within 2026. Operator: The next question comes from Paul May from Barclays. Paul May: Three, if I may, probably doing one at a time might be easier. Just following on from the question earlier around acquisitions out of the open-ended funds. I appreciate you said they're not willing to move on price, but there comes a point where they don't have a choice. They do need to meet those redemptions. So I assume that opportunity may still come. You mentioned it wouldn't be accretive for investors if you fund it with equity. Just wondering how you're viewing that, whether you're viewing that on a cash flow basis or whether you're viewing that on a kind of balance sheet made up value basis. That would be great. And then we live it next to separately. Lars Von Lackum: Yes, Paul, thanks for your question. So with regards to the acquisition opportunities out in the market, I think you rightly assume that certainly some of those open-ended funds will sell portfolios. What we still see in those discussions is that liquidity there does not seem to be so stretched that they are under pressure to do really fire sales. So therefore, currently, no indication for them really giving in on price. Certainly, and you might have seen that, we had 2 funds which have also stopped accepting redemptions. You can close down on the fund for 3 years. So that once again also might be a prolonged period where you are not seeing those funds to really do for selling. So therefore, that is what we've currently seen in the market with regards to those funds currently offering portfolios in the market. Secondly, with regards to how we view those acquisition opportunities, we certainly look at it from a cash flow basis, but also from an NTA perspective. And currently, we were not willing to really offer our shareholders any exposure towards those acquisitions. From our perspective, we are well advised to be strict on sales and do our deleveraging path in 2026, in order to arrive at that 45% LTV target. Paul May: Just sort of following on that, I guess, you mentioned the trend in the market, I think it was in Kathrin's commentary has turned positive. I mean, to some extent, the only thing that's positive is valuation prints. Transaction market is lower. Swap rates and bonds have moved higher now versus the average through 2025. So one might argue that the activity levels are lower and worse versus the valuation prints that have got better. Just wondering how you're reconciling those 2 things, which seem to be moving in opposite directions. Kathrin Köhling: Yes. So happy to take your question. When you just look at what is happening in the market with the undersupply that we continue to see, we still expect that rent growth will be a key driver for property values also this year. And yes, it is -- it has been a low year in terms of transaction volumes last year. But when we look at what the big valuators are expecting for this year, they are expecting at least transaction volumes, which are a little bit higher than last year. So we've seen around EUR 9 billion last year. We'll probably see around EUR 10 billion this year. So there are some positive signs. I mean, given currently the Iranian conflict, things look quite different these days, but we have to see what will happen ultimately over the next weeks. If we were to come back to a rather normal environment, which we've had like a week ago, then I'm quite positive that we will see what I just said. Paul May: I think the brokers were quite positive on improving last year as well and ended up being slightly worse, but just be interested to see how that comes out. And then I think again for you, Kathrin, just another one. So over the next 6 years, I think it is roughly, you've got about EUR 1 billion of debt maturing. I think it's just over EUR 1 billion of debt per annum with an average cost of about 1.3% at the moment. Obviously, the cost of that will likely go up by somewhere around 220, 230 basis points, which I think implies a financial headwind to FFO of about 28% versus 2025 FFO and about 63% headwind to AFFO based on FY '25 AFFO. I appreciate that we offset to some extent by rental growth. But just wondering your thoughts there, how you're going to manage that? And obviously, you mentioned disposals, but those in theory come at a higher EBIT yield than your financing costs. Otherwise, you're better off refinancing and holding on to those assets. So I just wonder how you're going to manage that sort of headwind to FFO and AFFO moving forwards over the next 6 years. Lars Von Lackum: Yes. Thanks a lot for your question, Paul. With regards to our midterm planning, our assumption currently is that we can realize, on average, a 5% growth of our key KPI, AFFO over the coming years despite the headwind from interest rates, which you have just mentioned. Certainly, exactly as you mentioned, we are expecting the core business to deliver strongly due to the undersupply in the market and the additional element, which we have disclosed hopefully, in a bit more detail as of today, the substantial number of subsidized units running out of those subsidization schemes and then being treated as free financed units. Secondly, you've seen what happened to the value-added businesses. We are quite confident that we can grow those value-added businesses going forward. That was certainly a very strong year, EUR 50 million to EUR 60 million. So please do not extrapolate that going forward. But that's certainly a contribution we are going to see. Green Ventures, you heard that. That was the last investment year. Last year, they are supposed to contribute substantially. Cumulatively, we strive for a profit of around EUR 20 million until 2028. That's an ambitious target. Certainly, as always, it's under risk if you are talking about start-ups, but the market certainly on the decarbonization side is huge. And finally, we will strive for a new digital operating model, and that certainly will give rise for efficiency gains, lower investments and certainly and most importantly, also additional top line. So with those elements, we feel comfortable to say over the next years, despite the headwind from interest rates, we can increase AFFO per year at around 5%. Paul May: Cool. Perfect. And just to check, the marginal financing costs you're assuming in that 5%, just so you got a sense. Lars Von Lackum: The marginal financing cost for a 10-year financing in the -- in the... Paul May: In your planning, you mentioned 5% per annum AFFO growth. So I just wondered, what is the assumed marginal financing cost? Lars Von Lackum: Yes. So what we do is that we certainly use the interest rate curve as of the time where we are preparing and finally deciding the midterm planning, which was October last year. So certainly, if that is going to change, that will have an impact. But believe me, everyone here in the management team and the full team is fully dedicated to deliver those returns going forward. Paul May: Okay. So we're about sort of 15-ish basis points higher on that versus October last year. Operator: The next question comes from Thomas Rothaeusler from Deutsche Bank. Thomas Rothaeusler: A couple of questions, I think 2 or 3. The first one is on subsidized rents and the adjustment potential, more looking at the long-term upside. I mean, should we expect a structurally higher rental growth rate from '28 considering the higher reversion potential? I mean, you can almost double the rents over time, as you've shown. Maybe you could provide a rough idea about the long-term impact on rental growth. Volker Wiegel: You will have significant impact on the next 3 years starting 2028. Thomas Rothaeusler: But I mean from there, like more the very long term, I mean, you can basically adjust by 12%, as I understand, in '28. But then from there, actually, there is much more adjustment potential, I think, given the low level where subsidized rents come from. Volker Wiegel: Yes, it's -- well, you see the spread to the market rent, and it will take time to adjust it until it's there. And market rent also develops. So this will -- there will be a significant gap that we need to close. And of course, we have the German rent regulation where we can adjust all 3 years then the rents. And we haven't simulated for the next 20 years, but it will have a structural impact over the next decade, I would say. Thomas Rothaeusler: Okay. And then on value-add services, I mean, which contributed a record EUR 60 million in '25. Just wondering what to expect in the coming years? Lars Von Lackum: Yes. So please do not expect that value-added services are now increasing on a regular basis by 20%. That would be highly unrealistic. So that we had -- that lower growth over the last 3 years was certainly very much driven by the energy crisis and the Ukraine war. So that was a strong impact on the Energy Services business. So from our perspective, for this year, assumes something in the growth range for the AFFO. So that will be growing pretty in line with AFFO for this year. Thomas Rothaeusler: Okay. Last one, yes, on property values. I'm just wondering if you could -- if you already got any indication from your appraisers for the first half? Kathrin Köhling: Yes, we just finished our last valuation. So as always, we will start with our new valuation with our cutoff date end of March. And then we'll have more insights once we meet again in May, and then we will give you an indication on H1 as we've always done. Operator: The next question comes from Neeraj Kumar from Barclays. Neeraj Kumar: I've seen a couple of questions on equity raise, so I'll probably not ask that. But on the other side, I would say that it's assuring that you see your values are strong and you don't look to sell below book values. But given your current share price, which seems to be pricing more than 50% discount to your NTA, do you see a potential in saying disposal of EUR 500 million assets of your least profitable assets at 10% discount to your book value and then using those proceeds to buy back shares? If yes, why you're not considering it? And if not, then how do you think about your share price here? Do you think it's fairly representing your property values? I'm just trying to understand if we should be believing your reported property values or your share price implied property values here. Lars Von Lackum: Yes. Thanks a lot, Neeraj, for the question. So it's always difficult with hypothetical questions. So we have not thought about doing that, and we will not do that. So from our perspective and looking at the value increases, especially with those with the lowest yields, those have grown substantially in value over the last 2 years. So therefore, from our perspective, that's nothing which we would -- we would look at. Neeraj Kumar: Okay. So if I understand correctly, like selling assets at 10% discount to book value is not accretive, if you were to use that to buy your shares at more than 50% discount to book value? Lars Von Lackum: This is not what I said, Neeraj. I said that we are not thinking about doing so because from our perspective, the highest value creation on those assets is still to come due to the strong undersupply in the especially high-growth markets. Neeraj Kumar: Got it. And last question. You seem to have been able to refinance your debt with good success with Baa2 rating. I was just trying to understand how critical the LTV target of 45% or a potential rating of Baa1 for you is? Or you think that is better in terms of running with high leverage and doing more share accretive stuff here? Kathrin Köhling: Yes. So of course, as I've always said, the 45% LTV is definitely something that would help to get an upgrade from Moody's on our rating. Although, as you know, it's not the only thing -- the only KPI and the only qualitative factor they look at. So obviously, we would love to have a better rating, but is it essential? Like do we need it to refinance? No. We have refinanced also in the past years. We have refinanced at very attractive levels. So it is not an absolute need that we get this rating upgrade. But however, it's still something nice to have. Operator: [Operator Instructions] The next question comes from Manuel Martin from ODDO BHF. Manuel Martin: Two questions from my side, please. One follow-up question on the units getting off restriction in 2028. Having looked from a political perspective, have you heard anything from the political players in the locations where the units will come off restrictions, i.e., could there be some headwinds to be expected? Maybe you can elaborate a bit on that and thereafter, will be my second question. Lars Von Lackum: Yes, Manuel, thanks a lot for the question. So we have not heard from any political resistance. If you look at the prices of those subsidized units, EUR 5.40 versus the market level EUR 9, that is the difference you're currently seeing in the market. We paid back the subsidized loans already in 2018. So there was a waiting period for another 10 years. So therefore, from our perspective, nothing to be expected on the political side, no political pushback also with regards to those units, which were getting off restriction over the past years. So also no political pushback to be expected from that bigger portfolio. Volker Wiegel: And maybe to add, we are in close contact with almost every mayor and every bigger location, and they understand what's going on and accept it. Manuel Martin: Okay. Perfect. Second question about project development, you're not actively doing that. Do you think this could become an option again for LEG to restart project development? It might be a bit too early, but maybe you can say a word on that, please. Lars Von Lackum: Yes. So very happy to do so, Manuel. We are still struggling to come up with a return worthwhile taking the additional risk on our balance sheet. It is still something which certainly we have explored with that big plot in Dusseldorf of 19 hectares. Finally, we were not making or coming up with a business plan, which will have at least brought about the return worthwhile spending additional money on that plot. So therefore, from our perspective, no, the current regulation is still very strict. The Bau-Turbo, so that's speeding up of building permission processes, we have not seen that really kicking in. We still wait for that building type E, which is assumed to reduce some of the requirements with regards to the building type and the building qualities. Also, those reductions are still not being decided or not in a way currently being discussed politically, which would come then finally to lower construction costs. So therefore, from our perspective, no, we currently do not see any real benefit of that for us to reenter the development market. So that is the current status there. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Frank Kopfinger for any closing remarks. Frank Kopfinger: Yes. Thank you, Valentina, and thanks for all your questions. And as always, should you have further questions, then please do not hesitate and contact us. Otherwise, please note that our next scheduled reporting event is on the 13th of May when we report our Q1 results. And with this, we close the call, and we wish you all the best and hope to see you soon on one of our upcoming roadshows and conferences. Thank you, and goodbye, everybody. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Hello, and welcome to the Spire Healthcare Full Year Results for 2025. [Operator Instructions] I will now hand over to your host for today, Justin Ash of Spire Healthcare. Justin, over to you. Justin Ash: Thank you, and welcome, everybody, in the room and welcome, everybody, online. Very good to be here today. If you are joining for the first time, I'm Justin Ash, and I'm the Group Chief Executive of Spire Healthcare, and this is Harbant Samra, our CFO. So we're going to talk you through the results, and then we're going to leave lots of time for questions. So let me start with a review of our strategic progress in 2025, the market context, how we're thinking about 2026 and how we're prioritizing in response. So the results we're sharing with you today demonstrate a resilient performance in the face of significant cost challenges and changes in the NHS commissioning environment towards the end of last year. In response, we focused on consistent delivery of our strategic priorities. Our private focused multi-payor strategy, our transformation program that's delivering efficiencies through standardizing, centralizing and embedding digital and automation, our plan to grow in primary care, an area of accelerating demand and our continuous focus on care quality and innovation to drive an even better patient experience. Together, these priorities allowed us to respond with flexibility in 2025 while strengthening our foundations for the long term. So looking first at the market, we saw 4 key trends last year. The private market, as previously reported, saw low single-digit percentage volume decline for much of '25. However, I'm encouraged that we saw improving momentum in demand, especially self-pay during the second half of H2 as well as continued growth in primary care. However, we experienced significant labor inflation during 2025, driven by the increase in Employer National Insurance contributions. And of course, in the later parts of H2, there was a sector-wide slowdown in NHS volumes as we began to see the start of activity management plans as integrated care boards faced budget-free restrictions. We responded to these trends with focus in line with our strategic plans. Looking first at private patient growth. We ended the year with a return to positive volume growth in self-pay. As I said, I'm encouraged to see that is continuing now. There is no doubt some market effect here as the impact of NHS budget constraints both influence local waiting times and patient sentiment more generally. However, we've also spent 18 months building our efficiency and effectiveness in private patient acquisition and response, including actions to strengthen our brand, our speed of access and our mix. Next, transformation. 2025 was the biggest year of change yet for our business. We drove efficiency, and we delivered our plan of GBP 30 million savings, offsetting rising employment costs. The largest program was transitioning administration for incoming inquiries, bookings, preoperative assessments and self-pay sales into 3 patient support centers. This is already providing a platform to improve patient experience and deliver growth with further benefits to come. We've also been investing in our sites over a number of years, creating an estate which is attractive to patients and those who work there, and this enabled us to lower our CapEx spend in 2025 without compromising on quality. We made progress in primary care. Our clinic strategy is to open sites in new geographies to attract private patients we could not otherwise access, and in 2025, we opened 5, including in Kingston, Wimbledon and Kings Lynn. The larger hospital outpatient clinics generated downstream referrals to our hospitals worth GBP 3 million of EBITDA. We also made 2 small acquisitions of a physiotherapy business and an occupational health business, both of which are performing in line with plan. Lastly, we continued to deliver on our quality strategy, including a focus on reducing average length of stay across several procedures, saving just over GBP 1 million whilst improving patient access and recovery. We are now at 29 surgical robots across the estate, and we added 7 in 2025. These have increased our capacity to provide high-value private care, and they deliver improved outcomes and also contribute to faster recovery times. And our actions underpinned by focus on efficiency and CapEx discipline have resulted in strong adjusted free cash flow growth. I just want to take a moment to unpack some of the actions we've taken to leverage the self-pay opportunity, in particular, over the last 18 months. So I mentioned improving brand scores and marketing effectiveness on the previous slide. Our private focus targeted local marketing strategy is successfully driving demand and conversion in a competitive and predominantly online marketing environment. So if you look at the chart on the right, our latest data shows our brand scores now lead the market. More people are moving from simple brand awareness at the top to the next level direct service consideration. Our unprompted and prompted awareness are now at their highest levels ever of 35% and 80%, respectively. And consideration, which is key, has driven by 6% to 61%, which in turn drove record levels of inquiries to Spire during the year. We've continued to apply AI to optimize our pricing locally to ensure we are as competitive as possible versus our competitors whilst also protecting margin. And since moving self-pay sales and bookings to patient support centers, they are consistently delivering call answer rates of around 95% compared to 60% before we move to patient support centers and therefore, converting more inquiries to bookings and bookings on the same day. And finally, to meet rising demand for diagnostic MRIs, we applied again AI to increase image quality, throughput and capacity in scanners at 21 hospitals, halving the scan times to contribute over GBP 2.5 million EBITDA in 2025 through growth in activity. So all these activities are setting us up well with strong foundations from which to capitalize on the improving self-pay environment. As we look ahead to the rest of this financial year, I just want to take a moment to frame what is happening with NHS commissioning and the related effect in the private market. The NHS is going through a fairly fundamental restructure as it seeks to ensure financial discipline. You're all aware of the system-wide and well-documented NHS commissioning slowdown of both independent sector and NHS elective work, which is impacting hospitals in our first quarter of 2026. Patient demand remains high, but the budget is not there to fund the demand. And as a result, multiple integrated care boards have imposed activity management plans. I should mention that our primary care business is relatively insulated from this given the long-term nature of the contracting there. The net effect is we expect NHS revenue to be down about 25% in Q1. At the same time, as I've mentioned, self-pay is responding, partly a consumer reaction to the NHS slowdown as well as our own actions. And in Q1, we expect around 4% growth in private revenue with self-pay up around 6%. Looking ahead, the NHS financial year resets in April, and activity will undoubtedly bounce back from the lower levels of Q1. We are yet to have firm visibility on what activity plans for the period covering our Q2 to Q4 will look like or how they will be managed. So clearly, that is a material uncertainty for the year. And this should become clearer as commissioning discussions progress in the coming months. But with this in mind, we've developed some scenarios on which to base our 2026 plans for Q2 to Q4. Broadly speaking, these assume significant improvement in NHS activity relative to Q1 as budgets are reset. We've taken a balanced view of continuing NHS budgetary pressures alongside the need to reduce waiting lists. And we also expect faster private patient growth in response. So we also think this is a transitionary period for the NHS as it resets, whilst local relationships between Spire and commissioners remains strong. Therefore, as we look to the rest of 2026, our strategic priorities set us up well to control the controllables, respond flexibly to the market environment, and we will make delivering sustainable cash flow a priority. We will continue to intensify our focus on private payor growth, capturing the momentum we're seeing in self-pay through targeted local investment in marketing and price optimization. The next phase of our development in our patient support centers will further support self-pay inquiries through to conversion, which together with a new website and CRM system will deliver an even better experience for patients and consultants. And we'll continue to streamline hospital operations to make quick access and treatment for private patients a priority. In transformation, we'll continue to deliver more efficiency improvements. Our track record in delivering such programs has led us to accelerate our 2026 savings program, which will at least mitigate the Q1 NHS commissioning impact. In primary care, we've built a strong foundation across multiple services, spanning private GP, occupational health, mental health and physiotherapy. This year, we aim to accelerate integrating these services with our hospitals and leverage our existing base to drive organic growth. We anticipate limited M&A. We're also working on unlocking the opportunity for growth with employers, where the growing impetus behind employee health and productivity gives us a platform to provide a wider range of treatment solutions in addition to traditional occupational health. And we'll continue to open a small number of CapEx-light clinics in new geographies. Finally, of course, we will maintain our focus on care quality that underpins our growth. We aim to maintain or improve our already high ratings from regulators and patient and consultant satisfaction scores. So the Board announced in September 2025 that the company is actively evaluating actions to drive long-term sustainable shareholder value. That review is ongoing. So as part of this review, we're considering a range of potential options, which may include, but is not limited to, a potential sale of the company, value generation from the hospital property estate and adjustments to our operational and strategic plans. There can be no certainty that any offer will be made for the company nor as to the terms of any offer if made. Many of you will already understand that being in this process and therefore, subject to takeover panel rules means there are limitations to the statements we can make today about the strategic review, our forecasts and the assumptions that underpin them. The Board will make a further announcement on this matter in due course as appropriate. In the meantime, as you can see, we continue to focus on executing our existing strategy to grow our healthcare business. The management team and I are relentlessly focused on delivering our 2026 priorities. Finally, I'd like to take a moment to talk about the high standard of care that we provide. This is the foundation for our resilient performance, and I'm pleased to say that in 2025, 98% of our sites were rated good or outstanding or the equivalent by regulators. 97% of hospital patients rated as good or very good with a rise in very good ratings. 84% of consultants rated our care very good or excellent on par with last year and with a small increase in excellent ratings. So this is only possible through the hard work and commitment of our more than 17,000 employees and over 8,000 consultant partners. They have adapted to change as we have significantly transitioned the way we run our business to be more agile and responsive. It required their patience, their input, their professionalism. And I'd like to take this opportunity to thank them profoundly for their collaboration, partnership and professionalism. I've been really delighted to see this professionalism and dedication in action as I and fellow directors have visited sites throughout the year, meeting our DAISY and IRIS award winners for outstanding care and marquee moments such as the opening of our new clinics and the delivery of new surgical robots. Thank you very much, and I'll now hand over to Harbant. Harbant Samra: Thank you, Justin. Good morning, everybody. So I'll start by giving a high-level summary of the financial year. Total revenue for the group has grown 4.5% with hospitals up 4.3%. Underlying this, we saw a strengthening and improving private market, but the NHS business experienced slowing volumes in the second half due to their budgetary pressures. We also saw strong growth in revenue for our Primary Care business. Adjusted EBITDA was up 3.2% to GBP 268.6 million. This was supported by the successful delivery of our transformation savings target as well as price and mix management. These savings helped to mitigate increased cost pressures, a larger element of which related to the rises in National Insurance and National Minimum Wage from Q2 onwards. After deducting depreciation and finance charges, both of which were in line with guidance, the group reported an adjusted profit before tax of GBP 46.5 million, 7.4% down on the prior year. We have delivered our CapEx plan, investing in growth projects and transformation and have done so whilst reducing the overall spend by 30% year-on-year to GBP 78.5 million. As a result, I'm pleased to report that our adjusted free cash flow was up 64.9% to GBP 64.3 million. Finally, ROCE was 8% compared to 8.2% for 2024. On a comparable basis, excluding National Insurance and National Minimum Wage uplift during the year, ROCE increased by 30 basis points to 8.5%. Now turning to our Hospital Business. Total revenue grew 4.3% to GBP 1.5 billion and is reflective of our strategy where we have targeted growth across both private and the NHS. Overall, total volume across all payors was up 1.4%. Adjusted EBITDA for our Hospital Business rose by 3.9% to GBP 258.8 million, representing a margin of 17.9%, broadly flat to last year's 18%. EBITDA would have grown by more than 7%, excluding National Insurance and National Minimum Wage rises. And the GBP 30 million of new cost savings alongside tight management of price and acuity helped to mitigate the cost headwinds. Moving on to performance by payor. I will start with self-pay. Overall, revenue saw a minor decline, but notably year-on-year volume growth returned to positive by the end of 2025. This is reflective of our strategy to target this segment. We have invested in the start of the sales funnel with targeted marketing, and we have made big and important changes to our booking processes, centralizing teams into patient support centers. Bearing in mind the scale of these changes, it was not surprising that we saw some operational disruption early on during the summer. But the centers have now bedded down and are making a positive contribution to our self-pay and wider business. We've also continued to optimize price based on local market dynamics at an individual procedure level, resulting in ARPC growth -- growing by 3.9% during the year. Turning to PMI. The market has remained stable. As we flagged at the half year, insurers continue to manage claims access and issue tenders. Despite this context, we have grown PMI revenue by 3.1%. This is largely driven by our price and mix management towards higher acuity procedures, contributing to above-inflation ARPC growth of 5.3%. Overall, the signs for our private business for both self-pay and PMI are encouraging. Turning now to the NHS. In the second half of 2025, we saw the initial signs of sector-wide action from the NHS, where it slowed commissioning due to budgetary pressures. This was followed by further tightening in late 2025, where certain integrated care boards requested a stop in activity. The result of this was revenue growth for H1 reaching 16.2% before slowing to 6.8% in H2, taking us to revenue growth for the full year of 11.4%. We also continue to target high acuity procedures and thereby achieved a 3.2% uplift in average revenue per case, slightly ahead of the NHS tariff uplift of 3.1%. Orthopedics continue to account for over 60% of all NHS admissions. Moving on to our Primary Care business. Revenue increased 7.4% to GBP 133.7 million, driven by organic and new contract growth across talking therapies and occupational health. After including our recent acquisitions of Acorn and Physiolistic, revenue growth was 10.5%, and their revenue and profit contribution were in line with plan. Adjusted EBITDA for our Primary Care business as a whole was GBP 9.8 million, which whilst at a headline level is a reduction, the core business has grown by more than 5% year-on-year. Two of the 3 larger new clinics are already profitable. More importantly, these clinics have also generated GBP 3 million in EBITDA through referrals to our hospitals, which is encouraging given the relatively short period of time that they have been open. Looking at overall group EBITDA delivery, we can demonstrate the important role that the transformation savings played in our full year outturn with the business delivering on those things in our control. In addition to one-off cost headwinds, which includes National Insurance and Minimum Wage increases, there was also underlying cost inflation, half of which related to salary uplifts. Our transformation savings have mitigated around 2/3 of this cost inflation, which together with price and mix management has underpinned EBITDA growth. Turning to profitability. We incurred GBP 27.9 million of adjusting items with statutory profit after tax declining to GBP 17.2 million, stated after the impact of National Insurance and National Minimum Wage rises, partially mitigated by a reduction in taxation. This benefit arose from a review we initiated over qualifying capital investments for tax deductions and covers a number of years. 2025 was a significant year for our transformation program. As a result, the adjusting items included around GBP 13 million in one-off costs associated with delivery, covering, for example, redundancy costs and setting up the PSCs. Adjusting items also included certain fees linked to the ongoing strategic review of around GBP 7 million. Moving on to cash flow. We have grown adjusted free cash flow by around 65%. This outcome evidences our disciplined approach towards CapEx investment. We continue to focus on growth and returns with CapEx increasingly directed towards expanding the private patient business. Alongside this, our transformation program delivered GBP 30 million in savings, helping to support the overall strong cash flow outcome. Now a deeper dive into CapEx. Total CapEx was GBP 78.5 million, which is 30% lower than last year. We have made significant but targeted investment in our estate over the last few years. As a consequence of this, we have dealt with a backlog and importantly, have become a much more modern and attractive offering for private patients, which is clear from their feedback. This strategy has meant that in 2025, CapEx as a percentage of revenue decreased to 5% compared to 6% to 7% in prior years. Of our total CapEx outlay, GBP 50 million was directed towards our hospitals for maintenance and growth. We also invested GBP 20 million supporting our transformation program and GBP 8 million in primary care, which included new clinic openings. For 2026, we expect the underlying split across these categories will follow a similar pattern to that for 2025. Moving on to the balance sheet and returns. We have maintained our leverage at 2x, and this is stated after acquiring the Acorn and Physiolistic businesses during the year. We have also extended the maturity of our bank facilities by 18 months to August 2028. The underlying terms are unchanged. The strength of our balance sheet is further underpinned by the quality of our freehold base, where we have a valuable portfolio of 19 hospital properties. We know that this -- we note that the market appetite for healthcare assets remains strong. Having this asset base gives us a wide range of options in terms of strategy and generating future shareholder returns. Our ROCE was 8%. However, I will highlight that after adjusting for the impact of National Insurance and National Minimum Wage rises, our ROCE would have been 8.5%. Moving on to the outlook. As Justin has mentioned, private patient momentum has continued to improve in the first months of 2026. For the full year, we're expecting percentage growth of mid- to high single digit year-on-year. NHS volumes remain a material uncertainty across the sector and activity from April or the start of the commissioning year has yet to be agreed. As a result, there are a range of scenarios we are planning for, which means we are targeting an adjusted EBITDA outcome for 2026, which is broadly in line with 2025. Our base planning assumption is for Q2 to Q4 NHS revenue to be down between 5% and 10% year-on-year, a significant improvement versus the Q1 outturn, which will be down around 25% year-on-year. We think this planning assumption is plausible in the context of a new budget and commissioning year. And as a reminder, the provisional NHS tariff for 2026 is close to an annual uplift of 0%. On savings, we have an existing GBP 30 million target. Over half of this is already underpinned by rollover from programs deployed last year alongside head office restructuring that took place in January. We are planning to deliver ahead of this target to at least offset the impact of the Q1 NHS shortfall. Primary Care is expected to deliver strong organic growth. Finally, across all scenarios, we will continue to be disciplined around the deployment of CapEx, leading to lower CapEx as a percentage of revenue and maintain our focus on generating free cash flow. Thank you. With that, I'll now hand back to Justin. Justin Ash: Thank you, Harbant. Okay. So I'm just going to give a short summary, and then we will go to Q&A. So today's results demonstrate a resilient performance against the backdrop of increased employment costs, combined with the changes in the NHS commissioning environment. We've used the levers at our disposal to respond effectively. We focused on growing private and particularly self-pay. We delivered our biggest ever year of transformation, including our planned GBP 30 million in savings. And we improved cash generation while maintaining care quality, optimizing our pricing and exercising discipline across our activity mix and investments. In doing this, we have created a strong platform for improving patient experience and growth. So looking to the rest of 2026, we'll remain focused on using the levers of our strategy to deliver sustainable cash flow. We will respond to NHS uncertainty by growing private patient revenue, building on encouraging early momentum in self-pay, and this will be enabled by targeted investment and further improvements in our patient support centers. Actions are already underway to accelerate transformation cost savings this year, which will at least offset the Q1 NHS commissioning impact and more. Our transformation program will continue to create greater consistency and ensure that we maintain and improve our high-quality ratings. In Primary Care, we intend to focus on organic growth and integration in the year ahead. We'll leverage our multiservice platform, step up our engagement with the employer market and build on the momentum from our clinics to continue to drive new referral pathways into our hospitals. In all that we do, we will remain disciplined in deploying CapEx towards higher returning investment and benefit from our already well-invested estate. So we have a solid foundation to deliver sustainable returns as we continue our evolution to meet the U.K.'s growing healthcare needs. We remain excited by the private market opportunities ahead and confident in the medium-term outlook for Spire Healthcare. Thank you very much for listening. I'm now going to go and join Harbant and take Q&A, and we'll start with questions in the room. Thank you. Justin Ash: Question here. Can you please state your name and your organization? Sebastien Jantet: It's Seb Jante from Panmure Liberum. So 3 questions, if I may. I'll just start off with one on PMI. Obviously, kind of all of the operators are under pressure from NHS kind of volumes. And I'm guessing that, that kind of is flowing into the PMI kind of discussions on pricing. And I'm just wondering how those are kind of panning out? Are you finding it harder to get decent price increases through? And also in terms of the PMI, are they starting to ask you for broader offerings that go around physiotherapy and some of the more primary care stuff as part of that? Or are they still seeking that from other vendors? Justin Ash: Okay. So I'll take that. Thank you, Seb. So PMI, so I think we're pleased with our relations with PMIs. I think things have moved forward from the last time we talked. I think we think we'll see some of the impact in the NHS as well beginning to filter through in PMI as well. And yes, we have very broad -- Peter may add, but we have very broad strategic discussions. It depends a bit by insurer, but the broader offering is clearly where insurance is going. I mean patients generally by way of backdrop, one of the reasons for our primary care strategy is younger patients, in particular, are accessing both self-pay and PMI and they're accessing it typically through Primary Care. You can see insurers are interested in that, and we have very strong engagements with them on that. So I think overall, a pretty constructive environment. Peter, would you be happy with that? Peter Corfield: Yes. Justin Ash: Yes, it's a pretty constructive environment at the moment. Sebastien Jantet: Second question is on I guess, more the shape of the NHS volumes as the year kind of progresses. So we're kind of sitting here in March. You're still not really clear on NHS volumes and what they might be. Is there a risk that the NHS volumes don't end up being equally spread through the year, which would obviously cause you guys a headache in terms of costs and kind of -- and capacity? Justin Ash: Yes is the answer. I mean, first of all, we can't see the future here. And by the way, at this time of the year, we never quite know what it will be. It's just there's a bit more uncertainty than there was. So what are the scenarios around NHS? So I think we've picked a plausible scenario because they've got 2 pressures. If you read the press, let's do NHS generally, you can read a lot about the imposition of enforcement around deficits. So the NHS has clearly decided that it wants financial discipline. And that's the backdrop to this. I mean, just to be clear, we've not had a single message about relationship with the independent sector. This has been about financial discipline and therefore, looking for places to impose restrictions where they can to hit the fact they're under budgetary pressure. And we work with commissioners on that, and that's clearly important for the NHS. On the other hand, there's clearly pressure on commissioning boards where their waiting list get too high. So what we've seen in the first quarter is whilst we are down 25%, we're also seeing and a little bit more of what our spot contracts where a commissioning board of particularly a trust calls up and says, we've got to wait in this problem. Can you help us with this cohort of patients, okay? So I suspect the year is going to look a bit like that, which is overall, we think the effect will be what we've described, which is down mid-5% to 10%, but it will probably be made up of indicative activity plans, which are topped up with spot work, okay? Whether that will be lumpy during the year? I don't know. I really don't know. But remember, it resets 6th of April. So what will definitely happen is the volumes will go up. We know this partly because we've rebooked patients, right? So we've rebooked patients we had to cancel. So it will pick up. Will it bob around? Probably. But I think it's worth saying we do talk to local commissioners all the time. Whilst this may look like a big fracture at the very top level, locally, we're talking to commissioning boards and trust daily. Our hospital directors and our NHS commissioning team have super strong relationships with them. So as far as we'll have visibility, this team will be on it. Is there anything you'd add to that, Peter? Peter Corfield: No. Justin Ash: Is that a good description? Yes. So that's pretty much what it looks like. So maybe, but I think overall, our assumption is the numbers we've given you today. Sebastien Jantet: And then last question is just on self-pay. So obviously, it's always been a competitive area, but it's kind of even more competitive now that everyone is trying to make up the backlog, the kind of hole in the revenue line from the NHS. What makes you think that you're going to be able to outperform and accelerate in that market versus your peers when presumably they're all investing in this space as well and all pushing hard there, too? Justin Ash: So I think -- so if you look at our market shares locally, which we spend a lot of time looking at, we held share over the last couple of years, okay? And the truth is in the last couple of years, we weren't hugely differentiated in the way we brought ourselves to market, okay? I think we're differentiated on quality. But in terms of our business processes, they were quite local. They were a bit clunky. We had good teams, but we had 38 separate hospitals, okay? So what have we done? We've done quite profound research into what really matters to self-pay patients in particular, okay, which is being able to get through on the phone and being able to get booked in on the day they call and ideally get booked in within 2 days for their first consultation. If in particular, their MSK patients, they want to be able to get their MRI within 2 days or on the day that they're there. And that all leads to a high likelihood that they will then have their admission with us, okay? So what do we do? So that's one of the main reasons we put patient support centers in place because we've gone from -- we were holding share when we were answering 60% of calls. We're now answering 95% of calls, number one. Number two, one of the things which has happened because of patient support centers is that for the vast majority of consultants, we now are able to book directly into their diaries. And therefore, we can get people booked in quickly. And we can start tracking a KPI of how quickly people got their outpatient deployment as apart from it being an aspiration. And AI, which I mentioned a couple of times, is an interest and AI is actually delivering results in the business. Putting that in MRIs means that we literally have every day empty slots in our MRIs. We're able to deal with our underlying volume. But because we've got nearly 50% more capacity, it means that literally you can walk down the corridor and get your MRI if you need scanning. The hospitals have worked really hard on managing outpatient and theater availability. So I think the answer is we have lined ourselves up to be super effective in the things that matter to our patients as well as then delivering them a really outstanding service. And also, I would be able to say, I think we've probably got the best invested estate because we've been investing consistently. So when they come here, it looks really good and that matters to patients. So I think we've got all those things in place. And Harbant about to add something. Harbant Samra: I was going to say, I was going to go on the estates point as well, but I'll add a little bit more color. The look and feel of our estates, I mean, it's visible to anybody, right? It is a more competitive market. I agree with what you said. But in terms of the look and feel of our estates and our facilities, we are very proud of what we've achieved. We've also made a lot of tactical investments to support our consultants. So don't forget how important they are in that conversation as well in terms of where the patient is going to go as well. So a lot of the robotics, for example, that was done with that in mind. So we're moving confidently on that basis. Justin Ash: And then the final part is the marketing. We have really invested under Peter's leadership in super sophisticated digital online marketing. We have a partnership with Google. We know we're getting better hits. We know we're getting better flow through. And we're going to bring them -- our website is okay, but it's not brilliant. We're going to bring in a new website this year, which will make that patient journey much easier. And as it gets up and running, one of the ways you win, as you know, online is we're making your content super attractive so that people search on your site, okay? And that's before the CRM system, which will integrate across all patient types and between primary care and secondary care in time. So I think the answer is because we're super, super focused on this, and we've been working on it for the last couple of years. Kane Slutzkin: It's Kane Slutzkin from Deutsche. Just on the NHS sort of improvement through Q2 to Q4, what are you guys assuming for traffic there? Because I know usually, we sort of see a little uplift late on 0 is obviously pretty low. So just wondering what you... Harbant Samra: 0 is pretty low. You don't need me to tell you that. But... Kane Slutzkin: What do you -- is that in the 5% to 10%. Is that... Harbant Samra: Sorry. That is in the 5% to 10%. So the way to look at it is that they issued their consultation in December. It's not really a consultation. The only reason it will change if there is an exceptional pay award. They've already done their pay award recently. I think they -- was it 3.3%. 3.3%. So I mean that's essentially already factored into the tariff. There is an opportunity for us to continue to do what we've done in the past, which is to tap into higher acuity. And that's what we'll certainly seek to do in this environment if tariff is so, I guess, underwhelming. But the opportunity to outperform 0%, I mean it's not a great deal, but we will obviously do our best. Justin Ash: And by the way, Harbant showed it. We have really focused on hips and knees, and we have focused on higher acuity. And that continues, by the way. So that might give us a little bit of upside from mix on there. Although once you're at 60%, there's obviously a limit to how far you can go, but that focus continues. Kane Slutzkin: All right. Just on energy prices, I know we chat about it earlier, you're saying you're sort of hedged into Q1 now or Q1 '27... Harbant Samra: Next year and even beyond that. Kane Slutzkin: Yes. You were hedged partially for '26. I'm just wondering when did you initiate this? Harbant Samra: So it's a rolling arrangement we have. Most of that was fixed back in about October and November. We take a pretty conservative approach towards doing it. So all of our energy needs are now under fixed price arrangements through to the end of Q1 2027 and then it tapers down to 50% by the midyear. But clearly, we're watching developments closely, and we'll take more action to continue to work out whether we want to increase that sooner rather than later. We'll see. But we're in a good place. Kane Slutzkin: Great. And just finally, on the property, you guys usually do your sort of annual reevaluation. I assume it's still 1.4. Is there any sort of comfort -- I don't know, maybe you can't actually comment on this part of the review, but not... Harbant Samra: I'm looking at IDC. Justin Ash: The lawyers have all poked up in the call. Kane Slutzkin: Can ask just last one on the Primary Care. You mentioned you expect very little M&A this year. It's obviously quite a fragmented market. Is that just because you've got enough sort of going on? Justin Ash: So we may do a little bit. But having put in a number of businesses, the next stage is to integrate it because if you're doing M&A, it's really important you've got a platform, which is aligned to do it. So in order to then accelerate M&A in due time, we want to get the businesses which we've got, which are performing well fully integrated. This is partly to do with also bringing in systems, so CRM. So we have visibility. So one of the things that we don't have today is easy visibility from going into a clinic and then booking through to a hospital. We want to make that super easy because in order to have really successful M&A, you've got to be able to have all your systems set up smoothly to plug in. Secondly, we think there's quite a lot of organic opportunity that we're going to focus on it. So it's not a change of strategy. It's just we've got plenty to deliver within primary care. It's doing very nicely. We're just going to double down a bit on our organic opportunities for the next few months. Natalia Webster: Natalia Webster from RBC. Just a follow-up on the private side on PMI and self-pay. You've talked about sort of the various factors that give you confidence on improvement there, but just curious on what you're expecting in terms of the mix of improvement in volumes versus improvement in pricing and mix as well? And then secondly, on cost efficiencies, you say you're tracking ahead of plan of the GBP 30 million in 2026. While some of that will come from annualization of savings in 2025, are you able to talk a bit more on your plans for 2026 and where you're seeing those additional cost savings? Justin Ash: Sure. Thank you. Well, I would say on private, we won't go into the complete plan of volume versus mix, but we are starting to see volume improvement. So it's not just mix and price. We're definitely seeing volume improvement, particularly in self-pay, which is very encouraging. So I think that's the answer on that one. Harbant, cost efficiencies? Harbant Samra: Cost efficiencies. So how we're thinking about '26, I mean, the way I'd do that, Natalia, is break it down into probably 4 buckets. A big chunk of what we're going to deliver in 2026 is actually already linked to the action we took in 2025. So there's an annualization effect from all the actions we took last year. And if you recall some of the things we did in the middle of last year, the restructuring, et cetera, you'll see the full year impact of that. And then just more generally, we've also taken action in the center early this year in January, where we restructured some of our teams. So over half of the savings that we're currently targeting for this year is really underpinned by the actions we've taken. The other 2 buckets, the way I'd look at those is that we've clearly got our transformation activity, which is underway. So digitalization, for example, and that forms part of the number, which is more than GBP 30 million. Again, I can't give you a specific number, but it's more than GBP 30 million. And then lastly, we brought forward some of the operational efficiencies that are on our list for maybe back end of this year and into next year to help to underpin the overall savings target, which means that we can say with confidence we've got enough there to offset at least or even more than the NHS shortfall during Q1. Justin Ash: Thank you. Any other questions in the room? Let me just check first if there are online questions. Operator: Yes, we have a question from David Adlington. David Adlington: Can you hear me? Justin Ash: We can. David Adlington: Firstly, maybe just the government focus on reducing waiting lists. Obviously, I would have thought the private sector would be a key part in addressing those waiting lists. In the short term, at least it seems to have swung around to a bit of hiatus on the NHS commissioning side. I suppose a big picture question is what's more important to the government at the moment, budgetary pressures or waiting list? And do you expect that to change between now and the next election? And then a second one, just want to get your thoughts on the bone cement shortage in the U.K. and whether you thought you might have any impact from that? Justin Ash: Okay. So on the first one, I think you may have to ask the government if there's any. But look, seriously, it's obvious that financial discipline in the NHS is top of the agenda at least this year. That's clearly the case. That's what's happened. It's also clearly the case that waiting lists are of great importance. And waiting list comprises 2 things, right? There's 7.4 million people. Of that, just under 6 million are waiting for a consultation diagnosis and just over 1 million are in treatment, okay? Those over 1 million people in treatment will be very top of mind for the NHS. I know they are. And that's why we've given a balanced guidance because that pressure won't go away. There is financial pressure. I suppose our guidance says we think the financial pressure slightly outweighs the waiting list pressure. I think our view is that in the medium term, that waiting list pressure will be compelling for any government. And that's why we say we think this is a transitionary period. So I guess we've given our view, but I don't have an official view from anybody else. You'd have to talk to government or NHS. In terms of bone cement, we have multiple suppliers. We found alternative supply just to top up from that supplier, and we just carried on unaffected. Operator: Thank you very much. We have no further raised hands online. So I will hand back to Justin. Justin Ash: So I think we've got another question in the room, Seb. Sebastien Jantet: I'm going to try this one and see if you answer it. So just looking at how the first half might look versus the second half in terms of kind of profit splits. Normally, I'd be quite comfortable having a crack at it, but there's obviously quite a lot of moving parts going around this year in the first half and the second half. So I'm wondering if you're able to give us any sense of what that might look like in terms of shape of the first half versus second half. Harbant Samra: Yes, happy to. At a headline level, I would expect to be slightly more weighted towards the second half. One of the reasons for that is whilst we're confident about delivering all the savings, clearly, some of those will appear in the second half. But again, there are a couple of other pretty significant moving parts for NHS, the question you asked earlier in terms of the lumpiness of the commissioning will also determine how that weighting plays out. But that's what I would expect. Justin Ash: Anybody else for questions? Okay. Well, thank you so much for attending both in person and online. Thank you for your questions, and we'll close the session. Thank you very much. Have a good day.
Operator: Good afternoon, and thank you for standing by. Welcome to ChargePoint's Fourth Quarter and Full Fiscal Year 2026 Financial Results Conference Call. Please be advised today's conference is being recorded, and a replay will be available on ChargePoint's Investor Relations website. I would now like to turn the conference over to John Paolo Canton, Vice President, Communications. Please go ahead. John Canton: Good afternoon, and thank you for joining us on today's conference call to discuss ChargePoint's fourth quarter and full fiscal 2026 earnings results. This call is being webcast and can be accessed on the Investors section of our website at investors.chargepoint.com. With me on today's call are Rick Wilmer, our Chief Executive Officer; and Mansi Khetani, our Chief Financial Officer. This afternoon, we issued our press release announcing results for the quarter ended January 31, 2026, which can be found on our website. We'd like to remind you that during the conference call, management will be making forward-looking statements, including our outlook for first quarter of fiscal 2027. These forward-looking statements involve risks and uncertainties, many of which are beyond our control and could cause actual results to differ materially from our expectations. These forward-looking statements apply as of today, and we undertake no obligation to update these statements after the call. For a more detailed description of certain factors that could cause actual results to differ, please refer to our Form 10-Q filed with the SEC on December 5, 2025, and our earnings release posted today on our website and filed with the SEC on Form 8-K. Also, please note that we use certain non-GAAP financial measures on this call, which we reconcile to GAAP in our earnings release and for certain historical periods in the investor presentation posted on the Investors section of our website. And finally, we'll be posting a transcript of this call to our Investor Relations website under the Quarterly Results section. Thank you. I will now turn the call over to our CEO, Rick Wilmer. Richard Wilmer: Good afternoon, and thank you for joining us. Today, we will provide a comprehensive review of our quarterly performance, share our perspective on current market conditions, discuss the progress we have made toward our 3-year strategic plan and how innovation and execution, supported by our partnership with Eaton and key leadership additions, position us to build confidently for the future. We delivered a strong finish to fiscal 2026. Revenue for Q4 came in at the high end of our guidance range at $109 million, marking another quarter of year-over-year growth and execution above expectations. Our non-GAAP gross margin remained at a record high of 33%. We maintained strict cash discipline. Cash utilization from operations was minimal and much better than planned. These results are a clear validation of our relentless commitment to operational excellence, and there's still opportunity for further improvement. This performance reinforces our return to growth trend, which we expect to accelerate later this year and into next year as our new products ramp into volume. This growth results from investments in product innovation, partnerships, rising market interest, greater utilization and market consolidation, which have boosted our market share of public ports in North America. Europe experienced robust double-digit growth, driven by regulations and new incentives. We expect this trend in Europe to continue, further accelerated by our new products. Operational excellence remains a core pillar of our 3-year plan, and progress here is tangible. We continue to see benefits from tighter cost controls and improved supply chain execution. Station reliability, the quality of deployments and customer satisfaction all continue to improve. Stations that are down, as monitored by our Network Operations Center, or NOC, have been reduced by over half in the last year and are now below 1%. Over 80% of owner support cases are proactively created by our NOC or driver reports as opposed to a customer having to call us to report a problem. Other initiatives like picture to resolution, cut-resistant cables and our Safeguard Care service are all contributing to high reliability. First-time right deployments have improved to above 95%, which has been driven by our training and certification program. Customer satisfaction, as measured by results from our CSAT survey responses for driver, owner and home support, is now at 8.5 or higher on a 10 scale. All of these improvements are driving customer loyalty, which in turn drives expansion business. Our continued deployment of AI is yielding tangible benefits, which we expect to increase substantially as we move through this year as the tools and capabilities continue to advance rapidly. With our headquarters in Silicon Valley, we are at the epicenter of AI innovation, and we view this as a competitive advantage. We are striving to be at the forefront of AI adoption, and the benefits we are anticipating are not just incremental improvements but truly disruptive. We expect to deliver AI-driven innovation in our products and services to make them more differentiated, valuable and useful. AI for code generation and testing will allow us to deliver innovation faster and more cost effectively. We believe AI will also drive overall operational efficiency where every job in the company that is done on the screen will be performed more effectively. All of this is evidence that our model works. It gives us speed, flexibility, resilience and the ability to invest where we see the greatest long-term returns. Turning to the broader EV market. While headlines often focus on short-term volatility, the underlying fundamentals remain compelling. Multiple independent sources point to sustained global EV adoption, with particularly strong growth in Europe and continued long-term confidence from automakers and consumers alike. Global EV sales grew meaningfully year-over-year in 2025, with Europe posting strong double-digit growth, supported by regulatory tailwinds and renewed consumer incentives. Even in North America, where growth moderated, interest in EVs remains resilient, and satisfaction among EV owners continues to be exceptionally high. OEMs still view EVs as the long-term destination, but the path is proving longer and less linear with hybrids and plug-in hybrid serving as bridges. The next leg of adoption depends less on mandates and more on economics and customer experience. A wave of sub $35,000 EVs arriving in 2026 is designed to hit the true mass market where price parity matters most. Despite the headlines about an EV slowdown, U.S. fast charging tells a different story. Infrastructure expanded rapidly in 2025. Usage grew in lockstep. Utilization remains stable, and reliability improved. Approximately 18,000 new public DC fast charging ports were added, largely driven by private investment rather than government stimulus. This indicates the charging ecosystem is maturing operationally, not overbuilding speculatively. As vehicle affordability improves and adoption reaccelerates, the charging foundation is being put in place to support it. This market environment favors companies that can execute, scale efficiently and deliver a seamless experience across hardware, software and services. This is where ChargePoint is uniquely positioned as evidenced by some notable customer wins. We have partnered with Ford Pro so that Ford's commercial fleet customers in the U.K. and Germany now have integrated access to ChargePoint solutions across home, fleet and workplace EV charging, providing these businesses with the most innovative and reliable charging solutions. Not only can Ford Pro customers benefit from our hardware and software. They also have access to ChargePoint's expertise for charter installation, site planning and related services. We also consummated the next phase of our strategic partnership with RAW Charging, one of the U.K.'s leading ChargePoint operators. The new multiyear agreement comes with an initial commitment valued at USD 7.5 million. This collaboration strengthens RAW Charging's Connecting Amazing Places campaign, which is focused on normalizing EV charging at destinations rather than solely en route. Also, we extended our work with Georgia Power to new locations, including the prominent Grady Health System in Atlanta. Innovation remains the engine of our strategy. In the coming months, we will release a major update to our mobile app. This new experience is designed to do more than just help drivers find to charge. It equips them with the ability to choose an experience while they charge. By guiding drivers towards available, reliable, amenity-rich and well-priced charging locations, we believe this capability will drive increased utilization, improve economics for station owners and strengthen the value of our network. We believe we are in a position to influence where drivers choose to charge, which is a powerful example of how software and data can benefit both drivers and site hosts. With the largest community of drivers in North America on our platform, we have the scale to drive incremental value for ChargePoint. When we look ahead, our confidence is rooted in 4 elements coming together: execution, market opportunity, innovation delivery and partnerships. Our partnership with Eaton continues to expand our reach and accelerate adoption of next-generation AC and DC solutions. Combined with our improving execution in a market that increasingly demands reliable, scalable charging, we believe we are building a durable platform for long-term growth. In this context, I also want to highlight the importance of Jaser Faruq joining our leadership team as our Chief Product and Software Officer. Jaser brings a wealth of experience in electrified transportation, energy and the scaling of global operations. Jaser's leadership enhances ChargePoint's ability to develop an innovative product road map that encompasses both software and hardware but is also agile in response to the rapidly evolving environment, especially as artificial intelligence creates opportunities in our industry. His approach is anchored in what we believe is the inevitable transition to electrified transportation, ensuring ChargePoint remains at the forefront of innovation while maintaining operational excellence. This quarter, we are introducing new key performance indicators. We are sharing these metrics to strengthen the alignment between our strategy and the market understanding of our performance. Let me briefly explain why each matters. Software-only managed ports are non-ChargePoint hardware ports managed by our software and reflect our software-first strategy. Managing non-ChargePoint hardware expands our addressable market and supports a business model centered on recurring software revenue and sticky long-term customer relationships. Globally, we have nearly 130,000 software-only managed ports, representing approximately 30% of all ports under management. Share of ports exceeding 30% utilization at least 1 day in a month, we believe, is an important leading indicator for expansion demand. Utilization above roughly 30% is typically when site host begin evaluating the addition of chargers to maintain a good driver experience. More than 100,000 AC ports recorded time utilization above 30% at least 1 day in January of 2026, indicating over 7 hours of continuous use per day across workplace, retail and other locations. Monthly active users defined as drivers utilizing a ChargePoint account is the equivalent of our user community. Monthly active users is a core measure of the network effect. Growing driver engagement increases utilization and delivers greater value to site hosts and customers, reinforcing why our software and network are central to their long-term charging strategy. At the end of FY '26, we had 1.48 million active users, representing 8% year-over-year growth. In terms of KPIs we have historically reported, ChargePoint now manages approximately 385,000 ports, including more than 41,000 DC fast chargers and more than 130,000 ports located in Europe. Globally, ChargePoint drivers have access to over 1.37 million public and private charging ports. Together, these KPIs are intended to provide more insight into how our business is performing, our differentiation and how long-term durable value is being created across our ecosystem. To close, fiscal year 2026 marked an inflection point for ChargePoint. We returned to quarterly growth, managed our cash with discipline, strengthened our operational foundation and continued to deliver innovation that matters. Disciplined execution and a constructive market outlook, accelerating innovation and strong partnerships, we believe ChargePoint is well positioned to build for future opportunities. Thank you to our employees, partners and shareholders for your continued support. I will now turn the call over to our CFO, Mansi Khetani. Mansi Khetani: Thanks, Rick. As a reminder, please see our earnings press release where we reconcile our non-GAAP results to GAAP. Our principal exclusions are stock-based compensation, amortization of intangible assets and certain costs related to restructuring, settlements and nonrecurring legal expenses. Revenue for the fourth quarter was $109 million, coming in at the high end of our guidance range, up 3% sequentially and up 7% year-on-year. Network charging systems at $58 million accounted for 53% of fourth quarter revenue, up 2% sequentially and up 10% year-on-year. Subscription revenue at $42 million was 39% of total revenue, up 1% sequentially and up 11% year-on-year as our total installed base continues to grow. Other revenue at $9 million was 8% of total revenue. Turning to verticals, which we report from a billings perspective. Fourth quarter billings percentages were: commercial, 78%; residential, 6%; fleet 9%; and other, 7%. In terms of geography, North America made up 77% of revenue and Europe was 23%. Europe was particularly strong this quarter, delivering its highest share of revenue since we became a public company. Non-GAAP gross margin continued to remain at a record high of 33%, flat sequentially, and up 3 percentage points year-on-year. Hardware gross margin was flat sequentially. Subscription margin continued its upward trajectory, reaching a new GAAP record of 64% and coming in even higher on a non-GAAP basis, supported by economies of scale and sustained efficiencies in support-related costs. Non-GAAP operating expenses were $58 million, essentially flat to the prior quarter. We remain committed to prudent expense management, maintaining a disciplined approach that balances current constraints with selective investments in R&D intended to support announced product launches that we believe will position us for long-term growth and margin expansion. Non-GAAP adjusted EBITDA loss was $18 million. This compares with a loss of $19 million in the prior quarter and a loss of $17 million in the fourth quarter of last year. Stock based compensation was $13 million, down from $15 million, both in the prior quarter and in the fourth quarter of last year. Our inventory balance was $215 million, a slight increase from the prior quarter. Although physical inventory levels were modestly lower versus the prior quarter, the overall balance ticked up slightly primarily due to foreign exchange fluctuations and overhead capitalization. Turning to cash. This quarter, we made a $40 million payment related to the debt transaction we announced in November. After that payment, we ended the quarter with $142 million in cash. Excluding that payment, full year fiscal 2026 net cash usage was just $43 million, a significant improvement from the $133 million used in the prior fiscal year. We've made substantial progress in reducing cash usage from normal operations over the past year, and this will remain an important area of focus going forward. The debt exchange announced in November is now reflected in our financials. Because the transaction included a significant discount, the accounting treatment requires us to record future interest payments as short-term and long-term liabilities on the balance sheet. As we pay down the capitalized interest, the corresponding debt balance will come down, and there will be no related interest expense flowing through the P&L. With respect to full fiscal year 2026 results, revenue was $411 million. Non-GAAP gross margin was 32%, and non-GAAP operating expenses were $231 million. From a geographic perspective, North America was 83% of full year revenue and Europe was 17%. For additional full year fiscal 2026 results, see the press release issued earlier today. Turning to guidance. After a strong fourth quarter, we expect first quarter revenue to be in the range of $90 million to $100 million, reflecting the typical seasonality we see in Q1. In summary, this quarter, we continued to deliver both sequential and year-over-year revenue growth, achieved yet another record quarter for subscription gross margin and continued to make steady progress towards profitability. We also delivered against our annual objectives around disciplined cash management, reducing operating expenses and significantly lowering cash usage throughout the year. Looking ahead, we will continue to remain focused on disciplined execution and operating expense management, and we are committed to building on the progress we've made in the quarters ahead. We will now open the call for questions. Operator: [Operator Instructions] We'll go first to Colin Rusch at Oppenheimer. Colin Rusch: You've talked about the eVTOL opportunity in the past, and so I'd be curious just on the update there as people are making progress. But certainly, as we look across some of the emerging form factors and around the robotics space and physical AI, I'm just curious about how much opportunity there is now in kind of initial interest for what you guys have both from just a pure charging perspective as well as the software platform that optimizes a lot of that network. Richard Wilmer: Yes. Colin, if it was eVTOLs, I think that's what you mentioned, we haven't focused much on that space yet. But with respect to physical automation, I think the bigger near-term opportunity that we're very focused on is autonomous vehicles. We're now investing quite a bit of time in understanding what, if any, unique charging requirements are required by that market such that we can leverage the success we've had already and expand that and become the default charging solution of choice for autonomous vehicle fleets. Colin Rusch: Excellent. And then from a cost perspective, you guys are making steady progress. I'm curious about opportunities for continuing to drive those concepts from a hardware perspective or even start driving a little bit of price increase and pushing that through to help support margins. I'm not sure how realistic that is, but just want to get a sense of how you're expecting that to play out here over the balance of the year knowing that you're only guiding for a quarter? Richard Wilmer: Yes. Thus far, we have not pushed any price increases into the market, and I don't think we anticipate doing so. The opportunity for gross margin improvement on hardware, and therefore, cost reductions, assuming we don't increase prices, is really hinged on a lot of the new hardware platforms we'll be introducing into the market as we move through this year. We announced our Flex product line last year, which is our single-port AC product for both home and fleet. And that product is ramping now. It's got a better margin profile than our historical single-port AC products. And then we've got our next-gen DC product, which has substantially better margin profile than our current DC architecture. And that will be ramping into production in the second half of this year, and we're very optimistic about the prospects for that product. The market interest right now is very high in that product because not only is it more cost effective than our current DC solutions, it has also got some innovation in it that really reduces overall cost for a customer beyond just the initial capital expenditure related to both OpEx and construction and build-out costs. Colin Rusch: Excellent. And just a follow-up that I want to sneak in here is around inventory reduction. You guys have obviously gone through the product transition, but just curious about when you can start working that inventory balance down a little bit more aggressively. Mansi Khetani: Yes, I can take that one, Colin. So mix of products sold during the quarter impacts inventory. In generally, like I mentioned, even in Q4, while we did see a little bit of a decline in physical inventory, the dollar value that you see on the books went up a little bit because of the impact of foreign exchange on our inventory that is stored in Europe and there was some impact of cost capitalization, which included some tariffs as well, which resulted in a net increase of inventory in the books. As you know, we are managing inventory very carefully. And as we get to the tail end of our prior commitments to our contract manufacturers, we should start seeing a gradual reduction throughout this year. Operator: We'll move next to Mark Delaney at Goldman Sachs. Mark Delaney: The company had a press release out in mid-February highlighting 34% growth in charging sessions and also that it was putting upward pressure on utilization. You spoke more on that today, highlighting a growing number of users and also the increase in utilization rates. At the same time, guidance for the first quarter implies revenue will be down a little bit year-on-year at the midpoint. So can you help us reconcile some of the progress you're seeing in terms of the user count and utilization rates with the outlook for revenue to be slightly lower year-on-year at the midpoint and 1Q? Mansi Khetani: Yes. So the utilization rates are growing, as we've mentioned before, and that definitely leads to sales cycle kind of kicking off. In terms of the guidance, specifically after coming off of a strong Q4, we're guiding to Q1 based on typical seasonality, where we've historically seen about a 5% to 15%-ish reduction in Q1 revenue versus Q4 because of the seasonal factor and winter months, et cetera. And this is what we've reflected in our Q1 guidance. And besides that, we're taking a prudent approach given the current macro environment. However, you noticed that our range does encompass a growth scenario year-over-year. Mark Delaney: Understood. And my other question was around NEVI. There's been some talk of a change in how much domestic content might be needed to qualify. I think last quarter, the company spoke about more states getting ready to move forward with those, but I'm hoping you can update us on what you're seeing given what could be some changes in the requirement for domestic content and if that's having any effect on your business and outlook for that piece of the market? Richard Wilmer: Yes. So our understanding right now is that obligated funds are not going to be affected by any rule changes around domestic content. And we've got a strong pipeline of obligated funds that will continue to fulfill this year and maybe even to next year. And then on the non-obligated funds, which may be impacted by any changes, we're going to have to wait for those rules to get finalized before we can assess what, if any, impact it will have on us. Operator: We'll take our next question from Chris Pierce at Needham & Company. Christopher Pierce: Just 2, I think both for Mansi. If we look at the revenue guidance, the growth you guys have shown kind of think about the rest of the year, and you've kind of given us the playbook for gross margins. I'm just curious, is there any chance for further OpEx leverage or OpEx reductions? Or are we sort of in the late innings around there? I'm just thinking about the pieces to get to closer to flat adjusted EBITDA. Mansi Khetani: Yes. OpEx has been relatively flat for the last couple of quarters on a non-GAAP basis. We expect that this non-GAAP OpEx would remain in that current range in the near term. However, we should see a reduction over the year as we get through our engineering efforts on the new products that we've introduced and our NRE or prototyping costs on the engineering side start coming down. Richard Wilmer: The other comment I'll make there is around AI. We are now seeing a measurable impact on keeping OpEx flat or even reducing it in some areas and then reallocating resources to other areas that have a need through AI implementation. We've got a number of examples and proof points in the company now where this is paying off in real dollars. Christopher Pierce: Okay. And then I think I have this right. You had a pretty sizable working capital benefit in the quarter, which helped cash. But if you look at the pieces of it, there was a pretty sizable jump up in trade payables and accounts receivable came down modestly that, I think, makes up the bulk of it. Should those reverse in the first quarter? Or is this sort of -- like how should we think about those 2 numbers and the benefit you might see in working capital or the debit in the first quarter? Mansi Khetani: Yes. So AR, we made a significant progress in collections. We were pretty aggressive this quarter. We'll continue to do that. But you're right. That probably will not be a big benefit in Q1. AP, same thing. It's timing. So sometimes it's up or down, so it's difficult to pinpoint exactly if there will be a benefit or it may be a little bit worse. However, typically, Q1 tends to use more cash. So typically, Q1, we see the highest usage of cash as compared to the rest of the year because we have a lot of software expenses that we have to pay upfront for the rest of the year. So that will impact working capital in Q1. However, through the rest of the year, we should start seeing that coming down. And then as we mentioned before, as inventory comes down, we should see a boost to working capital as well. Operator: Next, we'll go to Ryan Pfingst at B. Riley Securities. Ryan Pfingst: Can you talk a bit about the competitive landscape as the EV market has evolved here in the U.S. and what kind of opportunities that might present to you in terms of potential M&A or market share gains? Richard Wilmer: Yes. We're -- won't comment on any M&A opportunities, but it's very active. I can tell you that. There's plenty of assets that are becoming available. We're getting calls. In terms of competitive landscape, we're capitalizing on some exits from the market by certain parties. So there are real opportunities, again, that we're capitalizing on as a result of people leaving the market. So in general, I would consider it favorable and normal for an industry that's going through a cycle like what we were -- like we've been through. Ryan Pfingst: Got it. Appreciate that. And then understanding you don't guide for the year. But what do you see as the main revenue growth drivers by segment or by product in 2026? Richard Wilmer: It's going to be our new products in addition to the strength we see in Europe. I think it looks fairly steady in North America. We had a very strong quarter in Q4 in Europe. We expect that trend to continue and then be further accelerated by the new products that are now built for Europe in addition to North America unlike some of our prior products, which were continent specific. Operator: We'll go next to Itay Michaeli at TD Cowen. Itay Michaeli: Just to follow up on the last couple of questions, I was hoping you could mention at a high level kind of the various paths the company has to reach positive EBITDA, whether it's -- you have the new products. It sounds like there's some gross margin opportunity, maybe opportunities on OpEx. But when you kind of think about those drivers as well as the EV market overall, kind of how are you thinking about the different ways you have and levers to pull to get the company to positive EBITDA? Richard Wilmer: Yes. I think it's a combination of things, Itay. It's obviously growth, and as we just mentioned, we're optimistic about Europe, especially as we introduce new products and move through the year with North America continuing to be steady and perhaps opportunities coming about as the attrition of competition moves forward. And then on the gross margin side, again, as we mentioned a minute ago, we expect much better gross margin profiles on all the new hardware products that we're introducing into the market, and that should move our overall weighted gross margin up as we move through the year. And then lastly, we'll continue to control OpEx and optimize OpEx, again, with AI now starting to show tangible results for us in terms of our ability to keep our costs constant without -- while growing top line and expanding our product portfolio because of the efficiencies we're seeing through AI implementation in different areas of the company. Itay Michaeli: That's helpful. And then my second question, Rick, actually is on the AI initiatives. I'm just kind of curious which quarter this year do you think that starts to kind of show through and kind of how do you see the opportunity progressing even over the next couple of years for the company. Richard Wilmer: I think for now, what we're seeing, generally speaking, is knowledge work that is done on a screen that tends to be complex but repetitive. We're now using agentic AI to automate that. So there's quite a number of jobs in the company that fit that profile. And in specific areas where we've implemented solutions, we're doing twice as much work with half as many people, and I think we'll continue to expand that capability across the company. It will also show up in the way we write and test code, which should increase our pace of innovation when it comes to releasing new software features. And then last, we've got some very interesting AI features on the road map that will manifest themselves in our product, primarily on our software side, that I think will be really valuable for our customers and the drivers that use our technology. Operator: [Operator Instructions] We'll go next to Craig Irwin at ROTH Capital Partners. Craig Irwin: So Rick, over the last many years, technology companies and their charging points outside of their offices have been a great opportunity for ChargePoint. Some of us have been moderately optimistic with the building wave of sort of back to the office. I know the footprints of how these companies are staffing, are changing a little bit. Maybe that's actually the incremental opportunity. Can you talk about your legacy technology customers that were so very important many years ago? Are they coming back in any material way right now? And is this something that you see maybe building in momentum? Richard Wilmer: I think what we're seeing generally is steady expansion of their networks. We mentioned that new KPI in the prepared remarks around station that exceeds 30% utilization 1 day in a month and that -- we had over 100,000 AC ports that met that criteria. And when you reach that threshold, you'll find drivers pull into a parking lot and just have a hard time finding an available charger. So in areas where EV penetration is strong, generally speaking, in North America, the coasts, we're seeing that metric exceed that 30% number, which drives expansion business. So that remains an important part of our company's strategy, is to continue to grow with our customers as the population of EV drivers that frequent those workplaces continues to grow, which is really driven by the cumulative number of EVs on the road. I think a lot of people get fixated on the new EV sales, but what really drives our business is not only new EV sales but the cumulative number of EVs that are on the road. So we continue to see good expansion business with our workplace and commercial customers in general. Craig Irwin: Okay. Excellent. And then my second question really is about the pathway to positive EBITDA, right? Over the last number of quarters, you've kind of sort of leaned in the direction of wanting to preserve the capacity in the company and see growth help you deliver this with new products and new partnerships. Can you maybe build us a bridge on how we get there? And do you have a set time line that you're looking for? What should we expect as external observers of the company? Richard Wilmer: Yes, we're going to -- like I just mentioned when I answered a question a moment ago, it's a function of growth, improving gross margins and controlling OpEx. And as you've seen historically, we expect to gradually improve in all areas as we move through the first half of this year. And then I think the acceleration on improvement in all 3 of those, particularly growth in gross margin, will be stronger in the second half as we introduce these new products, and we really take advantage of the favorable macro conditions in Europe with a whole suite of new products that we weren't selling into those segments before because we did not have a product offering. Operator: And that concludes our question-and-answer session and today's conference call. Thank you for joining ChargePoint's call. You may now disconnect.
Operator: Hello, ladies and gentlemen. Thank you for standing by, and welcome to the Gaotu Techedu Inc. Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. I would now like to turn the conference over to your first speaker today, Ms. Catherine Chen, Head of Investor Relations. Please go ahead, Catherine. Catherine Chen: Thank you, operator. Good evening, everyone. Thank you for joining Gaotu's Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. My name is Catherine, and I'll help host the earnings call today. Gaotu's earnings release for the quarter was distributed earlier and is available on the company's IR website at ir.gaotu.cn as well as through PR Newswire services. Joining the call with me tonight from Gaotu's senior management is Mr. Larry Chen, Gaotu's Founder, Chairman and Chief Executive Officer; and Ms. Shannon Shen, Gaotu's Chief Financial Officer. Larry will first provide the business highlights for the quarter. And then afterwards, Shannon will discuss our financial performance in more detail. Following their prepared remarks, we will open the floor to questions from analysts. Before we begin, I'd like to remind you that this conference call will contain forward-looking statements made under the safe harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management's current beliefs and expectations as well as the current market and operating conditions, and they involve known and unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control and may cause the company's actual results, performance or achievements to differ materially from those contained in any forward-looking statements. Further information regarding this and other risks is included in the company's public filings with the U.S. SEC. The company does not undertake any obligation to update any forward-looking statements, except as required under applicable law. During today's call, management will also discuss certain non-GAAP measures for comparison purpose only. For a definition of non-GAAP financial measures and reconciliation of GAAP to non-GAAP financial results, please refer to our fourth quarter and fiscal year 2025 earnings release published earlier today. As a reminder, this conference is being recorded. In addition, a live and archived webcast of this conference call will be available on Gaotu's IR website. It is now my pleasure to introduce our Founder, Chairman and Chief Executive Officer, Larry. Larry, please? Larry Chen: Good evening, and good morning, everyone. Thank you for joining us on Gaotu's Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. I would like to take this opportunity to express my gratitude to each of you for your interest in and support for Gaotu. Before I start, I would like to remind everyone that all financial figures discussed today are in RMB unless stated otherwise. 2025 marked a year of exceptional resilience for Gaotu. We delivered a high-quality operating performance amid a rapidly evolving environment. If I were to summarize the year's achievements in one word, it would be refinement, representing not just a sharpening of our teaching quality, but a systematic elevation of our operational granularity. Throughout the year, we not only exceeded our growth targets, but more importantly, reinforced our organizational foundation, strengthening our core capabilities while continuing to scale rapidly. As we enter 2026, our approach to growth continues to evolve and mature. We are intentionally refining the way we grow, prioritizing profitable growth with the advancement of AI capabilities at the core of our operations, All with AI, always AI. This is how we are driving improvements in business health, operational efficiency and long-term viability. Our fourth quarter performance represents an early validation of this strategic focus at the operational level. In the fourth quarter, we maintained steady top line expansion while realizing meaningful operating leverage. Revenue increased by 21.4% year-over-year to RMB 1.7 billion and the bottom line improved by 38.0%, driven by continued efficiency gains. For the full year of 2025, revenue grew by 35.0% to RMB 6.1 billion, exceeding our initial expectations at the beginning of 2025. Net operating cash inflow reached RMB 416 million, a net increase of RMB 158 million year-over-year, reflecting continued improvement in operational quality and efficiency. After excluding the impact of share repurchases, our cash position increased by RMB 221 million year-over-year, providing strong support for our ongoing investments in products, technology and talent underpinning sustainable long-term growth. We remain firmly committed to enhancing long-term shareholder value. Under our aggregated share repurchase authorization, we have repurchased a total of RMB 670 million of shares, representing 12.8% of our total outstanding shares, including RMB 343 million in buybacks in 2025. As our business fundamentals continue to strengthen, we are well positioned to balance long-term strategic investments with a stable, predictable shareholder return framework. Through consistent and prudent capital allocation, we seek to build durable value, enabling investors who grew alongside Gaotu to benefit from both our capital returns and the intrinsic value we generate. Most encouragingly, our operational gains are increasingly translating into tangible financial performance. We are shaping a more resilient, sustainable and profitable business model, a virtuous growth flywheel anchored in healthy unit economics driven by strong operational excellence and steered by our unwavering commitment to long-term user value. Guided by this framework in 2026, we will focus on advancing strategic priorities across 5 fronts. First, in calibrating growth pace, profitability will remain a core strategic priority. Over the past year, we have comprehensively optimized our cost structure, resource allocation and operating processes to fortify our business models and reinforce its economic foundation. Throughout 2025, our core business delivered a stable profitability, validating the strategic direction we set in the prior period. Meanwhile, our strategic initiatives have progressed well and are steadily emerging as new growth engines. While near-term revenue trends may not fully capture our underlying momentum, we assess performance based on the quality, structure and the sustainability of our growth, which are the pillars of lasting value creation. Second, in product development, we remain relentlessly user-centric, driving continuous innovation in educational products and learning services. The [indiscernible] help learners make real progress rather than merely completing cost delivery. We will continue deepening our understanding of users' real learning needs and pathways, systematically embedding these insights into curriculum design, teaching methods and service experiences. We firmly believe that truly valuable growth stems from superior learning outcomes, higher user satisfaction and stronger brand trust. Third, with respect to technology, we are integrating innovation across our business operations and organization, making it a structural driver for enhancing operational efficiency and user experience. Technology must enable teaching effectiveness, service excellence and operational preceding. In teaching scenarios, we are proactively combining high-quality instructor resources with AI-powered tools to make learning more engaging and effective. On the operations side, we are leveraging technology and data analysis to optimize resource education and enable more informed data-driven decision-making. At the organizational level, we are fostering more seamless collaboration through technology, empowering our team to focus on high-impact initiatives that drive meaningful value creation. Fourth, in terms of talent strategy, we continue to reinforce our competitive moat built around the high-caliber educators. Educators are our most valuable asset and central to sustaining our long-term competitive advantage. We will keep refining our talent selection, development and incentive mechanisms, building a robust pipeline of educators and fostering an environment that supports educators, professional growth and long-term careers. A stable, high-caliber teaching team is a cornerstone for successfully scaling product innovation and technology upgrades. Fifth, to enhance our business portfolio, we are architecting a comprehensive lifelong learning service platform. Personal development is an ongoing journey and learning needs at different stages are inherently connected rather than isolated. Through systematic integration of product formats and delivery models, we ensure learners have access to tailored solutions within Gaotu's ecosystem during every critical development stage. By cultivating deep connections with users, we further strengthen our cross business synergies and extend the user life cycle, significantly enhancing our operating models resilience and long-term return potential. After nearly a decade of development and achievement, Gaotu will celebrate its 12th anniversary in 2026. Standing at this important milestone, we feel immense pride and a strong sense of responsibility. Through an ever-deepening understanding of our users, we have cultivated a core leadership team with a strong sense of ownership and long-term vision, assembled an outstanding well-trained talent pool, distilled a set of cultural principles that shape our direction and most importantly, earned the invaluable trust of tens of millions of students and parents. Since day 1, Gaotu's original aspiration has remained unchanged to build a truly exceptional technology education enterprise. One, where every team member can achieve both material and spiritual productivity, where every student enjoys an exceptional learning experience and accelerated personal growth and where we accompany learners on a lifelong journey of progress while contributing enduring value to the development of education industry and society. Looking ahead, we will remain committed to disciplined prudent management, strictly control risk and continuously strengthen our organizational and cultural foundation through unwavering strategic focus and powerful execution. I firmly believe that as long as we uphold the long-termism, insist on value creation and remain true to the essence of education, Gaotu will advance steadily, generating lasting value for our shareholders, employees, users and society at large. Thank you very much, everyone. This concludes my prepared remarks. I will now pass the call over to our CFO, Shannon, to walk you through this quarter's financial and operational details. Nan Shen: Thank you, Larry, and thank you, everyone, for joining our call today. I will now walk you through our operating and financial performance for the fourth quarter and fiscal year 2025. Please note that all financial data are in RMB terms, unless otherwise stated. In 2025, we systematically optimized our product portfolio and channel mix, filling constant improvements in our revenue quality. We remain firmly committed to advancing our deep integration strategy of AI plus education, substantially enhancing both our educational products and end-to-end operational efficiency through the systematic optimization of our product portfolio and channel structure, leveraging AI as our foundation, learning solutions as our core value and AI-powered digitalization as our operational support. From a structural perspective, after years of focused investments and refinements, we have established a staged growth road map that provides great visibility into future development. Our core businesses delivered solid growth with higher enrollments, optimized unit economics and ongoing profitability improvement, serving as the fundamental pillar supporting the company's profit expansion. At the same time, our strategic initiatives are gaining traction and demonstrating upward momentum, serving as new engines for our scale expansion and profitable growth. In 2026, we will sharpen our focus on user experience and learning outcomes, advancing from scale-oriented growth toward a more efficiency-led model, driven by both revenue scale expansion and operating efficiency gains, we have realized operating leverage for 5 consecutive quarters, continuously elevating our bottom line. In particular, on the user acquisition front, we leveraged AI-driven capabilities and a dynamic resource allocation mechanism to boost user acquisition efficiency. Measured as gross billings divided by selling expenses, user acquisition efficiency improved by 10.8% year-over-year in 2025. Turning to our fourth quarter performance. Revenue grew by 21.4% year-over-year to RMB 1.7 billion. Operating expenses as a percentage of revenue declined by 4.1 percentage points year-over-year, contributing to a 20.9% reduction in our operating loss. As of December 31, 2025, our deferred revenue balance rose by 23.0% year-over-year to RMB 2.6 billion, providing solid visibility for our future revenue growth. Meanwhile, our cash, cash equivalents, restricted cash, short-term and long-term investments totaled RMB 4.0 billion. With this robust cash reserves, we are well funded to deepen our organizational capabilities and improve shareholders' interest throughout 2026. Next, an overview of this quarter's process by business segment. Learning services contributed over 95% of net revenues. Nonacademic tutoring services and traditional learning services as our core segment contributed over 80% of our total revenues. Our new initiatives focused on online and offline nonacademic tutoring services sustained strong growth momentum. In the fourth quarter, gross billings increased by over 30% year-over-year, while revenue grew by 45%. On a full year basis, revenue rose by 9% year-over-year. Within this segment, as our online business benefited from expanding enrollment and enhanced product competitiveness, it demonstrated a constant margin expansion, attaining a middle single-digit margin for the full year. Through ongoing educational content innovation and refined operations, we elevated both product value and the learning experience, driving the retention rate of existing students, which exceed 75% this quarter. Meanwhile, we continued to step up investment in content development centered on cultivating learners' comprehensive capabilities and core competencies. Our latest offerings, including AI-related courses have further enriched and refined our product and content portfolio, enabling us to more effectively address the evolving demand for holistic long-term development. In the fourth quarter, our traditional business maintained stable growth in enrollments while continuing to enhance service quality and efficiency to boost ongoing operational gains. We comprehensively upgraded tutor service standards, deepening our focus on learning process management and learner engagement through clearly defined key procedures and measurable performance indicators, which further reinforced our systematic service delivery capabilities. On the product front, we focused on optimizing our courses to better align with students' learning process and proficiency levels while strengthening our modular needs-based content to enable more targeted and effective instruction. The parallel strengthening of our teaching services and educational products contributed to continued improvement in the overall learning experience at Gaotu. The retention rate for new students also rose meaningfully year-over-year this quarter, reflecting stronger user stickiness. For the full year 2025, revenue from our traditional business grew nearly 15% year-over-year, driven by operational efficiency gains and enhanced organizational capabilities. Profitability for both online large classes and one-on-one tutoring improved year-over-year. Our ongoing refinement of product competitiveness and optimization of operational quality has laid a strong foundation supporting our traditional business sustainable growth. Another key component of our learning services is educational services for college students and adults, where gross billings grew over 15% year-over-year in the fourth quarter, contributing over 15% of total revenues. By prioritizing user needs, optimizing the product mix and sharpening our refined management capabilities, this segment has entered a consecutive growth trajectory and achieved full year profitability across its online offerings in 2025. In our educational services for college students, by leveraging deeper insights into students' life cycle, we have pivoted from selling standard-alone products to developing innovative stage-aligned solutions. These offerings are integrated with adaptive learning pathways that can adjust based on real-time feedback and performance, effectively extending the user learning cycle. Meanwhile, we continued deepening the integration of online courses and AI technologies, fostering personalized learning support and planning capabilities, simultaneously improving both learning experience and outcome. For the full year, our educational services for college students delivered mid-double-digit growth in both [indiscernible] revenue, while reaching profitability at the business line level. Lastly, I will walk you through our financial data. Our cost of revenue this quarter was RMB 540.9 million. Gross profit increased 20.7% year-over-year to over RMB 1.1 billion with a gross margin of 67.9%. Total operating expenses during the quarter increased 15.0% year-over-year to nearly RMB 1.3 billion. Breaking it down, selling expenses increased 20.3% year-over-year this quarter to RMB 885.3 million, accounting for 52.5% of net revenues. Research and development expenses increased 14.0% year-over-year to RMB 165.4 million, accounting for 1.8% of net revenues. General and administrative expenses decreased 2.1% year-over-year to RMB 211.8 million, accounting for 12.6% of net revenues. Loss from operations was RMB 118.0 million and operating loss margin was 7.0%. Non-GAAP loss from operations was RMB 110.7 million, and non-GAAP operating loss margin was 6.6%. Net loss was RMB 84.2 million, and net loss margin was 5.0%. Non-GAAP net loss was RMB 76.8 million and non-GAAP net loss margin was 4.6%. Our net operating cash inflow increased 23.1% year-over-year to RMB 964.8 million. Now turning to our balance sheet. As of December 31, 2025, we held RMB 712 million in cash, cash equivalents and restricted cash, along with RMB 2.7 billion in short-term investments and RMB 551.6 million in long-term investments. This comes to a total of nearly RMB 4.0 billion. As of December 31, 2025, our deferred revenue balance was around RMB 2.6 billion, primarily consisting of tuition received in advance. As of March 4, 2026, we have repurchased an aggregate of around 30.6 million ADS on the open market for nearly RMB 670 million. Before I provide our business outlook for the next quarter, please allow me to remind everyone that this contains forward-looking statements, which include risks and uncertainties that are beyond our control and could cause the actual results to differ materially from our predictions. Based on our current estimates, total net revenue for the first quarter of 2026 are expected to be between RMB 1,578 million and RMB 1,598 million, representing an increase of 5.7% to 7.0% on a year-over-year basis. This single-digit increase rate is due to seasonality. We expect the increased rate to return to double digits in the second quarter in 2026. This concludes my prepared remarks. Operator, we are now ready for the Q&A section. Thank you, everyone, for listening. Operator: [Operator Instructions] The first question comes from Crystal Li with CMS. Crystal Li: Congratulations on the strong results. So I just want you to maybe add more color on the development of your off-line business and maybe elaborate more on the -- your future plan on this off-line business. Nan Shen: Thanks, Crystal, for your question. We launched the expansion of our off-line learning centers back in 2023. First, from a strategic perspective, our off-line business represents a clear second growth curve for us and one of the top strategic priority at the group level. The integration of online and off-line is a highly effective approach to enhancing learning efficiency and the overall learning experience and also makes our product metrics more holistic. And it is also a critical step in building our long-term competitive advantages. This initiative is led directly by our founder with prioritization in resource allocation, decision-making efficiency and cross-sector collaboration. By capturing a favorable window of strong user demand in 2023, we have moved quickly to scale our footprint over the past 3 years. We have attracted outstanding industry professionals with deep expertise in local operations, educational product design and teacher sourcing and cultivation, et cetera. Building a professional team is truly important for offline operations and also can execute effectively and also support scalable growth. This has already laid a very solid foundation for our offline businesses. In terms of the current progress and results, our off-line business has achieved clear economies of scale. Since 2023, with continuous investment and operational refinement, our off-line learning center network and revenue scale has grown steadily and rapidly. Based on our current expansion pace and operating plan, we expect the overall scale, I mean, the top line -- the revenue of our off-line business to surpass that of several independently listed peers in the coming year. This is not just a single increase in the number of learning centers. It also represents healthy growth driven by proven unit economics, strong brand reputation and a well-developed supply chain for high-quality teachers. After nearly 3 years of market penetration, our brand has established a solid credibility and influence among students in regional markets. User satisfaction and retention rates continue to improve. And our brand mode is gradually taking shape. Put simply, we have evolved from a pure online service provider to a fully integrated platform, and this is the fundamental and the most definitive outcome of our transformation. That being said, the off-line business has relatively high barriers to entry, including those related to management effectiveness, organizational alignment and also system processes and most importantly, the supply of top-tier teachers. We still have some areas that we need to further optimize and integrate. We are systematically reviewing and refining and continually building up the system to support the growth of this segment. Our upfront investments are focused on strengthening our network footprint, brand reputation and operational capabilities. And we are committed to capturing greater long-term market space and value and progressing steadily towards sustainable profitability. So we foresee at the school level, we can achieve a profitability at this year. And also in the next year, we will foresee our offline business to be profitable, including the headquarter over had. I hope that address your question, Crystal. Operator: As there are no further questions now, I'd like to turn the call back over to the company for closing remarks. Nan Shen: Thank you, operator, and thank you, everyone, for joining the call today. If you have any further questions, please don't hesitate to contact our Investor Relations department or our management via email at ir@gaotu.cn directly. You are also welcome to subscribe to our news alert on the company's IR website. Thank you very much again for your time. Have a great night. Operator: This concludes today's conference call. You may disconnect your line. Thank you.
Operator: Good morning, everyone. Welcome to Tecsys Fiscal Year 2026 Third Quarter Results Conference Call. Please note that the complete third quarter report, including MD&A and financial statements was filed on SEDAR+ after market close yesterday. All dollar amounts are expressed in Canadian currency and are prepared in accordance with International Financial Reporting Standards. Some of the statements in this conference call, including the question-and-answer period, may include forward-looking statements that are based on management's beliefs and assumptions. Actual results may differ materially from such statements. I would like to remind everyone that this call is being recorded on Thursday, March 5, 2026, at 8 30 a.m. Eastern Time. I would now like to turn the conference over to Mr. Peter Brereton, Chief Executive Officer at Tecsys. Please go ahead, sir. Peter Brereton: Thank you. Good morning, everyone. I'm joined today by Mark Bentler, our Chief Financial Officer. We appreciate you joining us for today's call. I'm pleased to share our third quarter fiscal '26 results with SaaS revenue up 17% and adjusted EBITDA up 43% compared to the same quarter last year. This is highlighted -- this is the highest adjusted EBITDA quarter in our company's history. We also achieved the largest Q3 SaaS bookings quarter in our history, achieved without any migration bookings, which we believe underscores the demand for our core offerings and the strength of our pipeline. We saw strong SaaS bookings across both our health care and distribution verticals with new logo wins leading the way, including Memorial Sloan Kettering, one of the world's most renowned cancer centers; UT Southwestern, one of the top academic medical centers in the U.S. and one of the world's largest paper packaging companies as well. In Q3, our pipeline growth remained strong with our ending Q3 pipeline up 30% from the same time last year. These results highlight the strength of our Elite platform and our health care solutions, which represent the core of our business and a primary driver of SaaS ARR. They also strongly reinforce our value as customers navigate the convergence of 3 powerful forces: an evolving regulatory landscape, persistent macroeconomic pressure and an AI ecosystem characterized by rapid innovation and uneven maturity. The shifting regulatory landscape in the U.S. health care system continues to reshape requirements across the supply chain. For example, the Drug Supply Chain Security Act requires every product to be electronically traceable at the package level and the 340B Program demands rigorous tracking, auditing and documentation to show that discounted drugs are being used appropriately. As these regulations move into a period of stricter enforcement throughout 2026, compliance is shifting from a best effort initiative to an imperative operating discipline with real consequences for organizations that aren't ready. At the same time, the broader macroeconomic climate is prompting health care leaders to accelerate technology investment, not slow it down. Despite cost pressures, organizations are allocating more budget to digital infrastructure, automation and data readiness. Analysts project continued year-over-year growth in technology spending among U.S. health care providers, reflecting the urgency around modernization and resilience. Finally, the era of unrestrained AI evangelism is giving way to more mindful evaluation, and we're seeing buyers gravitate toward partners with advanced AI capabilities, combined with deep vertical expertise and industry-specific solutions like unit level traceability, federal compliance audit capability and secure chain of custody requirements in health care, the kind of domain-informed approach exemplified by Tecsys. As mentioned in our earnings press release, our AI intelligence layer, TecsysIQ, became commercially available in Q3. TecsysIQ unifies data from multiple sources, including health care-specific ones like ASHP, which is the American Society of Health-System Pharmacists, GUDID, which is the Global Unique Device Identification Database and the U.S. Food and Drug Administration. It can bring together critical information like drug shortage data, device identifier data and recalls and safety alerts, transforming it into clear and actionable insights. This capability significantly amplifies the value of our core enterprise systems, empowering customers to unlock the full potential of AI and improve operational performance. We're encouraged by the early momentum and the expanding role TecsysIQ will play in delivering measurable supply chain value. The same appetite for operational improvement is fueling exceptional interest in our pharmacy solutions while accelerating our brand awareness in the market. Pipeline for our pharmacy inventory management system grew more than 200% year-over-year, supported by strong brand momentum, new industry research and record engagement at our Pharmacy Summit in Houston, Texas this week, where total registrations increased 77% year-over-year and participation from health system leaders was up 67%. Our research survey findings are driving increased media coverage, while recent recognitions for Modern Healthcare and RXinsider reinforce our position as a leading and trusted partner in the pharmacy space. Our distribution business also delivered solid progress in the quarter, reflecting ongoing demand, strong execution and significant market traction. As I mentioned at the top of the call, we signed a significant deal with one of the world's largest paper packaging companies, reinforcing our position as a partner of choice for complex high-volume distribution environments. In November, we went live with Carolina Cat, who are already seeing strong ROI for their operating efficiency. And in December, we successfully went live with Kirby Risk, an electrical supply manufacturing and logistics organization operating in more than 40 locations. This implementation establishes a solid foundation for their next phase of operational transformation, which will include expanded automation capabilities. Overall, the quarter reinforced the strength of our strategy as organizations across health care and distribution increasingly seek partners who combine domain expertise with advanced purpose-built AI. With strong pipeline expansion and rising market visibility, we are well positioned as a trusted modernization partner in sectors where reliability, compliance and AI readiness are critical. Mark will now provide further details on our Q3 results as well as financial guidance on several key metrics. Mark Bentler: Thank you, Peter. As a reminder to everyone, our third quarter ended January 31, 2026. I'll start with SaaS. As Peter mentioned, SaaS revenue growth was 17%, reaching $20.1 million in the quarter. That growth was 18% on a constant currency basis. SaaS ARR was $83.3 million at the end of Q3 fiscal '26, which was up 10% or 16% on a constant currency basis from the same quarter last year. Our Elite SaaS ARR, which is our core product and the predominant contributor of total SaaS ARR grew by 17% over the same period, which was actually 23% on a constant currency growth basis. Sequentially, SaaS ARR increased by $2.2 million in Q3 fiscal '26 compared to the prior quarter as record Q3 bookings were partially offset by unfavorable impact from foreign exchange of about $2.1 million and attrition among a small group of noncore customers, which was previously discussed in the Q2 MD&A and earnings call. That known attrition will continue to have a moderating effect on reported SaaS ARR growth over the next 2 quarters. One more point about SaaS bookings. I want to highlight that bookings from new logos are up over 150% during the last 12 months compared to the year ago period. That acceleration is an important indicator of the underlying demand environment and the strength of our competitive position. It speaks to the durability of our growth and the expanding relevance of our platform in the markets we serve. SaaS RPO was $248.9 million at the end of Q3 fiscal '26. That's up 18% from the same time last year. That's actually 24% growth on a constant currency basis, demonstrating again, momentum on SaaS bookings as well as renewals in the period. Professional Services revenue for the third quarter was up 8% from the same quarter last fiscal year to $15 million. Professional Services backlog was $36 million at the end of Q3 fiscal '26. That's down 19% or 14% on a constant currency basis from a tough comp at the end of Q3 last year. Based on our Professional Services backlog heading into Q4, we expect Q4 Professional Services revenue to look more like Q3 this year than Q4 last year, which was $16.2 million. For the third quarter of fiscal '26, gross margin was 51% compared to 47% in the same period last year. The key drivers here are increasing SaaS margins as well as the strength in Professional Services margins in the current quarter. Net profit in the quarter was $1.7 million compared to $1.2 million in the same quarter last year. Basic and fully diluted earnings per share were $0.12 in Q3 this year compared to $0.08 Q3 last year. Adjusted EBITDA was $5 million in Q3 fiscal '26 compared to $3.5 million same quarter last year. On a last 12-month basis through Q3 fiscal '26, adjusted EBITDA is up 49%. Turning briefly to our year-to-date highlights. SaaS revenue for the first 9 months of fiscal '26 was $58.9 million. That's up 21% from the same period last year. Foreign exchange did not have a significant impact on SaaS revenue compared to the same period last year. Our total revenue reached $143.1 million. That was a 10% increase from last year, which was 9% on a constant currency basis. Excluding hardware, overall revenue grew by 13% or 12% constant currency. For the first 9 months of fiscal '26, our adjusted EBITDA increased to $13.3 million, up from $9.1 million in the same period last year. Fully diluted earnings per share for the first 9 months of fiscal '26 were $0.29. That's up 61% compared to $0.18 in the first 9 months of last year. We ended Q3 with a solid balance sheet. We had cash and short-term investments of $36.2 million and no debt. We used about $3.7 million of cash in the quarter to buy back shares under our NCIB, and we also paid out $1.3 million in dividends. Additionally, the Board yesterday approved a quarterly dividend of $0.09 a share. After the end of the third quarter, we implemented a workforce reduction of approximately 7% across multiple functions as part of a broader initiative to optimize the company's operations. This action will result in an estimated restructuring charge of $4.5 million, which will be recorded in our fourth quarter of fiscal '26 and is expected to generate approximately $8.1 million in annual operating cost savings. These reductions create flexibility for the company to redirect resources into strategic growth initiatives. And accordingly, the future operating cost profile will reflect both the realized efficiencies and the reinvestments required to support long-term growth. Turning to financial guidance. Based on our performance through the first 3 quarters of fiscal '26 and our outlook for the remainder of the year, we're reaffirming our full year fiscal '26 guidance for SaaS revenue growth of 20% to 22%, total revenue growth of 8% to 10% and adjusted EBITDA margin of 8% to 9%. I'll now turn the call back to Peter to provide some outlook comments. Peter Brereton: Thank you, Mark. We are very pleased with our third quarter results, and I want to thank our investors and Board, our partners and customers and the whole team at Tecsys. As we look ahead to Q4 and beyond, we'll be expanding TecsysIQ with the next wave of intelligent agents designed to automate more of the routine, time-sensitive and compliance heavy work that burdens supply chains today. These upcoming capabilities will deepen our presence across point-of-use operations, pharmacy workflows and administrative processes, delivering greater visibility, earlier detection of operational risks and more autonomous decision support. We are also advancing our AI-enabled productivity tools, which will streamline configuration and simplify the day-to-day tasks that keep enterprise supply chains running. We're also in full planning mode for our annual user conference, TUC 2026, taking place in Nashville in early June. We're on track for one of our strongest events ever with record customer attendance expected, a standout lineup of customer speakers and partner sponsorship already exceeding targets, clear evidence of deep engagement and advocacy. And so in summary, I want to remind you of our key themes this quarter. Strong fundamentals. Elite SaaS ARR is up 23% year-on-year on a constant currency basis. Adjusted EBITDA, up 43%, our highest quarter on record. Quality of demand, record Q3 bookings without migration bookings, underscoring healthy new logo momentum and pipeline depth. Health care leadership, we have robust SaaS bookings and pipeline growth with traction across our diverse range of health care solutions. And when it comes to AI differentiation, we are delivering domain-informed intelligence that unifies critical data, surfaces actionable insights and enables autonomous execution, amplifying the value of our core enterprise systems. We believe these themes will be the bedrock of our ongoing success, profitable growth and shareholder value creation. With that, we'll open the call for questions. Thank you. Operator: [Operator Instructions] Your first question comes from Amr with Ventum Capital Markets. Amr Ezzat: First off, congrats on the record bookings. If you could give us a sense of what drove that outperformance? And more importantly, does the strength give you more confidence that the elongated cycle that you guys described in Q2 are starting to clear or are these wins already deep in the pipeline for some time? Peter Brereton: Yes, good question. I mean our -- as you know, we've seen our pipeline sort of growing and growing and growing for over a year, very substantially. And we always had confidence that the wave was going to break at some point, but it's sometimes hard to predict exactly when it's going to break. There were a lot of distractions through the summer and fall and right up to Christmas. And [indiscernible] with tariffs and changes to the Affordable Care Act funding and even changes to Medicaid subsidies and so on. But the thing is at this point, it's almost like the future is kind of settled in a way. A lot of the health care organizations and general distributors are seeing, okay, tariffs are sort of just the new reality. You've got to plan them into your business planning as best you can, and you've got to move ahead. So we're seeing people starting to ignore the noise and just start to move ahead with decision-making. So I mean, we'll see where it goes from here. But certainly, it seems to us that a pretty strong pipeline velocity is back, and we're pretty excited about what we're seeing ahead over the next few quarters. Amr Ezzat: So is it fair to say that the number of deals at vendor of choice stage is lower than last quarter? Peter Brereton: No, I would say it's similar to where we were. I mean we've signed some of the deals where we were a vendor of choice, but we've also been made vendor of choice in a number of new deals. So we're feeling pretty good. Amr Ezzat: Fantastic. On the restructuring, can you guys unpack where the reductions are concentrated and what you guys are reinvesting into? Or does some of that flow into the bottom line? And then maybe related to that, given that you guys just reported record bookings and a strengthening pipeline, I just wonder what drove the decision to cut headcount now? Was it just efficiency? Or are you guys signaling that you're managing more cautious outlook? I don't believe that's the case, but I'd like to hear your thought. Peter Brereton: Mark will take a first crack at that, and then I may follow up with some extra color. Mark Bentler: Yes. I've got a few points about restructuring. First, this restructuring is about strengthening the business, not shrinking it. We're aligning resources to accelerate AI-driven productivity, improve sales execution and increase operating leverage. That's the objective. As a result, [indiscernible] Peter Brereton: [indiscernible] technologies that are making us more efficient. So you sort of take that all into account and run through a clean sheet exercise and say, what do you need moving forward. And as Mark says, from here, we will continue to reinvest. Some of these new technologies are expensive. We need room to reinvest there. But we're also very focused on efficiency and driving EBITDA to new levels as we're seeing the business sort of reaching an inflection point and a point of maturity in the migration to SaaS that says it's time for a lot more EBITDA. Amr Ezzat: Fantastic. That's great color. Then maybe one last one. On the noncore attrition over the next couple of quarters, can you give us a sense of the cadence or the roll-off cadence? And this is entirely the population that you guys already knew about? Or is there any incremental pressure that we should be thinking about? Mark Bentler: Yes. That's -- I mean that's -- it's pretty much the same story that we talked about last quarter. There's some known attrition in that noncore group of customers. We've got pretty good visibility on what that looks like. It's going to, I think, mostly play out over the next 2 quarters in terms of SaaS ARR. It has a bit of a lagging effect, of course, on revenue because SaaS ARR is forward-looking and revenue is sort of -- reported revenue is backward looking. And in terms of how much headwind is out there on the ARR, I mean, it's going to be in rough terms, around $1 million over the next couple of quarters that we'll see as headwind there, I believe. And that should play out, like I said, pretty clearly over the next couple of quarters. I think the important thing is we're trying to highlight when we talk about these metrics, this Elite SaaS ARR number. And when people look at what's happening with sequential SaaS growth, is it accelerating or is it decelerating? You should be looking at that Elite SaaS ARR number. That's the leading indicator of the core business. As we mentioned in the remarks, as Peter mentioned, that constant currency growth was 23%. That actually accelerated a bit from last quarter where it was 21%. So that underlying business and that health in that Q3 bookings that we saw and the strength of our pipeline releasing into bookings, which is manifested in that SaaS ARR growth. I mean it is -- we saw acceleration there in Q3 for sure. Operator: Your next question comes from Gavin with ATB Cormark. Gavin Fairweather: I think with the Houston pharmacy event saw now, you talked about the registrations and pipeline trending well. Any kind of anecdotes or kind of the conversations or thoughts around buyer that you're getting out of the sales team? Peter Brereton: Not really. I mean there's -- I mean, the health care providers, by and large, as they look out over the next 2, 3 years, I mean, they do see restrained revenue, right? I mean they're not certain how many of their customers will actually come in insured as a lot of customers are having to give up on the Affordable Care Act marketplace and finding it just too expensive. And as the restrictions kick in around Medicaid, those may get further kicked down the field. But generally speaking, I think a lot of these hospital networks tell us as they look over the next few years, they see at least moderating revenue, possibly declining revenue. And yet at the same time, they're seeing that there is opportunity to really sort of strengthen their operating efficiencies. And we're increasingly in a position where by word of mouth, even we're able to highlight the very hard savings that we can drive by operating the whole supply chain more efficiency across general supplies, implants, pharmaceuticals, et cetera. So that seems to be overall what's driving it. We've also had -- we've invested very substantially in quality and implementation ease over the last few years. And we're seeing that pay off as well. I mean go-lives used to be far too exciting. They're getting more and more -- I'm trying to think of a better word than boring, but they're getting very straightforward when these networks deploy and go live. So that is causing more networks to be interested in implementing when they hear it. It's just not very scary. It's actually a pretty smooth process. Gavin Fairweather: Great to hear. And then maybe just on the new logo strength that you saw this quarter. Curious where customers are starting in the IDN space. Is that pharmacy? Is it CSC? Is it point of use? Any thoughts there? Peter Brereton: It's across the board. It's a general mix. But I would say at this point, you're probably looking at -- even if I combine sort of what's signed and what's in the pipeline and so on, you're kind of looking at -- I would kind of break down 40% pharmacy, 40% point of use and 20% CSC would be the very high-level breakdown there. The CSC business continues, but it's a subset of the IDN marketplace that's interested in the CSC, whereas they can all gain efficiencies by better management of point of use, including the OR, cath lab, IR, et cetera, as well as the, of course, pharmacy. Gavin Fairweather: That's great. And then maybe just lastly on TecsysIQ. Can you just flesh out a little bit some of the use cases that you're starting to see happen in the base? And maybe just flesh out a little bit how discussions are going with customers and prospects and your sense of their keenness to adopt some of this new technology. Peter Brereton: Yes. I mean it allows you -- I mean, the main thing is it has access to both internal and external data, and it can use it in a combined fashion to sort of highlight the right actions, right? So you're -- I mean, we're seeing it -- pharmacy is probably where we're seeing the uptake the quickest. We're involved with a couple of pilot environments where we're using TecsysIQ to look at what is actually being consumed within the hospital environment, where do we have over inventory where we may actually run into product expiring on the shelf, where are we short, comparing our upcoming needs then to industry data that indicates where there may be shortages coming in the industry and based on that, making recommended buys to fill in the targeted formulary. But it's this ability to sort of write down at a granular level, combine usage data, industry data, industry on shortages from ASHP and other sources and bring it all together to say, okay, these are the things you need to look after this week and get in here. No, generally speaking, I would say we're not yet seeing -- and I think it will be another few quarters before we see people turning into more automated agents. You need time for trust to build in AI. I mean AI, as you know, it hallucinates, it makes mistakes. It does what it does. And it's going to take a while for that sort of trust to build up and not just our platform, in AI in general, for people to be willing to say, okay, I don't -- I'm looking for more than a report and a dashboard from this thing. I now want it to actually initiate action on its own. That's probably another couple of quarters. There's a lot of interest in it, some experimentation, but I would say that's not yet widely deployed. And by the way, I think that's on our platform and others from what we're hearing from customers that the platforms just aren't ready for that level of trust. Operator: Your next question comes from Richard with National Bank Capital Markets. Jack Durno: This is Jack Durno on for Richard. Just wondering if -- maybe just a follow-up on TecsysIQ. If you could just give some color on how you intend to monetize it? And then as it scales, maybe where we should expect it to show up in your KPIs? Peter Brereton: Yes. I mean there's 2 factors. You're talking specifically with TecsysIQ, right? Jack Durno: Yes, exactly. Peter Brereton: Yes. Yes, there's kind of 2 ways to measure it. We're looking at that ourselves. I mean on a simple go-forward basis, we're expecting to close a few agreements a quarter for the next several years and probably accelerating as we go into that. Now what does that turn into? These platforms will likely add over a year, maybe $1 million to ARR per year as you roll forward. So it's -- in that way, it's not huge. It could go higher than that. It could go quite a bit higher than that, but that's kind of our baseline as we look to sort of layer this in on top. What I think is the bigger factor and the more exciting factor for us is we think it's going to drive all the rest of the ARR bookings because you end up with people now looking at a platform like ours and going, okay, wow, this thing can do a lot more than it used to. I mean AI is useless without a vast amount of underlying data. Our platforms provide that vast amount of underlying data. So when customers start to see what -- prospects start to see what AI can do, they end up realizing they need the underlying data platform. They need an enterprise end-to-end supply chain platform that supplies that data to the AI engine. Otherwise, all the AI engine can do is hallucinate. So we think that this is a -- it does layer some bookings in on top of what bookings would otherwise be. But we think what we're seeing is an acceleration across all of our types of bookings because of the additional ROI that an AI platform like TecsysIQ can provide. So we're -- I mean, what we're excited about is that I know there's a lot of fear in the market around AI. What we're seeing is that for us, AI is a tailwind. It's definitely not a headwind. It's looking pretty exciting. Jack Durno: Awesome. That's really good color. I appreciate it. And then just on the -- I know last quarter, you mentioned that you were seeing in the last 12 months, I believe there was 2% churn in Elite customers. I'm just wondering if that number has changed at all and if you're still seeing the same. Peter Brereton: It's still under 2%. Operator: Ladies and gentlemen, there are no further questions at this time. I'll turn the call back over to Peter Brereton. Please go ahead. Peter Brereton: Thank you, and thank you for taking the time to join us today. As always, if you have additional questions, don't hesitate to reach out to Mark or I, and we will look forward to talking to you at the end of June when we release our Q4 numbers. Thanks. Have a great day. Bye for now. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, everyone, and welcome to the CareRx's Fourth Quarter 2025 Financial Results Conference Call. Please note that this call is being broadcast live over the Internet, and the webcast will be available for replay beginning approximately 1 hour following the completion of the call. Details of how to access the webcast replay are available in today's news release announcing the company's financial results as well as on the company's website at www.carerx.ca. Today's call is accompanied by a slide presentation. Those listening on their phones can access the slide presentation from the company's website in the Investors section under Events and Presentations. Certain statements made during today's call, including the answers that may be given to questions, may include forward-looking information, including information consulting -- excuse me, including information constituting a financial outlook under applicable Canadian securities laws. Apologies, everyone. Forward-looking information, including financial outlook information, includes statements regarding forward -- regarding future events, conditions or results, including the company's future plans, strategies, objectives and expectations. Forward-looking information and financial outlooks are based on information available to management as well as their assumptions and expectations as of the date of this presentation. Forward-looking statements and financial outlook information is given as of the date of this presentation, and the company assumes no obligation to update any forward-looking information as a result of new information or future events, except as required under applicable laws. Forward-looking information is subject to risks and uncertainties, some of which may be unknown to management or beyond the control of the company, which could cause actual results to differ materially from those contemplated by the forward-looking statements or financial outlook provided today. Given these risks and uncertainties, investors are cautioned not to place undue reliance on the company's forward-looking information. For additional information on the risk factors that could cause actual results to differ materially from those contemplated by the forward-looking information and the factors and assumptions associated with such forward-looking information, please refer to the company's MD&A for the 3- and 12-month periods ended December 31, 2025 and 2024, and other documents filed on the company's profile on www.sedarplus.ca. I would now like to turn the conference over to Puneet Khanna, President and CEO of CareRx Corporation. Please go ahead, Mr. Khanna. Puneet Khanna: Thank you, and good morning, everyone. Welcome to our fourth quarter 2025 earnings call. With me this morning is our Chief Financial Officer, Suzanne Brand. In the fourth quarter, for the 3-month period ending December 31, 2025, we delivered strong financial and operating performance. We generated revenue of $96.1 million and adjusted EBITDA of $8.8 million, representing an adjusted EBITDA margin of 9.2%. We also delivered net income of $1 million in the quarter after adjusting to remove the effect of a deferred income tax recovery. Average beds serviced increased to 92,250 in Q4. For the year, we delivered revenue of $370.2 million and adjusted EBITDA of $32.9 million. Adjusted EBITDA margin for the year was 8.9%, and we delivered net income of $3.3 million after adjusting to remove the effect of an income tax recovery. We are proud of the financial results of the company as 2025 marks the first full year of positive net income. Our financial performance also reflects the contribution from new beds onboarded throughout the year, combined with the ongoing benefits of our cost savings and efficiency initiatives. I'm very proud of the entire CareRx team from coast to coast, those in our pharmacies, our office-based locations and the team supporting on-site within the homes we service. It is the dedication and hard work of the collective team that has enabled us to deliver these results while continuing to provide high-quality pharmacy services and programs to our residents and home partners. Turning to our full year highlights. In 2025, we added over 4,500 new beds across our network, and we are well positioned to continue to leverage our operating platform. We grew adjusted EBITDA by 8.7% compared to prior year and expanded our adjusted EBITDA margin by 63 basis points. We also reduced net debt by approximately 24% year-over-year, reflecting our strong cash generation and disciplined approach to capital allocation. In line with our commitment to returning capital to shareholders, we initiated a quarterly dividend during the year. We also renewed our normal course issuer bid, reinforcing our view that our share price does not fully reflect the fundamental value and long-term growth potential of our business. 2025 was also a year of important strategic milestones. We hosted Natalia Kusendova-Bashta, Ontario's Minister of Long-Term Care at our Oakville pharmacy location, where we showcased the innovative pharmacy services and technologies we use to deliver integrated pharmacy services and programs across the seniors housing spectrum. We also fully transitioned all regional beds in the BC Lower Mainland to our new Burnaby pharmacy, and we were pleased to host members of the BC legislative assembly for a tour of this new facility. This site is a strategic component of our high-volume operating platform and further enhances our ability to support growth while maintaining a high standard of service for our home operator partners and residents. Taken together, these achievements highlight the momentum in our business and the strength of our platform as we look ahead. I will now turn the call over to Suzanne, who will discuss our fourth quarter financial results in more detail. Suzanne Brand: Thank you, Puneet, and good morning, everyone. As Puneet outlined, we delivered solid growth in our key financial metrics in the fourth quarter of 2025. Average beds serviced in the fourth quarter increased to 92,250 from 87,658 in the same period of 2024. Revenue in the fourth quarter grew to $96.1 million compared to $92.2 million in the fourth quarter of 2024. The year-over-year increase in revenue was driven primarily by the increase in the number of average beds serviced. Fourth quarter adjusted EBITDA increased to $8.8 million from $7.6 million in the fourth quarter of 2024, and adjusted EBITDA margin improved to 9.2% from 8.2% a year ago. The increase in adjusted EBITDA and adjusted EBITDA margin was driven by the onboarding of new beds and continued realization of cost savings and efficiency initiatives across our operations. After removing the effects of income tax recoveries, we reported net income of $1 million in the fourth quarter compared to a net loss of $2.2 million in the fourth quarter of 2024. The improvement in net income reflects the higher average number of beds serviced, the impact of our cost savings initiatives and reduction in finance costs. We are proud to report our first full year of positive net income as CareRx and specifically positive net income in every quarter of 2025. Cash from operations in the quarter was $9.6 million compared to $8.4 million in the fourth quarter of 2024. Cash from operations was influenced primarily by the contribution from the new onboarding and our ongoing cost-saving initiatives. Turning to our balance sheet. As of December 31, 2025, we had cash of $13.9 million compared to $15.5 million at the end of the third quarter of 2025. Net debt was $27.1 million at quarter end compared to $28.8 million at the end of the third quarter of 2025. The quarter-over-quarter improvement in net debt was driven primarily by repayments to our term loan. Net debt to adjusted EBITDA improved to 0.8x at the end of the fourth quarter compared to 0.9x at the end of the third quarter of 2025. This improvement reflects both the decrease in net debt and the increase in our run rate of adjusted EBITDA. During the quarter, we also paid dividends in the aggregate amount of $1.3 million, consistent with our balanced approach to capital allocation, which prioritizes growth, growth investments, balance sheet strength and returning capital to shareholders. Overall, our financial position remains very strong, and we believe we are well positioned to support continued growth while maintaining conservative leverage profile. And with that, I'll turn the call back over to Puneet. Puneet Khanna: Thank you, Suzanne. Across CareRx, teams have strengthened relationships with home partners as well as with industry and government stakeholders. We have also delivered improvements in the care we provide to residents, enhanced the clinical support offered to homes and advanced key initiatives throughout a year of growth and momentum. During the fourth quarter, CareRx pharmacists administered over 40,000 flu shots. This is an important contribution to protecting residents in long-term care while preventing hospitalization and underscores the critical role our teams play in preventative care and immunization programs. We were also proud to have a diabetes management study co-led by CareRx pharmacists published in JMIR Diabetes. This work reflects our ongoing focus on clinical excellence, medication management and supporting evidence-based practice research to shape the future of senior care. We continued our support for the Senior Living CaRES Fund, which provides assistance to employees working in the senior living sector, supporting the people who care for seniors every day is core to our mission and values. In addition, our teams remained active in community initiatives, including participating in Lace Up to End Diabetes, writing holiday cards for seniors and sponsoring and attending other community events. These activities allow us to give back to the communities where we live and work, strengthen our relationships with residents and families and reinforce our commitment to being a trusted partner across the continuum of care. We have built a scalable, operationally efficient organization that we believe is exceptionally well positioned to capitalize on the significant long-term growth opportunities we see in the industry. Importantly, our business is built to handle significant growth, and we remain confident in our pipeline and our strategic positioning so that when our home partners are ready to move, we are ready. With that, I would now like to open the call to questions. Operator? Operator: [Operator Instructions] And today's first question comes from Gary Ho at Desjardins Capital Markets. Gary Ho: Puneet, can you maybe give us an update on bed count growth pipeline this year? What are your sales team working on behind the scenes? And also maybe on the flip side, any notable customer that's up for renewal in 2026, we should be watching for? Puneet Khanna: So on growth, as I said in my prepared comments, we are optimistic and bullish on growth. I think we've publicly stated 6,000 to 8,000 net new organic beds is what we are targeting. Our sales team has hit the ground running this year in both prospecting and pushing those initiatives through the pipeline. So we feel good about that. With respect to large customers, we don't have any significant or large customers that are expiring this year. Gary Ho: Okay. Great. And then second, wondering if you can provide a progress update on your hub-and-spoke strategy trial. What do you hope to accomplish this year? And any plans to build out new mega facilities over the next 12 to 18 months? Puneet Khanna: Yes. So our hub and spoke continues -- we continue to feel good about where that's going. We now -- out of the pilot site that we do have in Oakville, we now have 2 of our other pharmacies being packaged out of the Oakville location. The -- and we're seeing that volume handled nicely with further capacity. And so we'll continue to expand that throughout the year. We're also looking to take that into BC. We are in the Lower Mainland location, we are servicing outside of our own geography in the Lower Mainland. And so we'll continue to leverage and expand that as well. So -- and then with your second part of your question, yes, we've got -- I think we would like to get 2 more hubs built time lines within the next 24 months, but nothing confirmed at this point, Gary. Gary Ho: Okay. Perfect. And then if I can just sneak one more in, maybe for Suzanne. I know there's a new deferred tax amount on the balance sheet, $23 million. I don't think it was there in Q3. What drove that? And does that impact future income tax rate looking out? Suzanne Brand: Yes. Thanks, Gary, for the question. The analysis was not complete. The analysis in Q3, we actually did the full analysis in Q4 on our tax position. You did see within the results that we posted a full year of positive net income. And with our future forecast in terms of profitability, it allowed us to recognize the deferred tax asset that we'll be able to offset some capital losses against. So it is a very good news story. It's a positive net income story. And we do have the noncapital losses that we'll be able to utilize. So hence, the deferred tax asset was recognized. Gary Ho: Okay. So maybe I can just clarify to see if I understand this correct. So in previous years, tax years where you had net losses, I guess those weren't recognized on the balance sheet. And as a result, now you have better visibility of having positive net income. And as a result, you can book these deferred taxes. Is that the right way to look at it? Suzanne Brand: That's exactly right. Yes, that's right. We did not have that profitability in the past. Gary Ho: So does that mean there's no current taxes we should look for in the near term? Suzanne Brand: In the near term, we will be able to utilize our noncapital losses with respect to being noncash tax positive. Operator: And our next question today comes from Gireesh Seesankar with Bloom Burton. Gireesh Seesankar: Now as your partners acquire beds, could you provide some detail on the onboarding economics, specifically incremental margin that gets added as you add in new beds and the lag time from a partner closing an acquisition to the beds coming online? Puneet Khanna: So with respect to the lag time, it's one of the -- the answer is it depends. So we've seen somewhere if they are long-term care and licenses need to be transferred from the ministries, like we've seen that take as long as a year in some cases. And then in others, just depending on closing or if it's going to Competition Bureau, what we're seeing on the retirement home operator side as that side of the business or our customers continue to consolidate, it seems that it's triggering comp bureau review more and more. And so -- especially with the larger operators. And so a little bit of that is uncertain that we know we've won it, we're going to get it. Timing is not necessarily in our control. And then sort of with your first part of your question on margin profile, because of the way we've built our network, when we do add beds, we do it at very little additional labor. So it is much more incrementally accretive to us than our run rate. Suzanne Brand: If I can just add to that. Of course, it's dependent on the volume of the bed adds. It is marginally accretive, as Puneet said, with respect to minimal labor required. So with a large add, it's very, very supportive with respect to accretion, with small bed adds, it's a minimal impact. But we do get to absorb the labor. Gireesh Seesankar: And would it be possible to quantify the bed count threshold required to break into that double-digit margins? And then beyond just pure scale, what other levers could you pull to further drive margin expansion? Puneet Khanna: Yes. So I think what we've demonstrated over the last 2 years is that commitment to operational excellence. And when we started on that journey, it was really -- we committed to lean methodology, which is sort of a dedicated daily focus on rooting out waste and wasteful activities in the business and driving efficiencies. And so we'll continue to find opportunities throughout the business. And I think from what we've seen when we went to Europe and the partnerships we've created with best-in-class pharmacies across the EU is that there are still learnings that we are sharing back and forth and driving further efficiencies in our business that way. And so we will continue to drive those throughout the year. And then to Gary's earlier question, even with hub and spoke, as we continue to drive towards that model, there will be a significant upside for us on that part as well. Gireesh Seesankar: Just on the -- with the 6,000 to 8,000 beds potentially being added this year, do you think you'll be able to break double-digit margins with those adds? Suzanne Brand: We're optimistic. Sorry, Gireesh, I apologize, for a little bit of throat there. Optimistic with respect to breaking through to the double digit with the 6,000 to 8,000 as the target. Operator: [Operator Instructions] Our next question today comes from Max Czmielewski with Stifel. Max Czmielewski: Just firstly, I'd like to ask, you're at historically low leverage. You guys have done a great job in sorting out the balance sheet, and it's in great health now. I guess just with respect to that, can you provide a little bit of color on firm capital allocation plans? I know the dividend is now in place and the buyback continues. But is that the plan? You do expect to invest a little bit more into existing facilities, building out any capacity? I understand Ontario is well positioned to add new beds with its current capacity, but maybe provide a little detail on what you think about using your balance sheet for? Suzanne Brand: Max, with respect to capital allocation, you are correct. We will continue in terms of our -- the -- we focus on the dividend. We focus on the NCIB in terms of the buyback. But of course, we'll continue with capital allocation between the $8 million and $10 million with respect to pure capital. And then secondarily to that, we'll also look for opportunities from an M&A perspective and how that might obviously impact our business positively. But because we are so -- positioned very effectively on our balance sheet, we'll be able to maneuver that within our current structure. Max Czmielewski: That's great. And maybe just broadly, with regards to M&A, are you in discussions to any degree? Or does the pipeline looks a little bit more active than it is historically? Just what does that look like? Puneet Khanna: Yes. It's still early innings on that, Max. So nothing -- we haven't -- we're not bearing any fruit yet. But again, I think we're pretty optimistic on using our cash effectively to fuel growth. Max Czmielewski: Great. And maybe just on what's over the horizon this year. And I think we've spoken about it in the past, but with the genericization of semaglutide in Canada, maybe lay out your expectations or refreshed expectations and if this will translate into any gross margin expansion in the back half of the year? Suzanne Brand: So with respect to Ozempic/semaglutide molecule, there is an expectation. Word is, is that it would likely go generic late in the year. So we are watching that, never any guarantees with respect to getting through all the regulatory hurdles. It will -- again, as you know, it's a pass-through from both revenue and cost of sales, but we will be able to push a little bit of upside with respect to our wholesale terms. But at the end of the day, it's just still a little bit of a wait and see on semaglutide to see that it actually does get into the generic space. Max Czmielewski: Great. Maybe one more question. This is a bit of a shot in the dark. Have there been any discussions with Quebec officials yet on expanding services into the province or even in the maritime provinces for maybe a broader geographic reach? And how are those advancing? Puneet Khanna: Yes. So we operate in Moncton, New Brunswick already. With the legislation there, we could service into Nova Scotia from that location. And just with the limited geography, that would most probably make the most sense out of the gate for us. So we continue to look for opportunity to expand into that market. And then with Quebec, it's one of those. We are continuing to have ongoing conversations with a number of different individuals. But again, nothing to report back at this point. Operator: And that concludes our question-and-answer session. I'd like to turn the conference back over to Puneet Khanna for any closing remarks. Puneet Khanna: Thank you, everyone, for participating in today's call and for your continued interest in CareRx. We look forward to reporting on our continued progress next quarter. Operator: Thank you, sir. This brings to a close today's conference call. You may now disconnect your lines. We thank you for participating, and have a pleasant day.
Operator: Good morning, and welcome to the Xtract One Technologies Fiscal 2026 Second Quarter Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Chris Witty, Investor Relations Adviser. Please go ahead. Chris Witty: Good morning, everyone, and welcome to Xtract One's Fiscal 2026 Second Quarter Conference Call. Joining me today is the company's CEO and Director, Peter Evans; and CFO, Karen Hersh. Today's earnings call will include a discussion about the state of the business, financial results and some of Xtract One's recent milestones, followed by a Q&A session. This call is being recorded and will be available on the company's website for replay purposes. Please see the presentation online that accompanies today's discussion. Before we begin, I would like to note that all dollars are Canadian unless otherwise specified and provide a brief disclaimer statement as shown on Slide 2. Today's call contains supplementary financial measures. These measures do not have any standardized meanings prescribed under IFRS and therefore, may not be comparable to similar measures presented by other reporting issuers. These supplementary financial measures are defined within the company's filed management's discussion and analysis. Today's call may also include forward-looking statements that are subject to risks and uncertainties, which may cause actual results, performance or developments to differ materially from those contained in the statements and are not guarantees of future performance of the company. No assurance can be given that any of the events anticipated by the forward-looking statements will prove to have been correct. Also some risks and uncertainties may be out of the control of the company. Today's call should be reviewed along with the company's consolidated financial statements management's discussion and analysis and earnings press release issued March 4, 2026, available on the company's website and its SEDAR+ profile. It's now my pleasure to introduce Peter Evans, Chief Executive Officer of Xtract One. Peter? Peter Evans: Well, thank you, Chris, and thank you, and welcome to all of our investors and analysts that are joining us today. Let's start by opening up with Slide #4. With Slide 4 here, I'm pleased to say that we start off by saying that we had normally expect the second quarter to be relatively slow, typical slowdown to American Thanksgiving people slowing down as they head to the holidays as they're waiting for new budgets in January. However, our second quarter turned out to be a very busy one for us for both bookings and deployment of our product lines. Which comes as no surprise to me given that our current commitment to deliver on our backlog and continually convert that over to revenue and onboarding new customers. We remain on a solid trajectory for this to be our very best year ever with record revenue anticipated as growth continues into the second half of fiscal 2025. Revenue in the second quarter rose by 70% year-over-year, and our backlog remains strong at a near-record level of around $49 million or so. This reflects the demand for both of our innovative product lines, both the SmartGateway and the One Gateway across a wide variety of end markets. And we believe that we're well poised to see a continued influx of new orders and increased numbers of installations. And I'm pleased that we continue to see that to this day. As we turn the corner into spring, we see more and more opportunities in front of us. Alongside the successful deployment of numerous Xtract One Gateway systems, we also continue to see a healthy interest for the SmartGateway, right, purpose-built for particular markets and particularly those markets being health care and entertainment sectors. Our production levels continue to grow, matching our demand from the marketplace as we'll discuss in a moment, which leaves us feeling very upbeat about the coming quarters. Given the size of our backlog, given the improved pace and growing pace of deployments, and a strong balance sheet, along with expanding our manufacturing capabilities on a continuous basis, we have better visibility than ever before into our fiscal 2026, which has been as categorized previously a transformational year for us and for the company. Let's move on to Slide 5 a little bit and dig into the details on the Xtract One Gateway. The Xtract One Gateway continues to gather momentum in North America and is now garnering interest outside of the United States. As our bookings and total backlog indicates, we are very pleased with the rollout of this exciting new product and the overall success we're seeing across a number of markets. I'm in the U.K. right now, and we're starting to get inbound interest on the One Gateway as an example from the U.K. It's an all-important education sector, though is where we're really making our mark with One Gateway. Given the ongoing threat level that unfortunately exists in the world today, which we read about almost every single day. It should come as no surprise that more and more institutions are reaching out to us for information about these groundbreaking AI driven innovations and applications of both of our solutions. The heightened interest has been steady and sometimes, quite frankly, overwhelming. That said, there is usually a period of test and evaluation that goes into reviewing our technology. Many of the customers who are inbounding to us and many of the school boards. Those customers tend to be Fortune 500-type companies and they take the time to meet and make decisions and run demonstrations of the products and look through all the contractual terms, scheduling phased deployments as well as in the case of schools obtaining grant funding. This takes time, but we're very pleased that we're seeing positive impacts to our pipeline and to our average deal size overall. This quarter, we actively engaged with numerous schools and other customers to deploy Xtract One Gateway continuing to ramp that backlog to revenue. And with the additional institutions and installations who are looking for the next phases that they're planning for this fiscal year. We already have orders for almost 150 Xtract One Gateways with roughly $21 million with approximately 1/3 of that already delivered and installed by the end of Q2. Our products can now be found spread across almost every state and in numerous school districts throughout the country. And although we believe that this is just the tip of the iceberg for this product. As we benefit from word of mouth from one school district to another, as an example, and that strong referenceability from the positive impact that we're having on those students and those school environments, we continue to get more and more increased exposure and more inbound interest for the solution. And we're seeing much higher demand throughout North America, including with larger metropolitan school districts that sometimes comprise dozens of buildings or more. We're also tracking legislation, a question that's often asked of the company, such as the legislation that recently passed in Georgia and Pennsylvania and is expected with similar mandates in other states. This legislation is key. It mandates that schools will be required to screen for weapons. Similar to how building codes require mandate sprinkler systems or smoke detectors and other systems and where people have done the risk-benefit analysis, we're seeing the same thing applying to weapon detection. And we believe it will become a similar standard mandating weapon detection in every building in every school district and every hospital across the country. We look forward to the continued contracts and the rollout of Xtract One Gateway, which we see accelerating as the year progresses. Just when we thought we couldn't get busier, the demand continues to increase more and more. And particularly, we see that expanding as we continue to expand our production capabilities accordingly. As a reminder, we are ramping up manufacturing and deliveries in a very efficient and phased approach in order to match client demand manage our cash flow and also to manage the installation requirements and forecast that we get for each of the future coming quarters. Let me add that our suppliers are on track with regard to expanding increasing the product throughput and as evidenced by our increased deployment of record revenue for this quarter, and though we expect this trend to continue as we move further and further into the second half of fiscal 2026. As we see the ramp in demand, we are also investing in ramping our sales channel and support channels in both North America and markets like the U.K. and Mexico, where we're seeing a tenfold increase in inbound interest in those regions for both of our solutions. We're ramping through both experienced sales staff and selectively chosen partners who are leaning into the market opportunity versus waiting for it to come to them. An example of this expansion that we're seeing was recently announced with our win with the British Museum. For those who are unfamiliar, this is one of the world's most iconic venues. It's not a stuffy dusty museum, but a venue that greets almost 7 million visitors from all over the world. And to put that in context, that is 2x more than what Madison Square Garden does in the year in terms of patronage and almost as much as a major Disney theme park. It is also because of who they are, the British Museum is a target for both terrorist and protector activities, and as such, has some of the most stringent security standards. When organizations actually care about security or innovation and ongoing innovation, they choose Xtract One. This landmark win sets a stage for more wins that we believe will follow the British Museum's leadership not only throughout the U.K. but throughout the world. We now have over USD 105 million in our qualified sales pipeline across both product lines, amount that continues to grow and that amount is approximately split evenly between our two solutions, the SmartGateway and the Xtract One Gateway. Given increasing traction with our innovative AI-driven systems and the expanding market demand and our ongoing and continuously improved production capabilities, we remain very upbeat about the outlook for fiscal 2026 and beyond. We are very well positioned to make this year the best ever for Xtract One. I could not be happier about the trajectory we're on, and it's putting us on track for even better results thereafter. With a strong balance sheet, near record-breaking backlog, increasing demand and accelerating production, we are truly, as I said earlier, in a transformational year for the company. Now I'm going to turn it over to Karen to provide more details around the financial results. Karen, over to you. Karen Hersh: Thanks, Peter. I'm pleased to review the financial highlights for our second quarter of fiscal 2026, which, as Peter just mentioned, points to a strong year ahead. Turning to Slide 7. Total revenue was approximately $5.8 million for the second quarter versus $3.4 million in the prior year period, up 70%. Sales rose not only compared to fiscal 2025, but we're also up 26% from the first quarter of this year. Much like prior periods, a majority of revenue was from upfront purchases, resulting in a healthy boost to current quarter revenues. As Peter indicated, we remain on track for a record year of top line performance in fiscal 2026 with revenue expected to continue to increase as the year plays out, largely reflecting new and expanded customer bookings and deployments, the continued fulfillment of our backlog and phased installations of our larger, more complex deployments. Our rate of shipments has also improved over the last quarter due to expanded production capabilities of our suppliers. Many of the initial manufacturing and supply chain constraints that we mentioned last quarter for our Xtract One Gateway has started to resolve, resulting in an increase in production levels and accordingly, an acceleration in customer installations. In terms of key markets, revenue for the second quarter was once again spread across numerous customers and industries, including the health care, education, commercial and automotive sectors. Additionally, we're starting to see a fairly even split between our two gateway products being SmartGateway and the Xtract One Gateway. Our gross profit margin was 54% for the second quarter versus 70% in the prior year period. As previously stated and expected, margins have been negatively impacted by the higher expenses related to initial start-up costs and the ramp up of production levels for the Xtract One Gateway. With commercial deployments increasing, we expect margins will improve for the Xtract One Gateway in the latter part of fiscal 2026 and beyond, following the same path as the SmartGateway. Reflecting greater operating leverage and efficiencies in our supply chain and installations in the field. Gross margin for SmartGateway remains healthy in the mid- to high 60s as we continue to drive efficiencies in our production processes and support capabilities. Now turning to Slide 8. New bookings for the quarter were $8.7 million compared to the prior year quarter of $13.5 million. And as we've seen from trending in recent periods, a good portion of these were upfront contracts. Specifically, in the second quarter, 73% of our bookings were from upfront contracts, meaning these contracts will impact revenue growth relatively quickly once deployed. In addition, Q2 bookings were relatively evenly split in terms of our products as both systems benefited from broad market acceptance and solid demand. From a market perspective, orders this quarter were once again spread across a variety of industries with a substantial portion coming from sports and entertainment, commercial and health care sector. We're pleased by the continued expansion and diversification of the markets we serve and anticipate strong growth in these areas as well as in education, which is typically very busy in the latter half of our fiscal year. As a reminder, some sectors such as sports, entertainment and health care, have a perfect product market fit with the SmartGateway application. While others like education, commercial and convention centers are better suited for the Xtract One Gateway. Moving to Slide 9. Our contractual backlog and signed agreements pending installation collectively totaled $48.8 million versus $37.2 million last year. The fiscal 2026 backlog was comprised of $13.9 million of contractual backlog with an additional $34.9 million worth of signed agreements pending installation. Of the latter, approximately 83% of the total contract value relates to upfront deals and cover a multitude of customer markets, including health care, sports and entertainment, schools and other target markets. We anticipate the majority of agreements pending installation to be deployed within the next 12 months. Given what we see as a strong pipeline of opportunities going forward, we expect our bookings and our backlog to grow further in the quarters to come. This, along with the faster conversion of backlog into revenue makes us confident in the outlook for fiscal 2026 and beyond. Now let's turn to Slide 10, which shows second quarter operating costs year-over-year for each of our key expense categories. Sales and marketing expenses were $1.8 million in the quarter versus approximately $1.2 million in the prior year period reflecting increased business development initiatives across a wide array of industries through campaigns, trade shows and other marketing initiatives while costs associated with R&D were flat year-over-year at $1.6 million. General and administrative expenses were approximately $2 million for the quarter versus $1.6 million in fiscal 2025, of which around $200,000 relates to foreign exchange movements. Overall, there was a modest increase in total operating costs year-over-year as we grew and replenish the backlog, invested in the commercial rollout of Xtract One Gateway and adjusted to higher production volumes. We'll continue to actively manage operating expenses going forward, which should lead to improved results as we grow the top line, keeping us on track towards profitability as we scale the business. Finally, on Slide 11, I'll discuss cash flow. During the quarter, the company had operating cash usage of $4.2 million compared with $0.2 million in fiscal 2025, largely reflecting a notable investment in working capital year-over-year as we ramped up production of our Xtract One Gateway inventory. Excluding such changes, we spent approximately $1.4 million relatively unchanged compared to last year's $1.2 million. Also, as previously discussed in our last earnings call in December, the company closed on a bought deal that raised aggregate gross proceeds of approximately $11.5 million, including the full exercise of an over-allotment option. Such funds have strengthened our balance sheet and have provided fuel to accelerate the company's growth trajectory, including the expansion of our production capabilities and investment in working capital. We ended the quarter with $15.7 million in cash and cash equivalents on hand. In closing, we remain on track for record top line results this year as our manufacturing capabilities increase, we look forward to stronger revenue in the second half of the fiscal year. We will continue to work on building the backlog, investing in strategic business development activities to increase our market penetration and pipeline and anticipate improved operating results in the quarters to come. And with that, as always, Peter and I welcome any questions investors may have at this time. Operator: [Operator Instructions] The first question comes from Amr Ezzat with Ventum Capital Markets. Amr Ezzat: Just back on your prepared remarks, you mentioned the orders will get increasingly stronger, can you give us more color on the cadence of fulfilling your backlog into revenues over the next couple of quarters? And I know you won't give us exact numbers, but we already saw a nice uplift in revenues in Q2. So I just wonder, are the constraints in getting your products installed and in customer hands easing in Q3 even more so than Q2? Peter Evans: Amr, it's Peter here. First off, it's great to hear your voice. Thank you for joining us as always. Yes, I think like any new product when you first bring it to market, you intentionally take a little bit of time about some of your installs. The last thing you want to do is flood market with 50 new units and then find out that there's an issue in the field that's going to cost a lot of time and money to correct. So you ramp slowly, you get market feedback ramp a little faster, get market feedback and keep on going that way. And we're on that trajectory right now. So I expect the trend that we're seeing to continue as we have further building confidence in not only demand for One Gateway, but its performance in the field and its predictability in the field. Amr Ezzat: Then maybe switching gears to margins. Can you give us a rough margin delta between SmartGateway and the One Gateway at the current stage? And where do we expect One Gateway margin to land once you guys are steady state? I believe in the past, you guys have said it would be a similar sort of margin profile. So can you guys confirm that then directionally, how long until you guys get there? Peter Evans: Yes. From my perspective, and Karen, I'd invite you to jump in also, from my perspective, Amr, again, the first quarter or 2 when you're deploying a new product, your cost of sales sometimes have some choppiness to them. There's new things that we've learned about deploying to a school versus deploying to a different type of a customer as an example. And so as we understand those and as we start to build out and scale, we expect that a lot of those costs of sales to reduce. I do expect the One Gateways margins to follow a similar trajectory as the SmartGateway. How long that takes? That's a good question. It could be handful of quarters, it could be a year, 1.5 years. I think it took us about a good 18 months to really get SmartGateway to a high-margin position. Karen Hersh: I would add to that, and I think specifically what you're asking in terms of the relative range, as I mentioned in my speaking notes that the SmartGateway was sitting in the higher 60s this quarter, whereas the Xtract One Gateway are in the very low 50s. We don't believe it will stay in that at all, and we've already seen improvements subsequent to year-end. So a question of timing, as Peter mentioned, and I think we hesitate to say over what period of time. But I think it's a question of quarters. We've already got plenty of improvement that we've seen subsequent to year-end. So ultimately, we hope to be in the 60s. That product is very important to us and has great potential. And so we fully expect it to follow that same journey that SmartGateway did. Hopefully, that gives you a bit more insight, Amr. Amr Ezzat: It does. And it does -- is it too far for me to read into this that your -- the quarter you just reported like Q2 would be the trough gross margin? Karen Hersh: 8 Absolutely. Peter Evans: Yes. 100%. Amr Ezzat: Fantastic. Then maybe one more. You guys have talked about scaling manufacturing capacity to meet demand [ for the One Gateway ]. I just wonder if you could somehow quantify or maybe let us know what -- where you are today versus where you expect it to be? And what is sort of the next bottleneck as volumes rise, final assembly or software or anything like that? Peter Evans: It's a good question, Amr. And hard to sort of put guidance out there because very much of it is based on the demand. We don't want to overbuild capacity and have hundreds of systems sitting in inventory. But at the same time, we want to be able to serve that demand very, very quickly. So we're kind of watching all the measurements and all the metrics very, very closely on a week-by-week basis. I expect that -- and the nice thing is how we built out the manufacturing capacity with our subcontract manufacturer is we have the ability to scale up or scale down very quickly in terms of the manufacturing process itself. If there's any bottleneck, there are a couple of components that are a little bit longer cycle, but there are some things that we're doing with buying safety stock so that if all of a sudden, we do have a spike up in demand. We've got the safety stock to deal with it, and we won't be waiting months for that components to be able to come in the door to deliver on that demand. So right now, if there's any bottleneck at all, maybe a couple of components, but we've addressed that. And then it's just how fast we can move to go start getting as many orders in the door as possible. Amr Ezzat: Okay. So what I'm hearing is there isn't a major sort of gating factor when it comes to manufacturing. Peter Evans: Not right now, no. Amr Ezzat: Okay. Fantastic. Then maybe one last one. Can you maybe like speak to how the competitive environment is evolving. I mean, I think everybody understands the demand picture and you guys have painted a pretty rosy picture, but on the competitive side, I'd appreciate some color. Peter Evans: From my perspective, every market has always got different players who serve different needs in different ways. They have different strategies. There will always be people who want to buy the low-cost provider and essentially check mark a box. And that's okay. There's a market for McDonald's hamburgers and [ Yugo ] cars. There's other strategies which are around what do we do to manage the channel as much as possible, and that can be done through sponsorships and things like that. Our competitive advantage is all about innovation and continuous innovation. Each of the individual market segments we serve, whether it's the industrial sector like manufacturing and, distribution, schools, health care, you name it, they all have specific unique needs and there's the one must have or two must have to reach those markets. Our platforms are such that we can deliver the innovation where we can uniquely address those unique market needs. Hospitals, you have to catch the knives. In places like schools, don't alert on the laptops without the need for a secondary platform. And so we can uniquely do that and our platform that allows us the extensibility to say yes to more customers who may have those unique needs. Operator: The next question comes from Scott Buck with H.C. Wainwright. Scott Buck: I'm curious, besides the kind of ramp in inventory, are you able to use the new kind of fortified balance sheet to invest more on the growth side in terms of sales. I mean are you increasing marketing expense? Are you adding salespeople, more trade shows, et cetera? Peter Evans: Yes. Scott, it's good to hear from you, too. We are investing in more on the sales and marketing side to ramp that up, particularly now that we've tested the market aggressively with the One Gateway and the market response has been outstanding. So based on that market response and that demand, we are investing not only in more sales resources, both domestically as well as internationally. But we're also investing in more channel partners while being very, very selective about those channel partners. People are leaning in and creating opportunities just versus tactically reacting to the market. So yes, we are investing to drive more growth. Scott Buck: Peter, can you give us a sense of what percentage of maybe new bookings is coming in through channel partners versus your direct sales efforts? Peter Evans: Interesting question, Scott, because it does have a little bit of choppiness because there is a little bit of seasonality to some of the segments. And so we have seen different quarters vary. We had one very nice deal come in from a one channel partner, that was a multimillion dollar deal. Other times, we'll see two lane deals. So it does depend a little bit on the deal mix. Order of magnitude, partner-led partner originated deals tend to be in the range of about 25% to 35%. Scott Buck: Okay. Perfect. And then I wanted to ask about the backlog. I mean, I think you came in a little bit this quarter versus the previous quarter. I know we have the holidays in there, and that may slow some of the sales opportunities, or is this more just kind of general lumpiness? I mean -- I guess, what decline it... Peter Evans: Why the backlog declined a little bit? Karen Hersh: I just want to clarify, are you talking about the backlog? Or are you talking about the bookings in the quarter? Scott Buck: The backlog, right? Didn't we go from low 50s to high 40s. Peter Evans: Yes. So Scott, a large portion of that decrease in total backlog is due to a couple of things. First off, we had a high number of installations that took place in the quarter with, frankly, a lower number of bookings to backfill the decrease. We had some nice deals in January that actually slipped out to February. And so we didn't quite backfill the backlog as much. But additionally, we made some what we believe were the right decisions to remove one large deal from our pending backlog which was taking an overly extended period of time for the customer to actually deploy due to a number of external factors that they couldn't necessarily control. And so we did remove one deal just in the abundance of caution. Customer hasn't gone away, but we felt it was the right thing to do because of their extended time lines and the circumstances surrounding that customer. We're confident -- in the current backlog composition that consists of customers who are interested who signed deals who have plans for deployment or are already in phases of deployment and they're eager to deploy. Scott Buck: Awesome. And Peter, I'm curious, British Museum, is that your first museum contract? Or are you working with any other museums. And then more broadly, what are the trends you're seeing outside the U.S., specifically Europe and maybe the Middle East and Asia? Peter Evans: Yes. Good question. We have signed up other museums. Nothing as iconic as the British Museum. Scott, I don't know if you've ever been in the British Museum, but I highly recommend it. It's a wonderful place. But we've never seen -- we have other museums but nothing of that size or that stature. In terms of trends that we're seeing outside of North America, I think as I alluded to, I'm a bit surprised, but pleasantly surprised by the volume of inbound interest that we're seeing, particularly in the U.K., a lot of new interest in Europe right now and particularly in Mexico. Those markets seem to be moving very, very quickly, and we're very pleased to be a part of that. Operator: [Operator Instructions] Our next question comes from [ Stephen Garcia ] as a private investor. Unknown Shareholder: So year-over-year, we can see that 70% increase in revenue, but we also see the year-over-year increased costs negated that kind of entirely so that comprehensive loss for this quarter is higher than the same period in the prior year. But then alternatively looking at this quarter compared to the last few quarters, we've seen revenue grow significantly. And quarter-over-quarter, that revenue growth has been higher than the cost increases. So comprehensive loss has been decreasing. So in light of those two comparisons, my question is this, are the last few quarters of top line growth, which we're exceeding the cost growth, are those the product of sustainable and structural factors in the company's business? And what is the company's strategy going forward to maintain that momentum towards cash flow breakeven and profitability? Karen Hersh: I'll start with the mechanics and you can talk a little bit more about the market side of it, Peter. I think the comments are exactly right. We've had this top line growth. It hasn't necessarily reflected itself in the bottom line this particular quarter. And I think that, that is a factor of our gross margin. That is the #1 indicator. Our operating expenses are relatively stable as they always have been and show the scalability of our business model. But the reality is we're bringing a complex product to market, and we did experience some of those short-term onetime hits to our cost of sales, and that has impacted our margins for the Xtract One Gateway. As we resolve those, and we feel positive about the direction we're heading with that. I think you're going to see quite a change in terms of the outcomes to the bottom line, and that will show some more trending that great trending that we've been showing in terms of reducing our cash burn and our move towards profitability. So I'll turn it over to you, Peter, if you want to add anything to that as well. Peter Evans: Yes. I think you hit the key points, Karen, but to kind of reiterate a few things, Steve. We have built a highly scalable operational model. but we will have to continue to invest in it. Our expectation is that our operating costs will grow single digits over time. because there is not infinite scalability when you have a hardware business. And as Karen pointed to, we've got lower gross margins, which has impacted our bottom line. Bringing a new product to market, particularly one that has some 800 or 900 components in it, is a complex thing. And what we're doing is we're bending or breaking the laws of science and physics or with what we are doing. And there's always that scenario where you start putting a product out in the market. and customers use it in ways you didn't quite expect. And still you might have some things that are learned some things you've got to correct some ways that the technology has to be improved. And so there's higher cost for that first handful of systems you put out. It's why I mentioned earlier that you don't necessarily want to shove 100 systems out the door and have to go correct 100 systems. You ramp cautiously and get that market feedback. And so with that, we've had lower gross margins because of those initial cost of sales. But now we still worked all the bugs out of the system, we feel that we're on a really good trajectory. Does that help answer your question, Steve? Operator: The next question comes from [ Dave Carlson ] of a private investor. Unknown Shareholder: I have a few questions. First, a couple of years ago, you had a cash infusion and sold some stock to the Madison Square Garden Group. Are those people still involved? And if so, has that relationship been helpful, resulting in additional clients and completed installations? Peter Evans: Yes. Let me answer that. And I'm sorry, I didn't catch your name, I'm sorry. But it has. And our relationship with Madison Square Garden could not be better. We closed a deal in Q2 which the customer visited Madison Square Garden and spent a good day with them and their executives not only listening about how the product works, but also learning the best practices around training, around deployment around the concept of operations and things like that. I could not be more pleased with the relationship with Madison Square Garden. They continue to be a great advocate for us and a great supportive. Unknown Shareholder: Great. Given the current circumstances, are there any military applications for your products? Peter Evans: It's a great question. But right now, it is not our primary focus for the segments. The four segments that we've got our primary focus on is in education, in hospitals and health care, in arenas and stadiums and in manufacturing and distribution. The primary reason there is the sales cycle is less complex than trying to sell into, for example, the military or into international embassies and things like that. But we do find that there are certain organizations because of the state of the world, are accelerating some of their activities around hardening up their security. And so while I'd say it's not sales to the military organizations, but commercial office buildings, for example, who are concerned that they may be -- there may be a heightened level of concerns who are now accelerating some of their deployments. Unknown Shareholder: Okay. And last question. I know that some of your clients don't want it advertise that they have your systems, but are you able to do more press releases about threats that you've prevented to promote more visibility to your successful deterrent? Peter Evans: We are updating various case studies. There should be an update to a couple of them coming out. As we get more and more data from the customers, about the weapons they stop, the weapons they prevented. We had one customer share with us the first two systems that they deployed prevented about 1,600 weapons coming into their facility in the first half a dozen months or so. And so that's a great case study, but it also -- there's a lot of information there about best practices. So we try and wrap that in for the betterment of all of the operators in the industry. So yes, you'll see more case studies with more information when we're allowed to publish it. Operator: The next question comes from [ Gianluca Tucci ] with [ Haywood Securities]. Unknown Analyst: Could you perhaps speak to the sales cycle on the Xtract One and how you see these trending over time? And as a follow-up to that, how are you thinking about R&D in terms of the pipeline for when it comes to next-gen iterations of the gateway. Peter Evans: Excellent. So I will say that there is some variability in the sales cycle and how long it takes to close a deal. We have one customer that we closed in Q2, who only saw the system over a Zoom call. They loved it and placed their order. Other customers are more meticulous because they particularly have larger deployments. And if they're going to make an investment in a larger deployment, particularly something that is the first time that they're going to screen and so there will be an impact to their employees. There's a lot of things to work through, they have to think about privacy issues. They have to think about the employee reaction, how they position what they're doing, testing, verification, going and seeing customers who already use the system getting their ConOps correct. So sometimes larger organizations are more thoughtful about all elements of a successful deployment. And we can help them with that. We bring our expertise to the table and we bring other experts who had successful deployments to the table. In general, the average sales cycle for the average deal is probably in the range of about 4 to 5 months or so, but it can vary wildly depending on various other contributing factors. And I'm sorry, the second part of your question was? Karen Hersh: The R&D pipeline. Peter Evans: Yes. Where do we go next with innovation -- thank you. As people have heard me talk about on these calls, I'm a big believer in being a customer-backed, not a product forward organization. And so as we deploy more and more technologies like the One Gateway, we're getting some very interesting feedback from customers about the kinds of things they would like to see. Because we have the ability to do object detection, a key focus is on theft prevention. I had an interesting conversation with the gentlemen this morning about exactly that, where you're screening for weapons on the way in you're screening for stolen electronics on the way out with the same platform and being able to identify, for example, on the way out, I want to make sure that smartphones, Apple watches, et cetera, are not leaving the building. We've had similar requests around loss of intellectual property on thumb drives. We've had interesting requests around integrating in credentialization and authentication capabilities into our system. So I'm managing the whole end-to-end journey for individual as they enter into a facility. So there's a lot of these areas that we're exploring but we will always make sure that when we go invest in the R&D to do something, it's not a one-off or a bespoke custom develop thing. It's something where there's a significant market with a multibillion dollar impact that we can uniquely play into. Unknown Analyst: Okay. And then just lastly, given the state of affairs globally, like are you seeing customers being more receptive to outreach? In other words, like could sales cycle shorten as a consequence of the tailwinds out there globally from a security perspective. Peter Evans: I think we are seeing a shortening sales cycle and heightened interest in certain market verticals. I think organizations like health care, for example, we're not seeing a change to the sales cycle. Other organizations, I mentioned the British Museum, who because of their iconic nature are unfortunately the targets of malicious activities. We're seeing more inbound from those types of organizations. Operator: Thank you. At this point, there are no further questions in the queue. So I'll turn it back to Peter Evans for any closing remarks. Peter Evans: Well, thank you very much, everyone, and thank you for the very rich and robust questions at the end. There was a lot of participants with a lot of very good questions. So thank you for that. We -- I could not be happier right now. And hopefully, you can all hear in the tone of my voice. I personally love what we're doing. I love our customers, our investors are being very, very supportive, and we have a great team of people at the company, and there's only goodness to come right now. So I'm feeling very, very good about where we are. I want to thank everyone for their time today to listen in hear about how we're doing and where we're going next. Thank you very much. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Welcome to the Spin Master Fourth Quarter 2025 Results Conference Call. [Operator Instructions] This call is being recorded today, Thursday, March 5, 2026. I would now like to turn the conference over to Tim Foran, VP of Investor Relations. Please go ahead. Tim Foran: Thank you. Good morning, everyone, and thank you for joining our call. With me here today are our CEO, Christina Miller; and our CFO, Jonathan Roiter. For your convenience, the press release, MD&A and consolidated financial statements are available on the Investor Relations section of our website at spinmaster.com and on SEDAR+. Before we begin, please note that remarks on this conference call may contain forward-looking statements about Spin Master's current and future plans, expectations, intentions, results, levels of activity, performance, goals or achievements and any other future events or developments. Forward-looking statements are based on currently available information and assumptions that management believes are appropriate and reasonable in the circumstances. However, there can be no assurance that such assumptions will prove to be correct and many factors could cause actual results to differ materially from those expected or implied by the forward-looking statements. As a result, you are cautioned not to place undue reliance on these forward-looking statements. For additional information on these assumptions and risks, please consult the cautionary statements regarding forward-looking information in our earnings release dated March 5, 2026. Except as may be required by law, Spin Master disclaims any intention to update or revise any forward-looking statements, whether because of new information, future events or otherwise. Please note that Spin Master reports in U.S. dollars, and all dollar amounts today are expressed in U.S. currency, unless otherwise noted. Also, all industry data that we referenced related to toys is from Circana LLC retail tracking service and relates to data from our G11 markets, which are specified in our Q4 2025 supplementary presentation. And unless noted otherwise, all percentage growth rates refer to the period ending December 31, 2025, relative to the same period in 2024. In terms of an agenda for the call, Christina will start with a review of the year 2025 and then an overview of our strategy and priorities for 2026 and beyond. Jonathan will then provide a financial review of the year, Q4 and our financial outlook for 2026. I would now like to turn the conference call over to Christina. Christina Miller: Thank you, Tim, and good morning to everyone who is joining us today. 2025 was a challenging year for our U.S. toy sales as we navigated a difficult tariff macro environment. And while we achieved many of our goals, our results did not meet our expectations we wet at the beginning of the year. However, I'm pleased with how the team responded and made adjustments to set us up for a return to profitable growth in 2026. Most notably, we focused on execution, investing where it matters most and making clear choices to drive growth. In Digital Games, we focused our investments on improvements to our 2 core platforms, Toca Boca World and Piknik by optimizing the user experience and increasing content releases. We also expanded the reach of our brands through exposure on third-party platforms. This strategy led to more than 20% growth in revenues and adjusted operating income in 2025. In entertainment, expanding the reach of PAW Patrol was our top priority. We introduced new tent-pole specials to build towards the summer release of the third PAW Patrol movie, and we invested in a broader content slate and new IP development. In Toys, we increased our POS driven by consumer demand across our key categories, products and licenses. We invested in strengthening our core brands, driving innovation and expanding into higher growth categories. And we have diversified our supply chain responding to the evolving tariffs. At the corporate level, we've been investing in material IT improvements to enable efficient, scalable and future-ready business operations. It has been a significant amount of change, and I'm proud of the team's commitment and resilience. Now in terms of specific results for our creative centers. In Toys, we started 2025 strong with a solid first quarter, reflecting momentum in our core brands, innovation and licensed brands. However, driven by economic uncertainty following the introduction of tariffs, the remainder of 2025 was challenging, notably in the U.S. As I noted, our POS was up in 2025. However, our sales to retailers were negatively impacted as they reduced their inventory levels. But this does set us up well for 2026. Melissa & Doug was the most impacted by these shifts, given almost all of the sales entering 2025 were in the U.S. and manufacturing for the brand was primarily in China. As I outlined on our last call, we are executing on a plan to stabilize M&D and return it to growth. We had a solid start to the international expansion and the team successfully optimized inventory levels for 2026, a year in which we aim to gain more retail space in the U.S. and in Europe. In 2025, we deepened our position with partners. Jurassic World Primal Hatch was the top selling in youth electronics, Ms. Rachel was the #1 absolute growth license in infant, toddler and preschool category and Monster Jam continued to take market share in vehicles, remaining the #2 property in the category. Quality innovation also helped drive growth in our core brands, Hex Bots Wall Crawler was the #1 item in remote control vehicles. Cool Maker Heishi Bracelet was a top-selling new item in arts and crafts in the U.S. and Europe and our new Melissa & Doug WOW products helped the brand become #1 in craft kits. We remain a preschool leader and gained market [indiscernible] which moved us up to the #1 manufacturer in our infant, toddler, preschool and plush category. PAW Patrol was #1 here. Looking ahead to 2026. We've had very positive feedback from retailers on our toy line. Our PAW Patrol movie line is filled with exciting new transformation for preschoolers. Grounded in our mission of purposeful play with Melissa & Doug, we are introducing new pretend play experiences and adding infant and play sets. Primal Hatch won the Toy of the Year and Action Figures Toy of the Year in 2025. Now we are extending the line with new iterations across multiple price points. We continue to launch new innovation-driven concepts, including Magic Jellykins and [indiscernible]. Gund had strong POS growth in 2025. And in 2026, we will continue to broaden its appeal with great new licenses and a unique brand promise Forever Friends, plush that can last the lifetime. And we have a portfolio of exciting new products for popular licenses, including Monster Jam, Ms. Rachel, Gabby's Dollhouse, as well as KPop Demon Hunter, Hello Kitty and a key item for the upcoming Super Mario Brothers movie with Hatchin' Yoshi. We also recently announced our expansion into strategic trading card games, a category that nearly doubled in size in 2025. We are taking a two-pronged approach here. The first is a distribution partnership in North America, Australia and other markets with Italian brainrot, a series of collectible trading cards that has successfully tapped into this wonderfully weird viral trend. And this fall, we are launching Hellbreak, a fast, competitive and highly collectible game for an older demographic. This is a multiyear initiative to build out a one-of-a-kind horror crossover universe that will include characters from across the horror genre from Universal and other major studios. In summary, our focus on toy going forward is to expand our leadership position in our major categories, create new categories from white space through our innovation and enter and compete in high-growth categories where we have the right to win with compelling products. Moving to Entertainment. We have an exciting year ahead with the global release of the PAW Patrol movie in August and we are investing ahead of that. We continue to build the PAW Patrol universe with new content and expanded distribution to ensure the pups remain a global preschool leader with the next generation of children and their parents. We've been reaching new audiences by adding previous seasons and movies on Netflix, which have driven strong engagement. In 2025, hours viewed on Netflix of PAW Patrol increased by 10% to almost 1 billion hours, a testament to the relevance of the brand. In 2026, we have new seasons of PAW Patrol and Rubble & Crew being released on Nickelodeon and Paramount+ and other global channels with future seasons in development. In addition to PAW, we are continuing to create new IP including the development of our animated 4-quadrant movie. The release of the new season of Unicorn Academy also begins globally on Netflix this month. In Digital Games, our focus on Toca Boca and Sago Mini Piknik subscription bundle is paying off. We have created value in the Toca Boca community by increasing the frequency of free and paid features, content releases and collabs, including Universal's Wicked: For Good and Hello Kitty, enhanced our Piknik subscription offering, including through the addition of Crayon Club and extended the reach of our brands by licensing to third-party platforms. In 2026, we plan to put the Toca Boca user experience first by continuing to invest in improving the tech platform to support faster production, more content and live service and we will be bringing this playful world to fans with Miniso this summer, and we have a pipeline of other partnerships coming. With Piknik, our strategy is to drive growth in subscribers and increase retention by showcasing the value proposition of the deep bundle of titles included. As part of this, we have a content pipeline to fuel subscriptions, including the first quarter release of the new reading app Superfonik. We also have a new UX launch planned in the coming months that will make it easier for parents to access the full Piknik offering within their subscription, a key driver of higher retention. And we are continuing to expand our partnerships. In the first quarter, we launched Jinja's Garden, Sago Mini's first-ever immersive 3D game on Apple Arcade. Finally, the integration of Lylli s going well, and it is an example of how we can drive value across our creative centers. We are utilizing Lylli as a platform to make reading part of our brands, including PAW Patrol and Melissa & Doug. In summary, we have clear priorities for 2026, as I outlined in detail on our last call. The first is capturing the movie moment for PAW Patrol across all creative centers. The second is fully realizing the potential of Toca Boca digitally in the physical world and through content. And the third is returning Melissa & Doug to growth. Beyond 2026, we are setting the stage to reignite a new growth cycle by investing in innovation in our toy portfolio and digital platforms, expanding into high-growth categories and accelerating collaboration across our creative centers to unlock the full potential of our portfolio and brands. With that, I turn it over to Jonathan. Jonathan Roiter: Thank you, Christina, and good morning, everyone. As Christina noted, the 8% decline in our Toy gross product sales in 2025 and was driven by an approximate 12% reduction in retailer inventory levels. And because we don't expect significant more reductions, we believe we have a healthy setup going into 2026. We have successfully reduced our own inventory levels in the year by about 20% due to our sell-through efforts with Melissa & Doug successfully reducing its age inventory as well as a reduction within Spin Master of licensed products that we are exiting. Our improved days inventory outstanding, combined with improved payable management, help us decrease our consolidated cash conversion cycle by 7 days. During the year, we generated $308 million in operating cash flow despite the headwinds in the U.S., illustrating the cash generating power within our model. CapEx was approximately $185 million, which included certain projects that I outlined on our third call. Specifically, approximately $24 million related to our IT investments to upgrade our enterprise software across our global organization and approximately $33 million, which was attributed to our new [ Lylli ] office and showroom of which about $15 million was funded by our landlord. After CapEx and lease payments, our free cash generated was used to purchase Lylli in the fourth quarter. We also returned about $80 million of capital to shareholders through our quarterly dividends and by maximizing our share buyback program for the second year in a row. We have now reduced our TSX listed shares outstanding by approximately 7% over the past 3 years through our buyback programs. Net debt, excluding lease liabilities, was held flat year-over-year as we prioritize return of capital. We ended the year with one turn of net leverage, including leases. Now digging into our fourth quarter results by segment. Toy GPS declined by 5%. This was a significant improvement over the 20% decline we experienced in the third quarter, which was driven by the delayed timing of retail orders as many had moved from direct import to domestic replenishment. In the fourth quarter, we lapped much of that timing issue as domestic replenishment sales surged in December by 50%, making up for some of the reduced import sales that we experienced in prior months. A special thank you to our sales, supply chain management and fulfillment teams for navigating us through such an abrupt tariff-driven change in retail order patterns in 2025. In the fourth quarter, we support our retail partners and invest in sell-through to optimize our inventory, which resulted in Toy revenues and gross profits declining faster than GPS. The quantum, however, was not unusual and sales allowance percentage and gross margins were in line with levels we have seen in the fourth quarter of 2024 and 2023. As much of our promotional efforts in Toy were above gross profit, we reduced our marketing expense and OpEx, which helped protect EBITDA. As we noted on our last call, Melissa & Doug was negatively impacted in 2025 due to the tariff-driven environment and increased competition. While we are executing our plan to stabilize and return the brand to growth, the change in dynamics led us to take a noncash goodwill impairment charge. Turning to Entertainment. Revenues increased 3% driven by higher distribution revenues stemming from deliveries of content. However, adjusted operating income declined due to a $12 million increase in amortization of content development within cost of sales, reflecting the in-period dilutive impact from content delivery. Within Digital Games, revenues increased 16%, driven by increased partnership revenues, increased engagement and monetization on Toca Boca World and improved retention and higher ARPU in Piknik. The revenue increase drove a 24% increase in adjusted operating income. So now turning to our outlook for 2026. We are guiding for a stable to low single-digit growth in revenues and a mid- to upper single-digit growth in adjusted EBITDA. The top end of our range reflects growth drivers with a downside reflecting conservatism due to the uncertain economy and its impact on the U.S. consumer demand. In terms of drivers, we expect healthy growth in Entertainment, through the release of PAW Patrol movie and more modest growth in Digital Games as it faces a challenging comp in '25 when it grew by more than 20% and benefited from significant partnership revenues. As it relates to Toy, we expect drivers to include the third PAW Patrol movie, M&D improvements, continued innovation through the portfolio, exciting new licenses as well as the potential to recapture some shipping revenue that we lost in the prior year. Headwinds to growth will be the lapping movie years for DreamWorks Dragons, Gabby's Dollhouse as well as exiting certain licenses, notably D.C. In terms of top line cadence throughout the year, we anticipate year-over-year results in Entertainment to be relatively stable in the first half, with growth in the second half following the release of the PAW Patrol movie. This would be a combination of revenues of approximately $20 million, followed by additional distribution revenues thereafter. Within Digital Games, we're aiming for modest growth in each quarter with rates increasing in the second half partially driven by the launch of our new PAW Patrol digital game and improvements we are making to our platforms. And in Toy, we anticipate an approximately 30-70 split in Toy revenues between the first and second half of the year with the first quarter anticipated to be in the low double digits and the second quarter high teens. Year-over-year results through the quarters in Toy are anticipated to be volatile to a significant shift in retail order patterns last year. Retailers pull forward orders in the first quarter last year in anticipation of the introduction of tariffs, which makes it a challenging comp. Therefore, in the first quarter, we are expecting a significant year-over-year decline in Toy, which in turn is anticipated to result in a double-digit decrease on a consolidated basis. For the same reason, of course, we should have easier comps in Toy in the following quarters, notably in the third quarter. In terms of gross profit, I'll note that the current geopolitical climate may result in certain higher cost of sales such as freight. It is too soon to quantify these. We do expect approximately $22 million of increase in depreciation and amortization within cost of sales, primarily related to amortization of entertainment content development. In the first quarter specifically, we expect a year-over-year decline in gross margin due to a $12 million increase in entertainment amortization. In terms of operating expenses, we anticipate efficiencies in certain areas to help us pay for increased technology investments. The increased adjusted EBITDA margin implicit in our guidance is consistent with the 50 to 100 basis point general target, I outlined on previous calls. As it relates to adjusted EBITDA cadence, we expect seasonality to be similar to last year and '24, with the second half representing more than 85% of our full year results. In the first quarter specifically, we anticipate negligible EBITDA due to the anticipated decrease in gross profit. Below adjusted EBITDA, we are anticipating depreciation and amortization in 2026 to be approximately $160 million, with the increase driven by entertainment, as I previously noted. Finance costs are anticipated to be similar to 2025. Now turning to our cash flows. Lease payments are anticipated to be just under $40 million annually and our CapEx is anticipated to be approximately $150 million in 2026. Now about $25 million of this relates to investments we are making to upgrade our enterprise software, which we expect to launch by the end of the year. This includes leveraging the latest technology to prove and automate our data quality and processes and facilitate tighter integration within our creative centers. The remainder is primarily investments in 3 areas: first, new entertainment content of which 70% is earmarked to continue to expand the PAW Patrol universe, where we generate strong cash-on-cash returns with much of the remainder on our new animated original IP film. Secondly, [ tooling within toy ]. Apple intensity in toy continues to remain in the low single digits. And thirdly, digital game projects. Specifically, the majority will be spent on Toca Boca with a focus on driving growth through next-generation game development, additional content, features and platform upgrades. The remainder will be spent on driving retention in Piknik by investing in new game launches, content expansion and live service development, and we'll be completing our new PAW Patrol digital game. In terms of capital allocation, we remain focused on first investing and driving growth, both in OpEx and CapEx. With the free cash we generate after CapEx and lease payments, we expect to continue to look for M&A to further our strategies. We are maintaining our dividend. We are also renewing our share buyback program. So in summary, we'll look to maintain a balanced capital allocation approach with prudently [indiscernible] conservative leverage. With that, operator, please open the line for questions. Operator: [Operator Instructions] Your first question comes from Adam Shine from National Bank Financial. Adam Shine: And of course, thanks for the outlook and a lot of details, Jonathan. If I could go back, one item that I didn't hear was on the sales allowance front. And maybe you can talk a little bit more in terms of the nature of promotional activity that you think might transpire during the course of this year, let alone perhaps still in Q1. Jonathan Roiter: Thank you for the question. I'm glad that you appreciate the details on the guidance, return to guidance. In terms of sales allowances, we finished this year I didn't -- sales allowance in Q4, I'd point out that those are similar to levels that we had in '23, '24. And so really, when you look at the overall year of '25, it's not necessarily an anomaly. And so heading into 2026, I think we're expecting similar levels. We're really early in the year. Sales allowances really are determinant of your products. And when we look coming out of New York Toy Fair, there's a lot of excitement around our core new products. And so ultimately, sales allowances, we are expecting it to be similar to 2025. Adam Shine: As you reflect on some of the latest dynamics around the tariffs, I think we were moving from 10% into 15% perhaps other changes are afoot. How do you read the landscape. Is this another year where you effectively pass pricing on to the consumer to wash the tariff impact? One part to the question. And then secondarily, are there other benefits to be extracted by virtue of some of the supply chain management issues you pursued last year? Jonathan Roiter: Yes. Thanks, Adam. It certainly is a dynamic environment. You're right, we're currently at 10%. I think there's some expectation from the Treasury Secretary that next week we'll move up to 15%. Bear in mind, those are lower than the previous years. If we just step backward for a moment in 2025, tariffs themselves were not -- the actual dollars that we paid were not material. The net dollars that we paid versus price was not material. Really tariffs, the element that was material was how the consumer ended up showing up and how the retailer bought throughout the year. So we don't expect a movement from 10% to 15% or thereabouts to have a material impact on the net dollars going out. Obviously, the bigger question mark is, does that impact the consumer? And does that impact the retailers? So far, as we began Q1 and 2 months in, we have not seen changes in the retailer purchasing behaviors with the change in the tariff environment. Adam Shine: And just one last one, and I'll queue up again. Just to confirm and clarify with respect to the PAW Patrol movie expected distribution, I think you said $20 million. And is that something that hits the Q3? Or is that $20 million figure the -- a figure for all of 2026? Jonathan Roiter: No. So when we release the theater -- release the move, there's contractual responsibilities. And of those, we received $20 million, and that will be a Q3. How the movie performs, then there's additional funds that we would receive. Adam Shine: Perfect and this is as per the last 2 movies. Operator: Your next question comes from Kylie Cohu from Jefferies. Kylie Cohu: First, just thinking about the industry as a whole, what are you expecting from preschool infant and toddler category? And then also just like the broader toy industry as a whole for 2026 in terms of sales growth? Christina Miller: I think that what we -- just looking at the category overall for us, we see that the consumer sentiment like towards the end of last year was a little bit softer, but improved by the time we got into December slightly. And that toys continue to -- people still continue to shop for toys, even if it's on a promotional basis, right, that they're looking for discount or otherwise. So our approach going forward and even towards the end of last year is to make sure that we have a balanced mix on pricing that across all of our brands that we're bringing value to the consumer. So more than 50% of our products are still priced below $19.99. So I think we have that kind of mix between driving innovation, helping grow that category and then also making sure that we have price points that work. And on top of that, I would add that we have some of the stronger brands in the space as well. So whether it's PAW Patrol being in a movie year or continuing to see growth in Ms. Rachel or Gabby's Dollhouse had a good year coming off the movie. So I think when we move into next year, it's about what else can we bring into that category, given our strength in that category and creating products for that category and then how do we continue to drive the products that we -- brands we have. Kylie Cohu: Super helpful color. And then I guess last one for me is just kind of what needs to go right in order for the results to end up at the high end of your EBITDA guide? Jonathan Roiter: Thanks, Kylie. Well, if we go back to kind of our prepared comments, there are really 3 focuses that we have, right? The first is capture the PAW Movie moment. And so ultimately, not just success at the theater, but also the toys that we have launched that are associated with the movie. We've had really strong response coming out of New York. And so we're really feeling bullish and positive about those products. The second is realizing the full moment of Toca and fully realizing the Toca's potential. So that is a multiyear journey. And we're going to start seeing over the course of this year, increased content, increased features, increased Toca being outside of the digital realm. That is a multiyear journey and executing on that will certainly help on the high end. And then lastly, we talked about for a number of quarters now, returning M&D to growth, and that is a focus of the team. We have -- we brought back innovation to the pretend play category. There's some new areas that we're launching products around and the feedback that we received, again, from the Toy Fair was positive. And so ultimately, those are the 3 elements that would bring us to the top end, plus the consumer showing up and plus stability with how retailers are ordering throughout the year. Operator: Your next question comes from Gerrick Johnson from Seaport Research Partners. Gerrick Johnson: Given the Supreme Court tariff ruling, has that changed conversations with dealers? And just in general, how are they wanting this to be fulfilled in the first half? Are they shifting back to FOB or still pretty much domestic fulfillment? Christina Miller: It's still too early to tell, right? The changes are coming daily at this point. So being able to react to them before the next one comes, I think people are just taking a wait-and-see approach at the moment. So we're not seeing any drastic changes. Gerrick Johnson: Okay. And how are they wanting to be fulfilled? Last year that we talked a lot about that shift from FOB to domestic and have we shifted back to normal shipping patterns? Or are we still in that domestic preferred over FOB? Christina Miller: Domestic continues to be about at the same rate as it was. We don't see a big swing back immediately. Jonathan Roiter: . Yes. I think it will take a number of years for that change. And if anything, there may be more domestic than FOB over the course of the year. Gerrick Johnson: And then on channel inventory, I heard a couple of numbers. Was it down 12%, down 20%? What was the channel inventory number? Jonathan Roiter: Sure. So the channel is down 12%. So that certainly positions us well kicking off the year. And we were down 20% year-over-year. And so from a working capital perspective and again, also positioning us well for next year with the quality of our inventory on hand. Gerrick Johnson: Okay. Is there still any excess out there in the channel that needs to be cleared or inhibiting first quarter -- first half shipments? Jonathan Roiter: I think there's always going to be some level of access. I would just revert back to we're starting the year in a great position, both from our own inventory position, down 20% and the market -- the retailers down 12% that is a strong position to start from. Operator: Your next question comes from Jaime Katz from Morningstar. Jaime Katz: I hope you guys can give us some insight. Maybe I missed it in the prepared remarks, but do you have any insight to the POS momentum coming out of the quarter? We're in March already. So hoping to get a little bit more recent visibility. Christina Miller: I mean I think right now, at this moment, it's slightly up is what we're seeing for the POS getting into the first 8 weeks of the year. Jaime Katz: Okay. And then we haven't really talked too much about this trading card market. But for horror specifically, I'm not very in the weeds in the space. I think there are some other brands in this space. So can you talk a little bit about what the total addressable market there is for you guys to tap into? How you expect the rollout of that to go and sort of when you expect it to start contributing to the P&L? Christina Miller: Sure. A couple of pieces there. I think in the prepared remarks, you would have heard us talk about a two-pronged approach, right? So we have a distribution partnership with Italian brainrot, which is a trading card brand out of Italy. And that will be the first one to go to market and that will be more of a mass trading card play. And then when you look at Hellbreak, which is the strategic trading card game that we're putting into the market later this year, and that's a multiyear growth initiative. So it will start at specialty and really look to permeate that channel and grow with the fan base that older demo. Right now, there's a big show going on in the trade show market called GAMA in Kentucky. And that's like one of the first legs of really revealing it to the specialty channel and to building fandom for the game. The game is there this week. It's doing really, really well. That's that first leg. So I think that really, at this point, it will be about -- we will not see huge growth from this category in 2026. It will start to grow more for us in '27 and '28. Operator: Your next question comes from Brian Morrison from TD Cowan. Brian Morrison: Maybe just you mentioned the key to returning M&D to growth. In New York, we saw the expanded product line beyond [ wood ], the expanded addressable market and your international expansion opportunity. But what's the strategy to gain market share following the tariff heightened impact last year? Is it product differentiation? Will you have to use price? How do we gain more market share back? Christina Miller: There's a couple of paths to returning M&D to growth, right? It's never going to be one thing. I think it is regaining retail space right across the channels, doing that through both category expansion into things like infant as well as continuing to grow our space with WOW products and driving some of the innovation you saw, also really digging into the pricing of our products as well and really making sure that the value is there for both our consumer and our retail partners. And then last but not least, of course, is international expansion. You saw us track towards model at the end of last year with growth into our international channels and growing further there will help us really expand the brand. And then beyond that, I think anyone that was able to spend time with us at Toy Fair will see the way that there's definitely other adjacencies that Melissa & Doug can grow into from an experiential standpoint and really looking at seeing how else we can make sure that the people that love Melissa & Doug can spend time with Melissa & Doug beyond just having a toy in their hands. Brian Morrison: Okay. And then maybe, Jonathan, can you clarify? I mean, obviously, growing Toca digital content is a priority next year or this year, pardon me. Maybe just reconcile the monthly active users in Slide 19, it appears that the ending MAU is down, but the average MAU is up. Can you just clarify how that works? Jonathan Roiter: Sure, Brian. I mean the simple answer is the -- 2 numbers are different. One is an ending number and the second as an average for the period. And so what you see is the trend, I guess, ultimately, in terms of what is transpiring. When we look at Toca, they really -- you really do have to look at it across the 3 core metrics: monthly active users, the conversion of those users and then ultimately, what people are paying. And we are not managing just for 1 of those metrics. We are managing across all 3, and we're comfortable to have some variability in our MAU, in our monthly active users as we try different ways to increase our conversion and increase our, what we call, our ARPU. So we're very comfortable with the trend that you're seeing there. And we're really trying to focus on all 3 of the variables at play. Brian Morrison: So is it safe to say it's a bigger basket from a more concentrated base of users? Christina Miller: Yes, Brian, I think what you're seeing is that it's both, right? And same thing that Jonathan was saying about the difference of its MAUs. It is there. Yes, we're trying to grow the top of the funnel and you see lots of releases -- content releases, both free and premium. And we are converting at the bottom of the funnel well. And I think that's one of the differences for Toca Boca versus competitors, right, is that the markets that we're going to and our ability to convert at the bottom of the funnel. So it's a little bit of both. Operator: Your next question comes from Martin Landry from Stifel. Martin Landry: Jonathan, I just want to talk about the impairment charge you took on Melissa & Doug, it's pretty large. I just want to understand when you did your cash flow analysis to write down the goodwill, was the write-down driven by a lower revenue profile? Or is it more from a lower profitability profile? Jonathan Roiter: Yes. Thank you, Martin. The math on any time you're looking at your CGUs and ultimately, the goodwill associated with it is driven first by your top line. And then what -- how does that translate into cash? Clearly, in 2025, we talked about a number of times. M&D was a brand that was disproportionately impacted by the tariff environment as the vast, vast majority of its production was coming out of China and the vast majority of the sales were to the U.S. And so it had a disproportionate impact. So when you take that in consideration, you rerun your model, ultimately, the baseline of where you're starting from is lower, and that's what drives the impairment. What's important is what we're doing going forward. And I think Christina walked through the growth drivers quite clearly. We're really excited to see a path to having more doors and more shelf space in 2026 than we had in 2025. And couple that with the innovation, the right pricing and continued international expansion. We think that we're -- our aspiration and our goal to bring back Melissa -- M&D back to growth, we're well underway on that. Martin Landry: Okay. And switching gears, I mean, in the past, there were lots of discussions and efforts and resources dedicated to the development of IP internally like Unicorn Academy, for instance. But we don't hear you talk about or maybe I've missed it, but is this a strategy that you're still pushing to develop IP internally? And what's the pipeline of the IP developed internally, if there is any? Christina Miller: Thanks, Martin. I think that we did discuss it a little bit in the prepared remarks around, one, obviously, we are continuing to invest in PAW Patrol, and we talk a lot about that. I think that's definitely one of the things you're noticing. And then other than that, we do have a pipeline of content, whether it's the 4 quadrant movie that's in development. Whether it's relooking at [ Bakugan ] which is an internal property talking about how we're going to develop Toca Boca. Again, when we look at driving and unlocking value for our portfolio, it's about getting it to its full potential. So I think one of the things you're noticing is the pipeline is filled with some of our very core brands that we have the ability to pull through across all of our creative centers. And then we always have a robust development slate where we're looking at what are the new content we can create. And as we get further along with that, we will obviously share it. Martin Landry: Okay. So is it fair to say that there's more focus on your core brand and trying to develop new stuff at the moment? [indiscernible] Christina Miller: No. I think that, again, I'm going to take a chance of just sort of repeating myself. But I think that, obviously, the core brands inside our portfolio are the brands that we are focused on giving and unlocking -- giving attention to and resources and unlocking their potential. Not in -- it's not binary. It's not just doing that. I think the development brands are just that. The same way we're developing over 500 toy products that we will bring far less of those to market. So we have a strong development pipeline. We're constantly looking at what else we can bring to market and when. But as you're probably aware, it's a pretty long process between when we start to develop the property and when we bring it to market. So no less development currently, what's closer in sight is the development or the shows that we're talking about. Jonathan Roiter: Yes. And there's a healthy -- 30% of our entertainment CapEx budget is outside of PAW. So there's a healthy amount of dollars that are being placed on those items that Christina just walked through. Christina Miller: Yes, we will always be a company that's in the active creation, right, that we're always looking at building and adding to our portfolio, and developing franchises across the business, whether they come from digital or they come from toy or they come immediately from content. So I think it's about looking left and right around us to bring what can we pull into content and then where are there those new content ideas. So we are, in fact, doing both. We are committed to doing both. Operator: Your next question comes from Luke Hannan from Canaccord. Luke Hannan: I wanted to follow up on the PAW movie contribution. I think I heard you correctly, it should be $20 million that's going to be recognized in Q3. Is the accounting for that similar as in the past where it will show up -- 100% of that revenue shows up in the EBITDA line and then there's the associated charges against that? And then if so, so just a clarification, so that $20 million then is included in the adjusted EBITDA guidance. And then if we break that out, it's more like flat to up low single digits on the year rather than mid- to high single digits? Jonathan Roiter: I missed the second part. But on the first part, I think it was muffled when I mentioned before. So similar to historical practices when we release content, if we're within a partnership, there's contractual -- we've met some contractual responsibilities and therefore, there is -- we can tell you the number that we're going to receive. And so we're going to receive $20 million of revenue. There will be amortization associated with that against that $20 million as we release content. I didn't get the second part of your question. I apologize. Luke Hannan: Maybe -- so I'll just clarify that. So in the past, like in 2023, for example, the number was in and around $15 million, and that showed up -- 100% of that revenue showed up in the adjusted EBITDA line as well. So in effect, it's almost like the margin on adjusted EBITDA was a little bit higher relative to where it should be because you have the amortization showing up below the EBITDA line. So I guess I'm just trying to think of, if we're thinking about it on a like-for-like basis, we're thinking of the margin expansion in '26 versus '25, should we be then excluding that $20 million of contribution from 2026 EBITDA? Jonathan Roiter: Yes. So it's -- I mean, I thought I addressed it, sorry. It's no different than in the past. So the $20 million, there's amortization associated with it. So therefore, EBITDA, you do see a flow through, through the EBITDA, where you won't see it flow through, excuse me, fully is to the [ EBITDA ]. Luke Hannan: Yes. Got it. Okay. Appreciate that. And then just as a follow-up, you talked about there are certain dynamics, obviously, geopolitical dynamics going on right now that make it very difficult to figure out what the impact is of higher freight costs on what your COGS is going to be going forward. Can you just give us an idea of what it is that you're seeing as far as changes in freight rates currently? Jonathan Roiter: Well, I mean, currently none. But I mean we're 4 days into the spike in oil. And so ultimately, I think it will come down to how high does oil go and how long does it stay at those rates. We're 4 days into the increase in prices. So right now, there's, what I'll say, no material impact. Of course, if this continues for an extended period of time, you will -- we will start seeing that. And there's probably a 3- or 4-month lag in terms of our freight costs and then ultimately hitting our P&L through our COGS. Operator: Your next question comes from Drew McReynolds from RBC. Drew McReynolds: Two for me. First, on the Digital Games side, just in terms of profitability. Obviously, we saw a little bit of a margin lift here in Q4 on pretty good performance. I think margin is stable overall in 2025. Just as you continue to grow the top line here, and invest in the platforms, how do you see margins unfolding going forward? And then second question on the M&A environment. Just maybe for you, Jonathan, just what areas of focus at a 30,000-foot view, are you looking at, at the moment? Jonathan Roiter: I'll start on the first one on the margins on Digital. There's really -- like when you think about Digital, there's 3 revenue streams ultimately that are in that business, there's the Toca stream, the Piknik stream and the partnership stream. Partnerships are very accretive. And so that's why you sometimes see some variability, upward variability on our margins is when we get to -- when we recognize partnership revenue. Some deals, we get to recognize all at once. Some deals are over, of course, a number of years. And if they're material, we do on the call, I'd like to point out the accounting treatment associated with it. Then when you look at Toca and Piknik, they're both in very different stages of their journey. Toca has hit what I'll call scale, and so it's a very accretive business. And our focus is to continue to manage all 3 of those metrics that I talked about before and bring -- and further bring Toca to life outside of the Digital realm. Piknik, we're scaling that business, and so there are certainly more investments associated with the Piknik business. And so the accretion around Piknik is smaller than you would see at Toca. So those are the 3 variables at play when you look at the Digital business. And then in terms of M&A, we're -- I would say the current management team continues to have the same focus as the previous management team around the importance of M&A to our growth platform. Areas that we continue to be looking at are areas that can boost up our core competencies within Toy, areas that we're not necessarily playing in and are high growth in Toy, regions that we can benefit from as well. And then we continue to be actively looking and you saw our last acquisition was in the digital space in the digital realm where we can add more content and more capabilities. Operator: [Operator Instructions] Your next question comes from Ty Collin from CIBC. Ty Collin: I just want to circle back to the discussion around margins. So the 2026 guidance implies probably somewhere between 50 and 100 bps of EBITDA margin improvement. As discussed in a previous question, it sounds like a fair bit of that is going to be coming from Entertainment and Digital rather than the Toy business. So I guess my question is just what's it going to take to kind of get core Toy profitability back to 2024 levels? What does that pathway look like? And are there any other sort of self-help levers available to the company to get there? Jonathan Roiter: Thanks, Ty. It's a great question. The challenge when you have kind of these high-level numbers, you don't see kind of all the different pluses and minuses underneath each. What I can tell you is that there is accretion and there is margin improvement within the Toy business. It's the biggest part of our business, right? It's 80-ish percent of our overall business. We are -- and we've talked about in the past, ensuring that we are setting up this company to have a new growth cycle and a sustained growth cycle and a profitable growth cycle. So there are investments that we're making on the increased margin because we are getting -- from a portfolio approach, we are getting accretion on entertainment. So this is a year where we could certainly put dollars back to work to set ourselves up for success, '27, '28 and '29 on that journey of continuing to grow the top line and expanding our margins. I've talked in the past that I see this business being able to consistently add 50 to 100 basis points a year for a number of years, and we're doing it. And so we're making sure we can do it this year, and we're going to make sure we can keep on doing it going forward. Operator: And there are no further questions at this time. I will turn the call back over to Christina for closing remarks. Christina Miller: Thank you all for being with us today. We look forward to talking to you on our Q1 call on April 30th. Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you.
Operator: Hello, and welcome to the Fourth Quarter 2025 Conference Call for AirBoss of America. [Operator Instructions] I would now like to turn the conference over to Gren Schoch. Please go ahead. Peter Schoch: Thank you, operator. Good morning, everybody, and thank you for joining us for the AirBoss Fourth Quarter and Annual '25 Results Conference Call. My name is Gren Schoch. I'm the Chairman and Co-CEO of AirBoss. With me today are Chris Bitsakakis, our President and Co-CEO; Frank Ientile, our CFO; Chris Figel, our EVP and General Counsel. Our agenda today will start with a review of the operational highlights for the quarter and year, followed by a discussion of our financial results before we open the conference line to questions. Before we begin, I'd like to remind listeners that our remarks today contain forward-looking statements, including our estimates of future developments. We invite listeners to review risk factors related to our business in our annual information form, our financial reports and our MD&A, all of which are available on SEDAR+ and our corporate website. We may also discuss certain non-GAAP measures. Reconciliation of these measures are available in our MD&A. Finally, please note that our reporting currency is in U.S. dollars. Therefore, references today will be in U.S. dollars unless otherwise indicated. With that, I will now turn the call over to Chris Bitsakakis for the operational review. Chris Bitsakakis: Thank you, Gren, and good morning, everyone. 2025 represented a marked improvement for AirBoss compared to 2024 despite pronounced economic and geopolitical headwinds that affected each segment to varying degrees. Compared to 2024, 2025 concluded with a $23 million increase in consolidated revenue, a $12 million increase in adjusted EBITDA and a free cash flow of $37 million, which helped drop our net debt to $67.6 million from $98.9 million at the end of 2024. This improved our net debt to trailing 12-month adjusted EBITDA to 1.99x compared to 4.51x at the end of Q4 2024. Despite the strong consolidated performance, AirBoss Rubber Solutions, or ARS, in particular, experienced significant market softness as key U.S. customers work to establish new more tariff-friendly supply chains while working with pre-existing U.S. raw material inventory. AirBoss Manufactured Products, or AMP, however, had strong performance across both its defense and rubber-molded products businesses, supported by deliveries under previously announced contracts and footprint optimization initiatives. Management at both segments continued implementing risk mitigation strategies in response to these challenges, including cost controls and continuous improvement initiatives that helped drive the concerted effort to improve profitability and strengthen the balance sheet. The company navigated ongoing uncertainty related to economic conditions, geopolitical developments, tariffs, inflationary pressures and supply chain disruption while maintaining focus on executing its long-term strategic plan. Given the cross-border nature of its operations, a significant portion of products manufactured in Canada are sold into the United States and may be subject to existing or future tariffs. While most products currently qualify under USMCA or CUSMA, the company continues to evaluate and implement contingency plans to mitigate potential impacts under existing agreements and more particularly in advance of any future trade negotiations or agreement negotiations -- renegotiations. Despite this environment of continued economic uncertainty, management remains focused on converting key opportunities to support sustainable long-term growth. The company currently expects volume recovery at ARS to commence midway through 2026, although the timing and magnitude of recovery could be affected by additional tariff duties or evolving trade restrictions or market conditions. ARS experienced continued and pronounced softness in Q4 2025 compared to Q4 2024, with revenue contraction and reduced margins driven by overall softness in most customer sectors. This was primarily attributable to tariff-related market conditions as customers continue to manage potential exposure through the sale of pre-existing inventories. As a segment, ARS continued to invest in research and development to support enhanced collaboration with customers and remains committed to executing its strategy focused on specialized products, expanded production of a broader array of specialty compounds and enhanced flexibility in attracting and fulfilling new business opportunities. AMP experienced overall volume improvement in Q4 2025 compared to Q4 2024, primarily driven by this defense products business and improvements in the rubber molded products business. The defense business had improvements in both revenue and gross profit, mainly driven by deliveries under recently announced awards. The rubber molded products had improved volumes despite continued volatility related to the original equipment manufacturers or OEMs, periodically shuttering production to rebalance vehicle inventory levels throughout 2025. During the quarter, the company substantially completed its relocation of its operations in Jessup, Maryland to Auburn Hills, Michigan to optimize its footprint. The business continued its focus on cost management, operational efficiencies, automation and diversification into adjacent product sectors. Management also continued its focus on operational improvements and working with key customers to leverage opportunities aligned with its growth initiatives. The company's long-term priorities consist of the following: Firstly, to grow the core Rubber Solutions segment by emphasizing Rubber Compounding as the core driver for sustainable growth and productivity, focusing on innovation and custom rubber compounding while aiming to expand market share through organic and inorganic means while striving to achieve enhanced diversification by broadening the product breadth through technological advancements and investments in specialty compound niches. And secondly, to focus manufactured products growth strategy on diversifying and expanding its range of rubber molded products while positioning current and future core defense products to take advantage of new growth opportunities within NATO and other partner customers around the world as many nations around the world set more aggressive defense spending goals. AirBoss continues to focus on these long-term priorities while investing in core areas of the business to expand a solid foundation that will support long-term growth. I will now pass the call over to Frank for the financial review. Frank? Frank Ientile: Thanks, Chris, and good morning, everyone. As a reminder, all dollar amounts presented today are in U.S. dollars. Percentage changes compare Q4 2025 to Q4 of 2024, unless otherwise noted. To be respectful of your time today, I will be brief in my summary of our Q4 2025 results. Starting from the top line, AirBoss' consolidated net sales for Q4 of 2025 were $106 million, an increase of 15.3% from $92 million in Q4 2024. This improvement was due to increased sales at AirBoss Manufactured Products, partially offset by lower volumes at AirBoss Rubber Solutions. Consolidated gross profit for Q4 of 2025 increased by 30.4% to $19.9 million compared with Q4 of 2024. This was primarily the result of increased sales from AirBoss Manufactured Products. Turning now to our individual segments. Net sales at AirBoss Rubber Solutions for Q4 of 2025 were $45.8 million, a decrease of 3.3% compared to Q4 of 2024. Volume decreased by 3.5% with declines across most customer sectors. Tolling volume was down 65%, while non-tolling volume was down 1.2%. Gross profit at Rubber Solutions for Q4 of 2025 was $5.3 million compared with $5.9 million in Q4 of 2024. The decrease in gross profit was principally due to lower volumes across most customer sectors and product mix, offset by managing controllable overhead costs and continuous improvement initiatives. At AirBoss Manufactured Products, net sales for Q4 of 2025 were $72.5 million, an increase of 50.4% compared to Q4 of 2024. The increase was a result of higher volumes in the defense products business and increases across the rubber molded product lines despite continued volume softness and volatility related to the original equipment manufacturers. Gross profit within AirBoss Manufactured Products for Q4 of 2025 was at $14.7 million compared to $9.4 million in Q4 of 2024. The increase was primarily a result of new business awards at AMP's defense products business, margin improvements at AMP's rubber molded products business, further supported by operational cost improvements in the segment by managing controllable overhead costs and continuous improvement initiatives. For the full year of 2025, consolidated net sales for AirBoss were $410.2 million, up 6% from $387 million in 2024. The full year gross profit for 2025 improved to $71.1 million, 17.3% of sales from $54 million, 14% of sales in 2024. For the year ended December 2025, net cash provided by operating activities was $49.1 million versus $8.8 million as at the end of 2024. Free cash flow for the year ended December '25 was $37.3 million versus negative $1.8 million in 2024. For the year ended December 2025, capital investments of $4.5 million were made by ARS and $6.6 million were made by AMP. These capital expenditures related to cost savings initiatives, growth initiatives, upgrading existing property, plant and equipment. On December 31, 2025, our net debt balance was $67.6 million versus $98.9 million at the end of 2024. We expect to fund the company's 2026 operating cash requirements, including required working capital investments, capital expenditures and scheduled debt repayments from cash on hand, cash flow from operations and committed borrowing capacity. The company's asset-based revolving credit facility provides financing up to $125 million with an accordion of $25 million. On December 31, 2025, $71.5 million was available under this facility and $24.3 million was drawn. With that, I will now turn the call over to Chris. Chris? Chris Bitsakakis: Thank you, Frank. Operator, at this point, we can open the line up for Q&A. Operator: [Operator Instructions] Your first question comes from Ahmed Abdullah with National Bank. Ahmed Abdullah: You updated your strategic priorities to double down on defense products and remove the commentary around strategic review. Can you give us some color as to what drove that decision? And are you seeing any early green shoots related to the increased NATO defense spending you referenced earlier? Chris Bitsakakis: Yes. I mean, like any strategic review, it's not meant to go on indefinitely. And so we took some time to take a look at all of our different product lines and made some assessments in terms of what is sort of a long-term strategic growth priority for us and what may not be. And I think it really fell along the lines of how it fit into the vertical integration strategy that the company has. So from that perspective, we feel that strategic review is complete. It doesn't mean that we're in the process of divesting of any of those businesses that did not fit directly into that long-term strategic plan. However, we are still nurturing those businesses. We're still building them up and looking for the right opportunity to decide where they would best fit. So from that perspective, I think we have a very good and clear direction for the future of the business. In terms of the NATO spending, we are seeing significant opportunities as our partner countries around the world have made statements of increased defense spending. We see quite a lot of activity coming out of Europe. And we're hearing a lot of good things from the Canadian government, and we are in contact with the government here in Canada and throughout our NATO partners. So we're fairly optimistic that in this period of uncertainty around the world and increased defense spending that AirBoss Defense Group should have opportunities ahead that can really drive significant growth. Ahmed Abdullah: Okay. And during your period of strategic review, has there been any engagement around possible divestitures? Or was it really more of an internal process without really shopping around any lines? Chris Bitsakakis: It was really mostly an internal process. Although throughout the process, we were in contact with outside consultants in terms of what makes sense and what possible opportunities for divestiture could be out there. But again, the idea behind that is if something doesn't fit strategically to the long-term plan of the company to make sure that we maximize the value of it before we look at a divestiture. And that's the process that we're in right now. Ahmed Abdullah: Okay. Just switching gears to the ARS business. On the outlook commentary related to ARS, can you help us bridge the gap between the ongoing weakness here and your view of a recovery in mid-2026? What building blocks are you seeing that would kind of support that recovery taking place? Chris Bitsakakis: So we have a bunch of new customers that we're launching right now. And so we're looking at those volumes going forward to be able to estimate some level of recovery. We're seeing early this year increases from many of the customers that were quite slow last year. So we are assuming that -- and not just assuming because we have lots of conversations directly with our customers and the reductions were pretty broad-based across many of them. And so we saw this sort of industrial slowdown as our customers in the U.S. who -- their supply chains are really global, took the last 2 quarters of last year, worked off existing inventory and we're working on establishing new supply chains that were more tariff-friendly for them because a lot of their products coming in were -- had tariff supplied to them and -- but not the rubber, of course, because it was still covered under CUSMA. So as they were trying to reestablish their supply chains and bring some more efficiency into what was going on with them, they were getting rid of old inventory and their sales were dropping. We're seeing now in early this year some return of that broad base. And we are also launching new customers, some very high-volume customers and also some smaller customers on the specialty side that will drive increased margin. So we're assuming that through the ramp-up and launch phase here in the first and second quarter, we should be able to see those results going into the second half of the year. Now of course, that's predicated on any new and exciting information coming out of the U.S. administration related to CUSMA to tariffs and to any other sort of geopolitical events, but that's what our modeling is showing right now. Operator: Your next question comes from Tim James with TD Cowen. Tim James: First question, just returning to the -- your expectation for a volume recovery in ARS midway through 2026. Does that mean you expect like a sequential improvement in volume as you go through the year? Or do you expect year-over-year volumes could actually turn positive middle of the year? Chris Bitsakakis: Yes. I mean if you look at Q1 and Q2 last year, they were pretty strong quarters. So I haven't compared our modeling to the quarters of last year. But what we're looking at is the performance in Q3 and Q4 of 2024. And as we look at the new customers that are coming online and some assumptions based on a recovery from what we saw late last year, we're seeing a sequential improvement from the beginning of the year into the second quarter that we should then carry forward into Q3 and Q4. Tim James: Okay. My second question, Chris, what work remains, if any, to prepare the company for a negative outcome with regards to CUSMA negotiations? And I'm just thinking in terms of sourcing materials and the locations of your own operations to limit cross-border shipments. Are you kind of in a good place, do you feel like in terms of risk mitigation at this point? Or is there other work that needs to be done? Chris Bitsakakis: No, I'd say we're in a good place. We did a lot of work all of last year, and we actually spent a lot of money taking every single compound, for example, that's currently compounded in Canada, taking it to our southern location, getting approvals to our customers, getting the approvals that we needed in place, running samples. So we did a lot of work to make sure that we were prepared for anything. I guess that work happened sooner than we needed it. And hopefully, we don't need it this year. But we're in a position where we have contingency plans set up that we're going to be able to handle whatever happens out of CUSMA. Now obviously, for us, clarity is the most important thing. I mean not knowing is really very difficult because you have to plan for any sort of inevitable event. We have done that, of course. But at the same time, if we had some clarity, we'd be able to know. For example, if in September, CUSMA was no longer there, we'd be putting into our contingency planning execution right now. So hopefully, the negotiations happen in a way that our business is not affected. But in a worst-case scenario, we have our contingency plans set up and ready to execute on them. Tim James: Okay. Just wondering next, if you could elaborate on the product mix changes in ARS that negatively impacted gross margin year-over-year in the fourth quarter. Chris Bitsakakis: Yes. It's -- I mean, it's interesting. Obviously, if you look at all of our competitors, and of course, one of them being a public company that it's very easy to look up. But all of our competitors had significant drops in volume last year and especially particularly in the last 2 quarters. And with that, you have to get a little bit more aggressive on pricing in order to defend your business from the open capacity that exists. So I think there's sort of a temporary drop in margin based on a bit more of an aggressive strategy to defend the business that we do have still. And I think that's really the biggest driver behind that. The other part of it is all of the contingency planning that we did last year required significant amounts of free samples basically that we had to make and provide to our customers, which then also reduced our gross profit in terms of doing that, but it was necessary in order to make sure that we have our contingency plans in place. Tim James: Okay. That's helpful. Just then finally, just thinking about '26, can you give us a sense for your CapEx requirements? Forgive me if I missed that earlier. And I'm also wondering, and I know this one is a hard one to sort of provide thoughts on, but working capital requirements in '26, whether you can sort of generate some cash from working capital this year, whether it may require some cash. Just those 2 items and the impact on '26 would be helpful. Frank Ientile: Yes. Thanks, Tim. As it relates to capital, again, our investment, we believe, will be a moderate step-up from 2025, obviously, investing in projects that support payback and are part of the strategic growth from that perspective. But we'll basically be looking at maintenance CapEx plus a little bit more as it relates to the growth. And in terms of working capital, obviously, we have a strong focus and had a strong focus in a very successful year in 2025 with respect to managing working capital and converting obviously some of these sales opportunities into cash in a much quicker cycle. We expect 2026 to be an investment in working capital as we continue to launch some of the previously announced awarded programs as well as some new programs that are coming up. So we do anticipate there being a bit of a cash burn in '26 relative to '25. Operator: Your next question is a follow-up from Ahmed Abdullah with National Bank. Ahmed Abdullah: Just on the rubber molded products, you mentioned an increase, and then you also mentioned in your release that there's volume softness and volatility related to OEM production. Can you just give us a bit more color as to what drove that increase in such a backdrop that has the softness and volatility? Chris Bitsakakis: Yes. No problem. Late last year, we launched the production of the MALO program for the defense group. So the rubber molding division ramped up multiple presses in order to begin the ramp-up for the deliveries of the molded overboots for the U.S. military contract that we had announced previously. The volume production there for that MALO is the highest volume production we've ever had. And so it required presses, machines and a lot of people and a ramp-up of volume that really drove a significant increase in the rubber molded business at a time when the auto side was sort of volatile, a little bit up, a little bit down depending on car lines and that sort of thing. So that's really what offset some of the volume reductions on that side. Ahmed Abdullah: Okay. And I guess one for Frank. On the delevering, we have no financials yet, but looking at your CFO, can we assume that the increase in the CFO in this quarter is primarily driven from a working capital inflow rather than an outflow? Frank Ientile: Yes, it's definitely a working capital inflow, a combination of, again, some -- obviously, deliveries of the contracts with the quick conversion of cash. Also, keep in mind, Ahmed, from the restructurings and everything we've done in the previous periods, obviously, the lower cost base is also supporting it and then managing our direct working capital levers as we tightened up on inventory, really work to get our collections in faster. And obviously, the combination of those helped support the strong quarter from that perspective. Ahmed Abdullah: Okay. And I guess final one for me. Any updates on the real estate sale in Kitchener? Chris Bitsakakis: Yes. I mean we Obviously, it's still part of our long-term strategic plan to move out of that facility into a new modern facility. Having said that, with the drop and the softness in the condo market, it's made it a little bit trickier for developers to take on such a big project in this time of uncertainty. But certainly, we have lots of conversations ongoing almost on a weekly basis of people that are interested in what could transpire in that facility with us. Of course, we're not in a hurry to move at a discount. We're hoping to be able to get very close to what the appraised value is before we move on it. But there's lots of activity in that area. It's shifted a bit from a pure residential type development into more of a mixed use, which could include things like data centers and commercial locations and a variety of ideas that people are bringing to us. So we're still very active in that area, but we're also being very patient about it in that we're still operating there and still doing very good work there. So we're not in any hurry to fire sale it. So hopefully, as the residential construction rebounds a little bit and some of the other ideas that we're getting maybe start to solidify, we'll be in a position to announce something there. But we're not in a hurry, but we're still actively involved in lots of conversations about it. Operator: There are no further questions at this time. I'll turn the call to Chris Bitsakakis for closing remarks. Chris Bitsakakis: Thank you, operator, and thanks again to everybody for attending today's call. Please feel free to reach out to us directly or through our Investor Relations team if you have any questions on our results or any questions in general. Thank you again, and have a great day. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Jean-Mari Pretorius: Good afternoon, everyone, and welcome to Acomo's Investor Call for the 2025 Full Year Results. Thank you for joining us today. We appreciate your continued interest in Acomo. My name is Jean-Mari Pretorius, and I will be hosting today's call. Joining me is our Acomo Group CEO, Allard Goldschmeding; and CFO, Mirjam van Thiel. During this call, we will walk you through the highlights of our performance for the period, discuss developments across our business segments and provide further context around market conditions and our strategic priorities. The Q&A will take place at the end of the presentation where we will open the floor for questions. [Operator Instructions] Before we begin, I would like to remind everyone that today's discussion may include forward-looking statements. These statements are based on our current expectations and are subject to risks and uncertainties that could cause actual results to differ. Please refer to the disclaimer included in our press release for further details. We will now continue with the 2025 full year results. Firstly, I would like to hand over to our Acomo Group CEO, Allard Goldschmeding. Allard Goldschmeding: Good afternoon, everyone, and thank you for joining us on today's call. In a world that continues to present both challenges and opportunities, today's call will focus on Acomo's strong performance in 2025 and the path forward. While the broader outlook for the global economy, sea freight rates and product availability in 2026 remains uncertain, navigating complexity is not new to our business. Last year, we successfully managed a range of external factors, including tariffs and significant cocoa price volatility. Our resilient business model, combined with the expertise and commitment of our people, has once again enabled Acomo to adapt effectively and deliver solid results. Today's agenda will cover several topics. I will start with the key highlights that characterized our 2025 performance. I will also discuss how our results compare against our midterm strategy and objectives, which we shared during our Capital Markets Day last April. And I will discuss a few examples of the initiatives we took during 2025. Mirjam will then cover in more detail the financial performance of the group and of the individual segments. At the end of the presentation, I will finish with a look ahead to 2026 before we take your questions. 2025 was another record year for Acomo in terms of sales, profitability and earnings per share. We are very happy with this overall performance, and this reflects the drive to perform of our people. Our teams bring unique capabilities that are highly relevant to our suppliers and our customers and enable us to support them effectively. Excellent results in 3 out of 5 segments are proof of the ability and expertise of the Acomo teams in managing volatile market environments and the strong attributes of our business model that offers resilience through diversification. By a volatile environment, I mean mostly in terms of price developments, geopolitical developments and changing regulations. In the Spices & Nuts segment, all our companies delivered record high results. The continued impressive performance and the attractive long-term market outlook make our Spices & Nuts segment a natural area of focus. We have expertise and we have scale, which provides a strong foundation for further expansion. The Organic Ingredients segment showed a very healthy recovery from the negative impact of cocoa hedging in previous years. This recovery started in the second half of 2024 and continued in 2025. The Tradin Organic team was able to manage the price volatility and delivered strong results this year. Besides cocoa, the business also posted positive results for other product groups, reinforcing our confidence in the segment's portfolio. We also made substantial progress in improved alignment of the organizational structure as well as our portfolio investment decisions. Food Solutions also delivered a record year in 2025. Demand for both dry and wet blends remained robust throughout the year, driven by sustained consumer interest in plant-based, clean label and culinary solutions. The business was further supported by the commissioning of the new wet blend facility in Oostende in 2025, which became operational before the summer. The new facility provides a significant increase in capacity and flexibility with the opportunity to triple the output. The year was, however, not without its challenges. In particular, our Edible Seeds segment experienced a difficult year, driven by a mix of challenging market conditions and operational issues. Let me provide a brief overview as Mirjam will address this in greater detail later in this presentation. The challenges that materialized in the first half year and which we spoke about in our H1 call continued into the second half. Tariff uncertainty in the North American market continued and made pricing decisions complicated. Alongside higher input costs, this placed pressure on margins. Next to that, the impact of restrictions on U.S. grown sunflower seeds to export markets continued to have an impact in 2025 as the measures to compensate with new growth avenues do take time. On top of these market effects, our SunButter plant was affected by production issues, which caused a temporary stop in production in the fourth quarter. Production resumed towards the end of January 2026. The result is a more negative overall picture than is warranted based on the fundamentals of the segment, which remains solid. To address this, we have made the necessary strategic and organizational changes in North America, and the business is expected to largely trend back towards normal performance levels. The Edible Seeds business delivered a resilient performance despite market price pressure on key seed categories. The Tea segment faced continuous pressure on sales volumes throughout the year, reflecting ongoing destocking by customers, oversupply and more fragmented buyer landscape. The implementation in 2026 of the new organizational and commercial model that I will explain later in this presentation is designed to respond more flexibly and effectively to changing market circumstances. As discussed during our Capital Markets Day, M&A is a tactical growth lever. We are, therefore, pleased to welcome Manuzzi to the group as of November. This Italian company represents the first foothold of our Spices & Nuts segment in the Mediterranean region, giving us access to an attractive market in terms of consumption patterns. I also want to call out that despite the relatively high level of working capital, our balance sheet remains strong. The characteristics of our business result from time to time in elevated levels of working capital. The unprecedented high prices of cocoa have resulted in higher inventory values. The strength of Acomo is that with our diversified portfolio, we can deal with higher market prices for individual product groups and can continue to make a sensible commercial calls. The 2025 performance resulted in a proposed full year dividend of EUR 1.40 per share, which is another record and an increase of plus 12% versus 2024. At the Capital Markets Day last April, we communicated our midterm targets in the areas of sales, EBITDA margin, balance sheet leverage and dividend distribution. With a total 2025 group sales increase of plus 7% to EUR 1.5 billion and an adjusted EBITDA increase of plus 9% to EUR 180 million, we are on track with these targets. Our current leverage ratio is impacted, as I mentioned, by the higher working capital consumption linked to the increased inventory values due to the high prices for a number of our products, in particular, cocoa. However, based on our current knowledge, we would expect the leverage to go down during 2026. As stated, the full year dividend is an increase of plus 12% versus 2024 and is consistent with our communicated payout ratio policy. The split of the results between the first half year of 2025 and the second half shows that the first half year was relatively strong. Historically, the performance was more or less evenly distributed between the first half and the second half. Since 2023, this has changed, mainly due to the enormous change in cocoa prices that had a material impact. Therefore, the half-year performance in those years was not a reliable indicator for the full year. For 2026, we expect price levels changes to be less extreme, which would result in an EBITDA distribution between H1 and H2 that is closer to historical patterns. The vision we discussed during our Capital Markets Day remains relevant and up to date. And the 2025 results underpin the trajectory towards the ambitions we outlined. Our value creation shows our focus areas and the way in which we address the market dynamics. We continue to execute along the lines presented, and let me highlight some examples, which demonstrate this more clearly. One of the elements of the 3 is scale. We strongly believe that scale is prerequisite to being effective and efficient in our industry and to create long-term value. In Q4 2025, we acquired Manuzzi, a leading Italian nuts and dried fruits company. Through this acquisition, we are expanding the Spices & Nuts segment footprint in Southern Europe. The culture of this family business is a good fit with our Acomo entrepreneurial spirit and through cooperation with the Delinuts in the Netherlands and the Nordics, we will create synergies. These synergies will be focused on growing the top line. By using the available Acomo capabilities and the broad product portfolio we have, Manuzzi will be able to expand its offerings. The company also has its own state-of-the-art facilities, including modern packaging lines with sufficient room for further growth. As part of creating resilient and responsible supply chains, Tradin Organic joined the Nature Positive initiative. These initiatives gather some of the world's largest sustainable business and finance coalitions to broader -- to support broader long-term efforts to deliver nature-positive outcomes. It supports farmers in adopting regenerative and resilient practices, which is aligned with a number of initiatives that Tradin Organic had already begun. The outcome is improved soil health and restored biodiversity, consistent with product quality and supply. Then to increase the benefit from its global reach and have a closer connection with customers, Royal Van Rees Group is transitioning to a centralized business model that consolidates the commercial, trading and strategic functions within a central hub. This enhances customer intimacy and focus and offers our customers improved multi-origin solutions. Our customers will have a single point of contact that covers multiple origins and our local offices will enable efficient physical execution. The new setup will phase in during 2026. Lastly, our value creation 3 is rooted in ESG, and I'm happy to report that for the second year in a row, we obtained limited assurance from our external auditors on the sustainability statement in our annual report. We achieved a substantial reduction in our Scope 1 and 2 CO2 emissions as a result of our efforts to increase the use of renewable energy sources. Other initiatives are an SBTi project at Delinuts and the installation of a lightweight solar panel construction at King Nuts & Raaphorst on the roof that could not carry the usual solar panel construction. Tradin Organic continues their dynamic agroforestry product in Sierra Leone and the farmer livelihood product in Indonesia next to the nature positive initiative that I mentioned. With that, I would like to hand to Mirjam van Thiel to take us through the detailed financial performance. Mirjam Thiel: Thank you, Allard. Let's start with the overall P&L of the Acomo Group. As mentioned by Allard, we achieved record growth this year with an increase in sales of 7.4%. On constant currency, the increase is actually much higher, close to 10% as we had some FX headwinds, in particular, stemming from the U.S. dollar to the euro. Now from a cost management perspective, you will see that our COGS increased at a lower pace in proportion to sales, which in turn led to an expansion of our gross profit margin by 1.8 percentage points. Looking at our G&A expenses, we see an increase of 5.8%, which reflects inflation and some additional costs due to M&A projects and investment in people. This resulted in an increase in our operating income of 43.5%. Looking below the operating income, we benefited from lower financing costs because of lower interest rates. And this, together with the higher operating income, led to an even more significant year-on-year improvement of our net profit by 64% to EUR 74 million. Let's then move over to the key KPIs on an adjusted basis. Adjusted EBITDA grew by 8.7% to EUR 118.2 million. The difference between reported and adjusted is mainly due to the impact of unrealized results on FX and sales hedges and exceptional items related to our Edible Seeds business in the U.S. On the next slide, I will share some further detail on this. You see that there is an increase in the EBITDA margin from 8.0% to 8.1%. As communicated at the CMD, we want to move towards 9%. Excluding some of the exceptional items we had this year, we would have progressed further towards that goal. So overall, we are on track with our ambition. Adjusted earnings per share improved by 8.8% to EUR 2.18, which is a record performance for the company. On the right, for added context, you will see the contribution share for each of the segments in which we are active, and I will discuss those in detail shortly. Moving to Slide 14, where you see the bridge between the reported and adjusted EBITDA. As mentioned just now, the main difference is due to the unrealized noncash results on our CX and FX hedges. That includes the revaluation of outstanding hedges to the market value at the date of reporting. The main impact here comes from the outstanding hedge contracts on cocoa. Last year, due to an increase in the cocoa market price towards the end of the year, the reported results included a negative impact due to the revaluation of outstanding hedges. This year, we saw the opposite. Cocoa prices declined towards the end of the year, which increased the value of the outstanding hedge contracts. We exclude this from the reported numbers. Once we settle the hedge contracts, we book the realized results, which normally we time together with the physical sales. The other impacts specifically related to 2025 are the exceptional items in Edible Seeds. These exceptional items relate to organizational restructuring and the cost related to a production issue in one of our facilities. This relates to the Edible Seeds business in the U.S., which I will cover in a minute. We thought for transparency purposes, it will be clear to outline these items as they are clearly nonrecurring by nature. Let me now take a closer look at the performance per segment. Let me start with Spices & Nuts, one of our key segments. This segment has been growing for several years. And in 2025, it delivered an all-time high performance. And what we are even more proud of is that every company in this segment delivered a record performance. Revenue benefited from sustained demand and higher market prices for most products. To share some examples, one of our key products is desiccated coconut, which is grated and dried coconut. In the last 1 to 2 years, we saw a sharp increase in prices. And also in 2025, prices were elevated globally due to reduced coconut supply and strong export demand. And also for some of the key nuts such as cashews and almonds, we saw high prices in 2025. There is sustained demand despite the high prices, and this is reinforced by the overall megatrend of increasing demand for plant-based products. All in all, we continue to expect this trend of increased demand to persist and hence, a relatively high pricing base. At the same time, how this develops year-on-year is to be seen. Also included in this segment are the 2 bolt-on acquisitions we made recently with Delinuts Nordics in August 2024 and Manuzzi in November 2025. Turning to Edible Seeds, where we have faced a series of challenges due to a mix of market conditions and operational issues. Before I go into the challenges, I want to be clear that we strongly believe in the fundamentals of this business. Let me take a step back. Within this segment, we have a sizable business in the U.S. in which we process sunflower seeds and use them to make various products, including well-known retail brands such as SunButter. In the U.S., we are also seeing an increase in demand for cleaner label, plant-based alternatives and allergen-free options. The attributes of sunflower seeds are perfectly aligned to these trends, and we have developed our leadership position in this market. In addition to the U.S. business, we have a smaller seeds business in Europe. But back to 2025. Let me recap the challenges we flagged to you in our H1 investor call and explain more about what we have faced in the second half. First, we spoke about the impact of the restrictions of U.S. grown sunflower seeds to some export markets. As anticipated, it will take time to offset this lost stream with new business. Second, we saw tariff uncertainty continuing, making pricing decisions complicated. That, together with higher input costs, placed pressure on margins. On top of that, our SunButter plant was affected by a production issue causing a temporary stop in production in the fourth quarter. The issue has been resolved and production resumed towards the end of January. Now how we tackle these challenges and what are the prospects for the segment, turn with me to Slide 17. Consequently, you can see the margin decline in this segment. Our top priority is to restore profitability. The corrective actions we have taken include improvements, including full cleaning of all equipment, improved preventive maintenance and equipment modification. We also implemented organizational changes, including the appointment of a new CEO, and we created center of excellence. Also on this slide, you see some more specific actions by each category, including price increases that have been implemented. Included in exceptional items and excluded from the adjusted EBITDA are items that are exceptional by nature, which include the cost for restructuring the organization and extraordinary cost items and under absorption due to the specific production issue. So remaining in the adjusted EBITDA, but to some extent, temporary are missed sales in SunButter due to the Q4 production issue and lower margin due to misalignment between higher input costs and sales prices. On top of that, we are starting to see the impact of the other corrective actions we have taken. So as I say, we fully believe in the strong fundamentals of this business, the power of the sunflower and a diversified business model. This supports our expectation of a recovery to a normalized performance level over the coming years. Then looking at Organic Ingredients. We have achieved an excellent performance across all categories within this segment. We see in general an increase in demand for organic food and beverages in the market. For example, the Organic Trade Association in the U.S. reported that the organic sector was growing at more than double the pace of the overall food market. Specifically on cocoa, as you all know, the market has been very volatile in recent years with big price swings. After the sharp increase in the first half of 2024, the price remained elevated up until the start of the second half of 2025 when it started to reduce and has reduced even further in the first months in 2026. Within that dynamic market, the team has been able to secure supply and continue to offer the best quality and required specifications to our customers, which is a commendable achievement and has allowed us to continue to excel despite the external turbulence. It had an impact on working capital, which I will cover in a minute. There was also some catch-up effect of delayed volumes from 2024, especially in H1, which contributed further to our strong 2025 performance. Besides cocoa, as I mentioned, we also saw a strong performance in the other categories. The fruit and vegetable business continued to show strong momentum with accelerated growth, while nuts and seeds and oils and fats delivered consistent sales growth with improved margins. Coffee achieved record high sales and succeeded in growing volume when prices were elevated. Then moving on to tea. The tea business is operating in a challenging global environment. Some of the larger branded players are losing share. And as a result, we see a more fragmented customer base. Also, global tea supply remains elevated. Despite these challenges, the business demonstrated gross margin resilience. As Allard already explained, we will strengthen the collaboration across the Van Rees Group by implementing a more customer-centric business model that will drive additional value to our customers. For Food Solutions, we saw a record EBITDA performance, driven by strong volume development for the dry and wet plants, resulting from the sustained demand for plant-based, clean label and culinary solutions. Further commercial development was driven by a strong entrepreneurial spirit in R&D, combined with new long-term partnerships with customers. We are especially proud of these results as at the same time, the new wet plants facility became operational. The new facility is set to support scaled up production for the coming years, as mentioned by Allard. Now over to the cash flow development. Looking at the operating cash flow, excluding working capital, we posted a year-on-year increase of 12%, effectively reflecting our profitability improvement. On the bridge, you can see the main drivers from the EUR 120 million in operating cash flow, excluding working capital to the net cash from operations. The largest swing is obviously driven by EUR 164 million working capital consumption during the period, and I'm going to spend a bit more time on this on the next slide. Next to that, we had a reduced outflow from cash interest expenses due to lower interest rates and a slightly lower effective tax rate. Let me now go back to working capital. Here, you can see the development over the last 4 years with the orange line representing the total working capital and the green line, the investment in inventory. You will see that the increase in working capital is driven by higher inventory value. Based on market prices, availability of stock in the market and the positions we take, the inventory value will move up and down. In 2025, the higher inventory value is mainly coming from 2 parts. One, due to shortages in the previous year, we are holding more cocoa inventory at higher prices. And besides, we saw higher market prices within the Spices & Nuts segment. So here, there is an extra outflow due to the prices of the various inventory we hold, but this is something that is fully embedded in our business model. With everything remaining equal, our trade payables and receivables remain broadly unchanged. We expect working capital to go gradually downward in the course of 2026, mainly a reflection of the pricing dynamics of our commodities. Finally, before handing back to Allard, let me talk briefly about our liquidity and leverage. As we explained at the CMD, we see working capital as a commercial instrument. And we have enough financial headroom to deal with this, which is where the added value of the holding comes into place. The diversification of the portfolio gives us the financial headroom we need. The strength of our balance sheet enables us to deal effectively with increased working capital. We remain committed to our long-term targets. And we have also shown in the past that we could temporarily absorb a higher leverage and have also been able, you see it on the chart, to deleverage, a function of the EBITDA growth we want to achieve and lower working capital requirements as inventory levels will gradually reduce. With that, I would like to hand back to Allard. Allard Goldschmeding: Thank you, Mirjam. As we move to 2026, I would like to share a little more on our views and initiatives for this year. The market dynamic of a positive trend towards plant-based diets is expected to continue, providing a strong fundament for our business. I started this call by referring to the latest geopolitical development. The impact on the global economy and our business cannot be predicted. However, our people and our business model are positioned to deal with this in the most effective way as we have proven in previous years. We will continue to build routes to healthier foods. A specific development for our organic business is the cocoa price development. Prices dropped from USD 6,000 per tonne at the end of 2025 to around $3,000 per tonne today. This level is not far from the historic normal levels. This would indicate that the cocoa market is moving to more regular price levels, although we still see major daily swings. A continued lower cocoa price level should lead to lower working capital levels, as Mirjam already mentioned, and normalized profitability. The actions we have taken in our Edible Seeds business in the U.S. should allow us to progress towards improved profitability levels during 2026, considering that the fundamentals of the business are strong and attractive. Based on our 2025 performance and our expectations for 2026 and beyond, we are committed to the midterm ambitions we communicated during our Capital Markets Day. Finally, I would like to mention that 2 new nonexecutive Board members will be proposed at the AGM in April as communicated in our press release that was issued this Tuesday. Jan Piet Valk and Barbara van Hussen have relevant Board, governance and M&A experience and will be a great addition to our Board. With that, I would like to hand it back to Jean-Mari. Jean-Mari Pretorius: Thank you, Allard, Mirjam. To summarize, today, we have discussed our performance for the period, the key drivers across our segments and the broader developments impacting our business. We now open the lines for the Q&A. Jean-Mari Pretorius: I see we already have one question coming through. The question states, will the trend of H2 2025 continue? And what is your view for 2026? Mirjam Thiel: Thank you, Jeanie. Let me maybe comment on the second half to start with, the second half of 2025. A few things important there is, one is our reported sales improved with 2%, but we had a currency impact, of course, of the dollar to euro. So if you look at it on a constant currency, we actually grew in the second half with 5% and that 5% is against a strong H2 we had in 2024. And what Allard already explained, the phasing has been a bit of, let's say, between H1 and H2, and we expect to go to a more evenly phasing going forward. But this H2, we were comparing versus a high H2 in 2024. And then the last element which impacted the second half was, of course, the slow performance at Edible Seeds. And there really, we saw there the continuing of the market challenges and then compounded really in Q4 with the production issue that we faced. So those elements really impacted our second half performance. So maybe, Allard, you want to talk a little bit about 2026. Allard Goldschmeding: Yes. Thank you, Mirjam. I mean based on, let's say, what Mirjam just said, there are a couple of components that in 2026 will be different than in 2025. So one of them, obviously, is what we mentioned, the edible seeds development. It was impacted, and we expect that during 2026, this will trend back to the normal or the normalized performance levels. So I think that's important. The other thing is that cocoa prices will come down. The question is what is going to happen to other commodity prices or prices in our portfolio. So what the exact sales development will be, that's to be seen. Like we said that the split between H1 and H2 had a major impact in 2025 versus 2024. But also if we look at 2026, we expect it to be more even. And if it would be more balanced and more even, you should expect or you can expect that the EBITDA potentially can be in H1 2026, a little bit below H1 2025 and that we will catch up in the second half of 2026. So it's important to understand that we will look at the full year performance and our objectives and that the split between H1 and H2 in 2026 can be very different than we saw in 2025. So I think that's important to mention. Jean-Mari Pretorius: Okay. Thank you. I see we already have our first caller on the line. It is Reg Watson from ING. Reginald Watson: Allard and Mirjam, I have a number of questions for you both, please. So I'd like to take them in turn. Firstly, the working capital. I think, Allard and Mirjam, you've both highlighted higher cocoa prices and I think, in particular, higher volumes. When I look at the evolution of cocoa prices, '25 is no different from '24. In fact, on average, probably slightly lower. But -- so I'm not sure if that's the reason for the higher working capital. Mirjam, you mentioned higher volumes. And then my question on that then is, if it was higher volumes, why would you take higher volumes in '25 when in '24, you were suffering a demand shock, and you actually had too much volume. So I'd like to understand the dynamics of that. That's the first question. Mirjam Thiel: Yes. Right. We were actually coming from a shortage, right? So in 2024, inventory was actually in volume very low. So we -- there is indeed an impact when you compare '25 volume levels, specifically in cocoa in '24 on higher volumes because '24, the base is very low. So we really build up normal stock levels again. And then on average, of the stock we are holding, the price is higher now in 2025. So there's, of course, a little bit of a lagging impact versus the market price development in the inventory value that we're holding. Allard Goldschmeding: Reg, maybe to build upon that, when we contract the volumes, it's not evenly spread out over the year, right? So we contract the crops. And that is at a specific point in time of the year where the price can be much higher than what you have seen at the end of the year. So I understand you're right, the average price during the year is different, but that's not the price we contracted against. Reginald Watson: Okay. Okay. So that accounts for the variability. And then I'd like to move on to Edible Seeds. It's been a thorn on your side. I think at the time of the Capital Markets Day, correct me if I'm wrong, but there was an expectation that we would have run through the anniversary of the problems by the time we got into the second half of the year. And it seems that the problems continue. Have I misunderstood that, misremembered that? Or have additional problems arisen in the intervening period? Allard Goldschmeding: No, I don't think you misunderstood it. What we've seen is that the consequences were more severe than we anticipated originally. It took longer to get rid of the products that we still had. So the exports issue, which you probably referred to, indeed, we mentioned and at the time, we thought that, that would fade out. But in reality, the aftermath of that was longer and had a bigger impact than we expected. So yes, but we should be through that now. Reginald Watson: And -- okay. But you are confident that, that is now done and dusted? Allard Goldschmeding: Yes, because we still had to clear all inventory and let's say, the price levels against which we could clear that inventory was below what we -- below our expectations. Reginald Watson: Right. Okay. And then just a technical question on the dividend, Allard, I think in your prepared remarks, you mentioned that it was in line with policy. But again, I seem to recall that the dividend policy is 70% payout ratio. And I think unless I'm much mistaken, the ratio is lower than that for this year. Allard Goldschmeding: Yes, the ratio is 65%. So you're right, that's a little bit below the 70% that we communicated. But 70% is an average, right? And we look at different things. So first of all, it's the performance of the company. Secondly, it's available cash or the cash position we have. Thirdly, it's other investment opportunities we see like M&A opportunities. So when you put that all together, we came to this proposed dividend, which we feel is completely in line with our communicated policy. Reginald Watson: And then final question on tea. You very helpfully provided a slide in the presentation pack, which sort of noted some of the changes that you're making. Could you perhaps flesh -- give us some flesh to those bones, perhaps a work example of how things have worked in the past and how they will work in the future and what benefits you expect those changes to bring? Allard Goldschmeding: Yes. No, fair. Now what we've seen is that historically, Van Ree very much operated from a local level. So yes, there was central oversight, and the strategic direction was obviously set at the central level. But the local offices, to a high degree, maintained their own commercial operations and approach themselves the customers they had. What we've seen changing basically in the industry that the customers are looking more for -- are more flexible, let's say, in buying tea and in looking for what I tend to call multi-origin solutions. So for example, if a certain grade or a certain price of tea in Kenya is not competitive to Ceylon or to Indonesia, we can -- they are basically looking at other origins as well. And my belief is that we can be more efficient and more effective by centralizing that approach and to be a sparing partner for our customers to help them actually making the right calls. So the central multi-origin solutions that we can offer to the key customers will be crucial to be closer to customers to better understand them and therefore, be more effective. So it means, in the essence, a little bit of a shift or it means a shift from certain responsibilities that were embedded in the local organizations. And again, whether it's in Africa or in Asia or whatever, to more the central hub where they will make the calls and that will be a change to the organization, which, in our view, will be for the better because, again, the tea market has changed, and tea buyers have changed their behavior. Reginald Watson: Okay. So just so I'm clear, so reading between the lines there, basically the local organizations were more incentivized to promote their local origins rather than helping customers source more efficiently other origins of tea. Is that my understanding, correct? Allard Goldschmeding: Well, the way I would phrase it that they had less visibility on alternatives for the origin. So their knowledge was on their local origin. And they -- it took more time to react to changed consumer or customer behavior and now we centralize that. So we can now proactively offer other origins if we see that the preference of certain customers is changing. So I think we will be faster and more effective. Reginald Watson: And with that centralization, will that come -- will therefore -- will there have to be exceptional costs taken in the local organizations then for this? Allard Goldschmeding: No, no, no. Reginald Watson: Great. Those are all my questions. Sorry to monopolize the performance. Allard Goldschmeding: Thanks, Reg. Jean-Mari Pretorius: Thank you, Reg. We have another question coming through. This question states, what M&A projects is Acomo working on? If you can prioritize on a segment basis, what would have priority and why? Example, consumer preferences and diets, food safety, price development, raw materials, labor cost development. Allard Goldschmeding: As we stated at our Capital Markets Day that M&A, and I think we also included that in the presentation today. The M&A is an important part of our growth trajectory and our ambition towards where we want to be in the midterm. So we are looking at different M&A opportunities. What we've communicated before is that our prime focus will be our Spices & Nuts segment, and that will be in Europe and in the U.S. We will look at Edible Seeds, which will be a little bit more geared towards the U.S. Organic, we are looking at how can we strengthen the portfolio. Tea, like I said, we focus more on changing the organization, and that's our prime priority now. And thirdly, we will look if we can expand our Food Solutions presence, but that will be mainly in Europe. Those are the priorities. Jean-Mari Pretorius: Great. Thank you, Allard. Another question here is this is a question on artificial intelligence, so AI. Is AI also applicable in a company like Acomo? And do you see AI as an opportunity or a threat? Mirjam Thiel: It's an interesting question. I think AI, I think, is in everybody's mind at the moment, and it's impacting, of course, all of us, I think, in a certain way. I think for us, it really is about our processes, right? How can we make it more efficient? And you can imagine that in the trading that we're doing, we're collecting a lot of data. We need to get everything in order for all the certifications for all the quality requirements, et cetera. So there's a lot of data we are processing. So I really see the benefit in more -- making our processes more efficient. So for sure, there is an opportunity for us there. I think really, if you look into the core activities of what we are doing, that is a people business. So in that sense, we are less impacted because really the work of the traders, the knowledge of the traders, making means out of all the different data that is there, yes, we very much believe that, that is really the human capital that we have. And hence, yes, that is less impacted by AI. So it's more about the processes than the core of our business model. Jean-Mari Pretorius: Thank you, Mirjam. Well, this concludes today's call based on our time. Thank you once again for your time and your continued interest in Acomo. We look forward to speaking with you again for the 2026 half year results. Have a good day.
Axel Lober: Good morning, everyone, here in Darmstadt at the Merck Innovation Center and from Darmstadt into the world and a warm welcome to our annual of Merck press conference. My name is Axel Lober, I'm Head of Communications of Merck, and I'm here today with our CEO, Belen Garijo; and our CFO, Helene von Roeder, and both will walk you through our results of 2025 and of course, talk about our outlook for 2026. So as always, -- both Helene and Belen will give some insights first before we dive into our Q&A session a little bit later. And with that, already, I'd like to ask to the stage, Belen Garijo. Belen, the stage is yours. Belén Garijo López: Thank you, Axel, and good morning, everyone. Thank you for taking part in our full year press conference, whether you are here in Darmstadt or following us virtually. As Axel mentioned, Helene and I will provide an overview of our business performance for 2025 as well as an outlook for '26. After this, we look forward to your questions. So let me start by summarizing 2025 in a few messages. First of all, we delivered on our financial guidance. Second, our diversified business and regions was a source of strength. And last but not least, we are positioned in major growth areas such as health and AI, and these will be strong platforms for future growth. Before we dive into the numbers, let me reflect on 2025. We recognize that the ongoing crisis, the geopolitical tensions and rather global challenges have become the new normal, our new reality. The recent developments in the Middle East once again demonstrates how quickly political uncertainties can escalate, this is obviously a very concerning situation. And as you can imagine, the safety of our employees and the safety of our partners in the region is a top priority for us right now. We are in close contact with our teams on the ground. And at this moment, we see no material impact, both at the employee level or in anything that relates to our logistics and distribution. Now let us deep dive now on 2025. Our achievements are made possible by our more than 62,000 dedicated colleagues globally and our recently expanded Executive Board team. I want to take this opportunity to extend my heartfelt gratitude to the entire Merck team for their commitment, for their creativity and for their dedication. Thank you so much, everybody. In 2025, as you know, we strengthened our Executive Board, welcoming Danny Bar-Zohar, Jean-Charles Wirth and Khadija Ben Hammada to the team. We also announced that Kai Beckmann will be my successor as the CEO of Merck. And most recently, Benjamin Hein has been appointed as Kai's successor as the CEO of Electronics. Let me now highlight some of our business sectors in 2025. First, in Life Science, we continued to invest on both capability and capacity. In 2025, we opened our new EUR 100 million facility in Blarney in Ireland. And this site produces critical filtration technologies that are used in advanced therapies and is expected to create over 200 jobs by 2028. We are also strengthening our innovation capabilities, including in the next-generation biology. This is illustrated through the strategic acquisitions that we have announced as HUB Organoids and the JSR chromatography business in Life Science. Those are excellent examples of how we are reinforcing our portfolio leadership strategy. Organoids provide earlier predictive insights into human biology and help researchers identify promising candidates faster and make better informed decisions when it comes to clinical development. And of course, this leads to faster clinical progress and hopefully, to improve outcomes for complex diseases like cancer as well as genetic disorders. You can see an organoid 3D dome as an exhibit here. Now in the health care sector, we are making strategic moves to strengthen our position in high-growth areas. In July 2025, we completed the acquisition of SpringWorks in the U.S., establishing rare diseases as a new strategic growth pillar for Merck. In October, we announced an agreement with the White House to increase access to approved IVF therapies. This will strengthen our presence in this highly attractive market while providing affordable access to innovative fertility treatments on their -- and to families on their journey to parenthood. You will also see Pergoveris Pen, one of our key IVF treatments in today's exhibit. In December, we received an approval for pimicotinib in China for treating symptomatic tenosynovial giant cell tumor, which is a rare tumor that affects joints, tendons or the bursae. This is PV's first global approval and a significant step in strengthening our leadership in rare tumors, which will stay a key growth drivers for us. Now let's look at electronics. In 2025, we seized new opportunities for our electronic business and gain benefit from the growing artificial intelligence demand. In August, we also completed the sale of Surface Solutions, allowing Electronics to become a pure-play business in semiconductor solutions. At the end of 2025, the acquisition of Unity-SC already contributed to our organic growth for the first time since we acquired the company. In December, we also inaugurated a EUR 500 million Semiconductor Solutions megasite in Taiwan. Therefore, Electronics is well positioned to meet the rising demand from artificial intelligence. It is important to note that Merck is involved in 99% -- yes, 99% of chips that are produced worldwide. We supply materials and chemical solutions for many of the critical steps in chip manufacturing process. In our exhibits today, you can see 3 different types of transistors that are essential for chip production. To give you an idea of a scale, the Apple M1 Max chip contains approximately 57 billion transistors, all packed into an area about the size of the chip of an index finger. The technologies and services that we offer to the semiconductor industry are one of Merck's key growth drivers. Let me now give you an example of how Merck delivers on future technologies because as a science and technology company, we drive innovation by bringing technologies together. A great example is our partnership with imec on organ-on-a-chip technology, which combines our expertise in biology with advanced semiconductor chips to simulate human organ functions using living cells. This allows scientists to test medications safely and effectively without using animals. Making also drug development faster and even more reliable. You can see this technology once again among our exhibits today. All these achievements demonstrate what I said at the beginning, and this is our strategy to drive growth through innovation is working. Our diversified businesses and regions is giving us significant resilience and strength. Our in-region for-region approach provides global flexibility while meeting local needs. And we are well positioned in major growth areas also for the future, and those are semiconductors, rare diseases and advanced therapies. Today, Merck stands strong with a clear focus on 3 growth drivers: Process Solutions in Life Science, rare diseases in health care and semiconductor solutions in Electronics. And this is once again a strong platform for future growth. Now let's move on to the financial performance of 2025 that Helene will further detail. We have delivered on our guidance spot on despite a tough 2025 that was marked by significant geopolitical challenges in major markets and importantly, very strong currency headwinds. Net sales were around stable at EUR 21.1 billion. And throughout the year, strong negative foreign exchange effects weighed on net sales and EBITDA pre. These effects largely resulted from the exchange rate development of several ASEAN currencies as well as the U.S. dollar. Overall, the group EBITDA pre was EUR 6.1 billion, up by 5.6% organically. Now let's look briefly at some of the highlights from Q4 of 2025. In Q4 2025, our group organic sales came in at a solid 2.6% growth. We delivered profitable growth, once again supported by all the 3 sectors with group EBITDA pre up 3.1% organically. In Life Science, a strong order intake momentum in Process Solutions fueled the growth in the business sector. The organic sales growth in healthcare was driven by strong growth in our CM&E franchise alongside contributions from Mavenclad and from Fertility. Both Mavenclad and Pergoveris achieved double-digit growth. Although Electronics reported a decline in organic sales due to headwinds from our DS&S business, our semiconductor material business achieved its strongest quarter of the year in Q4. It continued to benefit from strength in artificial intelligence and the advanced nodes markets. Based on this result, we will propose a stable dividend of EUR 2.2 during our general meeting -- Annual General Meeting in April 24. And now let's take a closer look at the numbers for the full year 2025, and it's my pleasure to hand over to Helene, who will walk you through our 2025 financial performance. Helene, welcome on the stage. Helene von Roeder: Thank you very much. And a warm welcome also from my side. So if you look at our net sales in '25, they came in around stable. And our organic sales growth was really dampened by foreign exchange effects of around 4%. Foreign exchange had a significant negative effect across all sectors, mainly driven by the U.S. dollar as well as Asian currency. Our Life Science business, if you look at it, grew organically driven by sustained demand from our Process Solutions customer that drove order momentum. Healthcare delivered solid organic performance despite market pressures. And Electronics recovered towards the end of the year, thanks to AI-driven demand in our semiconductor solutions, although full year organic sales were slightly down. EBITDA pre was EUR 6.1 billion, which actually corresponded to a margin of 28.9% of net sales. And with that, let's take a look at our business sectors, and I'm starting with Life Science. Life Science has returned to growth, delivering organic sales growth of 4%. And as mentioned earlier, this growth was driven primarily by double-digit organic growth of our Process Solutions business that saw the market normalize and move beyond the destocking phase finally this year. EBITDA pre rose 3.9% on an organic basis but due to foreign exchange effects, EBITDA pre remained around stable at EUR 2.6 billion. Now despite the challenging environment, the EBITDA pre margin remained stable at 28.8%. What we have seen is slightly higher R&D expenses as well as ramp-up costs for recent site expansions, which reflect our increased investment in innovation. And this investment is absolutely crucial as it serves as a key driver for our future growth and differentiation in the market. Moving on to Healthcare. Net sales in this sector climbed 3.7% organically. Foreign exchange effects, however, had a negative impact of 4.1%. Growth was primarily driven by our CM&E franchise, which grew a stellar 7% as well as strong contributions from our multiple sclerosis treatment, Mavenclad and Fertility treatment Pergoveris. And as Belen just mentioned, we announced an agreement with the White House in October to enhance access to approved IVF treatment from EMD Serono. Our complete fertility portfolio has been available since beginning of February 2026 on trumprx.gov and the new fertility instant savings website. And of course, in the U.S., we are working towards approval of Pergoveris, a fertility medication already available in 75 countries. All in all, EBITDA pre came in at EUR 3 billion for the business, which is up more than 11% organically. Once again, foreign exchange effects partially offset the strong organic growth. And with that, let's look at the Electronics sector. Now Electronics experienced the slight organic decline of 0.6%, which was mainly driven by our DS&S business caused by prolonged delays to large customer projects. Merck expects DS&S to stabilize in '26 and to return to growth in the medium term. But despite this temporary headwind, our semiconductor materials business remained the main growth driver for Electronics. It delivered strong high single-digit organic sales growth for the year, thanks to increased demand for high-value materials that enable AI chip systems and advanced nodes. Advanced nodes refer to the latest semiconductor manufacturing processes, allowing for smaller feature sizes and the development of the most powerful chips. EBITDA pre was 9% lower, mainly due to onetime adjustments we reported in the second quarter of '25, as you may remember. And with that, let's take a look at our guidance for '26. Before I share the '26 guidance, note that there's 3 key assumptions underlying this guidance. First, regarding portfolio changes, our forecast reflects the SpringWorks acquisitions as well as the Surface Solutions divestment. And both of those will show portfolio effects in the first half. They will contribute to organic performance in the second half. Second, product scope. This guidance assumes no sales in the U.S. of Mavenclad from March '26 onwards amid generic competition. What it also excludes is the positive effects from a potential U.S. launch of Pergoveris. And third, my favorite topic, currencies. We expect a more volatile foreign exchange environment again in '26. And we assume negative FX effects to continue. Of course, the main drivers are U.S. dollar developments, but we also observe various Asian and emerging market currencies extremely volatile. And with the evolution of currencies, please bear in mind that we expect for Q1 a disproportionate headwind coming from currencies relative to our full year FX guidance. Now with these 3 underlying assumptions in mind, we are expecting group net sales of between EUR 20 billion and EUR 21.1 billion, which is based on an organic sales development of minus 1% to 2%. Group EBITDA pre of between EUR 5.5 billion and EUR 6 billion. And with that, let me walk you through the sector breakdown for '26. Starting with Life Science, our largest business, we confirm mid-single-digit organic sales growth. And that is very much in line with our projections from our Capital Markets Day, which was held in last October. We include in our assumption the continuation of the strong performance in our Process Solutions business. And across Advanced and Discovery Solutions, we anticipate gradual improvements in biotech funding and academic research stabilization in -- as well as an evolving market environment in China. With that, moving on to Healthcare. There, a challenging year is ahead of us amid life cycle challenges for key brands, and that is in particularly Mavenclad. On the other hand, we expect growth in the remainder of the portfolio, including CM&E, Fertility and above all, the rare diseases, which will become, as already said earlier, organic in the second half of '26. For Electronics, we anticipate continued strong growth in our semiconductor materials business, while our DS&S business stabilizes going forward. And with that, I would like to hand it back for Belen for closing remarks before we take your questions. Belén Garijo López: Thank you, Helene. So let me first summarize our results and highlights on what 2025 has truly shown us. In the face of a multitude of challenges, we have delivered on our guidance. We also demonstrated our strength of our diversified strategy across businesses and regions, and we believe we are sitting a strong platform and in the right growth areas, semiconductors, artificial intelligence, rare diseases, advanced therapies, which, as I have said before, are a strong platform for growth -- for future growth. And this was not by any chance. It was the result of a strategy built to endure and to build a resilient team that consistently delivers. As many of you mentioned to me at the beginning of the meeting, today is my last conference -- press conference with Merck. When I joined Merck in 2011, the company had just begun an unprecedented period of transformation. You may remember those days, I do. Alongside major acquisitions like Sigma-Aldrich and Versum, I took on the task of transforming our Healthcare business for a new era of patient care. When I became CEO in 2021, none of us could have imagined the volatile world we would have to navigate together. A global pandemic, remember, I call myself a COVID CEO, the artificial intelligence revolution and the geopolitical fragmentation reshaping entire industries. Through it all, Merck just not only survived, but I believe we also thrived. We shifted from growth driven by acquisitions to disciplined capital-efficient growth. And today, our earnings are rising faster than our sales. Our leverage is failing and our -- every euro is working harder. The numbers tell the story. We invested over EUR 7 billion in more than 30 new and expanded sites worldwide. We deployed over EUR 4 billion in strategic acquisition and divestments, and we didn't just weather the storm, we emerged stronger. I am absolutely confident that Merck will continue this successful trajectory under Kai's leadership. And why? Because Merck is very well prepared and have very solid foundation for the next growth cycle. We have proven we can execute with discipline. We bridge the physical and the digital world. We turn science into solutions that matter for patients and customers. And we know that the future belongs to those companies that can navigate complexity and deliver results. And this is exactly what our company does and will continue to do. And I want to use this opportunity as well to say a heartfelt thank you to our teams around the world and of course, to the executive team that has been working with me in recent years. And to you, thank you for covering our story. Thank you for holding us accountable, and thank you for your trust. Overall, thank you for this journey. And with this, Helene and I are ready for your questions. Over to you, Axel. Axel Lober: Thank you, Belen. So we are now transitioning into our Q&A sessions. [Operator Instructions] So we have now 3 chair, I suggest we use them, so Helene, if you would like to join us on stage again for the Q&A session. And I see already -- and I knew it, one hand up from Sonja Wind from Bloomberg. Sonja Wind: I would be curious what you think about some analyst comments who said that Merck gave a deliberately conservative guidance because of the early Mavenclad like that it's not included from March on and also Pergoveris that it's not included in the guidance. Do you agree with that assessment? Is there more upside for earning upgrades if all goes well? And my second question would be on the deal with Trump on the drugs. Can you give a bit more color on how much -- like what is the size of that financial impact on the earnings? How much does it matter because it's only a certain patient group? Belén Garijo López: The agreement -- Sonja, the agreement with the U.S. administration, you mean? What is the impact? So I will take this. Perhaps you want to start with the guidance. Helene von Roeder: I do that. So overall, I mean, what do we guide? We guide the things that we have under our control and that we can actually see and predict properly. And in both of the things, it's like both Pergoveris, we are in discussions, we are talking, but it's unclear exactly how that will shape. I'm sure Belen will say that in a second. Mavenclad, the problem is we don't know how many generics will come when and at what point in time. And as a result, this is a guidance which reflects our current knowledge at this point in time as it should really. Belén Garijo López: So for the agreement of the U.S. administration, we have signed 2 agreements, and we believe that this is a real win-win-win. It's a win first for the patients who are going to have access to IVF at affordable prices. It's a win for the administration because with our agreement, they have been able to also start this novel approach through the -- from Rx to sell directly to patients. And it's a win for the company because we were already offering our treatments through different channels. And financially, there is not a huge impact to -- under the agreement. The second agreement is the one that is going to make us exempt of tariffs for pharmaceuticals during 3 years. So with this, you can imagine that we are extremely satisfied with the agreement, and we are actually hoping that as part of this agreement, we will also get the approval for Pergoveris in the U.S. at some point in time in 2026. Axel Lober: And the next question comes also here from the room from Patricia Weiss from Reuters. Patricia Weiss: Some questions around Mavenclad. The strong effect comes something of a surprise even though the patent loss was known. Why no sales at all in the U.S. instead of fewer? And how much of the EUR 1.2 billion in last year was in North America? And what is the higher burden this year ForEx or Mavenclad? And it's your main product in healthcare. So what does that mean for the division? And which successor candidates are ready to fill this gap? Helene von Roeder: So maybe I'll start with the Mavenclad question and then move -- Belen will take the successor candidates, et cetera. So yes, roughly 50% of the sales in Mavenclad were U.S. with 50% roughly in Europe. At this point in time, when we look at the U.S., we have a number of generics lining up. We -- they could be starting to sell tomorrow. And as a result, this is how we look at our guidance to basically say we don't exactly know when the sales are going to start and how it's going to impact our sales. I think when you look at the guidance, this is basically how we see the world going forward. So I don't think I need to add anything around that. And maybe, Belen, you want to do the successor products. Belén Garijo López: Well, I mentioned already the acquisition of SpringWorks has given us a new growth pillar. SpringWorks will contribute to organic growth, as Helene mentioned, as of the second half of 2026. But if you take the portfolio impact of the SpringWorks acquisition, it's already pretty nice and it's contributing 5% of portfolio growth already. So we are confident that SpringWorks will bring healthcare to the midterm guidance that we have communicated before progressively with 2026 being a year of transition in relation to the Mavenclad loss of exclusivity in the U.S. Axel Lober: Thank you. Patricia, does it answer all your questions? Perfect. So we don't have a question online yet. And here from the room, I see a question over there. Shan Weiyi: I'm Shan Weiyi from XInhua News Agency. And I would like to ask a question about the global investment. And due to the current rising geopolitical tensions, and you have already mentioned about the agreements with the U.S. administration, I would like to ask about whether you are considering a change in any other investments or strategic focus in different -- in any other markets like Europe or China? Belén Garijo López: Absolutely. I mean we have mentioned several times our significant investment in our region-for-region approach. And this includes all the major regions. Keep in mind that our main source of revenue already for the group is coming from Asia Pacific. And of course, this is a very important growth avenue for Merck. And we will continue to operate in this geopolitical context very much as a global company, but with a region-for-region approach. Axel Lober: Thank you. And we have a question from an online participant. So we have [indiscernible] from Handelsblatt. Unknown Attendee: Just a quick one. I'm a bit confused about the issue of U.S. tariffs. Did Merck pay tariffs on imports into the U.S. in 2025? And if so, will you demand a refund and take legal action to get it? Belén Garijo López: We are not thinking about refunds. So I mean, the situation of tariffs in the U.S., as you may know, has recently changed with the Supreme Court decision. But this is not changing or having an impact on the agreement that we have signed with the U.S. administration that I mentioned already. For 2025, you want to comment? Helene von Roeder: Yes, so as you know, pharma tariffs under the Annex II were exempt. So we didn't pay any tariffs in the pharma area. However, there were products in the Life Science area, which were not exempt. So we did pay tariffs in '25 and also small imports that we've seen in electronics, which were subject to tariffs. As Belen just said, I'm not sure how the refund regime will be on the back of the Supreme Court. So definitely nothing to be put in any guidance short term. And then let's see how exactly the world pans out now post the recent announcements, Supreme Court, et cetera. That one at the moment, it's pretty unclear how this will be. Belén Garijo López: But our agreement is basically out of this Supreme Court decision. So it holds. Axel Lober: So I'm looking into the room. Do we have further questions here from the live audience in Darmstadt. And [indiscernible]. Unknown Analyst: Just to bridge the time gap. Just a personal question for you. Belen Garijo, looking back, what's the most important task that you achieved here at Merck? And what would you have liked to see unfold, but now you like the time because you're leaving? Belén Garijo López: I think I have been privileged to work with this company for 15 years. I still remember my times in healthcare, and we need to remember that, as I mentioned, when I came in 2011, we -- we're starting an unprecedented transformation and the turnaround of healthcare. In 2017, we launched 3 products to the market, Mavenclad, Bavencio and Tepmetko. If you look at how will we refocus on pharma to be able to diversify the company, I feel very proud that, that transition that I supported that transition actively from healthcare to find this globally diversified business that I fight in 2021. I feel particularly proud of everything that we have done on culture, talent and people. And of course, the financial performance that we have delivered is stellar because if you look at the period between 2020 and 2025, our business -- revenues grew by 20%. Our earnings grew faster, and our debt has been going down. So of course, there are many other things that we could have done. But if you look at the overall picture, I feel extremely proud of what we have achieved together in the last 15 and even 5 years. Helene von Roeder: And because Belen is very humble. I mean, you're looking at a CEO who has steered the company through unprecedented volatility in a very safe way. And actually, if you look at how we're set up now for the future, especially on the back of our local-for-local strategy, immunizing us from all of these geopolitical changes, that is like a real feat. And I think we're all here at Merck super grateful for everything that Belen has done. Belén Garijo López: Thank you, Helene. Axel Lober: And we have a follow-up question, Sonja from Bloomberg. Sonja Wind: Yes. My question is about the strategic review in the CDMO business. How is that progressing? And what is your plan there? Belén Garijo López: Go ahead. Is future looking -- so I mean, we have looking at -- let me say that we are looking at all the options, and we will communicate once a decision is made. But clearly, this is what we can say today. I don't know if you want to... Helene von Roeder: No, I think it's ongoing. I mean we've announced clearly that we're looking at this. Yes, you'll get news if they're ready to be announced. Axel Lober: And [ Tania ] [indiscernible]. Unknown Analyst: Just one task, it didn't succeed. It was a deal for the Life Science business. Is this a task for your successor, Mr. Beckmann now? Or do you step away from this? Belén Garijo López: I mean you have to have -- you will hear from Kai what is the agenda. I'm confident that the focus on Life Science will stay because, I mean, Life Science is our most important business. So -- but I would really wait to hear directly from Kai because he is the one that will be in charge as of May 2026. Axel Lober: Thank you. Do we have further questions here in the room? Looking left and right. There's a bit of an overweight from questions from that side. If not, also online, we don't have any questions, maybe last call. We have a question from Focus Money from [indiscernible]. Unknown Analyst: I have one question concerning healthcare. So the last few weeks, we have seen very conflicting messages from the FDA, to say the least, especially concerning rare diseases. So first question, how have Merck's interactions with the FDA been through the last month -- months? And second question is more broadly, what does it mean for the healthcare business if somehow goalposts are moving and there are new regulations concerning how a study has to be done or how many studies have to be done? Belén Garijo López: We are very close to the regulatory agencies, not only to the FDA and particularly to the FDA because, of course, as part of that agreement that I mentioned before, we are having discussions on the Fertility franchise and another products. Overall, I see some of the news coming from the FDA as positive, if at the end, confirm that they will be a bit more open to grant approval with less studies or with a lower -- I don't think they will lower the bar anyway for the evaluation of risk benefit of any new drug. But in particular, just to be brief on our orphan drugs, we are confident that this is the environment in which we can expect not only support from the regulatory agencies, but also encouragement to continue to invest and investigate new solutions for patients given that orphan drugs and rare diseases are huge unmet medical needs. Axel Lober: Looking into the room, and we have a question from [ Ralf ] from Darmstadter Echo. Unknown Analyst: First question is the personal question to Belen Garijo. Have you been surprised becoming the next CEO of Sanofi? Then I would like to know your plans for the headquarters in Darmstadt. I think your last big investment program is over or will be over in the next time. I'm not sure what will be next in Darmstadt. And I would like to know your plans for the employees in Germany and in Darmstadt? Belén Garijo López: Look, we are highly committed to Darmstadt. We have been investing in the last decade, a significant amount of EUR 1 billion. Here, this is our hard quarter. We repeat and repeat that because this is very important to us. So we have given good signals of this and our plan for Darmstadt, you will have to further discuss for future years with my successor. I don't know if he want to comment, but is to continue to make sure that becoming a global company, we operate our company from our headquarter. As for my personal question, I always said I keep all my options open. And that's the only thing I can continue to repeat. Helene von Roeder: And maybe I take a little bit on the Darmstadt. I mean we continue to invest. You see the number of construction cranes if you walk around the site. And we're laser-focused on bringing more business into Darmstadt. And now I will do something slightly mean because we also need German politicians and German politics to finally deliver on the simplification agenda. It is very clear that we are frequently faced with the discussion around can we put things here into Germany, which we really want. Belen said, a headquarter. But then if you actually look at the delays around getting permissions at the entire red tape that we have in Germany, it is not helpful. So if you could maybe include a big plea from our side, please deliver on the simplification, that would be great. Axel Lober: Thank you. Looking online, we don't have a question online into the room, further follow-up questions here from the audience. Maybe one last check. See a lot of smiles, but no raised hands, also not online. So I would say this concludes our press conference this year. A big thank you to all of you joining us here in Darmstadt today. Also a big thank you to everyone online for joining us virtually. I'm looking forward to seeing all of you during our Annual General Meeting on April 24, live and in color from Frankfurt from Jahrhunderthalle and of course, to our Q1 webcast on May 13, online as always. So please take care. See you soon and all the best. Thank you. Belén Garijo López: Thank you.
Operator: Good morning, ladies and gentlemen, and welcome to the Ferrellgas Partners, L.P. Q2 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Michelle Maggi, Vice President, Corporate Affairs. Please go ahead, Michelle. Michelle Maggi: Thank you, Jonathan. Good day, everyone. Thank you for joining us today for our second quarter 2026 earnings conference call. We released this morning pre-market our earnings. If you haven't seen it yet, you can find it on our website under the Investor Relations tab at ferrellgas.com. With me today is Tamria Zertuche, our President and Chief Executive Officer, and Nick Heimer, Ferrellgas' Vice President and Corporate Controller. Today's call includes prepared remarks where Tamria and Nick will go over our second quarter results for fiscal 2026, concluding with responses to previously submitted questions. Please note that this call may contain forward-looking statements as determined by federal securities laws. For this purpose, any statements made during this call that are not statements of historical facts may be deemed forward-looking statements. These statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission and in our latest earnings release. As a result, actual operations or results may differ materially from the results discussed in any forward-looking statements. We undertake no obligation to publicly update any forward-looking statements except to the extent required by law. In addition, please refer to the Form 8-K earnings release to find disclosures and reconciliations of non-GAAP financial measures that may be referenced on today's call. This morning's conference call is being webcast and is also available for replay via our website. With that, I will turn the call over to Tamria. Tamria Zertuche: Thank you, Michelle. Thank you to you and Nick for representing Ferrellgas at the J.P. Morgan Global Leveraged Finance Conference this week in Miami. We appreciate you. Thank you to all for joining our call today. Let me begin with a discussion of our capital structure. Yesterday, after market, we announced that the board of directors declared a cash distribution to the Class B Units of $82.32 per Class B Unit, or approximately $107 million in aggregate. The distribution is payable on or about March 13, 2026. Upon the payment of this distribution, we will have achieved the Class B Conversion Threshold, which allows us to elect to convert the Class B Units into Class A Units. The board of directors also approved the conversion of all 1.3 million outstanding Class B Units into Class A Units. So we will convert the Class B unit into Class A Units on a 5 to 1 ratio after making the distribution. Our consistent and positive cash flow performance has put us in this position to take this meaningful step in strengthening our capital structure. We are fortunate to have strong strategic partners as key stakeholders in our capital structure, such as [ PGIM and Ares ]. They have supported the company since our restructuring, and they continue to support us as we work to simplify and improve our capital structure. We also appreciate our bank group, including our administrative agent, J.P. Morgan. We are excited for the future of Ferrellgas and the opportunities that this step allows for us. Growth is always on our mind. This step, it truly unlocks our ability to focus on even more growth initiatives. We are excited about our future. But shifting for a second back to our second quarter performance, we are very pleased with the results. We continue to demonstrate disciplined execution, executing on our initiatives to grow our customer base strategically, maintain margin performance, and stay relentlessly focused on efficiency. These efforts translate into consistent profitability. Seasonality is part of this industry. We're prepared regardless of how winter unfolds early, late. As I've said before, propane is an essential energy source that our customers rely on, not only to heat their homes, but to power their businesses. Our strong customer mix helps offset weather inconsistencies. Additionally, the winter readiness that I spoke about last quarter, it really proved to be key to our success this quarter. Winter weather did arrive later than usual this quarter, following unseasonably warm conditions in November and December, especially across the western half of the country. In those warmer areas, we really leaned into tank sets and growth initiatives. Winter Storm Fern brought significant snow and ice, and our drivers encountered downed trees and unplowed roads that made travel unsafe at times. But through it all, we performed and delivered a great quarter. While talking about our core capabilities, I speak to our national footprint. Our national footprint allowed us to reposition drivers and equipment from the west to the east to meet elevated demand effectively. That flexibility, it's a differentiator, and it really shows our ability to scale. The safety of our drivers, our fleet, and the communities we serve, it remains our top priority. We continue to see results from our focus on safety. Our [ OSHA ] recordables improved 10% quarter-over-quarter. What we call slips, trips, and falls are down nearly 4% year-over-year, despite the challenging weather. These gains reflect the investments we continually make in safety. At the same time, our continual progress in telematics and in-cab cameras is driving operational discipline. With improved real-time visibility and stronger integration into Samsara AI, that's the provider of our telematics, we're seeing reductions in safety events, improved driver performance, and measurable gains in fuel efficiency and fleet productivity. You see that in the results this quarter. I will now turn the call over to Nick Heimer, our controller, to review our second quarter financial accomplishments. Nick? Nicholas Heimer: Thanks, Tamria. I'll start by thanking our employee owners for delivering on a great second quarter. In particular, their focus on providing excellent customer service, margin expansion, and improving efficiencies continued to propel us forward. We saw strong performance across both retail and wholesale segments. Turning to the financial results, overall gross profit was up $3 million or about 1% compared to last year. Propane prices at Mont Belvieu were down roughly 22% versus prior year, which led to about a $28 million decline in revenue. Because our product cost came down even more by about $31 million, we more than made up for that revenue pressure. Adjusted EBITDA increased $9.1 million or about 6% to $166.1 million. The preparation work we did last quarter really made a difference. When we were ready, winter demand picked up and that helped drive a $7.1 million improvement in gross profit in our retail business. On the wholesale side, results were softer since we didn't have any of the hurricane-related activity this year to boost volumes. We also improved how we operate day to day. Margin per gallon increased about 6% as we cut down on unproductive deliveries and reduced skipped stops. Those efficiencies translated into roughly a 13% increase in operating income per gallon. At the bottom line, net earnings increased $3.3 million to $102.2 million. That improvement was mainly driven by higher gross profit, it was also supported by tighter cost control. General and administrative expenses were down $4.6 million, largely due to lower personnel and legal costs. Operating lease expense declined by $1.6 million as we refinanced several operating leases into finance leases during the quarter. Overall, it was a quarter where preparation, operational discipline, and cost control all came together nicely, and you see it in our financial results. Winter is not over yet, so we're optimistic about the third quarter. Back to you, Tamria. Tamria Zertuche: Thank you, Nick. Really about the third quarter, I wanna recognize, as you did, our frontline employee owners and the incredible work that they did in February as we approached the close of the heating season. Day in and day out, they navigate winter, snow, ice, rain to make sure that our customers have what they need, all while supporting the communities that they live in, helping families facing food insecurity. Our long-standing partnership with Operation BBQ Relief remains strong as we work together throughout the quarter to provide essential meals. We remain the clear leader in the propane industry for many reasons, and our continued progress on building out our customer base, maintaining margin, and improving efficiencies, as well as taking advantage of our improved capital structure allows us to build on this momentum. The industry has growth opportunities in power generation, autogas, and more. We look forward to leveraging our improved capital structure to take advantage of the growth opportunities in this industry. That is the end of our prepared remarks. Tamria Zertuche: We will now go through some previously submitted questions. Nick, if you don't mind, since you took hundreds of them on Monday and Tuesday at the conference, I'll go ahead and go. We categorized them into five areas. The first was there were questions around the Eddystone litigation and whether it was finalized. I wanna make sure it's clear for everyone, yes, we made the final payment in January. The matter is closed. We are not incurring legal costs any longer. There is no outstanding litigation related to the Bridger transactions. The next set of questions was around the hiring of a new CFO. It is a priority. As we previously stated, we continue our search. We are looking for the right fit and taking our time to find that person. Andy Safran continues to be our advisor, helping us to navigate our capital structure and advising us through our efforts to improve our investor relations program as well. There was a series of questions that we could really categorize as headwinds maybe around the third quarter due to geopolitical items. Obviously, we are watching the conflict in Iran carefully to see what effect these actions might have on our costs. You know, due to the positions that we took in the first and the second quarter to secure favorable pricing, we are optimistic that we will be able to mitigate any potential unfavorable impact. We are also continuing to watch the most recent developments in tariffs. As you can imagine, we received many questions around what's next now that we have announced a conversion of the B Units. Kind of several questions relating into that. Going to just answer that as all those questions at a, at a macro level here. This conversion reduces our cost of capital to match the realities of our business performance today. With this conversion, we strengthen our ability to grow, and we look for ways to expand on our leading capabilities, which I've spoke to today and are the catalyst to not only the results this quarter, but beyond. We are consistently looking for ways to grow our business and take advantage of the necessary and essential industry that we are leaders in. Power generation for businesses such as data centers, as well as our expanding autogas business, which is school buses, it's strategic for us. We believe we are experts at acquisitions, and we have a long history of solid acquisitions with really strong returns. We look to continue our focus on simplifying and improving our capital structure. There was a question around what do we think about the range of capital expenditures from here on out? I think really what the question was asking is, what's going to happen with cash? Let me give you a little bit of a history there. We generate a healthy amount of cash each year. We've been able to continue to invest in the company, maintain our debt, and address key pieces of our capital structure. Over the past four and a half years, the company has paid out $250 million to Class B Units, soon to be $357 million. The company has paid $125 million to Eddystone. That alone is almost a $0.5 billion of cash over the last four and a half years the company has generated. We also remained current with maintenance on our debt, our senior preferred units, our high-yield bonds, and the company also has invested in operations between $70 million and $90 million of CapEx per year. When you think about that, we have been consistent, and we evaluate the needs of the company, and we balance those against our desire to acquire, to maintain our debt, and to tackle key pieces of our capital structure. We appreciate everyone attending the call today. Your support of Ferrellgas now and in the future is more important than ever. We really want to maintain your interest in Ferrellgas, and so our investor relations program will continue on its outreach. For now, I will turn it back over to the operator. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Jean-Mari Pretorius: Good afternoon, everyone, and welcome to Acomo's Investor Call for the 2025 Full Year Results. Thank you for joining us today. We appreciate your continued interest in Acomo. My name is Jean-Mari Pretorius, and I will be hosting today's call. Joining me is our Acomo Group CEO, Allard Goldschmeding; and CFO, Mirjam van Thiel. During this call, we will walk you through the highlights of our performance for the period, discuss developments across our business segments and provide further context around market conditions and our strategic priorities. The Q&A will take place at the end of the presentation where we will open the floor for questions. [Operator Instructions] Before we begin, I would like to remind everyone that today's discussion may include forward-looking statements. These statements are based on our current expectations and are subject to risks and uncertainties that could cause actual results to differ. Please refer to the disclaimer included in our press release for further details. We will now continue with the 2025 full year results. Firstly, I would like to hand over to our Acomo Group CEO, Allard Goldschmeding. Allard Goldschmeding: Good afternoon, everyone, and thank you for joining us on today's call. In a world that continues to present both challenges and opportunities, today's call will focus on Acomo's strong performance in 2025 and the path forward. While the broader outlook for the global economy, sea freight rates and product availability in 2026 remains uncertain, navigating complexity is not new to our business. Last year, we successfully managed a range of external factors, including tariffs and significant cocoa price volatility. Our resilient business model, combined with the expertise and commitment of our people, has once again enabled Acomo to adapt effectively and deliver solid results. Today's agenda will cover several topics. I will start with the key highlights that characterized our 2025 performance. I will also discuss how our results compare against our midterm strategy and objectives, which we shared during our Capital Markets Day last April. And I will discuss a few examples of the initiatives we took during 2025. Mirjam will then cover in more detail the financial performance of the group and of the individual segments. At the end of the presentation, I will finish with a look ahead to 2026 before we take your questions. 2025 was another record year for Acomo in terms of sales, profitability and earnings per share. We are very happy with this overall performance, and this reflects the drive to perform of our people. Our teams bring unique capabilities that are highly relevant to our suppliers and our customers and enable us to support them effectively. Excellent results in 3 out of 5 segments are proof of the ability and expertise of the Acomo teams in managing volatile market environments and the strong attributes of our business model that offers resilience through diversification. By a volatile environment, I mean mostly in terms of price developments, geopolitical developments and changing regulations. In the Spices & Nuts segment, all our companies delivered record high results. The continued impressive performance and the attractive long-term market outlook make our Spices & Nuts segment a natural area of focus. We have expertise and we have scale, which provides a strong foundation for further expansion. The Organic Ingredients segment showed a very healthy recovery from the negative impact of cocoa hedging in previous years. This recovery started in the second half of 2024 and continued in 2025. The Tradin Organic team was able to manage the price volatility and delivered strong results this year. Besides cocoa, the business also posted positive results for other product groups, reinforcing our confidence in the segment's portfolio. We also made substantial progress in improved alignment of the organizational structure as well as our portfolio investment decisions. Food Solutions also delivered a record year in 2025. Demand for both dry and wet blends remained robust throughout the year, driven by sustained consumer interest in plant-based, clean label and culinary solutions. The business was further supported by the commissioning of the new wet blend facility in Oostende in 2025, which became operational before the summer. The new facility provides a significant increase in capacity and flexibility with the opportunity to triple the output. The year was, however, not without its challenges. In particular, our Edible Seeds segment experienced a difficult year, driven by a mix of challenging market conditions and operational issues. Let me provide a brief overview as Mirjam will address this in greater detail later in this presentation. The challenges that materialized in the first half year and which we spoke about in our H1 call continued into the second half. Tariff uncertainty in the North American market continued and made pricing decisions complicated. Alongside higher input costs, this placed pressure on margins. Next to that, the impact of restrictions on U.S. grown sunflower seeds to export markets continued to have an impact in 2025 as the measures to compensate with new growth avenues do take time. On top of these market effects, our SunButter plant was affected by production issues, which caused a temporary stop in production in the fourth quarter. Production resumed towards the end of January 2026. The result is a more negative overall picture than is warranted based on the fundamentals of the segment, which remains solid. To address this, we have made the necessary strategic and organizational changes in North America, and the business is expected to largely trend back towards normal performance levels. The Edible Seeds business delivered a resilient performance despite market price pressure on key seed categories. The Tea segment faced continuous pressure on sales volumes throughout the year, reflecting ongoing destocking by customers, oversupply and more fragmented buyer landscape. The implementation in 2026 of the new organizational and commercial model that I will explain later in this presentation is designed to respond more flexibly and effectively to changing market circumstances. As discussed during our Capital Markets Day, M&A is a tactical growth lever. We are, therefore, pleased to welcome Manuzzi to the group as of November. This Italian company represents the first foothold of our Spices & Nuts segment in the Mediterranean region, giving us access to an attractive market in terms of consumption patterns. I also want to call out that despite the relatively high level of working capital, our balance sheet remains strong. The characteristics of our business result from time to time in elevated levels of working capital. The unprecedented high prices of cocoa have resulted in higher inventory values. The strength of Acomo is that with our diversified portfolio, we can deal with higher market prices for individual product groups and can continue to make a sensible commercial calls. The 2025 performance resulted in a proposed full year dividend of EUR 1.40 per share, which is another record and an increase of plus 12% versus 2024. At the Capital Markets Day last April, we communicated our midterm targets in the areas of sales, EBITDA margin, balance sheet leverage and dividend distribution. With a total 2025 group sales increase of plus 7% to EUR 1.5 billion and an adjusted EBITDA increase of plus 9% to EUR 180 million, we are on track with these targets. Our current leverage ratio is impacted, as I mentioned, by the higher working capital consumption linked to the increased inventory values due to the high prices for a number of our products, in particular, cocoa. However, based on our current knowledge, we would expect the leverage to go down during 2026. As stated, the full year dividend is an increase of plus 12% versus 2024 and is consistent with our communicated payout ratio policy. The split of the results between the first half year of 2025 and the second half shows that the first half year was relatively strong. Historically, the performance was more or less evenly distributed between the first half and the second half. Since 2023, this has changed, mainly due to the enormous change in cocoa prices that had a material impact. Therefore, the half-year performance in those years was not a reliable indicator for the full year. For 2026, we expect price levels changes to be less extreme, which would result in an EBITDA distribution between H1 and H2 that is closer to historical patterns. The vision we discussed during our Capital Markets Day remains relevant and up to date. And the 2025 results underpin the trajectory towards the ambitions we outlined. Our value creation shows our focus areas and the way in which we address the market dynamics. We continue to execute along the lines presented, and let me highlight some examples, which demonstrate this more clearly. One of the elements of the 3 is scale. We strongly believe that scale is prerequisite to being effective and efficient in our industry and to create long-term value. In Q4 2025, we acquired Manuzzi, a leading Italian nuts and dried fruits company. Through this acquisition, we are expanding the Spices & Nuts segment footprint in Southern Europe. The culture of this family business is a good fit with our Acomo entrepreneurial spirit and through cooperation with the Delinuts in the Netherlands and the Nordics, we will create synergies. These synergies will be focused on growing the top line. By using the available Acomo capabilities and the broad product portfolio we have, Manuzzi will be able to expand its offerings. The company also has its own state-of-the-art facilities, including modern packaging lines with sufficient room for further growth. As part of creating resilient and responsible supply chains, Tradin Organic joined the Nature Positive initiative. These initiatives gather some of the world's largest sustainable business and finance coalitions to broader -- to support broader long-term efforts to deliver nature-positive outcomes. It supports farmers in adopting regenerative and resilient practices, which is aligned with a number of initiatives that Tradin Organic had already begun. The outcome is improved soil health and restored biodiversity, consistent with product quality and supply. Then to increase the benefit from its global reach and have a closer connection with customers, Royal Van Rees Group is transitioning to a centralized business model that consolidates the commercial, trading and strategic functions within a central hub. This enhances customer intimacy and focus and offers our customers improved multi-origin solutions. Our customers will have a single point of contact that covers multiple origins and our local offices will enable efficient physical execution. The new setup will phase in during 2026. Lastly, our value creation 3 is rooted in ESG, and I'm happy to report that for the second year in a row, we obtained limited assurance from our external auditors on the sustainability statement in our annual report. We achieved a substantial reduction in our Scope 1 and 2 CO2 emissions as a result of our efforts to increase the use of renewable energy sources. Other initiatives are an SBTi project at Delinuts and the installation of a lightweight solar panel construction at King Nuts & Raaphorst on the roof that could not carry the usual solar panel construction. Tradin Organic continues their dynamic agroforestry product in Sierra Leone and the farmer livelihood product in Indonesia next to the nature positive initiative that I mentioned. With that, I would like to hand to Mirjam van Thiel to take us through the detailed financial performance. Mirjam Thiel: Thank you, Allard. Let's start with the overall P&L of the Acomo Group. As mentioned by Allard, we achieved record growth this year with an increase in sales of 7.4%. On constant currency, the increase is actually much higher, close to 10% as we had some FX headwinds, in particular, stemming from the U.S. dollar to the euro. Now from a cost management perspective, you will see that our COGS increased at a lower pace in proportion to sales, which in turn led to an expansion of our gross profit margin by 1.8 percentage points. Looking at our G&A expenses, we see an increase of 5.8%, which reflects inflation and some additional costs due to M&A projects and investment in people. This resulted in an increase in our operating income of 43.5%. Looking below the operating income, we benefited from lower financing costs because of lower interest rates. And this, together with the higher operating income, led to an even more significant year-on-year improvement of our net profit by 64% to EUR 74 million. Let's then move over to the key KPIs on an adjusted basis. Adjusted EBITDA grew by 8.7% to EUR 118.2 million. The difference between reported and adjusted is mainly due to the impact of unrealized results on FX and sales hedges and exceptional items related to our Edible Seeds business in the U.S. On the next slide, I will share some further detail on this. You see that there is an increase in the EBITDA margin from 8.0% to 8.1%. As communicated at the CMD, we want to move towards 9%. Excluding some of the exceptional items we had this year, we would have progressed further towards that goal. So overall, we are on track with our ambition. Adjusted earnings per share improved by 8.8% to EUR 2.18, which is a record performance for the company. On the right, for added context, you will see the contribution share for each of the segments in which we are active, and I will discuss those in detail shortly. Moving to Slide 14, where you see the bridge between the reported and adjusted EBITDA. As mentioned just now, the main difference is due to the unrealized noncash results on our CX and FX hedges. That includes the revaluation of outstanding hedges to the market value at the date of reporting. The main impact here comes from the outstanding hedge contracts on cocoa. Last year, due to an increase in the cocoa market price towards the end of the year, the reported results included a negative impact due to the revaluation of outstanding hedges. This year, we saw the opposite. Cocoa prices declined towards the end of the year, which increased the value of the outstanding hedge contracts. We exclude this from the reported numbers. Once we settle the hedge contracts, we book the realized results, which normally we time together with the physical sales. The other impacts specifically related to 2025 are the exceptional items in Edible Seeds. These exceptional items relate to organizational restructuring and the cost related to a production issue in one of our facilities. This relates to the Edible Seeds business in the U.S., which I will cover in a minute. We thought for transparency purposes, it will be clear to outline these items as they are clearly nonrecurring by nature. Let me now take a closer look at the performance per segment. Let me start with Spices & Nuts, one of our key segments. This segment has been growing for several years. And in 2025, it delivered an all-time high performance. And what we are even more proud of is that every company in this segment delivered a record performance. Revenue benefited from sustained demand and higher market prices for most products. To share some examples, one of our key products is desiccated coconut, which is grated and dried coconut. In the last 1 to 2 years, we saw a sharp increase in prices. And also in 2025, prices were elevated globally due to reduced coconut supply and strong export demand. And also for some of the key nuts such as cashews and almonds, we saw high prices in 2025. There is sustained demand despite the high prices, and this is reinforced by the overall megatrend of increasing demand for plant-based products. All in all, we continue to expect this trend of increased demand to persist and hence, a relatively high pricing base. At the same time, how this develops year-on-year is to be seen. Also included in this segment are the 2 bolt-on acquisitions we made recently with Delinuts Nordics in August 2024 and Manuzzi in November 2025. Turning to Edible Seeds, where we have faced a series of challenges due to a mix of market conditions and operational issues. Before I go into the challenges, I want to be clear that we strongly believe in the fundamentals of this business. Let me take a step back. Within this segment, we have a sizable business in the U.S. in which we process sunflower seeds and use them to make various products, including well-known retail brands such as SunButter. In the U.S., we are also seeing an increase in demand for cleaner label, plant-based alternatives and allergen-free options. The attributes of sunflower seeds are perfectly aligned to these trends, and we have developed our leadership position in this market. In addition to the U.S. business, we have a smaller seeds business in Europe. But back to 2025. Let me recap the challenges we flagged to you in our H1 investor call and explain more about what we have faced in the second half. First, we spoke about the impact of the restrictions of U.S. grown sunflower seeds to some export markets. As anticipated, it will take time to offset this lost stream with new business. Second, we saw tariff uncertainty continuing, making pricing decisions complicated. That, together with higher input costs, placed pressure on margins. On top of that, our SunButter plant was affected by a production issue causing a temporary stop in production in the fourth quarter. The issue has been resolved and production resumed towards the end of January. Now how we tackle these challenges and what are the prospects for the segment, turn with me to Slide 17. Consequently, you can see the margin decline in this segment. Our top priority is to restore profitability. The corrective actions we have taken include improvements, including full cleaning of all equipment, improved preventive maintenance and equipment modification. We also implemented organizational changes, including the appointment of a new CEO, and we created center of excellence. Also on this slide, you see some more specific actions by each category, including price increases that have been implemented. Included in exceptional items and excluded from the adjusted EBITDA are items that are exceptional by nature, which include the cost for restructuring the organization and extraordinary cost items and under absorption due to the specific production issue. So remaining in the adjusted EBITDA, but to some extent, temporary are missed sales in SunButter due to the Q4 production issue and lower margin due to misalignment between higher input costs and sales prices. On top of that, we are starting to see the impact of the other corrective actions we have taken. So as I say, we fully believe in the strong fundamentals of this business, the power of the sunflower and a diversified business model. This supports our expectation of a recovery to a normalized performance level over the coming years. Then looking at Organic Ingredients. We have achieved an excellent performance across all categories within this segment. We see in general an increase in demand for organic food and beverages in the market. For example, the Organic Trade Association in the U.S. reported that the organic sector was growing at more than double the pace of the overall food market. Specifically on cocoa, as you all know, the market has been very volatile in recent years with big price swings. After the sharp increase in the first half of 2024, the price remained elevated up until the start of the second half of 2025 when it started to reduce and has reduced even further in the first months in 2026. Within that dynamic market, the team has been able to secure supply and continue to offer the best quality and required specifications to our customers, which is a commendable achievement and has allowed us to continue to excel despite the external turbulence. It had an impact on working capital, which I will cover in a minute. There was also some catch-up effect of delayed volumes from 2024, especially in H1, which contributed further to our strong 2025 performance. Besides cocoa, as I mentioned, we also saw a strong performance in the other categories. The fruit and vegetable business continued to show strong momentum with accelerated growth, while nuts and seeds and oils and fats delivered consistent sales growth with improved margins. Coffee achieved record high sales and succeeded in growing volume when prices were elevated. Then moving on to tea. The tea business is operating in a challenging global environment. Some of the larger branded players are losing share. And as a result, we see a more fragmented customer base. Also, global tea supply remains elevated. Despite these challenges, the business demonstrated gross margin resilience. As Allard already explained, we will strengthen the collaboration across the Van Rees Group by implementing a more customer-centric business model that will drive additional value to our customers. For Food Solutions, we saw a record EBITDA performance, driven by strong volume development for the dry and wet plants, resulting from the sustained demand for plant-based, clean label and culinary solutions. Further commercial development was driven by a strong entrepreneurial spirit in R&D, combined with new long-term partnerships with customers. We are especially proud of these results as at the same time, the new wet plants facility became operational. The new facility is set to support scaled up production for the coming years, as mentioned by Allard. Now over to the cash flow development. Looking at the operating cash flow, excluding working capital, we posted a year-on-year increase of 12%, effectively reflecting our profitability improvement. On the bridge, you can see the main drivers from the EUR 120 million in operating cash flow, excluding working capital to the net cash from operations. The largest swing is obviously driven by EUR 164 million working capital consumption during the period, and I'm going to spend a bit more time on this on the next slide. Next to that, we had a reduced outflow from cash interest expenses due to lower interest rates and a slightly lower effective tax rate. Let me now go back to working capital. Here, you can see the development over the last 4 years with the orange line representing the total working capital and the green line, the investment in inventory. You will see that the increase in working capital is driven by higher inventory value. Based on market prices, availability of stock in the market and the positions we take, the inventory value will move up and down. In 2025, the higher inventory value is mainly coming from 2 parts. One, due to shortages in the previous year, we are holding more cocoa inventory at higher prices. And besides, we saw higher market prices within the Spices & Nuts segment. So here, there is an extra outflow due to the prices of the various inventory we hold, but this is something that is fully embedded in our business model. With everything remaining equal, our trade payables and receivables remain broadly unchanged. We expect working capital to go gradually downward in the course of 2026, mainly a reflection of the pricing dynamics of our commodities. Finally, before handing back to Allard, let me talk briefly about our liquidity and leverage. As we explained at the CMD, we see working capital as a commercial instrument. And we have enough financial headroom to deal with this, which is where the added value of the holding comes into place. The diversification of the portfolio gives us the financial headroom we need. The strength of our balance sheet enables us to deal effectively with increased working capital. We remain committed to our long-term targets. And we have also shown in the past that we could temporarily absorb a higher leverage and have also been able, you see it on the chart, to deleverage, a function of the EBITDA growth we want to achieve and lower working capital requirements as inventory levels will gradually reduce. With that, I would like to hand back to Allard. Allard Goldschmeding: Thank you, Mirjam. As we move to 2026, I would like to share a little more on our views and initiatives for this year. The market dynamic of a positive trend towards plant-based diets is expected to continue, providing a strong fundament for our business. I started this call by referring to the latest geopolitical development. The impact on the global economy and our business cannot be predicted. However, our people and our business model are positioned to deal with this in the most effective way as we have proven in previous years. We will continue to build routes to healthier foods. A specific development for our organic business is the cocoa price development. Prices dropped from USD 6,000 per tonne at the end of 2025 to around $3,000 per tonne today. This level is not far from the historic normal levels. This would indicate that the cocoa market is moving to more regular price levels, although we still see major daily swings. A continued lower cocoa price level should lead to lower working capital levels, as Mirjam already mentioned, and normalized profitability. The actions we have taken in our Edible Seeds business in the U.S. should allow us to progress towards improved profitability levels during 2026, considering that the fundamentals of the business are strong and attractive. Based on our 2025 performance and our expectations for 2026 and beyond, we are committed to the midterm ambitions we communicated during our Capital Markets Day. Finally, I would like to mention that 2 new nonexecutive Board members will be proposed at the AGM in April as communicated in our press release that was issued this Tuesday. Jan Piet Valk and Barbara van Hussen have relevant Board, governance and M&A experience and will be a great addition to our Board. With that, I would like to hand it back to Jean-Mari. Jean-Mari Pretorius: Thank you, Allard, Mirjam. To summarize, today, we have discussed our performance for the period, the key drivers across our segments and the broader developments impacting our business. We now open the lines for the Q&A. Jean-Mari Pretorius: I see we already have one question coming through. The question states, will the trend of H2 2025 continue? And what is your view for 2026? Mirjam Thiel: Thank you, Jeanie. Let me maybe comment on the second half to start with, the second half of 2025. A few things important there is, one is our reported sales improved with 2%, but we had a currency impact, of course, of the dollar to euro. So if you look at it on a constant currency, we actually grew in the second half with 5% and that 5% is against a strong H2 we had in 2024. And what Allard already explained, the phasing has been a bit of, let's say, between H1 and H2, and we expect to go to a more evenly phasing going forward. But this H2, we were comparing versus a high H2 in 2024. And then the last element which impacted the second half was, of course, the slow performance at Edible Seeds. And there really, we saw there the continuing of the market challenges and then compounded really in Q4 with the production issue that we faced. So those elements really impacted our second half performance. So maybe, Allard, you want to talk a little bit about 2026. Allard Goldschmeding: Yes. Thank you, Mirjam. I mean based on, let's say, what Mirjam just said, there are a couple of components that in 2026 will be different than in 2025. So one of them, obviously, is what we mentioned, the edible seeds development. It was impacted, and we expect that during 2026, this will trend back to the normal or the normalized performance levels. So I think that's important. The other thing is that cocoa prices will come down. The question is what is going to happen to other commodity prices or prices in our portfolio. So what the exact sales development will be, that's to be seen. Like we said that the split between H1 and H2 had a major impact in 2025 versus 2024. But also if we look at 2026, we expect it to be more even. And if it would be more balanced and more even, you should expect or you can expect that the EBITDA potentially can be in H1 2026, a little bit below H1 2025 and that we will catch up in the second half of 2026. So it's important to understand that we will look at the full year performance and our objectives and that the split between H1 and H2 in 2026 can be very different than we saw in 2025. So I think that's important to mention. Jean-Mari Pretorius: Okay. Thank you. I see we already have our first caller on the line. It is Reg Watson from ING. Reginald Watson: Allard and Mirjam, I have a number of questions for you both, please. So I'd like to take them in turn. Firstly, the working capital. I think, Allard and Mirjam, you've both highlighted higher cocoa prices and I think, in particular, higher volumes. When I look at the evolution of cocoa prices, '25 is no different from '24. In fact, on average, probably slightly lower. But -- so I'm not sure if that's the reason for the higher working capital. Mirjam, you mentioned higher volumes. And then my question on that then is, if it was higher volumes, why would you take higher volumes in '25 when in '24, you were suffering a demand shock, and you actually had too much volume. So I'd like to understand the dynamics of that. That's the first question. Mirjam Thiel: Yes. Right. We were actually coming from a shortage, right? So in 2024, inventory was actually in volume very low. So we -- there is indeed an impact when you compare '25 volume levels, specifically in cocoa in '24 on higher volumes because '24, the base is very low. So we really build up normal stock levels again. And then on average, of the stock we are holding, the price is higher now in 2025. So there's, of course, a little bit of a lagging impact versus the market price development in the inventory value that we're holding. Allard Goldschmeding: Reg, maybe to build upon that, when we contract the volumes, it's not evenly spread out over the year, right? So we contract the crops. And that is at a specific point in time of the year where the price can be much higher than what you have seen at the end of the year. So I understand you're right, the average price during the year is different, but that's not the price we contracted against. Reginald Watson: Okay. Okay. So that accounts for the variability. And then I'd like to move on to Edible Seeds. It's been a thorn on your side. I think at the time of the Capital Markets Day, correct me if I'm wrong, but there was an expectation that we would have run through the anniversary of the problems by the time we got into the second half of the year. And it seems that the problems continue. Have I misunderstood that, misremembered that? Or have additional problems arisen in the intervening period? Allard Goldschmeding: No, I don't think you misunderstood it. What we've seen is that the consequences were more severe than we anticipated originally. It took longer to get rid of the products that we still had. So the exports issue, which you probably referred to, indeed, we mentioned and at the time, we thought that, that would fade out. But in reality, the aftermath of that was longer and had a bigger impact than we expected. So yes, but we should be through that now. Reginald Watson: And -- okay. But you are confident that, that is now done and dusted? Allard Goldschmeding: Yes, because we still had to clear all inventory and let's say, the price levels against which we could clear that inventory was below what we -- below our expectations. Reginald Watson: Right. Okay. And then just a technical question on the dividend, Allard, I think in your prepared remarks, you mentioned that it was in line with policy. But again, I seem to recall that the dividend policy is 70% payout ratio. And I think unless I'm much mistaken, the ratio is lower than that for this year. Allard Goldschmeding: Yes, the ratio is 65%. So you're right, that's a little bit below the 70% that we communicated. But 70% is an average, right? And we look at different things. So first of all, it's the performance of the company. Secondly, it's available cash or the cash position we have. Thirdly, it's other investment opportunities we see like M&A opportunities. So when you put that all together, we came to this proposed dividend, which we feel is completely in line with our communicated policy. Reginald Watson: And then final question on tea. You very helpfully provided a slide in the presentation pack, which sort of noted some of the changes that you're making. Could you perhaps flesh -- give us some flesh to those bones, perhaps a work example of how things have worked in the past and how they will work in the future and what benefits you expect those changes to bring? Allard Goldschmeding: Yes. No, fair. Now what we've seen is that historically, Van Ree very much operated from a local level. So yes, there was central oversight, and the strategic direction was obviously set at the central level. But the local offices, to a high degree, maintained their own commercial operations and approach themselves the customers they had. What we've seen changing basically in the industry that the customers are looking more for -- are more flexible, let's say, in buying tea and in looking for what I tend to call multi-origin solutions. So for example, if a certain grade or a certain price of tea in Kenya is not competitive to Ceylon or to Indonesia, we can -- they are basically looking at other origins as well. And my belief is that we can be more efficient and more effective by centralizing that approach and to be a sparing partner for our customers to help them actually making the right calls. So the central multi-origin solutions that we can offer to the key customers will be crucial to be closer to customers to better understand them and therefore, be more effective. So it means, in the essence, a little bit of a shift or it means a shift from certain responsibilities that were embedded in the local organizations. And again, whether it's in Africa or in Asia or whatever, to more the central hub where they will make the calls and that will be a change to the organization, which, in our view, will be for the better because, again, the tea market has changed, and tea buyers have changed their behavior. Reginald Watson: Okay. So just so I'm clear, so reading between the lines there, basically the local organizations were more incentivized to promote their local origins rather than helping customers source more efficiently other origins of tea. Is that my understanding, correct? Allard Goldschmeding: Well, the way I would phrase it that they had less visibility on alternatives for the origin. So their knowledge was on their local origin. And they -- it took more time to react to changed consumer or customer behavior and now we centralize that. So we can now proactively offer other origins if we see that the preference of certain customers is changing. So I think we will be faster and more effective. Reginald Watson: And with that centralization, will that come -- will therefore -- will there have to be exceptional costs taken in the local organizations then for this? Allard Goldschmeding: No, no, no. Reginald Watson: Great. Those are all my questions. Sorry to monopolize the performance. Allard Goldschmeding: Thanks, Reg. Jean-Mari Pretorius: Thank you, Reg. We have another question coming through. This question states, what M&A projects is Acomo working on? If you can prioritize on a segment basis, what would have priority and why? Example, consumer preferences and diets, food safety, price development, raw materials, labor cost development. Allard Goldschmeding: As we stated at our Capital Markets Day that M&A, and I think we also included that in the presentation today. The M&A is an important part of our growth trajectory and our ambition towards where we want to be in the midterm. So we are looking at different M&A opportunities. What we've communicated before is that our prime focus will be our Spices & Nuts segment, and that will be in Europe and in the U.S. We will look at Edible Seeds, which will be a little bit more geared towards the U.S. Organic, we are looking at how can we strengthen the portfolio. Tea, like I said, we focus more on changing the organization, and that's our prime priority now. And thirdly, we will look if we can expand our Food Solutions presence, but that will be mainly in Europe. Those are the priorities. Jean-Mari Pretorius: Great. Thank you, Allard. Another question here is this is a question on artificial intelligence, so AI. Is AI also applicable in a company like Acomo? And do you see AI as an opportunity or a threat? Mirjam Thiel: It's an interesting question. I think AI, I think, is in everybody's mind at the moment, and it's impacting, of course, all of us, I think, in a certain way. I think for us, it really is about our processes, right? How can we make it more efficient? And you can imagine that in the trading that we're doing, we're collecting a lot of data. We need to get everything in order for all the certifications for all the quality requirements, et cetera. So there's a lot of data we are processing. So I really see the benefit in more -- making our processes more efficient. So for sure, there is an opportunity for us there. I think really, if you look into the core activities of what we are doing, that is a people business. So in that sense, we are less impacted because really the work of the traders, the knowledge of the traders, making means out of all the different data that is there, yes, we very much believe that, that is really the human capital that we have. And hence, yes, that is less impacted by AI. So it's more about the processes than the core of our business model. Jean-Mari Pretorius: Thank you, Mirjam. Well, this concludes today's call based on our time. Thank you once again for your time and your continued interest in Acomo. We look forward to speaking with you again for the 2026 half year results. Have a good day.
Operator: Good morning. Thank you for holding. Welcome to the earnings release call of Ultrapar to discuss the results referring to the fourth quarter 2025. The presentation will be conducted by Mr. Rodrigo Pizzinatto, CEO of Ultrapar; and by Mr. Alexandre Palhares, CFO of Ultrapar. Our question-and-answer session will follow, and we will have with us Mr. Leonardo Linden, CEO of Ipiranga; Mr. Tabajara Bertelli, CEO of Ultragaz; and Mr. Fulvius Tomelin, CEO of Ultracargo. This call is being recorded and will be accessed later through the website, ri.ultra.com.br. After the initial presentation, we are going to start the Q&A session where further instructions will be provided. [Operator Instructions] Presentation will be provided in Portuguese, and you have the option in English to be downloaded later. Before moving on, we would like to clarify that forward-looking statements that may be made during this conference call with respect to business prospects, forecasts and operation and financial goals of the company are all based on beliefs and assumptions of the Executive Board of Ultra, as well as currently available information. These beliefs and assumptions involve risks and uncertainties since they relate to future events and therefore, depend on circumstances, which may or may not occur. Investors should understand that general economic conditions, market and other operational factors may affect the future performance of the company and lead to results, which may differ materially from those expressed in forward-looking statements. I would like now to hand it over to Mr. Rodrigo Pizzinatto, who will start the presentation. Mr. Pizzinatto, you have the floor. Rodrigo de Almeida Pizzinatto: Good morning, everyone. It is a pleasure to be here once again to share Ultrapar's results. 2025 was another year marked by significant growth at Ultrapar. Clear strategy and disciplined execution are the base for the continuation of good operating results. We ended the year with the highest recurring adjusted EBITDA ever recorded in the fourth quarter. This improvement was directly reflected in cash. Ultrapar had a record operational cash flow generation of BRL 5.500 billion. This allowed us to end the year with a leverage of 1.7x, even after the anticipated payment of BRL 1.1 billion in dividends in December. Without this effect, leverage would have been of 1.5x, a very comfortable level. Considering the anticipated payment and the regular dividends, we paid BRL 1.4 billion in dividends in 2025, equivalent to BRL 1.30 per share and a dividend yield of 7%. I also highlight important progress on the institutional agenda, such as the approval of the persistent debtor and the single-phase taxation for naphtha, which strengthened fair competition and regulatory certainty and the Gás do Povo Provisional Act, which reinforced safety and regulatory framework of the LPG sector. We continue to advance our growth, productivity and value creation agenda with the completion of expansion of the Rondonópolis base of Ultracargo and the acquisition of a 37.5% stake in Virtu GNL, both in January. In February, we completed the migration of Ultracargo's SAP system to the SAP 4HANA platform, a significant step towards increasing our operational efficiency. We also announced our investment plan for 2026, which can reach BRL 2.6 billion intended for the expansion, maintenance, safety and efficiency of our business. And we continue to strengthen our capital structure with raising about BRL 260 million in incentivized credit lines for expansion projects at a weighted average cost equivalent to 87% CDI. We entered 2026 with a global scenario marked by geopolitical tensions and economic volatility. We are prepared to face this context and seize opportunities with an engaged team, strengthened business and a constant focus on operational efficiency, financial discipline, innovation and sustainable growth. Thus, we continue our journey of value creation. Thank you for your attention. I will now hand over to Palhares, who will detail the results for the quarter and the year 2025. Alexandre Palhares: Thank you. Good morning, everyone. I would like to remind you of the reporting criteria and standards used in this presentation, which can be seen on this Slide 3. Now let's move on to the results for the fourth quarter and the year 2025, starting with Ultrapar's consolidated results on Slide 4. Adjusted EBITDA amounted to BRL 1.6 billion in the quarter, a 34% decrease compared to the same period of last year due to the nonrecurring effects highlighted on Page 2 of the release that we disclosed yesterday. For the year, adjusted EBITDA reached BRL 6.8 billion, a 2% increase compared to 2024. Recurring EBITDA was BRL 1.7 billion in the quarter, a 36% increase compared to the fourth quarter of 2024, mainly reflecting the better performance of Ipiranga and Ultragaz in addition to the effect of the consolidation of Hidrovias. For the year, recurring EBITDA totaled BRL 6.2 billion, 15% above 2024, reflecting the results of Ipiranga, Ultragaz and Hidrovias, whose consolidation began in May. Net income for the fourth quarter was BRL 256 million, a 71% decrease compared to the same period of 2024, also impacted by the nonrecurring effects that I mentioned. Without these effects, net income would have been BRL 439 million, a 49% increase in the quarter. In 2025, net income was stable at BRL 2.5 billion, reflecting the record operating result, partially offset by the increase in depreciation and amortization and higher financial expenses resulting from the consolidation of Hidrovias. This result level allowed the distribution of BRL 1.4 billion in dividends in the year, considering the anticipated payment of BRL 1.1 billion made in December. Moving on to the next slide. Let's talk about the cash generation for the year. On the left, operating cash generation reached BRL 5.5 billion, Ultrapar's historical record. This result was mainly due to 3 factors: higher operating result; consolidation of Hidrovias, which contributed BRL 855 million; and lower working capital needs, especially at Ipiranga, partially offset by the effect of settlement of draft discount for suppliers in the amount of BRL 1 billion. Regarding CapEx, we reached BRL 2.5 billion, a 15% increase compared to 2024. This is explained by higher investments of Ipiranga in addition to the effects of the consolidation of Hidrovias of BRL 235 million, which was not included in the initial plan. And at the same time, we had lower investments at Ultracargo. Looking more closely at the capital allocation, we completed some transactions, mainly the capital increase and the increase of our stake in Hidrovias, which totaled BRL 693 million, acquisition of TRRs in the total amount of BRL 103 million, and Virtu's transaction in the amount of BRL 36 million in the year. Throughout the year, the sale of the coastal navigation operation by Hidrovias in the total amount of BRL 715 million was also completed. In addition, we completed Ultrapar's buyback share program and made a relevant distribution of dividends. Moving to the next slide, and talking about debt and leverage. We ended 2025 with net debt of BRL 12.1 billion, an increase compared to September, but still keeping leverage steady at 1.7x, exactly the same level as the previous quarter. This possible stability is explained by the record operating cash generation, which offset the anticipated payment of dividends in December. Excluding the effect of the anticipated payment of dividends, leverage would have ended the year at 1.5x. The increase in net debt when comparing year-end 2025 to year-end 2024 mainly reflects the consolidation of Hidrovias, with an impact of BRL 2.2 billion. It is also worth highlighting the additional effect resulting from the reduction of BRL 1 billion in draft discount over the period, as shown at the bottom of the table. Now let's move to the results of Ipiranga on Slide 7. In the quarter, Ipiranga's volume grew 7% compared to 2024 with an increase of 8% in the Otto cycle and of 6% in diesel with a higher share in the spot market. This is due to the beginning of the market recovery after intensification of measures to combat irregularities in the sector. For the year, sales volume grew 1% with an increase of 2% in the Otto cycle and of 1% in diesel. We ended 2025 with a network of 5,805 service stations, resulting from 271 stations opened and 326 closed. Ipiranga's adjusted EBITDA totaled BRL 1.2 billion in the fourth quarter, 37% lower when compared to last year due to the recognition of nearly BRL 1 billion in extraordinary credits in the fourth quarter of 2024. Recurring adjusted EBITDA reached BRL 1.1 billion in the quarter, a 26% increase compared to 2024. This performance mainly reflects higher sales volume and better margins, partially offset by higher expenses. For the year, adjusted EBITDA totaled BRL 4.3 billion and recurring EBITDA totaled BRL 3.5 billion, a 4% increase compared to 2024. Operating cash generation was once again a highlight and reached BRL 4.3 billion, an increase of 41% in the annual comparison. This result reflects efficient working capital management and operational discipline. The first quarter began with the import arbitrage window open, which led to greater product availability. That window closes at the end of February and with the Middle East conflict, import parity turned much less favorable. In this context, we expect continued growth in volumes and margins. Moving to Ultragaz' results on the next slide. The volume of LPG sold in the fourth quarter was 2% lower than the same period of 2024 with a 5% decrease in the bulk segment, mainly due to the lower demand in the industry segment and with stability in the bottled segment. In 2025, the volume sold was also 2% lower than in 2024, with a decrease of 4% in the bulk segment and of 1% in the bottled segment. This performance is explained by the competitive dynamics of the market, impacted by the pace of pass-through of increased costs of Petrobras auctions throughout the year, in addition to lower business demand mainly in the industry segment. Recurring EBITDA reached BRL 474 million in the quarter, a 7% increase compared to the previous year. The result reflects the pass-through of cost inflation and a favorable sales mix, and on the other hand, the lower volume of LPG sold. For the year, adjusted EBITDA totaled BRL 1.8 billion, 5% increase compared to 2024. This performance reflects the effects of the pass-through of cost inflation, a more favorable sales mix and the contribution from new energies, which offset a lower LPG volume and higher costs and expenses. For first quarter '26, we see continuity of good results and an EBITDA similar to that observed in first quarter '25. On the next slide, we move to Ultracargo's results. The average installed capacity reached 1,131,000 cubic meters in the quarter, a 6% increase compared to the fourth quarter of 2024, resulting from the additions of capacity in Palmeirante, Rondonópolis and Santos. For the year, the average installed capacity was 1,090,000 cubic meters. The cubic meters sold was 5% lower in the quarter and 9% lower in the year compared to 2024. This decrease is mainly due to the lower demand from our customers for tanking services related to fuel imports, an effect partially offset by the increase in handling in Opla. Net revenue totaled BRL 261 million in the quarter, an 8% decrease compared to the previous year, reflecting the cubic meters sold and less favorable sales mix. For the year, net revenue amounted to BRL 1.021 billion, a 5% decrease explained by the lower cubic meters sold, partially offset by higher tariffs in the period. Adjusted EBITDA was BRL 144 million in the quarter, a 15% decrease compared to the fourth quarter of 2024. This performance mainly reflected lower cubic meters sold and higher costs with operations still in the ramp-up phase, partially offset by lower expenses. In 2025, adjusted EBITDA was BRL 585 million, a 12% drop compared to 2024. This result reflects lower cubic meter volume and higher costs associated with new operations, which are still in their ramp-up phase, partly offset by higher tariffs and lower expenses. We continue to see a gradual recovery in demand from customers of terminals at the beginning of the year, challenged by the closed import arbitrage window since mid-February. I also remind you of the negative initial effects of the ramp-up of some expansions. In this context, we expect first quarter volume and recurring EBITDA to be higher than in the last quarter of 2025. Now let's move to Hidrovias results. The total volume handled increased by 65% in the quarter compared to 2024, reflecting better navigation conditions in the North and South in addition to operational improvements. For the year, the volume handled increased by 22%, reflecting the same, more favorable navigation conditions, operational improvements throughout the year and higher volume in Santos, with the beginning and consolidation of the salt operation. Recurring EBITDA amounted to BRL 160 million in the quarter, reverting the negative result recorded in the same period last year, highlighting the positive effects of better navigation conditions and operational improvements. For the year, recurring EBITDA totaled BRL 1.1 billion, a 95% increase compared to 2024. This advance mainly reflects better navigability in the regions served, operational improvements and better average tariffs. I remind you that in November, we completed the sale of the cabotage operation, which contributed to the results of 1Q '25. Looking now at the first quarter, we have seen greater challenges in receiving cargo from the North operation, navigability conditions closer to normal levels in the South, although with some restrictions on iron ore loading. As a result, we expect results to be lower than those of the first quarter of last year. Finally, to conclude the presentation, we will look at the composition of investments made in 2025. We invested BRL 2.5 billion in the year, about half allocated to business expansion and the other half to maintenance and other investments. The total was in line with the announced plan, even considering BRL 235 million in investments at Hidrovias, which were not included in the original plan. Excluding this effect, investments would be 9% below the plan. We announced in the 2026 investment plan of up to BRL 2.6 billion. Of this total, approximately 42% will be allocated to expansion and the remaining to maintenance and business efficiency and safety initiatives. The highlights are in this presentation and in the market announcement. Well, with that, I conclude my part. Thank you all for the participation. Let's move to the Q&A session. To ensure better dynamics of this moment, I would like to reinforce that questions related to Hidrovias will be answered from the perspective of Ultrapar as the controlling shareholder. For specific operational details, the appropriate channel is Hidrovias' IR team. Thank you. Operator: [Operator Instructions] The first question comes from Monique Greco with Itaú BBA. Monique Greco: Great results. I would like to explore further the margins for Ipiranga. You've had very strong margins in the fourth quarter, especially because of strong December. What were the main reasons for these stronger margins obtained in the month of December? I'd also like to understand whether there is some relevance, the fact that you have favorable arbitration for import or some other factors along these lines. And I would also like to ask about the share because in January, you've been subject to some more pressure in terms of market share because of an oversupply in the chain. What can you tell us about that? Do you think that January was just one-off effect? I know it's too early to talk about that, but especially with the perspective of a very short window for import. What can we expect in terms of market share from now on? Leonardo Linden: Linden speaking. Monique, thank you for the question. You are right. The fourth quarter showed this journey of progression. December was stronger, similar to November, October was somewhat weaker. I think this is very much aligned with improved landscape. We've all been seeing what's going on in Brazil in terms of regulatory affairs, fighting the legal market. So throughout the quarter, we've noticed a positive trend. When you talked about market share, January indeed showed an inverted position of the share. It's probably due to the fact that inventory levels went up in the last quarter when inventories go up with open arbitration, there is a lot of speculation, and it applies some additional pressure to the system. In my opinion, it was a one-off effect with a better commercial scenario, Ipiranga might recover the share that it had lost throughout the years. And finally, about what's going on in the Middle East, you are right. It's still too early to talk about that or draw conclusions. But we know that arbitration will be more limited. And if it's significantly closed, it means less speculative supplies, which favors companies which have a substantial supply in Brazil, such as Ipiranga. The whole infrastructure and our capacity would generate positive aspects to our own businesses. Rodrigo de Almeida Pizzinatto: Let me pick back on that and talk about this topic a bit more. Rodrigo speaking here. That window of import affects the whole market, up to February, there was an open window of imports. So levels of inventory of industry have reached very high levels. But as of mid-February, the windows closed. And now they are even more closed because of the Gulf tension. This is going to affect negatively the market and positively depending on being closer or open and favoring companies, which can really supply the market in Brazil. Operator: The next question comes from Rodrigo Almeida with BTG Pactual. Rodrigo Reis de Almeida: My question is more focused on Ultragaz to start. You've talked about the perspective for the first quarter, but I would like to hear about the trend for the year. 2025, there was an increase in volume. But how do you anticipate that, especially for bulk, which had worse performance than we expected last year. Can you see any possibility of gains of volume, new clients or new initiatives? Can you also see an effect of the program of the Brazilian government [Foreign Language]? Is it also impacting the bottled market? And my second question concerns your strategy and the possibilities of growth. What are the main characteristics that you consider when you are trying to lever your businesses or drive further your business? Do you just intend to operate your own assets or maybe go into additional investments? It would be great if you could tell us and share with us the investment strategy you currently have. Tabajara Bertelli: Tabajara speaking, Rodrigo, thank you for the question. I'm going to start with the point concerning Ultragaz. You've asked about volume trends. We don't expect any major changes to our plan. We are still focusing on operational excellence, operation-based initiatives. We have performed quite well last year, and this is what we anticipate for 2026. There were some variations, especially in industrial segment because of characteristics of the segments themselves. And these are fluctuations that we've seen happening before. Our perspective is that everything will go into normal operations as months go by. We focused on segments that we believe are the best and strongest, and we have been delivering all results in them. [Foreign Language], this government program. It has been fully approved, and it's already in its initial implementation stages. It's a very smart program because it direct subsidies to the needy population. It's at the implementation stage. I've been -- we've been really involved in it. And it's something that will come in full operation within the next quarters. But now it's fully approved with a clear definition of pillars really -- which is good for the official players and something really important for all of us as a society. Rodrigo de Almeida Pizzinatto: Pizzinatto speaking. Asking about strategy, we have 3 main pillars that we considered when we are considering any transaction: first of all, industry where the company works, perspective of growth and consolidation; second pillar, is how close is it of what we already do and our management model, really getting synergy and generating value; and thirdly, someone who is willing to sell at interesting price range that would really prove to be good on return on investment. This is what we came across in Hidrovias. And this is the kind of analysis that we take into consideration whenever considering new investments. Operator: The next question comes from Gabriel Barra with Citi. Gabriel Coelho Barra: I have two points to make. The first one about Ipiranga CapEx. It was below what you had planned. The actual number was lower than what had initially planned for 2025. I would like to hear from you the reason behind it. We've seen a very favorable market because of the discussion of fighting illegal practices. So official brands are getting favored. But a lower CapEx at Ipiranga is something that attracted our attention. And I would like to try to understand why did you want to have less investments upfront in your branding -- in branding new stations? Or are you operating in a more competitive market and decided to take a step back and just wait for more aggressive players to set their game. So what were the reasons? If you could shed some light into that, that would be really helpful. So why have you invested less than was initially planned? Secondly, it's about Ipiranga and capital allocation as well, building up on what was asked before. I know we cannot talk about market rumors. But last week, someone talked about -- started hearing the news about the divestment of Ipiranga, sales of Ipiranga. So I'd like to hear from you, not only in terms of acquisition, but also looking inside and considering adjustments. You've been talking about having a more active understanding of the company, revisiting its own thesis and also looking outside because you've been generating a lot of cash. And in our perspective, you are going to have even better cash levels this year and in a very comfortable leverage level. So what is the equation now? Should -- are you going to sell it now? Are you going to sell it later? So if you could please tell us more. So these inside, right? So these are my two points. Rodrigo de Almeida Pizzinatto: Rodrigo speaking. Let me answer those two questions. About CapEx and the other issues. Let me remind you, and we've said that a number of times before that Ipiranga has been through a cycle of CapEx before -- greater than expansion. And there are two points of fluctuation. So investments in infrastructure and technology. And for '26, '27, we are going to replace our technology platform at Ipiranga, very relevant investments. We've talked about that during the Ultra Day. Infrastructure is also closing some terminals and some expansions that we have put in place. These are why there are oscillations between the years. Some postponement of investments were made, especially because of the technology platform. As projects are completed, we are going to return Ipiranga's CapEx to the level of maintenance unless we see new opportunities of branding stations, but then we are going to revisit the plan. But this is what we anticipate for '26. Now concerning the news, the rumors in the market, we have nothing to talk about it. Whenever there is anything relevant, we have a formal communication of the market as the law expects. Cash generation has 2 main purposes, either we're going to find good projects to keep on expanding our company or share dividends. And this is an agnostic economic decision. We are going to keep on doing as is. Operator: The next question comes from Bruno Montanari with Morgan Stanley. Bruno Montanari: Well, let me go back to the topic of import window, especially for diesel, a closed window benefits the well-established players. We know that. I know it's too early. But with the price of diesel in the international market, do you think you can have an average price and really execute it in the Brazilian market? We'd also like to hear from you what are the next steps in the regulatory agenda to fight further against the regular market? What is the time line that you expect it to progress further? And could you please tell us more about the strategy of funding debt versus working capital and also your draft discount, that would be very helpful. Rodrigo de Almeida Pizzinatto: Well, Bruno, concerning the import window, Brazil has a structure dependence on diesel imports. We have a commitment with our clients, and we are going to import and guarantee supply. And the cost in our profile of supply will be just build to customers. Concerning the next steps of the market regulation, we really have to make sure that everything that we've seen in the new legislation is really enforced. For example, persistent debtor and other initiatives have to be enforced, and we have to see the practical result of these changes that were really an important achievement for all of us. Yes, there are a number of things to be done. For example, single-phase taxation for ethanol. Part of the regular market lies in the hands of ethanol. Biodiesel, also a challenge. Not now, of course, because there was a change in the cost of byproducts, but biodiesel tends to cost more, and there are problems of non-mixture. Still a lot to be done in our agenda. It's not something fully resolved, and we really need to focus on improving competitiveness scenario as a whole. The government is very much willing to support these changes. The government of São Paulo increased the taxes because they've been fighting legal practice and now they have more legal players. So especially now when we deal with critical budgeting, all the governments are more than interested in having that in place. Now concerning the strategy of funding, we have access to a marginal cost of debt, which is highly competitive. Throughout last quarter, we've noticed there was an opportunity of anticipating the refunding of the company for the upcoming year. The marginal cost, even carrying over into the cash, it will have a positive carryover, and it's very much comfortable with our position of liquidity to really pay all our needs this year. As we've been emphasizing, funding is an alternative of investment, which is highly competitive in some specific situations, and we are very comfortable in using it more or less depending on the needs and mismatch with our cash levels. It's been so in recent quarters, and we do not expect to have any differences in upcoming quarters, but always considering the cost attractiveness in our analysis. Operator: Next question comes from Tasso Vasconcellos with UBS. Tasso Vasconcellos: I have two questions. First, Ipiranga. Linden, I recall at the end of last year in the Investors Day, you said that you were going to discuss the micro perspective and not the macro perspective. I would like to go back to Ipiranga's expansion plan and try to understand, based on the changes that you started implementing your business in 2022, what is still pending? What do you still see at the operational level, really putting aside all the improvement of the legal framework, but where can you still see value extraction this year and upcoming years in-house? Second question to Palhares or Pizzinatto. Going back to what Rodrigo has talked about in terms of capital allocation. You've had a very strong cash generation in the quarter. But looking at your balance sheet, despite this cash generation, there was still an increase in gross indebtedness, which was compensated by your financial assets, about BRL 2 million, BRL 2.5 million. I would like to hear a bit more about the reconciliation of resources and how all these initiatives are part of your capital allocation strategy at the level of the holding. Leonardo Linden: Well, Tasso, what I said Ultra Day is that I would rather discuss ways of improving Ipiranga and make us sell more rather than discussing irregular market, of course. The agenda of the regular market is always with us. But by having that, we can look closely into our sales, improving our own operations, focusing on things that we really have to fine-tune. We have an expansion plan for 2026. You've seen the CapEx for expansion. We are talking about 300 branding stations, working on our infrastructure plan, technology, which is extremely important. The plan has been maintained. In addition to qualitative issues that we've been working throughout the years, and I'm sure you're all familiarized with them. Considering what's still pending and all the different drivers that I'll be able to list, there are two of them. Logistics, something that we've talked about a lot, the logistic plan. We still need 2 years to complete the journey, and it will mean a lot in terms of value capture. And the migration of ERP, the benefit is not a new operating system, but something that really changes the way we've been operating all our processes and internal elements, which will generate more efficiency. In terms of the main effort lines for 2026, these are the two. Pizzinatto speaking, Tasso. Concerning financial investments, let me make 3 points here: first, we always follow the principle of discipline and prudence; our average cost of debt, excluding bonus, is below 100% CDI. We have no cost of carryover of debt; and thirdly, 1 day of operation in Ipiranga is BRL 300 million, BRL 400 million. We are dealing in a moment of great volatility, and we have BRL 4.5 billion of debt to be paid this year. So what did we do last year? We anticipated somewhat the funding of debt that would mature, so that we wouldn't have to go to the market considering the conditions that we have. And this is why we have an increase in our investment line. Operator: The next question comes from Vicente Falanga with Bradesco BBI. Tasso Vasconcellos: I also have two questions. First, in addition to that open window, Petrobras auctions for fuel, which impacts some of the competitive landscape and the share, do you still see an opportunity to improve profitability in the fourth quarter? And what is the feedback that you get from resellers in relation to your competitors? Secondly, Palhares said that it's going to be an increase in volume and margins as is. Is it year-over-year, quarter-over-quarter? What is your expectation there? Rodrigo de Almeida Pizzinatto: Vicente, having a better commercial landscape is not something just for Ipiranga, it's for our whole industry, of course. So we can see healthier margins in reseller, healthier margins in distribution and the government collecting more taxes. When the whole industry is benefiting, we can see opportunities of improving our own profitability, of course. It's not trying to be more profitable. It's being part of an industry which has been evolving positively. And the margin is still not paying back the invested capital. There is still room for improvement. In terms of volume and margin, we are comparing against the fourth quarter last year. This is our reference when we say we're going to increase it. Operator: Well, our Q&A session is completed now. We would like to hand it over to Alexandre Palhares for his closing remarks. Alexandre Palhares: Well, thank you all very much for your time, for your interest and participation. Our team is here at your disposal for any follow-up or additional questions. Thank you all very much. Operator: The earnings release call of Ultrapar is closed now. Thank you all for your participation. Have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]