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Operator: Ladies and gentlemen, thank you for participating in the fourth quarter 2025 earnings conference call of Melco Resorts & Entertainment Limited. After the call, we will conduct a question and answer session. Today's conference is being recorded. I would now like to turn the call over to Jeanny Kim, Senior Vice President and Group Treasurer of Melco Resorts & Entertainment Limited. Please go ahead. Jeanny Kim: Thank you, Operator, and thank you all for joining us today for our fourth quarter 2025 earnings call. On the call are Lawrence Ho, Geoffrey Stuart Davis, Evan Andrew Winkler, and our property presidents in Macau, Manila, and Cyprus. Before we get started, please note that today's discussion may contain forward-looking statements made under the Safe Harbor provision of federal securities laws. Our actual results could differ from our anticipated results. In addition, we may discuss non-GAAP measures. A definition and reconciliation of each of these measures to the most comparable GAAP financial measures are included in the earnings release. Finally, please note that our supplementary earnings slides are posted on our investor website at investors.melco-resorts.com. With that, I will turn the call over to Lawrence Ho. Lawrence Ho: Thank you, Jeanny, and thank you all for joining us today. 2025 was a year of growth and recovery supported by disciplined cost management and margin expansion. We recorded $1.4 billion in group property EBITDA for the full year of 2025, growing by 17% compared to 2024. In Macau, our dedicated efforts to enhance the customer experience have proven to be a strategic focus, with fourth quarter Macau property EBITDA growing 24% year over year and full year Macau property EBITDA growing 25% compared to 2024. We have had a strong start to 2026 with Macau market GGR up by 24% year over year and our market share increasing so far in 2026. Chinese New Year looks strong, with higher-yielding cash ADRs compared to 2025. We have a pipeline of new initiatives that we are planning to implement in 2026 to further differentiate our offerings, with the largest project being the opening of the renovated Countdown Hotel. We are on track to progressively start opening in 2026. The completed hotel is expected to introduce a truly distinctive experience and set a new benchmark in Macau. We have also started on a revamp of the retail area at COD and have plans to upgrade our F&B offerings, continuing to further enhance our product quality. In the Philippines, competitive pressures and industry headwinds continued to impact our performance in 2025. However, we are encouraged by the positive developments in that market, including visa-free travel for Chinese nationals, upgrades to the Manila Airport to facilitate increasing international tourism, and rationalization of the online gaming market. We have also concluded our evaluation of the strategic alternatives for COD Manila. Although we considered various alternatives, we did not feel that any of those options would allow the value and potential of the property to be fully realized. We are confident that business will rebound and we may reevaluate the situation in the future. Moving on to Cyprus, City of Dreams Mediterranean and the satellite casinos in Cyprus achieved 78% year-over-year growth in property EBITDA to $21 million for 2025, despite seasonality typically being slower in these months. And finally, in Sri Lanka, we continue to focus our efforts to progressively ramp up operations and have seen promising green shoots so far in 2026. With that, I will turn the call over to Geoff. Geoffrey Stuart Davis: Thank you, Lawrence. Our group-wide adjusted property EBITDA for 2025 grew 12% year over year to approximately $331 million. Adjusted for VIP hold, our property EBITDA was approximately $323 million. Favorable win rates at COD Macau and COD Manila had positive impacts on our property EBITDA by approximately $7 million and $3 million, respectively. We had guided in the prior quarterly call that OpEx in Macau increased in the fourth quarter compared to the prior quarter, primarily due to events including the China National Games, Studio City's tenth anniversary, and the Macau Grand Prix. Excluding these fourth quarter events as well as House of Dancing Water, Macau OpEx was approximately $3.1 million per day. EBITDA in 2025 was also impacted by additional bad debt provisions that were taken as a result of a settlement that we reached with one of the previous junket operators. Adjusting for these event-driven costs, Macau's property EBITDA margin for 2025 would have been over 27% on an actual basis. Looking forward to 2026, we expect Macau daily OpEx excluding House of Dancing Water to come in at approximately $3.2 million given increased marketing activity around Chinese New Year and new brand campaigns across our Macau properties. Turning to our balance sheet, our liquidity position remains robust. We had available liquidity of approximately $2.4 billion with consolidated cash on hand of approximately $1.2 billion as of 2025. Melco, excluding its operations at Studio City, the Philippines, Cyprus, and Sri Lanka, accounted for approximately $550 million of the consolidated cash on hand. In 2025, Melco redeemed the remaining $358 million of the senior notes due 2026. In addition, we repaid $210 million in debt at Melco and $32 million at Studio City. In total, the Melco Group paid down approximately $400 million of debt over the course of 2025, and we continue to reduce debt in 2026. Melco has repaid $35 million in debt in January and will repay a further $25 million this month. The group does not have any material amount of debt maturing in 2026. Before we move on to the non-operating line items, we thought it would be helpful to take a few minutes to provide information on the trademarks license agreement with Melco International. Melco International owns and manages certain trademarks utilized by Melco Resorts and its operations. The terms of the trademark license agreement were negotiated on an arm's length basis, factoring in the ranges of fees typically observed in the industry. The agreement has an initial term of ten years, which commenced on 01/01/2024, and thereafter is automatically renewed for consecutive periods of twelve months unless either party gives prior notice of nonrenewal. Under the agreement, the trademark license fee payable is up to 1.5% of the gross revenues of City of Dreams Macau, excluding Grand Hyatt, unless agreed otherwise by the parties to the agreement. The trademark license fee was 1% in 2025 and will increase to 1.5% from 2026. The agreement does not include an annual cap, but the total fees for the full year of 2025 amounted to approximately $33 million, dramatically lower than those of our peers. The trademarks owned by Melco International are integral to the long-term strategy and brand identity of Melco Resorts, and the formalized agreement facilitates a standard approach as we continue to grow and expand the portfolio. And finally, as we normally do, we will give you some guidance on non-operating line items for the upcoming 2026. Total depreciation and amortization expense is expected to be approximately $140 million to $145 million. Corporate expense is expected to come in at approximately $35 million. And consolidated net interest expense is expected to be approximately $115 million to $120 million. This includes finance liability interest of around $6 million relating to fees payable in relation to the Macau gaming concession and the Cyprus gaming license, and finance lease interest of approximately $5 million relating to City of Dreams Manila. That concludes our prepared remarks. Operator, back to you for the Q&A. Operator: Thank you. If you wish to ask a question, please press 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press 2. If you are on a speakerphone, please pick up the handset to ask your questions. We do ask that you please limit yourself to one question. We will now open for questions. Today's first question comes from Joseph Robert Stauff at Susquehanna. Please go ahead. Joseph Robert Stauff: Thank you. Good morning. I wanted to ask about the additional traffic obviously being generated by House of Dancing Water and where you are with respect to being able to convert that additional daily visitation into both gaming and, obviously, other parts of your business. What is the opportunity from here as we think about that? Lawrence Ho: Hi, Joe. It is Lawrence. Since we reopened House of Dancing Water in May, we have seen meaningful uptick in property visitation. The show is open pretty much twice a day for five days of the week, and during those shows, 1,800 to 1,900 people attend. So that drives additional headcount into the property. I think we are seeing meaningfully good spend across non-gaming during and after the show. And even on our mass drop, from pre-May to post-May, we have seen a decent uptick. As with any non-gaming entertainment, concerts, attractions in Macau, how can we directly track that scientifically? I do not think we have an answer for that. I will maybe let Evan talk about it. But I think overall, we see it driving traffic and energy into the building and it is a little more, as Lawrence has pointed out, a little more difficult from a direct drive standpoint. Evan Andrew Winkler: It is very helpful in activating the property. We do see a big uptick, obviously, in food and beverage spending on property during the show. Generally, when people are coming from outside the property to the show for that initial event, sometimes they are coming with family and friends, so a very small percentage go from that directly to gaming. The benefit we have is it does introduce thousands of more people with each show to the property and to COD, to our product, to food and beverage. And so I think over time, it is generating repeat visits back to the property, but it is hard to go from who exited the show that day to who comes back later on. So I think we drive, but we do not have a direct formula that we can give you. Because if you look at the individual people coming out of the show on the night that they go to see the show, that is not a high number. But overall, we are seeing uplift in the business. Joseph Robert Stauff: Okay. Understand. Thanks, Lawrence. Evan, thank you. Operator: Our next question today comes from Timothy Chao at Citigroup. Please go ahead. Timothy Chao: Hi, management. Lawrence Ho: Excuse me. Can I listen? Can you hear me clearly, please? Timothy Chao: Yes, we can hear you. Alright. Hi. Sorry. So question for me. What is your view on the competitive intensity in Macau? And more specifically, what are your expectations on your EBITDA margins, particularly in Macau this year, please? Thank you. Lawrence Ho: Hey, Timothy. It is Lawrence. Maybe I will start, and then I will hand it over to Evan and Geoff. I think the competition is still very intense in Macau, but that can be expected. I would say that we anticipate this level of competition to be what we will expect for the rest of the year. In terms of mass, it is still growing, so we are comfortable with our margin. We have been very disciplined throughout 2025 in terms of our reinvestment. We have seen some of our competitors ratchet it up throughout the year. I think we are, unless there is anything more to supplement other than— Evan Andrew Winkler: From where we are sitting coming out of Q4 and into this quarter, we are not seeing a ratchet up in terms of levels of spend directly on gaming programs from where we are now. Competition remains, as Lawrence said, intense within the marketplace. We are not looking at any catalyst that would immediately bring that down. The hope that we always have is, as people look at things, that you have easing up among players. As Lawrence has said and I have said in the past, we do not ever drive up in the marketplace. We tend to be very disciplined. We will make strategic moves at times when we need to look at market share or move around with individual segments. But we certainly would never lead the market up. Based on what we are seeing now, I think we are stable. I do not see anything that will bring us down in the near term, but I also do not see anything that will ratchet it up. Lawrence Ho: On margin, we have done a pretty good job in terms of managing our operating costs throughout 2025. That is part of the company philosophy as well. You will see that ongoing throughout 2026. Timothy Chao: Thank you so much. Thank you for the color. Operator: Thank you. Our next question today comes from D.S. Kim at JPMorgan. Please go ahead. D.S. Kim: Hi, everyone. Good evening, and Happy New Year. My first question is regarding the operating expense. As Geoff mentioned earlier, I think we had quite a bit of nonrecurring items this quarter—ten-year anniversary, National Games, and even junket-related bad debt. Can you help quantifying each of these in dollar terms for us, if it is possible? And can I confirm the spending related to National Games and Grand Prix were included in OpEx—operating expense—above EBITDA line and not in the corporate expense? Geoffrey Stuart Davis: Those expenses are in our property margins. The additional bad debt was approximately $5 million for the quarter, and we expect that to come back down to more normal levels going forward. And then we had about $6 million for the anniversary. D.S. Kim: Thank you. Operator: Our next question today comes from John G. DeCree at CBRE. Please go ahead. John G. DeCree: Maybe just one on CapEx. Geoff, I apologize if I missed it. Could you give us the CapEx number for the year? And could you break it out for major projects—maybe by COD or Studio City—at the property level, what we should expect? Geoffrey Stuart Davis: Sure. Our total CapEx for this year, which reflects a little bit of carry forward from money we anticipated spending in 2025 that has pushed into 2026, is $450 million. The only material one that I would call out would be the Countdown Hotel, which is approximately $100 million for 2026. Broken out by jurisdiction, the total CapEx in Macau is roughly $375 million, $35 million to $40 million in Manila, and $35 million to $40 million in Cyprus. John G. DeCree: Perfect. Geoffrey Stuart Davis: You are welcome. Operator: Thank you. That concludes the question and answer session. I would like to turn the conference back over to Jeanny Kim for any closing remarks. Jeanny Kim: Thank you, Operator, and thank you all for joining. We will see you next quarter. Operator: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.
Emma Nordgren: Welcome to the presentation of Swedencare's year-end report, led by our CEO, Hakan Lagerberg; and CFO, Jenny Graflind. And we are pleased to have North America's CCO, Brian Nugent, joining us with the presentation during today's webinar. And as usual, we will have a Q&A after the presentation. [Operator Instructions]. Over to you, Jenny and Hakan. Hakan Lagerberg: Thank you very much, Emma, Hakan Lagerberg here and Jenny in a snowy Malmö. Yes, Q4 2025, a disappointing end of the year when it comes to profitability. And I'm very displeased with myself for not being able to predict this. There were lots of uncertainties coming in at the very end, but I apologize, and we are doing everything we can to improve our internal processes and forecasting. Double-digit growth, happy with that, 11%. But of course, I expected a bit higher also when it comes to the organic growth. But overall, we're happy as long as it's double digit. The lower profitability, mainly caused by one-offs, but of course, we have gone through everything in detail and lots of follow-ups and action plans with the group companies that underdelivered, lots of focus on profitability going into 2026, and we should never have a quarter like this going forward. We have also made some organizational improvements end of last year and beginning of this year, and I will be happy to present those later on in coming quarterly reports. We presented our new long-term financial targets. I will come back to that later in the presentation. The Board has proposed a dividend of SEK 0.28 per share, an increase compared to last year, and we will also come back to that in the financial -- with the financial targets. But summarizing the end of the quarter when it comes to sales, of course, not all gloom. We're very happy that NaturVet really has taken off, 33% growth in the quarter, albeit the quarter last year, Q4 was a weak quarter for NaturVet. But overall, we have 15% on a yearly basis for NaturVet. And as many of you know, the first half year was slow dependent on the rebranding. So we're happy that we were tracking at really high growth numbers for NaturVet. ProDen PlaqueOff continues to grow high double digits, 17% organic growth, 29% year-on-year, a bit lower in Q4, and that was mainly caused by, as many of you know also, the bit lumpiness in the international sales. So some larger international orders came in are delivering now in Q1. But overall, we are very happy with 17% growth also for the quarter. Looking at the different channels, it's online continued to grow a lot. Pet retail also solid, including the Big Box retailers there. And also when we look at our branded products in the vet channel grew, but a soft quarter for contract manufacturing, especially for liquid dermatology, and I'm coming back to that later on. Some explanations of the profitability hit in Q4 that was more of a one-off. Higher marketing costs on Amazon related to transition of NaturVet and Brand Protection will still have some impact in this first half year, but basically getting better month by month. One important thing is that we have started to implement the transparency program for the major NaturVet SKUs here in Q1, and that will have a big impact on that. And Brian Nugent will later on describe that more in detail. We had an ERP implementation in NaturVet. The cost interruptions that affected gross margin and volumes. No impact going forward. We are very happy with the ERP system as is right now. It started functioning really well end of Q4 and no issues now in Q1. So we're happy with the transition. But of course, the implementation caused more problems and took longer time than we expected. Marketing spend to support the Big Box partners. Of course, we knew that was coming. And -- and we have continued, let's say, implementing marketing spend, and we have seen results in increased sales, as you saw, but there was not enough, let's say, control of the actual marketing spend. And going forward, we will definitely have better control on the spending in 2026. Also, as you see on the picture here, we're very happy with the actual display campaign that we have launched in Walmart over 2,000 stores. We are in the ordinary shelves in 1,400 stores, expanded to 600 more. now in January. So we're happy with that. We're not happy with the outcome of the actual cost for the campaign, not a big hit for the quarter. But still, there were some unexpected costs for delivering and setting that up. But all in all, happy with the outcome. I will come back to that. Also, one of our Pet retail-focused brands, Vet Worthy, also have been launching second half year of '25. And the outcome we're happy with, but not the actual cost for it. So going forward, definitely, spend will be aligned with sales growth going forward. Also, we ended up with some higher inventory write-offs than for the other quarters. And we -- like in '24, we had a very average write-off, nothing exceptional, and that is also what we expect going forward into 2026. Jenny, over to you. Jenny Graflind: Yes. Some financial highlights. So revenue for the quarter amounted to SEK 682 million. So for the quarter, it was a 3% growth, which 11% was organic. We had a negative 12% of currency impact for the quarter and 4% was acquired growth. The large currency impact is coming from the stronger krone against the USD, which is the largest currency for the group. However, both the euro and the pound has also weakened quarter-by-quarter in '25. The acquired growth came from Summit, which we acquired in April. So for the full year '25, the net revenue amounted to SEK 2.7 billion. This is compared to SEK 2.5 billion last year. So we had an organic growth of 9% for the full year. The operational gross margin is at 56.8%. There are 2 main reasons for the lower margin. Hakan mentioned a little bit of it. There was, first of all, additional write-offs this quarter compared to other quarters when it comes to inventory. This partly is due to discontinued product lines or products, for example, human products that we don't focus so much on anymore. There was some acquired inventory that we had to write off and then a well issue with one of the brands, which will -- we'll be focusing much more on NaturVet by Swedencare in 2026. The second reason is this low-margin display campaign that you just saw the picture of Walmart. So these 2 together, these 2 reasons had an impact of about 1.5 percentage points. So otherwise, we would have been slightly above 58%, which is the level that we have been at for the last, I would say, 2 years. The external cost is increasing, as we have mentioned before, with the growth of Amazon, there's costs which are directly linked to the sales. However, in addition, this quarter, there was also the significant marketing initiatives in connection with the Big Box launch. And there's also additional marketing costs linked to Black Week, which occurs in Q4. Personal cost is stable, in line with the percentage of sales for the full year 2025. So as a result, the operational EBITDA amounts to SEK 109 million for the quarter. This is a decrease of 25% compared to Q4 last year and a margin of 15.9%. For the full year 2025, operating EBITDA is SEK 511 million and a margin of 19%. Cash and our net debt to EBITDA. Our net debt to EBITDA is at 2.9% at year-end or 2.9% at year-end. This is an increase both compared to a year ago due to the acquisition that we made in Q2 this year, and it's also an increase compared to Q3 due to the fact that we had a lower EBITDA this quarter. Our cash conversion was at 41% for the quarter. There was only very minor changes to the working capital in the quarter. However, we have made larger tax payments this quarter, which is impacting this operating cash flow. During the quarter, we have repaid SEK 65 million on our external long-term debt loans. And for the full year, we have repaid SEK 233 million. With the cash pool structure that we have in place, it's complete in the U.S., and we also have a good progress in Europe. We are able to operate with a lower cash level. So we have been able to reduce this by SEK 83 million during the year. So instead of this cash -- having a large operating cash, we can now use it to decrease our debt level, which is, of course, resulting in lower financing costs. Our CapEx is below 2% of net sales, both for the quarter and for the full year. Rolling 4 quarters. As you can see, the revenue for the rolling 12 months is increasing. However, both the operating EBITDA and the EBITDA has decreased due to this weaker profitability that we have in Q4. In 2025, the majority of the difference between the reporting EBITDA and operational EBITDA is the fair market adjustment that we have made with acquired inventory for Summit. That amounts to SEK 48 million for the year. Product and brand split. These graphs are not -- so the graphs and the amounts are not adjusted for acquisition or currency. However, as you can see, we have added a line below the graphs for organic growth because it's more of a fair comparison as everything has basically a large negative currency impact this year. So if we look to the left, you can see that there's a double-digit growth in nutraceuticals, partly due to the good private label sales. We also have good growth in Dental, 23% organic, mainly ProDen PlaqueOff, but there is also good improvements in both the toothpaste and the dental wipes. We get a decline in topicals. This is mainly linked to the decrease that we have in contract manufacturing business. Hakan will come back to that. In pharma, that has the largest increase in growth, which is due to the acquisition of Summit, but it has a decline in organic growth due to the delayed pharma projects. If you look on the right to the brand split, there's the same thing here. Graph is not currency adjusted, but the organic is -- the organic one is, of course, currency adjusted. So NaturVet, PlaqueOff and, NaturVet and Riley's are the fastest-growing brands in this group for the quarter, all has about 50% organic growth. Contract manufacturing has decreased due to the weaker vet channel and delayed pharma projects. Note, however, that the internal revenue in our manufacturing facility has increased with about 15% for the quarter. So when we move and we increase production in-house, this supports the other segments, but it affects the Production segment's organic growth negative because it's eliminated on a group level. Private label has also had good growth this quarter with larger orders at the end of the year. And the reason why other has strong growth, but low organic is that the growth is coming from Summit. Now over to Lagerberg. Hakan Lagerberg: Yes. Looking at the different segments. Net sales for North America, SEK 410 million, 7% growth, not currency adjusted and organic 22%. So the strongest quarter for the year by far. And on a yearly average -- a yearly number, it's 12% growth for North America. So we are very happy that North America has started to bounce back at very high growth numbers. Predominantly, online and Pet retail business -- Big Box retailers are the drivers. As we mentioned before, NaturVet, ProDen PlaqueOff and Riley's all had very strong quarters. The NaturVet big display campaign that we did send out in Q4 and had the cost and the sales didn't affect Q4, but we have seen an immediate impact on the out-the-door sales at Walmart. So almost doubling sales in store from first week of January and the trend continues in Q4 or in February. So we're very happy with that and also, of course, have made lots of influencers and social media campaigns about this that we are available in even more Walmart stores. Vet Worthy, as I mentioned, now present in plus 500 retail stores and also, I think, 6 or 7 distributors nationwide. So lots of focus on that as well, not as costly when it comes to marketing, but still more focused on moms and pop stores, and we saw a gap in the market for a new brand or a relaunch of that brand. Private label, as Jenny said, a strong quarter and really focused on that as well, evenly out our, let's say, manufacturing capabilities and -- going forward, we do have both concluded some new deals and also in negotiations. So we see private label as an important part of our product offering, and we do see it's an advantage when discussing branded products in -- with bigger retailers and Big Box retailers. Treats, interesting and keep on growing. It's actually some of the products that we don't manufacture ourselves. So we have had some supply issues that could have been an even stronger quarter. So we are looking into widening our supply for these kind of organic treats. Europe has had a strong year overall and also Q4 was double digit, 10% and on an average for the year, 14%. I expect going forward that Europe will continue to grow fast and actually a bit more than the 10%. But we're very happy with as long as it's double digit, as you know. Overall, all of the group companies in U.K., where we have NaturVet, we have Swedencare U.K. focusing nowadays more on online sales, but also they have joint projects together for the Pet retail side, has been performing really, really well. We have kept on building out the Amazon team. The Amazon team in U.K. is responsible for all marketing and sales in the rest of EU as well. But as some of you perhaps remember, we have satellites out in Europe. We think it's very important to have a local presence. So we have 1 or 2 based in different European countries responsible for sales and marketing on social media and Amazon, and it has turned out as really good, and we will continue to look at different markets there. Italy had a very strong profitability, like always, basically, single-digit growth, basically growing at -- like the market, but the comps from last year was the strongest quarter last year. So happy with that, even though it wasn't double digit. And looking at -- and here in the European sales, we also add our international export sales for mainly ProDen PlaqueOff. As I said previously, a bit weaker quarter, but some big orders came in late and will be shipped out in January and has been shipped out in January and will go out this quarter. Yes. And then looking at production, SEK 112 million in sales. and the organic growth was minus 16%. And it's still a cautious vet market for contract manufacturer. We do see some lowering in prebooked orders and also pushing some orders. So we are working together with our major customers there. See an improvement later this year, not already in Q1, but Q2 definitely picking up. So hopefully, we have been at the lowest market for that. But as Jenny said, we are also focusing a lot on internal projects, new launches there and have agreed with some new customers for new product lines. I will present that in the next slide. Also something that was the flavor of 2025, some delays in pharma projects, very annoying, but happy to say that we've now kicked off 2026 really well and expect all the quarters in the sector to be a stronger quarter than last year. So we're very happy with that. And that's one of the entities where we made some organizational changes to better respond to the customer demand and from our internal, let's say, project planning. So looking forward to 2026 when it comes to pharma development and manufacturing. On that topic, we have now in Q1 signed 2 new material projects. One of them is the ophthalmic facility that we presented that we were investing in. That is on track, completed in Q1, Q2. First customer now signed if we had an had, let's say, understanding and an agreement for development, but now we also have signed for the tech transfer and the manufacturing that will start in end of Q2, hopefully, or early Q3. So that's a big milestone for us. And when we have started the manufacturing for this first project, we do have other customers in line and discussing this. This seems to be a lack of, let's say, capacity on this when it comes to the pharma side. Also increase of internal revenue of 15% eliminated on group level, like Jenny said, and it's also relating to the growth we've had in our branded sales, but also preparing for 2026. Looking at next quarter, Vetio U.K., Ireland and North, all bounced back with increase of external customers. And as I said, when it comes to the liquids, still a bit challenging, but looking a lot better from Q2. And we are trying to push some of that -- those projects into Q1, working hard on that. Lots of product launches when it comes to 2026. I won't go through all of these, but I want to highlight Calmaiia (sic) [ Calmalia ] from Innovet. As many of you know, it's -- Innovet is our, let's say, most R&D-focused organization, lots of IP and lots of clinicals in every launch there. So we have a new and innovative patented combination of Trytofan (sic) [ Tryptophan ] and PEA Ultra Micronized and have had really, really good clinicals on that. So we are eagerly awaiting the launch for that. And then also, I would like to highlight the stretch for a completely new and improved K2C product line. That's a legacy line with plus 15 different SKUs and has always been a strong seller, both from a branded perspective, but also when it comes to private label solutions. And we have now been working in almost 2 years to improve that and adding a special ceramide solution called CeraGuard, also with excellent clinicals, expanding the reach and the effectiveness of the product. And we have just started to launch it with lots of interest from the market and have basically signed all of the major customers to revamp their private label solutions to this offering. So that will have a big impact for us in 2026. Our new financial targets that we presented, we're adding another target. So we have annual double-digit organic growth going forward. And also, we have said that we will establish an operative EBITDA margin above 26% midterm. And what midterm means is during 2028. We see these new financial targets as a 5-year plan from '26. Dividend, 40% of net profit adjusted for nonoperating costs. And we will take into account, of course, consolidation and investment needs, liquidity and financial position. And speaking about our dividends since our first pay 2021, historically, we have increased it annually between 5% and 25%. This year's proposal of SEK 0.28 is 13% of the net profit adjusted for nonoperating costs. Net debt to EBITDA being under 2, the long-term target with flexibility for acquisitions. And we do have room for utilizing our credit lines up to around 3.5. So -- going forward, we will continue as we have. We have continued to amortize. So that will be one factor to getting the net debt down, of course. But also, like Jenny said, this quarter where we went up from 2.7 to 2.9 was -- even though we did amortize SEK 65 million was due to the lower EBITDA. And what we see going forward is, of course, the increased EBITDA together with amortizations, we will be working towards 2.0. We are not stressed, but you should expect that we continue to get the net debt down. Structural key growth drivers for the coming years. Yes, for looking at Swedencare as a group, we've been very active when it comes to M&A up until 2022. Going forward, it is a bit more challenging for us to find interesting M&A targets. We do like to add unique companies and product lines to the group like we did with Summit Vet earlier 2025. But going forward, M&A will not be as important for our growth driver as it has been. So what we see in the coming years is definitely our Pharma division is expected to be one of the fastest-growing product groups, supported by a strong pipeline and good visibility from contracted projects. And it's basically that the manufacturing grows a lot. We -- a couple of years ago, we were basically only doing development work with a very, very minor manufacturing capabilities. Now we have built that out, and we continue to do that. And we see that it is a very good add-on to the -- of course, to our growth. The Big Box retailers, big channel opportunity, the same size as traditional Pet retail and we will continue to work on that. We have just started, and it's a long-term project. So we see lots of opportunities there. Amazon will continue. D2C, what we call D2C is when we sell direct to the consumer, not through the platforms. As you know, we are heavy on platforms collaborations, Amazon, Chewy, the Zooplus in Europe. We do investigate and see the D2C as a very interesting part as well, not only to increase sales, but also to get more direct contact with end consumers. Product portfolio and innovation, of course, product portfolio expansion is one of the key elements for Swedencare is that we take innovative good products that we sell under one brand and expand that to other brands. And then, of course, continue to come out with new products in a fast way like we always have. Then finally, pricing opportunities. We do see that selective pricing initiatives remain available, supported by strong brands and limited historical price increases. And also, I would like to say that comparing products, we do have, I would say, on average, we do have high-quality products, mostly priced at a bit lower level than comparable competitors. So we do see opportunities for us there. And yes, over to Brian. Brian Nugent: Good morning. I'm Brian Nugent, Chief Commercial Officer for Swedencare North America, and I have oversight of our North American veterinary and online operations. Today, we'll be discussing Swedencare North America's online division, Pet MD. Swedencare's online mission statement, while seemingly wordy, can be simply summarized by saying we will meet pet parents where it's convenient for them. Our North American online division is Pet MD. Acquired by Swedencare in 2021, Pet MD was founded by Ed Holden, who continues to manage both Pet MD, the company as well as the online sales of other Swedencare owned brands. Pet MD is coming off year-over-year online growth of 20%. It's important to note that the original Pet MD team is still intact and continue to utilize its proprietary systems and in-house algorithms created to assess advertising and ad resource allocation, respectively. This consistency is important for maximum optimization. Pet MD primarily sells through leading online players like Chewy and Amazon and to a lesser extent, D2C and other e-tailers. We also handle all the creative for Pet MD and other Swedencare online brands in-house. This includes photos, videos and all creative enhanced brand content. Our primary focus is to leverage Swedencare owned brands and support the products that we manufacture within Swedencare, which, of course, gives us the highest margin opportunity. We'll now run through the top Swedencare brands Pet MD handles. The main brand, of course, is Pet MD, which we acquired in 2021, as I said, and continues to grow year-over-year. The Pet MD brand acts as the train tracks for Swedencare's other online brands. That is we utilize all the Pet MD systems that we built to manage our other Swedencare brands. Pet MD is mature, has great recognition, and it's important to note that this brand also has only been available online. It's never been sold in the retail outlet. We are, however, exploring options related to this in the near future. The next brand is ProDen PlaqueOff, Swedencare's core and flagship product. PlaqueOff is the premium oral health care product for pets and it's a high-margin operator. Because of the uniqueness and high margin of PlaqueOff, great focus is paid on this brand. PlaqueOff grew 30% online year-over-year, and we expect it will continue with additional focus and support. Riley's is Swedencare's entry into the premium treat category. We acquired Riley's in 2024 and for good reason as premium treats are a really interesting category to us because they have high reorder and subscribe and save rates. The average premium treat buyer is purchasing 16x a year. That high frequency drives strong customer lifetime value and extreme brand loyalty. Riley's also grew online 30% year-over-year. Rx Vitamins is unique in that its original -- its origin is in a veterinary brand that's sold in over 5,000 hospitals. It has unique evidence-based science formulations, which pet owners are very loyal to. Often, these pet owners want to reorder online. And as our simplified mission states noted, we will meet the pet parents wherever they would like to meet, in this case, online. VetClassics is a science-based line as well, and it was a brand that was acquired through the Garmon NaturVet acquisition. Pet MD handles the online sales of VetClassics, and it has a range of unique delivery forms consisting of powders, tablets and soft chews. Like Rx Vitamins, it is primarily sold through veterinary hospitals as it was originally developed by a veterinarian. And finally, NaturVet. It's Swedencare's premium retail brand. It's currently sold in PetSmart, PETCO, Walmart, Tractor Supply as well as other national retailers, as Hakan previously said. The NaturVet range was previously sold on Amazon and Chewy via a third-party relationship. Pet MD completed the takeover of Amazon sales in April of 2025. Full margins are now being fully recognized following the sell-through of the acquired inventory. But that's not to say we haven't had our challenges with NaturVet. While we were able to learn lessons from when we took over ProDen PlaqueOff, NaturVet provided some unexpected issues. Some of these issues we have sorted through and some we are still sorting through. An example is the rebranding of old labels versus new labels. When you're rebranding an Amazon listing, it's a very tedious process, and you want to ensure that you keep your reviews and your ratings as a lot of things can go wrong during the changeover process. We're happy to report that this process is now 98% complete. Another challenge is rogue sellers or third parties that purchase the product via distribution and attempt to sell on Amazon platform without conforming to MAP pricing. As of January, we have adjusted for 2026 MAP pricing increases and of course, going back to third parties, we are just now implementing an Amazon anti-counterfeit program called transparency, which Hakan mentioned previously. We are now in the middle of getting this program launched on the majority of NaturVet products, and this will ensure that there will be no third parties or counterfeit sellers of NaturVet products on the Amazon platform. Pet MD's continued initiatives to market and to grow the Swedencare brands online with a focus on launching internally manufactured products under existing brands via line extensions. Also to continue to be selective and acquire brand assets when opportunities arise. Once acquired, we can quickly plug those acquired assets into the Pet MD model in order to scale growth. It's the plug-and-play model similar to what was achieved with Riley's. And finally, we're going to continue the optimization of advertising efficiency, aiming to scale online brand sales while efficiently monitoring ad spend. And with that, I'll turn it back to Hakan and Jenny. Thanks for your time. Emma Nordgren: Thank you, Brian. And by that, we are open for questions. And your first one comes from [ Johan ]. Unknown Analyst: A few ones from my side. First off, if we continue on the topic of NaturVet's Amazon account. So what happened during Q4 specifically? You took over the account earlier this year and sort of what went wrong specifically in Q4 that hurt your margins so badly? And if possible, could you quantify the loss in -- both in terms of revenue and margins in the quarter? Hakan Lagerberg: I can start and then you can Jenney and Brian, if you have anything. It's mainly related to, like Brian said, the rogue sellers coming in. And when we establish programs launch or promoting the trademark, the actual brand, then we take the costs for that and expect to get the top line sales for all of those marketing initiatives. Amazon has different programs. You have a certain percentage that you pay when you sell a product, and that's fine. But since we are owning the brand, we're owning the product line, we make investments and programs and then all of a sudden, someone comes in and lowers the price and get the so-called buy box. And if we want to get the buy box back, then we need to lower our prices and then you're in a, let's say, spiraling down project. So it's been very tedious and tough and a lot tougher in Q4 than the previous quarters for different reasons. It could be that some distributors were selling products out to rogue sellers that didn't do that during Q2 and Q3. And yes, otherwise. But to quantify -- I don't want to quantify it, but it has had a substantial impact on our profitability. I would like to say that. I don't know if you have anything to add, Brian. Brian Nugent: No, as Hakan said it. I think that we bottomed on that. And as I said, we're just now in the process of setting up the transparency program, which will help eliminate third parties from being able to do that in the future. Unknown Analyst: Okay. Got it. Got it. And so 98% of the products are relabeled. So the only sort of issue, so to speak, should be the rouge sellers going forward, right? Do you have any sort of time line on the transparency program? And again, what kind of margin drag do you expect from the coming quarters? Hakan Lagerberg: Yes, the program as such as it works is that when we have launched a transparency code on a product, special SKU, then the same products that are in the Amazon warehouses, they are allowed to be sold out, but they are not allowed to be shipped any new ones in. And we don't have full access of the volumes. We -- for some, we can see the volumes. But I would expect that the programs will have come into full force in Q2, not in Q1, but we will see improvements in Q1. Unknown Analyst: Okay. Cool. Got it. And on the NaturVet, the Big Box Walmart launch, you stated that sales almost doubled in January, which, of course, is impressive, but says very little to us outsiders as we don't know from what base. So to give some depth to that statement, what kind of sales contribution from Walmart thus far are we talking about? Hakan Lagerberg: I mean second half year of '25, we sold a bit over SEK 3 million, SEK 3.5 million, I think. roughly to Amazon. And to calculate how much they have sold, we don't have that exact number. So -- but half year, plus SEK 3 million of sales for second half year for Swedencare to Walmart. Unknown Analyst: Got it. Cool. And the second -- or third question actually is on the gross margin. So you quantified the impact from low-margin display campaigns and inventory to roughly 1.5 percentage points in the quarter. The latter, of course, you stated it was nonrecurring, but how will the sort of negative mix effect from the display campaigns impact your gross margins in Q2 and Q1? Jenny Graflind: How the display campaign is going to impact in Q1? It's not going to impact in Q1. It's done. Hakan Lagerberg: So that was only product relating to Q4 sales that... Jenny Graflind: Yes. Hakan Lagerberg: … the full contribution margin from Q1. Jenny Graflind: Yes. It was just a specific campaign. It was just more expensive to both produce and to ship those -- the nice picture that we showed you. Unknown Analyst: Okay. Got it. So all else being equal, then we should see gross margins in 2026 recovering to the sort of adjusted gross margin level that we saw in 2025? Jenny Graflind: Yes. Unknown Analyst: Got it. And continuing another question for you, Jenny, perhaps. Any chance that you could break down the external cost increase in the quarter? How much of external costs in the quarter were related to marketing, for example? Jenny Graflind: No, no. But I mean, the majority of the increase is linked to marketing. It's both linked to this Amazon marketing, as I was mentioning, for example, the Black Week, for example, it would have more -- it's more expensive to market on Amazon in Q4. And then it's this additional marketing initiatives with Big Box. Unknown Analyst: Okay. So how should one think about your marketing spend coming quarters then? Jenny Graflind: Well, the marketing spend, we're not going to have this one-off campaign in Q1. However, marketing spend to Big Box is going to continue to increase. However, we are expecting the volume to be more matched. We didn't have the volume. We didn't have the revenue to match the campaigns. However, marketing is going to continue. Unknown Analyst: Okay. Got it. And then a final one, if I may. So Production segment sales fell by 16% in Q4, partly due to contract manufacturing, but also postponement of pharma projects into 2026. Focusing on pharma here specifically, you sounded very optimistic on the conference call. And of course, you've stated that this is a key top line and margin driver in 2026. But given that we saw another postponement here in Q4, what makes you confident that 2026 will be different? Hakan Lagerberg: It is that we have already started a couple of big projects in Q1, and they will continue in Q2. And as I said, the ophthalmic project that we have -- that we are in the process of getting all set there, we also have signed a contract with a customer that is in, let's say, in hurry. They want us to start manufacturing as soon as we can. So we're working really hard on that. So there are no external factors that could change those facts. Unknown Analyst: Okay. Got it. And on sort of the timing of those projects, the ones that started in Q1, what sort of -- what time frames are we talking here before we can see a contribution to sales? Hakan Lagerberg: In the pharma for Vetio North, you will see a strong performance already in Q1 compared to last year when it comes to sales, definitely. Unknown Analyst: Got it. Lovely. If I may, one final just clarification on your targets. You stated during the call that the targets are for midterm, which implies 5 years. But you then said that in the same sentence that you expect to reach your margin target by 2028. So just to clarify... Hakan Lagerberg: What I meant with midterm, midterm of the 5 years. Unknown Analyst: Okay. So the 2028 doesn't -- it's a 2030 target? Hakan Lagerberg: No. I expect – Jenny Graflind: It's a 5-year plan. Hakan Lagerberg: It's a 5-year plan. But from 2028, I expect us to be on that target. Emma Nordgren: Your next question comes from [ Adrian ]. Unknown Analyst: And a few questions from me as well, please. Just want to begin here with 2026. It looks like a strong year when it comes to the growth rate with everything going on here. But I guess the recent deviation here, at least in recent history has been in terms of margins, right? You can explain that a lot of these margins are kind of one-off-ish. But how can you -- how -- like what should we expect for the cost or when it comes to the margin looking into 2026? Like how confident can you be that you don't meet any other short-term marketing campaigns that you have to do? How can we have confidence in basically the cost remaining low here? Hakan Lagerberg: I mean it's -- this -- as I explained a couple of these, it's been -- some of these launch campaigns, of course, has been needed to do, and we did that in Q4. We don't have the same launches first half next year. We -- as Jenny said, we will continue to market and collaborate with our customers. But it will be in line with the sales in a much better way than we did -- were able to do in Q4. And it's a combination of the actual projects. It's a combination of, as I said, we made some organizational changes, better control. And some of this, like you said, it was campaigns that we needed to do for the agreements that we did -- that we have with our customers. But those launch campaigns are done for '25. We don't foresee them in '26, first half year at least, then it dependent on if we sign any new major customers, then we have learned the lesson how we handle this quarter. And I would like to add also that there -- I mean, it was a quarter that, as I said, I'm very disappointed how we handled it when it comes to the cost structure, and it won't be repeated. We are going through everything, and we have lots of cost initiatives when it comes to projects and increased profitability. So the team is really motivated and we are on it a lot better than we did. We definitely failed in Q4. And now we have to rebuild the trust. And the way to rebuild that trust is that we show a couple of quarters with improved margins and improved EBITDA, of course. Unknown Analyst: Yes. Right. Exactly. So kind of a follow-up question here. Like what visibility do you have for the marketing budget throughout the entire year? Do you know already today what the marketing budget will be throughout 2026? Or can there be unexpected marketing investments during a short-term time frame? Hakan Lagerberg: The only unexpected, I would say, is if sales grow even faster than we anticipated in our budgets, then, of course, the marketing spend will increase, but it will be in line with profitability. So we will grow with keeping the targeted profitability what we have set for this year. Unknown Analyst: Perfect. And another question here. You mentioned that you doubled sales here in January, right? And I can I assume that some of this is driven at least by this low gross margin display campaign. You explained that you took the cost in Q4 and that the gross margin going ahead should be good. But when this campaign runs out, I expect you should see some difficult comps from that maybe on a sequential basis. Could you give us any color on sort of the normal sort of Walmart's release here, excluding the onetime display thing [indiscernible] performing? Hakan Lagerberg: Yes, displays campaigns are important, of course, because when looking at retailers in the U.S., you put up products, most of the retailer does. They put up products under therapy area. So Joint product is lumped together with all of the different brands, then you have dental products, all of the different brands, et cetera. The problem when launching a new brand into a retailer is, of course, to get the customers to see your product. And of course, displays campaign, like you saw on the picture, is extremely important to -- and we are very happy and it's not an easy thing to get an agreement with Walmart for such a big display. So it's a big display, but on a different part of -- in the stores, showing all of the products that we have in the ordinary assortment, all of those products are in the display. So like you said, it's -- we do it because we want to really enlighten the customers that we are present at Walmart buy our product there. So if they take a product from the display campaign, next time when they come back 2 months later, the display is not there, but then they will find exactly the same product in the ordinary shelves. So that's the whole reasoning by these display campaigns. Then coming back to what Jenny said, next time we will make a display campaign, it won't have such a big impact on the gross margin. We will make it smarter and better next time. Unknown Analyst: Fair enough. Another question here on the inventory write-offs. They were kind of bigger than expected, I suppose. Could you confirm that these are nonrecurring? And kind of what happened there that made them such a deviation from your expectations? Jenny Graflind: Well, there's always going to be some level of write-offs every year and every quarter. It's just that this year, about 50% of the inventory write-off came in Q4. There was a couple of product lines. There was a couple of acquired inventory that we have to write off. So it was just a higher level this quarter than we normally have in Q4. Hakan Lagerberg: And that became visible very late in the quarter. Jenny Graflind: Yes. Unknown Analyst: You mean 50% of the year inventory write-off? Jenny Graflind: Yes. Unknown Analyst: Right. Okay. Last question, if that's fine. So going back to the midterm operational EBITDA margin here of some 26% -- you mentioned the time line here, but could we have some color on kind of the contribution? Like where do we expect the margin to come from? Is this really driven by the Production segment, which is margin accretive or the gross margin? Or how should we think about it? Hakan Lagerberg: No, I would say that coming back to normal margins from our biggest brand, NaturVet, that has had a big impact for us in 2025. So just by coming back to ordinary margins of what we expect for NaturVet, that's the biggest driver, I would say, short term, the coming 2 years. And then, of course, getting our Amazon sales in line with the expected profitability. That's -- since online sales is now well over SEK 100 million I mean, there was '25, and it will grow even more in '26. Of course, every percentage, we improve profitability when it comes to our online sales, primarily on Amazon has a huge impact. But then we have our, let's say, smaller entities, including pharma, where we have significantly higher margin compared to, let's say, group average. That is, of course, very accretive to our overall profitability increase when we can -- when we manage to grow those, let's say, smaller entities into higher growth targets -- numbers, sorry. Emma Nordgren: And your next question comes from Adela. Adela Dashian: Adela from Jefferies. I guess I'm also going to stay on this track trying to figure out what exactly happened in Q4. I'm assuming that you had some sort of marketing budget set ahead of the year, ahead of the quarter. So was this just -- I mean, how was this not flagged on a group level earlier? And is this an individual team that was in charge of this and it just was sideways and what, I guess, reporting, what type of measures are you now implementing so that this never happens again? Hakan Lagerberg: Yes. I mean it's a couple of, let's say, things affecting. Like Brian explained, the problem for us that hit the -- it is -- you could call it marketing, but when selling on Amazon, when we get a higher cost there, we can't just shut it up because it's our brand. If we shut down, let's say, the branded marketing for our products, then competing brands will take those sales. So we can't really shut that down. And that's -- or we can, but then we will lose sales on -- both on the short term, but also definitely on the longer term. So even though you have a budget and linked to the metrics when it comes to Amazon sales, it is very tough when getting hit with all of these rouge sellers. So that's harder to, let's say, forecast and foresee. When it comes to the launch campaigns linked to the Big Box retailers, it's definitely that that there was a lack in control in the organization on the actual spend linked to the sales orders and all of that. So we have -- we took immediate effect with some organizational changes. And then we have also implemented and following up a lot closer when it comes to spend. So I'm confident going forward that we now have the organization that is not only focused on, let's say, sales and marketing, but very much linked to the actual profitability of the brand. So -- but coming back to that, we need to show it, and that's what we intend to do going forward. Adela Dashian: Hakan, but just to clarify then, so there has been changes to the organization and the team has been replaced? Hakan Lagerberg: Yes, not the whole team, but there has been changes, yes, and improvements. Adela Dashian: Okay. All right. There's already been a lot of questions answered. So I'll just stop there. Emma Nordgren: Our last question comes from [ Christian ]. Unknown Analyst: I'm not sure if I captured if you mentioned the amount of one-off items in Q4. So would it be possible to disclose the underlying operational EBITDA margin in Q4, excluding these one-off items? Jenny Graflind: No. No, we're not going to do that. We're not going to adjust for it because part of it is operational. So no, and for example, like I said, even though the marketing spend has been high, yes, we have mentioned in the gross margin, how much the display campaign affect the gross margin and the inventory as well. However, the marketing on the Big Box, it will continue. It's just that we are expecting more sales connected to it. So it's not like a one-off marketing spend on Big Box. It will continue. Unknown Analyst: Okay. Great. And you also mentioned that the ERP implementation caused disruptions that affected the gross margin and volumes. Could you quantify the impact on Q4 sales? Jenny Graflind: Again, it's difficult to quantify when you have disruptions and you have things that takes a little bit longer time. But of course, if we did not have this ERP change in Q4, we probably would have got out a lot of more orders in the beginning of October, which would have expected to have reorders from those kind of customers already in Q4. So now we didn't get those because there was delays due to the implementation of the ERP. A lot of people are busy with it, and there's a learning curve, et cetera. But it's not going to be quantified. Emma Nordgren: It seems like Adela have one more question. Adela Dashian: Just a follow-up on marketing spend. You mentioned, Hakan earlier that the only reason marketing spend could be significantly higher again in '26 is if you have higher volumes, higher than what you're expecting. Could you just, I guess, explain that reasoning? Like if you already are seeing good growth, good numbers, then why do you need to spend more on marketing? Hakan Lagerberg: No. What I meant -- I don't mean more in percentage of the sales. I mean in actual dollars or kroner it will be higher. Jenny Graflind: It could be linked to, for example, if we get another new retailers, et cetera, as well. Emma Nordgren: Thank you. That concludes our Q&A session. So back to you guys for any closing comments. Hakan Lagerberg: Thank you so much. I just want to close out with underlining our, let's say, disappointment with the quarter when it comes to profitability. And rest assured that you all know that the Board and many lots in the organizations are important shareholders of Swedencare, and we're very focused on shareholder value and creating that. So we are disappointed, but are actively working very hard and looking over everything, and we will try to come back and be -- and surprise the market this year. So we stay tuned, and I thank you for your support. And as I want to underline once again, we are very focused in improving profitability going forward. Emma Nordgren: Thank you very much. Hakan Lagerberg: Thank you. Bye. Jenny Graflind: Bye. Brian Nugent: Bye.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Gates Industrial Corporation plc Fourth Quarter and Full Year 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. To ask a question, please press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, again press star 1. I would now like to turn the conference over to Richard Kwas, VP of Investor Relations and Strategy. Richard, please go ahead. Richard Kwas: Greetings, and thank you for joining us on our fourth quarter and full year 2025 earnings call. I will briefly cover our non-GAAP and forward-looking language before passing the call over to our CEO, Ivo Jurek, who will be followed by L. Brooks Mallard, our CFO. Before the market opened today, we published our fourth quarter and full year 2025 results. A copy of the release is available on our website at investors.gates.com. Our call this morning is being webcast and is accompanied by a slide presentation. On this call, we will refer to certain non-GAAP financial measures that we believe are useful in evaluating our performance. Reconciliations of historical non-GAAP financial measures are included in our earnings release and the slide presentation, each of which is available in the Investor Relations section of our website. Please refer now to Slide 2 of the presentation, which provides a reminder that our remarks will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks that could cause actual results to be materially different from those expressed in or implied by such forward-looking statements. These risks include, among others, matters that we have described in our most recent annual report on Form 10-K and in other filings we make with the SEC, including our Q3 quarterly report on Form 10-Q that was filed in October 2025. We disclaim any obligation to update these forward-looking statements. We will be attending several conferences over the coming weeks and look forward to meeting with many of you. Before we start, please note that all comparisons are against the prior year period unless stated otherwise. Also, moving forward, please note we will be making changes to our geographic disclosures in our future presentations. We will consolidate China and East Asia, and India into an Asia Pacific disclosure, and we will consolidate North America and South America into an Americas disclosure. This approach aligns with how we manage our in-region-for-region strategy. I will now turn the call over to Ivo. Thank you. Ivo Jurek: Thank you, Rich. Good morning, everyone, and thank you for joining us. Let us begin on Slide 3 of the presentation. Let me begin with a brief recap of the year. Gates delivered solid results in 2025. We posted nearly 1% core growth and outperformed our end markets, many of which remain in contraction. Our secular growth drivers are accelerating with personal mobility business exceeding 25% core growth in 2025, and our data center business growing 4x compared to 2024. In addition, the Gates team delivered record adjusted earnings metrics in 2025 during an uneven macro environment, producing both record adjusted EBITDA dollars and record adjusted EPS. Furthermore, we have made incremental improvements to our balance sheet, bringing our net leverage ratio down to 1.85x at year-end 2025. We returned capital to shareholders via share repurchases and were aggressive during the fourth quarter, repurchasing over $100 million of our shares at an attractive valuation. We believe our business is well positioned to accelerate core growth with our various strategic top-line initiatives as well as to expand margins. In essence, we are exiting the down cycle with a structurally improved business while delivering near-record adjusted EBITDA margin performance. We entered 2026 with cautious optimism about an industrial demand recovery. Book-to-bill exiting 2025 was nicely above 1x, and order trends in January sustained a positive threshold. We are seeing improving industrial OEM demand activity and are positioned to support an uptick in demand. Enterprise resource planning system transition has kicked off successfully, and we are operating our business in Europe a bit ahead of our expectations. Other footprint optimization initiatives are also on track. Brooks will provide more color on these items and our 2026 guidance later in the presentation. On Slide 4, we show our record performance against key financial metrics for 2025. Adjusted EBITDA dollars grew to an all-time record, and we generated near-record adjusted EBITDA margins. Our adjusted EPS grew 9% to a record $1.52, which was the top end of our guidance. It was, we believe, a troughing demand landscape accompanied by uncertain trade policy. Our net leverage ratio decreased by almost 0.4 turns, and we finished below 2x net leverage for the first time. We are proud of these accomplishments and believe the company is well positioned moving forward to capitalize on a potential industrial recovery. Please turn to Slide 5 to review our full year EPS performance. Our adjusted EPS grew $0.13, or 9% year over year, to $1.52. The bulk of the year-over-year growth in adjusted EPS came from operating performance, which contributed $0.10 year over year. We were pleased with the operating performance contribution, particularly considering the relatively soft demand backdrop in several of our end markets. On Slide 6, I will review our fourth quarter results. Sales were $856 million, which represented core growth of nearly 1%. Total revenues grew slightly above 3% and benefited from favorable foreign currency translation. At the end market level, while mixed, we realized growth in our industrial markets led by the off-highway markets and personal mobility. A decrease in automotive OEM was a partial offset. At the channel level, OEM sales expanded approximately 4% while aftermarket sales declined about 1%. Aftermarket did not increase as much as expected as many of our distributors carefully managed their inventory into calendar year-end. In addition, we faced a difficult comparison from the prior year period. We were pleased with the growth in OEM sales which represented a nice step up from third quarter levels. Our adjusted EBITDA approximated $188 million in the fourth quarter and our adjusted EBITDA margin measured 21.9%, up approximately 10 basis points compared to the prior year period. We managed SG&A spending well, which offset unfavorable mix and lower production output. Our adjusted earnings per share was $0.38, an increase of approximately 7% year over year. Higher operating income contributed to the year-over-year growth partially offset by other items. On Slide 7, we will cover our segment highlights. In Power Transmission segment, we generated revenues of $537 million in the quarter and flat core growth versus prior year period. Our personal mobility business grew 28% year over year, and our off-highway business expanded low single digits. At the channel level, our automotive OEM business decreased, but our industrial OEM sales grew solid double digits year over year. In the Fluid Power segment, our sales were $320 million and approximated 1% core growth. Our off-highway markets grew low double digits, partially offset by declines in on-highway, diversified industrial, and energy. At the channel level, industrial aftermarket sales declined mid-single digits, partially offset by a mid-single digits increase in industrial OEM sales. Our automotive aftermarket increased high single digits compared to the prior year period. I will now pass the call over to Brooks for further comments on our results. Thank you, Ivo. L. Brooks Mallard: I will begin on Slide 8 and discuss our core sales performance by region. In North America, core sales decreased about 2.5% in Q4 compared to the prior year period. At the channel level, aftermarket sales decreased low single digits and OEM sales were about flat. The aftermarket decrease was influenced by distributor inventory management that Ivo referenced earlier in his remarks, as well as a tough automotive aftermarket comparison as we started loading new product for the North American distribution partner we secured in 2024 during the fourth quarter of last year. We saw a nice increase in OEM industrial sales which were up approximately 4% offset by lower automotive OEM sales. At the end market level, core sales in diversified industrial, commercial on-highway, and automotive fell versus the year-ago period, while off-highway and personal mobility increased. In EMEA, core sales grew 5.8% in Q4 compared to the prior year period. Industrial markets are beginning to recover with construction, agriculture, and personal mobility all producing double-digit growth. Commercial on-highway and diversified industrial also posted solid growth while automotive OEM was a headwind. At the channel level, OEM sales increased double digits while aftermarket sales expanded low single digits. China core sales grew about 3.5% year over year. Industrial markets were mixed, but we experienced strong growth in commercial on-highway, personal mobility, and construction. Automotive OEM declined. East Asia and India realized a slight decrease in core sales versus last year. Declines in diversified industrial and automotive more than offset growth in agriculture and commercial on-highway. In South America, our core sales in Q4 grew slightly compared to the prior year period, fueled by commercial on-highway and agriculture partially offset by automotive OEM, energy, and construction. Slide 9 shows the components of our year-over-year improvement in adjusted earnings per share. Operating performance contributed $0.03 of benefit and foreign exchange related to favorable currency translation represented $0.01 of improvement. Other items combined to be approximately a $0.02 offset. Slide 10 provides an overview of our free cash flow and balance sheet position. Our free cash flow conversion was 238% of adjusted net income for the fourth quarter, which brought our full year 2025 free cash flow conversion to 92%. Of note, our 2025 free cash flow conversion included over $30 million of cash restructuring related to footprint optimization initiatives and other restructuring, which is above average spending for our business. Our net leverage ratio declined to 1.85x at the end of the year, which was over a 0.3 turns improvement relative to year-end 2024. We finished 2025 with a record low net leverage ratio and over $800 million cash on the balance sheet. In December, S&P upgraded our credit rating to BB from BB- with a stable outlook. Further, we believe the strength of our business is return on invested capital, which ended the year at 23.4%. We continue to make investments in capital projects and enterprise initiatives that we believe will deliver enhanced efficiencies and improve profitability over the medium to long term. Turning to Slide 11, we outline our initial 2026 guidance. We believe the majority of our end markets should grow in 2026, and Ivo will address this in more detail in a few minutes. As such, we estimate our core sales to grow in a range of 1% to 4% versus the prior year period. We forecast our adjusted EBITDA to be in the range of $775 million to $835 million. At the midpoint, we estimate our adjusted EBITDA margin rate to be up slightly year over year. Please recall, we are incurring costs related to our ERP transition in Europe as well as our footprint optimization initiatives that we anticipate will dampen our adjusted EBITDA margin performance during the first half of the year. Collectively, we estimate the cost will represent about a 100 basis points drag year over year on our adjusted EBITDA margin during 2026, all else equal. We anticipate these costs to run off by the middle of the year and expect benefits from our footprint optimization initiatives to contribute approximately $10 million of adjusted EBITDA in the second half of the year. We have initiated an adjusted earnings per share range of $1.52 per share to $1.68 per share, which represents 5% growth at the midpoint. Our adjusted earnings per share guidance assumes no incremental share repurchases. At the end of the year, we had approximately $194 million outstanding under our current share repurchase authorization. We have budgeted $120 million of capital expenditures for 2026. We project 90% plus free cash flow conversion assuming above average spending on CapEx and cash restructuring. For the first quarter, we are guiding to a range of $845 million to $875 million in revenue, which factors a core sales decline of 2% to 2.5% year over year at the midpoint. Our core sales guidance incorporates a 500 basis points core growth headwind related to this quarter having two fewer business days relative to the prior year period as well as estimated inefficiencies related to our ERP transition. We anticipate recovery of most of the sales impacted during the balance of the year. For the first quarter, we estimate an adjusted EBITDA margin decrease of 140 basis points at the midpoint, again negatively impacted by the aforementioned headwinds of working days and the ERP transition. On Slide 12, we outline the key drivers of our anticipated year-over-year adjusted earnings per share growth for 2026. Moving from left to right, we estimate contribution from operating performance will contribute about $0.03 per share. Importantly, this estimate is net of anticipated costs associated with our ERP implementation in Europe and footprint optimization activities. The weaker US dollar is anticipated to yield favorable translation benefit of approximately $0.04 per share. Tax, interest, share count, and other items net to $0.01 of adjusted earnings per share contribution. I will now turn the call back to Ivo. Richard Kwas: Thank you, Brooks. Ivo Jurek: On Slide 13, we show our assumptions for end markets for 2026. Relative to 2025, we believe most of our end markets will be flat to up in 2026. Specifically, we estimate end markets that represent almost 80% of our sales should grow this year, including improved demand dynamics for our industrial off-highway and diversified industrial end markets. We believe these end markets have troughed and anticipate some recovery in 2026. Furthermore, we expect stable demand for automotive OEM and industrial on-highway in 2026. We continue to expect auto aftermarket and personal mobility market demand to remain constructive in 2026. In general, we believe our business will have some market tailwinds this year. As a reminder, this would be the first time in about three years that our business would be experiencing end market support. With that, let me provide some closing thoughts on Slide 14. First, 2025 was a record year for our company. We generated record annual adjusted EBITDA dollars and adjusted earnings per share and reduced our net leverage ratio to under 2x. We delivered these results in what we believe was a troughing demand environment to some of our key end markets. Second, with more demand stability, we are optimistic about 2026 top-line potential. While our book-to-bill was solidly above 1x exiting 2025 and we are realizing improved order rates to start the year, we remain pragmatic this early in the year. That said, while we are incrementally optimistic about our near-term growth prospects, we do not anticipate a short recovery in 2026. Third, we are highly focused on our key strategic revenue initiatives to generate market outgrowth. We continue to invest resources in personal mobility and data center, markets in which we expect to increase our market share through the end of the decade. We anticipate both verticals to grow at significantly higher rates than our fleet average. While we are intent on driving attractive core growth, our balance sheet is well positioned to support potential inorganic growth opportunities that may become available. Before taking your questions, I want to thank all of our global Gates associates for their effort and commitment supporting our customers’ needs and helping make 2025 a successful year for Gates. With that, I will now turn the call back over to the operator for Q&A. Thank you. Operator: We will now open for questions. We also ask that you limit yourself to one question and one follow-up. For any additional questions, please re-queue. Your first question comes from the line of Andy Kaplowitz with Citigroup. Please go ahead. Andy Kaplowitz: Good morning, everyone. Good morning, Ivo. Can we delve into your commentary a little more regarding that book-to-bill over one in Q4, and January orders confirming that trend? As you know, we have kind of seen green shoots before, and they have not fully developed. So maybe you can give us a little more color on what is driving your order acceleration. Would you call it more broad-based? And have you seen your aftermarket distributors stop destocking, which you said was happening in Q4, yet? Ivo Jurek: Yes. Andy, thank you. Look, we have actually seen probably the most positive order trend exiting 2025 in maybe two or three years. And in general, when I look, I have a reasonably good tenure here. As I look through my past two cycles, I think that we have seen here, you have to see recovery in industrial OE segment that in general leads the other end markets or the other applications where we participate. And so this was the first time that we have seen in a while that we have seen a reasonably nice recovery, or very strong recovery, in order trends in the industrial OE. So that was a very positive sign for us. I would say that both the end markets in the off-highway are stabilizing and we are clearly seeing a nice outperformance over those markets. In Q4, we did see kind of a choppiness, particularly in the industrial distribution. I think that folks were exiting the year trying to manage their inventories. Nothing that I would say was disconcerting to me, but I would anticipate a little better recovery as we progress through Q1 to Q2 in the industrial aftermarkets in particular. In January, we have seen continuation of that trend of what we have seen exiting 2025. So as I said in the prepared remarks, we are cautiously optimistic. To your point, Andy, I would like to see PMI a few months north of 50. As you said, we have seen that head fake both years in 2024 and in 2025. So, hopefully, we will be seeing that validation of that PMI activity and we can confirm ultimately over the next couple of months that that is occurring. And I think that would bode really well, particularly for the latter parts of the year as we progress through the year. So cautiously optimistic, would say that based on what we have seen so far, it should indicate, should bode well, for 2026. Andy Kaplowitz: Ivo, that is helpful. And I just want to go back to Q4 for a minute. Your adjusted EBITDA margin was down a little bit sequentially on flattish sales. I know you mentioned mix, maybe with this aftermarket destock. Was there anything else that sort of hit you there? Difficult price/cost, any sort of dynamics there? Because I think you mentioned mix too for Q4. L. Brooks Mallard: Yes. I would say the other thing is we managed our output as we exited the year. We were really focused on making sure that we had our working capital positions in a good position as we exited the year. So we trimmed our production output. That resulted in better than forecasted cash flow as we ended up over 90%, at least a little bit over 92%, and our best leverage metrics ever. And also, we bought back $105 million worth of stock in Q4. So it was really around managing our internal output and setting ourselves up to make sure that we had a good strong start to 2026. Andy Kaplowitz: Yes, Brooks. That is what I thought. Thank you. L. Brooks Mallard: Yes. Richard Kwas: Thanks, Andy. Operator: Your next question comes from the line of Julian C.H. Mitchell with Barclays. Please go ahead. Julian C.H. Mitchell: Hi. Good morning. Maybe just wanted to try and understand the phasing of the year a little bit more clearly. So first quarter, I think, is something like 20% of the EBITDA for the year, and you have obviously got a lot of the ERP and footprint headwinds loaded into that. Trying to understand how you are thinking about the second quarter. Could we expect organic growth in that quarter? Is that what is embedded? And maybe I missed it, but any sense of the first half of the year, how much of EBITDA that should be? I think often, it is about 50%, but realize this year has some first half dynamics going on. L. Brooks Mallard: Yes, Julian. So if you think about it in halves, we have about a 100 bps net headwind in the first half of the year relative to the ERP implementation and the footprint optimization. So you kind of think about it in pieces. We kind of have the 150 bps midpoint in Q1. So that would lead you to believe, kind of 50 bps midpoint in Q2. I would say that once we get through Q1, given that our midpoint is 250 bps of core growth, you should expect organic core growth each quarter as we move through the year. And as we looked at our seasonalization, it is pretty balanced. It is pretty balanced for the year. So I would expect we are going to be less. I mean, if you take that 100 bps and apply it, absent that, you are going to have two less shipping days in the first half versus the second half. And so that is going to affect it a little bit. But after the 100 bps of headwind, pretty normalized split between the front and the back. Julian C.H. Mitchell: Got it. So the first half is maybe like a high-40s share of the year's EBITDA or something. L. Brooks Mallard: Yes. Julian C.H. Mitchell: And then just a follow-up, Ivo, you mentioned data center exposure a couple of times. Understandably, I think sales you said were up 4x last year. So maybe just flesh out what is the dollar revenue base in your data center exposure, what are the products you are doing the best in, and do you have any sense of backlog there or growth expectations in revenue for the year ahead in data center, please? Ivo Jurek: Yes. Look, we anticipate that the business in 2026, again, is going to grow multiples of 2025. That being said, we see obviously a very nice adoption of the liquid cooling, and we anticipate that that is going to be there for an extended period of time. Our products, again to remind everybody, are hoses, couplings, fittings, and water pumps. I think that we see a nice penetration across all three of these product lines that we offer. And we have kind of flushed that $100 to $200 million target there for 2028. And I think that as I have indicated last year, we should see nice progression through 2026 into 2027 to ultimately reach that target by 2028. So everything that I see today, Julian, gives me reasonably good level of confidence that we are getting fair share. I think that I have indicated that if I just think about orders as an example in Q4, sequentially, orders grew 350%. And year on year, our orders grew nearly 700%. So we are seeing the pipeline being built up nicely. We are seeing good conversion. And yes, it was from a reasonably small base last year, or the year prior to that as well, but that is ramping up nicely. And it is not going to be two or three points of revenue as a percent of our total revenue pie. That is going to take a couple of more years, maybe into 2028. But we feel pretty good about where we sit and we see a nice ramp up. But look, we also have a very terrific presence in all of our businesses. And so I think that that is just going to be a nice contribution to above-market growth rate. Richard Kwas: Great. Thank you. Operator: Your next question comes from the line of Tomohiko Sano with JPMorgan Chase. Please go ahead. Tomohiko Sano: Good morning, everyone. Thank you for taking my questions. I would like to ask about personal mobility. It was up 28% in Q4, and how sustainable is this into 2026? And could you give us more color of key demand, product, and supply drivers as well as the cost of parties from the customer perspective? Thank you. Ivo Jurek: Yes. Thank you for your question, Tomo. That business has been performing in an outstanding fashion for us in 2025. What we have indicated is that we anticipate that that business is going to continue to grow high twenties, kind of a 30% compound annually through 2028. And we certainly have an incredibly high degree of confidence that we will continue to do that. We see a continuation of very strong trends. Our pipeline has been very robust, and we have been converting that pipeline as we demonstrate through our invoiced revenue and now it is becoming a meaningful part of our revenue contribution. So we have a high degree of confidence that that business will continue to grow. And as you are driving adoption of electrified mobility, two-wheel mobility, that is extremely well suited for changing that technology from chain to belt. So we feel that that is a great business for a very, very long time, a very long horizon of future visibility. Tomohiko Sano: Thank you. And follow-up on net leverage and pipeline and strategies, please. So if you could talk about the net leverage perspective in 2026 and any opportunities for inorganic growth, which is a mandate for being in the piece, sort of bolt-on acquisitions, or are you thinking about more platform types of acquisitions, please? Ivo Jurek: Yes. Look, I would remind everybody that on this metric, we are quite nicely ahead of what we have committed to shareholders in terms of deleveraging. I also say that the business, the cash generation profile and the profitability of this business is so terrific that we, in a natural way, delever about half a turn a year. So that can give you some perspective of what the range of leverage could be as we exit 2026. That being said, coming back to M&A, look, we do not anticipate that we would be doing any type of transformational M&A. We do have a significantly increased appetite to execute logical and non-transformational M&A. That may be businesses that could be nice bolt-ons, and there are things out there that we are looking at today, and it could be businesses that could be of more scale. While non-transformational, they could be nicely additive to our portfolio. So we are looking at full spectrum. We will be very pragmatic. We also believe that our stock is quite inexpensive. So we will be very carefully measuring the returns where we can generate the best value creation for our shareholders. And we will be very committed to deploy our capital in a way that rewards our shareholders. Andy Kaplowitz: Thank you, Ivo. Operator: Your next question comes from the line of Deane Michael Dray with RBC Capital Markets. Please go ahead. Deane Michael Dray: Thank you. Good morning, everyone. Can we just circle back on the footprint optimization? I know you have given us your assumptions, but could you remind us on either the number of facilities or what percent of your manufacturing square footage these actions represent. L. Brooks Mallard: Yes. Well, from facilities perspective, including manufacturing and distribution, it is kind of in the single-digits number. I mean, we are still working through that. And from a manufacturing footprint perspective, I do not have that right in front of me, so I have to go back and check on that. I will tell you, we feel better as we look at the different cost actions we are taking relative to the footprint optimization and the restructuring and getting our cost aligned. We feel better about where we are in terms of the cost out. And if anything, remember we said we were going to have $10 million year-over-year savings in the back half of 2026 and then another $10 million in 2027. Probably feel better about the upside related to that as we look at the cost actions we are taking and how things are unfolding. So I would say when you look at our target, probably upside and sooner rather than later in terms of achieving that target. And we will be in a better position kind of midway through 2026, I think, to talk about that in more detail in terms of where we are and what we are doing as opposed to where we are right now, because there is still a lot of things that we have to announce and things we have to talk to different people about. But net-net, we feel good about where we are right now in terms of the whole savings that we communicated to you all. Deane Michael Dray: Alright. That is helpful. I appreciate that. And then as a follow-up, Brooks, can you talk about what the upgraded S&P does for you? Is there an interest save that we might see? And then related to it, just a really good quarter on free cash flow conversion. But this is seasonally your strongest free cash flow quarter. Is there any opportunity to level out the free cash flow? I know the seasonal aspects, but can you just remind us because, you know, instead of having the hockey stick in 4Q. L. Brooks Mallard: Yes. So on the S&P, look, I think on the one hand, you always hope that there is some upside when you get upgraded. On the other hand, when you look at the way our debt trades and you look at how people pile into our debt when we either issue new term loans or we reprice or anything like that, I wonder if we do not trade through a lot of that, and we end up getting really good interest rates and really good participation. So I do not know that we would get, I do not know what the actual impact of that would be, but we would expect, if anything, there would be some upside to what was already really good trading in terms of our debt. On the second part of your question, part of the issue is because we are seasonal in terms of usually our sales in the first half. A lot of the working capital comes through in the second half. And that is why you see that hockey stick on the working capital. We get more sales in the first half and more collections and things like that in the second half. We are always trying to get more normalized in terms of our working capital, but I am not sure how much upside there is to that, to be honest with you. Ivo Jurek: Deane, let me maybe check a couple of more points in here. Right? So vis-à-vis SAP implementation, you know, SLP. Yes. In terms of rating. Never mind. Thank you. Richard Kwas: Thanks, Deane. Operator: Your next question comes from the line of Jeffrey David Hammond with KeyBanc. Please go ahead. Jeffrey David Hammond: Hey, good morning, guys. Just on this ERP noise, I think third quarter you said $30 to $35 million. One, is that unchanged? And then is that inclusive of the revenue disruption, or is that additive? And how much revenue disruption do you think you have in the first half all in? L. Brooks Mallard: Yes. Well, I think most of the revenue disruption is going to be in Q1, and then we kind of get it back as we go through the balance of the year. The $30 to $35 million is really kind of the all-in cost net of, without the revenue in there. Right? That is just a cost headwind. And that is like the 100 bps of that that is flowing through adjusted EBITDA. And so then if you think of 100 bps in the first half, that also includes footprint optimization. So it is not all ERP. In the first half, that would be kind of approximately $20 million. And then there is about $10 or $15 million that is restructuring and add-back that is in the first half as well. So that is where that $30 to $35 million number comes back. About $20 million of it flowing through the adjusted EBITDA number in terms of higher SG&A inefficiencies, stuff that you cannot necessarily add back, and then the $10 to $15 million that you could add back. I would say also, since we are talking about that, our launch has gone better than planned, I would say. We are pretty conservative and pragmatic in terms of how we look at things, but our plants are making what they need to make. We are working out the parameters in terms of the front to back, and we are getting the right signals sent to the plants to produce stuff for the distribution centers. I would say right now, what we are really working on is tweaking some of the external stuff when you think about advanced shipping notices to customers and different things like that. We are just tweaking that a little bit to get them aligned with the standard SAP functionality. And so we are really pleased with the launch. Started up. We are making stuff. We are shipping stuff. And we feel really good about where we are with the SAP implementation right now. Jeffrey David Hammond: Okay. Great. I think auto aftermarket has been a pretty good trend for you guys. Just what are you seeing underlying there? Where do channel inventories stand? And then when do you expect that we lap this kind of new customer comp dynamic? Thanks. Ivo Jurek: Yes. So the markets are quite stable. We have seen reasonably good about that. The cars are getting older. People are driving. The underlying economy is reasonably okay. So we feel very constructive about that market being what it traditionally is outside of us acquiring large customer like we did last year. So I think more green shoots than not. In terms of lapping, we should be through that tough comp by Q1. Basically, from Q2 onwards, it should be more normalized. But let me remind you, we did see growth in aftermarket in Q4, as well. Despite the fact that we had a reasonably tough comp. Okay. Thank you. Richard Kwas: Thanks, Jeff. Operator: Your next question comes from the line of Stephen Volkmann with Jefferies. Please go ahead. Stephen Volkmann: Great. Good morning, guys. Thanks for taking the question. Just a couple of quick follow-ups on short term and longer term. Any words of wisdom as we think about segment margins, both as we go through the transformation and the ERP? And then beyond that, is there any we should think about first quarter and full year from the segment perspective? L. Brooks Mallard: Yes. I do not know that, I mean, some of the footprint optimization stuff is a little bit more weighted toward Fluid Power. I would say some of the cost alignment stuff with some of the other restructuring we are doing, maybe a little bit more PT. So I do not know that there is a material difference in terms of how the margins are going to shake out. I would say it is going to be pretty broad-based. And ERP is a little bit more PT. And so there will probably be a little bit more headwind on PT in the first half, and then it will come back in the second half. In terms of how the ERP project will play out, maybe a little bit more of the headwinds on PT, but then it will equal out the second half. Stephen Volkmann: Okay. Great. And then maybe longer term, you guys have been on a successful long-term journey here in order to get margins where you want them. It feels like we are almost to the finish line, and maybe second half of 2026 is the finish line. I do not know. Correct me if you think I am wrong, but I guess I am curious what is next after that. Do you become more acquisitive? Do you focus more on growth? Is it kind of a compounder story from there? How do you vision the company once you get where you want to be on margin? Ivo Jurek: Yes. Thank you for the question. It is very fair. Look, let me start with the journey a little bit. If I look back and let us just presume that we have troughed and we are exiting the down cycle here. I certainly believe that that is the case. Again, I am not going to forecast when it is going to completely rebound, but let us just presume that we have troughed and we exited the down cycle. We are exiting the down cycle with over 300 basis points of improved profitability versus the prior down cycle. So we have materially improved the quality of the company. We also believe that we have projects in play that will give us an ability to continue to drive profitability to the midterm target, and frankly, when I look at what we have been able to achieve in a very negative end market backdrop, we are nicely ahead of what we have committed to the shareholders despite the fact that the end markets have been very negative for the last three years. So that gives me high degree of confidence that we have a nice way to go beyond what we have committed in terms of profitability with the improvements that we continue to do structurally to this business. Now put it aside, we have nicely improved our balance sheet. We are generating a ton of free cash flow. That gives us a ton of optionality. I think that when you listen to some of the things that Brooks said about how well we have executed on the ERP implementation, I think that when we have a decent plan in place, we execute well. And we manage to execute well despite many different impediments that are unplanned that we have to absorb. So I think that we now have an optionality to go in and start adding nice pieces to our portfolio that we have within Gates and track synergies with potential M&A transactions that would give us the opportunity to get to our company fleet averages. So in a nutshell, Steve, I think that it is a little bit all of the above. I think that we can continue to drive profitability forward. On a structural basis, I believe that the incremental capacity that our balance sheet offers us now, and we were very patient to get to this point in time, gives us the opportunity to add different assets and improve those assets and start compounding earnings on a forward-going basis. Great. I appreciate it. Stephen Volkmann: Thanks, Steve. Operator: Your next question comes from the line of Michael Patrick Halloran with Baird. Please go ahead. Michael Patrick Halloran: Hey. Good morning, everyone. I just a quick follow-up to the first half of that last question there. So how do you think about what your incremental margins look like once you get through the ERP consolidation and you hit a more normal run rate for growth. L. Brooks Mallard: Well, I am struggling to figure out what normal is. After we get to the ERP implementation, we ought to be, as we are working through the footprint optimization and restructuring stuff, at an enhanced level of drop-through, 45% plus over about a twelve-month period. Okay? Now through the cycle, what we have said is we think that the drop-through should be more like 35%. And the reason being is you are definitely going to mix toward more OEM-type business through the cycle as you go to the upside, or as you go to the core growth increase. And that is why it is a little bit less than you might otherwise think. You might think more like 40. But you are definitely going to mix to the OEM side, which is going to be a little bit lower from a gross margin perspective. It has some better cash flow characteristics, but from a margin perspective, that is where it probably is. And then as you move through the cycle, that can flex a little bit up and down. But I would say 2026 through 2027, you are going to be 45% plus. And then after that, more normalized basis, 35% on the low end, maybe moving up to 40% depending on what the mix is. That is great. Super helpful. And then just a question on how you are thinking about the year here. If you adjust for the first quarter, the 500 basis points between those two items, are you assuming relatively normal seasonality if you adjust for those factors? And it does not sound like you are embedding some sort of improvement of scale in the revenue build to the year. So maybe just talk about what those assumptions look like. Ivo Jurek: Yes. That is the right way to think about it. You know, Mike, we have quantified the headwinds associated with fewer shipping days in Q1 and some of the efficiency losses due to the ERP implementation. Again, we feel better about the ERP implementation, but you still need to improve efficiency and get everybody comfortable operating in the new structure. Once that normalizes from Q3 through Q4, it is more normalized. You will gain back one calendar day in Q4 versus the loss of two days in Q1. So more or less normal calendar. L. Brooks Mallard: Great. Appreciate it. Thank you. Michael Patrick Halloran: Thanks, Mike. Operator: Your next question comes from the line of Jerry Revich with Wells Fargo. Please go ahead. Jerry Revich: Yes. Hi. Good morning, everyone. Jerry, I want to ask, just given the demand environment, if we do see sales move towards above the high end of your guided range, would you counsel us to think about operating leverage in that scenario? L. Brooks Mallard: I think that Ivo and I just highlighted that, Jerry, about 45% plus incremental leverage in the back half on the incremental revenue. And that is really the footprint optimization and restructuring flowing through, on top of the 35% normal leverage. But if we were to see things move more towards the high end, it is going to be very OEM-based. It is going to be a pickup in the industrial OEM side of things where you start to see those things start to rebound. And like I said, a little bit lower margin profile there, but still pretty nice. Jerry Revich: Got it. That is constructive. And then in terms of where lead times stand today, you mentioned the year-over-year orders. How far out are we at a lead time standpoint? How does that compare versus other periods of time where demand was equally tight? Can you just give us a perspective? And can you just talk about for the industrial replacement side, feels like we are seeing a really strong desire to restock across end markets there. Is that part of the driver of the order acceleration that you stepped through? Any additional color there would be helpful. Ivo Jurek: Yes. Look, I think that I have indicated that the significant inversion in order uptake that we have seen was predominantly on the OE side, presently on the industrial OE side. We are seeing that our lead times are still normal. We have not seen any creep up at this point in time. We are obviously in a very good position vis-à-vis our capacity. We have been improving the business over the last three years, spending capital to ensure that we can capitalize on the up cycle when it comes. I would say that we need to see the industrial distributors want to restock. I would also say that in general they are quite late to the party. And my anticipation would be we should start seeing that more maybe in Q2 of this year, if history serves as a guide. So we are well positioned. Again, we have trimmed our working capital exiting Q4. We have positioned ourselves for a maximum benefit as the recovery takes hold. Yes. Thank you. Michael Patrick Halloran: Thanks, Jerry. Operator: Your next question comes from the line of Nigel Edward Coe with Wolfe Research. Please go ahead. Nigel Edward Coe: Thanks. Good morning, guys. We have got a lot of ground here. So here you go. Yes. So just maybe piggybacking off that previous question. You have laid out your end market assumptions, Ivo. And I am just wondering, when we look at the industrial off-highway, on-highway, are you seeing any difference between OE and aftermarket in your plan? Ivo Jurek: So right now, we are seeing a nice inversion in the OE side. Again, I would anticipate, Nigel, that we will start seeing improvements in the industrial aftermarket into second quarter of this year. But it gives me a great deal of confidence, I would say, that when you see that inversion, that is a very good sign. When you combine that with at least the very early indications on the PMI, while not certainly ready to call it yet because we did have a couple of head fakes the last couple of years, this feels better than in 2024 and 2025. And so we start getting a couple more data points on the PMIs, and I am saying things should work up pretty nicely for everybody in the industrial complex, Gates included. Yes. Nigel Edward Coe: So I am just curious if you are baking in any sort of mix headwinds for the year. It does not sound like it is, but that would be helpful. And then on the pricing, I am sorry if I missed this in your prepared remarks, but what are you baking in for price contribution for the year? And then expanding out to the raw material basket. Unlike a lot of the companies we cover, you are not facing a whole lot of steel and base metal inflation. In fact, some of your raw materials should be a little bit deflationary or flat. So I am just curious how you view the price/cost equation for the year? L. Brooks Mallard: Yes. So we have got some carryover tariff pricing that is still in. The pricing is going to be relatively low, kind of 100 to 150 bps for the year. One thing that we look at, you look at tariffs, you look at utilities, you look at material, but also you have heard me talk about labor inflation as well. And especially around the world where you see kind of outsized labor inflation. So we take all those into account. But right now, things are fairly stable. And so we feel like we have got things covered from a pricing perspective. But it is a relatively normalized, maybe a little bit less than normal, given the state of things right now. Ivo Jurek: Nigel, maybe I will just pin something in here too. We have done quite a bit of work on raw material improvements over the last couple of years that has nicely supported our structural improvement in the business. That is not going to stop. So we are going to continue to drive that and continue to position ourselves into a position of strength and better profitability as we move into 2026 and 2027. Operator: Your next question comes from the line of David Michael Raso with ISI. Please go ahead. David Michael Raso: Yes. I was just curious. Currency in the guide. I am just trying to figure out what the overall margin guide is with the EBITDA number. Are you including about 2% of currency so we are looking at 4.5% total sales growth. Richard Kwas: A little less than that, David. It is like a point and a half or thereabouts. L. Brooks Mallard: Yes. I mean, just the first half. Yes. It is very weighted in the first half. And in the second half, it kind of normalizes out. So let me find my currency stuff here. Yes. So if you think about it from a translation perspective, it is a little bit, kind of 125 bps for the year, but weighted much more in the first half. David Michael Raso: Okay. And 125 bps in terms of growth. L. Brooks Mallard: Okay. David Michael Raso: That is full year. Okay. Following up on that comment on pricing, 100 to 150 bps. I mean, it is implying volume up only 1%. And again, I appreciate early year being conservative on extrapolating trends. But if personal mobility is up 30%, that is 1% growth for the entire company. So I am just trying to understand, is it just hey, we are just being cautious in the beginning, or is there some other area of decline? Obviously, I am basing a little bit on Slide 13. You only have one market that is down, right? Energy and resources. And I am just trying to understand the level of conservatism in the top line. Ivo Jurek: Yes. David, I think that you have framed it correctly. I will restate what I said earlier. We have seen a couple of fakes in 2024 and 2025. While I do feel, we as a management team feel better when you look backwards into how things progress when you do have a recovery. The signs are very positive. But we are very pragmatic in our outlook for the start of the year. Again, we have only seen one PMI print that has given us, I think all of us, a nice degree of boosting confidence that things are going to improve. We are seeing that follow-through through our industrial orders. Some of these markets are reasonably well behaved. Personal mobility is doing really well. You stated it correctly. So we are more constructive on these end markets, but there are some markets that are question marks. What will happen with auto OE? I think that is probably going to be somewhat of a headwind overall when you take a look at the consumer, the pricing, the timing of recovery. While we are again more positive on those end markets, it will not happen on January 15. It will not happen on February 2. Some of these markets are going to be progressing to a rolling recovery. And so while we are positive, we are being pragmatic. I would much rather let you know in the next earnings call or the one thereafter that we are seeing terrific improvement and great follow-through. And I think everybody is going to be much happier about that. L. Brooks Mallard: And I will remind, we have one less shipping day in 2026 than we did in 2025. David Michael Raso: Alright. I appreciate that. Alright. Thank you. L. Brooks Mallard: Thanks, David. Operator: That concludes our question and answer session. I will turn it back over to Richard Kwas for closing comments. Richard Kwas: Thanks, everyone. Thanks, everyone, for your interest in Gates. If you have follow-up questions, feel free to touch base with me. Have a great day and rest of the week. Operator: This concludes today’s conference call. Thank you for your participation, and you may now disconnect.
Operator: Thank you for standing by. This is Betsy, the conference operator. Welcome to the Fortis Inc. 2025 Annual Results Conference Call. [Operator Instructions] The conference is being recorded. I would now like to turn the conference over to Stephanie Amaimo, Vice President, Investor Relations. Please go ahead, Ms. Amaimo. Stephanie Amaimo: Thank you, Betsy, and good morning, everyone. Welcome to Fortis' Fourth Quarter and Annual 2025 Results Conference Call. I'm joined by David Hutchens, President and CEO; Jocelyn Perry, Executive VP and CFO; other members of the senior management team as well as CEOs from certain subsidiaries. Before we begin today's call, I want to remind you that the discussion will include forward-looking information, which is subject to the cautionary statement contained in the supporting slide show. Actual results can differ materially from the forecast projections included in the forward-looking information presented today. Non-GAAP financial measures referenced in our prepared remarks are reconciled to the related U.S. GAAP financial measures in our 2025 MD&A. Also, unless otherwise specified, all financial information referenced is in Canadian dollars. With that, I will turn the call over to David. David Hutchens: Thank you, and good morning, everyone. Before we get started, I'd like to take a moment to express our gratitude to Linda Apsey, CEO of ITC for her exceptional leadership ahead of her retirement next month. Throughout her tenure as CEO, she has guided ITC with clarity, integrity and a deep commitment to the people and communities that ITC serves. Her steady leadership has strengthened ITC's foundation and helped position the company for continued success long into the future. We wish her all the best in retirement. And as we look to the future, we are excited to have a long-time executive at ITC, Krista Tanner, succeed Linda in the role of President and CEO, and she is on the call with us today. Her experience and insight will be vital as ITC continues to meet the changing demands of the energy landscape. Turning to our business highlights slide. 2025 marked another strong chapter in the Fortis story, During the year, we continued to deliver safe and reliable service to the millions of people who depend on us each day. Our utilities invested $5.6 billion in capital, which strengthened our systems, enhanced our resilience and supported the long-term needs of our customers and communities. These investments translated into strong rate base and earnings growth and supported our track record of increases in dividends paid to 52 consecutive years demonstrating the value of our regulated growth strategy. Fortis was also recognized by the Globe and Mail's Annual Board Games Report with the #1 ranking in governance out of 206 companies in the S&P/TSX Composite Index, reflecting our Board's commitment to best-in-class practices. And today, we released our 2026 climate resiliency report, which outlines how our utilities are responding to climate risks and utilizing data-driven insights to strengthen our energy network. A strong culture of reliability and safety continues to be the foundation of our utility operations. In fact, 2025 was one of our best years on record for both safety and reliability and reflects continuous improvement relative to our Canadian and U.S. industry averages. A core tenet of our strategy is to operate cost effectively for the benefit of our customers. While we have experienced cost and supply chain pressures over the past few years, we have been successful in keeping controllable operating costs at or below inflation. Innovative practices like deploying grid-enhancing technology and using AI for targeted vegetation management and equipment inspections are reducing costs while improving reliability for our customers. Our utilities continue to prioritize capital investments based on operational needs and with consideration of the customer bill impact. We also have energy efficiency programs that help customers directly lower their bills and several of our utilities provide low-income discounts and customer bill assistance programs to help those in need. Our long history of achieving strong shareholder returns continued in 2025 with a 1-year total shareholder return of nearly 24%. Looking back over a 20-year time frame, Fortis has delivered average annual total shareholder returns of approximately 10%, exceeding the returns generated by the benchmark indices. In the fourth quarter, we rolled out our new $28.8 billion 5-year capital plan, our largest to date. The plan consists of a diverse mix of regulated investments across our utilities, primarily focused on transmission and distribution assets. The plan is highly executable and low-risk with only 21% relating to major capital projects. Over the next 5 years, we expect rate base to increase by $16 billion, supporting average annual rate base growth of 7%. Above and beyond the plan, we are focused on incremental growth opportunities in both the near and long term. At ITC, we are working on pursuing additional customer connections and MISO LRTP projects. As you might recall, ITC expects additional Tranche 2.1 investments between USD 3.3 billion and USD 3.8 billion for projects awarded through the rights of first refusal in Michigan and Minnesota and system upgrade projects in Iowa that are not subject to competitive bidding. Most of these investments are expected post 2030. ITC continues to evaluate competitive bidding opportunities and any project awarded would be incremental to this estimate. As it relates to retail load growth in Arizona, in December, the Arizona Corporation Commission approved the energy supply agreement for approximately 300 megawatts to support a planned data center in Tucson Electric Power service territory. The project will use existing and planned capacity with the ramp-up beginning in 2027 and continuing through 2029. The customer will take service under TEP's commission-approved large power service tariff at full tariff rates with no discount. The 10-year contract includes a 75% minimum billing requirement, providing revenue stability regardless of actual energy use and also includes strong credit and security provisions. The energy supply agreement remains subject to contractual contingencies and continues to progress with the developer closing its land lease with Pima County in December 2025, keeping the project on track. Beyond this initial phase, negotiations continue for an incremental 300 megawatts of capacity to support a full build-out of 600 megawatts at the site. TEP is also in active negotiations for additional capacity at a second site in the range of 500 to 700 megawatts. Just last month, more than 600 acres of land in Morana was approved for rezoning for the second site. If agreements are finalized for these subsequent phases, we continue to estimate new generation in the range of USD 1.5 billion to USD 2 billion through 2030 would be required. At FortisBC, the BCUC's approval of the Tilbury LNG storage expansion project late last year provides up to $300 million of potential incremental capital subject to the timing of environmental assessment approvals. In 2025, we increased our dividends paid per common share by 4% compared to 2024, marking 52 consecutive years of increases in dividends paid. Looking ahead, we remain committed to building on this record through the execution of our growth strategy, supporting our 4% to 6% annual dividend growth guidance through 2030. Now I will turn the call over to Jocelyn for an update on our fourth quarter and annual financial results. Jocelyn Perry: Thank you, David, and good morning, everyone. Before I get into the annual results, I want to briefly touch on our fourth quarter. Reported earnings per common share for the quarter were $0.83, $0.04 higher than the fourth quarter last year. Reported earnings for the fourth quarter were impacted by losses associated with the disposition of our investments in Belize and reported earnings for the fourth quarter of 2024 reflects a refund liability at ITC associated with the MISO-based ROE decision. Excluding these items, adjusted EPS was $0.07 higher than the fourth quarter of 2024. Strong rate base growth across our utilities was a key driver for the quarter. Unrealized gains on derivative contracts and a favorable impact of foreign exchange also contributed to the increase quarter-over-quarter. The increase was moderated by lower earnings at UNS driven by regulatory lag and milder weather. Higher holding company finance costs as well as lower earnings contributions from FortisTCI and Belize also impacted the quarterly results. As David mentioned, we delivered strong EPS growth in 2025. Reported EPS was $3.40, $0.16 higher than in 2024. Reported EPS for 2025 reflect losses associated with the disposition of Turks and Caicos and Belize, totaling $0.13 per share, approximately half of which relate to income taxes. Adjusted EPS was $3.53, $0.25 higher than 2024. On Slide 12, you'll see the adjusted EPS drivers for the year by segment. Our Western Canadian utilities contributed a $0.10 increase in EPS, largely driven by rate base growth including earnings associated with FortisBC's investment in the Eagle Mountain Pipeline project. This growth was partially offset by the expiration of the PBR efficiency mechanisms and a lower allowed ROE effective January 1, 2025, at FortisAlberta. Our U.S. electric and gas utilities delivered an $0.08 increase in EPS. The increase in earnings at Central Hudson was due to rate base growth and the rebasing of costs effective July 2024. Earnings were also impacted by a change in the recognition of a regulatory deferral for uncollectible accounts effective July 1, 2025, and a contribution to a customer benefit fund associated with the settlement of an enforcement proceeding. Lower earnings at UNS Energy was due to regulatory lag associated with over USD 700 million of rate base, not yet included in rates as well as lower retail sales due to milder weather and lower margin on wholesale sales. This was partially offset by higher transmission revenues and AFUDC for major capital projects. Moving to ITC. Continued capital investments and related rate base growth increased EPS by $0.04. The increase was moderated by higher stock-based compensation and higher finance costs. For the Corporate and Other segment, the $0.01 increase reflected unrealized gains on foreign exchange contracts tempered by higher finance costs as well as lower earnings contribution from Fortis Belize. A favorable impact of foreign exchange contributed an $0.08 increase for the year and higher weighted average shares reduced EPS by $0.06, driven by shares issued under our dividend reinvestment plan. And lastly, while not shown on the slide, other electric earnings for the year were impacted by rate base growth, offset by the disposition of FortisTCI. Looking back over the past 3 years, Fortis has delivered average annual rate base and EPS growth of approximately 6.5%, continuing our solid growth track record. During this time, we have also successfully reduced our adjusted dividend payout ratio to approximately 70%, highlighting our ability to grow responsibly. We are in a strong liquidity position with $2.7 billion of long-term debt issued in 2025 and nearly $4 billion available on our credit facilities at the end of the year. With the hybrid debt issuance and asset dispositions in 2025, the growth in our capital plan is still expected to be funded largely from cash from operations, utility debt and our dividend reinvestment plan. Our $500 million ATM program has not been utilized to date and remains available for funding flexibility as required. On the rating agency front, we are happy to report that in November, S&P confirmed our A- issuer and BBB+ senior unsecured debt ratings confirmed and revised the outlook from negative to stable due to improving financial measures as well as developments at our utilities to mitigate physical risks, namely wildfires. Additionally, it's worth noting that last month, Moody's withdrew its ratings for Fortis Inc. at our request. Our decision was made after evaluating the cost and benefits of that rating and does not impact the stand-alone rating of our utilities rated by Moody's. Overall, our key credit strengths coupled with our funding plan support our strong investment-grade credit ratings with S&P, Fitch and Morningstar DBRS. In Arizona, both the UNS and TEP general rate applications continue to progress. Last month, the ACC administrative law judge issued a recommended opinion and order with respect to the UNS Gas general rate application, recommending an allowed ROE of 9.57% and a 56% common equity component of capital structure. While the order also recommended a formula, it reflected certain revisions to the formula, including post-test year adjustments. UNS Gas filed its response on Monday, including its objection to the revisions to the formula. The rate application remains subject to ACC approval, which is expected in the first quarter. The order proposes implementation of new rates by March 1, 2026. At TEP, staff filed its testimony earlier in the week, recommending a 9.75% ROE and 55% common equity component of capital structure. Staff's rate design testimony, including the formula will be filed in late February and hearings are expected to commence in April. Based on the latest procedural schedule, we expect an order in the fall. That concludes my remarks. I'll now turn the call back to David. David Hutchens: Thank you, Jocelyn. To summarize, 2025 was another great year. We invested more than $5.6 billion in capital and delivered solid EPS and rate base growth. We had strong safety and reliability results, and we delivered compelling returns for our shareholders. These accomplishments wouldn't be possible without the continued commitment of our people. Going forward, we are focused on executing our $28.8 billion capital plan, which will drive rate base growth of 7% and support our dividend growth guidance of 4% to 6% through 2030. That concludes my remarks. I will now turn the call back over to Stephanie. Stephanie Amaimo: Thank you, David. This concludes the presentation. At this time, we'd like to open the call to address questions from the investment community. Operator: [Operator Instructions] The first question today comes from Maurice Choy with RBC Capital Markets. Maurice Choy: Starting with a question on Arizona and data centers. You mentioned in your prepared remarks that the commission approved the full tariff rates with no discounts, 75% minimum billing requirements, strong credit and security provisions. Recognizing that affordability is a big theme this year, I wonder if you could just speak holistically as to why you think this arrangement works in Arizona and perhaps why other power markets across North America continue to have issues with tariff design or cost allocation? David Hutchens: Yes. Thanks for that question, Maurice. Obviously, affordability is at the tip of everybody's tongue these days talking about how we're going to grow and make sure that we do that in an affordable and responsible manner from a customer perspective. And this is actually one of the prime examples of how it should be done. This energy supply agreement, as we look at our current portfolio at TEP, that's roughly 300 megawatts is supplied out of existing capacity and energy that we -- so we do not have to build anything additional for them. And a little bit of investment that we have to make from interconnection, et cetera, is going to be paid by this customer. So when you look at the difference between what TEP's rates and customer base would look like with and without this data center, you'll see that there's a lot of new KWH without additional dollars and investments that we would be making on their behalf that will go in to provide a lot of additional fixed cost recovery from all those KWH. And actually, I'm saying KWH, but as I mentioned, the 75% minimum billing demand is there as well. So it actually doesn't necessarily even revolve around how much energy they use. So this is, I think, the poster child example of how it should be done. And then, of course, as we look forward and building additional capacity for the next phases of those data centers, we will do it in the same manner where we make sure that those data centers cover all of the costs and basically investments that we need to make on their behalf and then some, right? Because when you look at their -- again, their energy usage and how they'll be leaning on the rest of the grid, those kilowatt hour charges that they'll be paying will be spreading out the cost that we have in our system over a much bigger pie. So if you do it right, this is a fantastic customer affordability story, and we're going to make sure that we do it right. Maurice Choy: And maybe as a quick follow-up, what gating items are there for the remaining 300 megawatts in this initial site? Is it just waiting for the first 300 megawatts to be built first and then we get to the next 300? Or are there other things to consider? David Hutchens: Yes, there's -- I mean, the second 300 megawatts will need additional capacity that will need to be added. And so of course, how we do that, the timing for that and the negotiations of all the contractual details that covers all of those things that I mentioned to make sure that we are protecting ourselves, the company, et cetera, as well as the customers, that all still has to be finalized. Maurice Choy: Understood. And just finishing off with ITC. Have you seen any updates from FERC, particularly now that it has a new chair on moving on with any of the ongoing FERC matters? David Hutchens: So we haven't. I know there's been some chatter out there that there could be some -- but we haven't heard anything. And I'm going to turn that over to Krista because she's recently been wandering the FERC calls and she may have some additional information. Krista? Unknown Executive: Yes. Thanks, Dave. That's absolutely right. There has been a lot of chatter, but we haven't heard anything specifically about ROEs or incentives. What I will say, however, is that I think this chair and this commission is laser-focused on running the commission well. And to that end, the Chair has been very vocal that she wants to clean up things that have just been hanging out there for a while. So we are optimistic that things have been hanging out there and are kind of the questions that we get from all of you every time we see you about what's going to happen. We are optimistic that there will be some movement on there. I think the other thing we're seeing from this FERC is that as part of running the agency well, they're very focused on making sure that their decisions have staying power. This back and forth between administrations is not helpful. And so this Chair has been very intentional about making sure they follow the record, follow the law and get bipartisan support. So while we don't have any insight on what they'll be taking up, I think we're really optimistic that they will be kind of cleaning out the cobwebs and closing some of these old dockets and doing it in a very thoughtful way that will give us some regulatory certainty going forward. Maurice Choy: Perfect. Congratulations to Linda and Krista. Operator: The next question comes from Rob Hope with Scotiabank. Robert Hope: I'll extent my congratulations as well. Maybe keeping in Arizona, the ALJ decision on the formula mechanisms moving forward, there was some commentary in the release there about kind of things that were put forward and things that weren't put forward. Can you maybe just kind of speak to your view of what the ALJ's decision is and kind of what you would -- what you like about it and what you don't like about it? David Hutchens: Yes, I'll kick that over to Susan to address. I will just say, as a lead in here, obviously, we've got a couple of different rate cases going on, both UNS Gas and TEP. And I would just want to say on upfront, that these are definitely 2 different companies, 2 different dockets, 2 different mechanisms that were proposed, 2 different ALJs. So it's hard to get -- because it might be your follow-up question, Rob, so sorry if I jumped to it, which is that it's hard to get readthrough from one of these cases to another, but I'll let Susan opine on the UNS Gas case here. Susan Gray: Yes. Thanks, Dave, and thanks for the question, Rob. So it's a lengthy process as we go through the rate case and multiple rounds of testimony working with ACC staff on a design that is acceptable to them. And we came to a pretty good place where other than the dead band, we were in agreement with staff. And the recommended opinion and order was a little different than what we had submitted. I'd say you asked what did we like that's in the, I'll call it, the [indiscernible]. The judge recommended calling it a pilot program, which we think is good because this is the first round of formula rates in Arizona. And so we want the opportunity to continue to adjust the design as we are able to experience it and see how it goes for our customers and for the company. There's a couple of other kind of minor things that we agree with in terms of the judge's recommendation. I'd say the things that were really hopeful to get changed back to the way that we had proposed and staff had agreed with the design for the formula rate because of the extension of the approval period, we submitted a request to get 6 months of post test year plant recovery. And I think that's really important as the recovery period gets extended to cover those costs and to reduce regulatory lag, which is really the intent of having a formula rate. We're okay with the larger dead band as long as we can get that post-test year plant. I think the other thing that we feel like the 9.77% ROE is justified and that should not be reduced because of a formula rate. And then the efficiency credit, I think, is just maybe a misunderstanding of -- we had proposed an efficiency credit with the system improvement benefit. And that's pretty typical for a system improvement benefit, but doesn't really relate to a formula rate or this ARAM that we recommended. And so I think that 5% efficiency credit needs to be reconsidered. So I think we have a good track record with this commission. We filed an amendment on Monday, proposing to go back to basically what staff had recommended, including their deadline range of plus or minus 40 bps. And I think there's a good opportunity here for discussion with the commission as we kind of play out the consequences of the way that the recommended order was written that we can get back to what was recommended by staff. Robert Hope: All right. Appreciate that. And yes, my second question was going to be the readthrough. But instead, I'll go to BC. LNG and increasing energy exports and LNG, we'll call expansion seems to be a focus for the government. Any movement on the next wave of projects at Tilbury with the government and the approvals there? David Hutchens: Yes. So as we sit here today, we don't -- other than that update that I gave in the prepared remarks, related to the LNG tank that we received the approval for late last year. So other than that, obviously, there's some additional projects that we're looking at there, but we don't have anything else to announce right now. There is obviously, I think, a good emphasis in British Columbia on looking for some of the large projects. We hope that bubbles up to some additional investment opportunities for us in that area. Operator: The next question comes from Mark Jarvi with CIBC Capital Markets. Mark Jarvi: I just wanted to go back to the data center opportunity in Arizona. Commission has been supportive, but more recently, the Attorney General came out with some comments. Any risk that creates a delay or puts a jeopardy some of the planned expansions? David Hutchens: At this point, the pushback from the AG, I think we don't see that as necessarily a big issue or threat to this first contract that we have negotiated. We feel that the comments perhaps that were made on this wasn't quite fully understood exactly how the contract was formed that this was absolutely a 100% Arizona Corporation Commission approved tariff. There weren't any discounts. It was -- so I think some of the arguments -- well, I would say all the arguments that we saw against the energy supply agreement, we feel we have the right answers for. So I think with the clarity of daylight on all of those terms, I don't think we will have an issue. Mark Jarvi: So Dave, since the comments were made by the AG, have you been able to have some dialogue with them, share some evidence, communicate your position to help clarify some of the maybe misperceptions on that? David Hutchens: So we have spent a bit of time with publicly putting out that same message and both letters to the editor and the paper and things like that. I don't know, Susan, if we've sat down with the AG on this topic or not, but you can opine if you have. Susan Gray: Yes. I think that's right, Dave. We have not sat down with the AG, but we have publicly been sharing the details of the agreement that we're able to. I think you're right. Mark Jarvi: Okay. And then just in terms of some of those upside drivers you've outlined, I think it's on Slide 8, just in terms of some of the items that could be upside to the plan. If you think about since last quarter when you gave your 5-year plan, progress since then, like if you had to rank those, is it the data center opportunity in Arizona that's the best? Is it load and ITC? Just sort of how you would say that opportunities are shaping up in terms of incremental upside to the plan? David Hutchens: Yes. I guess ranking them, I suppose, there's obviously additional opportunities in ITC related to the -- what was formerly known as the Tranche 2.2 now known as MTEP 26. I think those are obviously a great opportunity for us if and when we want to participate, and we're still evaluating the competitive bidding process in Iowa. Those are things that are pretty close in as well. The data centers in Arizona, for sure, that feels like it's -- I mean, we're having those conversations now. If we can get that story out, explain very well how these things can benefit the rest of our customers, I think -- which I think we're as an industry on the verge of getting that information out there and getting that explanation so that hopefully, we turn that corner and folks see that some of these big load growth opportunities are actually a way to get more affordable rates. Once that dam breaks, I think we'll get a lot of positive support for those types of projects. And then like the question before on BC, there are some good opportunities there in that jurisdiction for additional LNG investments. And given, again, the focus there of the government on big projects and some good opportunities to provide economic benefits to that province, that and the -- there's quite a bit of investment opportunities that we see in the Okanagan and our small electric company there as well that we hope to see come to fruition. So it's a pretty big laundry list, but we're happy how full it is. Operator: The next question comes from Benjamin Pham with BMO. Benjamin Pham: On the annual formula mechanism for both UNS Gas and TEP, do you think that the commission can rule on that mechanism when you have a pending Court of Appeals case outstanding? David Hutchens: Yes, we think they can. So that Court of Appeals is more from a procedural perspective. It was really looking at whether or not they view the policy statement as being required to go through a rule-making process, which just takes a little bit longer time and a little bit more detailed process. The beauty of this is I think we have the record in our favor in that there have been mechanisms like this past, whether it's the system improvement benefit charge or other trackers that we've had. We had a decoupling statement years ago, policy statement. But the most important part is the policy statement was just that. It didn't -- it was the ability for utilities to file in a fully litigated rate case, formula rates, which were then, of course, fully litigated in that rate case. So it wasn't a rule-making that had any shells in it. It was that a utility may apply for a formula rate based on a handful of principles. So we don't see that as being an issue in us going through a rate case and getting that. And in fact, there's no reason that we needed to even have a policy statement before asking for these types of mechanisms in a rate case. As long as it's a fully litigated rate case, it's within the bounds of the Arizona statutes, then you can ask and the commission can grant anything within those bounds. Benjamin Pham: Okay. Understood. And on the second question on customer affordability, you've had a pretty good list there on how you plan to manage that going forward. I'm curious, are you sensing from customers or feedback in certain states or provinces where this is a bit more heightened when you look at across your franchises across North America? David Hutchens: Yes. I think it's probably different state by state, province by province, depending on the focus of -- a lot of times, politicians and governments and pushing the affordability question, which everyone should be doing. We just have to make sure that we fully understand the impacts and drivers of affordability, and we're trying to get out there within our own companies and the sector even from a wider perspective and explaining what we're doing in order to address that. Benjamin Pham: Okay. It seems like a broad conversation, but not something that's being more pointed in that particular area for Fortis. David Hutchens: No, I think we -- as a company and with all our utilities, it's got to be -- this is an extremely important topic. And I would say probably the #1 question that we get asked by you all from an analyst perspective, which is a great -- I think a great result that we're all focused on the same thing, making sure that at the end of the day, we're doing the best job we can to provide our customers the level of service they need and do that as affordably as possible. So we're all on the same page. We just have to make sure that we're looking at it consistently across our Fortis footprint. So we don't say, oh, this jurisdiction hasn't been a big issue or it hasn't come up, let's not pay attention. This is something we're focused on 24/7 in every jurisdiction. Operator: The next question comes from John Mould with TD Cowen. John Mould: Just going back to the UNS Gas rate case, and I appreciate you don't want to get ahead of your regulator, how should we think about what could come out of the upcoming ACC open meeting? Could that provide some clarity on finalized details of the formulaic rate structure in terms of an order? Or is that just too short a time line given the exceptions by both you and others? Any insight on that? David Hutchens: So I could pontificate, but I think it's better to just wait a week. So it just got put on next -- a week from today is the 19th open meeting. There's a special open meeting for the UNS Gas case. So instead of getting front run in that, it's just right around the corner. So we'll leave it at that. John Mould: No, fair enough. Appreciate that. And then maybe just moving to Ontario. You're on a list of potential participants in competitive transmission procurements and there is one being launched. There's also potential for changes to the LDC landscape in the province with this government pulse expert panel that's in progress. How are you thinking about the potential for more investments in Ontario by Fortis? David Hutchens: Yes. It's a province that we've been in for 30 years. And we've done -- we've got our utilities there as well as our background in building the Wataynikaneyap project. And so we love Ontario. We'd like to invest more there. And so we're trying to see if we can. So it's a good opportunity. And if it works out, great. I mean that's something that we would love to participate in bringing some of our capital into the province and help them build out. They've got a really great energy plan, and we'd love to be a part of it even just on the edges. Operator: [Operator Instructions] The next question comes from Elias Jossen with JPMorgan. Elias Jossen: I appreciate the color on the regulatory developments across the Arizona rate cases. So as you move through the process throughout this year, how do we think about increased clarity shaping the potential to issue earnings guidance at some point in the future? David Hutchens: Yes. The increased clarity, good regulatory mechanisms that allow us to forecast a little bit better, taking the peaks and valleys out of the Arizona utilities does provide a little bit better clarity for us from an earnings perspective. And I would say is not the only thing. It's obviously something that would go on the side of the ledger that would allow us to give earnings guidance. But at the end of the day, that's -- there's a lot of other considerations around that as well. So it's sort of one less thing but doesn't necessarily mean that it drives us straight to earnings guidance. Elias Jossen: And then recognize you guys have already talked a lot about the large load outlook in Arizona. But can you frame your involvement on the ongoing IRP workshops? I know there's a lot of stakeholders at the table there, but just to get your perspective on those IRP workshops. And can you remind us when we might expect an update there? David Hutchens: Yes. So we're in early days in the integrated resource plan. We've had a couple of public meetings. We put together this big stakeholder group that goes through the entire process. And you can follow -- actually, there's a spot on our website at TEP that you can follow along on the developments there, including once we start putting load forecasts and those kind of estimates there. I'm glad you brought that up because that was one of the big pieces I meant to mention this a little bit longer term, but an additional above and beyond the capital plan opportunity as we see that and start building out that integrated resource plan, we'll be able to then see how much additional generation and transmission investments we'll need to serve the growing load in Arizona. So it is still early days, but we -- I think we filed that in August of this year. So it will be getting pretty active here over the next few months. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Ms. Amaimo for any closing remarks. Stephanie Amaimo: Thank you, Betsy. We have nothing further at this time. Thank you, everyone, for participating in our fourth quarter and annual results conference call. Please contact Investor Relations should you need anything further, and have a great day. Operator: This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Unknown Executive: Good afternoon, and welcome to Outokumpu's Fourth Quarter Results Webcast. I'm Johan, responsible for Investor Relations. We will begin with the presentation from our CEO, Kati ter Horst; and our CFO, Marc-Simon Schaar. After the presentation, you are welcome to ask questions over the line. With that, I'm pleased to hand over to you, Kati. Kati Horst: Thank you very much, Johan, and also very, very welcome from my side. We are here today in the studio in a very snowy beautiful Helsinki. So let's go then directly to the business and talk about the fourth quarter and also some comments, key comments on the full year. So if we look at the whole year as such, I think the comment there is that the stainless steel market did remain weak and was very much pressured by the uncertainty we saw in the markets and also the especially low-priced Asian imports coming to Europe. So our full year adjusted EBITDA then decreased to EUR 167 million, and the profitability improved very clearly in BA Americas and in Ferrochrome, but then they declined in business area Europe, if you compare year-on-year from 2024. Then the Q4 '25 profitability was impacted both by market weakness, but also the temporary challenges we've been having with the supply chain planning solution in the ERP rollout in business area Europe. We do expect more favorable market dynamics going forward, and I'll come back to that in a little while. Also I would like to remind you that we are advancing our EVOLVE growth strategy by investing in the pilot plant in the U.S., to develop this proprietary technology we've been talking about, which is aimed at producing low CO2 metals and first focus being on ferrochrome and high chromium content metal. CBAM and tariffs are now the 2 elements that we see changing the import picture both in North America and Europe. So on the left side, you see Europe. The Q4 figures include October and November. And you can see that the imports have come down. Same has happened in North America because of the tariffs. And this is something, especially now in Europe, that we do expect to continue this quarter. I wanted to give also a bit of a sense from the Q4 of the sentiment in different customer segments. So you basically see here our key customer segments and the colors are giving a bit of the sentiment. And you can see that the sentiment has been quite subdued. So either no change or even a little bit slightly negative on the automotive and heavy industry side. But now that we come to the beginning of '26, I think it is changing a little bit. So first, I would like to comment on Europe that we clearly see that CBAM and the expectation of the coming safeguards are supporting demand for European suppliers. It's not necessarily helping to increase the end customer use demand. And there, we don't see really clear signs of recovery yet. But demand for European producers, we do see supported by the policy instruments. Then on the Americas side, I would say that we now see some first signs on a market recovery or economic recovery, however you want to call it. And that was also reflected a bit in the clearly better PMI index that was published in January. It basically jumping to 52.6 points. And I think that is also what we see in our order books and the sentiment that we see being somewhat more positive than before in the Americas. There's one customer case here I wanted to share with you because it is basically an example of one of the product developments in Outokumpu that highlights how our innovative material development. In this case, the Lean Duplex Forta provides a solution for very challenging customer needs in the real life, and it also helps to support the energy transformation and sustainable products and minerals and metals. So the customer here is Metso, very much in the space of mining and minerals and metals. Then moving forward, commenting then a bit on the Q4 result more. So we have clearly here a situation where Europe was weak also for the whole year and where BA Americas and Ferrochrome had a very solid performance. The European weak financial performance very much based on the market weakness and the sustained pressure from the imports. And then as I said earlier, also in the Q4, some temporary challenges that we've been having with our supply chain solution in this ERP implementation. We have had significant improvement profitability in BA Americas. That has been driven very much by the higher volumes and lower cost. And then really in BA Ferrochrome, we've actually seen a third consecutive year of improvement. And we also do see the robust demand continuing for our low emission European Ferrochrome. And then maybe on the own measures, I could comment that we had the target to have EUR 60 million savings in short-term cost-saving measures. So we have reached EUR 63 million by the end of the year. We have also reached the targeted level of EUR 350 million on this 3-year run rate program that we've been running by the end of '25. And therefore, also that program is now closed. Then moving to sustainability and commenting on some of the key items there. So our solid sustainability performance continued in Q4. We were also present in the COP30 and had some really good interactions with some of our customers, but also different politicians, talking about energy, talking about carbon capture, and other important topics. On safety, we are on a world-class level in the process industry. We had a challenging Q3. And I was very happy to see that now in Q4, we are really back on track in our safety performance with a total recordable incident frequency rate of 1.4. If we then look at the recycled material content, actually, all the quarters in 2025 we were at the record high level of 97% of recycled material content. And of course, together with the actions we've taken in energy efficiency and optimizing our processes, this has really delivered continued emission reductions for Outokumpu. And this becomes a more important topic going forward. So the low EU ETS emission intensity that we have, coupled with the free allowances that we have going forward, is really supporting our competitiveness, and I come a bit back to that a little bit later. Our sustainability leadership was also recognized externally. Earlier in the year, in '25, we got again the EcoVadis Platinum. And then towards the end of the year, the CDP's A rating for the climate was received. Then a couple of words about how CBAM and the phaseout of the free allowances under the EU ETS are expected to impact our business. So when you look at the left side, CBAM basically impacts the top line, while then the discussion of the free allowances is a cost question to the industry and for the players. So both in stainless steel and in CBAM or both in stainless steel and ferrochrome, so the key importers to Europe have carbon intensity default values that are clearly higher than the European benchmark. And this is clearly expected then to shift demand more towards the European suppliers. So you can see here in the left and in the middle the black bar presenting the imports and then the green bar representing the European reference values. Further then, I would like to point out that Outokumpu has been one of the early movers in smart decarbonization, and that has now resulted in a very competitive position under the EU ETS. So we basically have available free allowances covering our needs until 2030. I have here then another example on how we can reduce carbon emissions through partnerships that actually create win-win business concepts in the ecosystem. So this is a partnership that we have announced as an MAU with Norsk e-Fuel where basically the concept is that the side stream of our ferrochrome production, the CO gas, we can deliver that to Norsk e-Fuel for the production of sustainable aviation fuel. The beef here for us is that we are really -- by selling the CO gas, we are really reducing quite substantially our emissions. And for them, it's a very cost-effective and good raw material for producing sustainable aviation fuel. So here, let's see how this continues going forward, but these are continuously the type of opportunities we are looking in partnerships. And then now I think I would like to hand over to Marc-Simon to talk more details about our financial position and the results. Marc-Simon Schaar: Thank you, Kati. Good morning, good afternoon, everyone, and thank you for joining us today. Despite the challenging market environment, our solid financial foundation positions us well for future growth. Let's take a closer look at our financials at the end of the year. During the fourth quarter, our strong liquidity increased to EUR 1.2 billion. With positive free cash flow and the dividend payment in October, our net debt increased slightly -- only slightly during the quarter. At the same time, we secured a new unsecured EUR 800 million sustainably linked RCF with a 4-year maturity and an option to extend until 2032. The new facility replaced 2 previous RCFs of the same amount, but with improved and more flexible terms. This once again demonstrates the strong and continued support from our lending partners. Now let's take a look at our fourth quarter profitability. Our fourth quarter group profitability of EUR 10 million was mainly impacted by lower deliveries and a lower pricing level in Europe. The decrease in stainless steel deliveries to 365,000 tonnes was driven by continued market weakness and challenges related to the new supply chain planning solution, as mentioned earlier. These negative impacts were partly offset by improved cost performance and higher electrification aid. Let's now take a closer look at the performance of our business areas in the fourth quarter, starting with business area Europe. Overall, the market conditions in Europe remained weak during the quarter. This was evident in manufacturing activity as the euro area PMI remained below 50 much for the second half of the year, indicating continued contraction in the sector. Against this backdrop, volumes were lower during the quarter. This reflected both the ongoing market weakness and a temporary impact from the implementation of the ERP rollout, which we expect to normalize going forward. The weaker pricing environment also weighed on spreads, namely our price net of raw material costs. And this impact was partly offset by improved cost performance, supported by higher fixed cost absorption as production activity increased. In response to the prolonged market weakness, we continued to take decisive restructuring actions to safeguard our cost competitiveness. These actions form part of the EUR 100 million restructuring program announced in connection of our Q2 2025 results, which runs through the end of 2027. As part of this program, we expect to realize cost savings of EUR 50 million this year with a primary focus on business area Europe and group functions. Looking ahead, we also expect demand for domestic producers in Europe to be supported by the introduction of CBAM from the beginning of this year. With that, let me now turn to business area Americas. Despite seasonally lower deliveries, business area Americas delivered another strong performance in the fourth quarter. Improved product mix and lower variable costs more than offset higher fixed costs related to the annual maintenance shutdown in the U.S. as well as lower gains from timing and hedging effects and the usual seasonal decline in deliveries in the Americas market. During the quarter, demand in the U.S. continued to shift from imports towards domestic producers following the tariffs imposed by the U.S. administration in July last year. However, underlying end-user demand remained weak. Similar to Europe, manufacturing activity was contracting with PMI levels below 50 throughout the quarter. On a more positive note, we have recently seen early signs of improving market activity in the U.S. In addition, the Mexican government implemented tariffs on Asian imports, supporting domestic producers such as ourselves in Mexico. Looking ahead, our focus in business area Americas remains on strengthening operational excellence to fully unlock the potential of our asset base while advancing our commercial strategy through an expanded product portfolio and a more differentiated go-to-market approach. With that, let's have a look to business area ferrochrome. We are very pleased that the strong financial and operational performance in business area ferrochrome continued during the quarter. Against the backdrop of ongoing supply constraints in Southern Africa and continued geopolitical tensions, demand for our low-emission European ferrochrome offering remained strong throughout the quarter. While total deliveries declined due to lower internal demand, external deliveries increased, underlying our strong market position. With the introduction of CBAM from the beginning of this year, we expect this positive trend in external demand to continue. Profitability in the fourth quarter benefited from higher prices, lower variable costs supported by the electrification aid and improved fixed cost absorption driven by higher production levels. Looking ahead, despite the termination of electrification aid and the increase in mining tax in Finland from the beginning of this year, we see our ferrochrome business as very well positioned for the future. Our strong strategic setup, the continued expansion of our product portfolio into higher-margin ferrochrome as part of our EVOLVE strategy, and improving mining efficiency through the expansion of the sub-level caving concept will support further value creation in the business. Examples of our product portfolio expansion include our move into medium and high-carbon ferrochrome as well as low titanium products during 2025 already. In addition, recent underground drilling confirms that our mineral reserves and resources provide sufficient ore availability well into the 2050s, offering long-term visibility without the need for any major additional investments. With that, let me turn to some final remarks on the group's overall financial position. Despite the low profitability in the fourth quarter, our free cash flow improved significantly compared to the third quarter, driven by a strong release in working capital. Our ability to release additional working capital was limited by temporary challenges related to the implementation of the ERP system. As a result of the dividend payment of EUR 61 million during the fourth quarter, net debt increased slightly to EUR 265 million. Given the current market environment, our primary financial focus remains on maintaining strong capital discipline with a particular emphasis on working capital efficiency. Now with that, I will hand it back over to you, Kati. Kati Horst: Thank you, Marc-Simon. So going forward, based on our EVOLVE growth strategy, our focus is clearly on cost competitiveness in our foundational sustainable stainless steel business, while we are then targeting transformative growth in Advanced Materials and low-carbon metals through the technology development. And on the next slide, just as a reminder, as communicated last summer during our Capital Markets Day, here you see the pillars of our EVOLVE growth strategy. So it's maximizing the value from sustainable stainless steel, both in Europe, Americas, growing profitably in Advanced Materials and alloys, then working on technology to create innovative materials and low carbon, of low CO2 metals. And this is exactly the USD 45 million investments we've done on the pilot line in the U.S., which is proceeding well. And then, of course, we continue to focus on total shareholder returns as well and keeping our balance sheet healthy at the same time that we want to keep the possibilities open to invest in growth. Then we would be moving here now to the dividend proposal from the Board of Directors. And the proposal is EUR 0.13 per share for the year 2025 and to be paid in 2 installments. And I think it's important to mention this is very much according to our dividend policy where we also say that we need to look at the company's financial performance in the cyclical market conditions while we maintain the financial flexibility to invest in transformative growth. You see here our dividend per share and earnings per share. And then if you look at over the 5 years and you include this proposal of EUR 0.13, we have actually paid over the 5 last years, about EUR 0.5 billion of dividends to our shareholders. Then we move to the outlook for the first quarter of 2026. And in the first quarter of 2026, the adjusted EBITDA improvement is expected to benefit mainly from the recovering stainless steel deliveries, the volumes, which are forecast to be 20% to 30% higher compared to the fourth quarter in 2025. And the change in deliveries mainly reflects the normal seasonality that we have in the market, but also the exceptionally low level of business in business area Europe in the comparative period, so fourth quarter, which was then impacted also by the challenges related to the supply chain planning tool in the ERP rollout during the fourth quarter. And then with the current raw material prices, some raw material related inventory and metal derivative gains are forecast to be realized in the first quarter. And then our outlook for Q4 2026. So our adjusted EBITDA is -- in the first quarter of '26 is expected to be higher compared to the fourth quarter of 2025. Then I would like to summarize a bit with this slide, some of the key messages from today. And I would start by saying that we do expect more favorable market dynamics going forward in 2026. So in Europe, this culminates very much currently to CBAM and the proposed safeguards as they are supporting demand for low emission stainless steel and ferrochrome, supporting European suppliers. In the Americas, we see a positive outcome of the -- potential positive outcome of USMCA negotiation would really support our business in Mexico and also create more capacity for us eventually to sell in the U.S. And like I said earlier, we see also first signs of economic and end-user demand recovery in the Americas. So being clearly more positive than in Q4. And then we expect this robust demand for our ferrochrome to continue also supported by the continued uncertainty on supply on the market. And if I look at all the business areas, we are very much working on the commercial strategies and the product portfolios, and I see that we have a lot of opportunities in that side. Ferrochrome is already now bringing 3 new products to the market. So this is the way to continue. And on the EVOLVE strategy, I mentioned the technology development. It is very important for us, and we will tell you more about that as we go forward. So I'm very optimistic about our future, our possibility to grow and improve our financial performance and resilience. And then I think this takes us to the Q&A that we are now ready for. So please, happy to hear your questions. Operator: [Operator Instructions] The next question comes from Tristan Gresser from BNP Paribas Exane. Tristan Gresser: The first one, I just wanted to ask about Americas. There was a strong performance in Q4. Any one-off tailwind that was in there that will not repeat into Q1? Or is the type of margins on EBITDA per ton that you've seen and done in Q4? Is that kind of a normalized level that you see for the coming quarters? Is there more of the price increase to flow through in Q1? Or that's all in the results we've seen in Q4? And now with the visibility you have and you flagged a bit of improvement as well on the demand side, do you think you can reach your EBITDA target for the division of EUR 150 million, EUR 200 million in 2026? And if not, if you can tell us why? Marc-Simon Schaar: Maybe I can start with taking your first part of your question, Tristan, on the performance and if there are any extraordinary items within the result. The answer is clear, no, and we can expect then this result to be an underlying result then also going forward plus then the market dynamics which we see now. We expect a seasonal uptick in demand over here. And while we're not giving any price outlook, I think given the current situation and then referring also maybe to the early signs of a market recovery explains, I think, a bit about how we think about the overall market and the dynamics coming with that one. Tristan Gresser: And regarding the EBITDA target of EUR 150 million to EUR 200 million, is that achievable for 2026? Kati Horst: Well, I would say, if the market recovery continues, then I think there are possibilities to go towards that, yes. Tristan Gresser: All right. That's clear. And then kind of a similar question around Europe. I mean, it's always a market that is a bit difficult to calibrate. How do you think about the margin improvement for 2026? I mean you went from negative EBITDA adjusted EBITDA in Q4. The market was tough. There was a bit of one-offs. But consensus has EBITDA per tonne for the Europe division going above EUR 150 per tonne by Q4 this year. Do you think that's feasible? And if you can talk a little bit about the market environment as well. We've seen prices going up. I guess, margins are going up at the moment as well. If you can discuss a bit your order books and the impact of CBAM, that will also be helpful. Marc-Simon Schaar: Yes. So maybe if I start and then Kati can chip in and add. I think in the fourth quarter, we have seen the lowest volumes driven by the weak market. Yes, we also had here the implementation of the supply chain solution, which I mentioned before. But what we do see and from preliminary data also in January is that CBAM is somehow supportive, as I mentioned before, expecting also a shift towards domestic producers in the European market over here. And as such, also seeing then a margin -- relative margin improvement here in Europe as well. Kati Horst: And let's just say, command, that needs to also happen. If you look at the overall volumes, demand in Europe and the price level. So yes, volumes need to increase and deliveries need to increase and prices need to increase. Tristan Gresser: Okay. That's clear. But you're confirming that margin improving at the moment. And just the CBAM and the safeguards, is that enough for you to go back to historical margin levels? Or do you think absent a more pronounced demand recovery that on the end user side that you're not necessarily seeing at the moment, it will be difficult to reach, let's say, historical margin level already this year without the demand? Marc-Simon Schaar: I think that certainly CBAM and then safeguards are supporting us here and what you just described. At the same time, yes, we see increased activities, but this is not coming really from an underlying demand in the end user segments. And to be clear, in order to get back to historical levels, we also need further demand from the market side as well, given also the capacity utilization we are currently running still being on the low side. Operator: The next question comes from Tom Zhang from Barclays. Tom Zhang: Two as well for me, please. So yes, maybe just on ferrochrome. I know a lot of the quarter-on-quarter improvement was from these electrification aid. But I think underlying, you also talked quite positively about the ferrochrome market, which I was a little bit surprised by because stainless volumes have not been very strong. There was still a lot of stainless imports and CBAM, I guess, will help, but it's only just coming in from January. Is there much of a step-up again into Q1 for the underlying ferrochrome business? And so as I kind of look at Q1, even without the power subsidies, do you think it's possible that ferrochrome earnings can remain fairly stable? Marc-Simon Schaar: I think maybe if I can take that. When it comes to Q4, yes, there was a positive element of then the electrification aid, as we mentioned before. What we have seen as an increase from the third quarter to the fourth quarter, I would say, approximately half or a bit more half of that improvement is coming from that electrification aid. And the rest is real underlying improvement, stronger performance. Coming to the market side, yes, stainless steel demand is lower, is weak. However, we're constantly also reporting that the demand for, again, our European low-emission ferrochrome is very solid. And as such, we saw an increase, not in internal demand, but in external demand. We're also expanding our product portfolio, as I mentioned before, so these are areas and topics together then also with improving our cost performance in ferrochrome with this new or continued expansion of our mining method, sublevel caving, that's all contributing positively. Now if we think about then Q1, certainly, the impact, which I mentioned to you before the electrification aid, but then also the impact from the mining tax in Finland then will have a negative impact in the fourth quarter compared to -- in the first quarter compared to the fourth quarter. However, we continue to improve on the mix side and also on the cost performance. So I would only bake half of the impact of electrification and mining tax into the forecast. Kati Horst: And maybe to add to that a bit that just as a reminder, so we're delivering now internally, externally about 400,000 tonnes of ferrochrome. We have a capacity of 500,000 tonnes. So we have capacity to increase also external deliveries. And maybe another aspect just to add that this portfolio development in ferrochrome, low titanium ferrochrome, medium carbon ferrochrome and now our latest test based on concentrate, more than 60% chrome content ferrochrome, they bring us also to other customer segments. So it's not only then stainless steel anymore being the customer, but there are other segments. So we see the outlook for ferrochrome quite positive. Tom Zhang: Okay. Okay. That make sense. I think in -- sorry, just following on from me quickly. I think in Q2, you guys had talked about a mining tax could be a sort of EUR 50 million hit. Is that still the right number to think about? Kati Horst: No, it's -- so I can be a bit more specific on that. So the mining tax increase now for this year. So last year, we paid about EUR 8 million. This year, we are paying EUR 21 million based on the current premises and volume estimates. So it's a EUR 13 million increase in mining tax. And what does continue in Finland, the parliament has asked the government to look at also at the hybrid model, which would be partly based on royalty and partly then based on the actual result. So that discussion should continue this year. And then the other item there was the electrification aid. So Outokumpu has been getting in total about EUR 20 million in the electrification aid. So if you put those together, then the impact, I think, right now is about EUR 30 million, EUR 35 million. Tom Zhang: Very clear. And then the second question was basically around, there's been a lot of headlines around ETS reform or potential extension of free allowances. As I understand, that would potentially mean CBAM also needs to be drawn out to adhere to WTO. Given your emissions are already well below international levels, you're covered for allowances out to 2030. Do you see the extension of free allowances as a bit of a risk for stainless? Or do you think it's kind of not too material? Kati Horst: No, I don't -- at least from our perspective, I don't see that as a big risk. Of course, there's a lot of discussions going on. If my understanding is correct, there will be some kind of a review now in the summer of the EU ETS system. But I think that's also about should it be extended to some other sectors where it's not now yet. So we will definitely hear more about the review and what is being reviewed in the summer. But I think it is -- I think European Commission is still quite determined to their emission reduction targets. And of course, EU ETS system also goes a bit hand-in-hand with CBAM. So we need to see also the effect in the CBAM going forward. But I think it's definitely a competitive advantage to have been an early mover in this area in the case of Outokumpu. Marc-Simon Schaar: And maybe to add also with smart decarbonization here as well. And I think Kati has mentioned one example, how we think about ecosystems and partnering and making the reduction in emissions as economically feasible. Operator: The next question comes from Anssi Raussi from SEB. Anssi Raussi: I have a couple of questions left. First about CBAM and safeguards in Europe, like how do you see the situation if you think about scrap value chain, like if the end user demand is declining due to these new regulations, even though it would be positive for your stainless side. But do you think that scrap suppliers would face some problems, for example? Marc-Simon Schaar: Well, Anssi, if I can take that question, then I think that -- well, overall, there is then a stronger demand for stainless steel scrap. And this is what we do see then in the market as well. But overall from -- I can only speak from an Outokumpu point of view that through our partnerships with our suppliers being very well covered and also going forward. Anssi Raussi: Okay. That's clear. And then about BA Europe, like what kind of delivery times you have right now? Because I think your contracts are so-called all-in price-based contracts. So how long it takes before we see this positive changes in market environment in your P&L? Marc-Simon Schaar: Maybe to start with, not all of our business is on effective pricing. So I would say around 30% of our business in Europe is based -- still based on base plus alloy surcharge and our U.S. business is completely on base plus alloy surcharge. Certainly, we have around 1/3 of our annual expected volumes under contract. These contracts being concluded by mid to end of last year. And as such, there is naturally a certain delay in here. But we should see a gradual improvement here from the first quarter in business area Europe. Operator: The next question comes from Dominic O'Kane from JPMorgan. Dominic O'Kane: I have 2 questions. So first, could you maybe provide us with an update on your current thinking for Tornio? And then second question is a related question. If we think about cash flow, you've had 2 successive years of negative calendar year free cash flow. You've done a good job on working capital management, but it may be that is going to be difficult to continue and replicate going forward. And so if I think about what you said at the Capital Markets Day, you didn't provide us with any forward-looking guidance for 2026 CapEx. So I just wonder if you could maybe just help us with those building blocks. Are you able to maybe give us an update on 2026 CapEx? And how should we think about the free cash flow potential in 2026? Kati Horst: So if I leave the cash flow question to Marc-Simon, I could maybe comment on Tornio. So you're referring to this potential investment in the annealing and pickling line in Tornio. We said in the fall when we were discussing the mining tax topic that is currently on hold. So now we know what the impact on the whole Kemi Tornio setup is cost-wise without this electrification aid and the mining tax. So what we are doing currently, we're updating the investment case and also, of course, looking at is there is there other ways? Are there other items we can take in so that this investment case basically reaches our hurdle of 15% of ARR for foundational investments. So the investment case is still valid and it's being reviewed now with new assumptions as some of the cost assumptions have changed, and we also have some other ideas what more we could do. So it's under review currently. Marc-Simon Schaar: Yes. And if I then continue on the cash flow question, first of all, during fourth quarter, as mentioned earlier, our ability to reduce working capital was. if I think about the first quarter, yes, business activities do increase, as we mentioned before, our volumes. Then we have also seen the nickel price increase, but expectation at the moment is that working capital will only increase moderately into the first quarter of this year. We do think then for the entire year, I mean, that pretty much depends also on how business activities and prices further develop that we, as a management team, are very committed in focusing on improving our working capital and particularly inventory efficiency now during this year and have dedicated programs in place. Coming back to your particular question around CapEx guidance for this year is around EUR 200 million. And then if we think about financial expenses, pretty much in line with what we have seen this year around, I would say, EUR 50 million. In terms of taxes, I would add or take similar levels as we had a cash out in this year according to our plan. And then we do have restructuring provisions here as well, which we should take into account and which we have been reporting earlier as well. Dominic O'Kane: Could I just ask on the EUR 200 million CapEx, does that include anything for Tornio? Kati Horst: No. So if we look at like a bigger investment on the AP line or we would look at more transformative investment in Avesta, no, it does not include that. And maybe as a reminder, we capped our CapEx this year also because of the financial performance cash flow to EUR 160 million -- and I think we arrived at EUR 145 million. So that was also how we were managing the cash. So I think EUR 200 million is more going on the ongoing initiatives, what we have, normal maintenance that we have. And then potentially other investments, they would probably not start in '26 yet impacting our CapEx, but later. Dominic O'Kane: But the announcement on the CapEx in the U.S. with new proprietary technology, the USD 45 million, that's being part of the EUR 200 million as well. Kati Horst: Correct. Operator: The next question comes from Maxime Kogge from ODDO BHF. Maxime Kogge: So my first question is on dividend because there have been some expectations on our side, on the sell side, that you would at least roll over the existing payout and you have cut it by half. So it's fair considering the other constraints you mentioned. But going forward, how should we think about your dividend payment ability? Is it fair to assume that as long as you have not been back to this ratio of net debt to EBITDA of 1, which is your long-term target, dividends are going to stay quite limited? Kati Horst: Well, I think our kind of target in the dividend area is, of course, to continue to deliver stable and growing dividend over time. We just have to maybe remember in what kind of cycle we have been and what kind of financial performance we have had -- so that consideration is there. And then the other consideration is, of course, the financial health. So our balance sheet and then also keeping this room for potential investments in transformative growth. So those are the aspects that we are considering in the dividend policy, and that's why the proposal now of the EUR 0.13 dividend per share. Maxime Kogge: All right. Second question is on the nickel price. So price of nickel has surged by 20% over the last 2 months. So when we ask a question to your main competitor, they were relatively dismissive of any impact since they procure most of the nickel needs from scrap. That's the same for you. But still, would you believe that there could be a positive price volume impact associated with higher nickel price in the sense that distributors in such phases of higher nickel prices tend to rush to buy material. And yes, would it apply in particular in the U.S. where the market is more geared towards distributors, plus you have this pass-through mechanism of the base plus alloy surcharge, which is working quite well unlike in Europe? Marc-Simon Schaar: Yes. To answer your question directly, with the higher nickel price, also we expect an improvement here on the price level and also within our margins. Maxime Kogge: Okay. But you don't see any volume impact associated with that, do you? Marc-Simon Schaar: We do need to see here really a recovery in the underlying demand, certainly with CBAM, as mentioned earlier, and then let's see safeguards coming in that there is a shift in -- from imports to domestic producers, but we definitely need to see how the economic activities are recovering. Maxime Kogge: Okay. Fair enough. And just last one is on your long-term EBITDA target. That's also in light of comments made by your main competitor around its own long-term target of EBITDA that it dropped from EUR 800 million to EUR 700 million to EUR 800 million, and that was despite a big acquisition made in between. As far as you're concerned, you have a very ambitious and very high long-term EBITDA target at EUR 750 million to EUR 850 million. That's an improvement over the existing EUR 500 million, EUR 600 million. I understand this target is based on the quite high base prices, plus you have the benefit of this new investment. So how comfortable are you with this target given the fact that prices remain quite depressed at this stage, plus consensus has expectations at a much lower level, including for '26 and '27? Marc-Simon Schaar: I think you mentioned yourself here the pricing environment right now, and this is -- and also the long-term target here as well. And this is how we should look at this as well. We also said this is then the target looking through the cycle here as well and having the improvements as we communicated during the Capital Markets Day through investments in the foundational business here, which is then building up here the improvements. And yes, we're still comfortable around this level. Operator: The next question comes from Bastian Synagowitz from Deutsche Bank. Bastian Synagowitz: I have 2 quick ones left as well, please. Maybe firstly, on Americas where you've been doing quite well. You mentioned the U.S. MCA agreement. I guess we don't know what the outcome will be, but could you briefly remind us on the sensitivity to your numbers in the current price and margin environment should the U.S. tariffs be dropped completely? That is my first question. Kati Horst: Yes. Maybe I'll start with that. I'm not so much talking about the whole USMCA for instance, with Canada, but more referring to the negotiations and the sentiment we have from the negotiations between Mexico and the U.S. So I think they've been constructive, quite positive. Of course, we don't know the outcome. But what was done in Mexico now as well, Mexico imposed 50% tariff for Asian imports as of beginning of the year. That is, I think, something what you have been also asking for. So that has happened. That gave us some opportunities for price increases. And it could also support then demand to a domestic supplier in Mexico, which we are the only one. But of course, there is a tariff now between U.S. -- from Mexico to U.S. of 50% for steel. And it doesn't take into account whether the steel has been melted in America or not. So that is, of course, an upside for us if we can also use the Mexican capacity for the needs of the U.S. market because the Mexican market currently is very weak. It can recover with some of the measures somewhat, but we would very much in this situation, want to use the capacity more for the U.S. demand as well. So therefore, if this tariff would become lower or disappear, of course, that would support our business clearly. Bastian Synagowitz: And could you maybe just give us like a quick understanding on what the sensitivity is if that 50% tariff would be dropped, just looking at the cross shipments from the U.S. into Mexico and vice versa? Kati Horst: Well, I think in the past, the shipments have not been so very high because the Mexican market was also doing well. So probably 10,000, 15,000 tonnes. But we have, of course, more capacity in Mexico. So should the Mexican market stay weak, which I, of course, don't hope and the tariff would not be there, it would give us opportunities to bring even bigger volumes to U.S. Bastian Synagowitz: Okay. Understood. Okay. Great. And could you just clarify the Mexican tariff, does that also cover at least part of your client sectors as well on the downstream side? Kati Horst: So yes, so there's a derivative list, and there are certain products then on the derivative list where there is no tariff that are made out of steel. I think refrigerators happens to be one of them. But it's a bit of -- it depends what is on the derivative list and what's not on the derivative list. But everything that's in the form of raw material as steel is tariff by 50%. Bastian Synagowitz: Okay. Got you. Thanks, Kati. Then lastly, are there any big items for us to keep in mind for 2026 on the maintenance side? I guess there's probably the usual, but I don't know, is there anything extraordinary here? And then also anything similar, any one-offs like the ERP, which you had last year, which we should just factor in? Kati Horst: No. No, nothing major. Operator: The next question comes from Igor Tubic from DNB Carnegie. Igor Tubic: I just have 2 follow-ups. You mentioned that the mix in Americas improved. I just wonder what we should expect in terms of Q1 for 2026, both for Americas and for Europe? And then also if you can comment anything about in what segments you saw an improvement, so to say, in the mix in Americas? Kati Horst: Well, I guess, we have to start by saying we don't guide on the PA level for the Q1, but you saw our guidance of improving volumes in stainless steel between 20% to 30%, so that goes both -- it's combined Europe and Americas. I think that is an answer on there. And then if we look at the -- I could maybe generally answer that if you look at the end user segments that are booming in Americas, data centers is one, electrification goes forward. But I think this is also very much about our own work. So we are digging deeper to different customer segments where we see opportunities for our product portfolio. So we are becoming more of a market maker in the segments where we want to grow. So this work, I'm also expecting to bring some results in the coming quarters. Marc-Simon Schaar: And maybe to come back a bit more on the first quarter, I think the best way really to look at our first quarter and the guidance is, as we said and stated in the guidance, it's the volume recovery. There are, of course, a couple of offsetting effects left and right that the major driver is really the volume recovery in the first quarter. Operator: The next question comes from Joni Sandvall from Nordea. Joni Sandvall: One quick left from me. Could you give -- I think this is a bit of -- you answered partly, but could you give any indication how your lead times have developed now under the CBAM game effective 1st of January. So have you seen increasing order books for yourself? And any indication of how lead times have developed after this? Marc-Simon Schaar: Yes. Lead times have developed. Lead times have improved. And right now, we're middle of February, and we have already started booking into the second quarter, April into May. Joni Sandvall: Okay. And maybe a quick one also just to confirm, was the ERP rollout completed already during the Q4? Marc-Simon Schaar: Well, it is a huge project in itself. We talked about the difficulty and the implications from the supply chain solution as part of the ERP program. And the aftercare will still continue into the first quarter of this year. But yes, we expect then by the end of the first quarter to have then a stable situation going forward. So being temporary. Operator: There are no more questions at this time. So I hand the conference back to the speakers. Kati Horst: Thank you very much for your active participation today. And I think this, in principle, concludes our session today. Like I said a while ago, I think we are really confident about our future going forward. So we will look at growing this company. We will gain the resilience, and we will work hard to improve our financial performance. So thank you very much for being with us today and talk to you then again in our -- when we talk about the Q1 results in the spring. Thank you very much. Marc-Simon Schaar: Thank you.
Operator: Good day, and welcome to the MSA Safety Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Larry De Maria. Please go ahead. Lawrence De Maria: Thank you. Good morning, and welcome to MSA Safety's Fourth Quarter and Full Year 2025 Earnings Conference Call. This is Larry De Maria, Executive Director of Investor Relations. I'm joined by Steve Blanco, President and CEO; Julie Beck, Senior Vice President and CFO; and Stephanie Sciullo, President of our Americas segment. During today's call, we will discuss MSA's Fourth quarter and full year 2025 financial results and provide our full year 2026 outlook. Before we begin, I'd like to remind everyone that the matters discussed during this call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, all projections and anticipated levels of future performance. Forward-looking statements involve a number of risks, uncertainties and other factors that may cause our actual results to differ materially from those discussed today. These risks, uncertainties and other factors are detailed in our SEC filings. MSA Safety undertakes no duty to publicly update any forward-looking statements made on this call, except as required by law. We have included certain non-GAAP financial measures as part of our discussion this morning. The non-GAAP reconciliations are available in the appendix of today's presentation. The presentation and press release are available on our Investor Relations website at investors.msasafety.com. Moving on to today's agenda. Steve will first provide an update on the business. Julie will then review the fourth quarter and full year 2025 financial performance and 2026 outlook. Steve will then provide his strategic priorities for 2026 before giving closing remarks. We will then open the call for your questions. With that, I'll turn the call over to Steve Blanco. Steve? Steven Blanco: Thanks, Larry, and good morning, everyone. Thank you for your continued interest in MSA Safety. I'm on Slide 6. We executed well within a challenging environment for 2025. We had a solid finish to the year, guided by our Accelerate strategy, centered on serving MSA's mission for our customers and protecting over 40 million workers worldwide who trust the MSA brand. Just within the last month, I've learned about 2 separate customer save stories where our solutions helped save lives. First, a worker at a water treatment facility was alerted to a flammable gas alarm by his ALTAIR 5X portable gas detector, enabling evacuation before the fire occurred. It's why customers count on the MSA brand, fast response, reliability and durability in the real world. We also heard directly from a firefighter wearing our Globe turnout gear when he was engulfed by a flashover as he entered a structure. As he told us afterwards, "In a moment where everything went wrong, your gear did exactly what it was designed to do, and did it when it mattered most." Save stories like these remind us all at MSA, the importance of fulfilling our mission. Now for our business update on the fourth quarter and full year. Our fourth quarter results reflected strong free cash flow, low single-digit reported sales growth, mid-single-digit adjusted earnings growth and sequential improvement in operating margins. Quarterly consolidated reported sales growth was 2%, with a 3% organic decline, a 3% contribution from M&A and 2% favorable FX. Adjusted earnings per share were $2.38. Organic sales performance in the quarter was driven by continued strength in detection, which was offset by a decline in the fire service, while industrial PPE was up modestly. The M&C TechGroup acquisition contributed $15 million to the quarter. Looking at sales by product categories. Detection's 17% organic growth was driven especially by strength in fixed, while portable instruments also continued their growth. This growth was primarily driven by excellent performance in the Americas as we completed delivery of several large orders. Organic sales in fire service declined 21% year-over-year. The U.S. market dynamics surrounding AFG funding and the U.S. government shutdown impacted the timing of SCBA sales in the quarter as expected. We also faced the final tough year-over-year comparisons with U.S. Air Force deliveries. Organic sales of industrial PPE were up 1%. Fall protection moderated from the strong pace we saw in the previous quarters, though it retains a positive outlook. From a full year perspective, we effectively executed our strategy against a volatile operating environment. Net sales growth for the year was 4% on a reported basis, with 1% on an organic basis and a 2% contribution from M&A. We remain very pleased with M&C's performance and its integration into the MSA family. Order pace across our product categories was healthy, albeit mixed, in the low single digits year-over-year and reflected the timing dynamics in the fire service. Detection orders were about flat versus the strong FGFD comparison last year and industrial PPE orders decreased by low single digits, with fire service orders increasing by low single digits. Order flow improved from the third quarter following the NFPA approval of our newest G1 SCBA, the release of AFG grants and the reopening of the U.S. government in mid-November. Overall, backlog remains healthy and consistent with historical levels, and we have a solid commercial pipeline. Our overall book-to-bill was slightly below 1 and above the year ago period. Turning to Slide 7. You know how dedicated we are to serving our mission for our customers and delivering innovative products and solutions. As you can imagine, we also have our own MSA culture of safety that we live every day. I'd like to share a couple of highlights. In 2025, we delivered world-class safety levels across our organization, finishing the year with 0 lost time incidents. In addition, our total recordable incident rate was 0.25, the best rate we've achieved ever. These metrics demonstrate that we live our mission every day at MSA at every facility around the world, and further emphasize how doing so enables us to strengthen our culture of safety. I'm extremely proud of the MSA team. A sincere thank you to the team for their dedication and commitment in our endless journey of improvement. Moving to Slide 8. we expected 2025 to be a dynamic year when we outlined our Accelerate strategy and long-term targets in 2024, and it proved to be just that and more. However, we maintained our diligent focus on strategic execution. I'd like to share a few of our 2025 achievements. First, as we committed to, we delivered above-market growth in our key strategic growth accelerators, with detection up organically low double digits and fall protection up high single digits. Detection is now our largest product category, representing 41% of sales. In addition to the exceptional fixed detection performance, we continue to see growth in both MSA+ connected and traditional portable solutions. Second, we continue to innovate and bring industry-leading products and solutions to market. This included launch announcements for the ALTAIR io 6 portable gas detector which advances our MSA+ ecosystem, the new H2 Full Brim Type II hard hat, our newest Globe turnout gear, the, G-XTREME Pro jacket, and our latest generation 2025 G1 SCBA, which received NFPA approval in November. Finally, from a financial perspective, we utilized our consistent free cash flow to deploy nearly $0.5 billion into growth investments and returns to our shareholders. We welcome M&C into the MSA family, increased our share repurchases, raised our dividend for the 55th consecutive year. Going to Slide 9. Moving into 2026, we remain confident in our expectations for a number of key markets. That includes fire service for both our domestic and international segments. In North America, we're optimistic about the pipeline of opportunities and continued use of AFG grants in the U.S., which we expect customers to access throughout the first half of the year. Internationally, we continue to see opportunities to gain market share across our regions as our pipeline for our fire service solutions remain strong. In the energy sector, we anticipate strong underlying global demand in 2026 and beyond. We expect to leverage the various investments in this area as well as in the industrial markets. We are well positioned for opportunities across the entire detection portfolio as well as in fall and head protection. With that, I'd now like to turn the call over to Julie to walk through our fourth quarter and full year 2025 results in more detail and our '26 outlook. Julie? Julie Beck: Thank you, Steve, and good day, everyone. We appreciate you joining the call this morning. Starting on Slide 11 with the quarterly financial highlights. Fourth quarter sales were $511 million, an increase of 2% on a reported basis over the prior year. Sales were down 3% on an organic basis from the prior year, while M&C added 3% to overall growth and currency translation was a 2% tailwind. As expected, GAAP gross margins improved sequentially, rising to 46.9%, an increase of 40 basis points from the third quarter and remaining consistent with the previous year. Year-over-year gross margin reflects the mitigating effect of our pricing strategy on tariffs and inflation as well as positive mix and favorable transactional FX. As we have previously communicated, we remain focused on achieving price/cost neutrality in the first half of 2026. GAAP operating margin was 22.3%, with an adjusted operating margin of 23.9%, which was consistent from a year ago, as lower volume and gross margin pressures were largely offset by mitigating pricing actions, positive mix and favorable transactional FX. Sequentially, adjusted operating margins were up 180 basis points from the third quarter. Entering 2026, we remain diligently focused on SG&A productivity, pricing and tariff mitigation plans to counter headwinds and return to margin expansion. Quarterly GAAP net income totaled $87 million or $2.21 per diluted share. On an adjusted basis, diluted earnings per share were $2.38, up 6% from last year, which included a favorable adjusted effective tax rate of 23.2%, primarily due to a reduction in state income taxes. Now I'd like to review our segment performance. In our Americas segment, sales declined 1% year-over-year on a reported basis or 3% organic as mid-20s organic growth in detection was offset by a low 20s contraction in fire service. As Steve mentioned earlier, sales in the fire service were negatively affected by timing-related market conditions, while organic sales in our industrial PPE business were relatively consistent. M&C contributed to 1 point to total growth and currency translation added a 1% tailwind for the quarter. The adjusted operating margin was 31%, a 30 basis point increase compared to the previous year. The margin improvement was primarily due to pricing, favorable mix and effective SG&A management, partially offset by lower volumes, inflation and tariff pressures. In our International segment, sales increased by 8% year-over-year on a reported basis, with a 6% contribution from M&C and a 5% tailwind from FX. Organic sales declined 3% as mid-single-digit growth in detection and industrial PPE was offset by a double-digit contraction in fire service, which was primarily driven by orders being pushed into 2026. Adjusted operating margin was 16.8%, 80 basis points below last year. Margin contraction was mainly due to inflation, tariff pressures and volume, partially offset by pricing and SG&A management. Now moving on to Slide 12, where I'll review our full year results. Total net sales were $1.9 billion, up 4% or 1% on an organic basis versus last year. M&C contributed 2 points to overall growth and currency translation was a 1% tailwind. We saw double-digit growth in detection and low single-digit growth in industrial PPE. Growth in industrial PPE was primarily driven by strong performance in fall protection. Sales in fire service contracted due to the challenging market conditions we have talked about. Adjusted operating margin was 22.1%, down 80 basis points from last year on tariff, inflation and transactional FX pressures, partially offset by strategic pricing actions, positive mix and improved productivity. Adjusted diluted earnings per share were $7.93, up 3% over the prior year. M&C contributed $0.09 to adjusted earnings per share. We delivered a strong return on invested capital of 20%, which included the overall impact from our acquisition of M&C and far exceeds our cost of capital. Overall, MSA's financial performance was solid, given the challenging prior year comp and the dynamic operating environment that persisted throughout 2025. Now turning to Slide 13. We generated a strong free cash flow of $106 million in the fourth quarter, which is 122% of earnings, marking a 13% increase compared to a year ago. For the full year, free cash flow reached $295 million, up $53 million from last year, with 106% conversion rate that surpassed our annual target range of 90% to 100%. In the quarter, we returned $61 million to shareholders via $21 million of dividends and $40 million of share repurchases, in line with the increase we communicated last quarter. Repurchases in the fourth quarter were equal to our total repurchases throughout the first 3 quarters of the year. In addition to returning cash to shareholders, we invested $16 million in capital expenditures. For the year, capital deployment, excluding R&D investments, totaled approximately $420 million and included $189 million spent on the M&C acquisition. $162 million returned to our shareholders via share repurchases and dividends, and $68 million in CapEx, which includes our Cranberry expansion that will further support our Accelerate strategy priorities for growth and footprint optimization. We continue to reinvest in R&D, which represented 4.3% of 2025 sales, reinforcing our commitment to being a leading safety technology provider. Net debt at the end of the year totaled $416 million, down $43 million sequentially. As of year-end, we have repaid approximately $100 million of the $140 million we borrowed for the acquisition of M&C, and we ended the quarter with net leverage of 0.9x. Our weighted average interest rate at quarter end was 3.9%. Our strong balance sheet and ample liquidity of $1.2 billion continues to provide optionality and position us well to support our Accelerate strategy and invest in our business, while we maintain an active M&A pipeline entering 2026. Let's turn to our 2026 outlook on Slide 14. We are projecting mid-single-digit full year organic growth. Overall, our business remains healthy, and the pipeline is solid. Although the fourth quarter was affected by timing issues in the fire service and the U.S. government shutdown, we expect those delays to favorably impact the year as we carry over about 1% of annual business that was delayed. We anticipate ongoing momentum in detection and fall protection as key growth drivers, while pricing actions taken throughout 2025 and 2026 will be realized alongside moderate volume growth. We expect normal seasonal patterns throughout the year, including M&C, with the first quarter typically being the lowest of the year, implying approximately high 40s to low 50s sales split between the first and second half. In addition to our mid-single-digit organic growth outlook, we expect M&C to contribute approximately 1 percentage point to full year revenue growth. Other items below the line included interest expense of $28 million to $31 million and a tax rate in the mid-20s percent. In conclusion, there is no question that further uncertainty and volatility exists into 2026. We remain confident in our resilient business, our pipeline and our ability to navigate macro uncertainty and timing challenges as we execute our strategy and work towards our 2028 targets. With that, I'd like to pass it back to Steve. Steven Blanco: Thank you, Julie. I'm on Slide 16. Overall, we executed well in a very dynamic 2025. As we move into 2026, our strategic priorities remain rooted in our mission and disciplined execution of our strategy. We retain our focus on driving profitable growth while extending our leadership in the markets we serve. We continue to apply the principles of the MSA business system to drive continuous improvement in all we do. Our strong financial profile and balance sheet enabled effective capital allocation through organic and inorganic growth investments and returning capital to shareholders. We remain active and highly disciplined in our M&A approach as we continue to evaluate inorganic growth opportunities that meet our strategic and financial targets. Moving to Slide 17. I'm proud of our team's execution and thank all of our associates for their continued commitment to serving our singular mission of safety. While there are always new challenges, I'm optimistic that we will continue to grow both organically and through acquisitions, and that we have begun to exit some of the most difficult quarterly comparisons. With that, I'll turn the call back over to the operator for Q&A. Operator: [Operator Instructions] And the first question today will come from Rob Mason with Baird. Robert Mason: On detection, really strong quarter, obviously, and able to get some of these larger orders out the door before year-end. Steve, I seem to recall, we were thinking about that business being in the high single digit for '25 and I guess it grew 12% over on a local currency basis, does that delta -- is that explained by the large orders? Or did you have some other things come in, in the fourth quarter? Steven Blanco: Yes. Thanks for the question, Rob. I would say it was explained by the large orders. We had a couple of really nice orders come in. We had a customer in late Q3 that we -- that asked us to execute on an order that would have been this year. So we had an additional large order that came in. So if you took that out, it probably would have been a 10-ish number for the year instead of the 12. Obviously, very strong. We said high single digits, I think, pretty early in the year, and I think the team executed very well in that. But the underlying demand continues to be super strong across most of our regions, and we're expecting the investment category for some of the end markets to continue. I mean we're not going to have that same kind of year this year, certainly, but a really solid year. Robert Mason: Yes. Yes. And then trying to get past some of the well-documented headwinds in fire service in the fourth quarter. How do you see maybe the cadence in fire service playing out through the year? I'm sure those don't go away just on January 1, but between the first quarter and maybe you get by the midyear, what -- how does that play out, do you think? Steven Blanco: Yes, thanks. It's going to be interesting. So we really -- when you think of the delay, typically the fire service, when they receive the funding, they've got this built-in time horizon of year-end. And part of that is they recognize there's an opportunity, they've got funding and they want to get in their orders before the price increases that most manufacturers put in, in the first quarter. So that didn't transpire, right? They didn't have the funding, they weren't able to do that. So we have that pipeline. We're working through that with our customers. That's why we think most of those orders probably play out sometime in the first half for the ones that had the government delays. And then the remainder, it's probably going to be more like a normal fire service year, what you would typically expect, which would say that you would lean towards the second half again on the overall demand cycle here. So that's how we see this playing out -- excuse me, this year. I think that's the best way to look at it. Except that AFG delay, some of those will come in. We'll see some of that in the first half of the year. But the overall picture is more of a standard year, I think. Robert Mason: I see. Julie Beck: Just to add on to that, I would say that we would expect pretty consistent growth throughout the year in terms of the revenue growth for fire service. Operator: The next question will come from Mike Shlisky with D.A. Davidson. Michael Shlisky: I'll follow up on that -- on your answer for detection, very impressive in the quarter here. And it's been a trend, you've had some good numbers. Could you maybe comment on the order of [ magnitude ] of growth you'll be seeing here in 2026 for detection? Is there, at some point, where you start seeing tough comps? Or is there enough new product coming out here that there can be a strong tailwind this year? Steven Blanco: Yes. Thanks for the question, Mike. I think that last year, certainly, especially as you look at the latter half of the year, the fourth quarter, that's certainly going to be tough comps. And as I talked about with Rob's question, a couple of points that probably would have been in this year. We look at -- this is going to be a good year for detection. I probably -- it's early. But we would expect -- we'd probably look at this in -- at this stage in the mid-single-digit revenue growth year, even with the comps we had last year. And I think at this stage in the game in February, mid-Feb, that's how we would think about it and how we're looking at it for the year. And so the growth is there. We think the macro environment supports that. And certainly, our solutions in both categories of the fixed and the portable detection support that with our customer base. Michael Shlisky: Great. And I also wanted to turn to the margin outlook. When I think back, you've got that longer-term 30 to 50 basis points a year margin goal to gain every year through '28. Now that goal was released prior to the tariffs and things coming out more recently. But you did end up down a bit in 2025. Is there a catch-up that happens here in 2026 and then you add on top of that the 30 to 50 basis points of margin just as pricing catches up? Just some thoughts as to whether you could be seeing 100 basis points plus of margin in 2026, especially the run rate to exit the year. Steven Blanco: Well, it was a dynamic 2025, for sure. The tariff situation certainly played out to impact that as we talked about last year. I would just tell you, our overall approach on that continues to be a combination of efficiency and pricing. I think the business system has helped us. But as we've noted, as we noted last year, we've implemented some price increases, and we really -- for us, our focus was the long term and executing in a way that we position ourselves for neutralizing on the price cost in the first half of this year. And we are right where we anticipated we'd be. So you should see that continue to improve. You saw it sequentially in the fourth quarter. So you'll see that continue to go as we look forward. Julie Beck: Yes. I would expect -- just to add on to that, I would expect that our margins improve sequentially. So we recover that price/cost neutrality at the end of the second half, and we would expect to return to those 30% incremental margin targets this year. Operator: The next question will come from Ross Sparenblek with William Blair. Ross Sparenblek: Looking at Slide 9 on the end market assumptions. First off, thanks for providing that. I was curious to see that the infrastructure bucket is expected to be neutral this year. Energy and chemicals are up. Can you maybe just provide a little more color on the project activity you're seeing in the funnel? And anything else you can speak to that kind of underwrite those assumptions for the year? Steven Blanco: Yes. Thanks for the question, Ross. When we think of 2026 -- certainly '25 was choppy in industrial. We did see chemical and energy had continued investment. And the thesis was pretty good in most of the regions around the world. I would anticipate, and the team believes, what we're hearing and seeing is '26 will be similar. A couple of the margin -- or a couple of the regions, you'll probably see it build up in the second half. We know of some announced investments. If you think of Europe, for example there, they really haven't had as much investment going on, but we do see some of that playing out in the second half, probably some improvement in China with that regard. Middle East was strong all year. Expect that to continue most of this year, if not all. And the Americas is in a similar story as well. So we see that as some tailwinds. From a market dynamic perspective, there's a need for energy across the globe. And certainly, most of the players that -- our customers and others are really trying to make sure they're well prepared for that. And I just would say, the overall, at least in our view, when you compare or put together our activity in the Accelerate strategy along with the market dynamics we're expecting, we feel like we're in a pretty good place for '26. Ross Sparenblek: Okay. And then maybe just on the portables, it seems like it was a little bit more measured growth in the quarter. Anything stand out there as we think about maybe perhaps tougher comps? Or is it the switch over to io 6 that's causing a pause? Just -- yes, any updates around portable gas? Steven Blanco: Well, thanks. The portable business again, continued to grow in both categories, both -- when I say both categories, both 4 gas categories. So again, portables includes single dual gas and then the 5 gas, which we'll see the io 6 come out later to replace our 5X or be an option for the 5XR. So the 4 gas has been growing exceptionally well. Last year was our best year ever for units. And what's interesting is -- we're on a revenue for -- the revenue for the year, the io 4, the MSA+ piece of the business is in just over 10% of portables. But when you look at units, you're close to twice that, which gives you a little bit of color of that being something that's going to continue to pay dividends because of the subscriptions as we go forward. So that grew at a really nice rate. It was a fantastic business for us, and it's shaping up to do the same in 2026. Operator: The next question will come from Tomo Sano with JPMorgan Chase. Ethan Coyle: This is Ethan on for Tomo. My question would be -- how should we view the mid-single-digit growth outlook on pricing and a volume standpoint, considering roughly like 1 point of it is from the fire services delay? Steven Blanco: I think we're going to get contribution from both. So I would say you're going to see both probably lean more towards the price side, right, Julie? But you'll get contribution from both. A little bit more on the pricing side. Ethan Coyle: And would we expect this to be more of a first half weighted on a volume standpoint versus price? Or can we see like pricing due to tariffs flow through kind of in the first half? Julie Beck: Yes. So we'll have some more pricing early on because we have a carryover from last year and pricing actions that we took that are going to start to flow through at the beginning of the year here in the first 6 months, as we talked about. So we'll see it in the first half. Operator: The next question will come from Jeff Van Sinderen with B. Riley FBR. Jeff Van Sinderen: Most of my questions were answered. But I guess, when you look at the competitive landscape, how are you seeing that evolve in detection? What do you think the key factors are that are driving new business wins for you in detection? In other words, why do you believe your customers are choosing you versus competitors in latest wins? And then anything more you can say about product innovation that could drive upgrades or new business wins in detection? Steven Blanco: Yes. Thanks for the questions. So if I start with the landscape, there's some really strong competitors in this space. What we've really -- I feel like have done a nice job of is try to stay close to the customer and understanding our VOC, the voice of the customer, in a way where we create solutions based on the challenges they have. So when you look at our portfolio and you think about detection -- I'll break it out because I think it's a really interesting storyline. Detection and fixed, we've expanded through some great acquisition activity as well as matching up the needs from the voice of customers. So we've got this traditional gas detection that's been really a strength for the company. But then you add to that, last year, we launched a new flame detector that has really taken off and done very well. We've got the field server and the controller business that came from an SMC acquisition a few years ago. Now that's integrated with our platform. So it's now a holistic solution for the customer on how they can communicate for a site. And now you're adding to that, we're seeing some growth, and you should see more of that this year with our refrigeration businesses from Bacharach. And then last year, of course, we added M&C from the processing side. So the fixed side, we've continued to build out a business that has expanded some our TAM and also created an opportunity for us to have more holistic solutions for our customers. So it's really somewhat of a one-stop shop that they're able to access. And I think that's an advantage, and that's something that our customers appreciate. The portable side, this is a space where predominantly, most of them buy a discrete product, they have for a long time. We expect the piece of that business is to continue doing that. But then this connected work, the MSA+ we have on the io 4. There's not many competitors that have that. There are some that certainly are in the connected space, but we feel like our solutions match that VOC I talked about, ease of use, durable, very reliable product that is very accurate, and that's really what our customers are gravitating to. We're not the low cost, but we are really, when you look at it from a customer's eyes, we're typically the best when it comes to cost of ownership over the long term. So I think that's what we kind of look at and hopefully continue to do going forward, which really feeds into the second half of your question, the innovation. I talked about in the prepared remarks, a number of new product launches we had, all of those being informed by what our customers are telling us, and you'll see that continue to roll forward into 2026. As we think of how we allocate capital, it all starts with organic growth and rolls out from there, and we'll continue to do that. I think this year, our capital investments, 2/3 or more are related to growth investments, right, Julie? Julie Beck: That's correct, yes. Steven Blanco: So that -- hopefully, that helps give you a little color on that. Jeff Van Sinderen: No, that's great. And then just as a follow-up to that, I know you mentioned Bacharach. Is there anything, just in the refrigerant area, and I think about HVAC there, is there anything that you're doing there that's being applied in the data center area for new data center builds or even retrofits? Steven Blanco: There is a bit. I mean, we -- yes. The short answer is yes. When we think of data center build-out, certainly, for us, it would be more on the fixed monitoring and you hit the key area in the Bacharach area. So we do have opportunities there. We also have it in some other fixed monitoring, but that's the key category. We had a nice order a couple of weeks ago. It's not going to be the big change in our growth story, but it certainly is complementary to what we do. And when they build those sites, that's certainly an opportunity for us on the industrial PPE as well. Operator: The next question will come from Brian Brophy with Stifel. Brian Brophy: So just a modeling question. SG&A, how should we be thinking about that this year? Julie Beck: Yes. So SG&A, I would say, in the first quarter, kind of consistent with the fourth quarter. And I would say SG&A as a percentage of sales is relatively consistent for 2025 to 2026. We're going to have some nice growth projects that we're going to fund in SG&A this year, and so we're excited about that. Brian Brophy: Okay. That's helpful. And then just wanted to get an update on what you're seeing from some of your shorter-cycle businesses. Obviously, we've seen PMI flip back above 50, but then there's some more mixed signals from an employment standpoint. So just kind of curious what you're seeing there near term? Steven Blanco: Yes. Thanks for the question. So the fourth quarter was similar to '25 overall, choppy. You'd have a good month and kind of choppy and then it decelerate a little bit. We see '26 cautiously optimistic when it comes to that industrial space on the short cycle. We've seen improving demand so far play out, which actually is a really good thing. We're hoping that holds. The PMI you talked about is certainly -- we were pleased to see that. But the indicators from the channel seem to be that as well. There seems to be some building optimism of perhaps getting out of this, I'll just say, this choppiness that we've seen for, what, the last 18-plus months. So we're hopeful that's the case. Early indicators seem to support that. Brian Brophy: Okay. And then one last one, more of a big picture question. You touched on this a little bit, but obviously, you've had a lot of success with portables on the connectivity side. Curious how you're thinking about expanding connectivity across additional product lines and how we should be thinking about any progress on that front this year? Steven Blanco: Well, we -- thanks for the question. So we look at it as how do we interact in a way that the customer wants us to interact. It all starts with the customer as we think about how we're addressing those challenges I referenced earlier. We have -- every one of our G1 SCBAs is connected right now for availability for the customer to access. It's a matter of making sure that we continue to kind of build out that ecosystem in a way that enables value for the customer that we can support. I would expect that would be the next horizon that you might see some growth in, but it's really a longer-term play, Brian, as you think forward, I think we start with detection, portable specifically, and we're really -- we're having a lot of discussions where we're pulling customers for some of these workshops, some VOC workshops on where they want it to be informed in the longer term, for sure. And we'll be well prepared for that. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Larry De Maria for any closing remarks. Lawrence De Maria: Thank you. We appreciate you joining the call this morning and for your continued interest in MSA Safety. If you missed a portion of today's call, an audio replay will be made available later today on our Investor Relations website and will be available for the next 90 days. We look forward to updating you on our continued progress again next quarter. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to AB InBev's Full Year 2025 Earnings Conference Call and Webcast. Hosting the call today from AB InBev are Mr. Michel Doukeris, Chief Executive Officer; and Mr. Fernando Tennenbaum, Chief Financial Officer. [Operator Instructions] Today's webcast will be available for on-demand playback later today. [Operator Instructions] Some of the information provided during the conference call may contain statements of future expectations and other forward-looking statements. These expectations are based on management's current views and assumptions and involve known and unknown risks and uncertainties. It is possible that AB InBev's actual results and financial condition may differ, possibly materially from the anticipated results and financial condition indicated in these forward-looking statements. For a discussion of some of the risks and important factors that could affect AB InBev's future results, see risk factors in the company's latest annual report on Form 20-F filed with the Securities and Exchange Commission on March 12, 2025. AB InBev assumes no obligation to update or revise any forward-looking information provided during the conference call and shall not be liable for any action taken in reliance upon such information. It is now my pleasure to turn the floor over to Mr. Michel Doukeris. Sir, you may begin. Michel Doukeris: Thank you, and welcome, everyone, to our full year 2025 earnings call. It is a great pleasure to be speaking with you all today. Today, Fernando and I will take you through our operating highlights and provide you with an update on the progress we have made in executing our strategic priorities. After that, we'll be happy to answer your questions. Let's start with the key highlights for the year. In 2025, we executed our strategy with discipline, delivering another year of dollar-based EPS growth, continued margin expansion and solid free cash flow generation, even as we navigated a dynamic consumer environment. As we reflect on the year, we are encouraged with the consistency of our financial performance, the durability of our strategy and the resilience of our business. While near-term demand across many CPG categories was impacted by a constrained consumer environment and unseasonal weather, we continue to invest in our strategic priorities. We remain disciplined in our revenue management choices and delivered EBITDA growth within our outlook. We continue to make progress this year. We strengthened our operating model and increased our portfolio brand power. We also formed new long-term partnerships to extend the reach of our brands and deepen the connection to our consumers. The momentum of our growth priorities continued. Our mega brands and premium portfolio grew ahead of our overall business. The growth of our Beyond Beer and non-alcohol beer portfolios accelerated, increasing revenue by 23% and 34%, respectively. And BEES Marketplace GMV increased by 61% to now reach $3.5 billion. Solid free cash flow generation enabled us to increase the size of our share buyback program, pay an interim dividend and propose a final dividend that combined represents a 15% increase versus last year and further strengthened our balance sheet. We exit 2025 with improving momentum across many of our key markets, and we entered 2026 well positioned to engage consumers and accelerate growth. Turning to our operating performance. While our overall volumes for the year were below potential, momentum across many of our key markets accelerated through the fourth quarter with improved volume performance in December. The combination of our disciplined revenue management and portfolio of mega brands that command a premium price drove a revenue per hectoliter increase of 4.4% this year, resulting in top line growth of 2%. Our productivity initiatives more than offset transactional FX headwinds to drive an EBITDA increase of 4.9% with margin expansion of 101 basis points. The strength of our diversified geographic footprint enables us to navigate the current environment and deliver consistent profitable growth. Revenue increased in 65% of our markets this year, and we delivered EBITDA growth in 4 of our 5 operating regions. Our footprint also positions us well to capture a disproportionate share of future industry growth with a diversified mix of currencies. Around 70% of our EBITDA is generated in emerging and developing markets that are projected to account for more than 80% of the beer category volume growth through 2029. Now I will take a few minutes to walk you through the operational highlights for the year from our key regions, starting with North America. In the U.S., our business continues to build momentum, and we gained share in both beer and spirits in 2025. Our beer performance was led by Michelob Ultra and Busch Light, which were the top 2 volume share gainers in the industry. In Beyond Beer, our portfolio growth accelerated. Revenue increased in the high 30s, led by Cutwater, which grew revenue in the triple digits. While industry volumes were below trend in 2025, we are encouraged by the start to 2026. Beer industry volumes and revenues grew in January. And later this year, we look forward to celebrating the 150 years anniversary of Budweiser and activating the category at the FIFA World Cup. This past weekend also provided us a good opportunity to engage with our consumers in one of the most watched live sporting events in the U.S., the Super Bowl. We continue to invest behind our brands to fuel momentum, and the creativity and effectiveness of our marketing was once again recognized by consumers. Budweiser, Michelob Ultra and Bud Light were named as 3 of the top 10 ads according to the USA Today Ad Meter with Budweiser taking the top spot for the second year in a row. Now let's turn to Middle Americas. In Mexico, our business momentum continued, delivering a mid-single-digit top and bottom-line increase with our above core beer portfolio leading our growth. In Colombia, record high volumes and margin expansion drove double-digit EBITDA growth with revenue increasing across all price segments of our portfolio. In Brazil, our momentum improved in the fourth quarter as we gained market share and our volumes returned to growth in December as weather normalized. Our premium and super premium beer brands delivered high teens volume growth in 2025 and gained share to now lead the premium segment. In Europe, market share gains and premiumization partially offset the softer industry with performance driven by our mega brands and non-alcohol beer. In South Africa, our momentum continued with market share gains in beer and Beyond Beer and disciplined revenue and cost management driving mid-single-digit top and bottom-line growth. Now moving to APAC. In China, revenue declined by low teens with our volumes underperforming a more stable industry as we adjusted inventory levels and focus areas to better reflect the channel and geographic shift. In Q4, our market share trend improved to be flat versus last year, driven by improvements in Budweiser brand power and our in-home channel performance. As we move forward, we continue to focus on rebuilding momentum and reigniting growth. Now I would like to take a few minutes to reflect on the beer category and progress we have made in executing our strategy. Let's start with the category. Beer plays an important role in bringing people together and creating moments of celebration, and we believe beer has a long runway for future volume growth across our footprint, supported by favorable demographics, economic growth and opportunities to increase category penetration. According to IWSR, the beer and Beyond Beer category is forecast to continue to gain share of alcohol beverages in 2025 and has now gained more than 200 basis points since 2021. And looking ahead, beer is expected to grow volumes globally and continue to gain share of alcohol beverage. In 2025, we invested $7.4 billion in sales and marketing and have averaged more than $7 billion per year since 2021. Our marketing effectiveness continues to strengthen, and our mega brands and mega platform approach were key contributors to the brand power of our portfolio, reaching a record high in 2025. Our mega brands led our growth and have increased revenue at a CAGR of 10% since 2021 and now represent 57% of our total revenues. We are the leader in the premium beer segment globally and see significant headroom for category to continue to premiumize. Premium beer is forecast to grow volumes across all geographic clusters and at more than double the rate of the category overall. And the best example of premium execution in our portfolio is Corona. In 2025, Corona celebrated 100 years since its original launch and 2026 is off to a fast start with the brand sharing the golden moments at the Milan Cortina Winter Olympics. Since 2018, the volumes of Corona have doubled. And in 2025, volume increased by double digits in 30 markets. The quality, brand power and consumer preference for Corona has earned the right for a premium price point. Corona sells on average at a 20% premium to the nearest competitor. And in 2025, was again ranked as the most valuable beer brand in the world. We continue to lead the development of the category and expand occasions to meet consumer trends. Our balanced choice portfolio includes options for consumers seeking low carb, low calories, sugar-free, gluten-free and non-alcohol alternatives. This portfolio is growing ahead of the overall beer category and momentum continued in 2025. Led by Corona Cero globally and Michelob ULTRA Zero in the U.S., our non-alcohol beer portfolio delivered a 34% revenue increase, and we estimate to gaining share in 70% of our top 14 non-alcohol beer markets. While non-alcohol beer is currently a relatively small portion of our global beer volume, it is a key opportunity to develop new consumption occasions and increase participation, and we are investing and innovating to lead the growth. In Beyond Beer, the growth of our portfolio accelerated, increasing revenue by 23% in 2025. Our performance was led by Cutwater in the U.S., which grew revenue in the triple digits and was the #1 share gaining brand in the total spirits industry in the fourth quarter. After the successful rollout in Africa, our flavored beer Flying Fish is now expanding to Europe and the Americas. Beyond Beer now accounts for 3% of the total revenue of our business, and the category is projected to grow volumes at double the rate of the overall beer category. The strength of our brands, route-to-market capabilities and innovation pipeline gives us a strong right to win in this segment. Discipline and incremental innovation is a key enabler of our growth. In 2025, our innovations across packaging, brands and liquids contributed 11% of our total revenue. In the U.S., we led the industry innovation with 3 of the top 5 innovations of the year, with Michelob ULTRA Zero and Busch Light Apple, the top 2. In China, we launched a 1-liter can for Budweiser and a Corona full-open lid can to bring the iconic lime ritual into the in-home channel. In South Korea, we launched the country's first 4 Zero beer with great taste, zero alcohol, zero sugar, zero calories and zero gluten. And in Beyond Beer, we are expanding our winning propositions globally and innovating with flavor varieties to provide consumers with choice. Let's now turn to our second strategic pillar, digitize and monetize our ecosystem. In 2025, BEES captured $53 billion in gross merchandising value, a 12% increase versus last year. The growth of BEES Marketplace accelerated and delivered $3.5 billion of GMV this year, a 61% increase versus last year. The Marketplace on BEES has grown rapidly since we initially started developing the platform in 2021. We recognized early that many of our customers could benefit from a one-stop shop for their business and similarly, that many consumer goods partners could benefit from leveraging the breadth and efficiency of the digital connection we have with our customers. The marketplace has grown to $3.5 billion in GMV business from a standing start 5 years ago, and we continue to explore the opportunities to scale and enhance profitability. We are still early in the marketplace journey, but we are encouraged by the progress we have made and see a clear opportunity to continue the growth momentum while solving a pain point for our customers and partners. In DTC, our digital platforms continue to enable a one-to-one connection with our consumers and developing new consumption occasions. In 2025, we continue to grow our consumer base, now serving 12.3 million consumers, an 11% increase versus 2024. With that, I would like to hand it over to Fernando to discuss the third pillar of our strategy, optimize our business. Fernando Tennenbaum: Thank you, Michel. Good morning, good afternoon, everyone. I will take a few minutes to discuss the progress we have made on 4 key areas of focus in optimizing our business, improving margins, compounding dollar EPS and free cash flow growth, making disciplined capital allocation choices and advancing our sustainability priorities. Our EBITDA margin improved by 101 basis points this year with margin expansion across 4 of our 5 operating regions. While each year has unique dynamics, we are confident that the combination of our leadership advantages, disciplined revenue management, continued premiumization and efficient operating model creates an opportunity for further margin expansion over time. Moving on to EPS. This year, we delivered underlying profit growth of $350 million. Underlying EPS was $3.73 per share, a 6% increase versus last year's in dollars and a 9.4% increase in constant currency. Dollar-based EPS has now grown at a CAGR of 6.7% since 2021. EBITDA growth accounted for a $0.46 per share increase this year. Lower net interest expense from active debt management and continued deleveraging contributed $0.09 per share but was partially offset by a higher cost of hedging and FX movements. We maintained this level through a combination of EBITDA growth and margin expansion, reducing our net interest expense through deleveraging, and maintaining our disciplined resource allocation. Looking ahead, we are encouraged about the opportunities to grow from this base. With this solid cash generation, we continue to strengthen our balance sheet. We repurchased $2.7 billion of debt. And despite a $2.8 billion FX headwind on our net debt from a stronger euro, we reached a leverage ratio of 2.87x. In 2025, we improved our debt maturity profile while maintaining our weighted average coupon. Our bond portfolio remains well distributed with no relevant medium-term refinancing needs. We have no bonds maturing in 2026, a weighted average maturity of 13 years and no financial covenants. As we continue to deleverage, we have increased flexibility in our capital allocation choices. We have raised our dividend every year since 2021, including the payment of an interim dividend in 2025. We have completed $3.2 billion of share buybacks and are currently executing a further $6 billion program. For 2025, the Board has proposed a final dividend of EUR 1 per share. Combined with the interim dividend announced in October, this represents a total dividend increase of 15% year-over-year with the ambition to continue a progressive dividend over time. Now turning to sustainability. Our 2025 goals were set in 2018 to drive impact and efficiency across our value chain. As our business is closely tied to the natural environment and the local communities, we focus on areas that are relevant to us, water, agriculture, climate and packaging. We achieved our water and agriculture goals and made strong progress against our climate and packaging objectives over the past 8 years. We are proud of the progress made, and we'll continue building on our strong foundation in these areas. As we look ahead to 2026, we expect EBITDA to grow between 4% and 8% on an organic basis, in line with our medium-term outlook. As we continue to invest to execute our strategy while optimizing our resource allocation, we expect net CapEx to be between $3.5 billion and $4 billion, and we expect our normalized effective tax rate to be between 26% and 28%. With that, I would like to hand it back to Michel for some final comments. Michel Doukeris: Thanks, Fernando. Before opening for Q&A, I would like to take a moment to recap on our performance for the year. It's fair to say the operating environment in 2025 was dynamic. Despite this backdrop, the disciplined execution of our strategy delivered consistent financial results. EBITDA grew within our outlook. Underlying EPS increased by 6% in U.S. dollars, and we delivered another year of solid free cash flow generation. We strengthened our balance sheet and increased our capital allocation flexibility, enabling a progressive increase in our dividend and announcement of a larger share buyback program. While our volume performance was below our potential in 2025, we are encouraged with the momentum we saw as we exited the fourth quarter. Our volume trend improved in December, and we gained or maintained share in 80% of our markets in the quarter. The combination of our mega brands with an unparalleled lineup of mega platforms is a powerful opportunity to lead and grow the category. This past weekend, we kicked off an exciting calendar of events with both the Super Bowl and the opening of the Winter Olympics. And then the summer will bring FIFA World Cup in North America. With 104 games across 3 countries, each game is an opportunity to bring beer and sports together to create unforgettable moments for fans around the world. We entered 2026 with improving momentum, and we are well positioned to activate the category and engage consumers. With that, I'll hand it back to the operator for the Q&A. Operator: [Operator Instructions] Our first questions come from the line of Edward Mundy with Jefferies. Edward Mundy: Two questions, please. So last year, you wrote that beer is a passion point for consumers and a vibrant category globally. And this year, you're starting off with beer plays an important role in bringing people together and creating moments of celebration. I'd love to get a bit more context into this nuance. And to what extent can you, as industry leader, help to bring across a more balanced message around the positive attributes of moderate consumption and getting people together is my first question. And my follow-up, again, for Michel. You're sounding a little bit more optimistic about the prospects for 2026. How much of this owes to sort of consistent application and progress with your strategy? And how much of this owes to some very early green shoots that you might be seeing from a cyclical standpoint? Michel Doukeris: Thanks for the question. I think that on the first point, they are actually both right. Beer is a passion point for consumers, but beer always brings people together around moments of celebration and enjoyment. And I often say that we listen to a lot of things that are happening and everything gets better when people get together and drink a beer. So the world really needs a beer. And this is important as we get people to exchange ideas, to socialize, to enjoy moments as we saw this weekend with Super Bowl or during the Olympic Winter Games in Milan Cortina, everybody was enjoying the sessions and having the opportunity to be together with friends and drink a beer. So I'm extremely optimistic about the role that our product plays and how we can always enable memorable moments for our consumers. That's why we invest in the platforms that we invest on our brands, and we keep pushing the category forward with innovation. In terms of the tone for 2026, let's say, I think that 2025 was definitely a very complicated year with many dynamics impacting different markets, industry and consumer goods in general, right? And beer was not insulated from what happened last year. As we saw most of the impact for beer came on the second half of the year. But as we phased the year towards the end of the year, we saw momentum reaccelerating, especially in December. And this momentum is carrying on now early in January in majority of the markets. We have a very good year in terms of opportunities to activate and land our innovations. And I think that if you look forward during the summer, the World Cup always presents a unique opportunity for us and the fact that's going to happen in the Americas, 104 games plus across the world is going to be great. And in connection with our strategy, of course, despite of everything that happened last year, you've seen the numbers, we continue to invest on our strategy, always focusing on the long term. Our growth accelerators and growth drivers like balanced choices, premiumization, non-alcohol beer, Beyond Beer and BEES marketplace are all working as per plan. And therefore, the more the mix contribution of these initiatives and the more solid the execution behind our 3 pillars of this strategy becomes, the more optimism, of course, we build and continue to deliver our midterm outlook. That's why it's unchanged for 2026. Thank you for the question. Operator: Our next questions come from the line of Rob Ottenstein with Evercore... Robert Ottenstein: Michel, you've done a terrific job turning around the U.S. market, and it really looks like it's in the best position to grow in many, many years. Can you first maybe kind of give us a sense of the key elements of that turnaround and what you've learned from that? And then perhaps even more importantly, can you talk about other major markets around the world where you can apply those learnings, those strategies, tactics to put the markets on a better trajectory and maybe specify particular actions along that front that perhaps you started in '25 or plan to start in '26, so we can get a sense of how you can take what you've learned and the momentum in the U.S. and move it around the world. Michel Doukeris: Thanks for the question. So to start with, I think that the team is doing a great job in the U.S. So they are working really hard on things that we agreed and those things are turning the results around. I think that we have been in a long journey in the U.S. since 2008. We got a business that had structural disadvantage because the portfolio was concentrated in segments that were not growing. You remember that since 2017, when I arrived in the U.S., there was this idea of rebalancing our portfolio for growth and the idea that, of course, this rebalance will not happen overnight. So we continue to be very focused on this strategy, investing in the right segmentation and in the right brands, innovating in the segments where we had low or no participation. And the biggest learning, I think, for everybody in the U.S., including myself, is the power of consistency. So the U.S. is a market that moves on the long horizon. It doesn't move overnight. Investments, that's why we continue to heavy up our investments in the U.S. and hard work. And I'm very glad to see the team working very hard to execute this strategy and start harvesting some of the efforts that they are making over the last 3, 5 years in this market. So we are very focused. We are very consistent. We are investing, and we are working hard in getting this strategy to benefit our business and our wholesalers and our customers in the U.S. When you think about other markets, you know that we have a very large footprint. So every day is a different day. It's never boring. But if I would choose only one market at this moment where we are very focused in turning around is China. So China went from a big accommodation of the industry first re-accommodating. This industry plays different by region, as you know. So the east part of China suffered much more than the inland. The on-trade channels declined much more than the off-trade. And because our business had a very large footprint in the East and in the on-trade, we had to reorganize ourselves. So we took last year a huge effort to keep the business healthy, especially in inventories, cash flow for our wholesalers, while we start to reorganize towards off-trade and more inland distribution as well. I think the recipe for the China business is the same. It starts with right focus and moving at the speed that we need, which was not the case before. Execute with consistency. We have a great portfolio in China. invest on the right channels, which we are doing now and making sure that the team is working as hard and with the sense of urgency that we need. And I'm glad to see that quarter 4 share was stable, Budweiser was in a better place. And now in 2026, we need to continue to work on this direction so we can reignite growth there. Thanks for the question. Operator: Our next questions come from the line of Sanjeet Aujla with UBS. Sanjeet Aujla: Two from me, please. I'd like to follow up on China there, please. And maybe just a little bit more of an update on your commercial execution. How far or how much progress do you think you've made in terms of penetrating the off-trade channel? Are you now gaining share within that channel? And just tied to that, what are you seeing in the on-trade channel? Any signs of some of the anti-extravaganza measures in your key provinces starting to ease at all? That's my first question on China. And secondly, just on Brazil, it's been a tough year in Brazil from a category standpoint. You spoke about December returning to growth. Has that also continued into January? And just your -- the competitive dynamics in the market. I think you alluded to some share gains in Q4. It would be great to dig deeper into that. Michel Doukeris: Thanks for the questions. So I think that in China, the 2 questions. First, the off-trade in China is changing very quickly. So the biggest acceleration of all is this O2O channel, but it's a very sophisticated O2O channel because it's very dynamic. It serves different channels from the O2O. And this was a channel that we used to lead in China. We were lagging behind now, and we are accelerating big time gaining share of this channel. And then there is the large off-premise, which we had to adjust distribution, pack assortment, price and promotion. And this is evolving, but there is a lot of room there for us to improve. The on-trade is not improving, but I think that the good news is that it's not getting worse either. So I saw relative stabilization on the industry last year in China, which is a good signal. The industry was let's call it, minus 1%. I think that this opens an opportunity for this year to have a more positive outlook for the industry. Chinese New Year moved, right? So it's a little bit later, should help as well, another 2, 3 weeks of Chinese New Year loading in sales to consumers within 2026. So let's see. It's early to say. I was there in January. I liked what I saw in terms of industry consumption and our execution, but it's too early to call. And in terms of Brazil, I think that we discussed during the calls last year, there were actually 3 things playing into the dynamics of Brazil. One was part of the consumers under stress in disposable income because of the high inflation. There was a very abnormal weather. So we call them seasonal weather but was really cold and rainy through a big portion of the middle of the year in Brazil. And then as we kept running our revenue management agenda, there were like relative price gaps in Brazil hanging there for over a year. I think that during the year and especially at the end of the year, the weather improved a big time, and that was the biggest change in the dynamics in the market. But also, I think that the gaps in terms of relative start to close. And then the power of our brands and the level of our execution start to speak louder, and we ended the year with very good momentum. As we look at the beginning of the year, weather remains normal. Normal is good for us. And our brands continue to have very strong demand. So the beginning of the year has been so far positive. Thank you for the questions. Operator: Our next questions come from the line of Trevor Stirling with Bernstein. Trevor Stirling: One question for me, but probably a longer one. Fernando, I appreciate you're not going to give guidance on margins. But if I look at 2025, despite the problems in volumes in many regions, you still delivered 100 bps of margin expansion. As I look forward to 2026, as Michel has commented, the outlook for volumes is looking better than it has for probably quite a few years in terms of both momentum as you exit 2025 and the FIFA World Cup coming. So that's looking positive. COGS outlook to me looks similar to 2026, there's moving parts in different countries in Midwest premium, but probably similar, but albeit probably a little bit more pressure in the first half than the second half because of currency hedges. A&P, you're probably going to spend more because of all the activation but knowing you guys will be disciplined spend. Price/mix looks solid. That looks like a pretty good outlook for margins for 2026 as well. Am I reading things the wrong way? Fernando Tennenbaum: Trevor, so very comprehensive analysis. I think what you are saying and what we saw happening in 2025 is not anyhow different than what we've been discussing for a while. When we look at our business, when we look structurally our business, we continue to see opportunities to drive further margin expansion. And as you said very well, kind of every quarter, every year has its unique dynamics. But on a year where you see your cost dynamics more of a normal year, like 2025 was more of a normal year and 2026 as well and hopefully, going forward, we have to see more normal years by driving efficiency, by making sure that we continue to invest behind our brands, which command a premium with all these components, we continue to see further opportunities to expand margin, okay? So -- and then when you talk about the cost of goods sold, you are right because you have the FX curves kind of given what happened last year, we always hedge 1 year later. You know that there is going to be a little bit more pressure on the first half than on the second half. In terms of investment, this year is somehow different because we have the World Cup. So we have some more concentration of investments of sales and marketing in the second and third quarter. But overall, kind of business is healthy. We are excited with the opportunities, and we'll continue to invest behind it. But maybe even giving more high-level view, the fundamental drivers of our margin at the end of the day are the iconic mega brands, the unique global footprint, the meaningful leadership positions that we have, this very efficient operating model that we keep looking for further opportunities and the financial discipline and ownership culture. So I still believe we have room to further improve on that. Operator: Our next questions come from the line of Andrea Pistacchi. Andrea Pistacchi: I also have 2, please. And sorry about my voice, which is a bit low. First one is on Beyond Beer in the U.S., please. Now you referenced your capabilities and route-to-market advantage that clearly gives you a right to win in Beyond Beer. So focusing on the U.S., where your prepared cocktails are growing very strongly, and you've also launched Phorm Energy this year, again, leveraging your competitive advantages. So the question is, if you could share some thoughts maybe on what you think your Beyond Beer business could look like in the U.S. 3, 5 years from now, what the long-term or medium-term innovation pipeline looks like? Are you planning to bring new brands to market? Are you open to more M&A like the BeatBox deal? And ultimately, how large do you think -- what's the ambition? How large could Beyond Beer be in, say, 5 years' time in the U.S.? The second question actually is also on the U.S., a bit more specific on margins going to Trevor's point, I guess. So COGS inflation in the U.S. increased a bit in Q4. I think it will increase a bit further this year. So in light of that, can you share something on your revenue management strategy in the U.S. this year? And what are the levers do you have to protect to help margins in the U.S. this year? Michel Doukeris: Andrea, no issues with the voice. I think we are both on the same page here. So mine is a little bit under the weather as well. Thank you for the questions. U.S. Beyond Beer. So this is something that we've been discussing as well since 2017 as we start to rebalance our portfolio and invest in segments that we under-index. And definitely, these ready-to-drink beverages that source from other alcohol beverages and other occasions, they are a great opportunity for our business in the U.S., and we've been investing and building capabilities and brands in this segment. So today, this represents a little bit less than 3% of our business in the U.S., but it is growing very fast. And if you look at the brands that we are building, these brands today are ranking top 10, top 20 in the spirits industry in general in the U.S. and Cutwater specifically is ranking at the top of the fastest-growing brands in the industry for last year and the fastest one for the quarter 4. So I think that the headroom for growth is huge because they source from outside of the beer arena, and they are very incremental to our business. They are brands that we build from scratch. Therefore, they have still a lot of headroom for growth. As you said, we continue to complement this portfolio with BeatBox, for example, which is a different proposition for different occasions for different consumer cohorts, and our portfolio is getting stronger, but we still have a lot of headroom to grow in this area. Connecting this with the second point, they are also margin incremental. So as this mix continues to grow, as the mix of Michelob ULTRA continues to grow, this is all incremental to our margins. So we are managing our margins, not only from the cost productivity standpoint, but also from mix and revenue, as you said. And in terms of revenue, you all know we price in line with inflation. I think that COGS and the cost of goods sold will continue to fluctuate. That's why we hedge so we can have a more long-term perspective. And we'll continue to invest to accelerate the momentum of our business in the U.S. So we are moving in the right direction, still a lot that we need to continue to do. But so far, we are happy with the evolution, and we'll continue to execute in the way that we are executing so far. Operator: Our next questions come from the line of Mitch Collett with Deutsche Bank. Mitch, could you please check if you're self-muted. Mitchell Collett: Sorry, can you hear me now? Operator: We can hear you. Mitchell Collett: Okay. Apologies. So Michel, Fernando, I was just going to ask about your thoughts on phasing in 2026. Fernando, I think you've just given some of the components, but transactional FX, I guess, is more helpful in the second half. You've obviously got some phasing around your marketing and sales spend and some pretty uneven comps. So can you maybe just sort of tie that together and give us some thoughts on how we should think about phasing across 2026? And then my follow-up is on CapEx, which is still well below depreciation. And I think your guidance suggests that it will remain well below in '26. I know you've talked before about how you're using technology and AI and other tools to keep CapEx at a low level. Can you just comment on how you're doing that and how sustainable that level of CapEx is going forward? Fernando Tennenbaum: Mitch, so on the first question on phasing. So phasing, I think on the last question, we went over very well on that, but it's -- given what happened to the FX last year and kind of knowing that we hedge 1 year out, you know that last year, you had kind of -- you are going to have a bigger challenge in the first half of the year, especially in markets like Brazil and Mexico, where currency was really depreciated at the beginning of last year. And then you have kind of easier comps towards the second half of the year on cost of goods sold and transaction. So that is something definitely fair to say. And then of course, if you look at our financial filings like the 20-F, you look some of our exposures, you can get a good guess on how these things will behave kind of in the year of 2026. On sales and marketing, this is going to be somehow of a different year because since you have this World Cup, with a massive event in a lot of our markets, more towards Q2 and Q3. So one would expect some sales and marketing concentration. What is important to bear in mind is that even though kind of there are different dynamics in the year, we are going to manage the business to make sure we invest in the long term and create long-term value, not necessarily trying to cater to one quarter or another. But one would expect more concentration of sales and marketing investments in the second and the third quarter this year specifically. In terms of CapEx, it's not different than what we've been talking about. By looking at further efficiency opportunities, by looking on the role on technology, by kind of looking at every single different investment in our business, we are confident that we can kind of deliver the CapEx within the outlook for this year and still do everything that we need to do. We still have CapEx -- growth CapEx within this kind of envelope, anything that we need to support the business. So very comfortable with this level of CapEx. Operator: Our next questions come from the line of Gen Cross with BNP Paribas. Gen Cross: Just one question from me actually. It's actually on BEES marketplace. It looks like you've added over $1 billion in marketplace GMV in 2022. And interestingly, it looks like it's pretty much all driven by the 3P part of the business. I think, Michel, you mentioned looking at opportunities to scale and further increase profitability in marketplace. So I just wonder if you could give us some thoughts on the potential to scale marketplace further, particularly as the higher margin 3P part of the business becomes a bigger part of the mix. Michel Doukeris: Thanks for the question. So marketplace is a growth opportunity for us, as I've been highlighting over the last couple of years. and it's incremental to the beer business that we have. So it's a new revenue stream. And it's adjacent because actually, we built the technology product to serve better our customers. At the same time, we could increase this addressable market for our business by solving 2 pain points. One pain point is our customers. They were underserved by most of the CPGs because they are small, fragmented in distant areas. And on the other side, the CPGs need growth. They need to reach more customers. And the fact that we built this digital channel enables them to seamlessly reach a much broader and much more important base of customers. We always knew that the model would work. So we start testing and building the 1P. The 1P was using the capabilities that we have, the route to market, the trucks, the sales reps. But as we built the product and enhanced the technology, we always knew that the biggest opportunity is actually what we call 3P, which is touchless, right? So the app is downloaded by the bar owner. The bar owner sees an assortment that's much bigger than only the beer assortment or the products that we sell. They place the orders. The orders are then redirected to the different suppliers, and the suppliers take care of the delivery of these orders. And we, of course, in the middle, we are the product delivery and the marketplace for them to sell, to promote, to follow through with their sales team because the suite of products that this has is beyond only the app; we can also digitize our partners. And this is the part that is scaling fast and the most and is also the one that's the most profitable. The simple way to understand the opportunity is that on average on these retailers, beer accounts for 34% to 40% of what they sell. Therefore, there is a 1.5 to 2x addressable revenues that today we do not participate without the marketplace, and we can participate. And as you know, I think you were with us in Mexico, we are, in some cases, even increasing this addressable market because we are taking, for example, technology products like minutes for people to buy and operate their phones or paying their bills. So there is many incremental opportunities that can be built on top of that credit. We have partners today selling credit to these points of sales. So all of that builds on top of what the marketplace will directly build. So we are in early stage. It is scaling up at the pace that we want to scale up and it's becoming the business that we thought that could become. So very happy with the development, but a long way to go still. Thank you for the question. Operator: Our next questions come from the line of Sarah Simon with Morgan Stanley. Sarah Simon: I have 2 questions. First one was on Zero again. Your growth is extraordinarily high compared to peers. What do you think you're doing that they're not? And then the second one would be on RTDs. Your RTD business is obviously largely concentrated in the U.S. How are you thinking about that in the context of other markets and exporting it? Michel Doukeris: Thanks for the questions. I think I got both of them. If I didn't, please help me here at the end. So the non-alcohol beer, I think that we've been talking about that. We invested a lot in the technology. So making sure that we have superior products. And this investment was done in 2020, 2021, 2022. Many breakthroughs there. The liquids are fantastic. It's really great taste beer without alcohol, products that range from what we shared with you today in South Korea that is zero calorie and zero gluten and zero sugar, great taste to the fantastic Michelob ULTRA Zero in the U.S. that has only 29 calories, but it tastes delicious. So we invested first on the product and technology. Then we start to roll out this on our winning brands. So we have great brands across the globe. And every time that we put together a non-alcohol version of these brands, of course, consumers try and they choose the strong brands that we have. And then I think that the last point, we decided to invest and walk the talk. So just think about Olympic Games, a mega platform that we have globally that we sponsor with both Corona Cero and Michelob ULTRA Zero. So we got to get great product. We lined up the brands and innovation, and then we are investing behind that. And when we do all of together with our execution, which is superior execution, we can gain share quickly as we are gaining. We can expand categories, reach more consumers and get the growth that we are getting with this. So consumers are there. We are there for them, and we are gaining share in an accelerated way in this segment. In terms of RTD, actually, if you look at the numbers, RTD for us is bigger outside the U.S. than it is in the U.S. It's 3% of our global business, it's around 2 -- between 2% and 3% in the U.S. The most meaningful expansion that we are doing in this Beyond Beer space started last year, and we are rolling out this year is with Flying Fish, which is this beer liquid, but it's very different than beer. It's flavored. It has very different demographics that we reach with the product. It competes a lot outside of the beer space because of the taste profile, brings a lot of new consumers to the category because they are flavor seekers. They like sweetener liquids. They don't like too much the bitter. And then this is now going to 10 different countries. And in every country, we have a nice story to tell so far because this is fulfilling what the plans were and what we want to achieve. And then we also have Cutwater, which we are building in a very diligent way in the U.S., but we already started to expand to Canada, and there are some other markets coming in the lineup. And we have today a global portfolio, let's say, for Beyond beer that caters each of the segments within the Beyond Beer. So NUTRL, Brutal Fruit and Beats are also getting expanded globally to different countries. So there's more to come there. The opportunity is very big outside the U.S. and outside Africa, and we are just scratching the surface so far. So more to do. Thanks for the question. Operator: This was the final question. If your question has not been answered, please feel free to contact the Investor Relations team. I will now turn the floor back over to Mr. Michel Doukeris for closing remarks. Michel Doukeris: Thank you. Thank you, everyone, for the time today, for the ongoing partnership and support to the business. I hope you are all well, get some time to drink a beer. Cheers. Operator: Thank you. This does conclude today's earnings conference call and webcast. Please disconnect your lines at this time and have a wonderful day.
Andreas Trösch: Hello, everyone. This is Andreas Trosch from Investor Relations thyssenkrupp. Also on behalf of my entire team, I wish you a very warm welcome to our conference call on the first quarter results '25-'26. With me on the call are our CEO, Miguel Lopez; and our CFO, Axel Hamann. Before I hand over to the CEO and CFO for their presentations, I have some housekeeping. All the documents for this call are available in the IR section on the website. The call will be recorded, and a replay will be available shortly after the call. After the presentations, there will be the usual Q&A session for our analysts. we use Microsoft Teams for the call [Operator Instructions]. With that, I would like to hand over to our CEO, Miguel Lopez. Miguel Angel Lopez Borrego: Thank you, Andreas, and hello, everyone. Welcome to our first conference call in the current fiscal year. Let me start with an overview of our management priorities. First of all, portfolio. In terms of our strategic transformation, we continue to execute ACES 2030 with full focus also in order to establish thyssenkrupp as a lean financial holding company. With the successful spin-off of TKMS in October, a major milestone on our path towards this target picture, we created significant value for our shareholders. That is our clear ambition also for any portfolio actions ahead. For Materials Services, we push ahead for capital market readiness and their respective stand-alone setup. At Automotive Technology, we defined and implemented a new structure with clear focus on the core businesses. Moreover, we also initiated the sale of the noncore business unit, Automation Engineering, in November. At Steel Europe, negotiations with Jindal about the majority holding are ongoing and the respective due diligence is on its way. And let me remind you that we have reached a collective restructuring agreement with IG Metall Union in December, an historic milestone for thyssenkrupp. And in addition, actually another very important historical milestone just from last week, we have agreed on a term sheet on the new shareholder structure of HKM. Salzgitter plans to continue to operate HKM as the sole shareholder from June 1, 2026 onwards. That also means that the slab supply to thyssenkrupp Steel will already end in 2028. Regarding performance, Q1 marks a confirming start to the new financial year, even though our markets remain challenging across many of our customers' industries. Therefore, we confirm our group guidance for fiscal year '25, '26. On a relevant note, the likely positive implications from current political initiatives in Europe, such as CBAM or steel tariffs have not yet translated into measurable tangible effects, but they do present upside potential for our businesses going forward. On the green transformation side, we continue to build momentum. Let's start with the recent announcement. Uniper and Uhde have signed a framework agreement on ammonia cracking technology. The agreement covers up to 6 large-scale plants with a total capacity of 7,200 metric tonnes of ammonia per day. In addition, construction of the DRI plant at Steel Europe is moving ahead with full commitment. More from an ESG perspective, CDP -- so Carbon Disclosure Project, again honored thyssenkrupp for transparency and climate protection for the 10th consecutive year. With this result, thyssenkrupp has once again secured a place on the annual Climate A List, make it one of only 877 companies internationally with this distinction, including 34 companies from Germany. To summarize, a difficult market environment persists, but we are executing our strategy with discipline, reshaping our portfolio and improving our operational performance. Plus, we are confirming our full year guidance. Axel, the stage is yours for the financial section. Axel Hamann: Thanks, Miguel. Hello, everyone. This is Axel. Yes, let me turn now to the financial overview for the first quarter. Despite the macro environment you just have heard about, we achieved a promising and confirming start into the new fiscal year. We've increased our EBIT adjusted despite the top line headwinds, which continues to serve as a proof point that our internal efforts and the respective performance management are paying off. While sales decreased to EUR 7.2 billion, that means an 8% decline year-over-year. Our EBIT adjusted increased to EUR 211 million, which is EUR 20 million above last year's level. Net income came in at minus EUR 334 million, mainly [Audio Gap] We have experienced some technical issues here. Apologies for that. I believe that I was talking about the net income, which came in at minus EUR 334 million. And I explained that this was on the back of the expected restructuring expenses at Steel Europe. Now let me now turn to free cash flow. And as already flagged in our last conference call, you see a typical seasonal pattern here at the beginning of the fiscal year. And that's what you see at the minus EUR 1.5 billion free cash flow before M&A. And this is important to get it right, and I want to highlight it right here. Our free cash flow before M&A guidance for the entire year remains unchanged as we expect a reversal of this Q1 pattern in the course of the fiscal year, particularly in the second half. So that cash flow development led to a decrease in our net cash position. It's now at EUR 3.2 billion. That is still a very solid level that will also recover throughout the fiscal year as free cash flow before M&A is improving. Also some operational comments. We see tangible results from our restructuring and performance initiatives. Workforce reduction is progressing as planned, with FTE down by around 1,100 year-to-date, first quarter, 1 quarter. And a bit more from a broader perspective, the future economic development remains challenging overall from our point of view. And we do continue to face weak customer demand, particularly in Europe, but also uncertain upside potential that is related to the political framework in Europe. Now first quarter sales and EBIT adjusted development, which you see here in that chart. Most segments managed to improve or at least stabilize their performance despite weak demand conditions. I've already mentioned that the sales decline of more than EUR 600 million is more than offset in our EBIT adjusted. This is again a pretty clear proof point for our increased underlying resilience. With regard to sales, we saw declines of stagnation across all segments, with the decline mainly driven by three segments. First, Decarbon Technologies, still facing hesitant markets and some project postponements on the customer side. Then Material Services and Steel Europe, they both showed lower demand that, for example, you can see also at the trading business at our Materials Services segment. In terms of EBIT adjusted, we saw a number of improvements across the group with Steel Europe posting the biggest increase, which was also due to lower raw materials prices and some efficiency gains. Looking at DT, Decarbon Technologies, the negative first quarter resulted from lower sales and project-related additional costs at the cement business. Let's now talk a little bit about Automotive Technology. Overall, challenging market environment, soft demand levels also in Q1. Total, we had a sales decline of around about 3% year-over-year. However, if you adjust for the negative currency effects, sales were around about on prior year's level. Here, we experienced a growth in the serial business that was overshadowed by the declines in the project business as well as from our business unit, Springs & Stabilizers. Let's take a look at earnings. We saw per performance increase. EBIT adjusted came in at EUR 20 million. That's up by EUR 8 million year-over-year. So what we can see is here that our internal countermeasures such as volume compensations from customers, savings from restructuring, and efficiency initiatives are in place and are working. Ultimately, these efforts could more than offset the top line and currency headwinds. Let's look at -- business cash flow came in again in negative territory at around about minus EUR 70 million. That's mainly driven by restructuring cash outs and net working capital changes as expected. Let's turn to Decarbon Technologies. Overall, we continue to see an ongoing hesitant market environment with a number of project deferrals on the customer side. That translated into weak order intake and therefore, declining sales of minus 19% in our first quarter, especially in the water electrolyzers business at thyssenkrupp nucera and in the new build businesses at Chemicals. These lower sales led to the decrease of EBIT adjusted by minus EUR 33 million to minus EUR 16 million. In addition, some project-related additional costs at Polysius impacted that result. Performance measures and efficiency gains supported earnings, however, could not compensate the decrease. Also, the cash flow was hit by missing sales. The drop in business cash flow to minus EUR 162 million was driven by the lower top line as well as negative cash profiles in our project business at DT. Let's turn to Materials Services. Material Services delivered higher earnings despite a challenging market environment, particularly in Europe. Sales declined here by minus 6% year-over-year, mainly due to weaker performance in the direct-to-customer business, which also led to significantly lower shipments. At the same time, distribution and processing businesses in North America showed some solid growth. EBIT adjusted came in at EUR 50 million, with a strong performance of our processing business, especially in North America, more than offsetting the decline in European distribution and also supported by APEX cost reduction and efficiency measures. Business cash flow. Business cash flow was down year-over-year, reflecting the before mentioned typical seasonality with the net working capital buildup at the start of the fiscal year, also influenced by higher price levels that we particularly see at some commodities. Steel Europe. So for Steel, the market conditions in Europe remain challenging, with, for example, demand being still quite reluctant. Consequently, sales decreased by minus 10% and shipments fell by 4%. However, we also saw some higher volumes from our automotive customers and from steel service centers. Let's take a look at EBIT adjusted. Despite the lower top line, EBIT adjusted at Steel increased to EUR 216 million. That is due to more favorable raw material prices and also efficiency measures that was supporting the positive earnings development. Business cash flow at Steel decreased year-over-year, also, as mentioned, driven by a seasonal buildup of net working capital and here, mainly receivables and payables. Last but not least, Marine Systems, TKMS. Overall, we see ongoing strong demand for defense products across the product range. Order backlog continues to be impressive, stands now at a record level of EUR 18.7 billion. And so here only a couple of brief comments on Marine as a segment of thyssenkrupp because all operational details are available in the reporting of TKMS as of yesterday as they already conducted their earnings call. Important to mention is here for Marine Systems, all relevant will develop in line with our outlook, including the updated sales guidance. Now let's take a look at our EBIT adjusted to net income bridge. You can see here that we are also in a transition period. Let's take a special look at the special items. The first and largest portion of restructuring expenses of EUR 400 million, more specifically EUR 401 million at Steel Europe is now included in our first quarter, and the remainder will be booked in the course of the financial year '25-'26. In addition, we faced some impairment losses at Automotive Technology in connection with the signing of the sale of our business unit Automation Engineering. The remaining positions are rather straightforward. Overall, we saw a negative net income of EUR 334 million. Now what do we get from net income to our free cash flow before M&A. In essence, the delta between net income and free cash flow before M&A is the aforementioned seasonal net working capital swing, particularly within our materials businesses that will, as mentioned, reverse over the course of the fiscal year, particularly in the second half. Remaining positions, meaning cash flow from invest and M&A and these adjustments are also straightforward. So it's really -- it's the seasonal net working capital pattern. Again, also very important for me to highlight, we do confirm our free cash flow before M&A guidance for the entire year, which is a good segue to the next chart. So guidance. Miguel and also myself have already stressed that we confirm our group guidance. And that means in particularly, we expect sales in the range of minus 2% to plus 1% compared to prior year, so unchanged. EBIT adjusted, as previously guided, will end in the range between EUR 500 million and EUR 900 million. Free cash flow before M&A is expected to come in between minus EUR 600 million and minus EUR 300 million despite our Q1, as explained, including expected cash outflows from restructuring of up to EUR 350 million. So the EUR 350 million cash outflows from restructuring are already included in our guidance of minus EUR 600 million to minus EUR 300 million. Looking at investments, obviously, also a driver of free cash flow before M&A. Overall, we are pretty cautious with investments. And that means that we're orientating ourselves rather to the lower end of our guidance of EUR 1.4 billion to EUR 1.6 billion. Here, similar to the last financial year, there might be a possible revisit over the remainder of the year as we see clearer towards the end of the year. Last but not least, net income. Here, our unchanged guidance, minus EUR 800 million to minus EUR 400 million, including restructuring expenses, mainly at Steel Europe. So if you look at the segments, there are a couple of smaller changes, but those do balance out on a group perspective. For example, on sales, automotive -- the guidance now takes into account the initiated sale of Automation Engineering, the business unit, and we have now better or higher sales expectations for Marine Systems. But overall, group guidance is confirmed for all KPIs. With that, Miguel, I'd say it's up to you again. Miguel Angel Lopez Borrego: Thank you very much, Axel. Before we come to our Q&A, I would like to highlight some reflections and outline the way forward. That slide looks familiar to you. That's why I will keep it short. The overall key message is big decisions are behind us. Now it's about disciplined execution and implementation. As you all know, we are developing thyssenkrupp into a lean financial holding company. By doing so, we will strengthen the independence of our segments and increase their accountability as well as entrepreneurial freedom. I'm convinced that this will also encourage innovation and unlock additional growth prospects. I'm also convinced that this approach will ultimately translate into additional value for our shareholders. And by working with full steam towards the capital market readiness of Materials Services, we make sure that this may become an option to further develop thyssenkrupp towards our strategic goal of a financial holding. With that, we are at the end of today's presentation. Thank you all for your continued interest and trust. We are now ready to take your questions. Andreas, back to you. Andreas Trösch: Thank you very much, Miguel and Axel. As mentioned, we are now ready to take your questions, and we are opening the Q&A session for our analysts. The first one in line is Boris. Boris Bourdet: I have three. So the first one is on the general discussions. There were recent rumors that [ Salz ] might be interested also in the steel business. So I would be interested to get an update on the process. Where are you? And what's according to your knowledge, the most likely time line for a decision? Maybe the second one that would be on the political support you mentioned during the presentation, CBAM and TRQ and others. You pointed out the fact that there could be some upside going forward. So does your current guidance include those supports? And if not, what could be the potential uplift? The last one is on Steel Europe, pretty decent margin over the period in Q1. So I would be interested to know how much is the contribution from the energy compensation in Germany this quarter? Miguel Angel Lopez Borrego: Boris, for your questions -- I'll start with the first one. So we are in the due diligence process with Jindal Group, intense conversations. Of course, you always understand that we cannot do any kind of statements around timing. And of course, it's also important to understand that the highlight of last week has been HKM. So the agreement that Salzgitter will continue the company on its own. And of course, all this influences, of course, also the due diligence process because that's a new factor coming now in and certainly positive. So discussions ongoing, and we will let you know as soon as something is more concrete to be reported. Yes, it is expected -- your second question, it is expected that we will see improved, pricing after the tariffs will be introduced in Europe. And also the CBAM -- concrete CBAM actions will, I believe, also help. We will not see anything this fiscal year around it because we expect the European Union to decide on the tariffs around May, June. And until then everything is really getting into the orders, we will see an impact for sure next fiscal year. But the likelihood that we see this fiscal year some positive effects already in our view is, for the time being, very limited. For the third question, I hand over to Axel. Axel Hamann: Thanks, Miguel. Yes, Boris, you've asked for the electric compensation and what the share is for the, let's say, increase also in EBIT. It's basically 3 components that help us increasing the EBIT. It's raw material prices, it's efficiency gains. And as you said, it's the electrical price compensation, and that is a bit higher than last year. I hope that gives you an indication. Boris Bourdet: Can you just remind us how much that was last year? Axel Hamann: That was a low 3-digit million euro number. Andreas Trösch: Now the next question comes from Jason Fairclough. If not, then we try the next in line and come back to Jason in a second. Next in line is Alain Gabriel. Alain Gabriel: A couple of questions. On HKM, how do you see the cash outflows relating to the sale potentially being phased over the course of this year and beyond? That's the first question. The second one is still on HKM. Can you give us some indication of the pro forma Steel Europe EBITDA without HKM, potentially for '25 or even Q1 '26, just to help us quantify the impact of HKM or even if it's easier, if you can give us what would your guidance have been ex-HKM for '25, '26? Miguel Angel Lopez Borrego: All right. Thanks. First of all, cash outflow or I should say, potential cash outflow for HKM, a term sheet has been signed. And as we stated, it's going to be a low to mid-3-digit million euro number. The cash outflow pattern, what I can already provide you with as of now, it's going to be a minor part of this year, and we're going to stretch that out over at least 3 years. So you would see a sequential cash out, and we're going to start with a smaller part in this year in case we're going to close the deal, and that is expected for June of this year. Axel Hamann: With regard to guidance for HKM, we do not disclose, let's say, individual guidance for that business as part of our Steel segment. Alain Gabriel: But can you give us some indication if it's a positive EBITDA or negative EBITDA if we were to strip it out? Or even that you cannot give any color? Axel Hamann: Well, there's still a couple of variables also to be negotiated in terms of supply from HKM. So it's really -- it's too early to tell. Andreas Trösch: Now let's try Jason again, Jason Fairclough. Unmute yourself. All right. Well then, let's try again later. Now we're switching over to Bastian. Bastian Synagowitz. Can you unmute yourself Bastian? Bastian Synagowitz: Maybe firstly, starting off on the strategic plans you have for the Steel business. I guess maybe looking at the broader market, obviously, the -- I guess, the equity market has significantly rerated the valuation of any European steel asset given the very supportive policy backdrop. And if we overlay this with the talks you're currently having on the possible sale of the unit, this must be obviously a very different conversation today versus the talks which you probably had at the very early stage of that process. So can you confirm that you're basically seeing a positive momentum here in these talks? And -- or is there also a scenario where at least you may potentially crystallize the value of the steel unit in a different way? And has this become more likely? That's my first question. Miguel Angel Lopez Borrego: Obviously, a very relevant strategic question you raised. I mean, it is quite clear that the sentiment, and we have seen that -- you have seen that also in all the steel companies that are publicly listed. So the sentiment has turned into a positive one for the last 4 months. We have seen increases in the share prices of around 50% and more. So there is a clear positive sentiment. It is also clear that this is due to the tariff situation, as mentioned before, and the limitation also of the import quota for Europe. And of course, the idea of resilience -- and I've been reporting, you remember about the Steel summit with Chancellor Merz and also talks that we had directly with Ursula von der Leyen and her team. So yes, there is a clear positive sentiment here. And of course, that will have, for sure, to get into an input for the conversations with our colleagues from Jindal, no doubt about that. Bastian Synagowitz: Maybe just looking also at the recent news around the possible plans to delay the phaseout under the European ETS scheme. I would think that, that must be quite positive news for you as well in terms of like the CapEx perspective of the business. And in that sense, probably in the overall context, probably is another derisking factor for the unit. Would you agree with this? Miguel Angel Lopez Borrego: Yes, there are really good things happening, and this will have quite a different shape in terms of Steel for the future. Bastian Synagowitz: Then maybe lastly, one more technical question just on the restructuring costs you're expecting. I think you're now guiding for EUR 700 million to EUR 800 million of restructuring costs in total. Is this only related to Steel? Or does this already include something for the other units as well or maybe even for HKM? Or is this just Steel? Axel Hamann: Yes. Let me take that question, Bastian. The vast majority is Steel related. And we've also, let's say, provisioned -- not technically, but planned for some at HKM. And what is also included is a minor part for automotive. So vast majority is Steel. Bastian Synagowitz: The HKM portion, however, that does not include the low to mid-3-digit number you were referring to earlier, I suppose? Or does it include that one as well? Axel Hamann: It's not too far away, let me put it that way. Andreas Trösch: All right. Thank you, Bastian and now again, trying Jason. Jason Fairclough: Look, a couple of quick ones for me. First, I was wondering if you could just give us an update on Elevators. How are you thinking about the value of that stake? And what's the path to releasing that value? On Material Services, we've talked about this one before, huge working capital in this business. Do you think it's performing the way it needs to? And again, how do you think about releasing value? And Steel, is the vision to sell completely now? Or would you just be looking to sell a 51% stake? Axel Hamann: Let me maybe start with Elevator, Jason. You've probably seen currently booked at around about EUR 2 billion. I think there's a certain expectation in the market around, let's say, further developing TKE. So as of now, we're super happy with our share, and we're looking forward what the developments around TKE will be. Obviously, there are some, let's say, talk in the market around IPO. Let's see. We're happy with our share, and we're looking forward how this is going to develop. With regard to working capital, I think that's something we've touched upon also in the past for Materials Services. Are we happy with the performance? I think we're working towards capital market readiness, let me put it that way. And working capital efficiency is a part of it. And yes, so let's see when that business is going to be capital market ready, and so we will let you know once we're there. With regard to Steel, it's maybe a question for you, Miguel. If I recall you correctly, it was around whether we're going to sell or whether we intend to sell 100%, or whether we can think of any 50% structure. Miguel Angel Lopez Borrego: Okay. I was having technical problems for 30 seconds. Well, Jason, on your question around what portion of the business is -- of the Steel business is in discussion for selling. We continue to go the direction of to sell the majority of it. That's what is in the discussions with Jindal right now. Jason Fairclough: Can I just follow up on the Material Services. So it's an interesting phrase you used there, working towards capital market readiness. So should we read from that, that you're considering a potential IPO or sale of that business? Axel Hamann: No. I mean it's part of our overall strategy that we want to enable our businesses and then ultimately become a financial holding company. And that would encompass that the segments would eventually be also listed. That's something we've communicated and materials may be one of them. But as I said, no -- final decision not yet taken, but we're working hard on, let's say, getting all ducks in a row. Jason Fairclough: Okay. Glad we could make it for a third time. Thank you. Andreas Trösch: [Operator Instructions] Next follow-up question is coming from Alain Gabriel. Alain Gabriel: A couple of follow-ups. On Steel Europe, you are not too far from the bottom end of your guidance range just with the Q1 numbers. Should we see your full year number as conservative? Or are there any items that you expect to develop over the course of the year that would drag down the margins? That's one. The second question is on Steel Europe. Can you remind us what are the pension provisions allocated to Steel Europe? And on top of that, what are the other restructuring provisions that are booked as liabilities on your balance sheet for Steel Europe? Miguel Angel Lopez Borrego: Sure. Thank you. First of all, we've touched upon the guidance for steel after that promising start. As said, the reasons are threefold. It's efficiency gains -- it's lower raw material prices, and it's also the electrical price compensation. So I would not rule out at this point in time that we continue to see efficiency gains. And with regard to prices, let's see. But you see me rather, let's say, on the comfortable side, if I look at our guidance range for steel, let me put it that way. Then pension provisions for Steel should be around EUR 2.4 billion. And with regard to -- I think you also asked around for restructuring provisions, that is something we have guided around a mid- to high 3-digit million euro numbers for this year. Andreas Trösch: Thank you, Alan, for your questions. There seems to be no more questions currently in the call. If you have more questions, please contact the Investor Relations team, including myself. So thank you very much for participating in that call, and have a great day. Thanks. Miguel Angel Lopez Borrego: Thanks, everyone. Bye-bye. Bye.
Operator: Good day, and welcome to the Brookfield Corporation Fourth Quarter 2025 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 speaker, Ms. Katie Battaglia, Vice President, Investor Relations. Please go ahead. Katie Battaglia: Thank you, operator, and good morning. Welcome to Brookfield Corporation's Fourth Quarter and Full Year 2025 Conference Call. On the call today are Bruce Flatt, our Chief Executive Officer; Nick Goodman, President of Brookfield Corporation; and Sachin Shah, Chief Executive Officer of our Wealth Solutions business. Bruce will start off by giving a business update, followed by Nick, who will discuss our financial and operating results for the year. And finally, Sachin will provide an update on our Wealth Solutions business. After our formal comments, we'll turn the call over to the operator and take analyst questions. In order to accommodate all those who want to ask questions, we request that you refrain from asking more than 2 questions. I would like to remind you that in today's comments, including in responding to questions and in discussing new initiatives in our financial and operating performance, we may make forward-looking statements, including forward-looking statements within the meaning of applicable Canadian and U.S. securities laws. These statements reflect predictions of future events and trends and do not relate to historic events. They are subject to known and unknown risks, and future events and results may differ materially from such statements. For further information on these risks and how their potential impacts on our company, please see our filings with the securities regulators in Canada and the U.S. and the information available on our website. In addition, when we speak about our Wealth Solutions business or Brookfield Wealth Solutions, we are referring to Brookfield's investments in this business that supported the acquisitions of its underlying operating subsidiaries. With that, I'll turn the call over to Bruce. J. Flatt: Thank you, Katie, and welcome to everyone on the call. 2025 was a very active year for the business. We advanced a number of strategic initiatives and delivered strong financial results. Our cash flows are now supported by our large-scale capital base, which totals $180 billion and the diversification of our platform across asset classes, geographies and capital sources, all of which provide multiple avenues for growth and position our business to remain resilient and grow across economic cycles. In the last 12 months, we raised $112 billion of capital, financed nearly $175 billion of assets, completed $91 billion of asset sales and deployed $126 billion of capital while growing our insurance asset base to $145 billion. That all allowed us to deliver record financial results with distributable earnings before realizations of $5.4 billion and total distributable earnings of $6 billion. Nick will cover financial results in more detail, and Sachin will spend some time discussing our wealth solutions business shortly. Before they speak, I will add a few things. Looking back to 2025 in the stock market, our stock generated a 21% return for shareholders. That increased our 30-year track record to an annual compound return of 19%. That's $1 million with us over that period would be worth $285 million today. Of course, that's the miracle of compounding good results. Turning briefly to the market environment. business fundamentals are strong. Capital markets have improved. Liquidity has returned both in debt and equity markets, interest rates have started to come down globally and transaction activity has picked up. In this environment, real assets should continue to outperform, offering investors the opportunity to earn excellent returns while taking moderate risk. As our platform has grown, so has the scale of the work we do with our partners. Increasingly, we are partnering with the highest quality organizations on large-scale, sophisticated projects that are critical to both national and corporate priorities. Recently, that has included partnerships with NVIDIA, Microsoft, JPMorgan, the United States, French, Swedish and Qatar governments, among others. Our ability to work with counterparties of this caliber underscores the strength, resilience and global reach of our platform. It also reflects a deliberate long-term approach to building our business with great partners. We believe long-term business success requires many things, but 3 in particular stand out together. They make the difference between good and great long-term returns. First, it starts with identifying businesses that can endure and evolve. For decades, we focus on building the backbone of the global economy. And while that focus has remained consistent, long-term success requires evolving as the economy itself evolves. Second, when a business is well positioned and well run, compounding becomes the dominant driver of value creation. Over long periods of time, small differences in annual returns can lead to very large differences in outcomes. And third, and maybe most important, avoiding disruption to the compounding process and business success is critical. Compounding works best when capital is allowed to be remain invested for long periods of time. For us, that means that we must always keep excess capital to ensure that we can ride through any market cycle. And our balance sheet strength, as Nick will indicate later, gives us flexibility to do just that. It allows us to stay focused on long-term value creation, allocate capital selectively and take advantage of dislocations when others are more constrained. Real estate illustrates this well. Over the past 40 years, we have invested in, operated and monetized real estate across many market cycles. Our approach has always been grounded in fundamentals. We acquire assets for value, finance them conservatively and manage them actively. In the most recent cycle, dislocation was driven largely by capital markets and shifting sentiment rather than a deterioration in underlying fundamentals. While many step back, we remained active, continuing to invest, develop and reposition assets. And today, this sentiment is beginning to realign with fundamentals. New supply across core markets is very muted, demand is growing and asset values are set to rise substantially. We enter this next phase from a position of strength, owning the highest quality real estate in supplies constrained markets, operating it through our leading platforms. And as we have seen across cycles, great real estate owned and managed well, always wins over time. That same long-term mindset applies to our other businesses, including how we think about our structure in the public markets. Over the last 15 years, as many of you know, we've offered listed versions of our investment strategies through what we refer to as our listed partnerships. To broaden accessibility for global investors, these are later paired with sister corporate entities. And when we created our insurance business 5 years ago, we followed the same approach, establishing it as a listed sister company to Brookfield Corporation trading under the symbol BNT. These structures have served our business extremely well. But as markets evolve and with the continued expansion of index investing, splitting market capitalizations has become sub-optimal. As a result, we're now focused on streamlining and consolidating our market capitalizations. As an initial step last year, we announced the combination of Brookfield Business Partners with its sister company, Brookfield Business Corporation. This transaction creates a single listed entity that is index eligible for the entire market capitalization and it now reflects the full scale of the business in one company. Building on that momentum, this year, we intend to work on merging Brookfield Corporation with its paired sister insurance entity, BNT. This will streamline our structure and enable the next evolution of Brookfield, bringing together our insurance and our balance sheet investment activities into one entity. This will also add substantial capital to our insurance operations, supporting growth in that business that is underpinned by our real asset-focused investment strategy, while our excess capital will enable us to operate at industry low operating leverage. In closing, we have strong momentum across all of our businesses, significant access to capital and a long runway of growth. We're well positioned and confident in our ability to continue to deliver financial results and compound value for shareholders. 2026 should be another strong year. Thank you all for your continued support and interest in Brookfield. I will now turn it over to Nick. Nicholas Goodman: Thank you, Bruce, and good morning, everyone. We delivered record financial results in 2025, supported by strong momentum across each of our core businesses. Distributable earnings, or DE, before realizations for the year were $5.4 billion or $2.27 per share, representing an 11% increase over the prior year. Total DE, including realizations, was $6 billion or $2.54 per share, and total net income was $3.2 billion for the year. Our Asset Management business delivered record results in 2025, generating $2.8 billion of distributable earnings or $1.17 per share. We raised $112 billion of capital during the year across a diversified set of strategies, reflecting continued investor demand for our fund offerings. Fee-bearing capital increased by 12% to over $600 billion and drove a 22% increase in fee-related earnings to $3 billion. Looking ahead, with strong fundraising visibility, including the launch of our latest flagship private equity fund and our inaugural AI infrastructure fund, and with the announced acquisition of Oaktree, our asset management business is well positioned to deliver another year of meaningful earnings growth. Our Wealth Solutions business delivered strong results in 2025, generating $1.7 billion of distributable earnings or $0.71 per share, representing a 24% increase over the prior year. Our results were driven by continued growth in our insurance platform with $20 billion of annuity sales during the year, alongside improved profitability in our P&C business. On the investment side, we deployed $13 billion into Brookfield managed strategies, supporting a sustained 15% return on our equity, while generating a 2.25% gross spread. And Sachin will expand on this in more detail in his remarks. Our operating businesses continued to deliver stable and growing cash flows, generating distributable earnings of $1.6 billion or $0.68 per share for the year. This performance was supported by strong underlying fundamentals across the platform. Operating funds from operations in our renewable power and transition and infrastructure businesses increased by 14% over the prior year, and our private equity business continues to contribute recurring high-quality cash flows. Within our real estate business, we have seen sentiment realign with the strong underlying fundamentals that have been in place for some time now. The environment today reflects several years of limited new supply across major global markets, while tenant demand has continued to grow, translating into strong leasing activity and meaningful rent growth for high-quality assets. During the year, we signed nearly 17 million square feet of office leases globally with net rents averaging 18% higher than expiring leases across our super core and core plus portfolios. Few portfolio highlights include: in New York, we signed 2.4 million square feet of leases at rents 20% higher than those expiring. In Canada, leasing activity picked up meaningfully over the year. We signed 2.4 million square feet of leases at rents 10% higher than expiring levels. And in London, we signed nearly 800,000 square feet of leases at rents close to 10% higher than those expiring. This lease activity reflects strong demand from large creditworthy tenants such as Moody's and Visa who are relocating their regional headquarters to our properties, alongside many -- of many of our other high-quality tenants that executed long-term renewals and expansions. At the same time, properties that we delivered or substantially repositioned over the past few years, including office assets in major global markets are now nearly fully leased and achieving some of the highest rents on record. As a result, our portfolio finished the year in a very strong position with our super core and core plus portfolios more than 95% occupied and poised to continue delivering robust NOI growth in 2026. Turning to monetizations. 2025 was a record year, advancing $91 billion of asset sales across the business at attractive returns, including $24 billion in real estate, $22 billion in infrastructure $12 billion in renewable power and $33 billion from private equity and other investments. Substantially, all sales were completed at or above carrying values, realizing meaningful value for our clients. During the year, we realized $560 million of carried interest into income and ended the year with $11.6 billion of accumulated unrealized carried interest. And with a strong pipeline of planned asset sales across the business, we expect carried interest realized into income to accelerate over time. Moving on to capital allocation. In addition to investing excess cash flow back into the business, we also returned $1.6 billion to shareholders in 2025 through regular dividends and share buybacks. We repurchased more than $1 billion of Class A shares in the open market at an average price of $36, which represents nearly a 50% discount to our view of intrinsic value including approximately $150 million repurchased since last quarter. We also maintained strong access to capital markets during the year and executed approximately $175 billion of financings across the franchise including $53 billion in infrastructure, $42 billion in real estate, $37 billion in renewable power and more than $40 billion in private equity and other businesses. At the corporation, we issued CAD 1 billion of 7- and 30-year notes at favorable spreads in December and subsequent to year-end, our real estate business completed an $800 million fixed rate financing at a super core office property in Manhattan at very attractive spreads further underscoring lender appetite for high-quality assets. Lastly, we ended the year with a conservatively capitalized balance sheet, strong liquidity and record deployable capital of $188 billion. Taken all together, the strategic initiatives we advanced in 2025 fueled meaningful momentum with a $180 billion permanent capital base, strong liquidity and multiple avenues for growth, we are well positioned to continue compounding shareholder value in 2026 and over the long term. With that, I am pleased to confirm that our Board of Directors has declared a 17% increase in the quarterly dividend to $0.07 per share payable at the end of March to shareholders of record at the close of business on March 17, 2026. Thank you for your time. And with that, I will now pass the call over to Sachin. Sachin Shah: Thank you, Nick, and good morning, everyone. I'm pleased to join the call this quarter to provide an update on Brookfield Wealth Solutions. 2025 was a strong year. We finished with over $140 billion of insurance assets, generated $1.7 billion of distributable earnings and delivered a return on equity above our mid-teens target. As we look ahead to 2026, we are very well positioned to deliver continued growth across both our retirement and protection businesses. As always, our ability to invest into the broader Brookfield investment platforms continues to be a key advantage for us. Access to long duration, real asset equity and credit strategies that provide stable recurring cash flow growth and attractive returns provides a differentiated foundation for driving the business forward. On our current trajectory, we expect to end 2026 with circa $200 billion of insurance assets, over $2 billion of distributable earnings to Brookfield and a capital base exceeding $20 billion, well above our regulatory targets. Importantly, this growth is supported by a highly diversified business across multiple scale geographies, high-demand retirement products and a growing protection franchise which together provide multiple avenues to source long-duration, low-cost liabilities. We have a number of important priorities in 2026, and I will highlight a few of them now. which we believe will drive stable, reliable earnings growth over the next decade and should lead to continued growth in the value of our business. First, we are focused on closing, integrating and scaling our U.K. acquisition. Over GBP 50 billion of pensions are expected to come to the U.K. risk transfer market in 2026 and over GBP 500 billion of pensions will come to the market over the next decade. This represents a large and growing opportunity set. We have made substantial investments in the pension markets acquiring platforms for value while building out operational capabilities required to scale. Our recently announced acquisition of the Just Group in the U.K. is expected to close in the first half of 2026 and we are already advancing plans to grow that business and execute on over GBP 5 billion of pension opportunities annually. At the same time, we are working to grow our footprint in Asia where savings products continue to be in high demand as populations age and retirement income is highly desirable. Japan's life and savings insurance market is one of the largest globally with approximately $3 trillion of assets on insurer balance sheets today, reflecting the depth of long-term savings and retirement liabilities that create significant opportunities for retirement income and growth-oriented solutions in the region. More broadly, across Asia Pacific, demographic shifts are driving a rapid increase in financial assets with life and pension savings representing an increasing share of household wealth. We are in the early stages of building our business in Japan and broader Asia, having completed our first transaction in Japan at the end of 2025. We have a strong pipeline of opportunities ahead of us, which should translate into $3 billion to $5 billion of annual flows over time. In the U.S., we are expanding our retirement distribution capabilities to drive in excess of $30 billion of inflows into the business annually over time. U.S. fixed annuity demand exceeded $300 billion in 2025 as aging populations continue to look for stable retirement income. A significant portion of that demand flows through large bank and broker-dealer channels, which have been a key area of focus for us. On average, these channels account for 2/3 of U.S. retail annuity sales, whereas they have only represented about 1/3 of our sales historically. Given the sustained demand through these channels, we have been investing into these relationships. We've expanded our offerings on one such platform already this year are on track to launch a second before the end of this month and expect to launch 2 additional platforms within the calendar year. Given our expansion, our annualized organic inflow should comfortably grow to over $25 billion in the near term. As it relates to our protection franchise, we are prioritizing and identifying opportunities for scale as markets soften through selective M&A, organic growth and expansion of our reinsurance capabilities. Our protection business delivered $8 billion of float to manage in 2025 at virtually no cost of funding. We have made tremendous progress to date focusing the business on reducing risk, exiting low profitability lines of business, and positioning for softer markets ahead, which we believe will lead to more compelling growth opportunities over time. Lastly, we are continuing our pivot towards equity-oriented strategies to enhance investment returns using our strong capital base to deliver higher quality earnings with lower operating leverage. In 2025, we deployed $13 billion into Brookfield originated strategies and average net yields of 8.5%. We also made additional commitments to Brookfield-sponsored private funds, which will be further accretive to our earnings as those funds call and deploy capital over the medium term. To bring this together, the strategic initiatives we have executed to date, together with our priorities outlined for 2026, position the business for continued earnings growth. We have a platform that benefits from diversification across distribution channels geographies and product types, allowing us to access the most competitive risk-adjusted cost of capital. With a strong pipeline of real asset investments across Brookfield's various strategies, we feel confident in our ability to continue compounding our capital at well above our mid-teens targets. Thank you for your time. And with that, I'll turn the call over to the operator for questions. Operator: [Operator Instructions]. And our first question will come from the line of Kenneth Worthington with JPMorgan. Kenneth Worthington: You've spoken in the past about scaling the P&C business. And today, you called out the protection business and the improved profitability a number of times in the prepared remarks. So I was hoping you could flesh out your comments and talk about where the business stands today, maybe a bit more on how you plan on scaling it from here? And then lastly, what's the right relative size of the P&C business to the life and annuity business for you? Sachin Shah: Sure. It's Sachin here. So you're right. We've talked a lot about our P&C protection business, as we call it, I would say the last few years, and you would know this just from the general market backdrop has been a very hard market. You've seen record profits in established P&C platforms. And during that period to acquire businesses for value was very difficult. Owners would expect significant multiples on book capital and not everyone had a great platform or has a great platform, yet valuation expectations were tremendously high. Our approach during that period was to acquire platforms where we felt we could acquire them at a significant discount to book, work on repositioning them and really orient them to the next cycle that will come, softer markets and ensure that we have a good risk culture, a good cycle management culture and that we could grow them organically even if markets start to soften, which we're seeing pretty significantly right now, in particular on the property side. Where that leaves us is we now have a business that is generating strong profits. We've been able to reposition our investment portfolios much more to equity-oriented strategies we are breakeven on underwriting profit and we'll be generating underwriting profits going forward. And we now have a platform that as markets soften, we think that we can pursue M&A. There will be some platforms who struggle in this environment. We think we can build out reinsurance capabilities. and we can continue to diversify our lines. So I think from the outlook perspective, the business has a very strong outlook ahead. In terms of size, we have about $3 billion of capital that supports our protection business, $8 billion of float. And I think we could comfortably see a path to $20 billion to $25 billion of flow by the end of the decade. I'll pause there. Operator: And that will come from the line of Bart Dziarski with RBC Capital Markets. Bart Dziarski: I wanted to ask around the decision to simplify the structure and collapse BNT. So I know you called out a few reasons in the letter, but can you maybe unpack the decisioning there why now and the expected time frame? Nicholas Goodman: Bart, it's Nick. I think in the letter and in Bruce's comments, we provided a lot of the background. What I'd add to that is -- we have seen an evolution in public markets. And as our business has evolved, we do believe at this point in time, it makes sense to streamline and simplify and we've seen the benefits of that play out for BBU. And as we think about -- when we set up BN originally -- sorry, BWS, when we started investing in insurance, we did so thinking it was a very attractive stand-alone investment opportunity. And to stand it up on its own 2 feet, we set up a paired security BNT that added value and provided optionality as we continue to scale the business. I think, as you know, as we've discussed, we see things quite differently now. The insurance business has scaled meaningfully. There's great growth potential ahead for that business. And as it's grown, we've realized the tremendous synergies that it has with overall Brookfield and therefore, it has increasingly become more integrated with the corporation. And today, the business fully benefits from the investment ecosystem of BAM, offering ideal investment solutions to back the liabilities that we have. But we think the next step is to also allow the business to fully benefit from the capital base of the broader Brookfield the full $180 billion of capital that we have to back its growth while allowing it to maintain low operating leverage. So what that means for the business is that we're working on a plan to combine BN and BNT into a single listed company, one security. We would see no change to the governance, the management team, the investment processes, the risk framework within the business, but the end result would be a streamlined structure that provides investors with simpler access to our business, will sustain and ultimately enhance the long-term growth profile of the business. So we will continue to work on that. And as we said in the letter, we'd like to think we can execute it within the next 12 month. Bart Dziarski: Great. Very helpful. And then just sticking with, I guess, Brookfield Wealth Solutions. Very strong ROE. It looks like it's north of 15%. I think we get it on the asset side as to how the strategy is differentiated. Is there anything on the liability side that's also contributing to that? And what's the outlook there in terms of preserving that ROE in this year? Sachin Shah: Bart, it's Sachin. Yes, on the liability side, we've really been focused on diversification of product type. That started with simple annuities and a small P&C business. It's really morphed into geographic expansion, a multitude of retirement products that we sell through all of our businesses, getting into the pension markets and scaling there and broadening out our P&C business. What that really means in practice is at the top of the house, we can look at where our capital is allocated, and we can allocate it to where the cost of funding is the lowest. And therefore, we can move our capital around by geography, by product type and ensure that as competition increases in one area, we move away to an area where we see better value. We couple that with our investment franchise at Brookfield and that leads to really robust spread and really robust total returns for the business. Operator: That will come from the line of Alexander Blostein with Goldman Sachs. Alexander Blostein: Thank you. Good morning, everyone. Just maybe another one around P&C. Definitely seems like you guys have been hinting to that for a couple of quarters now, but it definitely feels like you're leaning into that more aggressively, both organically and perhaps inorganically. How are you thinking about the risk that brings to the BN platform as a whole, obviously, quite different than the annuities business. And when we think about the opportunity that, that creates for BAM as far as incremental assets that could be managed or fall under the IMA. What would be the implications for the management fee business? Sachin Shah: I'll start with, just the balance sheet of the P&C business. As you know, it's a lower leverage business. So I think it requires capital to grow, but you don't get the same operating leverage as you do an annuity business. And for that reason, you don't get the same projected assets going over to BAM. That being said, our annuity business is very large. It's global. And we really have focused the last 5 years on scaling that. So we have a regular flow of capital coming into the group. On the P&C side, the real benefit for us is there will be times where that business, we see opportunities to drive our funding cost down because we can move into parts of the protection market that don't have as much competition. And remember, the annuity market today is very competitive. All of our peers are in that space. Many small asset managers have gone into it and all the incumbent insurers are very aggressively growing their retirement business as well. So it was prudent for us to build other levers to drive funding costs down and to be able to allocate capital in parts of the business that have less competition. Alexander Blostein: Got it. All right. That's helpful. Okay. Second question for you guys, maybe pivot to real estate. The fundamentals in the business look like continue to improve. If we look at NOI, FFO, any of the metrics you guys put out, it looks like it's been a nice improvement over the last couple of quarters now, but help us maybe unpack what's been driving that? And within that, I believe there's quite a bit of floating rate debt that still benefits the cash flows of your real estate franchise. Maybe help with some sensitivity around kind of, I don't know, 25 basis point cut in rates, how much does that impact the cash flows across the entire BPG real estate franchise? Nicholas Goodman: Alex, listen, I think we've talked at length about the fundamentals and the market dynamics going on in global real estate right now, and they are continuing to build momentum. And I'd say that's across the highest quality office and retail. If you look at the office markets in global gateway cities, there is very low to no new supply coming on market. New supply is not expected for -- in large scale anytime soon, and yet tenant demand continues to grow. And we've seen that inflection point in that business in the last couple of years, this year, accelerating still going on with a number of tenants. We're actively engaged with through a very large requirements for high-quality space. We signed -- 2 of the largest leases in downtown last year, I think, is the largest ever move of a tenant in the downtown core are definitely for some time into a trophy building and we can see that momentum continue. Look in London, one of the tightest markets globally now setting record rents with each lease we signed in the city, tenant demand in Canadian Wharf, the strongest we've seen -- so those are the underlying drivers for the growth in the NOI in office. Now as we move those tenants in and we vacate space, it takes time to come through the numbers, but the underlying momentum and the valuation appreciation is coming through the numbers and in retail -- the sales continue to be very strong. We have a very strong seasonal performance in our assets this year, strong total year and again, expect sales growth this year with strong tenant growth. And all of these assets continue to sign leases at very strong positive spreads to the leases that are expiring. So that's driving the NOI growth, and we see that trend continuing. The capital markets are incredibly supportive of these assets. We just completed a financing in downtown New York last week and the debt stack was 10x oversubscribed up and down the stack. So the capital markets are incredibly constructive. We continue to drive in spreads. So that's driving the NOI performance. On the FFO, you're right. We have some floating rate debt. We're probably right now about 75% to 80% fixed rate. But that floating rate movement, 25 basis points, it's probably roughly about $35 million to FFO on an annualized basis. But I'd say there's more going on than just rates coming down. We have the benefit of tightening spreads, and we have the benefit of some delevering come through the P&L. So I think the FFO trajectory continues to look positive from this point forward. Operator: And that will come from the line of Michael Cyprys with Morgan Stanley. Michael Cyprys: I wanted to ask about BWS. Heard the helpful commentary around some of the initiatives globally. I was hoping maybe we could double-click on Asia. And if you could maybe elaborate a bit on some of the steps you're taking to grow your footprint in Asia, what we can expect from Brookfield here in '26 and over the next couple of years? I think you mentioned a pipeline. Can you just elaborate on that pipeline, what that looks like? And then in Europe, as we move past the just deal, and we look out to later this year into '27, can you speak to some of the stuff that you're going to be taking to capture the opportunity set in Europe? Sachin Shah: Sure. It's Sachin here. So first on Japan, I would say our pipeline -- we've been pretty active for the last 3 years in the Japanese market with teams on the ground focused on relationship building, leveraging the broader Brookfield brand. And as you know, there has been a pretty steady history of Japanese insurers undertaking reinsurance with foreign counterparties. And we've been able to build trust. We've been able to get onto the list of acceptable counterparties. We completed our first deal as we've announced last year with Dai-Ichi Frontier Life. I would say we now have strong relationships with half a dozen of the top insurers in Japan all of whom are advancing discussions with us about entering into partnership deals on both flow and in-force reinsurance. Not all of them will hit, but we expect a number of them will. And we feel pretty good that we will have just a recurring steady flow of reinsurance relationships in the country. Beyond Japan, we're actively looking at markets like Korea and Hong Kong, Taiwan, where you have a similar savings dynamic that's occurring and aging populations that really aren't earning a proper yield in their savings products and look to insurance products to supplement returns for themselves. And I would say we're actively conducting outreach in those markets as well looking to build on our pipeline. Europe, I would say, is a bit more of a challenge. We've spent a lot of time in Europe. On the annuity side and on the protection side. But I would say on the annuity side, the market there is much more regulated around what's called the with-profits business. And what it effectively means is your ability to generate spread is very limited by regulatory constructs. So I think if we're going to advance our business in Europe, we're going to do it very slowly, very carefully and make sure that we don't end up in a situation where -- the things that were good at Brookfield investing into real assets are not able to be done, that would be problematic for us. Michael Cyprys: Great. And then just a follow-up question, if I could, on carry. I was hoping you might be able to help how are you characterizing the outlook here for carry into '26 relative to '27? Nicholas Goodman: Thanks, Mike. So I think we had a good performance in 2025, probably slightly ahead of plan for the year. And I know we've talked in the past about seeing an inflection point coming this year. The pipeline for monetizations continues to be very strong as we look out this year. And I'd say it's active in the right areas as it relates to carry. It's active specifically in the funds that are relevant for realizations across infra, real estate and within Oaktree. So I think we feel -- we feel good about where we are today. Obviously, we feel very good about the valuation of the assets we're bringing to market. Timing is slightly outside of our control. But if we had to estimate, we think we'd see it start to step up in the second half of the year and then continue to scale into '27 and '28, as we've talked about before. So the valuations are good. The processes are going. The pipeline is strong, and it just depends on timing now. Operator: And that will come from the line of Mario Saric with Scotiabank. Mario Saric: Just wanted to talk about the dividend increase. The 17% was the largest in some time kind of double 5-, 10-year CAGRs, the largest amongst the Brookfield publicly traded companies this year. I'm pretty sure it's not a result of lack of investment opportunities as we're hearing on the call. So I'm curious whether the increase is kind of a shift in dividend growth policy that better mirrors expected underlying cash flow per share growth going forward? Nicholas Goodman: Yes. Mario, it's Nick. No, I think it's more simple than that. We obviously split the shares. And at BN, we haven't done sort of fractions of a penny increases. So we stuck with a penny. The payout ratio is still very low, as you know, -- so whilst it looks like a high increase on paper and it is a nice increase, the payout ratio is still very low and it's not a change in strategy. We still are focused on reinvesting capital back into the business. And when we return capital to shareholders, we look to do it opportunistically through buying back shares. So I don't think it's a significant change in strategy. It's more a product of the fact that we split the shares this year last year. Mario Saric: Okay. Makes sense. And my second question, in the letter to shareholders, you talked about identifying fees that enable investment growth. You've talked a lot about digitalization, decarbonization and deglobalization as maintained over the past decade, kind of associated with your commentary about the need of an organization to evolve over time, if you have to guess, what are some themes that you may be discussing at your Investor Day 5 years from now that may or may not be ticked on what you're talking about today. Nicholas Goodman: Listen, I think the themes that we have today have a long runway ahead of them. We are in the very early stages of the build-out of supporting the growth of AI and this revolution. And I think the themes will still be anchored by the same fundamental principles. They're anchored today by the same principles we were talking about 10 and 15 years ago. So it's very hard to predict exactly what we'll be talking about 5 years from now. But I think it will be anchored on the same core fundamentals, but we do expect a very long runway from the current themes that are driving the growth of the business. Operator: And that will come from the line of Jaeme Gloyn with National Bank. Jaeme Gloyn: Just a quick question on the North American residential portfolio. Just looking at the operating FFO this quarter, stepping up from Q3. Was there any increase in activity on sales this quarter versus the prior quarter? Or is that just more reflecting some of the seasonality in the business? And then kind of maybe talk through some of the outlook around that portfolio into 2026? Nicholas Goodman: Yes. It's very much due to seasonality. The best way to analyze the performance of that business would be comparing the quarter performance for the prior year quarter as opposed to the prior quarter. There tends to be seasonality and strong performance in Q4. And when you look at it compared to Q4 of last year, we did have a onetime gain on a sale of a large lot. So there is an outsized gain in last year's numbers. I think that the trend in that business continues to be what we've talked about for a while. It's a very well-performing business for us, very well run, generates good cash flow. But for sure, we are seeing muted activity in the housing markets in Canada and the U.S. for now. We expect that over time, the performance will improve as we see a shortage in housing, and we are very well placed with a very nimble platform and if you think back to Q1, we did derisk that investment by pulling out $1 billion of capital by exiting a few of our master planned communities, and we've positioned that more as an asset-light business now -- we continue to scale the land servicing and land management businesses for our clients, generating fees for Brookfield Asset Management. But I think as we look forward, we do see sort of muted performance at the start of this year, but very well positioned to benefit when the market improves. Jaeme Gloyn: And then following in the same theme around the real estate assets, if I kind of go back to a couple of Investor Days, the view would be that real estate assets would sort of decline through the 2029, 2030 period. But we've kind of seen that tick up over the last several quarters. So I guess, is that a reflection of just paying out of the assets for now until better monetization opportunities present themselves? And do you see that sort of accelerating in the early part of the year, second part of the year? Or is it maybe more of a '27 story when you see that start to unfold and see the capital levels start to drift lower? Nicholas Goodman: Yes. Listen, I know I'm going to say that we've necessarily been aggressively acquiring as -- and stepping up from acquisition, but we have obviously, been holding on to the assets. We've been focused on operational improvement and performance. And we've seen that. And as I said, the operating fundamentals have been strong for a while now, and that growth is only accelerating. Capital markets get stronger by the day. And I think we are seeing market sentiment and broad market sentiment out of those really involved in the business day to day, really start to appreciate what's going on in the office market and the durability of high-quality office in the cycle and in long-term growth. And I think as that sentiment and acceptance broadens, you're going to see transaction activity really pick up. We've seen it more broadly for real estate businesses that we sold last year around the world, and we expect it to pick up for high-quality assets. The exact timing is always as hard to give you, but I do think it's close to coming back in a meaningful way. And when it does come back, we will be poised to monetize a number of assets in the portfolio. Operator: And our next question that will come from the line of Cherilyn Radbourne with TD Cowen. Cherilyn Radbourne: Thanks very much, and good morning. With respect to the plan to merge BN and BNT, if I recall correctly, there were some tax advantages associated with the holding BNT. So I'm curious if losing those is effectively the cost of simplification. And to the extent that these were just paired securities, maybe you can elaborate a little bit more on how the insurance business was not previously benefiting from a full capital base of Brookfield. Nicholas Goodman: Cherilyn, it's Nick. Listen, I think the -- we will be very focused as we work through this process over the next 12 months of preserving and maintaining all the operational benefits we have in the business. So you can be assured that we're focused on preserving that. I think today that it's a paired security but it is technically under insurance, a separate ownership structure. So while per security, the ownership chain is slightly different. So as we have looked to capitalize BWS since inception, it has involved us actually moving capital over the business of the BN balance sheet. And I know that's a subtle difference, but having them under the single ownership will allow us to put the business under the total capital base of the organization. So it's a slight structural nuance. It served a lot of benefits as we've grown the business for inception, but there is a clear benefit now to putting them together and realizing that full potential. Cherilyn Radbourne: Okay. That makes sense. And then a question on BWS and the reallocation of the flow to ban managed strategies. I think you reallocated $13 billion in 2025 versus annuity inflows of $20 billion. So I assume that still results in some timing-related pressure on the spread. Does that $13 billion need to step up in 2026? And can it step up as BAM holds first closes on 3 large flagships? Sachin Shah: Cherilyn, it's Sachin. So first, the $13 billion that we invested into BAM strategies, that represents the illiquid private portion of our total asset base, which today is about 50% liquid, 50% private and we'll stay in that range. So I would say, in fact, as we've been rotating the asset portfolios from companies that we've acquired, we're exceeding our 50% target because we started with a very large liquid base of assets. So as money comes in, you should think of it that in general, half the money will stay in liquid cash and liquid securities and half the money will go into Brookfield private fund strategies or other opportunities that come into the Brookfield investment universe. So I'm not worried that we won't be able to keep pace. In fact, we've been exceeding the run rate pace that we need to achieve. Cherilyn Radbourne: Okay. So if I understand that correctly, basically $10 billion of the $20 billion should have gone into private strategies. And so the $3 billion is kind of a catch-up on the liquidity that you had entering the year. Is that a good way to think about it? Sachin Shah: Yes, that's correct. If you were to keep it very simple, that's the correct way to think about it. Operator: And that will come from the line of Sohrab Movahedi with BMO Capital Markets. Sohrab Movahedi: Okay. Sachin, I wonder if you could just unpack something you said a little bit earlier in -- I think in response to kind of managing the cost of funds you were talking about having the flexibility or the ability to kind of allocate capital to the lowest kind of cost of fund I guess, jurisdictions to generate the returns. When I look at your cost of funds throughout the year, presumably, you've been doing that. So is this as good as it gets -- or can cost of funds come lower from here? And how quickly can you pivot from one jurisdiction to another in the capital allocation? Sachin Shah: Sohrab, so first of all, it's not as good as it gets. I think there's still -- there's always room to do things better in a business. I think Japan, in general, is a low funding cost market. So as we build out there, that should help us drive our funding cost down. The P&C business is when run well, and you saw it in this year's results, we had 0 cost of funds. So they meaningfully drive down your funding cost. And as we grow both of those areas of the business, you should see that help drive the weighted average cost of funding down. In terms of the speed at which you can move, we're in the market every day. We have products that get repriced on the annuity side monthly. And so we can pull back pretty quickly. Pension markets are bid on as individual transactions. And when they get too expensive for us, we pull back on bidding on them and P&C float has a shorter duration. So you can quickly shrink your book if you feel like the markets there are either softening too much or there's too much capital chasing deals. So for us, it was important to have that level of diversity, and we think we can be pretty nimble. Sohrab Movahedi: Okay, that's excellent. And given that flexibility and nimbleness, is it aspirational of me to think you could move that 15% ROE higher? Or is that 15% target given everything you just said? Sachin Shah: I think -- the way I would look at it is we are trying to maintain a pretty conservative balance sheet. We're trying to keep leverage levels low, and we're trying to keep capital base high. All of those things go against higher returns, as you can imagine, but they lead to a safer balance sheet and a higher quality of earnings. If you couple that with our investment strategy and our ability to drive funding costs down, that's why we say mid-teens is our target. If we ran at the same operational leverage as maybe some of our peers in the space, the returns would be higher, but we would be taking more risk to do so. So I would look at it as if we're trying to build a business for a very long-term horizon, we're trying to do so where we've got a lot of excess capital, and we're pretty comfortable that mid-teens is just a good target for us to maintain. Operator: I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Ms. Katie Battaglia for any closing remarks. Katie Battaglia: Thank you, everybody, for joining us today. And with that, we'll end the call. Operator: Ladies and gentlemen, thank you for participating. This concludes today's program. You may now disconnect.
Kiira Froberg: Good morning, and welcome to Kemira's Q4 and Full Year '25 Earnings Conference. My name is Kiira Froberg, and I'm the Head of Investor Relations at Kemira. Here with me today, I have our President and CEO, Antti Salminen; and our CFO, Petri Castren. This will be actually Petri's last and 50th earnings webcast as Kemira's CFO. Before we start the actual presentation, I would like to remind you that our presentation today includes forward-looking statements. Next, Antti will cover our full year '25 and Q4 highlights, after which he will discuss Kemira's group level performance. After that, Petri will talk about business unit performance and cover financials in a bit more detail. And then in the end, before the Q&A, Antti will discuss Kemira's strategic focus areas in 2026 and also talk about our financial outlook for the year. But now Antti, the stage is yours. Please go ahead. Thank you. Antti Salminen: Thank you, Kiira. Good morning on my behalf as well. It's great pleasure to present Kemira's '25 results as well as, of course, in a bit more detail the Q4 results. And the year was challenging for us. Markets were soft and uncertain, which is visible in the numbers. So really challenging market environment, which then resulted in a clear revenue decline for the full year as well as for the Q4. But I'm very proud of the organization. We managed to maintain our profitability in a very healthy level. Operative EBITDA being over 19% for the full year, which I think is a really good achievement under these market conditions. And it enabled us to continue to invest into our strategy execution. So building the future growth for the company. And basically, in water business, we announced earlier in the year the acquisition of Water Engineering in North America, which is a really good platform investment into a fast-growing water services market in North America. We also invested or started an investment project in Helsingborg, Sweden for building an activated carbon reactivation capacity, which is part of our strategy to step into the fast-growing micropollutants removal market. And we have now been working for more than 6 months with the Cambridge U.K.-based AI material science company, CuspAI to significantly accelerate and basically change the way innovation is done on this area. And also that work is focusing on this fast-growing micropollutants area. So soft markets, but good profitability performance, which enables us to continue to invest into our growth initiatives. Also, our customers have been very committed, and I have to thank all the customers for the long-term partnership and commitment. We had all-time high Net Promoter Score, which I think tells about our capability to be dependable and trustworthy also in the volatile uncertain market environment. And our employees continue to stay very engaged, which, again, is the platform on which we can build the strategy execution going forward. So despite of the challenging environment, putting a lot of stress and pressure on the organization, the organizational changes that we've been going through, the organization is committed and engaged. We also made good progress on our sustainability targets. This is in the heart and core of what we do and our strategy. So we increased our score in the CDP, both in Water Security and Climate Change. reaching the A- level, which is -- which has been our target. We increased our score in EcoVadis rating, and we continue to reduce the CO2 emissions exactly according to our SBTi commitments. Again, really solid improvement there. And on February 20, when we will publish our Sustainability Statement, we will publish the new positive water impact target, which will be then guiding our way forward in terms of water stewardship. Then if we look at the Q4 in a bit more detail. So as mentioned already, the markets were soft and this market softening and uncertainty actually accelerated towards the end of the year. As a result, the Q4 revenues were 8% below the previous year, and the revenues declined in all the 3 business units. Operative EBITDA margin, however, solid at over 18% and actually increasing in Packaging & Hygiene Solutions, where basically we have continued the self-help program to improve the underlying profitability of the business and results are visible there. The strategy execution continued, as I already mentioned, and actually accelerated during the Q4. So the Water Engineering acquisition happened in Q4. And then we were working during Q4 on the first bolt-on acquisition on this platform, AquaBlue, company, which we then finalized the acquisition in early January. So this is first in the row of several such bolt-ons that we are planning to build on the platform of Water Engineering. And we have a really healthy pipeline, which we are working on. So basically kind of executing a programmatic acquisition-driven growth in the water business there. And then the latest announcement just a couple of days ago, announcing the acquisition of SIDRA Wasserchemie in Germany. And this is then strengthening our position in the most profitable and resilient part of the business, i.e., the coagulant business in the Europe. So basically building on the core, strengthening the Water Solutions business core part, strengthening our position in Western and Central Europe. So market softness accelerated in Q4, but we accelerated also our actions to continue to invest in the future growth of the company. Revenue, as you see, basically, again, just the numbers kind of proving the acceleration of the softening of the market towards the end of the year here. And it's good to remember here that there's also quite significant FX impact in these numbers, and Petri will soon elaborate a bit more on that. And then looking at the profitability, healthy, over 18% profitability, as I mentioned in the Q4. Q4 typically is the weakest quarter for us. There's the underlying seasonality of the businesses you'll see it in the previous years as well. So under these conditions, I'm happy with -- happy about the ability of company to maintain this level of profitability. And especially happy to see that our self-help actions in the Packaging & Hygiene Solutions are bearing fruit, and we have been improving the profitability of that business. There's quite some items affecting the comparability in the Q4, totaling more than EUR 30 million, mostly coming from the restructuring and streamlining costs. So working actively to basically balance the softer top line and keep the profitability on a healthy level. And those costs are there. And again, Petri will soon elaborate a bit more on those. And it also included then the transaction cost of the Water Engineering transaction. And then as a result of this -- all this, the full year '25 earnings per share totaled EUR 1.18. And if we then look at, finally, the financial long-term targets that we have set. So clearly, we are below the organic growth target, driven by the soft demand from the markets, but we are within our target range, both in terms of operative EBITDA and return on capital employed. Of course, the capital employed going closer to the target threshold. There you see clearly the impact of the acquisition of the Water Engineering, which is then basically increasing the capital employed there. But with this, I will pass it on to Petri, who will elaborate a bit more on the financials for the very last time for Kemira. Petri Castrén: Let's assume that my voice is audible. So as Antti said, we made good progress in our strategy execution during the year and also during the first quarter. The other headline, I think, from this report, of course, is that the market has been weak, but we have been able to defend and protect our profitability quite well. I'll go directly to the variance analysis next. Headline revenue declined 8%, really 3 components that Antti already mentioned. It's the -- all negative now. Volumes were declining. Negative FX impact, mostly it's the weakening of the U.S. dollar, which is -- everybody knows about it and everybody has paid attention to it. But yes, it has been impacting us quite severely. And also a little bit on the product pricing as well about 1% on average for the quarter. Of course, these are the same components that impact profitability. In addition, there was a little bit of a higher variable costs impacting primarily our Fiber Essentials, and I will come back to that when I talk about the business unit comments. Fixed cost savings that Antti already alluded to regarding Packaging & Hygiene Solutions, where we really have had headcount reductions. But obviously, there have been fixed cost saving actions throughout the company that we have been doing to really protect the profitability during the quarter and for the year. Full year story, same component again. Of course, there, you have the addition that there is still the tail in the comparison period of the oil and gas business. So if you eliminate that part, the comparable decline 5%. And again, biggest contributors being the volume development and the U.S. dollar weakening. Then if we look at the year in totality, and we look at sort of the various components. Obviously, it's clear that the volume decline is more impactful during the second half of the year. So there was an acceleration in the business decline. And again, I will come back to those during the business comments. Sales prices actually have been relatively stable for the year. But in the first part of the year, the year-on-year comparison was quite negative. But if you look at the 1-year comparison, meaning Q4 '25 to Q4 2024, it's 1% decline. So overall, we are in a pretty stable pricing environment. It's really a volume issue that we are dealing with. And of course, this slide actually tells the same story. Prices and variable costs have significantly stabilized during the last 4 or 5 quarters. So you'll see that there's a fairly flat line when we had this huge peak during the COVID and supply chain problem years. Energy costs were sky high in '21, '22, but we are sort of putting that period of time into history, and we are now in a much more stable environment. And our crystal ball as far as we can say or see doesn't really indicate much of changes to this. I mentioned this comment after Q3, but I do it again. So it's really a volume game now for us. Volume increase the key to driving our profitability now and for us that is largely market dependent and it applies to all of our business units. We have capacity available in most of our plants and so any additional volume we can process without really adding any fixed costs for infrastructure. This means that if and hopefully when the markets improve, the operating leverage will help us with the bottom line. Having said that, you'll see that in the assumptions we are not yet foreseeing really a market recovery at this time. Antti mentioned the items affecting comparability. It's really -- we are also -- we are taking action because of the lower volumes. So we're taking action on our manufacturing assets. We're ramping down our production entirely in our Teesport U.K. site, resulting in an asset write-down, restructuring and closing provisions. We're also making an efficiency and automation investment in our Botlek site, resulting in a reduction of manual work and the related -- restructuring costs related to that as well. Fortunately, we had EUR 12 million environmental provision for a site that has been closed long time ago -- many years ago. More than decade ago in Finland where we actually disagree with the authorities of how the land remediation should be done. The land has been remediated and the polluted land impacted soil has been taken away, but there is a difference of opinion how that soil should be treated. We'll probably continue that dispute for a while. But we have now taken a provision for that -- for the worst-case scenario, least put it this way. All-in-all, this restructuring, streamlining and transaction costs add up to EUR 32 million within EBITDA and EUR 43.8 million within EBIT. And of course, the impact of that is driving EPS down for the quarter to just EUR 0.07 per share. And for the year, EUR 1.18, below previous years of EUR 1.61. Next, I'll go to the business unit commentary, as I promised, and I'll start with the Water Solutions. So first of all, let's start with a reminder of the basics. So in Water Solutions, we do have seasonality. So our particular municipal customers do treat less wastewater during the winter months and they require less of our chemicals. So that creates the seasonality that is within our Water Solutions business. Having said that, revenue was weak, particularly it was weaker in the industrial side. The revenue was down 9%. That's quite a significant decline. But more than half of that is attributable to our contracting volumes that we received from our oil and gas business acquirer. And their customer has had an operational issue. So it's not a loss of customer, it's a loss of -- its not a loss of business, but an operational issue that has dragged on longer than anybody expected. There was also some general weakness on the industrial side. Industrial production, in general, has been weak, in particular in Europe, and there are many processes where there are some wastewaters created that impact us in the industrial side. Urban water service in Europe was very stable. It is a very resilient business. There was a 4% organic decline in North America. And of course, in euro terms, clearly bigger in our numbers. So lower volumes impact the overall profitability, so that the operative EBITDA declined by 7%. Still operative margin at 18.5% for the business unit, slightly below the level of that last year. Next comments on PHS, Packaging & Hygiene Solutions. So challenging market continued. And year-on-year, the market was clearly softer and volumes impacted. Organic revenue declined 6%. Profitability has been protected by the measures that we have taken. We also have received and gained some new customer wins. So that has been helpful, but the market -- underlying market has been really soft. But the important point is that the market has now seems to it has bottomed up. It has not gotten any worse since Q3. It is not any better either. We saw, in fact, very little volume or very little price changes from Q3 to Q4. Profitability in Q4, slightly lower than in Q3, mainly due to product mix type of issues. I think, I commented that the product mix in Q3 was favorable. Now it was less favorable than in Q4. Q4 was less favorable than in Q3. And we're not done with the profitability improvement actions. So we are just implementing the new operating model as of beginning of this year, and we will be seeing benefits of that in the coming quarters as that is being implemented. Regarding regions, fair to say that APAC continues to be the biggest challenge. We see a particularly weak market in China with weak demand and with the local oversupply situation leading to much depressed prices and volumes. Regarding Fiber Essentials, environment has been weak for pulp chemicals, particularly here in the Nordics, which is a key market to us. Also market prices for base chemicals have remained low. For example, caustic soda is relatively important for us. For Fiber Essentials, there we have seen some price -- I'm sorry, variable cost increases -- raw material cost increases in the second half of the year. So it's really isolated to our sulfur products, but the increase has been quite significant. And that's the sort of one area where there is significant inflationary pressures. And it's enough that it's visible in the Fiber Essentials margins to some extent in the second half of the year. So again, looking at the full year, the volume decline, it's really in the second half of the year. And you see that the quarterly revenues have been -- have fallen to EUR 132 million, EUR 134 million range, whereas before that, we were clearly in the EUR 145 million, EUR 150-ish million per quarter run rate. And as the drop-through impact is quite significant, these are good gross margin products, but high fixed cost operating plans. So the volume -- any volume increase would have, obviously, positive impact to our profitability should -- and if and when that hopefully happens. All right. Moving to balance sheet. Now during '25, our net debt level has increased due to the acquisition of the Water Engineering and of course, the share buyback program that we had on the second half of the year. Then the smaller addition is that we actually inaugurated our new R&D facility in Espoo, here in Finland, with a 15-year lease. So that's added to our lease liabilities and reported as a part of debt obligations. ROCE that Antti was already talking about, return on capital employed, has come down to 16.5% due to this Water Engineering acquisitions. But of course, it's also heavily impacted by the reported EBIT or operative EBIT that we have, and those 2 components clearly impacting there. Cash flow from operations, EUR 127 million during the quarter and EUR 373 million for the year. Maybe a comment on the cash flow component. So our net working capital increased from previous year. We perhaps were not quite successful in reducing our inventory levels with the reduced volumes as the business was -- that business was experiencing. So obviously, trade payables are coming down, but if inventory levels remain roughly at the same level, it reflect as an increase in net working capital. And therefore, inventory levels will now need to be and are in the focus for us going into '26. There is some opportunity to tighten inventory rotation. CapEx fell just about where we expected and how we guided, slightly below EUR 200 million in '25. And now estimated '24, '26, it will increase slightly. We have some growth investments ongoing. And then, we are doing these modernization investments. I mentioned, the Botlek, but we have a few others as ongoing as well. Dividend, we have a strong track record of increasing our dividend. And now we are proposing increasing our dividend to EUR 0.76 to our Annual General Meeting. This increase is consistent with our dividend policy of paying a competitive dividend as well as increasing the dividend over time. And in recent years, the dividend has been paid in 2 installments, and we'll continue that practice. In addition to increasing our dividend, we're continuing to return capital to our shareholders through share buyback program. The purpose is to continue to optimize our capital structure. We have received almost universally positive feedback for the program that we initiated last year, and we feel that it's important that we continue to serve the interest of our diverse shareholder base. However, this is not limiting our desire or our ability to continue to execute our growth strategy. And again, it's evidenced by the 2 acquisitions that we have already done or announced -- and well, the first one is already completed. But the second one that we announced yesterday, we will continue to invest into organic growth opportunities when they are -- as well as inorganic growth opportunities. And again, this acquisition of SIDRA Wasserchemie for EUR 75 million approximately is a proof point of that. I will turn next to Antti, but before I do, I reflect a little. So this -- as Kiira said, it is my 50th and it's my last quarterly announcement. As announced, I will leave my position as Kemira's CFO at the end of March. So March 31, will be my last day of work. Looking back, I'm very proud of what Kemira has been and what Kemira has become during those 12.5 years. Kemira is much stronger, much better company, and I believe that Kemira has a really bright future. In this forum with you, our analysts and investors, there's one group of Kemira employees that I want to thank, and it's the IR officers. I had the privilege of working with during the years. So when I joined, started working with Tero Huovinen, then continued to work with Olli Turunen. Then up to quite recently with Mikko Pohjala, and now most recently with Kiira. Kemira's IR team has always been top-notch, and it's been my intention only to recruit the best that I can find in the market and been successful with that. And we've been able to maintain a top-notch IR practice for Kemira. And I'm really proud of that. And besides, the team has always been fun to work with. So thank you all. With that, now I'll turn to Antti. Antti Salminen: Thank you, Petri. Yes. So then I'll finally say a couple of words about the strategy execution a bit more. Petri already quite nicely talked about the kind of the latest announced investment and how we are really committed to grow the company via both organic and inorganic investments. I'll elaborate a bit more on that. But just to remind everybody that these 3 cornerstones are the focus areas of the strategy. So expanding the water business, there's plenty of evidence of that, and we continue to work on that. Then building our presence as the leading provider of renewable chemistry in our target markets and even more widely. So clearly, we have been recognized as one of the big leaders in the world on this area, and we continue to work on that. We have a lot of good progress on innovation projects, both in-house and with external partners on that domain and solutions that have been proven not only in lab, but in extensive customer trials. So I'm expecting quite a lot of positive things to come back for the future growth in coming years. And then thirdly, investing kind of into these new adjacent high-growth market areas, tapping or unlocking the growth potential from those areas where we have clear right to win, which are part of kind of our domain, but where we have been historically out of. And the NVS, New Ventures & Services, unit has been actively working on this, and there's a lot of good stuff in the pipeline there as well for the future growth. Then looking at a bit on a time line, basically the time since '22 when we have been executing the growth strategy, which we then sharpened 2 years ago a bit more. But basically, we've been constantly investing into the focus growth areas stated in the strategy. It started from the acquisition of the SimAnalytics, which basically has strengthened our position in the digital services area for the water business, so being present and growing our position in there. Then continued with organic investments into coagulant capacity, so that's the core -- the resilient core of our water business, so we continuously invest in there. And as Petri said then, we have capacity, we are able to benefit from the market recovery when it happens without adding fixed costs as we are -- have been building the capacity for that. Then entering into the micropollutants removal area, so small first acquisition in the U.K. and then continuing with organic investments for that area. So clear commitment to grow in that area as well. And then lately, the entry into the fast-growing industrial water services market in North America via Water Engineering. And as I already mentioned, that's a platform acquisition. So we have a really healthy pipeline of small and also some bit bigger bolt-on acquisitions and first example already happened in the first week of January. So progressing very well on that area. And then the last announcement 2 days ago regarding SIDRA. So again, strengthening the core, increasing our position -- improving our position in the water business and basically on the path to grow the significance of water business in our portfolio. So lot of things have happened, and our aim is to further accelerate the execution of strategy, so working on these growth initiatives, which is enabled by our strong financials and strong profitability despite the weak market. So I think this is exactly the time when the markets are soft, when basically we need to continue to believe in our strategy and invest in these growth activities to make us able to capitalize on the growth when the markets get healthier. So this is clearly essential for us, and we continue to be committed to that. So the 3 business units have clearly separate, different roles in the strategy execution, as mentioned already, Water Solutions being the growth engine. We will continue to invest both organically and inorganically to growth in Water Solutions. Short-term Packaging & Hygiene Solutions, the profitability improvement is the key target. But then also the packaging board markets which we serve are now in the basically historical low point and the world will need packaging materials. So that business unit has growth potential when the market ultimately recovers. And then Fiber Essentials, clearly a profitable cash flow generation unit, enabling us to invest into growth in other areas. So to close this with our outlook for '26, amid the uncertainty and fussiness of all the possible crystal balls, our -- we expect the revenue to be between EUR 2.6 billion and EUR 3 billion and the EBITDA -- operative EBITDA between EUR 470 million and EUR 570 million. So clearly, kind of you will see from here as well that it's very difficult to predict the market, but this is our outlook to the year. It assumes this continuation of global economic uncertainty and the softer volumes and basically, especially the impact being heavy on pulp and paper, but also on the industrial water markets. We assume stable raw material environment, as Petri already alluded to, so basically no big swings from there. And thus, this is the outlook that we give for this ongoing year. So with this, thank you very much. And finally, once more big thanks to Petri. He's been elementary in this growth journey and making the company the good company it is today, completely different compared to 12 years ago, as he mentioned already. But I have to personally thank Petri for the past 2 years because he's been the kind of a brick wall that I could always lean on as a new CEO and giving me the confidence that no matter if I miss some details here or there, he will always be there to support me and correct me. So very big thanks, Petri, for these past 2 years. And then with this, we move on to Q&A. Kiira Froberg: Okay. Thank you, Antti, and thank you also, Petri. And now we are then ready for the questions. So I think we could start from the line. So operator, please go ahead. And we will, of course, also take questions through the chat. So those will be coming also. Operator: [Operator Instructions] The next question comes from Andres Castanos from Berenberg. Andres Castanos-Mollor: Petri, first of all, best of wishes for the future. And also congratulations to the company and to you on all the bold actions on the finance side, M&A, buybacks, dividend increase, the full lot. So well done there. My question will be first one on M&A, please. Can you please put some numbers to the U.S. pipeline, the water pipeline there? How much money can you possibly deploy there in the next year ahead? Also, I would love a comment on the Germany deal that you announced yesterday. It seems like a rare opportunity. Do you think this could be replicated similar deals like this one? Antti Salminen: Well, I'll start, and then I'll let Petri comment on the kind of -- especially how much we can allocate to this. But as I mentioned, the pipeline is very healthy. And we've already mentioned that these kind of small bolt-ons like -- the AquaBlue is a very good example of roughly size of a single deal. So they are in the range of EUR 10 million annual revenue type of -- hovering a bit lower, a bit higher typically. And I've also mentioned earlier that we have a solid pipeline, and the aim is to execute several of those every year going forward, so that's basically giving you the basic -- the idea. And then there are couple of bigger ones also in the pipeline, which then would change the pattern. But basically, it's a solid programmatic growth ambition that we have there. And then regarding the SIDRA type, so we've -- all the time, we have said that we actively look at the base business, coagulant market and look for opportunities. There are not too many, but each and every one, we will act on. You already saw that Thatcher in North America earlier. And then we have now the SIDRA, which is, I think, really good strengthening of our Central European business. So we will -- we are actively monitoring the market. We know all the players there. And when something is suitable becomes available, we will promptly act on that. Petri Castrén: Yes. I don't know if I have much to add. But the AquaBlue type companies, there are probably a couple of hundred or a few hundreds in North America. And theoretically, almost everyone -- not everyone, but -- so it's the beginning of the pipeline. Then as the pipeline is progressed. But I have seen long lists that have 20, 30 names in it. Currently, short list is obviously shorter. It needs to be shorter. But like Antti said, these type of deals is really where we have the strong natural platform executing the EUR 10 million, EUR 20 million type revenue companies, and there are multiple those cases. And of course, from the finances point of view, balance sheet point of view, we have no restrictions on executing on that one. And so that certainly continues. Obviously, if we are looking at the Water Engineering pipe, which was well over EUR 100 million type of investment, then those would be looked at little bit differently. There's -- that's progressed in a different way in our M&A process. Andres Castanos-Mollor: A second question, if I may, please, on margin trajectory in the water business. You mentioned some seasonality, and I wonder is that it? Should we see a rebound in Q1 versus Q4 on margins? And also, can you comment on the margins of the acquired companies that you have acquired so far? Are they accretive to the current water business margins? Petri Castrén: Well, I can start with... Antti Salminen: With the seasonality... Petri Castrén: Yes, in water business. Antti Salminen: And then again pass on to you. So basically, the water business has this natural seasonality because big part of the water business is especially on the urban municipal side is weather dependent. And -- but there are also other things, and I will talk a little bit more about them. But basically, typically, the summer months are the strongest or the summer quarters are the strongest quarters. And then the winter quarters are always a bit weaker, and especially Q4 being typically historically and especially in North America, the weakest one. So it's partly weather dependent. There's less water in the systems, but especially kind of entering into this water -- industrial water services business, there's also the industrial patterns because a lot of that business is in cooling towers, for instance. And when you have cold months, you have less need for cooling in industrial applications. Also, there's a lot of business in the services part business, which has to do with the -- there's a lot of pools in U.S. So basically, again, pools are not used in winter time and so forth. So it will only strengthen the seasonality, I think, in the water business, this entry into the services area. Petri Castrén: And so Andres, if your question was really regarding the pipeline of these services companies, they actually vary quite a bit. They vary from the low teens to 40% EBITDA margin in the business. And it often depends on how much product and possibly equipment sales they have in it or whether it's pure services where the margins tend to be higher. So I don't think I can give you an universal answer on the types of margins that you see. But philosophically, we don't want to dilute our profitability with these acquisitions. So even if the coming in margin is lower than ours, there needs to be synergies that get to our sort of at least average group margins. Operator: The next question comes from Tomi Railo from DNB Carnegie. Tomi Railo: It's Tomi from DNB Carnegie. And thank you also Petri from my side it's been absolutely a pleasure to present a short while... Kiira Froberg: Now we can't really hear you, Tomi. Could you please repeat your question? Tomi Railo: Can you hear me now better? Kiira Froberg: Yes, we can hear you now. We heard the thank you part. But then when you started to ask your question, we lost you. Tomi Railo: Okay. Maybe that's a signal. But the question is simply, was there something still extraordinary in the water clean that you booked kind of in the clean EBITDA? You mentioned some of the items, but or was it just a very clean, clean number what you reported? Petri Castrén: I would say that it's clean. And of course, during the Q4, you always tend to look at your inventories and you tend to get some invoices from your customer -- suppliers that hadn't been accrued for small amounts. So we have a fondness of talking about 13th month, it's not 13th month. But there is typically some new expenses that come in December time frame we usually plan for -- or we plan for that, but there's a little bit of unknown. But I would call that in -- put that in the level of noise, particularly for Water Solutions. Tomi Railo: Okay. And the second question on the outlook. I'm just trying to make a sense. You mentioned that kind of the softness accelerated in the fourth quarter from the third quarter. But then when I'm reading your kind of outlook commentary, it doesn't really sound that the market has changed for worse. Actually, you also mentioned yourself that it's stable. So kind of is the market now stable, what you believe? Or is there still some further weakening? Petri Castrén: Let me correct first -- correct me first and then I think it's more appropriate that Antti talks about the outlook. I probably may have miscommunicated a bit poorly. What I meant to say that the volume decline was higher in the second half versus the first half. And this was clearly driven in Nordics by the pulp mill, not closures, but... Kiira Froberg: Downtime. Petri Castrén: Downtime -- thank you for the word -- as well as the contracting volume decline in industrial. And then perhaps there was some more industrial decline in water service in second half. But if you sort of -- I recognize accelerate is probably the wrong word. So it was not accelerating. So third quarter to fourth quarter, there was no acceleration. So let me correct that if I communicated that poorly. But then I'll let Antti talk about the outlook. Antti Salminen: Yes, yes. And as I said when I introduced the outlook, so basically, if anything, the visibility is really poor. So commenting to this or that direction, whether we see kind of an improvement or declining, it is -- the visibility is really poor. But as Petri mentioned, I think many indicators from the market show that this -- we believe that this is kind of the bottom level. We haven't seen any significant further weakening, but we haven't seen really any kind of bright signs for -- at least for the first half of the year either. And there, I would, again, as we discussed earlier, so Tomi, I would recommend to look at what our big key customers have stated about market because, of course, they see it first and we get hit in kind of upper in the value chain of those phenomenon. So basically, you can read that, and that's the kind of crystal ball we have. Tomi Railo: Of course. Just a follow-up. If you could give kind of price and volume assumptions into '26, what you are saying? I hear you that kind of it's a volume game, but would you assume that pricing is down or stable in this environment? Or what's kind of price and volume assumption, maybe if there's something. Petri Castrén: I already offered my view of the crystal ball, and it's pretty stable, and it has been stable for the last 4 or 5 quarters, and we don't see changes to that. And that applies both to pricing environment and the variable cost environment. Kiira Froberg: Thank you. Let's now take the next question from the line, please. Operator: The next question comes from Joni Sandvall from Nordea. Joni Sandvall: A couple of questions from my side. In BHS, you mentioned the continued improvement, what you have started now with the new operating model kicking in from '26. So if I remember correctly, you maybe have mentioned around 15% EBITDA margin target by end of '26 is still valid with the current market environment? Antti Salminen: Market environment, of course, plays a role there, but that's the ambition level that we have been talking about. So I mean, if you look at from the group perspective, that's the expectation. Now whether the market support reaching that exactly during the last quarter of '26 or later in '27, that depends, but that's the ambition level that we have set for. Joni Sandvall: Okay. That's clear. Then maybe a question on the energy prices have been spiking both in the Nordics and in Europe. Are you seeing any support for yourself through the pricing now in H1? Petri Castrén: Well, the weather forecast, I was looking for it to be snowy for the weekend, but then I heard that the weather forecast changed. It's not getting more snow. I'm looking for the cross-country skiing next weekend. Honestly, let's not get excited about -- too excited about a 1 month of cold weather in Finland and Europe. So I think we have to look at the bigger picture and longer period of time. It is true that in the Fiber Essentials, typically, our customers do benefit -- also customers benefit of high energy because they do produce energy, electricity while their pulp mills are operating. So that's sort of an ongoing market commentary that I can say. But really regarding a crystal ball for the weather, for the remaining of the year, don't know -- we don't have that. Joni Sandvall: Okay. That's clear. Then maybe on the Fiber Essentials, also a question on -- because your sales were declining now in Q4, so could you give any indication how large part of this was driven by lower utilization ratios of the Nordic pulp mills in Q4, which is -- it's not typical that those are curtailed during Q4? Petri Castrén: It's not typical, but they were. So Latin America, there's no change. There's, obviously, some currency impacts year-on-year from North America. But honestly, I would -- I don't have the data now, the breakdown in my head. But it's mostly Europe. It's mostly Nordic. Antti Salminen: It is really mostly Europe. So basically, the -- as Petri said, the Latin America, there was no change quarter-on-quarter in terms of our delivery volumes. In North America, we actually improved a bit in quarter 4, if anything. So it's really coming predominantly from the Nordics. Joni Sandvall: Okay. And then maybe lastly, quickly and for Petri about your supplementary pension fund returns expectations for '26? Petri Castrén: Well, we are expecting to receive another EUR 10 million of return from capital because the fund is roughly EUR 100 million overfunded. So we are unwinding the overfunding slowly and gradually. Obviously, continue to invest smartly. And I trust my successors will continue to do that. So the pension fund is in good shape. So no issue there. Kiira Froberg: Thank you, Joni. We now have a few minutes time to take some questions from the chat. And I think that we could start with the Fiber Essentials team. So the question is, do you expect volume recovery in Fiber Essentials in early '26, given that pulp wood prices in the Nordic area are clearly down, supporting profitability of pulp mills in the region? Antti Salminen: Well, I mean, again, I would refer back to what our customers in that business have announced and said. But clearly, I mean, as Petri already mentioned, it's favorable for the Nordic pulp mills to run as full as possible in the cold winter months as they produce electricity as well. So basically, typically, the first quarter is volume-wise a strong one. And then, of course, the kind of decreased wood prices should be supporting the business of our customers also going further into the year. So of course, we dearly and truly hope that the volumes are improving as a result of this phenomena. But it's really up to our customers. Kiira Froberg: Yes. There's another question, which is related to the Water Solutions business, and I think that we've covered the seasonality part yet. But this is related now to the measures or the kind of like items affecting comparability. That's how I read this. So could you come back on the measures to increase production capacity in the Water division and why these measures make sense despite the lower volumes and lackluster demand in water. So maybe kind of like why these sites and... Petri Castrén: So let me -- I'll cover the 2 items affecting comparability. So Teesport U.K. has been a site with low-capacity utilization for quite some time. Let's be honest about that one. And we have reviewed -- and now what we have made a decision that it's sort of now falling below the threshold, and we are moving the production from particularly some deformers from that site to another site in Europe. So we are closing that site entirely. So we are obviously reducing fixed cost significantly with the closure of that site. So I think that's fairly obvious. Then in Botlek, Netherlands, we are not closing a site. We're actually investing into a site. But it's a site with a relatively high fixed cost because -- I mean, it's Netherlands. The salaries are relatively high there. And we are doing an automation investment. So what has been a fairly manual process, we are automating and, in the process, we are eliminating manual work and its fairly significant or big enough number of employees that it actually makes a difference. And so it's -- there, we -- I'm not sure if we are investing into capacity addition. I think it's, we call it improvement and automation investment. So it's not capacity constrained that particular site. It's really an efficiency improvement with a quite decent payback period. Antti Salminen: Exactly. And then if I continue on the -- if you look at the kind of couple of years' timeline and the coagulant investments that we have been doing into Water Solutions. So we have been there. I mean, the growth -- the population in Europe is not growing. The per capita water consumption is not growing, but the regulation is getting tighter. So basically, we have been doing this investment or initiating them when we see the regulation on certain part of Europe changing. It's not same even if the EU regulation is the same, but the application in jurisdictions is different. So that's why we have twice expanded the coagulant capacity in U.K. The first one, we sold immediately to practically full utilization, that's why we did the second capacity expansion. Same goes for the Iberia, the Tarragona site. So there are certain factors in the regulation and the market that drive the demand. And we do kind of very targeted, relatively small add-on capacity investments on existing site to capitalize on those pockets of market that we see the growth potentially. Kiira Froberg: Thank you. Let's now take one last question from the chat, and it's about the Packaging & Hygiene Solutions profitability program or profitability improvement program. So can you comment on the progress? How much more work is there to be done? And when are you expecting the full impact to kick in? Antti Salminen: Well, I'll start and then if there's something that Petri wants to add. But basically, I mean, it has progressed in phase. So what we did last year is that we basically found the kind of so-called low-hanging fruit in terms of cost both in the business unit itself and then on the operations side that are supporting it, and those we kind of had implemented. So the run rate should be kind of built into this year's numbers. We similarly found some kind of new add on top line, which basically was realized. Those contracts were negotiated and closed last year. So basically, again, us, the customers change suppliers, we should see the revenues in this year's numbers. But then the next phase of that is the new operating model, which we have implemented where we basically changed also the structure and basically how we serve the customers, giving better service for our key customers, the key accounts and then streamlining the service levels for the kind of tail end. That work, the implementation is going -- ongoing as we speak. So that happens during the Q1 and then the results would be visible later in the year. And then the business unit management has in pipeline the next round as well because this is a kind of continuous process of when we kind of put something in the shape, then we realize that there are other things that can be further improved. So we will continuously work on that. But gradually during the year those benefits will be visible. And some of them in '27 only also. So this is a long process. Kiira Froberg: Yes. Thank you. Unfortunately, we are running out of time. So we will start to conclude the conference. And if there are any other questions you know where to find the Investor Relations. So please be in touch. And we have a pretty full roadshow agenda coming in now after the earnings. So we will start with Petri next week in Geneva. So there are still plenty of opportunities to meet also Petri. And Antti and myself, we will be back here in our results studio in connection with our Q1 report, which will be published on April 24. And we, of course, hope that Petri will be cheering for us maybe from the golf course or I don't know. Thank you all. Have a great day. Antti Salminen: Thank you. Petri Castrén: Thank you.
Operator: Good day, and welcome to the Nabors Industries Ltd. Fourth Quarter 2025 Earnings Conference Call. Participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch-tone phone. To withdraw your question, please press star then 2. Please note that this event is being recorded. I would now like to turn the conference over to William Conroy, Vice President of Corporate Development and Investor Relations. Please go ahead. Good morning, everyone. William Conroy: Thank you for joining Nabors Industries Ltd.’s Fourth Quarter 2025 Earnings Conference Call. Today, we will follow our customary format with Anthony Petrello, our Chairman, President, and Chief Executive Officer, and Miguel Rodriguez, our Chief Financial Officer, providing their perspectives on the quarter's results along with insights into our markets and how we expect Nabors Industries Ltd. to perform in these markets. In support of these remarks, a slide deck is available both as a download within the webcast and in the Investor Relations section of nabors.com. Instructions for the replay of this call are posted on the website as well. With us today in addition to Anthony, Miguel, and me, are other members of the senior management team. Since much of our commentary today will include our forward expectations, they may constitute forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. Such forward-looking statements are subject to certain risks and uncertainties as disclosed by Nabors Industries Ltd. from time to time in our filings with the Securities and Exchange Commission. As a result of these factors, our actual results may vary materially from those indicated or implied by such forward-looking statements. Also, during the call, we may discuss certain non-GAAP financial measures such as net debt, adjusted operating income, adjusted EBITDA, and adjusted free cash flow. All references to EBITDA made by either Anthony or Miguel during their presentations, whether qualified by the word adjusted or otherwise, mean adjusted EBITDA as that term is defined on our website and in our earnings release. Likewise, unless the context clearly indicates otherwise, references to cash flow mean adjusted free cash flow as that non-GAAP measure is defined in our earnings release. We have posted to the Investor Relations section of our website a reconciliation of these non-GAAP financial measures to the most recently comparable GAAP measure. With that, I will turn the call over to Anthony to begin. Good morning, thank you for joining us today as we review our fourth quarter results. We will also highlight a number of accomplishments we achieved throughout the year. I will begin this morning with those. During 2025 and through the beginning of this year, completed a sequence of significant transactions beginning with the purchase of Parker Wellbore for Nabors shares and assumption of debt, followed by the sale and Quail Tools, and finishing with debt redemptions and a significant debt refinancing. Compared to the end of 2024, we reduced net debt by $554 million. This improvement significantly de-risks our capital structure. At the same time, we will reduce annualized cash interest expense by approximately $45 million. We also have a portfolio of businesses remaining from Parker that we project will contribute at least $70 million in adjusted EBITDA this year. Now let me turn to our financial results for the quarter. Adjusted EBITDA totaled $222 million. This performance was better than the expectations we set on our previous earnings conference call. These results were primarily due to first, stronger overall performance in our 48 average rig count and daily margin and increased EBITDA from our legacy Drilling Solutions segment excluding Quail in the third quarter, NDS' casing running and managed pressure drilling business led this improvement. Sequentially, our total EBITDA excluding the contribution from Quail in the third quarter, once again improved. This result reinforces several of our strategic priorities namely our focus on performance excellence in the Lower 48 rig market, expanding in the international drilling market, where we generate attractive returns, we also benefit from the stability of multiyear contracts, and developing and deploying innovative technology which advances the capabilities and efficiencies of the drilling process. Our commitment to these priorities led to our recent accomplishments we are confident they will lead us to future success as well. Next, I will address the broader market environment and Nabors position in those markets. Let me start with the commodities. Oil prices were in downward trend in the 2025. This lasted through the U.S. announcement to import Venezuela crude in early January. Subsequently, there was a production interruption in Kazakhstan that helped trigger an increase. These were followed by uncertainty around tariffs related to Greenland and protests in Iran. We are evaluating the lasting effect of these items including the potential reaction by our client base. These events occurred against a backdrop of global oil supply exceeding demand. The EIA's figures showed a surplus each month of 2025. Looking ahead, we see several issues that could impact oil prices including continuing uncertainty around future tariff actions, oil production increases, both inside and outside OPEC, the recent interruption at Tengiz in Kazakhstan, reported inventory builds in certain markets, higher demand concentrated in Asia, and ongoing conflicts involving Ukraine and Iran. Our global drilling markets each have their own drivers, with our current geographic reach we are well positioned to benefit from improvements in those countries. Next, I will comment on Venezuela. We have operated in Venezuela since the forties. At our peak, we had 18 rigs working there for multiple customers. More recently, we worked into 2020 when our client wound down operations. That was due in part to problems with payments and OFAC regulations. Today, we have five idle rigs and a small number of key local personnel in country. With suitable commercial terms and security arrangements we are prepared to return to work there. We are already in discussions with multiple operators. Across the Middle East and North Africa, several markets have aspirations to increase their production capacity. Our business portfolio aligns with these expansion plans. Turning to the U.S. market, operators in the Lower 48 appear focused on maintaining production. At the same time, they are positioned to react quickly should oil prices no longer support their investment return metrics. Our approach in this market is to exercise cost discipline while we deploy advanced technologies. Our innovations augment operator investment returns, with enhanced production and efficiencies. The outlook for natural gas remains positive over the next several years. In the U.S., LNG exports and domestic consumption should ramp up. Elsewhere, in the Middle East and Latin America, continued expansion of natural gas supports drilling activity. In the Lower 48, the gas-directed industry rig count increased by more than 20% in 2025. Nabors' gas rig count increased by 50%. Currently, gas-directed activity comprises approximately 20% of our overall rig count in the Lower 48. We stand ready to respond to any increased demand across gas producing basins. Next, I will add a few perspectives on our current business. In the Lower 48, our momentum accelerated during the fourth quarter. We had four rigs in December, and finished at the high watermark for the quarter, 62 rigs. Operator: Since then, we have added more rigs. William Conroy: Our rig count recently stood at 66. Operator: The additions are mainly for public operators, William Conroy: They are spread across producing areas with four in the Permian, three in the Eagle Ford, and two in the Haynesville. This diversity is encouraging, it suggests favorable operator economics across basins. Next, I will spend a moment on SANAD, our joint venture in Saudi Arabia. The new-build fleet there continues to expand. SANAD deployed the fourteenth new-build during the fourth quarter. Five more rigs are planned to commence work during 2026, bringing the total to 19. The twentieth should start up in early 2027. During the fourth quarter, SANAD received notices for two of its three suspended rigs to resume operations. The first is scheduled to start up late this quarter. The second, late in the second quarter. The rigs will work under their existing contracts. Their contract terms extended by the suspension period. SANAD recently elected not to renew three of its owned rigs. These were contributed by our partner to the JV during its formation. These smaller rigs in effect operated as workover rigs. They generated very little EBITDA and free cash flow. The JV is evaluating alternatives to return them to work. In the meantime, SANAD can utilize the experienced crew from these rigs on its planned deployments during the quarter. This should help mitigate the effects of a tight labor market in the Kingdom. Across other markets in the Eastern Hemisphere, we are seeing potential activity growth. Currently, we are tracking nearly 20 opportunities for additional rigs in countries where we currently operate. This total sends an encouraging signal on the state of the Eastern Hemisphere market. In Latin America, activity outlook in Mexico has improved. We currently have three offshore platform rigs working. The improvement in our clients' payment posture as Miguel will discuss, we see the potential for a more stable operating cadence there. We expect to restart a fourth platform rig there early this year. Turning to Argentina. We expect to start one rig this quarter. We have a second rig scheduled to start work there in the third quarter. That deployment would bring our rig count in Argentina to 14. That is up one from our last earnings call. Our leading position in this market enables us to opportunistically capture additional work. Next, I will comment on the U.S. market. Thus far, we have not seen oil prices at the level that concerned us a quarter ago. The Baker Hughes weekly Lower 48 land rig count decreased by three rigs from September through December. This trend continues the apparent stability we saw in the third quarter. We again surveyed the expected drilling activity of the largest Lower 48 operators. This group accounted for approximately 42% of this market's working rig count at the end of the quarter. Taken together, these operators expect the rig count to remain largely stable through 2026. Looking more closely, two companies indicate declines, the rest are essentially unchanged with a few indicating small increases. Now I will make some comments on the key drivers of our results. I will start with our International Drilling segment. This business has been relatively stable compared to the high volatility in the U.S. in recent years, and looking to the future, international markets are a source of growth. We see prospects across the Middle East, Asia Pacific, and in Latin America. We will focus on opportunities that benefit from our advanced technology, offer long-term visibility with multiyear contracts, and generate attractive returns. In Saudi Arabia, beyond the pending additions I mentioned earlier, SANAD continues to advance discussions with its client for the fifth tranche of new-build rigs. We expect these to conclude in the coming months. This tranche will bring the total number of new-builds to 25. Now I will discuss our performance in the U.S. In the fourth quarter, our daily gross margin in the Lower 48 exceeded our guidance. This resulted from our disciplined approach to pricing and our ability to reduce operating costs. With our performance in the fourth quarter, and guidance for the first quarter, we believe our daily margin is stabilizing. Before moving on, I will offer an update on our high-end rigs including the PACE-X Ultra. The first unit has been working for Coterra in South Texas since mid-September. We had high expectations for this rig. It has delivered. We are now working toward an agreement to deploy a second PACE-X Ultra. This powerful rig is an upgrade to our existing PACE-X rigs. Operator: The PACE-X Ultra William Conroy: combines a 10,000 PSI mud system, high-end racking and mast capacity, and an upgraded high-torque HPU top drive. As an upgrade, the PACE-X Ultra is cost-effective for both us and for our clients. As this rig continues to prove its value, we are confident that interest in it will grow further. We are working with another operator to upgrade an existing PACE-X rig with higher setback capacity. This upgraded unit has been tagged to drill the operator's four-mile lateral wells, its longest, in the Permian Basin. We are also in discussions to simply upgrade a PACE-X rig for South Texas. We are encouraged by these developments. Having multiple operators select our high-end drilling technology demonstrates the versatility and capability we can deliver to the market. At the same time, we generate attractive returns on these investments. Next, let me discuss our technology and innovation. An integral element of our PACE-X Ultra rig is the full automation package supplied by Nabors Drilling Solutions. We also integrate our managed pressure drilling package and we provide casing running services. Looking more broadly, our penetration of NDS services on Nabors' own rigs in the Lower 48 was stable. We averaged seven services per rig. Our strategy for NDS to target third-party rigs continued to pay off. In this segment, NDS outperformed the market. In the fourth quarter, on third-party rigs in the Lower 48, NDS revenue excluding Quail, increased sequentially by 10%. That increase came into market where the third-party average rig count increased by just 1%. NDS remains a key element in our strategy. Its services generate value for clients, and with the low capital intensity, for Nabors as well. I will finish my update this morning with some comments on our capital structure. We said many times our highest priority remains the reduction of our debt. We made considerable progress over the last year. Our net debt is down by more than $550 million. It stands at the lowest level since 2005. This improvement is also contributing to our free cash flow as our interest expense declines. Going forward, with our expectation to generate free cash flow outside SANAD, we are committed to further debt reduction. I will conclude my remarks with the following. Our outlook for 2026 envisions EBITDA performance that matches last year's. We forecast increases in several of our operations. Those should offset the disposition of Quail. This prospect demonstrates the strong earnings power we have across our company. I will now turn the call over to Miguel to discuss our financial results in detail. Thank you, Tony, and good morning, everyone. I will begin by reaffirming our unwavering commitment to continue to strengthen our balance sheet and enhancing our capital structure. Delevering remains our highest financial priority. And we will endure to take decisive actions Miguel Rodriguez: to keep reducing gross debt. At the same time, our organization is well positioned to operate at peak performance and deliver durable growth and long-term value. Our financial targets are designed to be appropriately rigorous to drive the business forward. Today, I will start with an overview of our full year performance and a detailed discussion of our fourth quarter results. Next, I will outline our guidance for the quarter and full year 2026. Then I will provide a brief update on the integration of Parker Wellbore. I will conclude with remarks on capital allocation, adjusted free cash flow, and the recent actions we have taken to materially strengthen our capital structure. Full year 2025 revenue was $3.2 billion reflecting growth of 8.7% year over year, driven primarily by the acquisition of Parker and a strong international expansion. Full year adjusted EBITDA was $913 million, $31 million higher than the prior year. This performance was driven by the same underlying factors. Now turning to the fourth quarter results. Fourth quarter consolidated revenue was $798 million, a decrease of $21 million or 2.6% sequentially. The divestiture of Quail Tools resulted in a reduction of $34 million compared to the third quarter. This impact was partly offset by continued growth in our International Drilling segment. Without the contribution of Quail in the third quarter, consolidated revenue grew $14 million or 1.7% sequentially. EBITDA was $222 million representing an EBITDA margin of 27.8%, down 110 basis points sequentially. These results exceeded the expectations we laid out in October. In absolute dollars, EBITDA decreased $15 million or 6.2% versus the third quarter, driven primarily by the divestiture of Quail. In the third quarter, Quail contributed EBITDA of $20 million. Excluding this impact, our EBITDA grew by 2.6% led by our International Drilling Operations, NDS, and Rig Technologies segments. These gains were partially offset by a decline of just 1% in our U.S. Drilling segment. EBITDA from Alaska and offshore combined exceeded the guidance for our last earnings call, as these operations experienced fewer maintenance days than anticipated. Lower 48 EBITDA improved sequentially and was approximately 6% above our guidance. Now I will provide you with details for each of the segment results. International Drilling revenue was $424 million, growth of $17 million or 4.1% sequentially. EBITDA for the segment was $131 million, increasing $4 million or 2.9% quarter over quarter, yielding an EBITDA margin of 31%, down 35 basis points. International Drilling EBITDA increased sequentially though it came in modestly below the guidance provided on our last earnings call. Our average daily rig margin of $17,130 decreased sequentially by $301 and was below the lower bound of our guidance. The daily margin shortfall was mainly driven by a combination of activity disruptions in Colombia during most of the quarter impacting our logistics and drilling plans, more maintenance days than anticipated in Saudi Arabia based on updates to our customers' drilling schedule, and some inefficiencies from rig start-ups during the quarter. These were partially offset by stronger activity than planned in Mexico. During the fourth quarter, International Drilling average rig count increased by four rigs to 93.3, exceeding our expectations by 2.3 rigs. In addition to the full quarter contribution from rigs that commenced in the third quarter, the strong growth in average rig count mainly reflects the deployment of our new-build in Saudi Arabia, two rigs deployed in Argentina, and the rigs that we expected to be suspended in Mexico due to activity and budget allocation uncertainty continued to operate through the quarter. We exited the quarter with 94 rigs operating. Moving on to U.S. Drilling. Fourth quarter revenue was $241 million reflecting a 3.7% sequential decline. EBITDA totaled $93 million, a decrease of 1% sequentially, resulting in an EBITDA margin of 30.7%, an improvement of 105 basis points. These results exceeded the guidance for our last earnings call due to a stronger-than-expected performance in our Lower 48 business with Alaska and offshore also modestly above our outlook. Looking specifically at the Lower 48, revenue of $180 million decreased by $4 million or 2.2% sequentially, on a modest increase in average rig count of 0.6 to 59.8 rigs. Despite ongoing commodity price volatility and broader market challenges, this is higher than the upper band of the guidance range we provided during the last earnings call. We exited the fourth quarter with 62 rigs operating. Our rig count ramped higher toward the latter part of the quarter as we capitalized on opportunities to add rigs in the Eagle Ford Shale and the Permian. We are very pleased with the progress in a rather complex market at present. Average daily revenue declined by $1,079 to $32,938. The majority of the variance was driven by lower reimbursables that have minimal impact on margins. Approximately $250 of the decrease was attributable to the base day rate, which remained largely consistent with prior quarters. In our most recently signed contracts, expected daily revenue remains in the low $30,000 range, unchanged from prior quarters. Average daily margin of $13,303 increased by $152 or 1.2%, reflecting a relatively stable base daily revenue and the benefits of cost absorption and optimization initiatives including reduction in repairs and maintenance expense. Turning to Alaska and U.S. offshore. On a combined basis, our Alaska and offshore drilling operations generated revenue of $59 million in the fourth quarter, a 7.9% decrease sequentially. EBITDA was $26 million, down $2 million. EBITDA margin was 43.9%, essentially in line with Q3 and moderately above our guidance. We are experiencing changes in the scope and mix of work in these markets. In the medium to long term, however, we expect operations in Alaska to remain strong. Our Drilling Solutions segment generated revenue of $108 million in the fourth quarter and EBITDA of $41 million, resulting in EBITDA margin of 38.3%. In the third quarter, Quail revenue and EBITDA were $34 million and $20 million respectively. Normalized for the sale of Quail, NDS revenue increased slightly and EBITDA grew by 2.3% versus the third quarter. NDS EBITDA margin excluding Quail was 37.5% in the third quarter, representing a sequential improvement of 83 basis points in the fourth quarter driven by international growth across services, including casing running, managed pressure drilling, and performance software. Now on to Rig Technologies. Revenue was $38 million in the fourth quarter, a sequential increase of 6%, and EBITDA was $5 million, up $1 million from the prior quarter. The improvement is predominantly related to year-end equipment sales. Next, let me outline our expectations for the first quarter and full year. Starting with the quarter on U.S. Drilling. Given our strong position in a number of Lower 48 basins and current market conditions, we expect a sequential increase in average rig count to a range of 64 to 65 rigs. This includes our anticipation of some level of rig churn during the quarter. For the first half of the year, we expect activity in our Lower 48 drilling business to remain relatively steady. Daily adjusted gross margin for the first quarter is expected to average approximately $13,200 with base daily revenue remaining largely stable. Rig additions during the quarter will incur some higher start-up related costs. For Alaska and U.S. Offshore drilling combined, we expect EBITDA in the range of $16 million to $17 million for the quarter. This outlook reflects a step down in daily margins driven primarily by a change in the scope of work of our marquee offshore platform rig, as well as reduced activity levels in Alaska. International Drilling average rig count is expected to be in the range of 91 to 92 rigs. This reflects the commencement of the 15th new-build rig in Saudi Arabia, the redeployment of one of the suspended rigs in the latter part of the quarter also in Saudi Arabia, the redeployment of one rig in Argentina, and the full quarter contribution from rig start-ups that began in the fourth quarter. These additions are partially offset by a decline of three very low margin workover rigs in Saudi Arabia. As Tony mentioned, SANAD elected not to renew those contracts for economic reasons. The drop of these rigs will have no material impact on our full-year international and cash flow progression. We expect average daily gross margin to be essentially in line with the fourth quarter in the range of $17,500 to $17,600. While this reflects the benefit of our robust rig additions, we also expect some seasonal slowdown in the Middle East, and the conclusion of certain short-term high-margin activities during the quarter. Drilling Solutions EBITDA is expected to be approximately $39 million reflecting a marginal decline in both the U.S. and international markets. Finally, Rig Technologies EBITDA should be approximately $2 million. For the full year, we expect our EBITDA to grow by 6% to 8% normalized for Quail, with continued growth of our International and Nabors Drilling Solutions businesses. We will aim to maintain the same EBITDA level as reported in 2025. Starting with U.S. Drilling, we expect Lower 48 to average 61 to 64 rigs reflecting a cautious view for the second half of the year. Average daily gross margin is expected to range between $13,200 and $13,400. Alaska and offshore combined EBITDA of $55 million to $60 million. For International Drilling, we expect average rig count of 96 to 98 rigs, with a December exit at or above 101 rigs. This growth includes commencements in Saudi with five in-kingdom new-builds during the year, and two suspended rigs returning to work in the first half of the year. In addition, we expect to redeploy two rigs in Argentina. Average daily gross margin is targeted at $18,500 or 5% up as we continue to deploy rigs at better pricing levels. I do want to note our full year guidance does not factor for any reactivation of our five available rigs in Venezuela. Nabors Drilling Solutions EBITDA is expected to grow by 6% to 7% normalized for Quail to reach $160 million to $170 million, largely led by strong growth in international markets. Finally, Rig Technologies EBITDA is expected to range between $22 million and $25 million. Now I will provide an update on our integration of Parker, which is progressing in line with our expectations. As previously discussed, following the sale of Quail, Nabors retained the remaining Parker operations. I am pleased to report that we achieved our 2025 EBITDA target for these businesses of approximately $55 million post acquisition and including synergies. During the fourth quarter, we realized synergies at an annualized run rate of $63 million. This is slightly above our already ambitious target of $60 million and demonstrates our agility and, lastly, our focus on execution. We remain on track to generate at least $70 million of EBITDA in 2026 from the retained Parker businesses, supported by the full run-rate impact of synergies and the continued robust performance of these operations. We are very pleased with the progress of the Parker integration and the pace of the synergy realization. The combined organization is well positioned to continue delivering both operational and financial benefits in the quarters ahead. Next, I will discuss our capital allocation, adjusted free cash flow, and liquidity. In the fourth quarter, total capital expenditures were $158 million, lower than the guidance provided on our prior earnings call. This amount includes $78 million related to the in-kingdom new-build program, also below our guidance. Total CapEx in the third quarter was $188 million. Capital expenditures in 2025 totaled $695 million, including $274 million for the SANAD new-builds. Looking ahead, we will maintain our disciplined approach to capital investments. For the first quarter, we anticipate capital expenditures between $170 million and $180 million, including approximately $85 million supporting the new-build rigs. For the full year 2026, we are targeting capital expenditures in the range of $737 million to $760 million, including $360 million to $380 million for SANAD new-builds. The increase of roughly $100 million in the in-kingdom new-build spend primarily reflects the number of construction milestones that shifted from 2025 into 2026. This increase should be partially offset by lower expected reactivation in our international operations as we completed several redeployments in 2025 in a number of markets and do not expect to repeat the same quantum of associated spending. We also expect to reduce capital spending in NDS following the sale of Quail. Supported by customer demand, we will continue to invest in key automation projects as well as selectively high-grading our rigs in the Lower 48. Turning to free cash flow. During the fourth quarter, we generated adjusted free cash flow of $132 million. This exceptional performance drove our full year adjusted free cash flow to approximately $117 million, significantly exceeding our revised post-Parker guidance of approximately $80 million. The outperformance in the quarter was driven by a combination of factors including stronger EBITDA, lower-than-expected capital expenditures, higher-than-anticipated collections in Mexico, helping drive a sequential working capital improvement of approximately $40 million. A sizable percentage of our 2024 Mexico receivables were settled by Pemex in the fourth quarter, in addition to timely payment of a meaningful portion of our 2025 services. A major step forward in Mexico. In addition, our quarter benefited from one-time claim settlements. For the full year 2025, SANAD consumed approximately $55 million in adjusted free cash flow. Excluding SANAD, the rest of our business units generated approximately $175 million, a remarkable delivery for the year. For the first quarter, we expect to consume $80 million to $90 million of consolidated adjusted free cash flow, with SANAD alone consuming approximately $50 million to $60 million. In addition, our first quarter is normally loaded with heavier cash interest payments, annual bonuses, and property taxes. For the full year 2026, we expect SANAD’s adjusted free cash flow to consume between $100 million to $120 million, with the rest of our businesses generating in the range of $80 million to $90 million. With these funds and some cash in hand, we plan to further reduce Nabors’ gross debt by at least $100 million during the year. Now I would like to make a few comments regarding our progress on our capital structure during the fourth quarter and our subsequent actions that reduce gross debt. I will also highlight the broader progress achieved over the course of the year. In early October, we received $250 million from Superior representing an early payment of the seller financing note completing the consideration for the sale of Quail. In early November, we issued $700 million of 7.58% senior priority guaranteed notes due November 2032. Proceeds from these issuances were used to retire the remaining $546 million of outstanding senior priority guaranteed notes maturing in May 2027. Subsequent to quarter end, we redeemed the remaining $379 million of senior guaranteed notes maturing in 2028, effectively extending our maturity runway to June 2029 with a very manageable $250 million maturity. As a result of these actions, two of the credit rating agencies upgraded ratings on elements of Nabors’ debt structure. Stepping back and looking at the year more broadly, we made substantial progress through several major transformational transactions, as previously mentioned by Tony, that meaningfully enhance our capital structure. As a result, we improved our credit ratings, extended our maturity profile into 2029, with a weighted average maturity increasing to 5.3 years from 3.7 years as of the third quarter, reduced net debt by more than $554 million, and improved our net leverage ratio to approximately 1.7 times, the lowest since 2008. These are significant accomplishments, and I want to thank everyone involved at Nabors for their efforts and execution. With that, I will turn the call back over to Tony. Anthony Petrello: Thank you, Miguel. I will finish this morning with a few points. First, the transformation of our capital structure shifts significant value to our equity investors, Miguel Rodriguez: We have also lowered our annual interest payments Anthony Petrello: This will boost our free cash flow. Second, in the Lower 48, our efforts to deploy industry-leading capabilities are paying off. Our highest spec rig solutions are gaining traction, demonstrated by the recent increase in our own rig count. Third, in our International Drilling business, we have seen a significant turn for the better in Mexico. Events in Venezuela could lead to increased oil activity there. Funding SANAD’s new-build program results in the consumption of cash at the JV until crossover. Notwithstanding the near-term free cash flow outlook, this investment opportunity remains one of the industry’s most attractive avenues for growth. Each annual tranche of new-builds at five per year should generate incremental annualized EBITDA of more than $60 million. At current valuations of drillers in the Middle East, that translates into more than $500 million of value creation each year. In short, our international franchise offers multiple growth prospects. We aim to capture our share of these in ways that generate significant value. Miguel Rodriguez: That concludes my remarks. Anthony Petrello: Thank you for your time this morning. We will now take your questions. Operator: We will now begin the question and answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. First question today comes from Derek Podhaizer with Piper Sandler. Please go ahead. Derek Podhaizer: Hey. Good morning. Just wanted to start with your Lower 48 outlook. You have talked about the rig count increasing to that 64 to 65 range. That is from 60 just in the quarter. This bucks the trend a little bit from some of the other drillers that we have heard so over the last couple of weeks. Tony, like, in your opening comments, it is more public E&P driven. But maybe could you just expand on the 66 rigs. William Conroy: And looking at last quarter, the rig count was stable, but there was a lot of churn. You had basins going up and down. You had a mix between gas and oil. In the shifting. And that has resulted in Nabors shifts as well. So if you look at our right now, we are now 80% public and our gas rig count is 20%, which is up double from where we were before. The other thing that is interesting is looking at the type of drilling that is going on, which is the longer laterals. Derek Podhaizer: The trend is clearly William Conroy: in that direction. I will give you some statistics here. You look at West Texas, Keith Mackey: the change in West Texas of laterals of three or four mile laterals, they accounted for that bucket was 19% of our wells in 2025 versus 12% in 2024. The growth in laterals generally for us in terms of pushing more than three mile laterals was 25% in 2025. That is up from 15% to 16% in 2024. If you look at the number of four mile laterals, which is a really small tiny bit, that number actually quadrupled our percentage. Now why is that important? That is important because Nabors I think, has a fleet of PACE-X rigs that are well suited to drilling these kind of wells. And you saw from the Ultra, we have actually improved on our base case on that as well. So all that, I think, has positioned us really well in the market. And we remain pretty bullish on long-term picture for gas, and we think that oil has been played out as well. So that in summary and on top of that, obviously, we have basically just maintained discipline and tried to focus on performance day to day. And that accounts for some of the changes of some recent wins. But as you said from our outlook, we remain cautious about the market. And I am pleasantly surprised by the commodity price as I mentioned. We think though, we are in a great position right now going forward. Miguel Rodriguez: Got it. That is helpful. If I may add as well, if you look at the remainder of the year, we are looking at a H2 with a lot of caution given what is going on in the market. But, I mean, we are very confident about our customers and our team to keep the momentum. And as a reminder, the outlook that we have provided for the full year really translates in a number in a couple of rigs going up versus 2025. And the range that we provided is quite short relative to our peers, if you will. Right. Okay. Understood. Derek Podhaizer: That was helpful. I will turn it back, and I will jump back in line. Thank you. William Conroy: Thanks. Operator: The next question comes from Keith Mackey with RBC. Please go ahead. Keith Mackey: Hi. Good morning. Can you just comment, can you comment a little bit more on what you are seeing on the ground in Saudi Arabia? I know the SANAD new-build program looks like it is moving along quite well. But, certainly, in the Kingdom, there is going to be a number of rigs to be activated throughout the year. And Tony, as you mentioned, the labor market over there is fairly tight. So can you just comment on your confidence around timelines that both the reactivation rigs and the new-build rigs will essentially go to work on schedule? And how do you generally manage that, and what are you seeing on the ground in the industry? Keith Mackey: Sure. Well, let us put the whole thing in some context. Right now, the rig count in the Kingdom, I think land is about 168, offshore 60. I think there is about 35 LSTK rigs working, which about around 260 plus rigs in the Kingdom. At the market peak, 80 land rigs were idled. And 23 came into the market. So that is a net down of 57. And I think we have heard that there is 40 rigs out of 83 that were suspended that received notices to return to drilling. Two of the three are obviously SANAD, and we are highly confident those two rigs are going on the schedule I just outlined, which is the second and third quarter. There is no question about that. From our point of view. But for everybody else that leaves dozens of rigs that still have to go back to work, and I think the labor market is heating up over there. I think given our position in the Kingdom, our vertical integration, we have no problem with those rigs, and we have no problem with the five new-builds at all. So I think we are highly confident of our rig count going forward there. I think the large-scale resumption of Aramco putting back all these rigs to work, Miguel Rodriguez: which Keith Mackey: about nearly half, I think, they have got are in the process of going back. It is an incredibly positive signal to the market, I think, that is the macro thing I get out of this thing. It shows Aramco is usually ahead of the market in terms of where it sees things are going. And this, I think, means that in 2027, people are looking at 2027 being a good year. That and are able to try to position itself to do that. That is my own read on it. So I do not know if that is enough color for you. Just one comment, Keith. Miguel Rodriguez: On the suspended rigs, we are expecting them to come back one in March, and one in June. One in the latter part of Q1, and the second one in the latter part of Q2. Derek Podhaizer: Got it. That is very helpful. Thank you for the color. I will turn it back. William Conroy: Thanks. Derek Podhaizer: Next question comes from Scott Gruber with Citigroup. Operator: Please go ahead. Keith Mackey: Yes, good morning. I wanted to ask a question on Mexico. Good to hear that the platform rig will be going back to work, but we have seen some headlines suggesting a potential pretty healthy step up in upstream spending in Mexico this year. William Conroy: Are you having any negotiations, you know, to put additional rigs to work in Mexico beyond the fourth platform rig? Right now the fourth platform rig is there, and there has always been other discussions about supporting other rigs there. We actually have some other services that we are supporting other rigs, including Pemex’s own rigs there. In addition. Miguel Rodriguez: But Keith Mackey: I think right now, we are really focused on making these three really profitable, and the fourth one moving forward. But yes, I think the market is a little more positive. And, obviously, the payment mechanism turning around is a big deal. So that too. Got it. And then I think there was, you know, William Conroy: $50 million to $60 million of CapEx that may have slid Derek Podhaizer: from 2025 to 2026 within this in-kingdom new-build program. Is that William Conroy: for a five rig annual accurate? And how should we think about the kind of run rate Derek Podhaizer: program in terms of William Conroy: CapEx? Is that still about $300 million, is it a bit higher now? Miguel Rodriguez: Yeah. I mean, so, Scott, really, the plan for the year originally was to be around $360 million. We are at the $274 million mark in 2025, which means as you rightly mentioned, we are probably around the $85 million that is moving from one year to another from what was planned originally. I think that the right way to think about the upcoming years is probably 2026 around the $360 to $380 we guided. With 2027 going down from these levels because we will be catching up in 2026. Maybe 2027 around the $320 to $330 million. That is probably the right way to think about it, which, you know, factors correctly the five rigs built. Keith Mackey: Yeah. The only thing I would add, Scott, is I saw your write-up yesterday or last night, and I think when you analyze the situation, you cannot look at the consolidated free cash flow number. I think that is a misnomer. You have to look at the SANAD and its needs, and its needs are satisfied by SANAD. Nabors, away from SANAD, as Miguel referred to, will have $80 million to $90 million of free cash flow. That cash flow is available for net debt reduction. So this notion that there is a concern about ability to meet net debt reduction is not fully the whole picture. The other point I would make is if you look at our portfolio as a whole, I mean, if you look at International as a whole, when you count the Saudi rigs of five plus the two back to work to seven, and then there is another three rigs, the Mexico rig and two Argentina, that is 10 rigs. Okay? If you look at 2024, Nabors added nine net rigs. This year, we are hitting 10. There is nobody in the industry that has that kind of visibility. That and all those are locked in. And beyond that, there is these five rig programs additionally. And so when you look at the value of Nabors’ portfolio, I think your comments about valuation and how you look at it are just not really on point because no one has that kind of built-in growth and that kind of strong client base, our number one oil company partner in the world. The largest market in the world. And I do not think that analysis takes any of that into account. In the analysis of particularly of the free cash flow. So I just thought I would share that with you. William Conroy: No. I appreciate the comments. I just think from a high level, people have been waiting for that consolidated free cash inflection point, and it does seem to be approaching. I mean, Keith Mackey: I think, you know, with the momentum. To be honest, Miguel Rodriguez: we remain on pace with what we have been communicating when we expect SANAD to cross over. Keith Mackey: Yeah. And as you can see from Miguel Rodriguez: what we originally guided for 2025, was a consumption of $150 million. We ended the year because of the CapEx moving from one year to another at $55 million, but the guidance of 2026 in terms of cash flow consumption is much lower than what was guided for 2025, which tells you that the EBITDA progression and growth in SANAD continues to build. And then once you stabilize the CapEx milestones, as I mentioned for 2027, you will be very close to the turning point in terms of crossing over. Keith Mackey: Yeah. Yeah. The other thing is you look at what others have done in the Kingdom in terms of investing there, their EBITDA payout going into these deals has been around seven. And their free cash flow payouts are more closer to ten. Keith Mackey: Years. And so our investments are orders of magnitude better than any of those terms of any of those deals that have been made elsewhere in the Kingdom. For sure. So, again, I think that is why I strongly believe that the value that you need to put on this is much higher than what has been recognized so far. Appreciate it. We look forward to the inflection. Thanks, guys. Thank you. Yep. You too. Operator: The next question comes from John Daniel with Daniel Energy Partners. Please go ahead. John Daniel: Hopefully, you can hear me okay. Guys, thanks for including me. Hey. First one. The second half caution, which is probably prudent, is that based off of known rig releases? Or just an expectation of stuff that might come from E&P M&A, etcetera? And efficiencies. Keith Mackey: It is more you just cut the constant, all the external noise, the EIA, even as of last week, you are talking about oversupply. And the market's reaction. Even though I do not think the market is logical. When we think Iran's going to have a blow up or Ukraine gets resolved, then all of a sudden, the whole market goes the other way. I do not think that is so founded because I think the oil markets on the physical side turning is more like turning a derrick barge than it is a speedboat. But the reactions are that way, and obviously, those kind of swings we are still subject to. So it is really that than, yeah, anything really cracking here. As I said, we have been pleasantly surprised, and you can see from our progress so far, we are doing pretty well. But, you know, we are cautious, and we have everybody really focused on the cost structure here. To plan for if the downside does occur. That is the way we are thinking about it. Miguel Rodriguez: Our team, John, is very strongly positioned to keep the momentum, and we are very confident about the team in the Lower 48 and our customers. But, you know, we will be very happy to provide a subsequent update if we see really the market changing from our conservative guidance for the second half. Right? Fair enough. My second question and final one is William Conroy: can you guys elaborate a little bit on the new CAN rig wrenches and what that could mean for Nabors and just a little bit more color on the cycle time improvement? Keith Mackey: Sure. So basically, what this wrench is, it is a three-bite wrench as opposed to the standard two-bite wrench. And it is loaded with feedback and automation. So as you know, we have our RZR rig out there, and this will be another component in that where eventually, we are going to be capable of being fully autonomous mode. It, in its initial dressing on the first couple wells the past month or so, has a stellar record of one-bite grabs because of all this automation and sensors. So and for the larger pipe that people are using, the more complicated wells, this wrench is well suited to that as well. So we are highly, highly positive about it. We have actually had drilling contractors come and look at the wrench. The initial reaction is really high. Our first priority is get some of these out on Nabors rigs, and then we are hoping that at CANrig, we will actually have a lot of third-party demand for this wrench as well. So we are really happy with Derek Podhaizer: it. Yep. Operator: Okay. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Mr. Conroy for any closing remarks. William Conroy: Thanks very much, everyone, for participating. If you have any questions, please do not hesitate to follow up with the IR team. With that, Chloe, we will wrap up here. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Tadeu Marroco: Good morning, everyone. I'm delighted to welcome you to our full year 2025 results presentation. With me this morning, Javed Iqbal, Interim CFO; and Victoria Buxton, Group Head of Investor Relations. highlights. Javed will then take you through our financial results in more detail. Finally, I will return to talk more about our performance outlook and why we are confident in the pathway ahead given the clear momentum we are driving. We will then take your questions. With that, I would like to draw your attention to the disclaimers on Slide 2 and 3. So let's begin by looking at the positive transformation momentum we are driving. Starting with some key highlights. We added 4.7 million smokeless consumers bringing our total to 34.1 million, mainly driven by our continued strong performance in modern Auto. This marks our strongest growth acceleration to date and position us well for 2026. We delivered 2025 group results at the top end of guidance driven by resilient delivery in combustibles and an excellent performance from Velo in all 3 regions. Our disciplined focus on quality growth continues to improve returns on more targeted investments with new category contributing now up 77% at constant rates. Alongside this, we remain committed to investing behind our premium innovation launches, supporting long-term value creation. We continue to deliver strong cash returns for shareholders. In addition to our progressive dividend in December, we announced an increase to our share buyback to GBP 1.3 billion in 2026. Looking ahead, we are confident in returning to our midterm algorithm this year with the accelerated momentum through the second half of 2025, positioning us well for continued delivery. I'm proud that we have delivered on all of our 2025 priorities and I want to thank our teams around the world for driving these encouraging results. Our performance reflects the clear momentum we are driving as we continue to build a track record of delivery. I'd like to take a moment to highlight 2 areas from last years that stand out to me. First, the return to both revenue and profit growth in the U.S. for the first time since 2022. A significant milestone driven by stronger combustibles performance, a return to revenue growth in vapor in the second half, and modern oral. As a result, we grew 30 basis points of combustibles value share. Second, we are delivering quality growth in new categories, launching premium innovations in each category while delivering a return to double-digit revenue growth in second half and category contribution growth, up 77% for the full year. The progress we made in 2025 reinforces my confidence in our future delivery. And with that, I will hand over to Javed to take you through our 2025 performance in more detail. Syed Iqbal: Thank you, Tadeu, and good morning, everyone. I am pleased to share that we delivered results at the top end of guidance on a constant currency basis. The performance was driven by return to growth in the U.S., a robust performance in AME and the strength of modern oral globally. Our reported numbers reflect some adjusting items, including nearly GBP 1.6 billion, mainly related to the annual amortization of our U.S. acquired trademarks, a net credit of GBP 524 million, following a change in the forecasted outlook for the Canadian combustible industry. We also recognized a gain of nearly GBP 900 million from the partial monetization of our ITC stake. To give you a clear view of our underlying performance, I will focus on constant currency, adjusted and where applicable adjusted for Canada metrics. You can find further detail on adjusting items and share data in the appendix. We delivered group results at the top end of guidance, supported by accelerated momentum through the second half. Group revenue increased by 2.1%. Adjusted profit rose 3.4%, adjusted profit from operations grew 2.3% and adjusted diluted EPS was up 3.4%. Let's now turn to new categories revenue grew by 7% driven by outstanding growth in modern oral, which was up strongly by 48% with heated products up 1%. This was partially offset by a nearly 9% decline in vapor mainly due to continued illicit pressures in the U.S. and Canada. Our second half use performance showed a clear improvement versus the mid-teens decline in H1, supported by early signs of strong enforcement activity in the U.S. We continue to deliver quality growth with gross profit up over GBP 200 million and category contribution reaching GBP 442 million. This reflects our disciplined approach to return on investment, targeted investments in high-value markets and increasing scale benefit across our portfolio. I am proud of the progress we are making, and I'm particularly pleased with our accelerated H2 momentum, where we returned to double-digit new category revenue growth. Now turning to combustible. Revenue grew 1% with volume decline more than offset by continued robust price/mix across markets. We delivered quality growth here, too. Both gross profit and category contribution increased 2.5% driven by a strong performance in the U.S., positive price/mix and continued productivity and simplification gains, which I will speak to shortly. Our performance highlights the breadth of our global footprint with strong delivery in the U.S. and AME more than offsetting fiscal and regulatory headwinds in Bangladesh and Australia, which impacted total group revenue by around 1% and group adjusted profit from operations by around 2%. This resilience and increasing momentum in H2 reinforces our confidence in future delivery. Turning to our regions starting with the U.S. In combustibles, we delivered a 4.6% increase in revenue with our strengthened portfolio, sharper execution and enhanced revenue growth management, driving price mix, including excise duty drawback. Value share here increased 30 basis points, with volume share down 10 basis points. In New category, revenue grew nearly 20%, driven by the success of Velo Plus, which delivered over 300% growth. While Vapor revenue was down 3.4% for the full year, we are encouraged that Vuse return to revenue growth in H2, supported by early signs of enforcement actions. Overall, U.S. revenue increased 5.5% and adjusted profit grew 5.9%, mostly driven by a strong combustible performance. Importantly, Velo Plus reached positive category contribution within its first year, underscoring the scalability of our modern oral business model. Tadeu will share more detail on the U.S. shortly. In AME, we delivered another robust performance. Revenue grew over 3% with combustible up more than 2%, supported by strong delivery in Brazil, Turkey and Mexico with solid pricing. New category revenue increased 4.3%, mainly driven by modern oral, which grew over 17%. We are the clear modern oral leaders in the region with over 60% volume share in top markets, selling at a premium and strongly outperforming peers, which Tadeu will expand on later. Growth was further supported by heated products with revenue up over 6%, driven by Italy, Germany and Ukraine. This was partially offset by competitive dynamics in Romania as we reallocated resources ahead of the glo Hilo launch. Vapor revenue declined more than 11%, mostly impacted by the lack of illicit enforcement in Canada and regulatory and excise changes in U.K., France and Poland. Adjusted operating profit grew by nearly 10%, driven by operating leverage and efficiency gains in combustibles and scale benefit and resource allocation driving improved contribution across all 3 new categories. AME is a true multi-category region, delivering high-quality growth and demonstrating the resilience and balance of our portfolio. In APMEA, growth in key markets, including Pakistan, Nigeria and Indonesia was more than offset by fiscal and regulatory headwinds in Bangladesh and Australia. Total revenue declined 7.2% with combustibles down 8.3%. New category revenue was down 7.6%. Strong growth in modern oral was more than offset by heightened competitive activity in heated products in the value for money segment in South Korea and Japan, along the phaseout of our Super Slim platform. Our Vapor performance reflects strategic decisions taken to reduce our footprint and reallocate resources away from markets where regulation and enforcement do not support a responsible competitive landscape. Adjusted profit was down 17.9%, mainly due to challenges in Bangladesh and Australia. As we continue to navigate headwinds into 2026, we expect our performance to stabilize for the full year, supported by Bangladesh as we lap last year's decline and with the drag from Australia becoming progressively less material year-on-year. Turning now to our group operating margin, which was broadly flat at 44%. We successfully offset inflationary and FX pressures through a strong U.S. performance, higher profitability in new categories and continued cost savings. Transactional FX headwinds on adjusted profit of approximately 1% were primarily driven by Turkey, Japan and Nigeria. At current rate, operating margin expanded by close to 10 basis points. BAT has a strong track record of disciplined and cost savings, and we continue to build on that foundation. Since 2023, we have delivered GBP 1.2 billion in productivity savings. These efficiencies help us offset inflationary pressures and foreign exchange headwinds while continuing to fund innovations and growth in new categories. In 2025 alone, we absorbed around GBP 300 million of inflationary cost increases in addition to transactional FX. Looking ahead, we remain focused on simplifying combustibles and scaling new categories, targeting a further GBP 2 billion in productivity savings by 2030. In addition, we now expect our Fit to Win program to deliver GBP 600 million of annualized incremental savings by 2028. We expect around GBP 500 million of these savings to be delivered by 2027, with the remaining benefits realized by the end of 2028. We are committed to reinvesting these savings to support further sustainable growth initiatives. Fit to Win is a transformational project that is reinventing BAT. As outlined at our 2025 half year results, it is centered on optimizing processes and ways of working to create a leaner, faster and more data-driven organizations. Since half year, we have made strong progress. we have expanded the program to include organizational streamlining to sharpen our focus and improve speed of execution, allowing us to raise total annualized savings by a further GBP 100 million. To unlock these benefits, we now expect around GBP 600 million of associated costs over the next 2 years. As a structured time-bound program, GBP 500 million will be treated as adjusting, including around GBP 100 million of noncash items. As previously guided, this spend is already underway with the majority of costs expected to be incurred this year and concluding in 2027. Bringing it all together, earnings per share increased by 3.4% as operating profit growth and lower share count was partly offset by net finance costs, our reduced share of ITC profits and tax. Our underlying tax rate was 24.5%. Our strong cash generation continues to enhance our financial flexibility. This has enabled us to announce a 2% increase in our dividend and increase our share buyback by GBP 200 million to GBP 1.3 billion for 2026. Alongside this, we continue to delever to 2.55x adjusted net debt to adjusted EBITDA at the end of 2025, and we remain on track to be within our 2 to 2.5x target range by year-end. While our 2025 cash delivery was impacted by the CCAA upfront payment and the prior year deferral of tax payments in the U.S., we remain on track to deliver more than GBP 50 billion in free cash flow by the end of 2030. And we continue to focus on our capital allocation priorities, which are investing in transformation, balancing deleveraging with progressive dividends and sustainable share buybacks and selective bolt-on M&A to support our transformation. I'm excited about the future and confident in our ability to deliver our midterm algorithm of 3% to 5% revenue growth, 4% to 6% adjusted profit from operations growth and 5% to 8% adjusted diluted EPS growth. Our return to this midterm algorithm in 2026 marks a major milestone in our transformation journey and reinforces the strength and resilience of our strategy. Our confidence is underpinned by continued growth in the U.S., robust multi-category delivery in AME, low double-digit new category revenue growth led by Velo globally, a further improvement in new category contribution and continued savings from our productivity programs. Although we still have more work to do, and it will take time to stabilize performance in APMEA, we will continue to invest in our premium innovations rollout. As a result, we expect 2026 to be at the lower end of these ranges and our profit performance to be second half weighted, driven by the phasing of new category investment and as Fit to Win savings build through the year. And with that, I'll hand it back to Tadeu. Tadeu Marroco: Thank you, Javed. So moving on now to the positive transformation momentum we are driving. In 2023, when I became Chief Executive, I committed to sharpening our focus and execution, guided by a refined strategy and ambition to become a predominantly smokeless business by 2035. And I'm proud to say that we have made significant progress across all 3 strategic pillars as we continue to build a track record of delivery. While there is still much to do, I'm confident that our focused investments and sharp execution are driving real momentum, as you can see from our 2025 results. Our progress underpins our confidence in sustainably delivering our midterm algorithm, while continuing to reward shareholders with strong cash returns. I'd now like to highlight 5 points that demonstrate this. First, we have successfully reset our U.S. business returning to revenue and profit growth in 2025. While the U.S. macroeconomic environment remains dynamic the pace of combustibles industry volume decline started to moderate in 2025, down 7.4%. Against this backdrop, driven by the actions we have taken to strengthen our portfolio and shop and execution. Our U.S. combustibles business delivered strong revenue and profit growth in 2025. Driving value from our combustible business is essential to funding our transformation and the U.S. is a key driver of this. In line with the strategy we gained 30 basis points of total industry value share. I'm particularly encouraged that our financial performance accelerated in the second half. This positive momentum reinforces my confidence in the resilience of our U.S. combustible business and our ability to deliver sustainable value going forward. Velo Plus is the fastest growing modern oral brand in the largest modern oral value pool globally. Since launch at the end of 2024, it has already reached the #2 position in both volume and value share, gaining nearly 18 percentage points of volume share and nearly 14 points of value share. And we are pleased to -- that our share momentum has continued into the start of 2026. Velo Plus has more than doubled its consumer base and driven over 300% modern oral revenue growth, capturing around 70% of industry volume growth and 80% of industry value growth in December. All of this is underpinned by a consistent repurchase rate of around 70% throughout the year. Importantly, we achieved positive category contribution within the first 12 months of launch, fully aligned with Velo's global payback profile. The total U.S. Modern Oral category continues to grow strongly and has already overtaken the size of the legitimate vapor category at over GBP 2 billion of revenue in 2025. Velo Plus is a great product, and these results demonstrate this in what remains a highly dynamic category. Its impressive success also highlights the broader strength of our U.S. capabilities and executional excellence, from consumer insights and branding to enhanced digital analytics and distribution enabled by a rejuvenated [indiscernible] Our performance was further enhanced by the successful launch of Grizzly Modern Oral in the summer, which achieved close to 2% volume share by year-end, taking our total volume share of U.S. Modern Oral to 25.8%. Through this momentum, I'm delighted to announce that at the end of the year, we reached global volume share leadership in Modern Oral, measured across the top Modern Oral markets, representing around 90% of total industry revenue. Second, we are premiumizing our new category portfolio. Velo is already the clear European leader around 6x larger than our nearest competitor. We continue to focus on consumer-led innovation to strengthen product satisfaction among adult consumers and extend Velo's success. At the start of this year, we began the nationwide rollout of our latest innovation, Velo Shift in Sweden, following a successful pilot with key retailers and online partners. Velo Shift is reshaping the Modern oral experience, featuring a new comfort pouch design, 5 distinct sensory flavors and a differentiated [indiscernible] that stands out on shelf. Trading at a premium to the core Velo range, Velo Shift is already driving incremental share in the channels where it has launched with further market rollouts planned through 2026. These results highlight not only the strength of Velo brands and innovation pipeline, but also the quality of our execution across European markets. We see premium vapor done right as a highly attractive untapped segment for further value creation. Vuse Ultra is our most advanced vapor device yet, driving meaningful performance improvement for Vuse in markets where we have launched, including value share gains of nearly 80 percentage points in Canada, close to 4 percentage points in Germany and above 2 percentage points in France. As Javed highlighted, we have made proactive strategic decision to focus our execution on the largest profit pools with more supportive regulation and enforcement. Vuse Ultra is central to this approach, and I'm encouraged by the strength of its early performance with further launch planned in the key markets in 2026. Our breakthrough innovation platform, glo Hilo, introduced our first piece device and is designed to establish glo in the premium segment. While still early days, we are starting to drive encouraging results in priority launch markets, Japan, Poland and Italy, with the majority of consumers new to glo coming from both premium combustibles and the broader heated products category. We are also strengthening glo's overall brand equity across key consumer metrics. This consumer response is translating to early volume share momentum. We are encouraged by early trial to retention rates of around 50%, providing further confidence in the platform's potential. In 2026, our focus will be on accelerating trial among premium consumers across both combustibles and heated products, supported by target online and in-person activations. We will continue to scale glo Hilo through additional market rollouts in the largest heated product profit pools where we can generate the strongest returns. Overall, we remain confident in the strength of this innovation platform and expect to progressively build share within the premium segment over time. As Javed highlighted, the heated products category remain highly competitive, and this has impacted our 2025 performance in the value for money segment where we are present with glo Hyper. Introducing glo Hilo into the premium space allow us to further differentiate our tier our portfolio. We see a clear opportunity to strengthen glo's overall performance across both premium and value for money segments. Central to this is the launch of our next-generation glo Hyper device from Q2. The new glo Hyper delivers a step change offering, quick starts, longer started session length, new connectivity and a replaceable battery. These innovations significantly improved the consumer experience, and we are also further enhancing the consumables range. Taken together, these upgrades create a much stronger proposition designed to reinforce our competitiveness in the value for money segment. Third, I'm proud of the strong progress we have made improving New category profitability. Since 2021, we have driven a GBP 1.4 billion improvement in category contribution with all 3 new categories contributing to this momentum. Importantly, we have achieved this while continuing to invest in our transformation to drive future sustainable growth. Our new categories are meaningfully contributing to group results as we benefit from increased scale, reflecting traction in established markets while continuing to invest in new market launches. This supported by more consistent and constructive regulatory frameworks, such as those in place for Modern oral in 24 markets, up from just 4 markets in 2022. We have sequentially improved our performance each year. And through our quality growth approach, we remain committed to driving sustainable profitability improvement moving forward. Fourth, I'm encouraged by the signs of positive progress we are seeing in the regulation and enforcement of new categories, especially in the U.S. While the vapor category continues to be impacted by the proliferation of illicit products, Vuse returned to revenue growth in the second half after 18 months of decline. This has been supported by increased state level enforcement with vapor directory and enforcement legislation representing around 50% of tracked industry volume by year-end. In addition, Vuse performance in the second half benefited from competitor exits, further strengthening our market position. Our recovery has also been supported by early signs of increased federal enforcement targeting borders and larger distributors, resulting in high levels of seizures and fines. Looking ahead, we are encouraged by the increased focus and funding directed towards strengthening the FDA's enforcement capabilities. We were also pleased to receive a favorable initial determination on our International Trade Commission complaint from the administrative law judge who has recommended a general exclusion order on imported illicit vapor device. We expect a final determination from the ITC in the coming weeks, which will then be subject to a 60-day presidential review. With an estimated 7% of the U.S. vapor industry value still illicit, we are hopeful the authorities will continue with enforcement initiatives in 2026. Reynolds continues to advocate for a level playing field so that adult nicotine consumers have access to high-quality compliant vapor products. Over time, we believe Vuse is well positioned to benefit from strong enforcement at both the federal and state levels. In addition, the FDA has recently recognized the positive role that nicotine pouches can play in helping adult smokers who would otherwise continue to smoke to transition to less risk alternatives, reinforcing their role in tobacco harm reduction. We welcome the FDA's new pilot program to streamline the PMTA review process for nicotine pouches. This is an important step towards keeping underage appealing illicit products out of the market while giving responsible manufacturers a more predictable path to PMTA authorization. We are confident in the strength of our science and portfolio, and we look forward to being able to complement our existing U.S. portfolio with Velo Max, a higher moisture modern oral product in 2026, and we have increased capacity to support our sustainable growth agenda. And the final point I would like to highlight is that our financial flexibility continues to strengthen, and we remain on track to generate more than GBP 50 billion of free cash flow by 2030. BAT is a highly cash-generative business, delivering at least 100% operating cash conversion annually since 2020, 100% of operating cash conversion, reflecting our strong cash discipline and clear focus on returns and enabling us to return GBP 34 billion of cash to shareholders over the same period. We remain committed to delivering sustainable shareholder returns with a 25-year track record of dividend growth and our sustainable share buyback program. I'm confident that we will sustainably deliver our midterm algorithm as we are firmly committed to growing revenue sustainably and improving profitability. To conclude, we are carrying momentum into 2026, underpinned by a robust innovation pipeline, strong strategic partnerships and confidence in our future fit capabilities. We're executing with discipline and delivering against our priorities. At the same time, we are enhancing financial flexibility, enabling continued investment in our transformation together with strong cash returns. I'm excited about the future for BAT and believe we are well positioned to deliver long-term sustainable growth and value for our stakeholders. Thank you for listening. We will now be joined on stage by Victoria for the question-and-answer session. Victoria Buxton: Thank you Tadeu and good morning, everyone. If you've joined us for the webcast, you can type your question directly into the online question box or if you joined the call, you can press star 1 on your telephone keypad. Tadeu and Javed will be very happy to take your questions. And I will now I'll hand over to the conference call operator. Operator: Our first question is from Andre Andon Inter from Jefferies. Please go ahead, sir. Andrei Andon-Ionita: First of all, 2 questions on Modern Oral, please. Number one, what are your expectations in terms of performance in the U.S. in fiscal '26 for Modern Oral specifically? And secondly, are these expectations underpinned by the FDA approving the European Velo product for sale in the U.S.? Or are they mainly driven by the existing Velo Plus product? And perhaps finally, in terms of profitability, could you tell us a bit more about how you expect New categories profitability to evolve in fiscal '26? Tadeu Marroco: Okay. Andre, thank you for the question. We have -- look, we have a very strong product with Velo Plus in the U.S. The levels of retention has been 70% throughout the year, which is really, really a very strong rate when you compare with other offers in the market. So basically, at the back of that, we believe that the product is competitive enough to continue growing in the U.S. market, has all the indications from that. Today, we still have a low level of awareness in the brand, around 30% -- and we are present now in 150-plus outlets, 1,000 outlets, which accounts for something like 93% of the total auto revenue. We are also seeing that the average daily consumption as new products start to be more satisfying for consumers in the U.S. is increasing. So it used to be around 2.8 pounds per day. Today is around 3.6 pouch per day. If you compare that with the European market, which is around 6 pouch per day, you see a lot of potential growth still in the U.S. and the Nordics is 12 pouch per day. So when you pull all this together, a strong product and the dynamics of the market evolving at the pace that it is in the U.S. So the expectation is that we will continue growing. That's why we are investing in capacity, like I mentioned during my presentation. We mentioned Velo Max, which is an even higher moisture product that we have as part of the pilot that the FDA is running. We welcome the -- first of all, that FDA is embracing nicotine pouch as a key category to address tobacco harm reduction in the U.S. because it's the lowest risk profile, if you want. There is no inhalation, there is no tobacco. There is no smelter that is much easier for consumers of cigarettes to convert into a much lower risk profile product. So they are put in place these pilots. We hope that for the next few months, we see our products, and we are cautious that other competitors will come with other products as well. And for us, there is no problem with that. But when I look outside the U.S. where everyone is free to compete, the leading brand outside the U.S. is Velo. Like we said, in Europe, we -- our volumes in Velo are 6x higher than the second largest competitor. So what we want to see in the U.S. is a level playing field because in a level playing field, we know that we can win. So that's the first question on Velo. In terms of profitability, we have made a very strong profitability improvement in profitability when you compare that not long ago, back in 2023, we're just reaching breakeven in this category. And today, we have a 12% category contribution. Obviously, I always said that this will not be linear year after year. because there will be years where we're going to reinvest back in the business at the back of exciting innovations. And 2026 is one of these years because as I said during my presentation, we have now premium innovation in every single of those categories. So we want to roll out glo Hilo. We want to roll out Velo Shift. We want to carry on rolling out Velo Ultra. So we are not concerned about stipulating a specific pace of category growth year-on-year because this will vary over time, but the trend is very clearly. The category will continue to grow. Operator: We'll now take our next question from Faham Baig from UBS. Mirza Faham Baig: The first one is on guidance for full year '26. You've guided for the lower end of the midterm targets. Could you maybe share factors that could result in the performance, whether in '26 or beyond that, getting you to the middle or even upper half of the range would be helpful. And then second question is on heated tobacco. I guess it was a tough year in 2025 from a share perspective. How do you think about share progressing through 2026, particularly as competition in the category is intensifying? Tadeu Marroco: Okay. Thank you, Faham. Look, I want to start with the second one first, and then we address the guidance. Yes, we clearly see areas of improvement in our performance in heated products. What we saw throughout '26 is that the Bow WAP, which is basically where we were present until the launch of glo Hilo later in the year, has been very competitive in some of the key markets. And that's the reason why I have just made the point today that we are coming with a revamped hyper product that we believe that together with revamped consumables, we will strengthen our position in that particular segment. So we are very encouraged by what we have seen of the performance of this product and initial tests that we have been doing. And we believe that this will support our performance moving forward. And obviously, glo Hilo will complement that because it's the first attempt that we have done in the -- where 7% of the value of the category seats, which is the AWP, the premium part of it, which is -- and we are extremely pleased with the performance. We are growing week after week with a level of retention of 50%. And this complemented by a revamped value for money proposition gives us the confidence that we can revert this trend and start growing from here. Now in terms of the guidance, I think that Javed can explain a bit more about 2026. I just want to call the attention that after 2 years of investing resetting our business, the U.S. business, our innovations pipeline, BAT is ready to go back to the midterm algorithm that we have always had in the company around a 3% revenue, 5% revenue, leading to a 4% to 6% operating profit with a kick around 1% to 2% for EPS. That's the range of 5% to 8%. Obviously, our targets have incorporated the transactional FX. I always try to make this disclaimer about BAT's target. And -- but the profile of growth of this range will differ now from where we were, I would say, several years ago because the new category will be even more preeminent on that. Out of the 3% to 5%, we have mentioned before that combustible, we expect to be delivering around 1% to 2% and with the U.S. being in the medium term between 0% to 1% and the rest of the group, the international part, I would say, the other 2 regions above 2%. And in 2025, we have -- despite all the difficulties that we face, mainly in the APMEA region, we were able to deliver 1%. And we said that Bangladesh and Australia had an impact of 1% of top line, which otherwise will be high end of this range. So I'm very confident that moving forward, we can comfortably be delivering within those range. And when you move to new categories for the algorithm to work, we had to deliver double-digit new category, hasn't been the case in 2025, basically because of the headwind we face in vapor. There are a number of reasons for that, but mainly related to the illegal market in the U.S. that now we are seeing signs that the authorities, be federal or state level addressing. So we expect moving forward to have less of a drag and eventually even a tailwind coming from vapor that will be supportive of the category for BAT. And THP, we just spoke about, and we expect to accelerate our growth from now on with those offers. And obviously, Modern Oral, we have a leading brand now, and we expect to grow from strength to strength. So I'm very confident about being able to deliver the double-digit new category revenue growth to deliver 1% to 2% on the combustible side. This will flow through to the 4% to 6% in terms of increasing margins that is supported by all the productivity savings that we have already mapped out until 2030. And specifically in '26, I would like to Javed to comment about. Syed Iqbal: Thank you Tadeu. I think on 2026, specifically, if I go region by region, and then we can look at overall. In case of APMEA, as I highlighted, that we expect Bangladesh to be not a big drag, but Australia still remain a meaningful drag, which is becoming smaller and smaller every year. So in 2026, Australia will still be a drag, but will be less meaningful in '27. Having said that, also, we will continue to invest in the rollout of premium innovations in APMEA as well, as you saw in terms of glo Hyper, -- so that's where we'll be there as well. The other thing in that area is that in case of AME, we still face headwinds from the illicit environment in vapor and also the regulation changes in Poland, which happened at the end of the year, which has made the legal vapor out of the market, which is again a drag for us. Coming to U.S. you have to keep in mind that comparative from '24 to '25 versus '25 to '26 is very different. We are -- we had a very good performance in '25, so that comparatives changes. And also, we are assuming for now stable volumes in views in U.S. So we are expecting that the enforcement level as we've seen so today will stop that decline, but we'll keep the volume overall stable. And lastly, also we highlighted in our pre-close trading update that we are exiting certain geographies, which are not adjusted, but they will have an impact on our numbers in 2026. So I hope this all gives you an idea of why the lower end of 2026. But having said that, we are all very proud and confident in the business that we are entering the first year of our midterm algorithm Operator: Our next question is from Ray [indiscernible] from Anchor Stockbrokers. Unknown Analyst: I just want to get back to -- I mean, it's quite interesting to listen to your optimism around the new categories. And I just had a quick look at the numbers. Obviously, Modern Oral is doing exceptionally well. You have the opportunity for vapor to at least stabilize and heated tobacco. I don't know whether the jewelry is still out there. But I don't know if you can just talk high-level stuff here. To give us an idea how do you -- which of these categories give you or makes you the most excited in terms of the future growth in terms of that, I mean, especially now into 2026, you talk of a double-digit revenue growth. And then just a follow-up. Just on Australia, I mean, it's quite interesting because I see in this market. I mean the needle market is now down to like $3 billion or less. Now clearly, I mean, if I look at Japan, I mean, that's basically what Japan will consume in the space of 7 days. So I mean, I struggle to understand why do you say it will still be a drag. Is it not a time that you could consider to exit this market? So I'm just curious to hear your thoughts around that. Tadeu Marroco: Okay. On the new categories, obviously, Modern oral is the exciting category out of the 3. The pace of growth of Modern Oral around the world is very clear. And even in markets where there is no oral tradition, you take, for example, the U.K., when we launched Velo here 4 years ago, the incidence of nicotine and oral was 0. And today is around 3%. sporadically, it can go all the way to 4% in terms of use. And this is happening also in the likes of Poland. It's happening in emerging markets because it's very affordable. And like Pakistan that is doing extremely well. South Africa doing extremely well, Kenya. So there is a massive potential, and we are very pleased with the fact that now we have 24 markets already that have passed legislation. The last one has actually been Argentina a few weeks ago. Portugal has just passed legislation as well. So we see clearly a lot of potential in this category, and we are obviously very pleased that we have a leading brand in this category. In terms of tobacco heating product, it is a EUR 9 billion revenue category in which BAT has just below $1 billion. So there is a lot of white space for us, and it has been more and more competitive. But we have now a product that is being present in the value side of the category, if you want, on the premium side that has never been the case before. So with glo Hilo, we are tapping a very, very -- it has been an untapped subcategory within the category for BAT. And we are extremely excited about this possibility of to occupy some of that white space in a category that is still growing, not at the same rate of Modern Oral, obviously, but it still grows at a mid-single digit -- high single digit. So -- and vapor is a difficult category because of lack of enforcement and/or regulation. And that's the reason why we have -- there is actually difficult to compete with some of these illegal products or products that doesn't have a concerns in terms of responsible way of doing vapor. That's why we came with this campaign because you see a proliferation of device with thousands of pubs that have a very different negative risk profile than the ones that we sell. So there is no level playing field. And the reason why we are addressing a premium subcategory within vapor with the likes of Vuse Ultra is exactly a recognition of that. We are not really competing for volume. We are competing for value and offering consumers a responsible way to do vapor. And obviously, the U.S. is the largest vapor market. So all the attention is to the FDA that I think that has given some indications now that they understand that the root cause also of the problem is the lack of level playing field. And hopefully, we can see some of the pilots that they are doing now in nicotine pouch into vapor in the future as well. So that's the new categories. Australia, look, Australia has, as you know, come with -- since the introduction of Plant pack in 2012 with a very misguided and illogical regulations year after year and increasing excise at much higher than inflation to a point today that the average price of cigarette legal market in the Australia is more than 20 -- equivalent of GBP 20, GBP 22 and whereas the illicit products is around GBP 6. So as a consequence of that, 65% of the combustible market now is illegal. They have, in essence, reduced the average price for consumers. And for the first time in many years, we see an uptick of incidence of smokers in Australia. not just they decimated the tax collection, but also with this illogical regulation, they are seeing now incentivizing consumers to smoke a product that is much cheaper than the legal market and obviously carry on with all the criminality as we know and have seen in many different markets. Now the impact for us is that has always been a very important market for BAT. And -- but like Javed said, we'll come to a point that becomes insignificant. So the drag in '26 will not be the same as '25. It's still a drag, but it's not be the same. And from there on, if the government carries on doing that, which seems to be heading towards 100% illegality anyway. We don't even need to take this issue leave because the direction of travel has been very clear. If you add the vapor category that has an incidence of 9% of adult consumer and is 100% illegal today, 85% of nicotine consumption in Australia today is illegal. So it's just a question of a couple of years and unless they decide to do something more reasonable. Operator: Our next question is from Pallav Mittal from Barclays. Pallav Mittal: Two of them. Firstly, on the U.S. business, clearly, your price mix is pretty strong at 12% plus. Can you help us understand what percentage of your U.S. volume portfolio is right now benefiting from the excise duty drawback? And how much scope does it have to increase in the future given your global business? That's the first one. And then secondly, I appreciate all the commentary on your NGP guidance for 2026. But your low double-digit growth, it still -- I mean, it seems like you're factoring a pretty sharp normalization versus what we can see in data, especially on nicotine pouches and the e-vapor side of things. So can you just help us understand the moving parts for your low double-digit guidance for '26? Tadeu Marroco: Okay. will cover your second question. On the duty drawback, this is a long-standing legislation in the U.S. to incentivize local manufacturing and promote export from the U.S. So obviously, what we are doing is exactly that. Reynolds has invested more than $200 million in terms of manufacturing over the last couple of years. We have generated more than 800 jobs, and we increased our purchase of leaf in the U.S. by 65%. And today, Reynolds is the #1 company in terms of volume of leaf purchase in the U.S. market. So we are not making disclosures specifically about the duty clawback impact. But one data point for you to consider is the fact that our revenue in combustible would have been positive independent of the duty drawback. So it's important to mention that because at the end of the day, when you go back to what I was referring to in terms of the long-term algorithm, we expect the U.S. market in terms of combustible to be declining at rates around 6% to 7%. And this should be, given the elasticity and that still exist in the market, the possibility for Reynolds to get to a positive revenue around 0% to 1%. In the current years, it has been more than that because the company is doing extremely well in terms of the strength of the portfolio, but also the duty drawback is helping for those in that sense as well. But independent of the drawback, we are positive, and I feel very comfortable with the range that we have set ourselves for our long-term algorithm. Syed Iqbal: I think on the overall new category revenue guidance of low double teens is one thing is one -- a couple of points. One, in the U.S., even as I explained in my presentation, that we had a negative number for the full year on Views. So what we are expecting in the Views numbers to be flattish because it will require a more meaningful and more stronger enforcement. And given a very complex and long supply chain, even those measures will take time to have a meaningful impact. So even the ITC regulation, which today was talking about, if it gets passed through, it will be much later in the year when we'll see some meaningful impact. And having said that, also, as I highlighted, the regulations, for example, in Poland and Europe, which has put a drag on the reuse volume because it has made the whole illegal business negative in that number, so that's not possible to enter that market. And also the highly competitive environment we see in the BWAP segment within the heated product portfolio, as we were talking about earlier, that competitiveness will continue to be there for the short term. So if you put all these together, that's why our guidance on the low end of the teens. But having said that, we are very confident in midterm that Velo will lead the charge of new category revenue growth, being the fastest-growing brand in the fastest-growing nicotine category globally, including U.S. However said that, given all these points, that's why we have guided on this front as the low teens for now. Operator: Our next question is from Simon Hales from Citi. Simon Hales: So a couple for me. I wonder if I could just first come back to some of those comments you just made on the U.S. business on a go-forward basis. Jo, just back to the point in terms of the base performance and the flat vapor expectation for 2026. I'm still just trying to square that circle, given you've got pretty strong exit rate momentum through the second half of the year. I appreciate enforcement actions in vapor and a straight upward line. But we're still probably going to annualize at least through the first half, some of the building enforcement we saw in 2025, and that should help the bake category, 1 would imagine the legal vapor category in the first half. So you therefore expecting as we come into H2 of 2026 to see your Boost business down year-on-year to get you back to that flat guidance for the year. That's the first point. And then secondly, on the U.S., today, you talked about 6% to 7% being the normal full run rate of decline on combustibles volumes. Is that something you expect to see in 2026 and could you also perhaps talk a little bit about what you're doing in discount at the moment, the performance of Doral last year and your plans on that brand going forward. Syed Iqbal: Yes. So if I take the first one. So I think one thing which I have to highlight further on the second half performance of 2025 of Vuse in U.S. Other than the enforcement, there is also one item which will not see repetition was the delisting of competition product in which Vuse gains. So 63% of those consumers stayed within the glow systems. And in RCS system, views gained more than their fair share of our category. So that is one thing, which is also boosting Views performance in the second half. So I wouldn't be recipocating that second half into the full year of full year of 26 is more focused and will be more dependent upon the level of enforcement we see. And as also highlighted by Tadeu that although we have seen regulation covering 40% of the legal volume but level of enforcement varies from state to state. So one, not having that one-off of the exit of a competition, which we gained more than fair share. and enforcement still seems to be early days. So that's why our guidance on the Vuse comment was made by me. Tadeu Marroco: Yes. On the volume side, my comment is more, I would say, hypothetical situation. It's not -- what's happening in the U.S. market is the fall. If you go back to 2020, 54% of the nicotine users were using traditional nicotine products, combustible traditional. You go now to 2025 is 34%. So the balance is happening. What's happening is the transition of these consumers to either pay using or using solo users of becoming solo users of smokeless products, either modern oral or vapor products. So obviously, the secular decline that was related to ADC and level of incidents reducing over time around 4% will not be coming back. That's my point. So even if you see a meaningful enforcement in vapor in disposables that we know that has currently plays a role in terms of the level of decline of cigarettes. Even if we see that, even if we see improvement in the macroeconomics in the U.S., it's very hard to imagine the market going back to 4% decline because of the dynamic of the poly use and solo users in new categories that I was referring to. So my point is that in the long run, with a meaningful enforcement in disposable with macroeconomics is strengthening between 6% to 7%. I think that where we see today in the next couple of years in the scenario that we are seeing I think that the performance in '25, around 7% to 8% is a more reasonable one to assume. So that's what I would assume. Now obviously, this is overall markets. When you separate from the overall market, the deeper discounts, the deeper discount has a very different dynamic. We are seeing more activity there from competitors. And as a consequence, we saw the deeper discount growing by 10% in 2024 or 5 was even higher than the 7% that they grew in 2024. So we have been piloting [indiscernible] out to your question. We have been always very mindful because despite the fact that the deeper discount is growing as opposed to the general market, the 95% of the value continues to be outside the deeper discount. So we are very mindful in terms of testing the product, in this case, is [indiscernible] We did pilots in Louisiana in West Virginia. And what we are seeing in those pilots is suggesting that we'll be able to expand Doral for other states as well. taking into consideration the source of business, the potential down trades of our own brands, we are doing that with the value in mind. We are not doing that for the sake of market share. we want to cap to expand or in the states that makes sense from the value point of view. Operator: Our next question is from Richard Felton from Goldman Sachs. Richard Felton: Thank you for taking my question, three please. First one is on vapor. So look, great news that the U.S. is starting to take some proper enforce an action against elicit vapor. But your comments point to, I suppose, a challenging environment in markets ex U.S. So thinking about those ex U.S. markets, -- are you seeing any shifts in appetite from governments or regulators to start to enforce against that illicit segment a little bit more stringently or does that remain very challenging. Any comments on some of your top vapor markets ex U.S. on that topic would be very helpful. And then the second one, sorry to come back on the duty drawback question. I appreciate you don't want to give us the exact numbers for 2025, but just sort of, I suppose, from a high-level perspective, thinking about duty drawback into 2026, is the tailwind going to be more or less than it was in 2025 at a similar level? Any high-level comments just to sort of help us triangulate on that would be very helpful. Tadeu Marroco: Okay, Richard. Look, vapor is -- I don't think that there is one side fit saw here. There are -- we know based on our own experience that when we have geographies where we have retail license, we have proper regulation and proper enforcement. I would say, for example, France is one of the case, you just can sell vapors in tobacco net source. And if you have got selling, for example, disposable now, you have a massive fine in euros and this helps with the discipline in the markets. And in the U.K., for example, despite the fact that we have been asking for a retail license, and we haven't seen the movement in that direction. There is a tobacco vape being discussed as we speak. And hopefully, they will address that. But the attempts to ban disposable has failed because the manufacturers that are not responsible, they try to circumvent in the case these regulations. So 50% of the markets is illegal today in vapor. And this is a demonstration of how difficult the governments find to either regulate but more important to enforce regulation in some markets. We have as much as we can, and we have promoted this vapor deserves better campaign. We have been very vocal about what are the measures that government should be taking into consideration to try to discipline that. And this, with no surprise, you will see us talking about retail license, [indiscernible] fines if they got caught a more stringent discussion in terms of age verification when you buy the product and a negative lease to avoid things like sucralose in the liquids to sweet the liquids. So there is -- in our webcast and all that, there is a plant of -- but there is still a lot of work to be done on that. And as a consequence, we are trying to, as part of our resource allocation, return of investment mindset, the quality growth, which is not just about top line, but also bottom line. We have been focus on more important markets, the likes of France, like I said, the likes of Germany, the likes of Italy, which is standing out from others and then pulling back in markets like Malaysia, for example, in South Korea and so on and so forth. So that's the situation on vapor and outside the U.S. In terms of duty drawback, look, we -- I'm not giving guidance specifically for the [ Duropack. ] There is -- we see that's the benefits that we generate for the economy, for example, is the driver behind as much as we can start grow employment and growing the activities in the pharma domestic in the U.S. we carry on, obviously, this is not forever. This will be like you suggest a peak. And in the meantime, we are strengthening our portfolio in combustible. We are seeing the overall market decline being more supportive, which is also important for the future. And more important is us being able to create a strong position outside combustible. Because I understand the concern on the combustible side, but overall nicotine in the U.S. is growing. It's growing value and its growing volume. So despite the fact that you see consistent decline in cigarettes, you'll see massive increase in the modern oral space. You see a strong increase still in vapor, unfortunately, on the illegal side, but it's very encouraging, the signs that the new administration is given to address that. Because in tapping this potential there, there is no much concern about the direction of the cigarette because what we want in essence is exactly to migrate smokers out of cigarettes to add those products. But it's -- what is needed is a level playing field. Operator: Next question from Bastien Agaud from Bank of America. Bastien Agaud: Bastien from Bank of America. I just have a quick 1 on the -- your net debt is close to your target 2.5 and your free cash flow in 25million was quite strong. So my question is regarding the buyback, EUR 1.3 billion what kind of margin do you have to potentially increase it at some point or another during the year? I understand that your debt is approximately 70% in dollar. So could be quite volatile on that? But just to understand the moving parts on your buyback for full year '26. Syed Iqbal: I'll take the question. Thank you very much. We started a sustainable share buyback program in 2024, and we started it with $700 million. And now we are at GBP 1.3 billion with an increase of GBP 200 million for 2026. We remain our focus on cash and also deliver. We have to enter into our range of 2% to 2.5%. And also, we want to make sure that we continue to deliver additional incremental dividend in sterling terms and continue our 25 years plus record on that front and continue a sustainable share buyback. What we want to ensure is to create more optionality for capital allocation and medium to long term for the business. So for now, I'm very comfortable with the increase we have done of GBP 200 million from GBP 1.1 billion to GBP 1.3 billion for and we keep on focusing on generating cash to bring us back into our range of 2% to 2.5% and continue a sustainable buyback. Operator: Our next question is from Damien McNeela from Deutsche Numis. Damian McNeela: First question is just on U.S. combustible and particularly on pricing. I was wondering if you could provide any more granularity on the pricing within the subsegments that you operate in? And what the sort of outlook for '26 might be for pricing given the very strong year last year. And then the second question is on CapEx. You've indicated the step up this year. I was just wondering whether that level of CapEx is what we should be expecting for outer years past 2026. Tadeu Marroco: Thank you, Damien. Look, on the CapEx side, we are increasing at the back of investments, mainly on the modern or space. Most of the CapEx today is being reverted back to new categories and our -- and giving the space for us to continue growing. We don't have huge expectations to be much beyond the level that is currently -- and this is suiting us well because at that level, we still can be very close to the 100% of operating conversion. It's not a limitation, but it's just the fact that with this level [indiscernible] address the business needs. At the same time, it puts us in a strong position to continue having high levels of operating cash conversion, which is very helpful for the financial flexibility and capital allocation that Javed was referring to. On the U.S. combustibles, look, I cannot be talking about pricing [Audio Gap] and we -- what I can say to you is that the price elasticity is still very benign in the U.S. when you compare the price of cigarette vis-a-vis the average household income and Obviously, there is a dynamic debt because of the specific tax that when we increase the price of a pack of cigarettes, the manufacturer have a higher benefit than the consumer perceived as a price increase, which is also helpful. And -- but what [indiscernible] has been doing is laddering some of our brands. We did that very successfully with Newport. We have launched Pall Mall Select as well, which is another laddering. And we have now Doral, like I said, in pilot phase that we probably will expect to roll out to more states. But I cannot speculate with you about the future price. Operator: That was the last question today over the phone. With this, I'd like to hand the call back over to Victoria. Over to you. Victoria Buxton: Thank you very much, everybody, for your questions. I'm afraid that's all we have time for today. So if you put a question into the web, then the IR team will be delighted to answer the question as soon as we can. I'd now like to hand back to Tadeu for closing remarks. Tadeu Marroco: Okay. Thank you all for listening today and for your questions. To close, I'm confident we have the right building blocks in place to deliver our midterm algorithm supported by delivering 2025 results at the top end of guidance. We will continue to reward our shareholders through strong catch-up returns including our progressive dividend and a sustainable share buyback and enabling us to deliver long-term growth and value creation. Thank you again for joining us. I look forward to see many of you at the CAGNY conference next week where we are presenting on the 18th of February.
Emma Nordgren: Welcome to the presentation of Swedencare's year-end report, led by our CEO, Hakan Lagerberg; and CFO, Jenny Graflind. And we are pleased to have North America's CCO, Brian Nugent, joining us with the presentation during today's webinar. And as usual, we will have a Q&A after the presentation. [Operator Instructions]. Over to you, Jenny and Hakan. Hakan Lagerberg: Thank you very much, Emma, Hakan Lagerberg here and Jenny in a snowy Malmö. Yes, Q4 2025, a disappointing end of the year when it comes to profitability. And I'm very displeased with myself for not being able to predict this. There were lots of uncertainties coming in at the very end, but I apologize, and we are doing everything we can to improve our internal processes and forecasting. Double-digit growth, happy with that, 11%. But of course, I expected a bit higher also when it comes to the organic growth. But overall, we're happy as long as it's double digit. The lower profitability, mainly caused by one-offs, but of course, we have gone through everything in detail and lots of follow-ups and action plans with the group companies that underdelivered, lots of focus on profitability going into 2026, and we should never have a quarter like this going forward. We have also made some organizational improvements end of last year and beginning of this year, and I will be happy to present those later on in coming quarterly reports. We presented our new long-term financial targets. I will come back to that later in the presentation. The Board has proposed a dividend of SEK 0.28 per share, an increase compared to last year, and we will also come back to that in the financial -- with the financial targets. But summarizing the end of the quarter when it comes to sales, of course, not all gloom. We're very happy that NaturVet really has taken off, 33% growth in the quarter, albeit the quarter last year, Q4 was a weak quarter for NaturVet. But overall, we have 15% on a yearly basis for NaturVet. And as many of you know, the first half year was slow dependent on the rebranding. So we're happy that we were tracking at really high growth numbers for NaturVet. ProDen PlaqueOff continues to grow high double digits, 17% organic growth, 29% year-on-year, a bit lower in Q4, and that was mainly caused by, as many of you know also, the bit lumpiness in the international sales. So some larger international orders came in are delivering now in Q1. But overall, we are very happy with 17% growth also for the quarter. Looking at the different channels, it's online continued to grow a lot. Pet retail also solid, including the Big Box retailers there. And also when we look at our branded products in the vet channel grew, but a soft quarter for contract manufacturing, especially for liquid dermatology, and I'm coming back to that later on. Some explanations of the profitability hit in Q4 that was more of a one-off. Higher marketing costs on Amazon related to transition of NaturVet and Brand Protection will still have some impact in this first half year, but basically getting better month by month. One important thing is that we have started to implement the transparency program for the major NaturVet SKUs here in Q1, and that will have a big impact on that. And Brian Nugent will later on describe that more in detail. We had an ERP implementation in NaturVet. The cost interruptions that affected gross margin and volumes. No impact going forward. We are very happy with the ERP system as is right now. It started functioning really well end of Q4 and no issues now in Q1. So we're happy with the transition. But of course, the implementation caused more problems and took longer time than we expected. Marketing spend to support the Big Box partners. Of course, we knew that was coming. And -- and we have continued, let's say, implementing marketing spend, and we have seen results in increased sales, as you saw, but there was not enough, let's say, control of the actual marketing spend. And going forward, we will definitely have better control on the spending in 2026. Also, as you see on the picture here, we're very happy with the actual display campaign that we have launched in Walmart over 2,000 stores. We are in the ordinary shelves in 1,400 stores, expanded to 600 more. now in January. So we're happy with that. We're not happy with the outcome of the actual cost for the campaign, not a big hit for the quarter. But still, there were some unexpected costs for delivering and setting that up. But all in all, happy with the outcome. I will come back to that. Also, one of our Pet retail-focused brands, Vet Worthy, also have been launching second half year of '25. And the outcome we're happy with, but not the actual cost for it. So going forward, definitely, spend will be aligned with sales growth going forward. Also, we ended up with some higher inventory write-offs than for the other quarters. And we -- like in '24, we had a very average write-off, nothing exceptional, and that is also what we expect going forward into 2026. Jenny, over to you. Jenny Graflind: Yes. Some financial highlights. So revenue for the quarter amounted to SEK 682 million. So for the quarter, it was a 3% growth, which 11% was organic. We had a negative 12% of currency impact for the quarter and 4% was acquired growth. The large currency impact is coming from the stronger krone against the USD, which is the largest currency for the group. However, both the euro and the pound has also weakened quarter-by-quarter in '25. The acquired growth came from Summit, which we acquired in April. So for the full year '25, the net revenue amounted to SEK 2.7 billion. This is compared to SEK 2.5 billion last year. So we had an organic growth of 9% for the full year. The operational gross margin is at 56.8%. There are 2 main reasons for the lower margin. Hakan mentioned a little bit of it. There was, first of all, additional write-offs this quarter compared to other quarters when it comes to inventory. This partly is due to discontinued product lines or products, for example, human products that we don't focus so much on anymore. There was some acquired inventory that we had to write off and then a well issue with one of the brands, which will -- we'll be focusing much more on NaturVet by Swedencare in 2026. The second reason is this low-margin display campaign that you just saw the picture of Walmart. So these 2 together, these 2 reasons had an impact of about 1.5 percentage points. So otherwise, we would have been slightly above 58%, which is the level that we have been at for the last, I would say, 2 years. The external cost is increasing, as we have mentioned before, with the growth of Amazon, there's costs which are directly linked to the sales. However, in addition, this quarter, there was also the significant marketing initiatives in connection with the Big Box launch. And there's also additional marketing costs linked to Black Week, which occurs in Q4. Personal cost is stable, in line with the percentage of sales for the full year 2025. So as a result, the operational EBITDA amounts to SEK 109 million for the quarter. This is a decrease of 25% compared to Q4 last year and a margin of 15.9%. For the full year 2025, operating EBITDA is SEK 511 million and a margin of 19%. Cash and our net debt to EBITDA. Our net debt to EBITDA is at 2.9% at year-end or 2.9% at year-end. This is an increase both compared to a year ago due to the acquisition that we made in Q2 this year, and it's also an increase compared to Q3 due to the fact that we had a lower EBITDA this quarter. Our cash conversion was at 41% for the quarter. There was only very minor changes to the working capital in the quarter. However, we have made larger tax payments this quarter, which is impacting this operating cash flow. During the quarter, we have repaid SEK 65 million on our external long-term debt loans. And for the full year, we have repaid SEK 233 million. With the cash pool structure that we have in place, it's complete in the U.S., and we also have a good progress in Europe. We are able to operate with a lower cash level. So we have been able to reduce this by SEK 83 million during the year. So instead of this cash -- having a large operating cash, we can now use it to decrease our debt level, which is, of course, resulting in lower financing costs. Our CapEx is below 2% of net sales, both for the quarter and for the full year. Rolling 4 quarters. As you can see, the revenue for the rolling 12 months is increasing. However, both the operating EBITDA and the EBITDA has decreased due to this weaker profitability that we have in Q4. In 2025, the majority of the difference between the reporting EBITDA and operational EBITDA is the fair market adjustment that we have made with acquired inventory for Summit. That amounts to SEK 48 million for the year. Product and brand split. These graphs are not -- so the graphs and the amounts are not adjusted for acquisition or currency. However, as you can see, we have added a line below the graphs for organic growth because it's more of a fair comparison as everything has basically a large negative currency impact this year. So if we look to the left, you can see that there's a double-digit growth in nutraceuticals, partly due to the good private label sales. We also have good growth in Dental, 23% organic, mainly ProDen PlaqueOff, but there is also good improvements in both the toothpaste and the dental wipes. We get a decline in topicals. This is mainly linked to the decrease that we have in contract manufacturing business. Hakan will come back to that. In pharma, that has the largest increase in growth, which is due to the acquisition of Summit, but it has a decline in organic growth due to the delayed pharma projects. If you look on the right to the brand split, there's the same thing here. Graph is not currency adjusted, but the organic is -- the organic one is, of course, currency adjusted. So NaturVet, PlaqueOff and, NaturVet and Riley's are the fastest-growing brands in this group for the quarter, all has about 50% organic growth. Contract manufacturing has decreased due to the weaker vet channel and delayed pharma projects. Note, however, that the internal revenue in our manufacturing facility has increased with about 15% for the quarter. So when we move and we increase production in-house, this supports the other segments, but it affects the Production segment's organic growth negative because it's eliminated on a group level. Private label has also had good growth this quarter with larger orders at the end of the year. And the reason why other has strong growth, but low organic is that the growth is coming from Summit. Now over to Lagerberg. Hakan Lagerberg: Yes. Looking at the different segments. Net sales for North America, SEK 410 million, 7% growth, not currency adjusted and organic 22%. So the strongest quarter for the year by far. And on a yearly average -- a yearly number, it's 12% growth for North America. So we are very happy that North America has started to bounce back at very high growth numbers. Predominantly, online and Pet retail business -- Big Box retailers are the drivers. As we mentioned before, NaturVet, ProDen PlaqueOff and Riley's all had very strong quarters. The NaturVet big display campaign that we did send out in Q4 and had the cost and the sales didn't affect Q4, but we have seen an immediate impact on the out-the-door sales at Walmart. So almost doubling sales in store from first week of January and the trend continues in Q4 or in February. So we're very happy with that and also, of course, have made lots of influencers and social media campaigns about this that we are available in even more Walmart stores. Vet Worthy, as I mentioned, now present in plus 500 retail stores and also, I think, 6 or 7 distributors nationwide. So lots of focus on that as well, not as costly when it comes to marketing, but still more focused on moms and pop stores, and we saw a gap in the market for a new brand or a relaunch of that brand. Private label, as Jenny said, a strong quarter and really focused on that as well, evenly out our, let's say, manufacturing capabilities and -- going forward, we do have both concluded some new deals and also in negotiations. So we see private label as an important part of our product offering, and we do see it's an advantage when discussing branded products in -- with bigger retailers and Big Box retailers. Treats, interesting and keep on growing. It's actually some of the products that we don't manufacture ourselves. So we have had some supply issues that could have been an even stronger quarter. So we are looking into widening our supply for these kind of organic treats. Europe has had a strong year overall and also Q4 was double digit, 10% and on an average for the year, 14%. I expect going forward that Europe will continue to grow fast and actually a bit more than the 10%. But we're very happy with as long as it's double digit, as you know. Overall, all of the group companies in U.K., where we have NaturVet, we have Swedencare U.K. focusing nowadays more on online sales, but also they have joint projects together for the Pet retail side, has been performing really, really well. We have kept on building out the Amazon team. The Amazon team in U.K. is responsible for all marketing and sales in the rest of EU as well. But as some of you perhaps remember, we have satellites out in Europe. We think it's very important to have a local presence. So we have 1 or 2 based in different European countries responsible for sales and marketing on social media and Amazon, and it has turned out as really good, and we will continue to look at different markets there. Italy had a very strong profitability, like always, basically, single-digit growth, basically growing at -- like the market, but the comps from last year was the strongest quarter last year. So happy with that, even though it wasn't double digit. And looking at -- and here in the European sales, we also add our international export sales for mainly ProDen PlaqueOff. As I said previously, a bit weaker quarter, but some big orders came in late and will be shipped out in January and has been shipped out in January and will go out this quarter. Yes. And then looking at production, SEK 112 million in sales. and the organic growth was minus 16%. And it's still a cautious vet market for contract manufacturer. We do see some lowering in prebooked orders and also pushing some orders. So we are working together with our major customers there. See an improvement later this year, not already in Q1, but Q2 definitely picking up. So hopefully, we have been at the lowest market for that. But as Jenny said, we are also focusing a lot on internal projects, new launches there and have agreed with some new customers for new product lines. I will present that in the next slide. Also something that was the flavor of 2025, some delays in pharma projects, very annoying, but happy to say that we've now kicked off 2026 really well and expect all the quarters in the sector to be a stronger quarter than last year. So we're very happy with that. And that's one of the entities where we made some organizational changes to better respond to the customer demand and from our internal, let's say, project planning. So looking forward to 2026 when it comes to pharma development and manufacturing. On that topic, we have now in Q1 signed 2 new material projects. One of them is the ophthalmic facility that we presented that we were investing in. That is on track, completed in Q1, Q2. First customer now signed if we had an had, let's say, understanding and an agreement for development, but now we also have signed for the tech transfer and the manufacturing that will start in end of Q2, hopefully, or early Q3. So that's a big milestone for us. And when we have started the manufacturing for this first project, we do have other customers in line and discussing this. This seems to be a lack of, let's say, capacity on this when it comes to the pharma side. Also increase of internal revenue of 15% eliminated on group level, like Jenny said, and it's also relating to the growth we've had in our branded sales, but also preparing for 2026. Looking at next quarter, Vetio U.K., Ireland and North, all bounced back with increase of external customers. And as I said, when it comes to the liquids, still a bit challenging, but looking a lot better from Q2. And we are trying to push some of that -- those projects into Q1, working hard on that. Lots of product launches when it comes to 2026. I won't go through all of these, but I want to highlight Calmaiia (sic) [ Calmalia ] from Innovet. As many of you know, it's -- Innovet is our, let's say, most R&D-focused organization, lots of IP and lots of clinicals in every launch there. So we have a new and innovative patented combination of Trytofan (sic) [ Tryptophan ] and PEA Ultra Micronized and have had really, really good clinicals on that. So we are eagerly awaiting the launch for that. And then also, I would like to highlight the stretch for a completely new and improved K2C product line. That's a legacy line with plus 15 different SKUs and has always been a strong seller, both from a branded perspective, but also when it comes to private label solutions. And we have now been working in almost 2 years to improve that and adding a special ceramide solution called CeraGuard, also with excellent clinicals, expanding the reach and the effectiveness of the product. And we have just started to launch it with lots of interest from the market and have basically signed all of the major customers to revamp their private label solutions to this offering. So that will have a big impact for us in 2026. Our new financial targets that we presented, we're adding another target. So we have annual double-digit organic growth going forward. And also, we have said that we will establish an operative EBITDA margin above 26% midterm. And what midterm means is during 2028. We see these new financial targets as a 5-year plan from '26. Dividend, 40% of net profit adjusted for nonoperating costs. And we will take into account, of course, consolidation and investment needs, liquidity and financial position. And speaking about our dividends since our first pay 2021, historically, we have increased it annually between 5% and 25%. This year's proposal of SEK 0.28 is 13% of the net profit adjusted for nonoperating costs. Net debt to EBITDA being under 2, the long-term target with flexibility for acquisitions. And we do have room for utilizing our credit lines up to around 3.5. So -- going forward, we will continue as we have. We have continued to amortize. So that will be one factor to getting the net debt down, of course. But also, like Jenny said, this quarter where we went up from 2.7 to 2.9 was -- even though we did amortize SEK 65 million was due to the lower EBITDA. And what we see going forward is, of course, the increased EBITDA together with amortizations, we will be working towards 2.0. We are not stressed, but you should expect that we continue to get the net debt down. Structural key growth drivers for the coming years. Yes, for looking at Swedencare as a group, we've been very active when it comes to M&A up until 2022. Going forward, it is a bit more challenging for us to find interesting M&A targets. We do like to add unique companies and product lines to the group like we did with Summit Vet earlier 2025. But going forward, M&A will not be as important for our growth driver as it has been. So what we see in the coming years is definitely our Pharma division is expected to be one of the fastest-growing product groups, supported by a strong pipeline and good visibility from contracted projects. And it's basically that the manufacturing grows a lot. We -- a couple of years ago, we were basically only doing development work with a very, very minor manufacturing capabilities. Now we have built that out, and we continue to do that. And we see that it is a very good add-on to the -- of course, to our growth. The Big Box retailers, big channel opportunity, the same size as traditional Pet retail and we will continue to work on that. We have just started, and it's a long-term project. So we see lots of opportunities there. Amazon will continue. D2C, what we call D2C is when we sell direct to the consumer, not through the platforms. As you know, we are heavy on platforms collaborations, Amazon, Chewy, the Zooplus in Europe. We do investigate and see the D2C as a very interesting part as well, not only to increase sales, but also to get more direct contact with end consumers. Product portfolio and innovation, of course, product portfolio expansion is one of the key elements for Swedencare is that we take innovative good products that we sell under one brand and expand that to other brands. And then, of course, continue to come out with new products in a fast way like we always have. Then finally, pricing opportunities. We do see that selective pricing initiatives remain available, supported by strong brands and limited historical price increases. And also, I would like to say that comparing products, we do have, I would say, on average, we do have high-quality products, mostly priced at a bit lower level than comparable competitors. So we do see opportunities for us there. And yes, over to Brian. Brian Nugent: Good morning. I'm Brian Nugent, Chief Commercial Officer for Swedencare North America, and I have oversight of our North American veterinary and online operations. Today, we'll be discussing Swedencare North America's online division, Pet MD. Swedencare's online mission statement, while seemingly wordy, can be simply summarized by saying we will meet pet parents where it's convenient for them. Our North American online division is Pet MD. Acquired by Swedencare in 2021, Pet MD was founded by Ed Holden, who continues to manage both Pet MD, the company as well as the online sales of other Swedencare owned brands. Pet MD is coming off year-over-year online growth of 20%. It's important to note that the original Pet MD team is still intact and continue to utilize its proprietary systems and in-house algorithms created to assess advertising and ad resource allocation, respectively. This consistency is important for maximum optimization. Pet MD primarily sells through leading online players like Chewy and Amazon and to a lesser extent, D2C and other e-tailers. We also handle all the creative for Pet MD and other Swedencare online brands in-house. This includes photos, videos and all creative enhanced brand content. Our primary focus is to leverage Swedencare owned brands and support the products that we manufacture within Swedencare, which, of course, gives us the highest margin opportunity. We'll now run through the top Swedencare brands Pet MD handles. The main brand, of course, is Pet MD, which we acquired in 2021, as I said, and continues to grow year-over-year. The Pet MD brand acts as the train tracks for Swedencare's other online brands. That is we utilize all the Pet MD systems that we built to manage our other Swedencare brands. Pet MD is mature, has great recognition, and it's important to note that this brand also has only been available online. It's never been sold in the retail outlet. We are, however, exploring options related to this in the near future. The next brand is ProDen PlaqueOff, Swedencare's core and flagship product. PlaqueOff is the premium oral health care product for pets and it's a high-margin operator. Because of the uniqueness and high margin of PlaqueOff, great focus is paid on this brand. PlaqueOff grew 30% online year-over-year, and we expect it will continue with additional focus and support. Riley's is Swedencare's entry into the premium treat category. We acquired Riley's in 2024 and for good reason as premium treats are a really interesting category to us because they have high reorder and subscribe and save rates. The average premium treat buyer is purchasing 16x a year. That high frequency drives strong customer lifetime value and extreme brand loyalty. Riley's also grew online 30% year-over-year. Rx Vitamins is unique in that its original -- its origin is in a veterinary brand that's sold in over 5,000 hospitals. It has unique evidence-based science formulations, which pet owners are very loyal to. Often, these pet owners want to reorder online. And as our simplified mission states noted, we will meet the pet parents wherever they would like to meet, in this case, online. VetClassics is a science-based line as well, and it was a brand that was acquired through the Garmon NaturVet acquisition. Pet MD handles the online sales of VetClassics, and it has a range of unique delivery forms consisting of powders, tablets and soft chews. Like Rx Vitamins, it is primarily sold through veterinary hospitals as it was originally developed by a veterinarian. And finally, NaturVet. It's Swedencare's premium retail brand. It's currently sold in PetSmart, PETCO, Walmart, Tractor Supply as well as other national retailers, as Hakan previously said. The NaturVet range was previously sold on Amazon and Chewy via a third-party relationship. Pet MD completed the takeover of Amazon sales in April of 2025. Full margins are now being fully recognized following the sell-through of the acquired inventory. But that's not to say we haven't had our challenges with NaturVet. While we were able to learn lessons from when we took over ProDen PlaqueOff, NaturVet provided some unexpected issues. Some of these issues we have sorted through and some we are still sorting through. An example is the rebranding of old labels versus new labels. When you're rebranding an Amazon listing, it's a very tedious process, and you want to ensure that you keep your reviews and your ratings as a lot of things can go wrong during the changeover process. We're happy to report that this process is now 98% complete. Another challenge is rogue sellers or third parties that purchase the product via distribution and attempt to sell on Amazon platform without conforming to MAP pricing. As of January, we have adjusted for 2026 MAP pricing increases and of course, going back to third parties, we are just now implementing an Amazon anti-counterfeit program called transparency, which Hakan mentioned previously. We are now in the middle of getting this program launched on the majority of NaturVet products, and this will ensure that there will be no third parties or counterfeit sellers of NaturVet products on the Amazon platform. Pet MD's continued initiatives to market and to grow the Swedencare brands online with a focus on launching internally manufactured products under existing brands via line extensions. Also to continue to be selective and acquire brand assets when opportunities arise. Once acquired, we can quickly plug those acquired assets into the Pet MD model in order to scale growth. It's the plug-and-play model similar to what was achieved with Riley's. And finally, we're going to continue the optimization of advertising efficiency, aiming to scale online brand sales while efficiently monitoring ad spend. And with that, I'll turn it back to Hakan and Jenny. Thanks for your time. Emma Nordgren: Thank you, Brian. And by that, we are open for questions. And your first one comes from [ Johan ]. Unknown Analyst: A few ones from my side. First off, if we continue on the topic of NaturVet's Amazon account. So what happened during Q4 specifically? You took over the account earlier this year and sort of what went wrong specifically in Q4 that hurt your margins so badly? And if possible, could you quantify the loss in -- both in terms of revenue and margins in the quarter? Hakan Lagerberg: I can start and then you can Jenney and Brian, if you have anything. It's mainly related to, like Brian said, the rogue sellers coming in. And when we establish programs launch or promoting the trademark, the actual brand, then we take the costs for that and expect to get the top line sales for all of those marketing initiatives. Amazon has different programs. You have a certain percentage that you pay when you sell a product, and that's fine. But since we are owning the brand, we're owning the product line, we make investments and programs and then all of a sudden, someone comes in and lowers the price and get the so-called buy box. And if we want to get the buy box back, then we need to lower our prices and then you're in a, let's say, spiraling down project. So it's been very tedious and tough and a lot tougher in Q4 than the previous quarters for different reasons. It could be that some distributors were selling products out to rogue sellers that didn't do that during Q2 and Q3. And yes, otherwise. But to quantify -- I don't want to quantify it, but it has had a substantial impact on our profitability. I would like to say that. I don't know if you have anything to add, Brian. Brian Nugent: No, as Hakan said it. I think that we bottomed on that. And as I said, we're just now in the process of setting up the transparency program, which will help eliminate third parties from being able to do that in the future. Unknown Analyst: Okay. Got it. Got it. And so 98% of the products are relabeled. So the only sort of issue, so to speak, should be the rouge sellers going forward, right? Do you have any sort of time line on the transparency program? And again, what kind of margin drag do you expect from the coming quarters? Hakan Lagerberg: Yes, the program as such as it works is that when we have launched a transparency code on a product, special SKU, then the same products that are in the Amazon warehouses, they are allowed to be sold out, but they are not allowed to be shipped any new ones in. And we don't have full access of the volumes. We -- for some, we can see the volumes. But I would expect that the programs will have come into full force in Q2, not in Q1, but we will see improvements in Q1. Unknown Analyst: Okay. Cool. Got it. And on the NaturVet, the Big Box Walmart launch, you stated that sales almost doubled in January, which, of course, is impressive, but says very little to us outsiders as we don't know from what base. So to give some depth to that statement, what kind of sales contribution from Walmart thus far are we talking about? Hakan Lagerberg: I mean second half year of '25, we sold a bit over SEK 3 million, SEK 3.5 million, I think. roughly to Amazon. And to calculate how much they have sold, we don't have that exact number. So -- but half year, plus SEK 3 million of sales for second half year for Swedencare to Walmart. Unknown Analyst: Got it. Cool. And the second -- or third question actually is on the gross margin. So you quantified the impact from low-margin display campaigns and inventory to roughly 1.5 percentage points in the quarter. The latter, of course, you stated it was nonrecurring, but how will the sort of negative mix effect from the display campaigns impact your gross margins in Q2 and Q1? Jenny Graflind: How the display campaign is going to impact in Q1? It's not going to impact in Q1. It's done. Hakan Lagerberg: So that was only product relating to Q4 sales that... Jenny Graflind: Yes. Hakan Lagerberg: … the full contribution margin from Q1. Jenny Graflind: Yes. It was just a specific campaign. It was just more expensive to both produce and to ship those -- the nice picture that we showed you. Unknown Analyst: Okay. Got it. So all else being equal, then we should see gross margins in 2026 recovering to the sort of adjusted gross margin level that we saw in 2025? Jenny Graflind: Yes. Unknown Analyst: Got it. And continuing another question for you, Jenny, perhaps. Any chance that you could break down the external cost increase in the quarter? How much of external costs in the quarter were related to marketing, for example? Jenny Graflind: No, no. But I mean, the majority of the increase is linked to marketing. It's both linked to this Amazon marketing, as I was mentioning, for example, the Black Week, for example, it would have more -- it's more expensive to market on Amazon in Q4. And then it's this additional marketing initiatives with Big Box. Unknown Analyst: Okay. So how should one think about your marketing spend coming quarters then? Jenny Graflind: Well, the marketing spend, we're not going to have this one-off campaign in Q1. However, marketing spend to Big Box is going to continue to increase. However, we are expecting the volume to be more matched. We didn't have the volume. We didn't have the revenue to match the campaigns. However, marketing is going to continue. Unknown Analyst: Okay. Got it. And then a final one, if I may. So Production segment sales fell by 16% in Q4, partly due to contract manufacturing, but also postponement of pharma projects into 2026. Focusing on pharma here specifically, you sounded very optimistic on the conference call. And of course, you've stated that this is a key top line and margin driver in 2026. But given that we saw another postponement here in Q4, what makes you confident that 2026 will be different? Hakan Lagerberg: It is that we have already started a couple of big projects in Q1, and they will continue in Q2. And as I said, the ophthalmic project that we have -- that we are in the process of getting all set there, we also have signed a contract with a customer that is in, let's say, in hurry. They want us to start manufacturing as soon as we can. So we're working really hard on that. So there are no external factors that could change those facts. Unknown Analyst: Okay. Got it. And on sort of the timing of those projects, the ones that started in Q1, what sort of -- what time frames are we talking here before we can see a contribution to sales? Hakan Lagerberg: In the pharma for Vetio North, you will see a strong performance already in Q1 compared to last year when it comes to sales, definitely. Unknown Analyst: Got it. Lovely. If I may, one final just clarification on your targets. You stated during the call that the targets are for midterm, which implies 5 years. But you then said that in the same sentence that you expect to reach your margin target by 2028. So just to clarify... Hakan Lagerberg: What I meant with midterm, midterm of the 5 years. Unknown Analyst: Okay. So the 2028 doesn't -- it's a 2030 target? Hakan Lagerberg: No. I expect – Jenny Graflind: It's a 5-year plan. Hakan Lagerberg: It's a 5-year plan. But from 2028, I expect us to be on that target. Emma Nordgren: Your next question comes from [ Adrian ]. Unknown Analyst: And a few questions from me as well, please. Just want to begin here with 2026. It looks like a strong year when it comes to the growth rate with everything going on here. But I guess the recent deviation here, at least in recent history has been in terms of margins, right? You can explain that a lot of these margins are kind of one-off-ish. But how can you -- how -- like what should we expect for the cost or when it comes to the margin looking into 2026? Like how confident can you be that you don't meet any other short-term marketing campaigns that you have to do? How can we have confidence in basically the cost remaining low here? Hakan Lagerberg: I mean it's -- this -- as I explained a couple of these, it's been -- some of these launch campaigns, of course, has been needed to do, and we did that in Q4. We don't have the same launches first half next year. We -- as Jenny said, we will continue to market and collaborate with our customers. But it will be in line with the sales in a much better way than we did -- were able to do in Q4. And it's a combination of the actual projects. It's a combination of, as I said, we made some organizational changes, better control. And some of this, like you said, it was campaigns that we needed to do for the agreements that we did -- that we have with our customers. But those launch campaigns are done for '25. We don't foresee them in '26, first half year at least, then it dependent on if we sign any new major customers, then we have learned the lesson how we handle this quarter. And I would like to add also that there -- I mean, it was a quarter that, as I said, I'm very disappointed how we handled it when it comes to the cost structure, and it won't be repeated. We are going through everything, and we have lots of cost initiatives when it comes to projects and increased profitability. So the team is really motivated and we are on it a lot better than we did. We definitely failed in Q4. And now we have to rebuild the trust. And the way to rebuild that trust is that we show a couple of quarters with improved margins and improved EBITDA, of course. Unknown Analyst: Yes. Right. Exactly. So kind of a follow-up question here. Like what visibility do you have for the marketing budget throughout the entire year? Do you know already today what the marketing budget will be throughout 2026? Or can there be unexpected marketing investments during a short-term time frame? Hakan Lagerberg: The only unexpected, I would say, is if sales grow even faster than we anticipated in our budgets, then, of course, the marketing spend will increase, but it will be in line with profitability. So we will grow with keeping the targeted profitability what we have set for this year. Unknown Analyst: Perfect. And another question here. You mentioned that you doubled sales here in January, right? And I can I assume that some of this is driven at least by this low gross margin display campaign. You explained that you took the cost in Q4 and that the gross margin going ahead should be good. But when this campaign runs out, I expect you should see some difficult comps from that maybe on a sequential basis. Could you give us any color on sort of the normal sort of Walmart's release here, excluding the onetime display thing [indiscernible] performing? Hakan Lagerberg: Yes, displays campaigns are important, of course, because when looking at retailers in the U.S., you put up products, most of the retailer does. They put up products under therapy area. So Joint product is lumped together with all of the different brands, then you have dental products, all of the different brands, et cetera. The problem when launching a new brand into a retailer is, of course, to get the customers to see your product. And of course, displays campaign, like you saw on the picture, is extremely important to -- and we are very happy and it's not an easy thing to get an agreement with Walmart for such a big display. So it's a big display, but on a different part of -- in the stores, showing all of the products that we have in the ordinary assortment, all of those products are in the display. So like you said, it's -- we do it because we want to really enlighten the customers that we are present at Walmart buy our product there. So if they take a product from the display campaign, next time when they come back 2 months later, the display is not there, but then they will find exactly the same product in the ordinary shelves. So that's the whole reasoning by these display campaigns. Then coming back to what Jenny said, next time we will make a display campaign, it won't have such a big impact on the gross margin. We will make it smarter and better next time. Unknown Analyst: Fair enough. Another question here on the inventory write-offs. They were kind of bigger than expected, I suppose. Could you confirm that these are nonrecurring? And kind of what happened there that made them such a deviation from your expectations? Jenny Graflind: Well, there's always going to be some level of write-offs every year and every quarter. It's just that this year, about 50% of the inventory write-off came in Q4. There was a couple of product lines. There was a couple of acquired inventory that we have to write off. So it was just a higher level this quarter than we normally have in Q4. Hakan Lagerberg: And that became visible very late in the quarter. Jenny Graflind: Yes. Unknown Analyst: You mean 50% of the year inventory write-off? Jenny Graflind: Yes. Unknown Analyst: Right. Okay. Last question, if that's fine. So going back to the midterm operational EBITDA margin here of some 26% -- you mentioned the time line here, but could we have some color on kind of the contribution? Like where do we expect the margin to come from? Is this really driven by the Production segment, which is margin accretive or the gross margin? Or how should we think about it? Hakan Lagerberg: No, I would say that coming back to normal margins from our biggest brand, NaturVet, that has had a big impact for us in 2025. So just by coming back to ordinary margins of what we expect for NaturVet, that's the biggest driver, I would say, short term, the coming 2 years. And then, of course, getting our Amazon sales in line with the expected profitability. That's -- since online sales is now well over SEK 100 million I mean, there was '25, and it will grow even more in '26. Of course, every percentage, we improve profitability when it comes to our online sales, primarily on Amazon has a huge impact. But then we have our, let's say, smaller entities, including pharma, where we have significantly higher margin compared to, let's say, group average. That is, of course, very accretive to our overall profitability increase when we can -- when we manage to grow those, let's say, smaller entities into higher growth targets -- numbers, sorry. Emma Nordgren: And your next question comes from Adela. Adela Dashian: Adela from Jefferies. I guess I'm also going to stay on this track trying to figure out what exactly happened in Q4. I'm assuming that you had some sort of marketing budget set ahead of the year, ahead of the quarter. So was this just -- I mean, how was this not flagged on a group level earlier? And is this an individual team that was in charge of this and it just was sideways and what, I guess, reporting, what type of measures are you now implementing so that this never happens again? Hakan Lagerberg: Yes. I mean it's a couple of, let's say, things affecting. Like Brian explained, the problem for us that hit the -- it is -- you could call it marketing, but when selling on Amazon, when we get a higher cost there, we can't just shut it up because it's our brand. If we shut down, let's say, the branded marketing for our products, then competing brands will take those sales. So we can't really shut that down. And that's -- or we can, but then we will lose sales on -- both on the short term, but also definitely on the longer term. So even though you have a budget and linked to the metrics when it comes to Amazon sales, it is very tough when getting hit with all of these rouge sellers. So that's harder to, let's say, forecast and foresee. When it comes to the launch campaigns linked to the Big Box retailers, it's definitely that that there was a lack in control in the organization on the actual spend linked to the sales orders and all of that. So we have -- we took immediate effect with some organizational changes. And then we have also implemented and following up a lot closer when it comes to spend. So I'm confident going forward that we now have the organization that is not only focused on, let's say, sales and marketing, but very much linked to the actual profitability of the brand. So -- but coming back to that, we need to show it, and that's what we intend to do going forward. Adela Dashian: Hakan, but just to clarify then, so there has been changes to the organization and the team has been replaced? Hakan Lagerberg: Yes, not the whole team, but there has been changes, yes, and improvements. Adela Dashian: Okay. All right. There's already been a lot of questions answered. So I'll just stop there. Emma Nordgren: Our last question comes from [ Christian ]. Unknown Analyst: I'm not sure if I captured if you mentioned the amount of one-off items in Q4. So would it be possible to disclose the underlying operational EBITDA margin in Q4, excluding these one-off items? Jenny Graflind: No. No, we're not going to do that. We're not going to adjust for it because part of it is operational. So no, and for example, like I said, even though the marketing spend has been high, yes, we have mentioned in the gross margin, how much the display campaign affect the gross margin and the inventory as well. However, the marketing on the Big Box, it will continue. It's just that we are expecting more sales connected to it. So it's not like a one-off marketing spend on Big Box. It will continue. Unknown Analyst: Okay. Great. And you also mentioned that the ERP implementation caused disruptions that affected the gross margin and volumes. Could you quantify the impact on Q4 sales? Jenny Graflind: Again, it's difficult to quantify when you have disruptions and you have things that takes a little bit longer time. But of course, if we did not have this ERP change in Q4, we probably would have got out a lot of more orders in the beginning of October, which would have expected to have reorders from those kind of customers already in Q4. So now we didn't get those because there was delays due to the implementation of the ERP. A lot of people are busy with it, and there's a learning curve, et cetera. But it's not going to be quantified. Emma Nordgren: It seems like Adela have one more question. Adela Dashian: Just a follow-up on marketing spend. You mentioned, Hakan earlier that the only reason marketing spend could be significantly higher again in '26 is if you have higher volumes, higher than what you're expecting. Could you just, I guess, explain that reasoning? Like if you already are seeing good growth, good numbers, then why do you need to spend more on marketing? Hakan Lagerberg: No. What I meant -- I don't mean more in percentage of the sales. I mean in actual dollars or kroner it will be higher. Jenny Graflind: It could be linked to, for example, if we get another new retailers, et cetera, as well. Emma Nordgren: Thank you. That concludes our Q&A session. So back to you guys for any closing comments. Hakan Lagerberg: Thank you so much. I just want to close out with underlining our, let's say, disappointment with the quarter when it comes to profitability. And rest assured that you all know that the Board and many lots in the organizations are important shareholders of Swedencare, and we're very focused on shareholder value and creating that. So we are disappointed, but are actively working very hard and looking over everything, and we will try to come back and be -- and surprise the market this year. So we stay tuned, and I thank you for your support. And as I want to underline once again, we are very focused in improving profitability going forward. Emma Nordgren: Thank you very much. Hakan Lagerberg: Thank you. Bye. Jenny Graflind: Bye. Brian Nugent: Bye.
Operator: Greetings, and welcome to the Antero Resources Corporation Fourth Quarter 2025 Earnings Call. At this time, participants are in a listen-only mode. A question and answer session will follow the formal presentation. Please note that this conference is being recorded. I will now turn the conference over to your host, Dan Katzenberg, Finance Director. Thank you. Please go ahead. Dan Katzenberg: Thank you for joining us for Antero Resources Corporation’s fourth quarter 2025 investor conference call. We will spend a few minutes going through the financial and operating highlights and then we will open it up for Q&A. I would also like to direct you to the homepage of our website at anteroresources.com, where we have provided a separate earnings call presentation that will be reviewed during today’s call. Today’s call may contain certain non-GAAP financial measures. Please refer to our earnings press release for important disclosures regarding such measures. Joining me on the call today are Michael N. Kennedy, CEO and President; Brendan E. Krueger, CFO; David A. Cannelongo, Senior Vice President of Liquids Marketing and Transportation; and Justin B. Fowler, Senior Vice President of Natural Gas Marketing. I will now turn the call over to Michael N. Kennedy. Thank you, Dan, and good morning, everyone. Michael N. Kennedy: I would like to start my comments by recognizing the outstanding performance from both our upstream and midstream teams during the recent winter storm event. Despite subzero temperatures and significant snowfall, we did not experience any shut-in volumes during the period. In fact, our team was able to turn in line a seven-well pad during that time. A truly remarkable achievement by our people in the field enabling Antero Resources Corporation to deliver critical natural gas to the various regions that desperately needed it. In addition to navigating through the winter, we had a very successful last few months on other fronts. Last week, we announced the closing of the HG Energy acquisition ahead of our original expectations. This acquisition, combined with the sale of our Ohio Utica asset, solidifies Antero Resources Corporation as the premier natural gas and NGL producer in West Virginia. We are also excited that in January, we issued our inaugural investment grade bonds. This offering provides substantial flexibility along with our free cash flow generation during this period that exceeded our initial expectations. Next, let us turn to Slide three titled “Antero’s Strategic Initiatives.” Dan Katzenberg: Last quarter, we introduced our long-term vision and strategic initiatives. The HG acquisition marked significant progress towards Michael N. Kennedy: all of the goals we highlighted. These include expanding our core Marcellus position in West Virginia. This transaction added 385,000 net acres and over 400 drilling locations, extending our core inventory life by five years. Increasing our dry gas exposure, our larger production and inventory base positions Antero Resources Corporation to capture the significant demand opportunities from LNG exports in the Gulf Coast and data centers and natural gas-fired power plants regionally. Dan Katzenberg: Adding hedges to lock in attractive free cash flow yields Michael N. Kennedy: providing high confidence in our free cash flow outlook over the next several years. Dan Katzenberg: Reducing our cash costs and expanding margins. Michael N. Kennedy: The transaction lowers our cost structure by nearly 10% assuming no changes to commodity prices and expands margins. This in turn lowers our peer-leading breakeven prices even further. Lastly, it highlights the benefits of Antero’s integrated structure with Antero Midstream. Now to touch on the current liquids and NGL fundamentals, I am going to turn it over to our Senior Vice President of Liquids Marketing and Transportation, Dan Katzenberg: David A. Cannelongo, for his comments. Thanks, Mike. The NGL market faced various headwinds in 2025, but many of these issues were singular events or trends that are expected to improve over the coming Operator: quarters. Dan Katzenberg: When looking back on 2025, three main fundamental forces caused propane inventories to move higher than market expectations. Slide four titled “U.S. Propane Stocks and Propane Days of Supply” identifies these factors on the chart on the left. As we enter 2025, propane inventory levels were trending with the historic five-year average. However, U.S. trade tensions with China, the resulting reshuffling of U.S. propane exports to different destinations impacted U.S. export volumes. Additionally, this tariff shakeup came at a time when export expansions at existing terminals in the Gulf Coast were facing start-up delays or operational issues. Importantly, the chart on the right-hand of the slide highlights the demand pull that persisted in the propane market last year despite these identified headwinds. Days of supply in 2025 consistently trended within the five-year range, due to strong export and domestic demand. Turning to the supply side, while NGL supply is expected to continue to increase over the coming years, the rate of growth will likely moderate due to weaker oil prices. As shown on Slide five titled “U.S. C3+ Supply Growth Slows,” the chart on the left displays year-over-year U.S. supply growth decreasing from 328,000 barrels per day in 2024 to 131,000 barrels per day in 2026 and further to 45,000 barrels per day year-over-year in 2027. This deceleration is expected due to the lower oil price environment and the resulting reduction in oil-focused drilling activity, especially in the Permian Basin. This trend is likely to continue in the current WTI price environment. Turning to exports, significant LPG export capacity expansion was added in 2025 and there is more to come in 2026, entirely removing any potential market bottlenecks. Slide number six titled “Timely In-Service Dates for LPG Export Expansions” illustrates that LPG export capacity should be unconstrained through at least 2028, allowing U.S. barrels to continue to clear the market. Slide number seven illustrates the significant global NGL demand growth that is forecast for 2026. Following several years of declining demand growth, 2026 demand is expected to grow 563,000 barrels per day, the largest annual increase since 2021, driven by LPG increases in the steam crackers, rising PDH demand, and annual ResCom growth. On the bottom of the slide, you can see the C3+ NGL price going back to 2021. Today, prices are above $35 per barrel. But with the backwardated strip, the annual average is $33.50 per barrel. To put pricing in context, a $5 move in C3+ NGL pricing equates to $225,000,000 in annual free cash flow. All of these factors lead third-party analysts to forecast propane storage levels returning to within the normal five-year range by 2026, which should result in improving prices throughout the year. With that, I will now turn it over to our Senior Vice President of Natural Gas Marketing, Justin B. Fowler, to discuss the natural gas markets. Thanks, Dave. I will start on Slide number eight, which shows the winter-to-date residential and commercial demand. This winter, ResCom demand has been extremely strong, with November through February averaging nearly 42 Bcf per day. This results in an incremental 350 Bcf of natural gas demand compared to the five-year average and is over 1 Bcf above last year. Further, January demand averaged over 50 Bcf, ranking it as the third strongest January ResCom demand on record. January also saw the highest level of industrial natural gas demand on record dating back to 2005, which we believe to be in part related to the continued growth in behind-the-meter power demand for data centers. Turning to Slide number nine titled “Natural Gas Storage.” The result of this strong winter demand has been a dramatic flip in storage levels. At the start of the winter in November, storage was approximately 200 Bcf above the five-year level. Today, we are approximately 140 Bcf below the five-year level. This should result in exiting withdrawal season below the five-year average. Last year, we experienced mild summer demand, which drove storage levels to the high end of the five-year range by the fall. Operator: We Dan Katzenberg: believe substantially higher LNG demand, which is up over 5 Bcf per day from a year ago, even before the imminent startup of Golden Pass, along with an increase in gas-fired power demand year-over-year, will likely moderate storage injections in 2026 relative to historical levels. Supporting strong LNG export demand this year are the European storage level deficits versus the five-year average that continue to widen, currently at approximately 600 Bcf below the average, and are now approaching the historic low levels of 2022. This should incentivize robust U.S. LNG exports to Europe throughout this coming summer. Next, on Slide number 10, let us look at the pricing improvements at some of the hubs that we sell significant gas to. The chart on the left-hand side of the slide shows the TGP 500L basis strength. With the Plaquemines LNG facility consistently averaging feed gas of over 4 Bcf per day, we have seen increasing demand along our TGP 500L firm transport path, driving a higher premium at the delivery point relative to Henry Hub. For the full year 2026, the premium is now plus $0.66 to Henry Hub, the highest level we have seen on an annualized basis. Next, the chart on the right of the slide shows local basis pricing relative to Henry Hub. Local pricing for 2026 is currently $0.74 back of Henry Hub, compared to the $0.88 differential over the past five years on average. We believe this local basis differential could tighten further driven by East Region storage that is more than 13% below the five-year average. As an example, the recent winter weather event combined with this low storage in the East led to February PECO prices settling at just approximately $0.15 differential to Henry Hub, the tightest February differential in ten years. Our acquisition of HG Energy substantially increases our exposure to strengthening local prices driven by the significant regional demand growth. Historically low storage in the East combined with this regional demand growth could result in a need for increased supply, supporting a decision for our growth capital that Mike detailed earlier. This significant regional demand growth is driven by new natural gas power generation and data center projects being announced throughout our region and along our firm transportation corridor. All of these projects will be competing for natural gas that could face supply challenges in that short timeframe. The HG acquisition increases Antero’s dry gas production and drilling inventory, boosting our exposure to this regional demand. Our coordination with Antero Midstream’s ability to build out infrastructure and supply the substantial water needs at these facilities, combined with our extensive land team, puts Antero at competitive advantage in participating in these projects. With that, I will turn over to Brendan E. Krueger, CFO of Antero Resources Corporation. Thanks, Justin. Michael N. Kennedy: I will start with Slide number 11, which highlights our 2025 financial and operating results. Our operational performance in 2025 was one of our best years yet. Dan Katzenberg: As we set numerous company records. During the fourth quarter, we achieved a new stages-per-day company record for a single completion crew, hitting 19 stages in a day. Michael N. Kennedy: For the full year, we averaged over 14 stages per day, Dan Katzenberg: an 8% increase from the 2024 average. Our drilling team achieved its best annual rate Michael N. Kennedy: averaging under five drilling days per 10,000 feet, 4% faster than the 2024 average. The chart on the right-hand side of the slide highlights our 2025 financial highlights. Dan Katzenberg: During the year, we generated over $750,000,000 in free cash flow. Michael N. Kennedy: We used this free cash flow to reduce debt by over $300,000,000, repurchase $136,000,000 of stock, and invest more than $250,000,000 in accretive Operator: acquisitions. Michael N. Kennedy: The strength of our balance sheet and the consistency of our free cash flow generation supports an opportunistic return of capital strategy. Dan Katzenberg: Where we can pivot between debt reduction, buybacks, and accretive transactions, or a portfolio approach to all of these, in order to drive shareholder value. Michael N. Kennedy: Next, Slide 12 highlights our 2026 production and capital outlook. Dan Katzenberg: Starting with the capital table at the top of the slide. Our drilling and completion capital budget is $1,000,000,000. This includes $900,000,000 for maintenance capital, Michael N. Kennedy: and $100,000,000 from the higher working interest as a result of foregoing a drilling joint venture partner this year. Dan Katzenberg: Additionally, we have an incremental three pads that we could develop in 2026 that would add up to $200,000,000 of growth capital during the year and drive further 2027 production growth. The bottom of the slide highlights our production outlook. In 2025, we averaged 3.4 Bcfe per day. For 2026, we forecast 4.1 Bcfe per day of production. This maintenance production level reflects the early February close of the HG acquisition and the expectation that the Ohio Utica divestiture closes in February. Next, as we have discussed, we laid out growth Michael N. Kennedy: to 4.3 Bcfe per day in 2027 due to not having a drilling JV this year Dan Katzenberg: and a growth option that could increase our 2027 production up to 4.5 Bcfe per day. Michael N. Kennedy: This discretionary growth option will be based on the outlook for natural gas prices and in-basin demand during the year. Now let us turn to Slide 13 to discuss our updated hedge program. Dan Katzenberg: To de-risk the acquisition of HG, Michael N. Kennedy: hedge those volumes Dan Katzenberg: to provide a clear path to funding the transaction in just three years using the free cash flow from those hedges Michael N. Kennedy: along with the divestiture of our Ohio Utica assets. Dan Katzenberg: In 2026 and 2027, we are hedged with a combination of swaps and wide collars. We have approximately 40% of our 2026 natural gas volumes hedged with swaps at a price of $3.92 per MMBtu. We have another 20% hedged with wide collars between $3.24 and $5.70 per MMBtu. Our hedge book allows us to protect the downside by locking in a portion of our free cash flow Michael N. Kennedy: while at the same time maintaining attractive exposure to higher natural gas prices. Dan Katzenberg: I will close by commenting that while our equity value remains near levels from before the HG acquisition, our company is much stronger today. Through the transaction, we increased our production base by over 30%, extended our Marcellus core inventory by five years, reduced our cash cost by nearly 10%, and substantially increased our free cash flow. Michael N. Kennedy: We achieved all of this without using any of our equity. And we expect leverage by 2026 to be similar to where we were prior to the Operator: acquisition. Dan Katzenberg: Which was just below one times. Looking forward, we are well positioned to capitalize on the significant natural gas demand growth Operator: expected. Dan Katzenberg: Both on the LNG front in the Gulf Coast and from the Michael N. Kennedy: significant power demand that we see occurring regionally. With that, I will now turn the call over to the operator for questions. Thank you. And at this time, we will conduct a question and answer session. First question comes from John Christopher Freeman with Raymond James. Please state your question. Operator: Thank you. Good morning, guys. The first topic, just on growth capital, just want to know if you all could kind of provide a little bit more color on sort of what kind of in-basin demand gas price assumptions you all would need to kind of support that growth plan, kind of relative to the current strip and outlook? Dan Katzenberg: Yes, John. Our goal is always have the most capital efficient development program and we do have that Michael N. Kennedy: but what that leads us to is to try to have a steady state program. So we are running three rigs and two completion crews right now. So maintaining that would result in growth not only in 2027 at a couple hundred million a day, but also in the further out years. But an attraction of this, though, is that it is flexible. We have the ability just to do our maintenance capital program with leading and drilling two or three less pads and still maintaining production, and then deferring those pads in the future years. You saw us do that in 2024 when you had kind of a $2 gas environment or $2 plus. Then when the natural gas returned to more kind of the $3 plus level, we completed those pads. So that is kind of the expectation here. All of that has the ability to be deferred. It is all second half capital. So we can call an audible then. But if you saw a $3 plus gas, as Brendan mentioned in his comments, the local differentials being so tight that continues. You would probably see us complete those pads and drill those pads. But if it was lower gas environment, we would defer those into future years. Dan Katzenberg: The other nice thing on this capital, this growth, is it is not based on any commitments Michael N. Kennedy: so it truly is flexible. It truly is an option value for us. No commitments with that. It is all local gas. And with discussions we are having and the prices we are seeing, and we have actually already entered into some Dan Katzenberg: sales to utilities off of MVP. As those continue, we will complete those pads into those opportunities. Operator: That is great. Very helpful. And then just follow-up. On Slide 11, you all showed kind of the breakdown of the uses of the free cash flow last year. Roughly about 20% of the free cash flow went to buybacks and, as Brendan, as you mentioned, you know, leverage will be back below one times before the end of the year. Is there any sort of, like, just sort of absolute debt target or something like that that we should be looking at to where you would then potentially maybe more aggressively shift toward buybacks? I mean, I know you are going to be opportunistic, but if there is just some sort of metrics we should be following. Dan Katzenberg: No. Yeah. You know, there are no metrics Michael N. Kennedy: I think we are better positioned now than ever to be countercyclical in buying back shares. With our hedge position, size, and scale, very comfortable buying back shares regardless of where our debt is right now. But with that said, paying down the debt is normally when we actually perform the best from an equity standpoint, de-risking the business, getting it under one times as a result of this year’s activity. But if there is an ability to opportunistically buy back shares and be countercyclical, that is something that we would take advantage of. Operator: Thanks. Appreciate it. Michael N. Kennedy: Your next question comes from Arun Jayaram with JPMorgan. Please state your question. Dan Katzenberg: Yes, good morning, Mike, you have had Michael N. Kennedy: it has been just over 60 days since you announced the HG deal. And I was wondering if, as you look a little bit more under the hood Operator: thoughts on potential upside Dan Katzenberg: potential to the synergy Michael N. Kennedy: number. I think you identified $950,000,000 of PV-10 synergies. Just maybe thoughts on where you stand regarding synergies and how do you think about potential upside or better capital efficiency even as we look at 2026. Operator: Yes, Arun. It is actually better than our expectations Michael N. Kennedy: I was actually out there last week. What is really apparent when you go out there, it is part of our field. It is adjacent. We are the natural developer of it. It just extends our field south to that southern row Dan Katzenberg: of dry gas and liquids opportunities, a little flatter down there. Bigger pads, ability to Michael N. Kennedy: have wider spacing, do bigger completions, have terrific recoveries. Other thing that has come to our attention is just an improvement in our cost structure that is coinciding with all this local gas demand and better in-basin pricing, which we did not underwrite and did not have. So there will be some upside on the pricing, I think. And then I think there will be further upside on the cost structure and recoveries and expanding our margins. Great. Mike, and just maybe a follow-up. I believe on the third quarter call, you highlighted how Antero was completing one of its kind of first dry gas pads in a number of years. I was wondering if you could give us any sense, if you have enough data to maybe to give us some thoughts on how the results played out relative to your expectations and does this set up more of an opportunity for Antero Resources Corporation on the dry gas side? The completion crew right now is on that pad, the Flanagan pad. So it just went on there this week, Arun. Dan Katzenberg: Moving from the Shin pad over to that. So Michael N. Kennedy: still early on that, but we have high expectations for it and very confident in its results. Great. I jumped again on my question. Thanks a lot, Mike. Appreciate it. Yep. Dan Katzenberg: Next quarter. Michael N. Kennedy: Your next question comes from Kevin Moreland MacCurdy with Pickering Energy Partners. Please state your question. Dan Katzenberg: It is Kevin McCurdy. Thanks for taking my question. As we look at the production ramp this year, you end up at the same spot, but the ramp is maybe a touch lower than we were expecting. I wonder if you could maybe touch on the variables that impact that ramp and is that ramp mainly on the acquired assets? Yes. On the production, it is not a Michael N. Kennedy: touch lower. It is as expected. We gave some quarterly performance. We closed it quicker than we thought. Dan Katzenberg: When we mentioned the 4.2% on the initial Michael N. Kennedy: call, that was from Q2 to Q4. It is still 4.2%. It is 4.1% now in Q2 with a turn in line happening Dan Katzenberg: the middle of the quarter that pushes that up to 4.2%. So it is as expected. So cadence is terrific. Michael N. Kennedy: And then goes to 4.3 in 2027, then with the growth capital that we have, if we execute on that plan, we would be at 4.5% in 2027. Great. Thank you for the detail on that. Dan Katzenberg: And maybe shifting to NGLs, as we track the C3 prices, Antero, it looks like domestic prices have not moved much this year, but international prices have been driving your forecast as C3 price for the year up a little bit. I wonder if you can touch on maybe what do you think is driving that arbitrage and how you think that progresses through the year? And maybe is Mont Belvieu fully debottlenecked now or are we waiting on further expansions this year? Yes, Kevin, this is Dave. I will take that one. So on your first question on what is driving the international pricing, typically we see this time of year of the winter propane prices really kind of rise relative to naphtha. So we are seeing levels that are kind of in line with what we have seen in prior winters. But certainly some of the issues that we had on the U.S. export infrastructure side, kind of a lower or a later start on some of the expansion capacity than maybe we had anticipated. Some challenges that some folks have with refrigeration units, as I mentioned in my comments, kind of led us to see the inventories in the U.S. kind of go a little higher than what folks are modeling and expecting at that point in time. So I think here in the first quarter we are seeing those issues resolve. We typically have some fog challenges in the winter as we always do. But strong domestic demand is kind of keeping that from being too noticeable in the inventory levels. But just the usual international markets having a strong desire for U.S. LPG, and when they see any kind of hiccup at the dock in kind of peak demand season of the winter, you see that flip through in the pricing while we always see that appreciation versus naphtha. And then, yes, on the export side, I would say really seeing, even though we kind of talked about expansions in 2025, did not really see the effect of those until we get into calendar year 2026, and then further expansion is coming. So view us really at the front end of that debottlenecking in the Gulf Coast right now. Thank you. I appreciate the answer. Michael N. Kennedy: Your next question comes from Greta Dreskoye with Goldman Sachs Asset Management. Please state your question. Operator: Good morning, all, and thank you for taking my questions. My first is just Greta Dreskoye: on the winter gas realizations. Given the volatility in both the Gulf Coast and Northeast pricing this winter we have seen so far, can you speak a little bit more about your outlook for gas realizations in this quarter in particular? And just key considerations to keep in mind in the context of your scale of your volumetric exposure at the Gulf Coast and the moving pieces of the two transactions. Dan Katzenberg: Yes. Hi, Greta. Yes, I mentioned in my initial Michael N. Kennedy: comments, we did not have any curtailment. So, obviously, we participated in the pricing that occurred in the region and on the Gulf Coast in the first quarter. So we typically have 80% first of the month and 20% on the day. So we were able to sell 20% daily pricing during the quarter. Greta Dreskoye: Great. Thank you. And then a quick follow-up as well. Just on hedges, given the amount of volatility that we have seen at the start of the year, can you just talk a little bit about your current view on potentially layering in incremental hedges in 2027 or beyond if the forward curve gives you that opportunity? Michael N. Kennedy: Yes. I think you said that well. 2026 we are set. 60% hedged, and a high $3 level and some wide collars. 2027, we have some room to go. We are about 900,000 MMBtu per day hedged. So about 30% hedged in that high $3 level. I think high $3 level is, you know, a good area to target. The other thing to note is the M2 basis has really come in. I think it is the tightest it has been on a forward-looking curve in, you know, ten years. Ability to hedge that at about $0.75–$0.76 back level. So if high $3 and hedge the local basis at $0.75–$0.76, lock in Dan Katzenberg: $3 realizations at the wellhead locally. Michael N. Kennedy: That is an attractive level for us. So I think we continue to layer some of those in. Greta Dreskoye: Thank you. Dan Katzenberg: Mhmm. Michael N. Kennedy: Thank you. And your next question comes from Josh with UBS. Please state your question. Just going back to the cost structure, can you talk about how this may change throughout the course of the year? I believe you talked about $0.25 per Mcfe margin improvement due to GP&T costs start higher that declines, so you also see a benefit into 2027 versus 1Q of this year. Sort of direction there would be helpful. Thanks. I think you touched on it. $0.25 is a good level. Dan Katzenberg: Obviously, there is some variable component to our cost structure. You recall with every dollar up, Michael N. Kennedy: in the natural gas price is about a $0.10 variable just on production taxes and transport costs on our FT. Dan Katzenberg: So you had a little bit of that up compared to when we Michael N. Kennedy: mentioned December because the gas curve is actually up $0.60, up $0.26, so you saw about a $0.06 increase from there. But conversely, our realizations as well are still in that $0.10 to $0.20 premium, whereas we thought would be more flat. So the ability to add 800,000 Mcf per day of local dry gas and still have a $0.00 to $0.20 premium to NYMEX for 2026 is terrific. So looking good there, but think you hit on it, about a 10% reduction in our cost structure, about $0.25. Got it. And then just wanted to shift over towards any sort of potential power supply deals and see how those are progressing with the new HG volumes and some of the interconnects that you now have a little bit better in West Virginia, how would those maybe be developing? You have talked about now improving kind of local basis as well. How you may look to structure these? Dan Katzenberg: Thanks. Hey, Josh, this is Brendan. So overall, I think on power side, Operator: as Mike mentioned, think in his Dan Katzenberg: prepared remarks, Michael N. Kennedy: we are selling some of that gas already to utilities Operator: that are buying for a lot of this gas-fired power demand that we are seeing. I think on top of that, we continue to see RFPs come in quite frequently on additional gas supply. Dan Katzenberg: The next several years. I think as they get closer to being in service, they then turn to some of the larger gas producers and particularly investment grade gas producers in the region to look to lock in some of that supply. So we are seeing a lot of Operator: interesting conversations there and Dan Katzenberg: we will look to continue to lock in some of that pricing over time here. Greta Dreskoye: Thank you. Michael N. Kennedy: And your next question comes from Phillip J. Jungwirth with BMO Capital Markets. Please state your question. Dan Katzenberg: Thanks. Good morning. Your FT portfolio, it has always Michael N. Kennedy: delivered leading realizations, smoothed out price volatility. Most of this was signed up a long time ago. So I was just hoping you could talk about how you see yourself managing this FT position through the decade, including that associated with ethane, C3+. Is there any you do not feel the need to keep? And is there just a long-term margin optimization story here through recontracting or maybe even picking up different FTs from others who do not have inventory? Dan Katzenberg: Yes, good question. Definitely an optimization. I mean, we are so well positioned right now. We can pick and choose the best path going forward. Also now with the flexibility in the local dry gas Michael N. Kennedy: so we can do both. Dan Katzenberg: And that is an opportunity for us over the next couple of years if some of these long-term agreements come to the end of their original agreement, we will assess whether it makes sense. But Michael N. Kennedy: that is a great story for us on a go forward and definitely upside, our ability to optimize those Dan Katzenberg: transport paths and optimize our cost structure. Michael N. Kennedy: Okay, great. And then as we think about the organic just leasing program, hoping you could kind of frame the competitive moat you have here in terms of existing footprint or infrastructure. There are still some smaller players in and around you, and just what is the pathway for some of these smaller E&Ps to efficiently develop their position? Or have you made it pretty prohibitive for them to do that given your large footprint and surrounding footprint? Dan Katzenberg: No, we are obviously the West Virginia natural gas and NGL producer, and our size and scale makes it a lot more efficient for us to develop the asset compared to others. So I think you will continue to see us build upon that. Whether through organic leasing or small transactions, continue to just consolidate our position in West Virginia. And that will continue to drive our capital efficiency and lower cost structure and margins. Michael N. Kennedy: Great. Thanks, guys. Your next question comes from Leo Paul Mariani with Roth. Please state your question. Yes. Hi, guys. Just wanted to follow up a little bit on the growth CapEx question. Obviously, you guys kind of cited that this $3 plus world is sufficient for you guys to go ahead and spend some of that growth CapEx. Leo Paul Mariani: Just wanted to kind of clarify, is that a $3 Henry Hub price? Or is that more of a $3 kind of in-basin price, which seems like you are fairly close to that given the tightening basis as we roll into next year? And then if you do decide to the capital, could you just provide a little bit of color in terms of what that looks like in the second half? Is most of that CapEx kind of fourth quarter and then production starts to ramp kind of early in 2027? Just any kind of moving pieces around that would be great. Dan Katzenberg: Yeah. First part is more NYMEX based. You know, like you cited, we can right now, the market is at, say, $3 in-basin for 2027. Even if you had $3 NYMEX and that $0.70 back, you would be in the Michael N. Kennedy: high-$2s in-basin and you are talking $1 cost structure on this gas, so you are $1.50 margin even in that level. It is $0.50 F&D. So you are still having terrific returns. These are all local dry gas pads. The optionality here is kind of one of the key points, flexible. There are no commitments around it. So we can judge it at the time and we can hedge it as we have been Dan Katzenberg: as well. So $3 plus kind of NYMEX is more where our head was at with that type basis. The second part is it is all second half capital. Michael N. Kennedy: You will not see any of the production ramp until 2027. Obviously, you have a six to nine month kind of cycle on drilling, completing, and turn-in-line date. So there will be second half capital. We looked at it, it is almost all second half capital. It is like 95% all second half on these two to three pads. And then the production comes on in 2027. Okay. Appreciate that. Leo Paul Mariani: And just with respect to the buyback here, I was getting a sense, correct me if I am wrong, do not want to put words in your mouth, that the debt paydown is maybe a little bit more of a priority just given the fact that you kind of added some leverage, you obviously have some nice hedges to take care of that. And the buyback is going to be maybe a little bit secondary and fairly opportunistic as well. Dan Katzenberg: Yeah. It is fair at this level. But if you do see any sort of opportunities on the equity, you should be Michael N. Kennedy: pretty confident we would take advantage of that. Leo Paul Mariani: Okay. Thank you. Operator: Your next question Michael N. Kennedy: comes from Kaleinoheaokealaula Akamine with Bank of America. Please state your question. Just played a Dan Katzenberg: good morning, guys. Thanks for taking my question. Kaleinoheaokealaula Akamine: My first question is on the growth option. I am wondering if that investment sets you up for 4.5 Bcf/d early in 2027. And what the new maintenance capital number is associated with that volume level. Dan Katzenberg: That would be early in 2027, and that is not a maintenance capital. Running three rigs and Michael N. Kennedy: two completion crews would add a couple of hundred million a day of growth 2028 and 2029. So you continue to grow at that kind of $1,200,000,000 capital. Our maintenance capital would still continue to be $900,000,000-ish. That is kind of what we were looking at this morning. It is pretty remarkable. So maintenance capital stays relatively flat even at those levels. Just highly, highly capital efficient development program. Got it. I appreciate that. And for my second question, just kind of based on your comments, it sounds like the growth option will be on the Kaleinoheaokealaula Akamine: dry gas acreage, Michael N. Kennedy: whether that is legacy Harrison County or the new HG that you picked up. Just kind of wondering if there is sufficient egress to move those growth volumes around the basin Kaleinoheaokealaula Akamine: or if you will be spending additional midterm capital at Antero Midstream. Dan Katzenberg: No. Antero Midstream does have some capital. It is Michael N. Kennedy: around $20,000,000 this year to build out our dry gas eastern connect, all the various pipes, and that will provide enough egress, and there is Dan Katzenberg: so much local demand that you will be able to sell the gas locally. Thank you, Mike. This year. Michael N. Kennedy: Thank you. And your next question comes from Subash Chandra with DolanX. Please state your question. Yes. Hi. So just curious, maybe the question is for Dave. What is the Subhas Chandra: PDH outlook in China in 2026? Dan Katzenberg: Yes. So right now, I mean, the current infrastructure is running in the 65% to 70% utilization range. We did have four plants that came on in 2025, so kind of continuing to see the absolute amount of volume that is capacity that is available to ramp into is in that 300,000 to 400,000 barrels a day Operator: range. Dan Katzenberg: And then two additional plants right now on the schedule to turn in line—or come online, sorry—in 2026. And those total about another 55,000 barrels a day of PDH demand. Subhas Chandra: Perfect. Excellent. Thank you. And then it seems like, you know, the completions in 2026 guidance is longer laterals than 2025. Just curious if is any of that HG related? Or is that going to be more influential in 2027? Dan Katzenberg: It is pretty much all HG related, actually. That is one of the attractions Michael N. Kennedy: here. I mentioned it is a row, but they were able to design it as a very efficient row that basically goes north and south 20,000 feet both ways. It is kind of their average. So that takes us up to that Dan Katzenberg: 15,000 feet level from our typical 13,000 feet. So definitely accretive on a lateral length, the HG development. Subhas Chandra: Great. Thank you. Michael N. Kennedy: Thanks. And your next question comes from John Abbott with Wolfe Research. Please state your Subhas Chandra: Thank you for taking our questions. I want to go back to the question, go back to growth. And the HG transaction has added to your inventory. We have already sat here and discussed John Abbott: you have the option to get to 4.5 Bcf per day in 2027, you could grow beyond that. I guess, when you sort of think about your inventory in hand, and when you think about NGLs and dry gas, how do you think about the extent that you are willing to grow? Just given your visibility on that for user and how you think about that? Michael N. Kennedy: Yes, quite a bit. I mean, we are the ones that should grow. We have the most capital John Abbott: program. We have the FT that goes to the LNG exports. We have the local dry gas where it goes to where all the data centers and that gas-fired generation is coming. So all the demand centers that everyone projects that is coming over the next five years, we are the best positioned for it, and we have the best rock. So that is kind of where our head was at, is why would we, you know, navigate through this by strictly enforcing ourselves at maintenance capital. We want to be the most capital efficient Michael N. Kennedy: developer, and that is always our goal. And so a steady state program is always the way to achieve that. So just running three rigs, John Abbott: and two completion crews flat will result in the most capital efficient development, and to toggle away from that based on monthly swap prices is not something that we would probably do. Michael N. Kennedy: And when you put that into our development plan, that results in this growth. So that is kind of where we came to on this. We are the ones that should be growing and meeting this upcoming demand, and we are the best positioned for it. John Abbott: I appreciate it. And then the follow-up question here, I guess, would be for Justin. So you were, in the slide, you are highlighting the tightening of basis. I mean, I guess the growth option here from bringing on the dry gas wells, you are to hedge that. But I guess when you sort of look at basis and tightening, how do you think about basis in growing into that basis? How do you think about your impact to basis? And the decision to grow? Yeah. We are not—I mean, we are talking a couple hundred million a day of growth. I mean, the demand numbers you are seeing are well in excess of that. So on a percentage basis, it is probably—we are actually probably not adding to or detracting from the supply and demand picture. So Michael N. Kennedy: this is not strictly material. You are talking 200,000,000 a day of John Abbott: gas production growth versus Bcf per day of gas demand. All right. Appreciate it. Thank you for taking our questions. Michael N. Kennedy: Your next question comes from Sam Margolin with Wells Fargo. Please state your question. Subhas Chandra: Hi, thanks for taking the question. John Abbott: Back to your Dan Katzenberg: point on capital efficiency, it looks like just from your John Abbott: production guidance and your activity guidance that HG had a Dan Katzenberg: positive impact on your corporate decline rate. Is that accurate? And if so, could you help quantify that a little bit? I am John Abbott: looking at the Michael N. Kennedy: production outcome from this spending. Yes. Our capital decline actually was John Abbott: in the low 20s. Hers is a little bit above that, kind of mid-20s. But what we have, it is Dan Katzenberg: have a flatter production profile. You have some John Abbott: and an HG flatter—the midstream system has more of kind of a flat production profile in the wells in the first couple of years, whereas ours was more well plumbed. So it is fairly similar, but a lot of their production has had a constraint just around midstream. And so it has got a flatter production profile in its first couple of years. Got it. Okay. Thank you. And then just on the commercial side, there is a lot of focus on power, but the industrial piece along some of your firm transport destinations also has some growth prospects. Are there commercial or fixed Dan Katzenberg: gas supply opportunities in that category? Yes. Good morning. This is Justin. We have spoken about this in previous calls, but Antero’s firm transport book is set up with approximately 2 Bcf that heads down to the Gulf Coast, which Mike mentioned. That gets into the LNG corridor. And within that path, not to mention what the local growth will be, and we have different capacity that will pass by those end users. Just if you think geographically—Kentucky, Tennessee, Mississippi, all the way down to the LNG corridor—we have identified potentially 4 to 6 Bcf of different demand that would be a potential fit with the Antero firm transport delivery. So we continue to have those conversations. As Brendan mentioned, we continue to get RFPs for different supply for these data centers and power projects. John Abbott: And, you know, we have touched on this in the past as well, but Dan Katzenberg: the competition for that volume southbound continues to increase over the next couple of years. Subhas Chandra: Thanks so much. Operator: Thank you. Michael N. Kennedy: And we have reached the end of our question and answer session. So I will now hand the floor back to Dan Katzenberg for closing remarks. Dan Katzenberg: Thank you for joining us on the conference call today. Please reach out with any further questions that you have. Have a good day. Operator: This concludes today’s call. All parties may disconnect.
Operator: Good morning, and welcome to the Howmet Aerospace Fourth Quarter and Full Year 2025 Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Paul Luther, Vice President of Investor Relations. Please go ahead. Paul Luther: Thank you, Gary. Good morning, and welcome to the Howmet Aerospace Fourth Quarter and Full Year 2025 Results Conference Call. I'm joined by John Plant, Executive Chairman and Chief Executive Officer; and Patrick Winterlich, Executive Vice President and Chief Financial Officer. After comments by John and Patrick, we will have a question-and-answer session. I would like to remind you that today's discussion will contain forward-looking statements relating to future events and expectations. You can find factors that could cause the company's actual results to differ materially from these projections listed in today's presentation and earnings press release and in our most recent SEC filings. In today's presentation, references to EBITDA, operating income and EPS, mean adjusted EBITDA, excluding special items, adjusted operating income, excluding special items and adjusted EPS, excluding special items. These measures are among the non-GAAP financial measures that we've included in our discussion. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release and in the appendix in today's presentation. In addition, unless otherwise stated, all comparisons are on a year-over-year basis. With that, I'd like to turn the call over to John. John Plant: Thank you, PT. Good morning, and welcome to Howmet's Q4 and Full Year 2025 Earnings Call. Let's start with the highlights on Slide #4. Q4 was an extremely solid quarter. Revenue of $2.17 billion was up 15%. Full year revenue was up 11%, and hence, the final quarter saw an acceleration of growth. EBITDA was $653 million, up 29%. Our operating income was $580 million, an increase of 34%. Full year EBITDA of $2.42 billion was an increase of 26%. Free cash flow after record capital spend of $453 million was $1.43 billion, which is more than $100 million above the guidance and a 93% conversion of net income. . Over the last 6 years, aggregate net income conversion to free cash flow has been 95%. Earnings per share were $1.05, an increase of 42% in the quarter over 2024, resulting in a 40% increase for the year. Capital deployment in the quarter included $200 million of share buybacks, $50 million of dividends, $55 million for preferred share redemption and a further $125 million for debt reduction. The closing cash balance was $743 million, allowing for further share buybacks in January and February with $150 million completed quarter-to-date. I'll stop at this point and let Patrick provide commentary by end markets and by segment. Patrick Winterlich: Thank you, John. Good morning, everyone. Please move to Slide 5. Another solid quarter for Howmet's with end markets continuing to be healthy. We are well positioned for the future and continue to invest for growth. Revenue was up 15% in the fourth quarter and up 11% for the full year. Commercial aerospace growth remained strong throughout 2025, with revenue up 13% in the fourth quarter and up 12% for the full year. Commercial aerospace growth is driven by accelerating demand for engine spares and a record backlog for new, more fuel-efficient aircraft with reduced carbon emissions. Commercial aerospace engine spares were up 44% for the full year, driven by both legacy and next-generation engines. Defense aerospace growth continued to be robust at 20% in the fourth quarter. For the full year, Defense aerospace was up 21%, driven by engine spares, which increased 32% as well as new F-35 aircraft builds. Commercial transportation revenue was up 4% in the fourth quarter. However, it was down 5% for the full year, including the pass-through of higher aluminum costs and tariffs. On a volume basis, wheels was down 10% in the fourth quarter and down 13% for the full year. We continue to outperform the market with Howmet's premium products. As mentioned on the Q3 earnings call, we have combined the oil and gas and IGT markets into a single market we are calling gas turbines. The definition of oil and gas versus mid- to small IGT has become blurred since many turbines now have an increasing end use for data centers. We have provided historical gas turbine revenue in the appendix on Page 19. Gas turbine growth has been very strong with revenue up 32% in the fourth quarter and up 25% for the full year. Gas turbine growth is driven by the increased demand for electricity generation, especially from natural gas for data centers. Within Howmet's markets, we had robust spares growth. The combination of commercial aerospace, defense aerospace and gas turbine spares was up 33% for the full year to $1.7 billion. Spares revenue accelerated throughout 2025 and now represents 21% of total revenue versus 17% in 2024 and 11% before and 11% in 2019. In summary, 2025 continued strong performance in commercial aerospace, defense aerospace and gas turbines. Moving to Slide 6 and starting with the P&L. I will focus my comments on full year performance. Full year 2025 revenue, EBITDA, EBITDA margin and earnings per share were all records. On a year-over-year basis, revenue was up 11% and EBITDA outpaced revenue growth being up 26%, while absorbing approximately 1,500 net new employees predominantly in the Engine segment. EBITDA margin increased 350 basis points to 29.3% with a fourth quarter exit rate of 30.1%. Incremental flow-through of revenue to EBITDA was excellent at approximately 60% year-over-year. Earnings per share was $3.77, which was up a healthy 40% year-over-year. Now let's cover the balance sheet and cash flow. The balance sheet continues to strengthen. Free cash flow for the year was a record at $1.43 billion. Free cash flow conversion of net income was 93% as we continue to deliver on our long-term target of 90%. The year-end cash balance was a healthy $743 million. Debt was reduced by $265 million in 2025. We paid off the remaining $140 million of our U.S. dollar long-term due in November 2026 at par. We also paid off our $625 million 2027 notes with newly issued $500 million notes due 2032 and $125 million of cash on hand. The interest rate for the 2032 notes is 4.55%. The combined debt actions for the year will reduce the annualized interest expense by approximately $22 million. In the fourth quarter of 2025, we redeemed all of the outstanding shares of our preferred stock for $55 million, simplifying Howmet's capital structure. Net debt to trailing EBITDA continued to improve, ending the year at a record low of 1x. All long-term debt is unsecured and at fixed rates. Howmet is rated 3 notches into investment grade by all of our rating agencies, reflecting our strong balance sheet, improved financial leverage and robust cash generation. Liquidity remains strong with a healthy cash balance, plus a $1 billion revolver complemented by the flexibility of a $1 billion commercial paper program, neither of which were utilized in 2025. Turning to capital deployment. CapEx was a record $453 million, up approximately $130 million year-over-year as we continue to invest for growth. About70% of CapEx was in our Engines business as we continue to invest for market expansions in commercial aerospace and gas turbines. Investments are backed by customer contracts. In 2025, we deployed approximately $1.2 billion of cash to common stock repurchases, redemption of preferred stock, debt paydown and quarterly dividends. For the year, we repurchased $700 million of common stock at an average price of approximately $161 per share, retiring approximately 4.4 million shares. Q4 was the 19th consecutive quarter of common stock repurchases. The average diluted share count improved to a fourth quarter exit rate of 404 million shares. Moreover, so far in 2026, we have repurchased an additional $150 million of common stock at an average price of approximately $215 per share. As of today, the remaining authorization from the Board of Directors for share repurchases is approximately $1.35 billion. Finally, we continue to be confident in the strong future free cash flow. For the year, we paid $181 million in dividends, which was an increase of 69% year-over-year from $0.26 per share in 2024 to $0.44 per share in 2025. Now let's move to Slide 7 to cover the segment results from the fourth quarter. The Engine Products team delivered another record quarter for revenue, EBITDA and EBITDA margin. Quarterly revenue increased 20% to $1.16 billion, commercial aerospace was up 17%, and defense aerospace was up 18%. The gas turbine market was up 32%. Demand continues to be strong across all our engine markets with strong engine spares volume. EBITDA outpaced revenue growth with an increase of 31% to $396 million EBITDA margin increased 290 basis points to 34%, while absorbing approximately 320 net new employees in the quarter. For the full year, revenue was up 16% to $4.3 billion. EBITDA was up 25% to $1.44 billion, and EBITDA margin was 33.3% which was up approximately 250 basis points. All of these were records for the Engine Products segment. Moreover, the Engine Products segment added approximately 1,440 net new employees which has a near-term margin drag, but it positions us well for the future. Please move to Slide 8. Fastening Systems had another strong quarter. Quarterly revenue increased 13% to $454 million. Commercial aerospace was up 20%. Other markets were up 14% on renewables demand Defense Aerospace was up 7% and commercial transportation, which represents approximately 10% of fasteners revenue was down 16%. EBITDA continues to outpace revenue growth with an increase of 25% to $139 million despite the sluggish recovery of wide-body aircraft builds along with weakness in commercial transportation. EBITDA margin increased a healthy 290 basis points to 30.6% as the team has continued to expand margins through commercial and operational performance. For the full year, revenue was up 11% to $1.75 billion. EBITDA was up 31% to $530 million and EBITDA margin was 30.4%, which was up approximately 460 basis points. The fasteners team delivered solid year-over-year revenue and EBITDA growth, while maintaining a relatively flat headcount. Moving to Slide 9. Engineered Structures performance continues to improve. Quarterly revenue increased 4% to $287 million. Commercial aerospace was down 6% due to product rationalization and was essentially flat with the previous 3 quarters of 2025. Defense aerospace was up 37%, primarily driven by the end of destocking on the F-35 program. Segment EBITDA outpaced revenue growth with an increase of 24% to $63 million. EBITDA margin increased 350 basis points to 22% and as we continue to optimize the structures manufacturing footprint and rationalize the product mix to maximize profitability. For the full year, revenue was up 8% to $1.15 billion. EBITDA was up 46% to $243 million, and EBITDA margin was 21.2%. EBITDA margin was up approximately 560 basis points as the team continues to make significant progress. Finally, Slide 10. Forged Wheels quarterly revenue was up 9% as a 10% decrease in volumes was largely offset by higher aluminum costs, tariff pass-through and favorable foreign currency impacts. EBITDA was strong at $79 million, an increase of 20% despite the challenging market. EBITDA margin increased 270 basis points to 29.9%. The unfavorable margin impact of lower volumes and higher pass-through was more than offset by flexing costs, a strong product mix driven by premium products and favorable foreign currency. For the full year, revenue was down 1% to $1.04 billion. EBITDA was up 3% to $296 million. EBITDA margin was a strong 28.5% and in a challenging market and was up 130 basis points year-over-year. The wheels team has continued to expand margins despite market metal cost and tariff uncertainty. Lastly, before turning it back to John, I want to highlight a couple of items. Firstly, in mid-2024, we established a 2025 dividend policy to pay cash dividends on the company's common stock at a rate of 15% plus or minus 5% of adjusted net income. Cash dividends were approximately $181 million or 12% of adjusted net income in 2025. Looking forward, we envisage that the dollar value of dividend distributions in 2026 will be higher than in 2025. Secondly, in the fourth quarter of 2025, we completed the annuitization of the U.K. pension plan, resulting in a $128 million reduction to Howmet's gross pension obligations. No new pension contributions were required in 2025 to complete the transaction. A third-party carrier will now pay and administer future annuity payments for this plan. Now let me turn the call back to John. John Plant: Thank you, Patrick, and let's move to Slide 11. Let me turn to the outlook for the company and I'll provide summary comments before providing more detail for each market segment. The vast majority of the markets we serve, including commercial aerospace, defense, and land-based gas turbines are in a growth phase. The commercial truck wheel segment is stable at a low level and should begin to show signs of growth towards the latter half of 2026. Firstly, commercial aerospace is buoyed by increased air travel, both domestic and international. The highest growth is seen in Asia Pacific, notably China, but also in North America and in Europe. Freight traffic also continues to grow. Passenger demand combined with the recent multiyear underbuild of commercial aircraft have together led to a record OEM backlog stretching into the next decade. New aircraft builds, including narrow-body, wide-body and freighters are planned to grow at all aircraft manufacturers. I'll provide expected build rates later in the call. . In addition to these robust newbuilds, spares continue to be elevated by the expanding size and growing age of the current fleet of aircraft. This is further enhanced by durability issues found in some modern engines essentially due to higher operating pressures and temperatures, which are required to achieve increased fuel efficiency. Air pollution in certain parts of the world further contribute to the problem. Defense markets, especially fixed wing aircraft are also buoyant. The largest platform, the F-35 continues to be steady for OE builds, again, with a very large new build backlog while spares also continued to grow due to the size of the fleet. In fact, for our Engine Products segment in 2025, the F-35 spares demand exceeded the OE demand for the aggregate value of spare parts provided. The F-15 and F-16 programs are also seeing new builds with reasonable quantities. Howmet see a strong further demand from other parts of the defense and space industry also, namely tank turbines, missiles, rocket motors, [indiscernible] and also spare rocket parts. The gas turbine business is entering its largest growth phase in years, while oil and gas demand seem to be steady. The demand for electricity generation, especially from natural gas for data centers is extremely high. If we aggregate both large gas turbines and small- to medium-sized gas turbines, we expect that our base business of approximately $1 billion should double in revenue to $2 billion over the next 3 to 5 years and even more growth is envisaged beyond that, especially for mini grids. Howmet is well positioned in this segment by the supply of turbine blades, where we are the largest manufacturer of gas turbine blades in the world, covering our key customers of GE Vernova, Siemens Power, Mitsubishi Heavy and [ Saldo, Solar and Baker Hughes ], plus parts for aero derivative engines produced by GE Aviation. We have recently completed new contracts with 4 of these 7 customers while negotiations continue with the other 3. Additionally, the build-out of the turbine fleet over the next 5 years, and she has a healthy and growing spares market for years to come. Turning now to commercial truck wheels. We weathered the volume downturn in 2025, especially in the second half, share growth and penetration versus steel wheels helped. For the year, commercial transportation revenue is down 5% despite material and tariff recovery covering part of the volume downdraft. The market appears to be stabilizing, and we now believe that Q1 will be the quarterly low point. Given the new 2027 emissions regulations remain in place, we anticipate that this will begin to help demand in the second half of 2026 and then we should see the inventory multiplier effect still take effect as the truck builds increase. I'd like to mention the commercial aircraft build rate assumptions upon which our guidance is based. Albeit we will match aircraft build rates, whatever they eventually turn out to be. For Boeing, the 737 assumption, is 40 aircraft per month based on a rate of 42 as a daily average coming to the month without vacations. And the 787 is 7 a month rising to 8 a month by the fourth quarter. For Airbus, the A320 assumed to be 60 a month, while the A350 is at 6 per month. Q1 2026 guide numbers are revenue of $2.235 billion, plus or minus $10 million; EBITDA of $685 million, plus or minus $5 million and EPS of $1.10, plus or minus $0.01. You'll note that our Q1 revenue is an increase of 15% year-on-year above the average for 2025. We remain positive on the growth for 2026 while noting the dependency on aircraft builds. For 2026, the numbers provided exclude the acquisition of CAM. Revenue of $9.1 billion, plus or minus $100 million, EBITDA of $2.76 billion, plus or minus $50 million, earnings per share of $4.45, plus or minus $0.01 and finally, free cash flow of $1.6 billion, plus or minus $50 million. The EBITDA incremental for the year, is it guided to be approximately in the early [ 40% ]. I would now like to turn to portfolio commentary. In the first -- sorry, in the last few months, we've been very busy. We've signed and closed on the purchase of our fastener business in Wisconsin, [ Puna Inc ]. We believe that this acquisition enhances our product offering and opens up new markets for Howmet to explore, especially in the longer length and wider diameter parts in the fasteners market. The impact of this acquisition on Howmet's earnings is not material. However, it provides a very good platform for future growth. The more significant acquisition has come in the Aerospace fastener and fittings business, for which we have agreed to pay $1.8 billion. Upon deal closure, the earnings per share effect in the balance of 2025 will not be of a material effect. And hence, the guide is kept clean until the date of closing is known post the regulatory processes. These actions strengthen Howmet's portfolio of businesses going into 2027. The theme has been and will continue to be to play to our strengths and allocate capital decisively to businesses that are growing and showed the strongest returns on capital and cash generation. We're excited about the future given these portfolio improvements as well as the growing commercial aerospace and gas turbine businesses. Further growth updates concerning the gas turbine business will be provided as we've progressed throughout the year. I'll now start and turn the meeting over to questions. Thank you. Operator: [Operator Instructions] The first question is from Doug Harned with Bernstein. Douglas Harned: John, I'd like to understand sort of how your thinking has evolved when you look ahead over the next 5 years with engine products. Clearly, things have changed. And can you contrast your expectations for the relative growth across commercial, aero, defense, gas turbines as you think about planning, investments and so forth. And then related to this, you just reached a record EBITDA margin of 34%. In [ branding ] products. Are you near a ceiling with this? And what's enabling you to get to these higher margins? John Plant: Okay. So as you say by thinking has evolved. I guess, thinking always evolves with the passage of time and the circumstances change. I mean, I think the constant throughout this start off with commercial aerospace, where I've been convinced that growth will be robust and continuing. As you know, sometimes over the last 2 or 3 years or maybe 4 years, it hasn't been quite as good as we had envisaged, and that's principally due to the difficulties in final assembly of aircraft and also engines. But the trajectory has been positive and the future continues to look really good. And so when I consider the backlog the commercial aircraft that are there. I think it is quite extraordinary. And I think the word extraordinary is appropriate. And that applies to both narrow-body aircraft and wide-body aircraft. Since if you were to order a new aircraft today, you're really looking at delivery beyond 2030. If build rates were not to increase that it would be possibly almost towards the end of the 2030 decade. And so there's a very strong requirement for builds to increase. And so I think that backlog number gives great comfort in the investments that we've made. And you've seen our capital expenditure developed very notably over the last few years. And we've talked previously about building out another complete manufacturing plant and extending say, 1.5 manufacturing plants in it for our commercial aerospace business. So that's been very significant, and that's on top of the new engine plant that we built in 2020 coming on stream at that time, we started COVID there's been a tremendous investment for the commercial aerospace market. At the same time, we've seen very solid demand for defense and I think the surprise there has not been the solidity of the F-35 more so the fact that the other legacy aircraft have also seen significant new orders. But the F-35 is the flagship program that we have. But now when we look out, there's a significant emerging segments of missiles for us, where we are seeing very significant demand increases and just at the moment, we're also spending a lot of engineering efforts to try and ensure that we have position on engines for drones and for the larger cruise missiles. And so again, we see defense as a continuing good sector for us and which we're backing with investment dollars in a significant way. I think the biggest change to my thinking has been for the gas turbine market. And historically, if you've gone back by 7 years, I said this was a more cyclical business. It has shown periods of rapid growth and rapid decline and it was one where I was quite leary about making investments in that segment. And then I think things began to change with, I'll say, more consistency of product management by our customers so far less new product introductions and therefore, more buildable repeatable product. And then the emergence of demand, which seem to be a long ongoing need to support the renewable industries where the base level of capability and fast response. But you didn't really stop there and now I'll say, the emphasis is probably a little bit less on renewables and more on fossil fuels. And certainly, when you look at it, if coal-fired power stations are not being retired then the tremendous demand that's there can only really -- realistically be filled by the natural gas market. And so when you look at it with the demand projections for data centers and that was without the advent of AI, it caused me to think about willingness to invest. And so we did tick up capital deployments in new equipment in 2024 and then more again in 2025. And you saw the capital expenditure for the year very, very significantly above that, which we envisaged at the beginning of the year, you could go back to our guide a year before. And now we're looking at 2026, where it's going to be a higher number again. And we've picked the midpoint of about $470 million but I could envisage it rising above that. But at the same time, we're really trying and ensuring that we have that consistency of free cash flow conversion of the 90%. And so 2025 was a year where there was not a lot of new output from the capital expenditures that we had put into the ground I think it's more a question of yield improvement to allow for the average of a 25% growth in that area. And we had been, I'll say, quite successful and probably exceeded our expectations of the improvements we could make. And as you know, in previous calls, I've talked about building a new plant in Japan, which has been done. Building a new plant in Europe, which has been done and then placing new capital into those 2 new manufacturing plants plus the existing one in the U.S. And so a lot of that capital will come on stream towards the back end of 2026 and into 2027. But it hasn't really stopped there. And in dialogue with our customers more recently, we are seeing again, further demand patterns evolve where additional investments are required. And so right now, if I were to call it, I envisage that 2027, we'll see an even higher capital number if all of the -- all of our discussions come home. And I quoted in my prepared remarks about 4 out of 7 customers that was the -- both a very large gas to [ via ] customers and the, I'll say, small and midsized. But if I just confine it to the large gas turbines for the utilities, but now some of them being sold directly to data centers where it's a gigawatt of energy output is required. Then we've now completed 3 out of 4 I will say, outcomes or discussions with those customers and have reached agreements whereby we would seek to invest more for the future while ensuring, again, that we have healthy returns for Howmet shareholders. So I think that really covers how -- I think that is involved in our thinking, both through commercial aerospace, defense, supplementary areas and further market opportunity in defense maybe be collaborative combat aircraft as well and their engine requirements and now in the gas turbine market. So it's a particularly exciting time. And as you know, we always back the areas investment in the company, which earn higher returns. I hope that covers it, Doug. Douglas Harned: Well, and just on margins, the 34%, which was unusually high. John Plant: Well, I think it's a good margin. As you know, I never I'm willing to consider what margins are for the future because I find it always a very difficult topic to cover. As you know, we don't seek to take them down at the same time, predicting increases is not something that I've ever been willing to do and because so many factors come into play regarding that. I mean, at the moment, I see, for example, I have to take on additional cost, not only of the new manufacturing plants, but also I think that we're going to sort of recruit another net 1,500 people plus in 2026 into our Engine segment. And so on all of those people would require training and et cetera, et cetera. So there's a lot going on and I'm also very clear that if we were to hit all that marks then again, the output that we need to achieve won't come from just the new capital load, we've got to try to attain further yield improvements, which then requires us to have effective labor and also bringing together all of the -- I'll say, the flow that we have and trying to get more repeatable product through our manufacturing facilities. And I think the opportunity, which I see in the midterm is that we will be able to move for more batch production in the gas turbine area, it's more of a flow style production which, again, towards the end of the decade, should begin to, say, further give us impetus on yields and therefore, margin. But it's way too early to predict that, Doug. Operator: the next question is from Seth Seifman with JPMorgan. Unknown Analyst: This is Alex on for Seth today. Maybe one kind of more specific to the guide for this year. Based on the guide for Q1, the midpoint of the rest of the guide for 2026 kind of implies minimal improvement in revenue, adjusted EBITDA and adjusted EPS. Now wondering if you could kind of walk us through the puts and takes there and why that is? And also on the margin, the full year guide kind of implies that the margin is going to decline 30 bps for the full year from the 30.6% in Q1. Wondering how much of that might be related to maybe some start-up friction related to the engine capacity additions you're expecting to come online this year? Or if there's maybe some other things we should account for there? John Plant: Let's say, the most important thing to note is that we do have an extraordinary amount going on in the company. We are deploying capital for new equipment at an extraordinary rate. We're building -- we're extending 5 new manufacturing plants. And one thing I haven't commented on is that we actually purchased another manufacturing plant. So let's call it a brownfield in February of this year essentially aimed at the gas turbine market because we've literally run out of square footage. And so I mean, all the capacitization that we've been considering. And then as you have heard, we're taking on 2 acquisitions, 1 of which we've closed, 1 of which we expect to close during the year. So between building out of capital equipment, building out of new sites, recruitment of labor and also the acquisitions we've talked about. That's an enormous amount going on and it's always a struggle to believe you'll be successful on every single one of them and et cetera, et cetera. So I mean, for me, 30 basis points of margin is not really significant. I'd look at the incrementals, and I'll say it's like, I think, 43% in Q1 and maybe, I think, 41% for the year. So again, pretty close. And we've got to make sure that all of those new manufacturing facilities come on stream, build products while taking on labor. And there's always the possibility of us not hitting everything in quite the way we do it, and therefore, I think the caution is always the best way. And we take, as you've heard we say in the past I guide seriously. So I think predicting 30.3% EBITDA margins for the year is pretty good at this point. And if we manage everything really well, and maybe it will be better. But at this point, I think we've given you the best shot of what we think is a balanced view of everything that's going on. Operator: The next question is from Robert Stallard with Vertical Research. Robert Stallard: John, I just wanted to follow up on your comments on the ITT investment. Do you think the ROIC on all this spending is going to be similar to what you've achieved in commercial and aerospace in the past? John Plant: I think, first of all, if you go back and review what I've said publicly is that there essentially is no difference between the margin that we have on gas turbines and put in our commercial aerospace or defense space. And so it's all the order of magnitude. If you look at the embedded return on capital, again, at a very similar nature. Of course, the more, I'll say, brand-new virgin capital, you deploy [ Catacas ] a bit of a drag on those returns. And at the moment, it's difficult to plan out all of the blends that might be going on since we haven't bottomed yet what the final capital deployment will be in the gas turbine sector. As I said, we've completed 3 out of 4 of the major large gas turbine customers or across the whole of the gas turbine segment 4 out of 7. So there's still a lot to consider. And each one of our customers are also looking themselves whether they can achieve an output increase across all of the, I'll say, their own builds plus other, I'll say, component suppliers. So all of those discussions are continuing and therefore, the final capital build and exactly the timing of it will, it's going to be deployed, it's difficult to know. But the direction of what I've tried to indicate, we know it's like we spent maybe 300 -- I can't remember the number there, $350 million plus or minus or $340 million in '24, $450 million in '25, we're saying 470 midpoints with a plus or minus 20%. But if you ask me to give a gut feel, obviously, more like a plus at the side at this point? And '27, again, it's not fully baked by any means, but I envisage at the moment to be at least the amount that we have in 2026 or possibly higher as we complete all of these things. And then just trying to say, bring it all to earth as we plan all these things out. And again, make sure that we can afford as you envelope of cash generation we've talked about. So just specifically being on ROIC, it's also of a similar order of magnitude today but the blends of what's new capital versus the existing base, that can change as we move through the next 2 or 3 years. Operator: The next question is from John Godyn with Citi. John Godyn: Cash generation has been strong, financial leverage at record lows, like you mentioned. I just wanted to talk about capital deployment a bit. How you're thinking about M&A versus buybacks. And with M&A, we saw the consolidated aerospace manufacturing deal, which was a bit larger. I'm just kind of curious how you're thinking about the landscape for larger M&A and growth opportunities that could unlock. John Plant: First of all, we've been -- could you bold on providing returns to our shareholders essentially passing back all of the cash flow that we have achieved whether it's been share repurchase, dividend, I see debt reduction in the same category, while ensuring that we have always invested enough to be able to basically drive the organic growth of the company forward. And you've seen consistently growth in the double-digit area for several years and also indicating another double-digit growth for this year. And if we're successful on all of the capital expenditure this year than I envisioned '27 were also going to be healthy. So I mean, so first priority, John is always the deployment of capital to enable the growth opportunities that we have, say, come to fruition. Then clearly, measure the, I'll say, share buyback and also while taking into account the opportunity for M&A and where the leverage of the balance sheet is. And so if you think about CAM, $1.8 billion is significant. But at the same time, where we think about the leverage is we're below our long-run target average, let's call it, 1.5% or less than that. And so CAM doesn't really stretch us, and we envisage being able to continue to buy back shares as well. So it's not a -- currently, it's not a choice 1 or the other. We're able to -- I'll say, at this point, do it all. We're investing in the business at record levels, so $450 million, trending to $500 million. We're deploying share buyback in a significant way and probably going to end up with a larger buyback in 2026 that we had in 2025. We are deploying capital into CAM of about $1.8 billion. And if I give you dimensions for the [ Butner ] acquisition, it's in that $120 million to $150 million range of capital let's say, about $60 million of revenue. So at the moment, if you think about it and also be kicking up dividend as well, even though the dividend yield is not the highest because we're growing so rapidly. I mean we are managing at this point to do it all. So I don't see why we have to fundamentally say we're going to do one or the other. And so we shall keep doing whether other M&A opportunities come up, but again, be very disciplined. And you've seen in the 2 we've done very much down in the middle of the fairway. It's in segments that we know well, segments that have earned the right to grow, segments that are producing very healthy absolute margins. And so an increased CapEx for fasteners, absolutely. Willingness to deploy for an acquisition, absolutely. And it's not stopping us also buying back shares as an elevated rate above the previous years. Operator: The next question is from Scott Deuschle with Deutsche Bank. Scott Deuschle: John, given the demand for gas turbines and the unique value that Howmet creates in that market, do you see a future scenario where your gas turbine revenue at interim products could ultimately be larger than the commercial jet engine revenue? John Plant: That takes me too far out there. I don't think so because I think our commercial aerospace and our defense aerospace business is also growing rapidly, has grown. And I don't see that at this point in time. So I guess the short answer would be no. I think the most notable thing though, that it's going on, it's not just for us, the growth in absolute volume and I think I've talked about it in the past, but maybe not sufficiently. There's also a product mix change going on at the same time, whereby some of the technologists that was previously deployed in aerospace are also now being deployed in the gas turbine business probably even more so in the small to mid-range gas turbines, but also now in the large gas turbine area, when that is providing air flow passages through the turbine blades and therefore, requiring us to call the core tools to be able to provide those air passage ways. And that, again, produces for us a content increase. So we're looking at the -- both the absolute requirement to build more tunnels plus also the evolving landscape over the next few years, I'll say, more complex type of turbine blades, which again plays to our strength and capabilities. So it's all good, but I'm not yet ready for the premise that it could exceed. I mean, I don't know where we're going to be, say in 2030 or beyond its -- there's a lot of things going to happen yet to get this current obviously, requirements built out. But you do see the need for electricity increasing at a rapid pace, really for not just the next 3 years but well beyond maybe for the next decade and beyond. Operator: The next question is from Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: And John, it does seem like you are doing it all. You are in the process of closing CAM and you just did the [ Bruner ] acquisition, marks more M&A than you've done in the past. Maybe if you could just give us greater depth in terms of the market that opens up, the product offering and how you're thinking about maybe the returns as you think about either building or buying in terms of these investments? John Plant: Yes. I think the -- so I start with the CAM acquisition. For us, it takes us into the fittings and couplings area of, I'd say, the wider fastener market and that helps us to build out those segments in a more significant way and bring another very powerful force to market with the, I'll say, the backing and the ability to deploy capital behind it. And so that's particularly exciting for us and also, I think it's also exciting for our customers because I think they need and they see the opportunity for Howmet to provide further support in those segments of the market. . I mean at fasteners, of course, it's good, it's interesting, and we appreciate all of it. But I think the main thrust would be in those other adjacent segments that we can build out. So that would give you a bit of a theme on CAM. In terms of Bruno, what we saw so far, if I take just bolts as an example, we've been in the market producing I'll say, the smaller range of bolts, which a threaded bolts in particular, plus obviously nuts, but I'm really concentrated in this discussion on bolts. But we've never really had the ability or the size of capital to manage long lengths of bolts nor diameters in excess of an inch diameter. And so [ Bruner ] offers us a ready-made solution for that. And when we think about the markets that we don't serve, both in aerospace and in parts of industrial, where if we had got that product offering, then we would be more significant in the market and therefore, again, help our growth rate. And that's what [ Bruner] brings to us. And so if we were to try to build out that capability ourselves, particularly in the commercial aerospace segment, by the time you've engineered it or how you've deployed the capital you've got the certifications whereas now we have already made profitable in the base business which we can now seek certification of into certain aerospace applications and also to the wider market. So again, it's where I think the application of the heft of how [ met ] and our commercial position and the ability to deploy capital and make further investments is really going to see a benefit for us and for our customers where we're bringing a powerful new product capability to the market. And so that's the essence of the [ Brewer ] acquisition. Operator: The next question is Myles Walton with Wolfe Research. Unknown Analyst: You have [ Louis Fed ] on for Myles. John Plant: Good morning. Unknown Analyst: John, I was hoping you could provide some additional color on how spares performed in the fourth quarter and the full year 2025 between commercial and then defense, I guess IGT. And what are your thoughts for 2026? John Plant: Yes. So in aggregate, our spares business grew over 30%, probably getting close to 33% for the year. And so again, a very healthy growth rate for us. Against the mark, where I think I said that we saw spares moving towards 20% over '25 and '26 in terms of the total revenue of Howmet. In actual fact, we exceeded that. We were at 21% for the 2025 year. So again, the overall growth rate helped us get to that level and hopefully, that we don't stop at 21%. Inside that 21% is that it's about 40% of our engines business. And to give you one other bit of color inside our overall, let's say, 32%, 33% growth last year. Commercial aero was early 40%. And so healthy growth. And we see that growth continuing into 2026. I haven't called out a specific number yet. But having achieved the 21%, then hopefully, we don't regress from that. And hopefully, it continues to be a larger portion of the Howmet overall revenue picture. Operator: The next question is from Peter Arment with Baird. Peter Arment: Patrick. John, regarding like engine margins in general, like automation has been a big part of kind of a beneficiary for you. Can you maybe give us a little more color on like kind of where you are in the automation journey and for engines and are there other opportunities in the business that you seek for automation? John Plant: We spent quite a bit of money over, I'd say, '23, '24 in automation. And that's obviously been very beneficial for us and has help us or need for additional employees, there you can see we've been hiring at a significant rate. We've made sure that all of the new capital we deployed as a high level of automation. So when we showcase our new manufacturing plant in Whitehall next month, you'll see something that I talked about in one of the previous calls about digital thread and to track manufacturing to an extraordinary degree and also allow us to bring I'll say, machine learning and AI to a degree across that plant. And so I'm very hopeful. But I also know that first, for capital has been so high, and it's not just can we deploy the cash, but it's also where we can. It's also the engineering bandwidth, which has been totally absorbed by I'll say, the new markets that we've been developing for and customer requirements. And so it's taken a bit of a back seat in '25 and '26 and so the moment our choice has been will match the market and achieve that. And that's far more important for us to just to say, maintain and grow our market share and meet customer demand, and we have the opportunity in maybe it's '27 or probably more like '28, '29 to go back and also make some of the processes that we did not do while we're doing all of this, even though all the new stuff we're doing is highly automated. Operator: This concludes the question-and-answer session, and the conference has also now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Manulife Financial Corporation Fourth Quarter and Full Year 2025 Results Conference Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Mr. Hung Ko, Global Head of Treasury and Investor Relations. Please go ahead. Hung Ko: Thank you. Welcome to Manulife's earnings conference call to discuss our fourth quarter and full year 2025 financial and operating results. Our earnings materials, including the webcast slide for today's call are available in the Investor Relations section of our website at manulife.com. Before we start, please refer to Slide 2 for a caution on forward-looking statements and Slide 41 for a note on non-GAAP and other financial measures used in this presentation. Please note that certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from what is stated. Turning to Slide 4. We'll begin today's presentation with Phil Witherington, our President and Chief Executive Officer, who will provide highlights of our full year 2025 results and the progress made towards our new and elevated strategic priorities. Following Phil, Colin Simpson, our Chief Financial Officer, will discuss the company's financial reporting results in more detail. After the prepared remarks, we move to the live Q&A portion of the call. With that, I'd like to turn the call over to Phil. Philip Witherington: Thanks, Hung, and thank you, everyone, for joining us today. 2025 was a defining year for Manulife. We delivered strong financial results, announced our refreshed enterprise strategy to shape Manulife's next chapter of growth and are laser-focused on executing against our vision through targeted strategic investments. While macroeconomic and geopolitical uncertainty remains, we're confident that the diversified nature of our business positions us well to navigate the current environment and capitalize on the opportunities ahead. So let's start with our 2025 financial results, which we announced yesterday. We delivered strong top line results with new business CSM growth exceeding 20% in each insurance segment, contributing to a double-digit growth in our CSM balance and supporting our future earnings potential. Despite experiencing net outflows in the second half of 2025, Global WAM continues to deliver strong margins and core earnings growth. The strong results in Global WAM, combined with the double-digit earnings growth in Asia contributed to our record core earnings this year. Together with the benefit of continued share buybacks, we delivered 8% core EPS growth. We also continue to generate attractive returns with core ROE expanding 30 basis points from the prior year, and we're tracking well towards our 2027 target of 18% plus. Moving to our balance sheet. We generated $6.4 billion of remittances this year and returned nearly $5.5 billion of capital to shareholders. Our LICAT ratio of 136% and leverage ratio of 23.9% provides significant financial flexibility. And I'm pleased to share that we announced a 10% increase in our quarterly common share dividend. In addition, we have received OSFI approval for a new NCIB program, which will allow us to repurchase up to 42 million shares or approximately 2.5% of issued and outstanding common shares, highlighting our continued commitment to returning capital to shareholders. We plan to commence buybacks under this new program in late February, subject to approval by Toronto Stock Exchange. Moving on to Slide 7. In November, we introduced our refreshed enterprise strategy, which builds on our strength is growth focused and is anchored in our ambition to be the #1 choice for customers. There is tremendous enthusiasm across the company as we execute on our new and elevated strategic priorities, which provide logical continuity as we progress in our new chapter with refreshed ambition. As a result, we've already made meaningful progress in 2025. Starting with our winning team and culture. Our world-class talent is one of our greatest strengths, and this year marked our sixth consecutive year of top quartile employee engagement. I'm encouraged by the energy and commitment of our colleagues around the world who've embraced our ambition to be the #1 choice for customers. Together, we will continue to bring focused execution and innovation to the work ahead. And as we drive high-quality sustainable growth, we will maintain a balanced, diversified business model. This year, we've made strategic investments both organically and inorganically to further strengthen our portfolio. We acquired Comvest Credit Partners, announced a joint venture to enter the India life insurance market and entered into an agreement to acquire Schroders Indonesia, with the latter two subject to regulatory approval. We also became the first international life insurer to establish an office in the Dubai International Financial Center dedicated to advising on and arranging life insurance solutions for high net worth customers. And we've expanded our customer solutions, including a new indexed universal life offering in the U.S., while in Canada, we launched a simplified specialized lending suite of products in Manulife Bank. As Colin will highlight, the benefit of a diversified portfolio was evident in our fourth quarter results, and I expect our diversification to serve as well amidst rising global uncertainty. On to Slide 8 and our focus on being the most trusted partner in health, wealth and financial well-being. We took meaningful steps to further empower our customers this year, including a significant milestone in our ambition to be the health partner of choice in Asia. Through a strategic collaboration in Hong Kong with Bupa International, we will offer greater choice and sustainable healthcare solutions that empower individuals and communities to this healthier and more fulfilling lives. In Canada, we became the first insurer to offer access to GRAIL's Galleri multi-cancer early detection test, supporting earlier detection and longevity for our customers. And in the U.S., we're providing additional resources and offerings to eligible U.S. customers to proactively manage their health and wellness. These actions deliver measurable benefits for customers while generating value for Manulife, and we're proud to be a leader in this space. We also continued to invest to make it easier for customers to buy and advisers to sell our solutions. We renewed our bancassurance partnership with Chinabank in the Philippines, extending the exclusive partnership to 2039. In Singapore, we leveraged our digital capabilities to enhance our Manulife iFUNDS platform through using a single platform and leveraging AI-powered analytics, advisers can deliver more personalized and insightful financial guidance. And in the U.S., we expanded our wholesaling team to accelerate our penetration into the high net worth and mass affluent markets. By expanding our reach and scaling our digital and AI capabilities, we can more effectively reach our customers and enhance their experience. Finally, over to Slide 9. Becoming an AI-powered organization is core to delivering on our ambitions and while we've been an early adopter of AI and built the underlying infrastructure necessary to support our vision, it's very important that we sustain our leadership position. We're investing with discipline and a clear focus on areas where AI can be deployed at scale and further improve our efficiency, enhance our customer and colleague experiences and support sustainable growth. In 2025, we ranked 1st among global life insurers for AI maturity by evident, and achieved 30% of the $1 billion plus of AI enterprise value generation by 2027. To drive measurable outcomes, we're concentrating on core focus areas where AI can make the greatest difference for Manulife, and we're already deploying initiatives across businesses and geographies to continue to drive value. Across the organization, we're deploying virtual assistance that create efficiencies while equipping employees and advisers with deeper insights, more personalized outreach and instant product guidance, strengthening the quality and consistency of customer interactions. In underwriting, AI is accelerating decision-making by automating data analysis, enabling faster and more accurate assessments while maintaining strong risk discipline. And we're prioritizing AI solutions that remove manual transactions, driving measurable improvements in efficiency and operational outcomes. Within distribution, AI is enhancing client engagement through tailored sales support, leading to improved sales close ratios and outcomes. We're strengthening our internal productivity by equipping our global technology teams with modern engineering tools, helping us build better solutions and faster. And we're also exploring how AI can help close the advice-access gap and support more meaningful ongoing investor engagement at scale. Moving forward, we're progressing towards a proprietary Agentic AI platform that will make it easier to manage and coordinate AI tools across the company, allowing us to scale AI even faster and more consistently, while ensuring a robust governance process. Overall, these are high-impact areas that reduce friction, support long-term growth and will enable us to deliver on our 2027 and medium-term targets. In closing, I am thrilled with the progress we've made in 2025. We've delivered strong financial results and are already making meaningful strides against our refreshed strategy. As we begin 2026, we're executing from a position of strength with clear momentum and confidence in our ability to achieve our 2027 targets while generating high-quality, sustainable growth for all our stakeholders for the long term. With that, I'll hand it over to Colin to discuss our results in more detail. Colin? Colin Simpson: Thanks, Phil, and good morning, everyone. 2025 was a fantastic year for Manulife as we delivered another year of strong financial and operational performance. Let me take a moment to walk you through the quarter's results before we open the line for Q&A. Let's begin with our top line results on Slide 11. We generated strong growth in new business CSM, reflecting more favorable business mix and margin improvements. This marked our sixth consecutive quarter in which new business CSM growth exceeded 20%, a testament to the strength of our balanced and globally diverse business profile. APE sales for the quarter were largely in line with the prior year. Global WAM saw net outflows of $9.5 billion, reflecting several large retirement plan redemptions in the U.S. and to a lesser extent, in Canada as well as net outflows in our North American retail business. This was partially offset by strong institutional flows, including contributions from CQS and Comvest. The redemptions in our U.S. retirement business reflects seasonally higher planned redemptions and higher participant withdrawals as market strength has given rise to higher customer balances. Our retail business saw continued pressure in North American intermediary and Canada Wealth. Though I'd highlight our U.S. retail business performed well relative to peers in what was a challenging quarter for active fund managers in the industry. Moving on to Slide 12. I'd like to highlight some of the key earnings drivers comparing them to the same period last year. We continued to see strong growth in our insurance businesses in Asia and Canada, driving a higher insurance service results. We generated positive overall insurance experience this quarter, including a release of P&C provisions from prior year events as well as strong gains in Canada. Though positive, total insurance experience was less favorable than the prior year, largely reflecting unfavorable U.S. life claims experience. Our investment results decreased a modest 5%, mainly driven by lower investment spreads. In the bottom half of the table, you will see that Global WAM reported solid pretax core earnings growth of 8% this quarter, supported by strong AUMA growth and margin expansion but this was partially offset by the transition to eMPF in Hong Kong. Turning to Slide 13. Core EPS increased 9% from the prior year quarter as we continue to grow core earnings and actively buy back shares. We reported $1.5 billion of net income this quarter, which reflects unfavorable market experience, largely driven by a charge of $232 million in our ALDA portfolio, primarily due to lower-than-expected returns from infrastructure, private equity and real estate. We also reported a $162 million loss from hedge accounting and effectiveness, primarily due to swap spread widening in Canada and, to a lesser extent, derivatives without hedge accounting. Moving to the segment results. We'll start with Asia on Slide 14. APE sales decreased by a modest 3% from the prior year as double-digit growth in Japan and Asia Other was more than offset by lower sales in Hong Kong. While we expected some moderation in Hong Kong given a strong prior year comparative, we also saw anticipated pressure in the broker channel in the fourth quarter as distributors transitioned to new regulations. Even so, we remain confident in the outlook, supported by the strength of our proprietary distribution channels. Despite softer volume, Asia's new business CSM and new business value delivered strong double-digit growth on the back of a more favorable business mix. As such, NBV margin expanded by 5.5 percentage points from the prior year to 41.2%. These top line results demonstrate both the strength and diversity of our business in Asia. In fact, when you look at our full year new business CSM growth, we saw greater than 20% growth in multiple markets, including Hong Kong, Japan, Mainland China and Singapore. Asia core earnings in the quarter were even stronger, increasing 24% year-over-year as we benefited from continued business growth and the net favorable impact of the basis change last quarter. Over to Global WAM on Slide 15. We maintained our growth momentum in Global WAM, delivering a solid 7% year-over-year increase in core earnings. This was supported by higher average AUMA, the addition of Comvest Credit Partners and sustained expense discipline. This was partially offset by lower earnings as a result of our transition to the new eMPF platform in Hong Kong in November. Net outflows were elevated this quarter, reaching $9.5 billion, as I noted earlier. Our gross flows this quarter, up 15% from the prior year to $50 billion continued to be strong, supported by growth across each business line. And our core EBITDA margin expanded 60 basis points from the prior year to 29.2%, strong results given the eMPF transition. Next, let's head over to Canada on Slide 16, where we delivered solid growth in new business metrics and core earnings. APE sales and new business value increased by 2% and 4%, respectively, from the prior year, reflecting strong growth in individual insurance and annuity sales, partially offset by lower large case sales in group insurance. New business CSM maintained strong momentum and continued to deliver double-digit year-over-year growth, supported by higher sales volumes in individual insurance. Core earnings increased by 6% year-over-year, driven in part by favorable insurance experience in individual insurance, higher investment spreads and business growth in group insurance. These tailwinds were partially offset by less favorable insurance experience in group insurance. Lastly, our U.S. segment results on Slide 17. In the U.S., we saw continued broad-based demand for our suite of products, resulting in a 9% increase in APE sales versus the prior year quarter. Together with product mix changes, we saw very strong growth in new business CSM of 34%. Core earnings decreased 22% year-on-year, primarily due to lower investment spreads and unfavorable life insurance claims experience, compared with favorable experience in the prior year. Moving on to cash generation and capital allocation on Slide 18. In 2025, we generated remittances of $6.4 billion, exceeding our $6 billion expectation, positioning us firmly to meet our cumulative 2027 target of $22 billion plus. Over the past 3 years, remittances have averaged over 85% of our core earnings. And while this has been positively impacted by in-force reinsurance activities and favorable market movements, we continue to expect 60% to 70% of core earnings to materialize as cash remittances on a go-forward basis, a testament to our capital-efficient and cash-generative businesses. As Phil mentioned earlier, we will initiate a new share buyback program in late February 2026 to repurchase up to 2.5% of our outstanding common shares. In addition, our Board has approved a 10% increase in our quarterly common share dividend. Together, these actions reflect our continued commitment to shareholder value creation. Let's now move to our balance sheet on Slide 19. We grew our adjusted book value per share by 6% from the prior year to $38.27 even after returning significant capital to shareholders as well as the impact of a strengthening Canadian dollar that reduced the growth rate by 3%. We ended the year with a strong LICAT ratio of 136%, which was $24 billion above the supervisory target ratio. Our financial leverage ratio of 23.9% remained well below our medium-term target of 25%. These robust metrics underpin the strength and resilience of our capital position and balance sheet. Moving to Slide 20, which summarizes how we are progressing toward our targets. Our 2025 results reflect disciplined execution and momentum across the business, with meaningful progress towards achieving our Investor Day core ROE remittances and efficiency targets. You can see the 3-year progress of our core ROE expansion in the appendix of the presentation. While our core EPS growth was slightly below our target due in part to headwinds in our U.S. segment this year, we achieved or are tracking well towards the remainder of our targets. And by executing our refreshed strategy, I'm confident in our ability to achieve our 2027 and medium-term targets going forward. This concludes our prepared remarks. Before we move to the Q&A session, I would like to remind each participant to adhere to a limit of two questions, including follow-ups and to requeue if they have additional questions. Operator, we will now open the call to questions. Operator: [Operator Instructions] Our first question comes from John Aiken from Jefferies. John Aiken: Thank you. Sorry about that. Colin, one clarification in terms of your commentary on the Hong Kong sales, down because of the broker pressure and regulatory changes. Is this a step function? Or can we see the sales levels maybe back further -- sorry, back up to a run rate level in 2026? Steven Finch: John, it's Steven Finch here. So for Hong Kong sales, maybe I'll take a step back first. For the full year, we're very happy with the Hong Kong performance. We saw strong sales for the full year up 21%, NBV up 31%, NBCSM up 21% and strong core earnings up 26%. So really good results. What we're seeing in the quarter is, as Colin mentioned in his opening, both a tough year-over-year comparative. We had very strong results in Q4 prior year. But isolated to softness that we're seeing in the broker channel and in particular, the MCV broker channel. The distributors there, they're adjusting to some regulatory changes. And this is not unusual from what we see in different markets in Asia with regulatory changes coming in, some adjustment period and then a resumption of growth. We benefit from a diversified distribution strategy in Asia, and we saw a continued growth in Q4 in both our agency and banca channel. So as we look to the future, we're confident the underlying customer demand is still there. The fundamentals are strong. So we expect that the brokers will adjust, and we'll see sales increase over time. Philip Witherington: And John, this is Phil. Just if I could add one thing. Consistently on this call in recent years, I've said that we have appetite for the broker channel, but we can see quarters where there will be variability in volume, particularly if there are changes in the regulatory environment, which we have seen over the past 6 months and because of competitive factors in the competitive environment. The environment is competitive in the broker channel. I think the really important point is that our core channels of agency as well as bank delivered strong growth in the fourth quarter, as Steve said. Operator: Our next question comes from Tom MacKinnon from BMO. Tom MacKinnon: Yes. Just a follow-up with respect to that and then one other question. If I look at the NBV margin, it's in Hong Kong, it's 52.4% in fourth quarter '25 and 39.7% in the fourth quarter of '24. So substantially increased. Is this due to mix, is the agency and the banca channel certainly more profitable than the broker channel? And if so, why focus more on the -- on that MCV broker channel if the others are -- provide better like new business value and better CSM -- new business CSM growth and better NBV margin? Steven Finch: Yes. Thanks, Tom. It's Steve. You noted an important point there. We saw the margin in Hong Kong NBV margin year-over-year increased over 12%. And it is a mix. We saw the -- with the MCV broker sales dropping, that is a lower margin channel certainly. We see it as attractive. We regularly adjust our overall focus on volume versus margin and optimize there. But the core of our business continues to be domestic agency where we've got strong margins and continue to have strong growth. So we're happy with that mix overall. We did see also a product mix shift. We've been emphasizing and meeting the customer needs around health and protection, and we saw an increase in our health and protection sales, which also contributed to the margin expansion. Tom MacKinnon: All right. And a question perhaps for Paul. I mean, we're just into the Comvest close here, but I think you've noted an impact from eMPF in terms of what it would be post tax to GWAM earnings. What about Comvest? I know you've talked about overall accretion, but I mean you used a lot of cash to make this acquisition. How should we be looking at the GWAM segment going forward in light of the incremental earnings from Comvest? Paul Lorentz: Yes. Thanks, Tom. It's Paul here. So just in terms of outlook, as you mentioned, we're quite pleased with -- maybe I'll start with the eMPF, just in terms of the rationale or change there, we're about halfway -- even though we've converted, I would say about half of the impact that we provided guidance is reflected in the current quarter, and that's still an accurate guidance going forward. As it relates to Comvest, we don't disclose the metrics separately at this point. But what I would say is, it was a positive contributor to marginally because it closed late in the year to gross flows, net flows and core earnings. And it is tracking in line with what we had expected early. We're quite excited about it in terms of what we're seeing in terms of customer demand. The category itself is expected to double. And just to give you a little bit of a proof point of why we're so optimistic. We look at CQS, which closed a number of years -- 1.5 years ago, which is alternative credit. Our AUM was up 40% since deal close and it's driving a lot of positive top line, and we expect to see similar excitement around the Comvest product suite just because of the demand. So it's early, but we're quite optimistic and quite happy with how it's proceeding so far. Tom MacKinnon: And if I could just squeeze one quick one in here. The 2.5% NCIB, you got a pretty good track record, I think it's over 3% you purchased in 2025. Colin, is there anything you can say about what your intentions would be with respect to this NCIB, given that you've generally historically purchased the bulk of these NCIBs? Philip Witherington: Well, thanks for the question, Tom. Let me jump in on that one. It's Phil. You're right. Our last NCIB program was 3%, and we completed that in full. This year, we've announced 2.5%. And it's hard to predict the future. But where we stand now, our intention is to complete the program in full. And if anything changes there, I'm happy to update on future calls. From our perspective, our capital deployment strategy is balanced and NCIB remains an appropriate use of capital. But at this level, 2.5%, it's not something that constrains our ability to invest organically in our businesses, which is really important in the context of the refreshed strategy that we laid out 3 months ago. Operator: Our next question comes from Doug Young from Desjardins Capital Markets. Doug Young: Maybe just going to the U.S. division. It feels like -- and correct me if I'm wrong, that we've had unfavorable mortality experience for three to four quarters or for sure, unfavorable claims experience or experience in general for about three to four quarters in a row. I'm just hoping you can unpack what you're seeing this quarter. I think it's mortality. Is there a particular product line? We had heard a little bit more about competition on the mortality side in the U.S. market. So just trying to kind of gauge kind of what you're seeing and what to expect going forward. Brooks Tingle: Doug, it's Brooks Tingle. Thanks for the question. And I guess I'd start with a quick reminder that we operate at the very high end of the market in the U.S., quite large policies. Now that's a very attractive segment of the market, and you see that reflected in our new business value metrics. It does result in some variability quarter-to-quarter and even year-to-year from a mortality perspective. And you'll recall that Q2 of '25 represented a particularly unusual level of variability. But we're pleased that Q3 showed significant normalization improvement from there. In Q4, still further improvement from there. And I'd actually characterize where we finished Q4 is within sort of a normal range of variability. And I'll probably leave it at that. Doug Young: So you're not seeing a particular trend here that would in the end result in some form of actuarial reserve increase that's required for these businesses? I guess that's where I'm trying to go. Stephanie Fadous: It's Stephanie here. I think Brooks covered it well. What we saw this quarter is sequentially improved claims experience, and I really view this as normal variability due to slightly elevated severity. And we'll see variability from time to time given where we are in the large case business. I don't view this as a trend. In fact, same quarter last year, we had -- and for the full year of 2024, we saw claims gains through P&L in this business. Doug Young: Okay. And then second question, maybe for Colin or for Phil. I guess my question is, can you achieve an 18% plus core ROE target by 2027 with the level of excess capital that you have and you're under levered as well? Or do those things need to kind of normalize? And I assume you're going to say yes. But maybe if you can map out how you get 16.5% to 18% plus in the next 2 years? Just to give a sense of what those drivers could be? And then maybe if you can kind of tie in, like why not be more aggressive on the NCIB given the amount of capital or cash that you're generating and the amount of excess capital you currently sit on? Philip Witherington: So Doug, this is Phil. I will hand over to Colin, but I do want to say, yes, we do remain confident that we can get to the 18% plus core ROE target, and there are various reasons underpinning that, but I'll let Colin walk through it. Colin Simpson: Yes. Doug, I think the important point to note is we've mapped out a number of scenarios to get us to the 18%. We're confident that we're going to get there. We were at 18.1% last quarter, 17.1% this quarter. So the trajectory is good. We live in a fluid environment, and we will use share buybacks not as the primary driver to get to the 18% ROE, but as a lever to pull in order for us to get there. You mentioned excess capital being a drag on our ability to grow ROE. That's certainly the case. We have got around about $10 billion above our upper operating limit, but that becomes a competitive strength in either difficult times or in a whole range of scenarios. So we're in no hurry to deplete what is a very favorable capital position. Operator: Our next question comes from Gabriel Dechaine from National Bank Financial. Gabriel Dechaine: Actually, just a follow-up on that mortality issue in the U.S. So you're confident this isn't some trend. I guess one way to confirm your view more or less is, is there any impact from what's happening in this business mortality wise on your appetite for LTC dispositions? Because that business would be as a hedge to higher mortality. Philip Witherington: We're here, Gabriel. We just -- I think it's probably best for Brooks to take a start on that, and maybe Naveed will comment from an LTC perspective. Brooks Tingle: Yes. I would just say that certainly, we don't view this as a long-term trend. We look at it very carefully. There's variability for sure. If you look at our Q4 results from a core earnings impact, you see a little bit more -- it looks a little bit like an outsized impact, because we actually had a gain in the prior Q4, which again reflects that variability. But if you look at, sort of, post-COVID, the range of tailwind and headwind from mortality in the Life segment in U.S. it's been within a reasonably tight range, and the Q4 result was in that range. So we're pleased to see it normalizing, though there'll always be some amount of variability. Again, I would point to that, while there is that variability associated with operating at the high end of the market, the value metrics are very strong. You saw that last year, and we're very confident about our ability to continue to grow that business. Naveed Irshad: It's Naveed here. I would just add that given that we don't feel the mortality is a sort of long-term trend. It's not really affecting how we're thinking about LTC transactions. As you know, we've done two significant transactions with different counterparties at or near book value, which provides sort of external validation of our assumptions in LTC. And we're continuing to focus on evaluating opportunistic transactions that drive shareholder value, that won't go away. Gabriel Dechaine: Okay. And I guess just to continue down that path with regards to legacy book dispositions, a, quickly, is the mortality issue tied to a legacy block. But the real question is, when I look at the transactions that you've announced in the past and how you've neutralized the earnings per share impact from the disposition is buying back stock. Is that dynamic much more challenging now, i.e., makes dispositions a lot more difficult to do and make them EPS neutral? Because it's a different discussion when you stock at 2x book versus just over 1x when the first deal was announced a couple of years back. Or I guess, are you committed to making dispositions earnings per share neutral? Brooks Tingle: So Gabriel, thanks. It's Brooks. I'll turn to Naveed on the broader question of legacy dispositions or not. But I will say on the claims, we've seen really Q2 of '25 and a little bit beyond it's not anything notable as it relates to a particular block. Incidents, the number of claims is actually favorable. It's really, again, because we write these large policies, a confluence in a quarter of a small number of large cases that drove that result. So there -- it's not early duration business. This is generally business written 20-plus years ago. So nothing really abnormal there, just works out to a variability quarter-to-quarter, year-to-year. Naveed Irshad: Yes. I would just add that -- on our legacy businesses, I feel really good about how we're managing them organically. You've seen our success in obtaining premium rate increases on LTC, that's contractually allowed. We've continually beat our assumptions on that. We're investing significant amounts on fraud waste and abuse. That said, we have -- we connect regularly with the market in terms of opportunistic transactions. There is interest in the market, and we continue to follow up with them. And I don't think we're constrained with respect to what we can do there. Colin Simpson: Yes. I think, Gabe, just to pile on there. You talked about the book value multiple in the shares. I mean, that is not a constraint for us to grow our earnings per share. We'll look at each deal on an individual basis and then make any according capital allocation decision based on that deal on its own merit. So I don't -- I wouldn't read anything into how the current share price is affecting our ability to do future deals. Operator: Our next question comes from Mike Ward from UBS. Michael Ward: I was curious about the Japan business actually. One of your global kind of peers has run into a little bit of a hiccup in terms of just distribution in Japan. So I'm just wondering what you see in this kind of high net worth market for insurance and wealth products in Japan? And if you see any disruption or anything changing there in terms of the market structure? Steven Finch: Yes. Thanks, Mike. It's Steve here. Yes, I'm well aware of what's been reported by one of our peers in Japan, and it's not directly applicable to Manulife. One thing I'd point out is, we're very experienced in running a multichannel distribution model in many countries in Asia, including Japan. And over time, we've built and continue to build strong controls and compliance programs. Whenever there are isolated issues, we address them very swiftly. And then to your point around the Japan market, what we're seeing is some strong success in the Japan market. You see from our numbers double-digit growth this year. We've been executing on a strategy to capitalize on customer needs. And so those needs are driven by interest rates that are structurally higher than they have been in the past, an aging society with a long longevity, so a big need for retirement planning. We've expanded the product portfolio to meet more of these customer needs, in terms of unit-linked product, whole life product. And that's been driving our success, and we're optimistic as we look forward in Japan. Michael Ward: Right. My other questions were answered. Operator: The next question comes from Paul Holden from CIBC. Paul Holden: I want to ask a couple of follow-up questions related to topics that have already been discussed. So first one is around Asia sales and I guess, Hong Kong, particularly, you gave us a number of different measures or metrics to follow. And I think we've all been conditioned to follow APE sales because of IFRS 4 accounting. But now maybe there's an argument that, that shouldn't be the number one metric to follow, maybe it should be new CSM growth because that's what's really going to drive future earnings. So point is like, to agree with that if you were to focus on one metric, that should be the most important one. And then second part of the question, like does that influence or to what degree does that influence? How you think about sales mix? Steven Finch: Yes. Thanks, Paul. It's Steve here. And you hit on an important point. I mean, the way we think about this, under IFRS 17, when we see sales variability, it does not translate into core earnings variability as the CSM amortizes into income. So we are focused on generating the most value for shareholders. NBV and NBCSM, we report both. They're both a good indicator of the value that we're generating for different reasons. So we focus on both of those. And we drive maximum dollar magnitude with an important guiding light of the company's medium-term ROE target of 18% plus. So we optimize for dollar of value while meeting that -- meeting or exceeding that hurdle rate, and that's what we're looking to optimize. Paul Holden: Okay. So if I measure this quarter on that basis, then it was a really good result for Asia sales. Yes. Steven Finch: As Colin noted, NBV up for the segment of 10% and NBCSM up 19%, helping drive year-over-year CSM was up organically 11% total 19% and a little over USD 2 billion. Paul Holden: Yes. Okay. Okay. Good. And then my second question, again, a follow-up to prior discussions is on the U.S. core insurance experience. So the questions were a little bit more focused on the short term. But when I think about the U.S. segment over the long term, negative experience or unfavorable experience as kind of being the issue or concern for investors for a long period of time for different reasons. So given the refreshed strategy and the renewed focus on wanting to grow the U.S., I think it would be helpful to give people more comfort around the experience there and how you're growing. So I don't know if there's any actions you can take to kind of get that experience to more neutral or positive? Or again, how you're thinking about that? Because I think addressing that issue, again, would give people a lot more comfort around this renewed growth emphasis on U.S. So just thoughts, comments there. Philip Witherington: Paul, this is Phil. It's an excellent question, and thank you for asking it. In our strategy refresh, one of the things that we emphasized was the importance of having a diversified portfolio. And when I think about that, of course, diversification is a risk mitigant. But in particular, for the U.S., there are many things that the U.S. business, John Hancock, contributes to Manulife that we value a great deal, including the earnings generation, including the capital generation and the stability of our capital generation. And one of the things that we changed as part of the strategy refresh is actually having a clearer appetite to invest in that business so that we can sustain for the long term earnings and capital generation. Now when we're talking about investing in the business, it's not about going back to where we've been before. It's actually growing in product lines that we have demonstrated tremendous value and success in recent years. And the drivers of adverse experience that you've referenced are quite different lines of business. The short-term matter that we've discussed on this call of some mortality variability, we do believe that short-term variability. But I think it will be helpful to hear from Brooks some of the specific initiatives that we're taking in the U.S. and build that confidence that they're profitable, they're sustainable and from a risk perspective within appetite. Brooks, over to you. Brooks Tingle: Yes, sure. Thanks, Phil, and thanks, Paul. Just quickly on policyholder experience. We -- you look at it and certainly over a very long period of time, yes, whether it's mortality, persistency or LTC experience lots of attention there. But we've taken a whole range of options with respect to the U.S. segment to optimize shareholder value. And that's really resulted in, I think, a winnowing of a lot of that policyholder experience variability. LTC experience in Q4 was benign. The life claims experience, as I've said, was really represented a particularly unusual level of variability in Q2, now normalizing. So we actually feel quite a bit better about policyholder experience in the U.S. But to pick up on Phil's point, feel really great about our ability to contribute to strong and profitable growth for Manulife via our new business franchise in the U.S. And I won't go on too long about this, but I think everyone knows we've got a strong brand. We have an innovative and broad product suite. We have top relationships with independent distribution. And I'd point out, a couple of the fastest-growing segments in the U.S. economy are the so-called wellness economy and longevity economy. And we remain the only carrier in the U.S. that offers such services to their policyholders, early cancer screening, things like that. Very strong consumer appeal. And you see that reflected in our new business value metrics for last year, similar to the discussion you had with Steve. Our APE was up nicely last year, 24% for the full year, but new business CSM up 42%. So a lots of other initiatives, in the interest of time, I won't get into backing a quite ambitious growth plan for the U.S. and we feel very good about the risk and expected policyholder experience profile of that business we're putting on the books. Operator: Our next question comes from Darko Mihelic from RBC Capital Markets. Darko Mihelic: I just had a modeling question, maybe looking for a range here. I'm actually want to switching gears here and look to Canada for a moment. When I look at 2024 in Canada, you had a 43% increase in group sales. This year, it's down 24%. So when I think about 2025, you had 12% growth in your expected earnings on the short-term business. And now that we've had a very big decline in sales, I wonder if you can give me an idea of what we could expect with respect to that important line item. I don't think we should think about a decline, but maybe you can give me a sort of a range or some sort of an outlook on expected earnings and short-term business for 2026. Naveed Irshad: Darko, it's Naveed here. So what you saw in 2024 was a very large case that we sold, a jumbo case. So as you know, in this business, there's normal large-case variability. So you have small- and medium-sized cases that generally have a consistent trend year-over-year, then you get these large cases that jump around year-over-year. What we look at, in addition to sales, is our persistency and our sort of overall in-force premium, and that continues a good trajectory. And so I think you can -- our recent sort of trends on P/E profits is something that should continue going forward. Darko Mihelic: Okay. But at a similar pace? Or should we at least expect a slowdown in the pace? Naveed Irshad: Yes, at a similar pace because again, our persistency remains very strong. Operator: Our next question comes from Mario Mendonca from TD Securities. Mario Mendonca: There have been a lot of healthy discussions there on the liability side of the balance sheet. Could we flip over to the asset side. There's growing concern among investors around private equity, private debt, and that obviously draws my attention to Manulife's large private placement debt, the $52 -- almost $52 billion. You talk about how credit experience has evolved in that asset category and what proportion of that would you sort of you would label as higher risk or sort of topical areas in that specific line, that $51.8 billion of private placement? Trevor Kreel: Mario, it's Trevor. Thanks for the question. So as you noted, there's -- there are a wide range of definitions as to what you include in private credit, in private debt and private placements. We have, for example, successfully participated in the investment-grade private placement market for many years. We like the diversification, the spreads, the covenants that you get relative to public markets. Just breaking down the $52 million that you mentioned, our investment-grade portfolio is around $45 billion and our below investment-grade private credit portfolio, which, to your point, I would consider to be higher risk. That's around $4 billion, $4.5 billion. It's about 1% of our general account assets. It is focused on middle market loans to private equity-sponsored companies, but it's also quite diverse by issuer sector and sponsors. So there's no real concentrations there. And we do manage underwriting rate most of those assets in-house. And as I suggested, I would see this as being at the lower end of the risk spectrum and about 90% of those assets are actually priced by an external vendor each quarter, and we've also executed multiple third-party sales from that portfolio, which I think also validates the asset valuations. To your point about performance, I think our investment grade private placement portfolio has actually done the same or better than our public portfolio. So we have no concerns with that part of the portfolio. And on the private credit portfolio, performance has also been strong even with COVID and relatively recent rate increases, and our credit experience is still comfortably within our underwriting loss assumption. So really quite happy with both parts of the strategy. Mario Mendonca: Okay. And then looking down a little bit on that portfolio composition, the private equity, the $18 billion there. Can you talk about the ALDA related charges this quarter and the extent to which private equity played a role or any other segment played a role? Trevor Kreel: Sure. Thanks for the follow-up. So yes, in terms of ALDA performance this quarter, as I think we disclosed, the ALDA returns did improve. Both real estate and private equity were actually better than Q3. The area that was actually worse was infrastructure, which over the long term has actually been very strong for us. Private equity, it did underperform, but to your point, it is a large portfolio. And so we would expect to see some variability from quarter-to-quarter. Obviously, given some of the broader economic and geopolitical uncertainty, there's going to be a little bit of noise there. But at the same time, I think strong public markets, the likelihood of short-term rate declines as well as, I think, improving M&A and IPO activity on the middle market private equity section of the market, I think as -- I think all of those make us cautiously optimistic of an improvement in 2026. Mario Mendonca: So I'll be quick here. So if you buy the notion that sponsors are going to be active as in returning capital to investors IPOing, all the things you referred to. Is that supportive of ALDA performance like the private equity performance? Or how would you describe that? Philip Witherington: I think it would be positive. I'd be looking forward to more of the IPO and M&A activity. I think it will improve liquidity. It will improve price discovery. And I think it will improve go-forward returns. Operator: Our next question is a follow-up from Darko Mihelic from RBC Capital Markets. Darko Mihelic: I just wanted to follow up on the ALDA question there. Slightly different angle, though. I am curious on how you're capable of growing the ALDA portfolio but not having the sensitivity to ALDA go up. And in fact, the insensitivity is going down. So if I just look at it, it's up $7.5 billion over the last 2 years. But your sensitivity is actually down a little bit. So what is it that you're doing there? What am I missing in the sort of market calculation? Trevor Kreel: Darko, it's Trevor. Thanks for the question. So it's actually not that complicated. So we do have on the balance sheet, I think, $62 billion, $63 billion of ALDA in total. But it backs a different group of liabilities, some of which are guaranteed, which is shareholder risk and some of which is participating or adjustable, which is policyholder risk. So basically, we expect the ALDA backing the guaranteed liabilities to be flat and slowly decline as those liabilities age. And if we do more reinsurance transactions. At the same time, the ALDA backing the adjustable and participating liabilities where investment experience is passed back to the policyholders will grow as those businesses grow. So basically, what you're seeing is that the overall ALDA portfolio that you see on the balance sheet may continue to grow, but not the income exposure for shareholders. And that's why you're seeing it slowly decline. Darko Mihelic: Okay. I figured it was something like that, but that's great. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Hung Ko for any closing remarks. Hung Ko: Thank you, operator. We will be available after the call if there are any follow-up questions. Have a good day, everyone. Operator: This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Kip Meintzer: Greetings, and welcome to Check Point Software's 2025 Fourth Quarter and Full Year Financial Results Video Conference. I'm Kip Meintzer , Global Head of Investor Relations. And joining me today are Chief Executive Officer and Nadav Zafrir; and our Chief Financial Officer, Roei Golan. Before we begin, I'd like to remind everyone that the conference is being recorded and will be available for replay on our website at checkpoint.com. During this presentation, Check Point's representatives may make forward-looking statements. Forward-looking statements generally relate to future events or our future financial and/or operating performance, including statements related to the anticipated ratification of the Israeli government Research and Development Incentive Program and potential impact of these grants on our financial results. These statements involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Any forward-looking statements made speak only as of the date hereof, and Check Point Software undertakes no obligation to update publicly any forward-looking statements. In our press release, which has been posted on our website, we present GAAP and non-GAAP results, along with a reconciliation of such results as well as the reasons for our presentation of non-GAAP information. If you have any questions after the call, please feel free to contact Investor Relations by e-mail at kip@checkpoint.com. And now I'd like to turn the call over to Nadav for. Thank you, Kip. It's great to be with everyone here today. Nadav Zafrir: I want to begin with a recap of 2025, followed by our plans for 2026 and beyond. We printed solid 2025 fourth quarter and full year results. During the year, we delivered consistent execution while building a stronger foundation for our long-term sustainable growth. We expanded our platform with 2 new pillars, security for AI and exposure management. We're building both organically and through targeted acquisitions. We also strengthened our go-to-market engine. We expanded and flattened our C-suite structure and aligned it to our operating model. We're laser-focused on strategic customers, new logo acquisition and partner leverage. And our sales are focused and designed to develop deeper enterprise penetration, a broader portfolio adoption and increased new logo wins. We also enhanced our financial flexibility with a $2 billion 0 coupon convertible notes offering, strengthening our balance sheet and creating the capacity to invest in our highest conviction priorities. Looking ahead to 2026 and beyond, we are positioning the company to lead the AI era of cybersecurity. As you're keenly aware, AI is fundamentally changing the threat landscape, and this requires organizations to revisit their core security assumption and revalidate their security foundations. In fact, decades of corporate infrastructure is now vulnerable because the very nature of attacks is changing. And so security leaders must revalidate their existing security foundations, protect new attack surfaces that are driven by the adoption of new capabilities and tools as well as embrace AI as a force multiplier just to remain competitive. And our mission at Check Point is very clear. We secure our customers' AI transformation. That means we continuously update our existing security solutions to defend against evolving threats. We're securing the expanding AI-driven attack surface with purpose-built capabilities and leveraging AI to simplify and automate security management and operations. And we do this by applying a proactive prevention-first approach, which leverages our superior capabilities and continuously research, discover and build solutions to anticipate the evolving threats. We secure our customers' AI transformation through 4 strategic solution pillars, each one of them a platform of its own. hybrid mesh network security, securing the infrastructure, workspace security, securing the employees, exposure management that provides situational awareness and then finally, AI security across all of these pillars. We secure the hybrid mesh infrastructure across data centers, hybrid cloud, branch and SASE. And we have a very clear market differentiation for hybrid mesh. And our advantages are we have the superior proactive prevention, second to none, a hybrid architecture that optimizes user experience at the edge, an unparalleled ability to scale and then finally, an AI-powered unified management. As you know, AI is embedded everywhere. And so that the attacks can originate from everywhere, from anywhere. And so we're building an integrated and unified workspace platform that's spanning across devices, browser, e-mail SaaS applications and remote access. We believe that our recognized leadership position in e-mail security and superior phishing prevention capability is a springboard to lead the way in exposure management. Managed service providers, or MSPs also represent an important opportunity in the Workspace security pillar. We identified Rotate as a provider of a comprehensive platform purpose-built for MSPs. We acquired the team of Rotate to build momentum in the MSP market, leverage our position as a leading MSP e-mail security provider. Next, we established exposure management as a new strategic pillar, and we believe we're uniquely positioned to expand our market share in the coming few years. Security teams are challenged by the overwhelming volumes of vulnerability, disconnected intelligence, shrinking remediation windows. And in an AI-driven threat landscape, weeks-long resolution cycle for critical vulnerabilities are no longer viable. At Check Point, we deliver real-time situational awareness unified across threat intelligence, attack surface visibility, providing context and automated remediation. Today, I'm also excited to announce the acquisition of SyCOps, a cyber asset attack surface management company that brings AI-driven asset discovery to enable accurate vulnerability context and risk prioritization. Cyclops strengthens our exposure management platform and delivers robust CTAM offering that includes threat intelligence, vulnerability scanning and prioritization and at the end of the day, also actionable and safe remediation. And finally, as organizations rush to adopt AI, just to remain relevant, this breakneck pace of AI adoption prevents many new risks to organization. We get data leakage via prompts, the uploading of sensitive data, AI threats like jailbreaking or model inversion. And lastly, agents with uncontrolled autonomy, sometimes acting beyond their scope. AI security is a foundational pillar of our strategy. Our comprehensive AI security stack protects employee usage, enterprise application, agents and models. Late last year, we made the acquisition of Lakira to deliver runtime protection across AI applications and agents based on an industry-leading foundational model. You know that this is evolving faster than anything we've ever seen and requires design partnerships and open Gardner and the ability to track and acquire the innovators. And so today, I'm happy to announce the acquisition of Siyata, specializing in discovering and understanding and ultimately governing autonomous AI agents. Siyata extends our platform by protecting the emerging AI workforce, enabling organizations to safely accelerate their AI transformation. In summary, 2025, as you know, my first year as CEO of Check Point. During the year, we strengthened our leadership team. We improved our go-to-market execution and enhanced our financial flexibility, all while delivering solid results. I believe during my first year, we built a foundation that positions us to accelerate our growth over the next few years. And looking ahead, our strategy is focused and aligned. Organizations around the world are accelerating adoption, and our mission is to secure their AI transformation. Through our 4 strategic pillars, we are addressing the expanding AI-driven attack surface and bringing critical innovation to customers. The recent acquisition of Sightclub, Siyata and Browthase Talent further enhance our capabilities in exposure management, AI security and workspace. And these acquisitions strengthen our competitive position and ultimately support our long-term growth ambitions. We're executing with discipline, investing behind our highest conviction opportunities and driving greater value for customers, partners and shareholders in 2026 and beyond. And with that, I'll turn to Roei Golan on to address our financials. Roei Golan: Thank you, Nadav. One moment. Can you see my slides? Nadav Zafrir: Yes. Roei Golan: Okay. So thank you, Nadav, and thank you, everyone, for joining the call. As Nadav said, we had a solid -- fourth quarter was a solid quarter with 6% growth in revenues, driven by 11% growth in our subscription revenues. Our revenues reached $745 million and were $1 million above the midpoint of our projections. Our non-GAAP EPS was $3.40 per diluted share and exceeded our guidance. The figure includes a onetime tax benefit of approximately $0.52 related to a reduction in our corporate tax rate in Israel that impacted prior periods income taxes and also updates into our tax reserves. Excluding the onetime benefit, EPS exceeded the top end of our projection by approximately $0.08. As for the full year, our revenues reached $2.725 billion and were $5 million above the midpoint of our original projections. Our non-GAAP EPS was $11.89 per diluted share and exceeded our guidance. This figure includes a tax benefit of approximately $1.90 related to a reduction in our corporate tax rate that impacted prior year income taxes and uplift in our tax results also due to the tax settlement that we announced last quarter. Excluding onetime benefit, EPS exceeded the midpoint of our projection by approximately $0.09. As mentioned, our revenues grew by 6% year-over-year, while deferred revenues grew by 9% to $2.18 billion. It is important to note that our product revenues growth was moderated in the quarter, mainly as a result of our subscription price increase that we announced in July 2025, which shifted a larger portion of bundled hardware deals towards subscription. This resulted in a headwind of $6 million to our product revenues in this quarter as we allocated relatively smaller product component without changing overall deal value. We do expect to see this impact also in Q1 of approximately $4 million to $5 million on our product revenues. We expect the benefits of this strategy to increasingly materialize in subscription revenue during Q1 and throughout 2026, while also the product price increase that we have effectively from 1/1/2026 of 5%, expect to support our product growth primarily from the second quarter of 2026. When we are looking on our calculated billings, they totaled to $1.039 billion, reflecting an 8% year-over-year growth, while our current calculated billing grew by 6%. Our remaining performance obligation, RPO grew by 8% to $2.7 billion. On an annual perspective, our revenue grew by 6% year-over-year, while our calculated billing grew by 9% to $2.9 billion. Our current calculated billing totaled to $2.784 billion, reflecting a 6% growth year-over-year. When we are looking on our recurring calculated billing, which represents the calculated billing from subscription and maintenance and update, this grew by 10% year-over-year. As we mentioned, our growth this quarter was driven by our subscription revenues. We continue to experience strong demand for our emerging product portfolio, which remains the primary driver for our revenues. In this quarter, in Q4, we had a growth across all our pillars, CEM, Workspace and hybrid mesh, while our emerging products, e-mail security, SASE and ERM exceeded 40% -- more than 40% growth in ARR. When now looking on the global revenue distribution, so we did see growth in all regions. 48% of our revenues came from EMEA, and that grew by 5% year-over-year. 40% of the revenues came from America, which had 6% growth year-over-year, while the remaining 12% came from Asia Pacific that grew 9% year-over-year. When I'm looking at the full year 2025, so actually saw 46% of our revenue came from EMEA, grew by 5%. 42% of the revenues came from America, and that grew 7%, while the remaining 12% came from Asia Pacific and that grew double digit, 11% year-year -- looking into our P&L in this quarter. So our gross profit increased from $623 million to $660 million, representing a gross margin of 89%. Our operating expenses increased by 13% to $358 million. On a constant currency basis, our OpEx increased by 11%. The increase is primarily as a result of increase in our workforce and investment in sales and marketing and channel programs. Our non-GAAP operating income continues to be strong at $302 million or 41% operating margin. Our non-GAAP net income increased by 21%, mainly as a result of a onetime tax benefit that I mentioned in the beginning of this deck in connection with reduction in tax rate and updated tax reserves. The non-GAAP EPS grew by 26%, while the onetime benefit contributed approximately $0.52. Our GAAP net income reached $305 million, an increase of 18% year-over-year, while our GAAP EPS was $2.81 and grew by 22% year-over-year. When I'm looking on the full year, so our gross profit increased to $2.4 billion, and that represents a gross margin of 88%. When I'm looking ahead into 2026, we all know the memory price increase, the recent memory price increase that we have in the market over the past few months. And it is expected to have an impact also on our gross margin in 2026. We estimate this impact to be approximately 1 point for the full year, 1 point on our gross margin for the full year, with most of the impact expected in the second half of 2026 as we have enough inventory -- sufficient inventory to support the needs for the first half of 2026. We will continue to closely monitor supply and pricing dynamics into the second half of the year and adjust our procurement strategy as needed, including potential product price increase. Our operating expenses increased by 10%, mainly as a result of our continued investment in our workforce organically and also the impact related to Cyber acquisition that we closed back in September 2024 and the acquisition that we've done during 2025 of Verity and Laqera. Our non-GAAP operating income was $1.140 billion or 41% operating margin. Looking ahead to 2026, we continue to actively hedge our foreign exchange exposure. However, not all currency are fully covered. As we disclosed in the previous earnings calls, if current exchange levels persist, we anticipate an additional headwind of approximately 1 to 1.5 points on our operating margin for next year. Our financial income increased to $114 million in 2025 as we kept reinvested our cash in higher rates compared to 2024. In December 2025, as Nadav mentioned, we completed a $2 billion convertible notes offering. As a result, we expect higher financial income in 2026 that's estimated to be between $40 million to -- the financial income in 2026 is expected to be $40 million to $40 million per quarter. In 2025, we had income tax benefit of $79 million, which included the benefit of approximately $209 million or $1.90 non-GAAP EPS in connection with updating our tax reserve due to the tax settlement and also the reduction of the tax rate for prior years. As for 2026 taxes, it is important to update that in December 2025, Israel enacted the OECD Pillar 2 framework, established a 15% global minimum effective tax rate for large multinational groups effective for taxes beginning in 2026. As a result, we currently estimate that our tax rate for 2026 will be between 16% to 17%. In parallel, a complementary Israeli government R&D incentive program was initially approved in January 2026. The outcome from this program that is expected to be effective from January 2026 can be approximately $50 million benefit into our operating income. This program is expected to be finally approved by the end of Q1 2026. Our outlook reflects this development as part of our forward-looking statements, including the anticipated certification of the R&D incentive program and the potential financial impact of related grants on our future financial results. One moment -- moving into our cash flow and our cash position. Our cash balances as of the end of the quarter was $4.3 billion. As a reminder, on December 2025, we also announced a $2 billion, and we received $1.8 billion net proceeds net of issuance costs and the purchase of the Capco. Also during October 2025, we acquired Laera for approximately $190 million of net cash consideration. Our operating cash flow was very strong this quarter with $310 million, 24% growth year-over-year and representing 42% of our revenues in Q4. We also continued our buyback program and purchased 2.2 million shares for $425 million at an average price of $193 per share. On an annual perspective, our operating cash flow grew by 17% to $1.234 billion, while important to note that this includes $66 million tax payment, onetime tax payment that related to our tax settlement that we signed in Q3, while our balance sheet hedge transaction resulted from the other end, the benefit of $51 million in 2025. Also as a reminder, during 2025, we completed the $160 million payment for the land purchase associated with the new Check Point campus that we are building here in Tel Aviv. We do not expect any significant additional payment in connection with this new campus in 2026. So to summarize, our revenues were above the midpoint of our projection and the EPS exceeded our projection. We do see continued strong demand for emerging technologies, it's e-mail, if it's SE, SASE, and we had another quarter and another year of strong operating cash flow and strong profitability. Now moving to the business outlook to our projection for Q1 and for the full year. So for Q1 and the full year, I'll start with the revenues. So first, our revenues is expected to be between $655 million to $685 million in Q1 2026. I remind you the short-term headwind that we have only specifically in Q1 in terms of product revenues. For the full year, we expect our revenues to be between $2.83 billion to $2.950 billion, between 4% to 8%, while the midpoint is 6%. This time, we're also going to give you the subscription revenue guidance which expected to accelerate to continue to accelerate. As for Q1, we do expect it to be between $318 million to $328 million, while as for the full year, we expect it to be between 10% to 14%, which means that the midpoint expect to be 12% growth. Our non-GAAP EPS, including -- it takes into effect the expected grants, the R&D incentive program that needs to be completed by the end of Q1. This take into account and the EPS is between $2.35 to $2.45, while the full year EPS, non-GAAP EPS expected to be between $10.05 and $10.85. GAAP EPS for Q1 expected to be $0.64 less, while for the full year is expected to be $2.58 less. Also, we're going to share with you guidance projections, sorry, for adjusted free cash flow for Q1 and for the full year. This is the operating cash flow minus CapEx, minus any acquisition-related costs. And we are -- in Q1, we expect to have a strong adjusted free cash flow between $420 million to $460 million, which represents 66% of our midpoint, the expected revenues in Q1. While for the full year, we expect it to be 42% of the revenues in the midpoint, which is $1.150 billion to $1.250 billion. That's it. And we keep, the floor is yours. Kip Meintzer: All right. So for Q&A, today, first up, we're going to have Adam Tindle from Raymond James. Adam Tindle: All right. Can you hear me? Nadav Zafrir: Yes. Kip Meintzer: And we'll be followed by Shaul Lal from TD Cowen. Adam Tindle: Nadav, I wanted to ask AI security is obviously a clear focus in your script today. And it sounds like you're investing both organically and inorganically with some of the acquisitions here. I wonder, this is sort of a high-level strategic question for you. The heart of it is to kind of compare and contrast your view of AI security versus how cloud security played out. And with the context being that you made the very smart decision in cloud security to choose to partner with Wiz, essentially exiting Check Point's efforts in organically as the ROI wasn't there. Again, in hindsight, very smart given the cloud security market has been problematic for your competitors, bad pricing, bad profitability there. And I see some similarities in cloud security and AI security. So I guess what's different about AI security that got you more comfortable to invest here versus the decision to invest in cloud? And how big do you think this could be for Check Point over time? Nadav Zafrir: Yes. No, great question. And the sort of the analogy is in place. However, in my opinion, the AI transformation is both more foundational. It's not shift and lift your activities from on-prem to the cloud, but rather it's a real shift in the way you use technology, do business, employ people, et cetera. And the second change, in my humble opinion, is that it's -- we're seeing it already, but I expect this to accelerate. So it's happening much faster. So in my opinion, you can look at the cloud analogy, but you need to have it as a reference for difference. The second thing I'll say is that -- here are 2 fundamental issues. Number one, attackers are using AI much faster than defenders. This is just the nature of this asymmetry between offense and defense and in this learning competition and how, unfortunately, for several reasons, the attackers can adapt faster. And so what we're seeing is larger scale, more precision and a real change in the nature of attacks, right? And so that's one angle that we need to look at. The other is -- and that's sort of the nature of what we're seeing right now. Every organization on the planet is racing to adopt AI to stay relevant. And as they're doing that, they're sort of creating a new attack surface. When you look at these 2 things separately, in my humble opinion, this is time to revalidate security altogether. We think we're really well positioned to lead the way to secure our customers' AI transformation based on the 4 pillars that we were talking about, based on the fact that we truly have the best prevention -- proactive prevention security, which has always been important, but it's now becoming critical. And so building we have decade data 100,000 customers, 4 pillars, a vision that I believe is very specific to secure AI transformation. This is a must for us. We're making acquisitions. We're building organically. And we really believe this is our time and our space to challenge the status quo. Kip Meintzer: Next up is Shaul Lal, followed by Joseph Gallo of Jefferies. Apologies for some background noise. Joseph Gallo: Question for Roei. How should we be thinking about ASP hikes from a linearity perspective? Are we seeing them coming in the first half of the year? Are we seeing them coming in the second half of the year? Can you just help us out a little bit? Roei Golan: Yes. So we did several price increase. One of them was in July only for the subscription, the firewall subscription. And in January, we've done it for all the firewall, which including client hardware, subscription and support. In general, usually, it takes to see the ASP going up. It takes -- usually it's a quarter. I mean, if I'm looking at about, for example, appliances, we talked about the appliances. So we -- of course, it's effective from January 1. But from a revenues perspective, that's something that usually we see the main impact coming from the quarter afterwards because certain revenues that are recognizing in Q1 are coming from bookings that came from prior periods. And also, we have -- we are expecting quotes that being delivered to our customers before the effective price increase. So most of the effects usually come in -- we should expect to see from Q2 this year. Kip Meintzer: All right. Next up is Brian Essex Rob Owens, followed by Brian Essex, pardon me. Unknown Analyst: Am I in here first, Ki or... Kip Meintzer: You are in first, Joseph, I'm sorry. Joseph Gallo: I appreciate that. It was great to see the strength in subscription, but I just wanted to ask on product in 4Q. I know there was some mix shift and reallocation in large deals, but is there anything else we should be aware of? And then I believe your product guide for '26 implies approximately flat. Just any comments on remaining refresh cycle available? Or have you seen customers change their buying behaviors ahead of these incoming price increases? Roei Golan: Yes. So I think Q4, we had a good quarter for product. Again, it was less good than what we've seen in the first 3 quarters, but still, we did see a good quarter for the demand for our product. If I'm looking ahead for 2026, 2026, I think we still have -- we see good funnel for hardware, specifically in the second half of the year. I do have to say that in the -- you are right that when you're talking -- when you're taking into consideration what I gave for subscriptions, so product is around flat to low single digit. In our guidance, we took more prudent approach, mainly because not we don't see the funnel, mainly because we are taking a more prudent approach of what's going on the macro with the memory shortages that we see everywhere price increase, not specifically only on memories, by the way, on all raw materials, and that might affect some customer behavior that's postponing some CapEx projects. So we took it into account. But definitely, again, we want to be more than that. We want to be higher than that. I think we continue to see refresh. And -- but again, we cannot ignore what's going on in the market with the memory situation. Kip Meintzer: All right. Next up is Todd Weller -- or Brian Essex, followed by Todd Weller. Sorry about that, Brian. Brian Essex: All right. Joe, I wasn't going to let him pass you by. Really, another question on guidance. Would love to understand maybe the puts and takes embedded in operating margins. What -- if we were to back into operating margins, what are the implicit margins in your guidance? And how do you think about spending? And then maybe one for Nadav, basically back on that, the dynamics around the hardware price increases, are you hearing any shift in spending intentions from your customers anticipating maybe firewall and server prices accelerating on the back of the memory pricing. So one for each of you. Roei Golan: So the margin that we took into account in our guide, it's between 39% to 40%. So that's the operating margin. We're taking into account all the headwinds that we get from the memories from the FX on the other hand, the expected grants from the government. So all of that was taken into account, that puts you in the 39% to 40%. av... Nadav Zafrir: Yes. Look, with regard to the hardware, as Re said, we don't see any change as of now. As Roei said, we do need to be prudent looking into what's happening this year. I actually think for us, this could be a competitive advantage. We have the supply for the first 2 quarters. We're going to figure out how to take advantage of the situation. I don't see this as being a huge headwind, except for what Marie said about the 1 point in the margin that we just spoke about. Obviously, very encouraged by the high growth in the subscription rate that we're seeing and projecting. Brian Essex: And no shift towards SASE or other types of architecture. Nadav Zafrir: Exactly. Exactly. Our SaaS products are becoming a -- our SaaS products and subscription is becoming a much bigger part of our overall cake, and we intend to continue growing that, again, across the different pillars. So in hybrid mesh, SASE, Workspace is completely SASE, so is exposure management. And this year, for the first time, a true North Star around security for AI around the AI security pillar. Kip Meintzer: All right. Next up is Todd Weller, followed by Jan Siddiqui. Todd Weller: Nadav, you outlined all the changes that were implemented in 2025. What would be the 2 or 3 specific ones you think will most positively impact the growth trajectory in '26? And when do you expect to see those start kind of showing up in the numbers? Nadav Zafrir: Yes. Look, I think that we laid the foundations, right? The most importantly is the C-suite and the new leadership we had and the way we are reorganizing and refocusing our go-to-market. That's number one. And the second thing that I'm very excited about is going to the market with these 4 pillars. Each one of them is a platform in itself. Some of our customers are going to choose to use one pillar as their platform, let's say, for Workspace. Others are still using the hybrid mesh pillar and some are using everything, and it's an open garden so we can play with the others. So if you ask me, these are the 2 main things. Number one is the 4-pillar approach. Number two is the leadership in the C-suite change and the refocusing of the go-to-market. And above everything else, I am a true believer that we need to revalidate security. Attackers are moving at an extreme speed. I think we have the foundations. But as you can see, we're also making the acquisitions. We have the right design partnerships. We want to do this as an ecosystem play. So the third thing, of course, is security for AI. The race is on, and we're in it. Kip Meintzer: Thanks, Todd. Next up is Junaid, followed by Keith Bachman from BMO. Junaid Siddiqui: Just wanted to talk about the progress on the SASE front. You mentioned ARR grew around 40%. In the past, you've talked about making it much more enterprise-ready, moving to a unified policy. How is that tracking? And is the focus right now mostly on upselling the existing customers? Nadav Zafrir: Yes. So great question. As you can see, the SASE now is a part of our hybrid mesh pillar. We're maturing the product. We made significant investments organically in 2025, and the product is maturing, and we're integrating it as a part of the hybrid mesh pillar and platform like you said, with our unified management. Now in terms of our sales motion, we are integrating the -- what used to be the -- what we used to call a rocket. We're now integrating this into the hybrid mesh pillar. We're also putting together the sales overlay of our CloudGuard network security with SASE to better integrate that into the overall motion. You're right that I would say that 2/3 is upsell to existing customers, but that's not the only one. We're also seeing new customers that are actually buying our SASE, and we hope to actually move them to our firewall business to create the full capability of a hybrid mesh pillar. Kip Meintzer: All right. Next up is Keith Bachman, followed by Shrenik Kattharis of Baird. Keith Bachman: Nadav, I want to put this to you, and it sort of reflects incoming comments already this morning. investors are looking for an acceleration of growth. You're basically guiding to 6% plus or minus total revenue growth, which is consistent with what's happened in the last 2 years. So while subscription is improving, which is nice -- it's nice to see, total growth isn't improving, right? So how do you sort of respond to -- because you're asking investors to be patient about this notion of acceleration. So how do you respond to that comment? And then consistent with that, Roei, any comments you want us to think about for total billings growth in light of the midpoint of rev growth? Nadav Zafrir: Yes, sure. Thanks. Look, we laid the foundations. Now it's all about execution. I think we have the 4-pillar approach. We have the foundations. We have the right people in place. We have the financial flexibility to make acquisitions. Now it's all about execution. And you're right that it's not an overnight acceleration, but I think we're on the right trajectory. I think also what we have in terms of product solutions around our superior ability to proactively prevent the acquisitions that we're making and the -- what we're building in the AI security is putting us in the right trajectory. And now it's all about execution. Roei Golan: And as for the total billings, similar to the revenues growth around high single digit, 6%, 7%, that's expectation in order to achieve the midpoint. Kip Meintzer: All right. Next up is... Unknown Analyst: So, you just mentioned financial flexibility, ended 4Q with $4 billion in cash and you have added $2 billion in convert. Just in terms of so far, you mentioned about favoring smaller AI native integrations and the announcements you made. Just on the large-scale M&A, right, just -- can you just talk to as some of the other peers are kind of going after platform convergence waves, aggressively chasing few things. So what kind of sort of scale IP or adjacency would actually justify more transformative sort of AI-driven bet for you guys, if at all? Nadav Zafrir: Yes. So yes, we have the flexibility and we have the vision. And now in each one of those pillars, we need to be very disciplined and identify the targets. They could be tuck-ins, they could be larger, but the ones that actually take us to be a podium player in each one of those pillars specifically. So the target needs to have the right technology, the right people, the right culture and so that we can see that we can integrate it and move fast to create a real platform. In my humble opinion, just buying more and more products and putting sort of a supermarket approach is not what our customers are looking for when they look through consolidation. They look for a real integrated for us pillar. And each one of those pillars, we're looking at as its own platform play. So if you take exposure management, we are looking to create the #1 exposure management system. Some of the acquisitions are smaller. We're also looking at larger ones all the time, but we're going to be disciplined about it. And again, through the -- looking at each pillar separately, we're not stopping. We're moving fast. Kip Meintzer: It looks like you just stopped playing a game when you came on. Good see you. Next up is Joshua Tilton, followed by Roger Boyd from UBS. Joshua Tilton: Maybe, Roei, for you, any way to think about how much the acquisitions that you announced today are contributing to the guidance that you provided for 2026? And maybe outside of pricing, could you just talk to why or what gives you conviction in the belief that guiding to, I think, what you said flat to low single-digit growth for product is prudent from your perspective? Roei Golan: Okay. So first, in terms of the acquisitions, so of course, it's part of the guidance, and that it should have an effect of approximately 0.5 point in our margin because it's mainly right now in 2026, we expect it to have many costs, many dilution to our margin. That's approximately 0.5 point to the operating margin. As for the pricing and the product, so I think, again, I'm looking -- when we are -- of course, we are working on the guidance and of course, working for our plan on 2026, we're looking on the funnel. We are looking on the potential. We're looking, of course, on the price increase that we've done in January 1. And I think that, again, we can do -- we should -- I mean, we need to continue the strong demand that we've seen in 2025. We see good final also for hardware mainly in the second half of the year, also in the first half, but mainly in the second half of the year. And I think that definitely also the price increase and the effect that we've seen that the discounts this year were actually even improved compared to last year in 2025 compared to 2024. So if we manage to continue that and maintain the discounts, we also can benefit from this price increase. I do have to say, it's important to say we didn't take into account in our guidance any additional price increase. Because of the memory shortages, there might, of course, we might consider additional price increase during the year, but that was not a factor in the guidance right now. Joshua Tilton: And just to be clear, that 0.5 point is in the 39% to 40% margin... Roei Golan: Part of the guidance I provided you. Joshua Tilton: And any way to think about the top line contribution from the acquisitions? Nadav Zafrir: Minimal. Roei Golan: Minimal to, I would say, a few millions or even a few millions of dollars. Kip Meintzer: All right. Next up is Roger Boyd from UBS, followed by Peter Levine from Evercore. Roger Boyd: Awesome Nadav, I wanted to hit on rotate. They have a lot on their platform. So I guess in addition to the MSP enablement tools that you talked about and some of the exposure management technology, how much interest is there in the rest of their portfolio, which I think includes some native technology for detection across endpoint and some other attack services. And when you think about MSPs in general, can you just talk about the -- what percent of revenue they represent today and how you see that evolving? How important is that in terms of your channel strategy this year? Nadav Zafrir: Yes. Thanks. So today, I think it's -- I don't -- it's still relatively small, but I think it's a high potential growth for us in 2026 and beyond. The MSP, we're going to consolidate everything under Workspace under Gil Friedrich. And the Rotate technology and the folks that are coming with it are going to enable us to actually streamline everything to the MSPs, and that's where the opportunity is. And you're right, it's not -- it's e-mail, it's endpoint, it's browser, it's SASE, all put together for the smaller customers, working with our partners and the MSPs. And so this acquisition is -- will allow us to accelerate to move faster into a consolidated unified ability to work with those MSPs. Kip Meintzer: All right. Thanks, Roger. Next up is Peter Levine with Evercore, followed by Saket Kalia from Barclays. Peter Levine: What's changed in customer demand that makes kind of exposure management more of a priority today? You touched upon it on the call in your prepared remarks, but are customers explicitly asking for like a united exposure visibility across network, cloud, identity, whatever it is? And then maybe just, Rory, help us understand like how meaningful could this category be over the next, call it, 2 or 3 years in terms of revenue contribution? Nadav Zafrir: Yes. So first, I can't resist to answer Rory's question. It's meaningful. It's not huge right now, but we see great potential in it. When I look at this -- I come from the trenches ultimately. When I look at this as a practitioner, you've got to have this situational awareness. And so yes, we're seeing more and more demand, and we're seeing it going upstream as our capabilities become more and more mature. And what we're building is the full gamut. So on the one hand, based on an acquisition that we made a year before last around Cyberin, we have the intelligence. Now with Cyclops, we can see the posture and we can prioritize based on what we're seeing CVEs, dark web stuff. We're seeing what's coming. And from the inside, we're seeing what's vulnerable. And with the Verity acquisition, we can actually do the automatic remediation. And so what our customers find us once they deploy that is that a lot of the things that are coming at them are no longer in danger and because we can block it automatically before it even happens. In my opinion, again, looking at this as a practitioner, there's -- one of the shifts is that attackers can actually weaponize vulnerabilities much, much faster. And they can also use autonomous agents that are doing their -- once there is a breach, they operate much, much faster. And so having that proactive prevention has become more important than ever and building this triage around these 3 components, I think, is unique in the industry, and I think will carry more and more traction. For us at Check Point, it's also important because it allows us to go outside of our installed base right now to new customers and hopefully upsell and cross-sell once we go beyond that. And so yes, we see this as something which is becoming a core pillar and an important part of the 4-pillar strategy that we're going with. The last thing I'll say about it is that when we do the remediation, the automatic remediation, -- we don't do it just for checkpoint products. And that's the beauty of it. This is where an open platform, open guarding comes in. When we see vulnerability, some of our customers are not using Check Point products to secure their hybrid mesh, but we can go in and fix the other vendors' vulnerabilities when we can -- after we prioritize them. And at the end of the day, I think it gives our customers better security. Kip Meintzer: Thanks, Peter. Next up is Saket Kalia, followed by Brad Zelnick from Deutsche Bank. Saket Kalia: Okay. And by the way, I appreciate the additional detail on guidance. Maybe a question for both Nadav and Roei. Nadav Zafrir: The 4 pillars are really helpful framework for thinking about the business. Saket Kalia: Roy, for you, are there any guardrails that you can give us just on the mixes across those 4, high level, of course. And Nadav, what are you changing from either a contracting or sales comp perspective to drive higher growth across those smaller, maybe faster-growing pillars? Does that make sense? Roei Golan: Yes. So I think if you're looking on the 4 pillars, so of course, the most significant one is Diab mesh, which includes also our firewall, which is still a significant part of our business. It's growing, of course, mainly driven by the SASE and our cloud network. That's mainly driving the growth. Both of them SASE and cloud network sitting on the subscription line item. And that's part of the acceleration that we see in the subscription line item. And the others that I think have the highest growth that we see today are Workspace and STEM. STEM, we talked a lot about it in this call. We do see very strong demand. Of course, still small numbers from total Checkpoint, but very strong demand, which started when we acquired Cyberin, then we added other acquisitions that we've done and included in the offering. And again, when we are looking on the funnel for next year, definitely will be -- it's expected to be even in 2026, a major driver for our subscription line item. And also e-mail e-mails continue to be very strong. We talked about the numbers, I think, talked about the numbers a few quarters for the few quarters. I mean we already passed the $160 million ARR and continue to grow in very strong double digit. So definitely, we're aiming to pass the $200 million this year. And I think that's the main driver that we -- that's why you see our subscription revenues continue to accelerate, and we expect it to accelerate every quarter. Of course, with the contribution for -- also from firewall, again, contribution that it's a mix of the price increase, but also gaining new logos and expanding our market share in the firewall. So that's in total picture how it translates into our revenues. Nadav, you want to... Nadav Zafrir: Yes. The 4 pillars is strategic, as you said. In the first one, it's the infrastructure and the network. The second one is your employees. The third one is the situational awareness. And then finally, security for AI, which is as a stand-alone, but also embedded in the 3 others, and we have the services that engulf all that. To your question, to grow these pillars faster, we're doing a few things. Number one, in each pillar, we are trying to see what is a differentiated advantage, right? So like I said, for the hybrid mesh, it's the prevention first, it's the scalability. It's the unified management and it's the hybrid architecture. But there are other things that we want to improve. And so some of them we're doing organically, some we're looking for acquisitions. We're doing the same thing for each one of those pillars. The second thing is from our go-to-market focus, -- we are moving to a multi-pillar, multi-platform company so that our front liner sellers can sell each one of those pillars. And of course, in each one of them, there's also different products, and we're better aligning our account managers with the specialists that can come in and support them. And that's a major change in the way we're going to market as of literally now. The one thing I want to add is that in each one of those pillars, we're also going to challenge. We're going to challenge some of the existing status quo in the market. So we're going to we're challenging status quo around supermarket approach consolidation through a real platform approach. We're challenging a closed garden to an open garden. We're challenging complexity. So in each one of these, we're not just building our own security platform pillar, but also challenging the existing status quo. Again, some of it with existing capabilities that I think are critical and becoming more important and in others, by building new stuff and making acquisitions. And at the end of the day, I think we need to realize that especially the world we're going into, every morning, there is a new reality and a new threat. So we need to constantly evolve. We need to constantly see the road map of our customers. We need to constantly look around the corner so we can truly be their companion for a secure AI transformation. Kip Meintzer: All right. Next up is Brad Zelnick, followed by Shyam Patil from Susquehanna. Brad Zelnick: Nadav, I've heard you loud and clear, the foundation is in place. It now comes down to execution. And I take that to mean more go-to-market than product because Check Point has always had great product and you're acquiring high-quality tuck-ins that only strengthen your offerings in the position that you're in. But where do we stand from a go-to-market perspective? How much more ramp distribution capacity do you have heading into 2026? And maybe for Rohe to chime in, what needs to happen to exit '26 growing double digit and to get us to double-digit growth for the full year in '27? Nadav Zafrir: Yes. Thank you for that. So you're right that it's about go-to-market execution. It starts with a louder voice around our marketing effort. It's about the focus. And as I described, we're going to be focusing on large enterprise. We're going to be focusing on new logos. We're going to be focusing on a -- on the multi-pillar, multiproduct company approach. We're going to be focusing on hiring the best people in the industry. So it's a plethora of things that we're doing to create a better execution as we go to market. And lastly, it's also about challenging the status quo. I think this is a time where the nature of security is changing. I think the criticality of the basis of what security means has become more critical than ever. And we're going to take advantage of some of the assets that we already have. We're going to take advantage of where we are situated. We are seeing all the innovators, and we're trying them out as designed -- with our design partners on the customer side. We've got new leaders in marketing. We've got new leaders in sales, and we're going to continue bringing in the best of the best in the industry to join us to do exactly what you said by the end of the year. Roei Golan: As for the double-digit question. So I think -- again, I think we need to show -- first, we need to continue the strong momentum, the strong demand that we've seen for the -- we mentioned the CTM. We mentioned the e-mail security, the workspace and SASE. So definitely, we need to see here. We need to see specifically in e-mail and CTEM continued strong demand there. As we see already, we see it in the funnel. We saw it last year. We saw it in the last few years, but e-mail in the last years, but CTM specifically in 2025 and also in the funnel for next year. for 2026. But definitely, in order to be double digits, we need to grow even faster than firewall. I mean we are positioned much better today on the firewall than what we've been 2 years ago or 3 years ago, I think we did a significant improvement both on the product side, also on the go-to-market and on the go-to-market. I think we brought -- we have great leadership in the go-to-market. And I think we are positioned much better today to accelerate our growth on the firewall. Definitely, mid- to high single digit in the firewall, together with the continued strong momentum that we have in the other pillars that should bring us to double digit. Kip Meintzer: All right. Next up is Shyam Patil, followed by Ben Bollin of Cleveland Research. Shyam Patil: This is Dan on for Shyam. I guess with the price of memory increasing significantly of late, just I know you talked about potentially increasing prices, but what levers do you have to maybe try to get better deals from suppliers? And how are you looking at that as we progress through the year and try to get through sort of the shortages? Roei Golan: So I think we are working 24/7 with suppliers around the world to get better pricing. I think we are doing -- we have a great team that's doing an amazing job in order to get the best pricing, I think. But still, we cannot avoid the situation that there is a price that the price of the memory has increased significantly. So even if we're getting better pricing, it's still significantly higher than what we used to pay a few months ago before this trend starts. But definitely, we are investing a lot on that on getting the best pricing. And again, we're doing it. We have teams around the world that's exploring opportunities in order to get the best pricing in the market. Of course, we can -- we always want to do even better, but I think definitely, we are doing a great job there. Kip Meintzer: All right. Our last caller is going to be Patrick Colville. Ben Bolin is not on the call today. Patrick, nice to show up. Patrick Edwin Colville: I'll make it a good one to close. It's actually a clarification question. Can you just, Roei, please just go over again what drove the product revenue to be a little bit softer than we might have hoped in 4Q? And then can you just also just reclarify why the pricing benefit doesn't really hit in 1Q and then why it builds throughout the year? Roei Golan: So for product, most of our hardware that we are selling today, that is a significant portion of our product revenues is sold as a bundle to bundle together with the software subscriptions actually with subscription. And when we announced the subscription price increase back in July, so we announced only pricing for subscription without increasing the appliances price. From an accounting perspective, that's more accounting, we need to allocate because the stand-alone subscription price was increased without the total price. So the allocation of the revenues are smaller to the product, to the bare hardware is allocated is smaller, and that impacts mainly Q4 because in Q3, we just announced it. Some of the deals were not recognized as revenues. But in Q4, we already saw that, and that had -- again, it's mainly short-term headwind. It's not going to affect our total revenues. It's more kind of headwind on our short-term product revenues, and we're going to see the benefit from the subscription over time. So again, that's in general. And your question on the price increase, so let's separate between billings and revenues. Billings, most of it, you're going to see it in the same quarter that we did the price increase. From a revenues perspective, sometimes like in Infinity, in some other ELAs that we have -- we have deals that have been closed before we -- I mean, in prior quarters, and we are recognized -- it's part of our backlog, and we are recognizing the revenues in future periods. So in that factor, you don't see the price increase in the revenues. You're not going to see that. You might see billings for new deals, but you're not going to see the main impact in the same quarter. So as I said, the main impact we start to see from the quarter -- from Q2, which is the quarter after the price increase on the revenues, not on the billings. Kip Meintzer: All right. Thank you, everybody, for joining us. We appreciate it, and we'll see you throughout the quarter and then obviously, next quarter. Have a great day. Bye-bye. Roei Golan: Bye. Thank you.
Operator: Good morning. My name is Paul, and I will be your conference facilitator. At this time, I would like to welcome everyone to Granite Point Mortgage Trust Inc. Fourth Quarter and Full Year 2025 Financial Results Conference Call. At this time, all participants will be in a listen-only mode. After the speakers' remarks, there will be a question and answer session. Please note today’s call is being recorded. I would now like to turn the call over to Chris Petta, with Investor Relations for Granite Point Mortgage Trust Inc. Please go ahead. Thank you and good morning everyone. Chris Petta: Thank you for joining our call to discuss Granite Point Mortgage Trust Inc.’s fourth quarter and full year 2025 Financial Results. With me on the call this morning are Jack Taylor, our President and Chief Executive Officer; Steve Alpart, our Chief Investment Officer and Co-Head of Originations; Blake Johnson, our Chief Financial Officer; Peter Morale, our Chief Development Officer and Co-Head of Originations; and Ethan Leibowitz, our Chief Operating Officer. After my introductory comments, Jack will provide a brief recap of conditions and review our current business activities. Steve will discuss our portfolio and Blake will highlight key items from our financial results. Press release, financial tables, and earnings supplemental associated with today’s call were filed yesterday with the SEC and are available in the Investor Relations section of our website. We expect to file our Form 10-Ks in the coming weeks. I would like to remind you that remarks made by management during this call and the supporting slides may include forward-looking statements, which are uncertain and outside of the company’s control. Forward-looking statements reflect our views regarding future events and are subject to uncertainties that could cause actual results to differ materially from expectations. Please see our filings with the SEC for a discussion of some of the risks that could affect results. We do not undertake any obligation to update any forward-looking statements. We also refer to certain non-GAAP measures on this call. This information is not intended to be considered in isolation or a substitute for the financial information presented in accordance with GAAP. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures can be found in our earnings release and slides, which are available on our website. I will now turn the call over to Jack. Jack Taylor: Thank you, Chris, and good morning, everyone. Jack Taylor: We would like to welcome you and thank you for joining us for Granite Point Mortgage Trust Inc.’s fourth quarter and full year 2025 earnings call. 2025 was a constructive year for the commercial real estate industry. Chris Petta: The year began with strong momentum Jack Taylor: after pausing briefly in the spring due to macro uncertainty, quickly resumed with heightened deal activity and spread compression throughout the balance of the year. During the fourth quarter, we saw greater capital availability for a broader array of properties, including certain office properties, as well as improving fundamentals across many markets and most property types. Lending volume has expanded and also extended to a wider range of property types and markets. This greater liquidity in the market has benefited the CMBS market and strengthened CLO issuance. Larger commercial banks have become more active, notably for warehouse financing, and regional banks are beginning to return to the market as well. Against this backdrop of available capital in the market, there continues to be a shortfall of actionable deals, which is one of the key factors contributing to the spread tightening we have been seeing over the last several quarters. For Granite Point, with the long-awaited market improvement, 2025 was an impactful year, as we achieved some of our key objectives. These included five loan resolutions, seven full loan repayments, and one REO property sale, as well as a reduction in our cost of debt. The market momentum experienced in 2025 has continued into early 2026, and sets the stage for this year to be potentially a stronger year for the industry, with forecasted growth in transaction activity across property types, increased liquidity from traditional lenders, a robust securitization market, and an increasingly constructive backdrop for asset resolution activity. In 2026, continue to make progress reducing our higher-cost debt and moving along our asset resolutions, which will continue to help reduce the risk within our portfolio and improve our net interest spread. This month, we repaid a substantial amount of additional higher-cost debt, resulting in a reduction in the cost of our repurchase facilities by roughly 60 basis points and an estimated annual savings of $0.10 per share. With respect to our two REO assets, we are investing capital where we believe it will maximize our outcome and then we will seek to exit and extract capital. Post quarter end, we also have received two full loan repayments of $174,000,000 combined. Turning to originations, as we said last quarter, we expect to begin to regrow our portfolio this year, and to start that process in 2026. The exact timing and volume of originations will be driven by the pace of loan repayments and asset resolutions, as well as market conditions and idiosyncratic factors. While the timing and volume is uncertain, reallocating capital in our portfolio and recycling into new originations remains one of our highest priorities. I would now like to turn the call over to Steve to discuss our portfolio activities in more detail. Thank you, Jack. Steve Alpart: And thank you all for joining our fourth quarter and full year earnings call. We ended the year with $1,800,000,000 in total loan portfolio commitments, inclusive of $1,700,000,000 in outstanding principal balance and about $77,000,000 of future fundings, which accounts for only about 4% of total commitments. Operator: Our loan portfolio remains diversified across regions, Steve Alpart: and property types, and includes 43 investments with an average UPB of about $39,000,000 and a weighted average stabilized LTV of 65% at origination. As of December 31, our portfolio weighted average risk rating increased slightly to 2.9 from 2.8 at September 30. The realized loan portfolio yield for the fourth quarter was 6.7%, which, excluding nonaccrual loans, would have been 8% or 1.3% higher. We had an active year of loan repayments totaling about $469,000,000 during 2025. During the year, funded about $51,000,000 on existing loan commitments and other investments. During the fourth quarter, we had $45,000,000 of loan repayments and partial paydowns, including a full repayment of a $33,000,000 loan secured by a multifamily asset located in North Carolina. We had about $15,000,000 of future fundings and other investments, resulting in a net loan portfolio reduction of about $30,000,000 for the fourth quarter. Post quarter end, we have received two full loan repayments of $174,000,000. We will now provide some color on the risk-rated five loans. At December 31, we had four such loans with a total UPB of about $249,000,000. At quarter end, we downgraded a $53,000,000 loan collateralized by a 284-unit multifamily property in the Atlanta MSA from a risk rating of four to a rating of five. While we have seen a pickup in occupancy at the property, the local market remains soft and we are not seeing the return of the pricing power we had expected. We are reviewing resolution alternatives, which may include a property sale. We are monitoring the situation closely and expect to have more to share over the coming quarters. We discussed last quarter that we had a partial resolution on the Chicago loan with the sale of the upper floor office space to a developer for a residential conversion. After the sale, the remaining collateral securing the $76,000,000 loan is the retail space. The story is now cleaner and simpler, and we are continuing to work cooperatively with the borrower towards the ultimate resolution, which we expect will occur via a property sale in the nearer term. For the $27,000,000 Tempe hotel and retail loan, we are reviewing resolution alternatives there as well, which could involve a sale of the property. Regarding the $93,000,000 Minneapolis office loan, as previously disclosed, we anticipate a longer resolution timeline given the persistent local market challenges. Resolving these remaining five-rated loans remains a top priority. Turning to the REO assets, we continue to have positive leasing successes at the suburban Boston property, and remain actively engaged with our partner and the local jurisdiction and other third parties on several value-enhancing repositioning opportunities. We continue to invest capital into this property to maximize the outcome. The Miami Beach office property is a Class A asset located in a strong market. We are having positive leasing discussions with a variety of existing and new tenants, will prudently invest in the property, and continue to review resolution alternatives, which include the potential sale. As we shared in prior quarters, our plan for 2026 is to remain focused on loan and REO resolutions. We expect our portfolio balance will trend lower in the near term until we start our origination efforts in 2026 to take advantage of attractive investment opportunities and begin to regrow our portfolio. I will now turn the call over to Blake to discuss our financial results. Blake Johnson: Thank you, Steve. Good morning, everyone, and thank you for joining us today. Turning to our financial results. For the fourth quarter, we reported a GAAP net loss attributable to common stockholders of $27,400,000, or negative $0.58 per basic common share, which includes a provision for credit losses Jack Taylor: of $14,400,000, or negative $0.30 per basic common share Steve Alpart: and an impairment loss Blake Johnson: in the Miami Beach OREO asset of $6,800,000, or negative $0.14 per basic common share. Distributable loss for the quarter was $2,700,000, or negative $0.06 per basic common share. Our book value at December 31 was $7.29 per common share, a decline of $0.65 per share from Q3, largely from the provision for credit losses Jack Taylor: and impairment loss on REO. Blake Johnson: Our aggregate CECL reserve at December 31 was about $148,000,000, as compared to $134,000,000 last quarter. The roughly $15,000,000 increase in our CECL reserve was mainly due to an increase in our specific reserve on our collateral-dependent loans Jack Taylor: and worsening macroeconomic forecast in our CECL model relative to the prior quarter. Blake Johnson: Approximately 70% of our total allowance was allocated to individually assessed loans. As of quarter end, we had about $249,000,000 of principal balance on four loans with specific CECL reserves of around $105,000,000, representing 42% of the unpaid principal balance. Steve Alpart: We believe we are appropriately reserved Blake Johnson: and further resolutions should meaningfully reduce our total CECL reserve balance. Turning to liquidity and capitalization, we ended the quarter with about $66,000,000 of unrestricted cash. Our total leverage increased slightly relative to the prior quarter from 1.9 times to 2.0 times. As of a few days ago, carried about $55,000,000 in cash. Steve Alpart: Our funding mix remains well diversified and stable, and we continue to have very constructive relationships with our financing counterparties. We expect to expand our financing capacity once we return to originating new loans. Blake Johnson: I will now ask the operator to open the line for questions. Operator: Thank you. We will now be conducting a question and answer session. Thank you. Our first question is from Douglas Harter with UBS. Marissa Lobo: Good morning. It is actually Marissa Lobo on for Doug today. Thanks for taking my questions. On origination, how are you thinking about the economics of new origination versus returning capital to shareholders, given the large discount to book value that you trade at? Blake Johnson: Good morning, Marissa. This is Blake. Thank you for the question today. When we look at our portfolio and the discount to book, one of our main objectives over the years to continue resolving our loans and actually working on decreasing our leverage until we start originating again. We do plan on returning to originations later in the year, and that is our focus for 2026. Marissa Lobo: Okay. And on the CECL reserve build, how are you viewing the current reserve position and the likelihood for further reserve build? How are current macroeconomic assumptions factoring into that? Blake Johnson: A very good question. Thank you. Yes. So as of year end, we go through our CECL process as in every quarter end. And when we went through the process, we update the generator for the latest and greatest economic forecast in our truck model. So that includes change in assumptions, and the biggest driver for this quarter was a decrease in the CRE price index. Jack Taylor: These forecasts can change going forward, so the general reserve could change. But as of right now, that is the most recent assumption as far as what our general should be. Blake Johnson: Moving to the actual specific reserve, that is based on our collateral-dependent loans. So as of quarter end, we had four collateral-dependent loans. In each quarter end, we assess the fair value of the underlying collateral is. Jack Taylor: So absent any changes in collateral itself, Steve Alpart: we do believe we are appropriately reserved for on those loans. Marissa Lobo: Okay. Thank you. Appreciate the answers. Operator: Our next question is from Jade Rahmani with KBW. Thank you very much. Blake Johnson: Do you have any views as to where book value per share may trough Steve Alpart: in this cycle? Operator: It is down quite sharply year over year and quarter over quarter. Jade Joseph Rahmani: Which clearly based on today’s stock performance, is a surprise. So can you just comment as to, you know, what your expectations are for the risk of future losses going forward? Jack Taylor: Well, I will address that first and then turn it over to Steve to talk about credit migration. Blake Johnson: We Jack Taylor: We believe that there is a risk that there will be upgrades and downgrades and future losses may be part of that. Right? We do not—we have best that risk in our book today and that is embedded in the reserves. That we reserves. With respect to credit migration, maybe, Steve, you would speak to that. But I have been very clear over the quarters. I do not believe it is over in terms of workouts, delinquencies for the whole industry, and not for us. And there have been some prizes to us. We expect to have some upgrades and some downgrades. Steve? Steve Alpart: Is that everything you were gonna—You know, it is—Hey, Jay. Good morning. It is Steve. I think Jack and Blake covered it pretty well. I mean, I would just say that we feel that the majority of the portfolio is performing well. We are working through these remaining loan resolutions, which are not entirely, but heavily in the office sector, and the impact of the rate hike that we went through. We are pleased with the progress we have had to date. We had a lot of resolutions in 2024. We had five more in 2025. We are in process on a couple more right now. We just talked about the Chicago deal where we had the partial resolution of the office, and we are working on a full resolution, which involves the retail, which we think can get done in the near term. We did have two new fives during the quarter. So there is always a possibility that there could be more of that. But we also hope to have more resolutions, some upgrades, and we are happy to see that we are in a constructive environment, as far as capital, certainly debt, also, increasingly equity. And we think that will be helpful on further repayments and resolutions. Jade Joseph Rahmani: And just overall, when you look at the portfolio, clearly, portfolio has a legacy vintage prior to the Fed rate hikes. So nearly every single loan in the portfolio is gonna have probably some cost of capital issue when it is up for maturity. But then looking beyond that, multifamily was an area of downgrade this quarter, which was so much surprising. So can you comment on the vintage and the multifamily property type and what your expectations are there? Steve Alpart: Sure. I think there are two related questions in there. So we are working through these loans, including these kind of older vintage loans. We have pretty good visibility, I would say, on about a quarter of these loans, in terms of a near-term payoff where there is a process underway and we are expecting a loan repayment. I would say there is another, I call it 40% or so if I had to kind of take an estimate, where there is an upcoming maturity. We have communicated to the borrower that we expect an exit this year by the maturity date. And there may be a refi or a recraft or a refi or a recap or sale process that is underway or expected. And we certainly cannot say that all those will get done, but we have, you know, some visibility on those that we think that there is a process that there is an exit out of. And then there is another, you know, call it about a third or so, where there are a couple of 2027 and 2028 maturities. And then I would throw in the Minneapolis office deal that are a little bit further out. So we are—I would say we are kind of chipping away at it. And some have near-term visibility, some we are expecting and pushing on, and then a few will be, you know, kind of 2027 and 2028. Then as far as your question on multifamily, multifamily in our portfolio, we feel pretty good about. We did have the credit migration on the Atlanta deal, and we have talked about certain markets that we are looking at. We have kind of flagged in the past Atlanta. So, would say that one for us has been a bit of an exception. So—and that one has some unique factors that we can we can talk about. But I think the overall trend line that we are seeing, including in the Sun Belt, is that I think the recovery that we were all expecting has been a little bit more sluggish, and you see that in the read-through on some of the public multifamily REITs. The spring leasing season last year was a little slower than expected. But the supply picture overall is improving. There has not been a lot of pricing power for landlords. But, you know, when we sit back and look at macro supply and demand, it feels like, you know, over the second half of this year and kind of going forward, we feel like the trend line in multifamily is fairly positive. And there is obviously a lot of liquidity in the asset class. The sentiment coming out of the NMHC this year was very positive. So overall, on multifamily overall and in our book, we feel pretty good about it medium to longer term. Jack Taylor: Thank you. Thank you, Jay. Operator: Our next question is from Christopher Muller with Citizens Capital. Blake Johnson: Hey guys, thanks for taking the questions. So I guess starting on the portfolio, it has been shrinking as you guys have been focused on asset management. But sounds like new originations starting up is still the expectation for later this year. Operator: So I guess the question is, you guys have a ballpark of where the portfolio size could trough and maybe kind of playing into that a little bit is, what does scheduled maturities look like in the first half of this year in addition to what you guys already disclosed? Steve Alpart: Hey, Chris, it is Steve. Just high level, on the first part of your question, look, just given Blake Johnson: the Steve Alpart: near-term focus on repayments and resolutions, we do expect the portfolio to tick down through mid-2026 and then begin to restabilize and regrow in the latter part of the year. Ultimately, that will depend on the timing of repayments and resolutions relative to new originations, but it will get a little lower over the next few quarters and then begin to regroup. Regrow. Operator: Got it. And any visibility you guys have on Christopher Muller: scheduled maturities that may play into that? Steve Alpart: Yeah. I mean, a part of that is what I just mentioned to Jay that we have—we do have visibility on certain loans that are coming up on maturity. As we kind of look out—I am kind of looking out into 2026 overall. Some of these will just pay off in the normal course. A couple will extend out of bright. Has happened on some loans recently. Then to the extent—then we have other loans that I mentioned are not up for maturity yet, but they are up—know, kind of clawed—you know, third, fourth quarter. And, you know, we are in a—of that, we are having conversations with a number of borrowers that we have done previous extensions on, where they have done everything right, where they put new money in. And we are looking to get the portfolio turned. So we are having clear communications with borrowers about our expectations and if they cannot do it via a refi, do it via an equity recap, it via a sale. So that has been kind of the playbook. Look, case by case, we have extended out loans in win-win mod situations, but we feel like that was the playbook that allowed couple of years, and we are trying to move past that and get to just turning the portfolio. Christopher Muller: Got it. And then just a quick clarifying one. Did I hear you guys correctly that there were two new five-rated loans in the quarter? I see the Georgia multifamily in the deck but, what was the other one if I heard that right? Steve Alpart: There is one—there is one new five-rated loan. Christopher Muller: Got it. So I just misunderstood. Thanks for taking the questions today. Steve Alpart: It is the Georgia multifamily, correct. Thank you, Chris. Operator: Our next question is from Gabe Hoggi with Raymond James. Hey, good morning, guys. Thanks for taking the question. Christopher Muller: I may have missed this before, but can you tell us what the two sectors were and any details around the repayments you received year to date in one thus far this year in 2026? Jack Taylor: Well, hey, Steve. Maybe I can just lead in on that for a moment and I would say it is a retail, a multifamily and importantly want out relating to an earlier Blake Johnson: question, Jack Taylor: These were vintage loans. COVID period and the higher interest rate period and paid off at par. Christopher Muller: Thank you. Operator: Thank you. There are no further questions at this time. I would like to hand the floor back over to Jack Taylor for any closing comments. Jack Taylor: Yes. I just wanted to elaborate on something that was said earlier, which is the portfolio will shrink as we said, but I think we have many tools to regrow the portfolio. Through our loan repayments and resolutions, releasing capital—our REO, which will extract capital. We will be repaying our higher-cost debt and then rebuilding with an originations team that has been intact from when we were originating at $1,500,000,000 to $2,000,000,000. We have a lot of tools to re-leverage our balance sheet internally through the assets as they move from lower-level assets, the vintage loans that are being carried at lower leverage, to the new loans that we add Jade Joseph Rahmani: And Jack Taylor: that we also—excuse me—move into CLOs and the like and source capital as we have done in the past successfully to bring our lower leverage of 1.7 closer back to our target leverage. And to start repairing our earnings. Thank you for your time. And I just want to welcome—I would say thank you, everybody, for joining us for the call. And hope to speaking to you next Steve Alpart: further Jack Taylor: positive resolution. Operator: This concludes today’s conference call. We thank you again for your participation. You may now disconnect your lines.
Fernando Fernandez: Hello, and welcome to Unilever's full year results announcement. Thank you for joining us. In a moment, Srini Phatak, our Chief Financial Officer, will take you through a detailed breakdown of Unilever results for 2025. But before that, I would like to share with you a few reflections on our performance last year. Let me start by saying that we have delivered a solid year, fully in line with our commitments despite challenging conditions. When I took over as CEO, I made clear that one of my biggest priorities was to ensure that in Unilever, we could both perform and transform. 2025 has demonstrated our ability to [ evolve ]. We delivered a good performance, delivering competitive volume growth, positive mix and gross margin expansion, with sequential improvement throughout the year. We sharpened the portfolio. The successful demerger of Ice Cream combined with 10 deals, including acquisitions like Minimalist, Wild, and Dr. Squatch and the disposal of several nonstrategic brands means that we have rotated 15% of the total portfolio in 2025. We have significantly elevated the offering of our brands, stepping up their functionality, their aesthetics, their sensorials. Strong innovation plans and a decisive shift to social first demand generation models also contributed to a strong improvement in the [indiscernible] brand superiority scores of our brands, a key reason for our ability to outperform markets. This is empowered by another increase in our brand and marketing investment. We improved our execution, reflected by our continuing strength in developed markets and our improved performance in emerging markets, including the successful operational results in key markets like Indonesia and China. We have also acted decisively to correct performance gaps in areas like Home Care and Deodorants in Brazil or U.S. [ Hair ] businesses, in which we expect significant improvements during 2026. We drove cost discipline and improved overheads by 50 basis points through the continuing delivery of our productivity program that is significantly ahead of schedule. We are moving at a speed to build a business that drives desire and scale in our brands and execution excellence. There is much still to do, but we have entered 2026 as a simpler, sharper, more focused business, better able to capture the many growth opportunities that exist across our categories and our channels. Our performance in 2025 give us added confidence that we are on the right track, as Srini will now highlight in taking you through the numbers. Srini? Srinivas Phatak: Thank you, Fernando. Before I turn to the results, just a brief point on the basis of reporting. All the figures that I refer today are on a continuing basis, which excludes Ice Cream. Comparative figures have been restated to reflect the demerger of the Ice Cream business. So all growth, margin and cash metrics are presented on a like-for-like basis. For the full year, underlying sales growth was 3.5%, with volumes at 1.5% and price at 2%. Looking beyond the single year, performance over a 2-year period highlights the underlying momentum of the business, particularly in Beauty & Wellbeing, Home Care and Personal Care, we delivered compounded annual volume growth of 3.6%, 3.1% and 2.1%, respectively. In 2025, we saw a clear sequential improvement through the year, with quarter 4 growth at 4.2%, with a step-up in volumes to 2.1% and pricing at 2%. This reflects our disciplined execution and a sharper focus on volume-led growth. Our 30 Power Brands, which represent more than 78% of the group turnover, continued to grow ahead of the average, delivering 4.3% underlying sales growth for the full year, with volumes up 2.2%, in line with our medium-term growth algorithm. This performance has been sustained over time, with Power Brands delivering a 2-year compounded annual growth rate of 5%, including 3.4% volume growth. Power Brands have the first [ call our ] incremental resources, with 100% of our incremental BMI in 2025 being invested behind them. The performance we see reflects the impact of those prioritization choices. Momentum strengthened further in the fourth quarter with Power Brands delivering growth of 5.8%, driven by volume growth of 3.5%. Beauty & Wellbeing delivered balanced growth across the year, with underlying sales growth of 4.3% evenly split between volume of 2.2% and price at 2.1%. Dove, Vaseline and our premium brands continued to outperform, delivering double-digit growth, reflecting the strength of our innovation and focused execution. Category performance varied across the year, reflecting different stages of portfolio reshaping, innovation delivery and execution. Hair Care was flat overall, with pricing offset by lower volumes. Within this context, Dove Hair continued to deliver double-digit growth, driven by the rollout of its fiber repair range across multiple markets. Total hair care performance in North America was flat, reflecting portfolio simplification actions, while softer market conditions in some emerging markets weighed on volumes. Core skincare delivered mid-single-digit growth. Vaseline again stood out, delivering double-digit growth for the third consecutive year and becoming our eighth largest brand. Wellbeing remained a key growth engine, delivering double-digit growth for the year, led by volume. Liquid I.V. and Nutrafol both delivered double-digit growth, with Liquid I.V. reaching 2 important milestones: becoming a billion-dollar brand and achieving a record U.S. household penetration of over 18%. OLLY delivered high single-digit growth, and it is now an over $500 million brand. Prestige Beauty delivered low single-digit growth. Hourglass and K18 continued to grow double digit, and Dermalogica and Paula's Choice returned to growth in the second half. In the fourth quarter, Beauty and Wellbeing growth stepped up to 4.7%, with volumes up 2.8%. This performance underpins a 2-year compounded annual volume growth rate of 3.3%, reflecting improved execution and a stronger performance across several key Asia Pacific Africa markets as the year progressed. While market growth moderated in Wellbeing, we delivered volume growth above 5% for the quarter, continuing to materially outperform the market. Meanwhile, our core portfolio delivered improved growth with Hair Care at mid-single-digit growth. From a profitability perspective, underlying operating profit in Beauty & Wellbeing was EUR 2.5 billion in 2025, with an underlying operating margin at 19.2%, down 20 basis points year-on-year. This reflects a significant improvement in overhead efficiency, with increased brand and marketing investments behind Power Brands and premium innovations supporting long-term sustainable growth. Personal Care delivered underlying sales growth of 4.7% for the full year, with a much stronger competitive performance driven by the momentum in the United States. The U.S. remains a big growth engine and a benchmark for the execution across the business group. Price contributed 3.6%, largely reflecting commodity-driven increases, with volumes growing 1.1%, supported by premium innovations, particularly in Dove, which delivered high single-digit growth. Strong volume growth in developed markets led by North America more than offset softer conditions in Latin America where volumes declined, but the performance remained ahead of the category. Deodorants delivered low single-digit growth, supported by both price and volume. Dove again led performance, delivering double-digit growth, with scaling of whole body deos across 15 markets, reinforcing our leadership in the category. In the fourth quarter, growth improved sequentially to mid-single digit as actions to address product format mix in Brazil began to gain traction. Skin Cleansing delivered mid-single-digit growth led by price and continued premiumization. Oral Care also delivered mid-single-digit growth, driven by strong performances in CloseUp and Pepsodent with premium whitening and naturals innovations in Asia Pacific, Africa. During the year, we further strengthened Personal Care's portfolio through the acquisitions of Wild and Dr. Squatch. These acquisitions enhance our exposure to premium segments, and are expected to contribute meaningfully to growth over time. In the fourth quarter, underlying sales growth remained strong at 5.1%, led by North America and Asia Pacific, Africa. Growth was driven by price and supported by positive volume, reflecting the positive trajectory of the business and the sustainability of U.S.-led momentum. From a profitability perspective, underlying operating profit in Personal Care was EUR 3 billion. Underlying operating margin increased by 50 basis points to 22.6%, driven by improvements in gross margin and overhead efficiency. We continue to invest behind our brands, most notably in the U.S. and in the premium segments, in line with our strategic priorities. Home Care delivered underlying sales growth of 2.6% for the year, with growth primarily being volume-led at 2.2% and a modest contribution from price of 0.4%. Performance improved sequentially through the year, supported by strong growth momentum in Europe, driven by premium innovations and improved execution and performance in India. Fabric Cleaning was flat as strong performance in Europe was offset by a softer performance in Brazil. The corrective pricing actions were taken earlier in the year to restore competitiveness. Wonder Wash continues to go from strength to strength, following its launch in 2024, and it's now established in more than 30 markets. This demonstrates the speed at which we can roll out high-impact innovations at scale. Home and hygiene delivered mid-single-digit growth led by Cif and Domestos. Growth was supported by premium innovations, including Cif Infinite Clean and the continued rollout of Domestos Power Foam beyond Europe, extending our leadership in hygiene formats. Fabric enhancers delivered high single-digit growth led by volume. Comfort, one of our billion euro brands performed particularly well, supported by premium formats and fragrance led innovation with strong momentum across several emerging markets. In the fourth quarter, growth accelerated to 4.7% driven by 4% volume growth, underlining the recovery of the business. India was a key contributor to this momentum, with Home Care delivering mid-single-digit volume growth, led by strong performance in liquids across Fabric Wash and Household Care, and reaching its highest ever market share. Brazil, Home Care's second largest market, also returned to growth in the quarter, further supporting the overall improvement. From a profitability perspective, underlying operating profit in Home Care was EUR 1.7 billion, with an underlying operating margin of 14.9%, up 40 basis points year-on-year. This reflects improved overhead efficiencies and disciplined brand investments focused on fewer high-impact innovations, partly offset by a decline in gross margin. Foods delivered underlying sales growth of 2.5% for the year, with 0.8% from volume and 1.7% from price. Growth was ahead of the market, driven by strong performance in emerging markets, while developed markets were broadly flat amid weaker consumer demand. Against that backdrop, this represents a solid performance, with clear evidence of competitiveness across our core brands. Hellmann's continued to perform well, delivering mid-single-digit volume rate growth for the year. This was supported by the continued strength of its flavored mayonnaise range, now scaled across more than 30 markets and established as a EUR 100 million platform, demonstrating our ability to premiumize at scale. Cooking Aids delivered low single-digit growth, driven primarily by price. Knorr grew low single digit, with softer retail conditions in developed markets offset by volume and price growth in emerging markets. Unilever Food Solutions was flat, volumes were positive in North America, offset by declines in China, reflecting a weaker out-of-home consumption. We expect the UFS performance in China to improve during 2026. In the fourth quarter, underlying sales growth was 2.3%, with volumes up 1.3%, reflecting a market environment that remained subdued into year-end. From a profitability perspective, Foods delivered a record year, with underlying operating margin increased by 130 basis points to 22.6%, the highest level achieved by the business group. Underlying operating profit was EUR 2.9 billion. This reflected portfolio pruning, disciplined pricing, productivity gains in gross margin, tight overhead control, alongside continued focused brand investments in line with our food strategy. We delivered balanced growth across developed and emerging markets despite a more uneven macro and consumer backdrop through the year. This highlights the advantage of our geographic footprint. In developed markets, we grew ahead of our categories despite consumer conditions softening, particularly in the second half. In emerging markets, performance improved throughout the year, reflecting decisive actions we took to address challenges, alongside improved execution, a step-up in innovation and a more focused channel execution as well as an improving trading environment in several key markets. Developed markets, which represent 41% of the group turnover, delivered underlying sales growth of 3.6% for the year, a sustained outperformance versus the market. Growth moderated in the second half as the macro and the consumer backdrop softened, with fourth quarter underlying sales growth of 1.7%, with slower market growth in both U.S. and Europe. North America was a standout performer. Underlying sales grew 5.3% for the year, with volumes contributing 3.8%, reflecting continued share gains and the benefits of multiyear reshaping of our portfolio towards Beauty & Wellbeing and Personal Care. Premium innovations supported by strong retail execution continue to underpin growth, allowing us to outperform the markets despite more subdued consumer conditions. In the fourth quarter, growth moderated as category conditions softened across the segments. Despite this, our portfolio performance remained resilient, reflecting the strength of our portfolio and execution. Europe delivered low single-digit underlying sales growth for the year. Home Care and Personal Care performed well, supported by the volume growth and the continued rollout of Wonder Wash and whole body deodorants. This was partly offset by softer conditions in Foods, where we continue to outperform the market. Growth across Europe was uneven, with good momentum in France and Italy offset by softness in Germany. In the fourth quarter, underlying sales were flat, in line with the slowing market environment, but our performance remained robust relative to the categories. Emerging markets, which account for 59% of the group turnover, delivered underlying sales growth of 3.5% for the year. Performance improved sequentially through the year, with growth accelerating to 5.8% in the fourth quarter including 3.2% volume growth, reflecting the impact of decisive actions taken earlier in the year, alongside a return to growth in Latin America. Asia Pacific Africa delivered underlying sales growth of 4.6% for the year, with volumes contributing 3%, and price 1.6%, reflecting strengthening of execution across several key markets. Momentum strengthened in the fourth quarter, with APA delivering underlying sales growth of 6.9%, driven by volume growth of 5.7%. In India, underlying sales grew 4% for the year, with volumes up 3%. Growth accelerated in the fourth quarter to 5% with volumes up 4%, reflecting market share gains, a gradual recovery in market growth and the normalization of the trade environment following GST adjustments in the third quarter. Performance was led by our premium Personal Care portfolio and strong execution in laundry liquids. In Indonesia, underlying sales grew at 4% for the year, with a sharp recovery in the second half following a comprehensive reset of the business. Alongside price stabilization and trade stock normalization, we stepped up innovation and significantly increased social-first brand activation, strengthening relevance and demand across our core categories. As execution improved, availability and affordability were sharpened. The performance stepped up materially, with growth accelerating to 17% in the fourth quarter against soft prior competitors. In China, underlying sales growth were flat for the year with clear improvement in the second half, including mid-single-digit growth in the fourth quarter. Actions to reset the business, including strengthening of go-to-market execution and accelerating premiumization supported this improvement. This was led by Beauty & Wellbeing and Personal Care despite overall market growth remaining weak. In Latin America, underlying sales grew 0.5% for the year, reflecting a broad-based market slowdown amid ongoing macro and political uncertainty. Price growth of 5.9% largely offset a volume decline of 5.1%, with elevated price elasticity continuing to wane on volumes as consumer demand remained under pressure. The region, however, returned to growth in the fourth quarter. For the year, Beauty & Wellbeing and Foods both delivered low single-digit growth. In Foods, performance was supported by Hellmann's, led by the continued strength of the flavored mayonnaise range in Brazil. In Beauty & Wellbeing, growth reflected improved execution and the strength of the core brands. During the year, we took targeted actions in Brazil to restore competitiveness, including corrective pricing in fabric cleaning, and adjustments to the format mix in Deodorants. Home Care returned to growth in the fourth quarter, providing a clear indication that these actions are beginning to gain traction. One Unilever markets delivered mid-single-digit growth with positive volume and price, and were accretive to both group sales and profit growth in 2025. This performance reflects the benefits of radical prioritization and sharper focus in our smaller markets. Turnover for the full year was EUR 50.5 billion, down 3.8% versus the prior year. This was driven by significant currency headwinds, with FX reducing turnover by 5.9%. The currency impact was broad-based, reflecting a weaker U.S. dollar, alongside depreciation across a number of emerging market currencies, including several of our large markets. This was only marginally offset by strength in a small number of currencies. Excluding currency, turnover increased by 2.3%, driven by underlying sales growth of 3.5%, partly offset by portfolio actions as we continued to sharpen the business. The net impact from acquisitions and disposals was negative 1.2%. Within this, acquisitions contributed 0.6%, driven by Minimalist, Wild, and Dr. Squatch, all performing in line with their acquisition business cases. This was more than offset by a disposal impact of 1.8%, reflecting the exits of Unilever Russia and the China water purification business in 2024. Disposals of Conimex, The Vegetarian Butcher, and Kate Somerville were completed during 2025. Underlying operating margin expanded by 60 basis points to 20% in 2025, reflecting a structurally strong margin profile. Gross margin contributed positively, expanding by 20 basis points and marking the third consecutive year of gross margin expansion. Importantly, following the Ice Cream's demerger, gross margin now is at structurally higher level of 46.9%. This reflects a fundamental shift in the shape of the group, alongside improvements in mix, price and sustained delivery of savings. Our productivity program and the ongoing cultural shift enabled a further 50 basis points reduction in the overheads. Since the program began, we have delivered more than EUR 670 million of savings and are well ahead of the plan. We remain on track to complete the EUR 800 million program in 2026. Brand and marketing investment increased by 10 basis points to 16.1% of turnover, the highest percentage in over a decade, and 300 basis points higher than 4 years ago. This reflects a clear choice to prioritize investment behind our strongest brands and innovations, consistent with our focus on sustainable growth and long-term value creation. 100% of the incremental BMI was allocated behind Beauty & Wellbeing and Personal Care. Underlying operating profit was EUR 10.1 billion, a decline of 1.1% versus prior year. In line with our multiyear priority, in 2025, we delivered hard currency underlying earnings growth. Underlying EPS rose to EUR 3.08, up 0.7% versus the prior year, with sales growth and margin expansion together contributing 6.5% to EPS growth. Net finance costs were broadly flat year-on-year, reflecting active balance sheet management and disciplined funding decisions. Net finance costs represented 2.1% of average net debt, underscoring the resilience of our financing structure following the Ice Cream separation. Tax contributed positively, adding 1.3% to underlying earnings per share as the underlying effective tax rate decreased slightly to 25.7%. This reduction reflects the mix of earnings and the benefits of local tax optimization measures. Our share buyback programs contributed 1.5% to underlying EPS. These positives were morely offset by currency, which had a negative impact of 8.8% on the underlying earnings per share. On a constant currency basis, underlying earnings per share grew by 9.5%. Following the separation of Ice Cream, an 8 for 9 share consolidation was implemented in December 2025 to ensure comparability of earnings per share, share price and dividends, with prior periods being restated accordingly. Sustainability remains a fundamental part of Unilever's strategy and is managed with the same discipline as our financial performance, with clear accountability and a direct link to remuneration. In 2025, we reached an important milestone on plastics delivering both on our multiyear targets due this year. This reflects sustained focus and investments and demonstrates our ability to deliver against complex commitments. Free cash flow for the year was EUR 5.9 billion, representing 100% cash conversion. Compared with the previous [ year's ], free cash flow was around EUR 400 million lower, reflecting costs associated with the Ice Cream demerger, including separation-related tax on disposals. Excluding these demerger-related items, free cash flow was EUR 6.3 billion, underlining the cash generating strength of the business. Net debt at the year-end was EUR 23.1 billion, an absolute reduction of EUR 1.4 billion following the Ice Cream separation. This reflects the combined impact of cash generation and the demerger offset by dividends, acquisitions and share buybacks. Net debt to underlying EBITDA closed at 2x, remaining within our target range and consistent with our capital structure objectives. Turning to returns. Our underlying return on invested capital was 19%, placing us in the top 1/3 of the sector. Our ROIC benefited by around 100 basis points from Ice Cream demerger, reflecting the higher quality and the lower capital intensity of the group following the separation. Overall, ROIC remains firmly in the high teens, which we continue to view as a key guardrail for capital allocation and a core pillar of a multiyear value creation model. Our capital allocation is clear and disciplined and remains focused on 3 priorities: growth and productivity, actively shaping the portfolio and delivering attractive capital returns. Starting with growth and productivity. We continue to invest at scale where it matters most. Brand and marketing investment was 16.1% of turnover, while capital expenditure was 3.1% of turnover. Importantly, more than half the CapEx is directed towards productivity and margin initiatives, reflecting our focus on strengthening the underlying economics of the business while continuing to support our brands and innovation agenda. Turning to the portfolio, we remain value-focused. We are continuing to simplify the portfolio through targeted disposals while pursuing bolt-on acquisitions aligned to our strategy. Our focus remains on Beauty & Wellbeing and Personal Care, with emphasis on premium segments, digitally-native brands and e-commerce exposure, particularly in the U.S. and India. Finally, on capital returns, we returned EUR 6 billion to shareholders in 2025, comprising EUR 4.5 billion in dividends and EUR 1.5 billion in share buybacks. This reflects our capital allocation priorities, with a clear preference to maintain in principle a 70-30 balance between dividends and share buybacks. Taken together, this provides consistency and visibility, supported by strong cash generation and disciplined execution. We continue to transform the portfolio in 2025, allocating capital towards higher growth premium segments, while exiting businesses that no longer fit our strategic direction. Taken together, 2025 represents a step change in portfolio transformation. With the Ice Cream demerger and 10 transactions completed or announced during the year, we materially increased the focus and the growth profile of the group. On the acquisition side, the additions of Magnum, Dr. Squatch, and Wild strengthen our exposure to Beauty, Wellbeing and Personal Care, premium segments and digitally native e-commerce led brands, with particular emphasis on the U.S. and India. At the same time, we were decisive in simplifying the portfolio. We completed exits from lower growth on noncore businesses, including Conimex, The Vegetarian Butcher, and Kate Somerville and announced further disposals such as Graze, Indonesia [ tea ] and the Home Care business in Colombia and Ecuador. These actions further sharpen the focus of the group and reduce complexity. The Ice Cream demerger is the most significant step in this portfolio transformation. It reflects a deliberate decision to simplify the group, increase the strategic focus, enabling both Unilever and the Ice Cream business to pursue testing strategies, capital structures and growth priorities more effectively. Overall, the scale and pace of change in 2025 underlines that this is a different Unilever, one that is actively transforming its portfolio to drive higher-quality growth and stronger returns over time. Turning to 2026. Our outlook reflects the progress we have made and a disciplined focus on what we can control in a slower market environment. On growth, we expect underlying sales growth for the full year to be at the bottom end of our multiyear range of 4% to 6%. We expect underlying volume growth of at least 2%, maintaining focus on our volume-led growth and outperforming slower markets. On margins, we are confident of a further modest improvement to the underlying operating margin. Our structurally strong gross margin will continue to benefit from value chain interventions, fueling ongoing reinvestment into our brands. In 2026, we expect inflationary pressures in select commodities with the overall inflation being lower than 2025. As before, margin progression is an outcome of our choices, not the short-term objective in its own right. On capital returns, we have announced a new share buyback of EUR 1.5 billion, reflecting confidence in the strength of our balance sheet and the consistency of our capital allocation framework. We also continue to expect sustained attractive and growing dividends, supported by strong cash generation. With that, over to you, Fernando. Fernando Fernandez: Thank you, Srini. As we look ahead, we expect conditions to remain challenging, with soft markets in many parts of the world. Our confidence in the future stems from the significant progress we made in 2025, and we entered '26 as a very different looking business, one that is not only simpler and more focused, but also now bid to deliver consistently. We are building a sales and marketing machine founded on 3 fundamental shifts that transcend our whole business with 7 clear growth priorities. Let me take them in turn. The 3 fundamental shifts encompass our brands, our organization and our people. Our brands are benefiting from a desired scale model that is elevating every stage of the journey, from product development right through to the way we reach and engage with consumers, to the way we execute in both off-line and online retail. Where fully deployed, we have seen incredibly strong performances in brands Dove, Vaseline, Persil and Hellmann's. We are making our organization fit for the AI age, transforming every link in the value chain, particularly around the consumer. That means deploying AI to supercharge demand generation, scaling and hyper targeting marketing content, partnering with consumer faces, LLMs, and working with retailers on agentic shopping models, creating a future-fit model for how our brands are discovered and shopped. And our people are embracing a new play-to-win philosophy approach where the demands may be greater, but our targets are sharper, accountability is clearer, potential rewards are higher and with the highest ever differentiation between best and worst performers. When it comes to our growth priorities, this will be increasingly familiar to you by now. They involve honing in and double down on our biggest growth opportunities across categories with more Beauty, more Wellbeing, more Personal Care, across geographies with U.S. and India as clear and core markets for Unilever, and our growth segments and channels focusing on premiumizing the portfolio and further increasing our exposure to e-commerce. These 7 areas are already driving a large proportion of our growth. And with the additional focus on investment we are bringing to them, we see opportunities to go considerably further. I look forward to going deeper on these fundamental shifts and growth priorities at next week's Cagny conference in Orlando. Nowhere does the robustness and validity of these transformation and fundamental shifts and strategic growth priorities show up more clearly than in the strength and quality of our innovation program. You have seen in our results today, how effective our premium innovation is when we create or grow categories, like powder hydration, short-cycle laundry, probiotics in surface cleaning, flavored mayo, all powered by our superior science in residual aesthetics and elevated sensorials. We are doubling down on this approach in 2026 with an excellent pilot of innovation, leveraging our multiyear scientific streams and introducing new ones. And many of our Personal Care innovations will be activated alongside our sponsorship of the FIFA World Cup 2026, an exciting moment for us and our brands. A simpler, more focused company is not an end in itself, it is all about delivery, consistent delivery. That's what we are concentrated on. And while there is a lot more to do and more to prove, we are confident that '26 will be another big step forward in moving to a model and an approach that is built for delivery. The key elements are all there. First, our mantra is and will remain volume growth, positive wins and gross margin expansion. We are laser-focused on these very clear metrics. This is a route to sustain success for Unilever and to top for shareholder returns, and we will continue to invest accordingly to achieve these objectives. Second, with the well-executed separation of Ice Cream now behind us, and with other recent bolt-on deals successfully completed, we have a sharper portfolio radically focused around our strongest categories and our biggest brand. Third, with our emerging markets strengthening and developed market continuing to outperform, we have a real opportunity now to leverage one of Unilever's most distinctive assets, our global strength. Fourth, our capital allocation priorities, as you heard from Srini, are crystal clear, focused on driving growth and productivity by supporting our brands, sharpening our portfolio and maximizing margin initiatives, while at the same time, delivering strong capital returns to shareholders. And finally, the strength of the organizational change at Unilever over recent years can hardly be overstated. The heavy lifting has been done. This is now a new business, simpler, leaner more accountable, with P&L ownership now squarely in the hands of our category-led business groups, all back up by differentiated reward to the right of performance. All these elements give us the confidence that we are moving towards a model and an organization built for consistent delivery even in markets that will remain tough. Thank you for your attention. We look forward now to taking your questions. Operator: [Operator Instructions] Jemma Spalton: Our first question comes from Celine at JPMorgan. Celine? Moving to the second question, Warren. The second question comes from Warren Ackerman at Barclays. Warren Ackerman: Yes. Fernando, Srini, Jemma, Warren here at Barclays. Can you hear me okay? [indiscernible] an echo. Jemma Spalton: Yes, we can, Warren. Warren Ackerman: So -- okay, super. So first one, Fernando, can you talk a bit about the emerging market outlook for 2026? I think about the big 4: Brazil, India, China, Indonesia. Can you maybe hit on some of the key topics that people are interested in? The fix on Brazil deals, for example. Is China and Indonesia proper reset? Is it done? How should we think about volumes in '26? That's the first one. Second one, another geo one. It's on the U.S., obviously slowed versus Q3. Can you talk a little bit, Fernando, about where you see U.S. category growth? Any signs of price pressure in the U.S. and your confidence about the '26 delivery, what kind of innovation pipeline, what kind of delivery should we expect out of the U.S. in '26? And just quickly, if I can squeeze in a housekeeping for Srini. Can you just tell us where the productivity savings landed, Srini? Is the EUR 800 million done? And what should we think about productivity-wise in '26? Fernando Fernandez: Thank you, Warren, and good morning, everyone. Well, let me start saying that we consider our strength in emerging markets a significant long-term competitive advantage given the exposure to give us to better population growth rate, [ worse ] margin expansion, et cetera. And we have a portfolio in emerging markets that is really diversified in terms of geographies, category segment, price points, and this gives us resilience against volatility. We are very, very confident in our step up in emerging markets. We are seeing now -- with the exception of LatAm, in which the market volume growth is flattish. We are seeing now growth in Asia Pacific Africa, in the [indiscernible] of 3% volume growth for the market. And our performance is improving across the board -- in India is improving, both in terms of economic backgrounds and the fundamentals of business, particularly the strengthening of our brand equities, our mission brands, operating scores in India are improving across the board, our execution, particularly in rural areas and traditional trade, independent trade is also improving. We are growing shares, particularly in Home Care, we have achieved that, as you know, is 40% of our business there. We have achieved the highest ever share there in the last reading. China is slowly getting better. Growth has accelerated in second half 2025. We have made some significant interventions in the route to market of e-commerce. More work to do there, but we expect a better year in China in 2026. In Indonesia, we are very pleased with the renewed leadership team that we have put in place. They have done the right thing to reset the fundamentals of the business. We are now operating with very, very historic low levels of stock in our distributors, that has removed any fundamental issue of [ churn ] and price conflict we have had in the past. We have relaunched our 8 top brands in the market. And of course, in quarter 4, we were benefiting for a very weak comparable. But I feel the metric that we look obsessively in Indonesia is an improvement in our sales run rates. And every single quarter, we have been selling more in Indonesia in the last 4 quarters. Other markets, like Vietnam, Pakistan, Bangladesh, Arabia are all also improving. We have significant operations in other countries. So all this is growing nicely. Regarding LatAm, markets remained flattish. We have seen in the second half of last year around 0% growth. Volume growth in Latin America, macroeconomic remained challenging in Mexico and Brazil. But we are pleased with the return to growth in quarter 4 led by the great momentum in Foods. We have a flying Hellmann's there. Solid growth in Beauty & Wellbeing. I'm very, very pleased with the fast reaction in Home Care to the corrective actions that we have put in pricing to restore competitiveness. This is starting to bear fruits there. We expect improvements in Deos in the next few months. Actions have been put in place to rebalance our investment, increasing the one in aerosol relative to the one in contract applicator formats. Reigniting growth in aerosol is absolutely critical, given the higher revenue per use and the higher profit per use. We are getting a lot of support from retailers in this aspect. We are resetting planograms in thousands of stores and growth region, and we expect Deos in Latin America to be a key contributor to growth from quarter 2 onwards. So in summary, optimistic about emerging markets in 2026. In U.S., let me start saying that our volume growth in North America in the last 3 years has been 3.9% in 2023, 4.2% in 2024, 3.8% in 2025. So this is a very consistent performance despite tough markets, probably one of the best performances in the sector. And this is a reflection of a profound transformation we have done in our portfolio, the setup of a U.S. for U.S. innovation model and a huge focus in a strengthening relationship with retailers there. Quarter 4 had a soft start, but we are encouraged by the fact that the market has rebounded in December and January. We have -- we are off to a good start in North America in 2026. Of course, we have seen some slowdown in Wellbeing. Wellbeing in North America in the quarter 4 delivered around 5% volume growth when it was in double digit in first 3 quarters, we have a couple of issues there. Fundamentally, the share of assortment of Liquid I.V. in a key retailer of the club channel, also some increase in the customer acquisition cost of our DTC business of Nutrafol, but we continue very, very confident in the structural growth in the verticals of [indiscernible] in which we compete and in our ability to continue expanding our leadership there. So optimistic about the emerging markets, really optimistic about emerging markets. I believe that the solid delivery in U.S. in the last 3 years give us confidence that we will continue with outperforming the market there. Srinivas Phatak: Thanks, Warren. On the productivity savings, I think we've said it in the press release. Cumulatively, we have now delivered about EUR 670 million of savings. The program is ahead of our own plans and internal plans and schedule. Most of this benefit, you will actually see in our SG&A line [ under ] the lower heads line, while some part of it was in supply chain overheads. From a 2026 perspective, we expect to at least deliver the balance, EUR 130 million, that was a commitment we set about EUR 800 million, and we'll continue to go further on that. And more as a cultural shift that we have really made in the company is, we'll continue to keep our SG&A costs and other overhead costs at run rates which are lower than the turnover and therefore, in a sense that productivity, therefore, becomes an ongoing habit. Jemma Spalton: Our next question comes from Guillaume at UBS. Guillaume Gerard Delmas: A couple of questions for me, please. The first one is on the pricing outlook for 2026. Fernando, can you maybe shed some light on how you expect price growth to play out this year, particularly given the sequentially, I think, lower inflationary pressures you're expecting for '26. And also, it seems a pickup in promo activities in many of your categories and regions. So it would be interesting, did you hear if you anticipate some or maybe contrasted pricing developments by region or product category this year? And then the second question, probably for Srini. Could you maybe walk us through the key building blocks that support your confidence in achieving this modest margin improvement in '26? And in terms of phasing, anything you would flag at this stage, be it for margin or for underlying sales growth? Fernando Fernandez: Thank you, Guillaume. Well, I think that the category and geographical footprint of Unilever offer in the long run around 3% pricing. That's the kind of normal pricing we have seen in the last 10 years. This year, we probably see that probably a bit lower than that, around 2%. We have seen some increased promotional spending, particularly in promotional intensity, particularly in Foods, but it's not dramatic. We have not seen really an increase in promotional intensity in emerging markets. So overall, I would expect pricing to be around the 2% level. Commodity inflation, Srini can give a bit of background on that. Srinivas Phatak: So you're absolutely right. I think Fernando summarized the pricing outlook quite well. In 2026, the commodity inflation is not going to be broad-based. It's actually concentrated in a few set of the materials, most notably really being palm, canola oil and surfactants, where we continue to see year-on-year pressure coming through. The second angle, which is important -- and the first element of that really comes from a Home Care and Personal Care perspective, that's where we'll start to see elevated inflation in comparison to the other categories. The second aspect, which is important and sometimes overlooked, is that half our inflation classically comes from imported inflation or currency devaluation in the emerging markets. And therefore, that becomes an important element. It's also equally important to highlight that in some other commodities, notably in some of the food side of it or it's a crude related, including packaging, we are actually seeing deflation. So it's important in the first element to understand the difference between the different sets of the commodities that we have. Notwithstanding, we'll all recognize that there is also wage inflation, which is happening in the market. And that's also an important element, which we'll have to cover through a combination of productivity and through pricing. Coming back to, I think, the point really on the building blocks on gross margin. It's actually been quite an incredible story. If you really see, we have now consecutively increased our gross margins for the last 3 years, and the increases have actually been sizable, over 330 basis points. What we now start at 46.9% is structurally in a sustainably high gross margin business. And the levers in a manner are consistent with what we have been talking about. Mix plays a very important role for us through a combination of portfolio and geography will continue to drive that harder. Our savings program, notably in procurement, has actually demonstrated very differentiated capabilities now. On a consistent basis, we are actually beating across more commodities and markets we are beating the market, and that's actually flowing into the bottom line. We have also significantly enhanced some of our commodity risk management practices, which is enabling us to use more of the tools and the instruments to really hedge and actually mitigate the risk for us. We've also talked about capital investment. More than 50% of our capital has been now consistently, for the past 18, 24 months, being put towards savings, and that's something that we will continue. A combination of these elements, we are quite confident that our gross margin expansion in 2026 is likely to be higher than 2025, and that becomes actually a super important lever for us to actually continue to invest behind our brands. '25, we actually reached 16%. We'll continue to increase the spend, both on our Power Brands and also on our Beauty and Personal Care businesses. And completing the picture, I did talk about overheads. Culturally and philosophically, we will keep overheads increases lower than sales. That means there is inherent productivity built into our plans. A combination of all of this actually then starts to give us a confidence to have a higher gross margin, which we'll reinvest, and therefore deliver what we call is really a modest margin expansion. The last point in terms of your question on the phasing, while from a margin perspective we don't expect material differences between half 1 and half 2, it's important to highlight that we'll have slightly additional or higher headwinds of currency in half 1. That's really reflecting what has happened in base [ period ] of 2025. But from a full year perspective, we should be in the right ballpark. Jemma Spalton: Our next question comes from Jeremy at HSBC. Jeremy Fialko: First one is on Europe, perhaps you could just go into a little bit more detail on that, sort of flattish at the end of the year. Was that reflecting kind of entirely slower markets? Or did your relative performance slip a bit? And then what would the outlook for the region be in 2026? And then the second part was, I guess, the Power Brands versus everything else. I guess that was an unusually big difference from what I could remember in Q4. Perhaps you could talk about sort of the non-Power Brand stuff because logically, that was quite a lot weaker. Just kind of how you -- how you kind of intend to manage that sort of 25% of the business to make sure that it doesn't become too big a drag on your turnover or whether you're happy with this sort of more dramatic Power Brand versus everything else growth that you saw in the quarter? Fernando Fernandez: Thank you, Jeremy. Well, in Europe, our performance, yes, there was some slowdown in Europe in the last quarter. We have seen markets getting a bit more flattish in Europe. We continue outperforming the market, particularly in Home Care and Personal Care. They continue performing really well. Our Home Care business is gaining share broad-based across Laundry and Household Care. And our Deodorants business really performing also very, very strong. We have a strong innovation pipeline coming into 2026 in these categories. We continue thinking that we will remain strong when it comes to our competitiveness. We are in a round of negotiation with retailers at this stage. Everything is progressing well. So we don't expect any kind of big impact coming from that. Probably the biggest issue in Europe has been in Foods, that has been gradually soft, particularly in Netherlands, Germany. We have very, very good performance in Italy and France, overall. And U.K. has been solid for us. Poland has been a weak spot also. 40% of our European business is Foods, so that has an impact. But overall, we are confident that the kind of improved performance that we have had in Europe in the last couple of years, we can sustain that in average. When it comes to Power Brands and non-Power Brands, Power Brands are now 78% of our revenue. You already remember that we used to call out around 75% 18 months ago. They are growing strongly. In the quarter 4, we grew close to 6% [ UAG ] in Power Brands with 3.5% UAG. This is where we are concentrating all our incremental investment, particularly in the Power Brands of Beauty & Wellbeing and Personal Care. When you look at the non-Power Brands, 22% of our revenue, for the year, we delivered a volume growth negative of 1%. It has accelerated to minus 3% in the quarter 4. There are some discontinuation that we have done in that quarter. And also, there is some geographical elements that have play a role there. But we are not -- we continue thinking that the strategy of focusing behind our most strongest assets is the right one. If you look at our Beauty & Wellbeing and Personal Care combined, our performance has been, I believe, 4.5% growth for the year and 4.9% in quarter 4. And if you look at Power Brands in that territory, it's close to 6%. So that's what we will continue to put in the focus, and we will manage the rest of the portfolio accordingly. I would like to highlight also that the One Unilever markets, that our smaller markets have an excellent performance in 2025. This is an organization that we have put in place in 2025, with 35% reduction in headcount. It delivered 5.2% growth, and we have delivered an expansion of margin of more than 250 basis points. So smaller markets for us are a key engine for growth, but we are managing them in a simpler way, in a sharper way, with clear focus in the portfolio. They are focusing the portfolio there, and we are very confident about those geographies also. Jemma Spalton: Our next question is coming from Celine at JPM. Celine, we're trying your line again. Celine, can you hear us? Celine Pannuti: Yes. Can you hear me? Jemma Spalton: We can. Celine Pannuti: Excellent. So I hope I'm not asking something that's already been asked, but my first question would be on the sequencing of growth for the year. So you're looking to grow around 4%. I understand maybe pricing, 2%; and volume, above 2%. But then you've been flagging probably some weakness in the U.S. in the first quarter, and I presume a normalization in Asia or at least in Indonesia. So can you talk about how we should expect these to evolve throughout the year? And my second question is coming back on the Wellbeing and Beauty category. If you can talk about, on the Wellbeing side, what you're doing in the U.S. to reconnect with growth? And as well, what is your expectation about internationalization on that business? And what can we expect as that business, I would say, more normalized growth rate to be, if I could use that word. And I think on that division too, if you can talk about Hair Care and what we should expect for '26. Fernando Fernandez: Cool. Thank you, Celine. We are guiding our top line growth at the lower end of our midterm guidance from 4% to 6%. If we are doing that, of course, there can be some quarters that can be below and some quarters that can be above that 4%, okay? So we will not guide on a quarterly basis. We have a good start in January, but there is a lot to do in the next few weeks to close quarter 1. But overall, we are confident that we will be delivering that 2-plus percent volume growth for the year and around 4% -- at least 4% for the top line growth. Going into Beauty & Wellbeing, what is the performance? As I mentioned before, if you look at Beauty & Wellbeing and Personal Care, that combined business, because there are some brands that travel across the categories. We delivered an aggregated growth of 4.9% in the quarter 4 and 4.5% in the full year. And within Beauty and Personal Care, we had another great year of our largest brand, Dove, it grew 9%, with 7% volume growth on top of our 7% volume growth in the previous year, I would like to highlight that. In the case of Beauty & Wellbeing, we saw a solid performance in Skincare, great performance in Dove and Vaseline. Vaseline has delivered, for the second year in a row, double-digit volume growth. In Hair Care, we have been accelerating performance throughout the year. Dove Hair relaunch is a great success. We are seeing growth in markets like U.S, above 20%. This mix is traveling globally, and the rollout is expected to be completed in all key markets by mid-'26. And we expect better performance from Sunsilk and Clear that in 2025 were affected by the issues in Brazil and China. In Prestige Beauty, we accelerated also. The second half in 2025 was much better than the first half. We have great performances in brands like Hourglass and K18, our last acquisition. And in the retail channel for Dermalogica, we need to improve performance in Paula's Choice. There is a full relaunch of the brand ready for March this year, and we have to improve performance in the professional channel of Dermalogica that takes 30% of the brand. In Wellbeing, another great year. If you look at each of our 3 biggest brands: Liquid I.V., 16% growth; Nutrafol, 23% growth; OLLY, 9% growth. All these brands are U.S.-centric. We saw some softening in quarter 4, some of that fundamentally linked to market growth. The volume growth we delivered in the quarter was about 5%. We expect a relatively soft quarter 1 due to strong comparators, but we -- as I mentioned before, we are very confident on the structural growth potential of the Wellbeing verticals in which we compete and in our ability to continue expanding the leadership positions our brands enjoy there. I highlighted before, there are a couple of issues that we have to sort out. There was a decrease of share of assortment for Liquid I.V. in an important customer of the group channel. And there is some increase in the customer acquisition cost in Nutrafol, but we have great teams working on that, and we will find the solution quickly. Jemma Spalton: Our next question comes from Jeff at BNP. Jeff Stent: Two questions, if I may. The first one is with respect to innovation, you've made quite a few comments about it. But could you just tell us what are the sort of big new renovations that you've got coming to market this year that we should be expecting to hear quite a lot about as the year progresses? And the second one, really just a housekeeping issue, but are you able to quantify the magnitude of the [ TSA ] receipts that you'll be getting from Magnum? Fernando Fernandez: Thank you, Jeff. Well, first of all, I would like to highlight that our first -- our first [ pennies ] go to continue investing behind the innovations that have been very successful in the last few quarters. The Dove Hair relaunch, Persil Wonder Wash, Vaseline Gluta-Hya and Vaseline Pro Derma, the flavored range of Hellmann's that is really driving significant growth, all these platforms are above the EUR 100 million, EUR 200 million. So this is really going very, very fast, and we continue investing behind them. There is new innovation hitting the market in multiple categories. I would like probably to mention the UV repair range of Dove hitting the market in January in countries like China, Indonesia, Thailand, Vietnam, South Asia, Philippines. The derma scalp range of Dove Hair with focus in developed markets. I would call out particularly Vaseline lips. That's a 100 million franchise already. We are gaining share in every single market around the globe. We see lips as an entry for younger users into Vaseline, and we are very excited with the kind of Gluta-Hya range in lip care that we are bringing into the market. The rollout of the seal press range of TRESemmé that has been a big success in India. We are rolling out that across Asia. Nexxus, a big relaunch in U.S. and significant innovation in China and Indonesia. In China, Nexxus is really one highlight of our performance. In Personal Care, many things coming into the market, but I would like to highlight also the importance of the activation around the FIFA World Cup. This should be a real support for our performance, particularly in quarter 2, quarter 3. In Foods, continuity to the development of Hellmann's flavored mayo, but we are entering with protein caps in North with the launch in U.S. and scaling into European markets during the year. These are just some of the things that we are doing. So our innovation machine, I believe, has improved a lot in the last 2 to 3 years. Now our focus is ensuring that our execution capabilities are in line with the improvements that we have done in product development and innovation. But a good plan for the year. And as I mentioned before, our absolute priority is investing heavily behind the big winners that we have in the portfolio now. Srinivas Phatak: On the TSA, Jeff, we are not actually quantifying externally the cost -- the total cost of the TSA. Having said that, there are 3 important elements. It's a cost plus and therefore, there's a very small markup that we charge on these services that's got to do with IT and it's got to do with the other commercial services, mostly in the functions. Point number two is that most of these TSAs will actually -- there are separate contracts, individual components. Between '26 and 2027, we expect most of them to really be taper off as the Magnum Ice Cream Company starts to take on these activities. Third element is that we have clear plans, which are ensuring that we manage these contracts well. And more importantly, there are no [ stranded ] costs left at a Unilever level. So all in all, very clear plans to handle this for the benefit of both companies. Jemma Spalton: Our next question comes from Olivier at Goldman Sachs. Jean-Olivier Nicolai: Fernando, Srini, and Jemma, could you please provide an update on the strategy for Prestige Beauty first? Some brands are doing great like K18 and Hourglass; other, less so. Do you need more brands to -- for the portfolio to reach a bigger scale? And what does the M&A landscape look like at the moment? And then secondly, going back to Food. You had an amazing margin improvement. I think you reached 22.6% margins there. That's well above historical trends. What's the driver behind this improvement, how sustainable it is? And perhaps is Food Solutions better margins than the rest? Fernando Fernandez: Good. I will cover Prestige, and Srini will cover the Food margin question. In Prestige, you are right. We have had a great performance in brands like our Hourglass, [ touch ], K18, not so well in Dermalogica, Paula's Choice. Even in Dermalogica in the retail is showing a lot of strength, but the brand is exposed to a professional channel that is declining, and we need to address some issues there. The Prestige market is changing dramatically. I feel you see less importance of travel retail. You see department store practically disappearing. You see a huge growth of the e-commerce channel. And I believe this gives us a lot of opportunities. And we consider our presence in Prestige a natural continuity of our presence in Skin Care and Hair Care. So that's how we see that. We are working in a much more integrated way, particularly in areas like Asia, in which channels of specialist beauty are not so developed and e-commerce is really taking the lead in developing the prestige market. We are always scanning the market for opportunities. Our acquisition criteria are very, very, very clear. We look at brands that are digitally-native with the big exposure to e-commerce, in [ categories ] in which we can add value and there are a set of criteria that we follow with a lot of rigor. But we will not rush into acquisitions if the right asset doesn't emerge. And at this stage, we have not acquired in Prestige recently because we have not seen any asset that really fill any gap in the portfolio that we can have. But super, super committed to Skin Care, Hair Care. To a brand like Hourglass, that is a real jewel in the [indiscernible] cosmetic super premium space. We see Prestige as natural continuity of our presence in our Skin Care and Hair Care business. Srinivas Phatak: On the Foods margins, we are actually quite pleased with the way the whole business has been managed and being operated. There is a very sharp strategic choices that we've made in terms of where to play, how to win. And what's also notable is actually the execution discipline which has come into this business, which is actually leading to our market outperformance across various markets and various segments. A lot of this really is read through gross margin. Some of the levers, which I explained earlier are also applicable to the Foods business, and therefore, I will not repeat them. Having said that, Foods business has also benefited significantly from some of the portfolio rationalization. We have, over the past 18, 24, 36 months, taken out or delisted the parts of the portfolio which were not value accretive. So I think that has really helped us. Second is we also have some very good whole pack price architecture, especially when it comes to Hellmann's and some of the innovations. Secondly, when it comes to the UFS business where we manage it extremely well with profitable accounts has also been a big driver for us. It's also important that the whole overhead element of savings, which we have executed in the company, are also benefiting from a food perspective. Having said that, we continue to invest well. I think that's the most important element because we see Foods as a growth business for us. So we are absolutely determined to invest to really grow the business. At an aggregate level, I think we are quite happy with the margins. The focus from here on for us is going to be more drive growth, volume-led growth, and not necessarily a big margin expansion. Jemma Spalton: Our next question comes from Sarah at Morgan Stanley. Sarah Simon: I have 2 questions, please. One was the impact of discontinuations generally across the group. Can you quantify that in terms of volume? And then the second one was on Dr. Squatch, have you -- obviously, that was growing super fast before you acquired it. Can you give us any idea how much that's grown during fiscal '26 -- sorry, fiscal '25? Fernando Fernandez: Yes. I don't know if we will provide any discontinuation figure, Srini. But in Dr. Squatch, the -- of course, this is an important acquisition for us. It will only count in our underlying sales growth from September next year, but the performance has been good since acquisition, continued growing double digit, a strong brand, very distinct proposition in the male grooming space. Really making significant inroads particularly in the Deo category after establishing a very, very strong position in skin cleansing. So we are very pleased with having Dr. Squatch in our portfolio. We expect that to be a significant contributor to growth during 2026. But as I mentioned before, it will only count in our underlying sales growth from September onwards. But of course, pleased with the performance until now, absolutely in line with the business case that we put at acquisition time. Srinivas Phatak: Just a short one. See, anything that we actually do from an M&A or a disposal perspective, you get a full list of those disposals and the impact. Discontinuations and new launches of SKUs happen in the normal course of our business. Having said that, some of these discontinuations actually sit in the non-Power Brands section. And Fernando actually gave you a bit of a flavor in terms of whether it is the tail list of SKUs in Beauty & Wellbeing or some of the elements in Foods. I think that's the right place to keep looking for it, and it gives you a bit of a sense in terms of what's happening there. Jemma Spalton: Our next question comes from David at Jefferies. David Hayes: Just one for me, I think, in terms of the topic. Just Latin America, I know you talked about a little bit, but it feels like that's recovered volume wise a little bit quicker than maybe you were kind of indicating at the third quarter. So just whether that is the case, what was done better that meant that, that's happened? I guess, to some extent, was the innovations, a relaunch that took place? And did that -- effectively, did that flatter the quarterly volumes in the fourth, maybe leading on to then saying, well, volume growth you think be flat to positive in the first quarter or the first half? Fernando Fernandez: Yes. Yes, we don't see in Latin America, any performance that is fundamentally different to what we what we said to you one quarter ago. The macro environment remains tough, both in Brazil and Mexico. Markets, as I mentioned, has been flattish. But we have intervened in some areas in which, as I mentioned before, we have scored some own goals, particularly in Home Care pricing and in Deos format focus. Our Food business continue performing very, very well, particularly Hellmann's having a blast in Brazil, gaining share penetration, brand equity. And Beauty & Wellbeing has had a solid performance. In the case of Home Care, as I mentioned, we are pleased with the reaction to our pricing correction, is showing really impacting our volumes, particularly in Brazil. And in Deos, I believe there is much more to come. Some of the actions that we have taken are being implemented now, particularly the reset of planogram in thousands of stores across the region. We are really investing heavily behind aerosol format that as I mentioned before, has a much higher revenue per user and profit per use than some of the contract applicators, and we have a strong support from the retailers in that space. So we are confident for 2026 that Latin America will have a much better contribution to our performance. I have been associated with Latin America for many years. I have never seen 2 bad years in a row in Latin America. So we are very confident that we will deliver in that region and the team is super, super committed in the region to improve performance there. Jemma Spalton: Our next question comes from Tom at Deutsche Bank. Tom Sykes: Yes. I wondered if you could just say a few words on the channel shift that is occurring in North America and how that's impacting you? We're obviously seeing very high growth on Amazon, and it appears that your shares are a bit lower on Amazon than they would be off. So what is the outlook for your share on that channel? And what's the effect of that channel growth? And particularly, I guess, as well is just the growth of smaller peers and what that then does to the cadence of your innovation because you're stating a lot of innovation globally, but it's not clear whether that is speeding up in any one particular market, if you say, particularly in North America. So are you combating the growth of smaller peers by fewer, bigger innovations or more iterative, please? Fernando Fernandez: Thank you, Tom. Well, we continue having a strong performance in digital commerce. And I would say there are 3 types of digital commerce in which we have delivered strong performances. One is classic marketplace in North America, big retailers, they are like Amazon and walmart.com. I have mentioned the performance last quarter, I will not repeat numbers today, but we are growing double digit with these people strongly in North America. Social commerce in places like Southeast Asia and China and quick commerce in India. So in all of them, we are growing double digit. We are growing our [indiscernible] through a special assortment of our core brands. And of course, through the portfolio of new brands that we have been acquiring, particularly in the case of North America, our focus in acquisitions has been in digitally-native brands with a strong exposure to e-commerce, and that has been working for us properly. We have not seen a significant slowdown in the North American market in the e-commerce side. Probably what you have seen, particularly in the month of October, that was very weak in the North American market, it was more related with physical stores with the off-line channel. And there is always, of course, e-commerce opens an entry point to many small brands, but very few brands has been able to scale big. I continue thinking that brands like that or like Vaseline have significant competitive advantage also in online. And when I said before that, that is growing 7% volume globally. When you look at that growth in e-commerce, it's practically 2x that. So good performance in digital commerce. Of course, this is accelerating, particularly in some markets in Asia, that is, I would say, a leapfrog of modern physical retail into e-commerce, but we are very well prepared to take advantage of that. Jemma Spalton: Our final question comes from Ed Lewis, Rothschild. Edward Lewis: Yes. A couple of ones for me. I guess a lot of change, a lot of heavy lifting, as you said, Fernando, the last [ 2 ] years. So we think about 2026, is this really the first year that we should start to see the benefits of the revamped approach to innovation that you introduced a couple of years ago? And then for Srini, just on the CapEx plans, over 3% of turnover, how much of CapEx will be spent on what you call margin-enhancing activities? I think you were close to around 60% last year. Fernando Fernandez: Thank you, Ed. Yes, a lot of heavy lifting has been done, I would say, particularly in terms of organization. And if you think that last year, we divisionalize our sales force, we separate Ice Cream, we made significant steps in our productivity program. All these are potential, very disruptive initiatives. And the fact that we delivered a solid year in the context of all these initiatives, we consider that something important for us. Our product development, our innovation capabilities definitely are in a very different place to where they were 3 years ago. I have not said 3 years ago that I would have been proud when I stand up in front of the up Dove shelf or the Vaseline shelf. I am now. And that's basically a sentiment that I may start an experience with many, many of our brands. Of course, there are some elements in execution that have to improve. We have had issues of channel price conflict in some markets, some issues in country like Brazil that should have not happened. We have launched a program of what we call perfect store in order to ensure that pricing assortment visibility are really properly managed and in a homogeneous way across Unilever. I'm really focusing to that now. But as you said, a lot of the heavy lifting has been done, and we see 2026 as a very important year to really bear some of the fruits of this effort that -- this investment that we have put in the business, both in terms of money and time and focus during all these years. Srini? Srinivas Phatak: So on the CapEx for the past 2 years, we have actually been spending around the 3% level. And you're right that we are -- or even from a 2026 point of view, we will look to spend anywhere about 55% to 60% going towards what we call as productivity or savings. From a capacity perspective, I think we are well covered, and therefore, that gives us the ammunition to continue to drive the savings harder. Having said that, we are actually open to increasing the levels of CapEx to support the further growth in the productivity agenda, but with 2 caveats. One is obviously each of the case -- business cases have to justify themselves. And we have actually taken up the thresholds in terms of both the IRRs as well as the payback periods, and these are nonnegotiable. So each of the projects have to justify and they justify. We will invest. That will not be a constraint. The second element is we are committed to maintaining 100% cash conversion. So therefore, we will generate this cash for us to be able to fund it. But our focus on leveraging productivity CapEx remains on track from 2026 perspective. Fernando Fernandez: Cool. I believe there are no more questions. So thank you, everyone, for joining the call. And let me close saying that I hope it's clear that first, we have delivered a very solid 2025 despite subdued markets and a very negative currency environment for Unilever. Second, that we enter 2026 as a simpler, more focused business with stronger brands and competitive level of investment. We're investing now 16% of our revenue in our brands, 3 years ago, we were at 13%. Third, that our geographical footprint is an asset, and we are very confident in a step-up in emerging markets in 2026. And fourth, that our key metrics don't change: volume growth, positive mix and gross margin expansion to deliver earnings growth in hard currency. That's where the whole company is focused on. Thank you very much.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. My name is Kelvin, and I will be your conference operator today. At this time, I would like to welcome everyone to the Pacific Gas & Electric Co. Fourth Quarter 2025 Earnings Release. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. Thank you. I would now like to turn the call over to Jonathan Arnold, vice president of investor relations. Please go ahead. Good morning, everyone. Jonathan Arnold: And thank you for joining us for Pacific Gas & Electric Co.’s fourth quarter and year-end 2025 earnings call. With us today are Patricia Kessler Poppe, Chief Executive Officer, and Carolyn J. Burke, executive vice president and chief financial officer. We also have other members of the leadership team here with us in our Oakland headquarters. First, I should remind you that today’s discussion will include forward-looking statements about our outlook for future financial results. These statements are based on information currently available to management. Some of the important factors which could affect our actual financial results are described on the second page of today’s earnings presentation. The presentation also includes a reconciliation between non-GAAP and GAAP financial measures. The slides, along with other relevant information, can be found online at investors.pgecorp.com. We would also encourage you to review our annual report on Form 10-K for the year ended 12/31/2025. With that, it is my pleasure to hand the call over to our CEO, Patricia Kessler Poppe. Patricia Kessler Poppe: Thank you, Jonathan. Morning, everyone, and thanks for joining us. This morning, we are reporting full-year 2025 core earnings of $1.50 per share at the midpoint of our EPS guidance range and up 10% over 2024. This marks our fourth consecutive year of double-digit core EPS growth. I am proud of how our team stayed focused on our highest priorities: safe, reliable, and affordable service for our customers while at the same time delivering strong results for investors. Looking ahead, we are raising and tightening our 2026 core EPS guidance range. We are increasing the low end by $0.02 which brings the range to $1.64 to $1.66. At the midpoint, our 2026 guidance implies 10% EPS growth. Looking further out, I am pleased to reaffirm our growth outlook of 9% plus annually from 2027 to 2030. As you have come to expect, we will also continue our practice of basing future growth on our actual earnings. As previously announced, last month, I began the five-year extension of my contract as CEO, which runs through 2030. I am energized by the work ahead. Our priorities are clear: safely keep the lights on and the gas flowing, and keep making bills more affordable. It is a safety, reliability, and affordability trifecta that we are delivering here at Pacific Gas & Electric Co. On the safety front, in 2025, we had a 43% reduction in serious injuries and fatalities compared to 2024, and our serious preventable motor vehicle incident rate improved by 30%, achieving some of our best-ever safety metrics. On reliability, our systemwide performance improved by 19% from 2024. And on affordability, it is our consistent execution on our plan—our simple, affordable model—which is allowing us to chart a differentiated path for our customers. On January 1, we delivered our fourth reduction in electric rates in two years, with our gas rates also going down. Combined with prior decreases, our bundled residential electric rates are now 11% lower than January 2024, with the typical customer paying about $20 less per month. That is progress customers can feel. If our pending 2027 GRC were to be approved as filed, combined gas and electric bills would be flat to down compared to 2025. And we are going to keep pushing because fighting for customer affordability is core to our strategy. Looking ahead, we see opportunities to further improve this trajectory through the addition of rate-reducing load, from data centers and other electric growth. This new load can deliver a win-win for California—economic development and affordability. Slide four should be familiar by now and summarizes our consistent execution track record. Each year brings different headwinds and tailwinds, but our approach is unchanged: plan conservatively and execute relentlessly to deliver consistent, predictable results over the long term. In 2025, we confronted early headwinds with strong execution during the year, particularly on the cost side, ultimately putting us ahead of plan. This allowed us to redeploy and pull ahead costs in the back half of the year. That is our model doing exactly what it is designed to do—deliver consistent results for owners while redeploying outperformance to benefit our customers. As shown on the slide, over the past four years, savings generated under our simple, affordable model have allowed us to redeploy over $700 million for the benefit of customers while still delivering for our investors. These are dollars which could have shown up as higher profits but which we chose instead to deploy toward better customer outcomes and derisking future years. Said another way, profits and customer savings go hand in hand. Turning to slide five. We remain intensely focused on helping California find a path to address the state’s wildfire challenge. We will stay constructive and tenacious until we reach a more sustainable, safer, and affordable future for our customers, for our communities, for our state, and for those who commit their capital to us. Since our last call, the California Earthquake Authority stakeholder process for SB 254 phase two has been progressing, and they are tracking towards submission of their report and recommendations to the governor and legislature April 1. I should note that the April 1 CEA report will not be the end of the road for phase two. In fact, it will mark the beginning of the legislative process. We are not getting specific today on which policy choices might be most effective, but be reassured our team is actively engaged. In terms of core principles, our goal is to address the open-ended and unknown risks which the current construct puts on the IOUs and our customers. For California to attract much-needed capital, you must be able to quantify and price the risk. Our customers and hometowns need us to access affordable capital as a prerequisite for the safe, resilient, and clean energy system they expect. Turning to slide six. Ignitions were down 43%, which resulted in a third year without a major fire caused by our equipment. This was achieved despite elevated fire activity statewide. As we do every year, we are looking to drive further safety in 2026. We expect to further expand our continuous monitoring capabilities, including our smart meters, which are helping us get ahead of potential issues—anticipating failures before they happen. In late January, we announced the launch of EmberPoint, a new venture between Lockheed Martin and Pacific Gas & Electric Co. Marking a critical milestone in our mission to end catastrophic wildfires, EmberPoint is intended to integrate next-generation wildfire solutions and set a new standard of wildfire safety. With our regulator’s approval, we can bring our wildfire mitigation experience and proven layers of protection while Lockheed Martin brings its cutting-edge prediction and detection along with military-grade equipment and tools to help our firefighters stay safe while putting out fires faster. We can accelerate at scale the deployment of technology at the lowest societal cost, the goal being speed to safety—making our system and others safer faster. In addition, EmberPoint gives us a pathway to flow some savings back to our customers over time. Also in January, five finalists were announced in the autonomous response track of XPRIZE Wildfire where Pacific Gas & Electric Co. is the main sponsor. This summer, the five finalists will be tasked with demonstrating autonomous systems which can detect and fully suppress a high-risk fire in a 1,000 square kilometer test zone within minutes while leaving decoy fires untouched. We could not be more excited to be helping advance real-world adoption of game-changing solutions. On the regulatory front, in December, the CPUC voted out revised guidelines for utility undergrounding plans. This is a key step that moves us toward initiating our ten-year plan filing with OEIS, likely in the third quarter of this year. Earlier this week, we and the other IOUs made a required filing with the CPUC to establish the benefit-cost ratio methodology. Aligned with that, the CPUC guidelines provide us a path for us to file for approximately 5,000 miles of additional undergrounding over ten years starting in 2028. These miles will represent the next phase of our undergrounding journey and will add to the 1,900 miles we expect to have completed by 2027. Combined with overhead hardening, this would bring our total system hardening plans through 2037 to almost 11,000 miles and more than three-quarters of the high fire threat miles we plan to harden based on our current modeling. The remainder of our overhead system in the HFTDs will be protected with operational controls like PSPS, EPSS, maintenance including vegetation management, and continuous monitoring, as it is today. As illustrated on slide seven, we see Pacific Gas & Electric Co.’s affordability story as our story of the year. As I mentioned earlier, on January 1, we lowered our bundled residential rates for the fourth time in two years, and our average bills for those customers are now 11% lower than in January 2024. That is a headline worth repeating. We hear a lot of discussion of affordability in absolute terms, but what gets less attention is that our bills, as measured by share of wallet, are below the U.S. average. Our value proposition relative to income levels is therefore better than average. Our prices are moving in the right direction, and we believe this will become easier for policymakers to recognize going forward. As our 2027 GRC proposal laid out, our simple, affordable model allows us to make needed investments while holding our bill increases at or below typical inflation. Back in 2024, we started talking about our simple, affordable model, amplified. This showed an opportunity for further improvement in each of the key elements, our goal being to bend our future customer bill trajectory down even further. Today, as shown here on slide eight, I am excited to share with you that we are officially updating our simple, affordable model to show a new target future bill trajectory of 0% to 3%. You heard me—0% increase in our bills is in sight. We have amplified two key enablers: our non-fuel O&M savings and electric load growth. Our confidence in the Pacific Gas & Electric Co. performance playbook and in our ability to drive savings has continued to grow. We still see plenty of headroom for savings, as indicated by our capital-to-expense ratio, which has improved from 0.8 to 1.0 over the past two years. While improving, our ratio remains well below our peer group average of 2.0, while top-decile performers are close to 3.0. Turning to our rate-reducing load story here on slide nine. Since our third quarter update, we have seen significant growth in projects moving into the final engineering stage, which now stands at almost 3.6 gigawatts. That is up two gigawatts, more than doubling from last quarter. We are excited by the opportunity to bring on large load and deliver savings to our bundled customer base while enabling growth and economic prosperity for our state. In January, Carla Peterman represented us at a ribbon-cutting ceremony at the Equinix Great Oaks South Data Center, the first data center to come online under our joint implementation agreement with the City of San Jose. This was an opportunity to demonstrate that Pacific Gas & Electric Co. is delivering on our promise to provide fast, reliable power to large energy users. For each gigawatt of large loads, we see the potential to drive savings of 1% or more on average monthly electric bills. In order to do this, it is actually quite simple. We just need to get the pricing right. And while the relationship between data centers and customer affordability is now receiving a lot of attention at the national level, demonstrating savings for our core customers has been nonnegotiable for us from the beginning and continues to be so. With that, I will hand it over to Carolyn. Carolyn J. Burke: Thank you, Patty, and good morning, everyone. Here on slide 10, we are showing you our 2025 earnings walk for the full year. Core earnings per share are $1.50, at the midpoint of our guidance and up 10% from 2024. We have added $0.07 from our customer capital investment, deploying critical capital on behalf of our customers for safety, resiliency, reliability, capacity, and new customer connections. In fact, with respect to new connections, by late 2025, we had cut application intake time by 40%, from a 2023 average of 76 days to just 45 calendar days. And our engineering design times are down by one-third, thanks to our performance playbook. Our operating and maintenance savings came in at $0.20 for the year, and we were able to redeploy $0.09 back into our system for the benefit of our customers. We had over 160 waste-elimination initiatives in 2025, which came from across Pacific Gas & Electric Co., from our front line to the back office. And we are not done yet, as this is a muscle we are continuing to strengthen. Timing items reversed for the full year, with “other” here mainly reflecting benefits from smart tax planning, as we shared on the third quarter call. Turning to slide 11. There is no change to our $73 billion five-year capital plan. We still see at least $5 billion outside the plan, much of which is FERC-jurisdictional capital, which can enable rate-reducing growth. Here on slide 12, I am pleased to share our five-year financing plan. On the third quarter call, I shared our financing guideposts. Those principles have not changed and are reflected here. Importantly, our plan is built to require no new common equity through 2030. We continue to prioritize investment-grade ratings, including sustaining FFO to debt in the mid-teens. And we still target reaching a dividend payout of 20% by 2028 and holding that level through 2030. As you likely saw, we doubled our annual share dividend to $0.20 for 2026, and based on our payout guidance, you can expect consistent increases in the next two years. This plan offers flexibility over the five-year period and is based on conservative assumptions. On this slide, we are also showing our expected 2026 utility debt issuance of up to $4.6 billion. Our plan includes a modest additional parent-level debt financing, which may include efficient tools such as junior subordinated notes. Overall, we expect our percentage of parent debt to remain below 10% through 2030, which is on the lower end of sector norms. While this need is more towards the back end of the plan, we will always be opportunistic in terms of timing our market access. Given uncertainty on timing and indeed whether the contingent contributions to the continuation account will be called, we have not explicitly included these in our waterfall. If these were called, Pacific Gas & Electric Co.’s share would be $373 million annually over five years, which we would plan to debt finance and still maintain our mid-teens credit metric. Turning to slide 13. Achieving investment-grade ratings and efficient financing are key principles of our financing plan. With investment-grade credit, we would be able to access lower-cost debt, unlocking a key incremental affordability driver for our customers. Regarding capital allocation, consistent with what we have said before, we are in the midst of a state-led process on wildfire policy reform, and we continue to see our current investment plan as the one that best delivers for our customers and investors. Now is not the time to make a change. That said, as you would expect, we will have a disciplined approach, and if we reach a point where we are not seeing clear signs of progress on the legislative front, then you can be certain we will take a hard look at all aspects of our plan. Here on slide 14, now this is where I get really excited. We reduced non-fuel O&M by 2.5% in 2025, meaning we have now exceeded our target for four years in a row. And we are definitely not done yet. As Patty mentioned, we have updated our simple, affordable model on this call to reflect O&M savings in the 2% to 4% range, up from the previous target of 2%. And as a reminder, this savings target is after we have absorbed inflation and other cost pressures. Slide 15 highlights our upcoming legislative and regulatory calendar. The California legislative session is already underway, and as you know, the wildfire fund administrator’s report is due April 1. On the regulatory front, our general rate case process continues with intervenor testimony tomorrow and hearings in April. We expect to file our ten-year undergrounding plan with OEIS in the third quarter, and we are tracking towards a November proposed decision in the Kincaid and Dixie cost recovery proceeding. I will end here on slide 16 with our value proposition. It is a reminder that the simple, affordable model works. The concept is simple, but it is our differentiated performance that is unlocking benefits for both customers and investors. And now I will hand it back to Patty. Patricia Kessler Poppe: Thank you, Carolyn. We understand that the state’s work on wildfire risk in SB 254 phase two remains the critical variable for many investors, and we are fully committed to finding an outcome which delivers on key priorities. These include continuing to accelerate our reduction of wildfire risk while also delivering on affordability for our customers and attracting investment for California energy infrastructure. Before we take your questions, let me recap some highlights from this past year. We achieved a significant reduction in serious injury and motor vehicle incidents, resulting in some of our best-ever safety performance. We reduced ignitions by over 40%, resulting in our third consecutive year with no major fires caused by our equipment. We improved electric reliability by 19% year over year. We now have 3.6 gigawatts of data center demand in the final engineering stage, positioning us to capture rate-reducing load growth. Our customer transaction score, which we measure every day, is up, and our field crews are being scored 9.5 out of 10 by our customers when they interact with our frontline team. Our brand trust is up. We reduced O&M by 2.5%. We delivered another year of double-digit earnings growth, further extending our execution track record. And with all of that, we have lowered bills again, with our now amplified, simple, affordable model offering a pathway to zero bill inflation. Now that is a year to be proud of. With that, operator, please open the lines for questions. Operator: Ladies and gentlemen, we will now begin the question-and-answer session. As we enter Q&A, we ask that you please limit your input to one question and one follow-up. As a reminder, to ask a question, please press the star button followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. Your first question comes from the line of Nicholas Joseph Campanella of Barclays. Please go ahead. Nicholas Joseph Campanella: Good morning, everyone. Thank you. Morning. Operator: Great to see progress overall, and you know, definitely hear you on the 0% to 3% bill growth on the refresh plan, so thanks for that. Maybe just kind of if you were to kind of reflect on the CEA process, what is most encouraging to you? And then what is your view on just having something done legislatively in June versus September just given the summer recesses? You know, historically, I think things have gone the full distance into September. I am wondering if there is broad enough alignment in your view to maybe get something done sooner than that. And any comments on timing? Thank you. Patricia Kessler Poppe: Yeah. Thanks, Nick. I will start with timing questions. Look, this is a complex legislative effort, and we definitely want to support taking the time to get it right and getting the right outcomes. And, obviously, the sooner, the better, but we want to make sure the most important thing is getting something right done this year. So we are very much intent of, you know, really helping make sure that we are on the right footing, that we have got the right information, and that the decision makers have the information they need to make decisions well. And so that leads to the CEA process, and I would say that they are right where they are supposed to be in terms of timing in the process. They are doing what they said they were going to do. We are encouraged by that. And you know, as they closed their latest webinar, the CEA said they are focused on actionable, viable, and durable solution. Boy, we really support that. Because we know our customers and our investors bear an outweighed cost of the current construct, and it is regressive. Our most vulnerable citizens are paying too much for this current construct, and so we definitely support the actions that are being considered. You know, we do think that the most important criteria for us as we look at it is making sure that we continue to focus on risk reduction on recovery outcomes for costs that are borne, affordability obviously needs to be a key component of whatever solution there is. And today, the current model is not affordable for our customers, and so we need to fix that and make sure then that, most importantly for the audience on this call, is that we continue and are able to be investable and that you can price the downside risk associated with the legal construct here in California. So we are very much focused on getting the right outcomes and taking the time required to do that here in this legislative session. Nicholas Joseph Campanella: Thanks for the thoughts there. And then, you know, I know in the prepared there was also kind of discussion about, you know, you would relook at the overall plan, depending on the signs of progress and legislation overall. Can you just, if it does not go the way it is planned, can you just give us a sense of some of the items or just how you would kind of rank what takes priority in capital allocation, whether it is the capital investment, dividend, or otherwise that you would be looking at first. Patricia Kessler Poppe: Well, let us just back up for a little bit about capital allocation just in general. As Carolyn reiterated, and I will just reiterate for everyone on the call that, look. We see what you see. We too can do the math. The current valuation is absolutely not sustainable. And we are ringing that bell in every corner of California that we can find and in every conversation to make sure that people understand the value of the investor-owned utility model and how important attracting low-cost, high-quality investment is to spread out the cost of infrastructure for customers over the long haul. And that means we need to have an attractive legislative construct. Therefore, that is what makes SB 254 phase two so important. Now we say that, and as I said earlier, we do think that they are right where they are supposed to be, and people are following through on what they said they were going to, so we feel good about that. But as we think about capital allocation today, because we are encouraged by that progress, because we are having the right conversations, and because we are delivering everything that I talked about on the call—performance is power here—this is no time for us to pull back on serving our customers. Look. As I mentioned, our safety has continued to improve. Our reliability has improved 19% year over year. Our customer satisfaction is up. Our trust is up. Our rates are down. All of that to say, there is no time to change the model. However, to your ultimate question, Nick, if progress stops or derails or we feel that the state has lost interest in getting to the right outcome on SB 254, then obviously all aspects of our plan must be and will be on the table. We will not continue to sustain this valuation. And so, you know, today, that could take a lot of different forms, and I am not going to rack and stack them here on the call. But there is a lot of different ways to approach that problem, and the entire plan will be on the table if we do not see progress or if it stops and derails. Nicholas Joseph Campanella: Appreciate the thought. Thank you. Jonathan Arnold: Thanks, Nick. Operator: Your next question comes from the line of Steven Isaac Fleishman of Wolfe Research. Please go ahead. Jonathan Arnold: Hey. Morning, Steve. Patricia Kessler Poppe: Hi, Steve. Hi, Patty. Excuse me. Good morning. Good morning, Carolyn. Operator: So yeah. So just maybe following on the CEA process, we did get this view from the CPUC last week, and I am kind of curious your take on that and how influential they might be with the legislature in this process? Patricia Kessler Poppe: Yeah. You know, the CPUC sees what we see—that this current model is regressive, and it is putting excessive burden on our electric IOUs and our customers. And so I appreciated them sharing their points of view. They, I think, support what we support, which is a whole-society approach. People will definitely listen to what the CPUC thinks. They are the state agency whose job is to confirm that we have financially healthy utilities and rates and affordability for customers. And given our performance and our ability to lower rates while we are continuing to improve the service customers, we hope that it makes it easier for the CPUC to fully advocate for the reforms that we think are necessary in SB 254 phase two. Operator: Okay. Great. And then just going back to the simple, affordable model changes. So on the growth level, is this basically, with this better visibility from the data centers, you now have kind of line of sight to higher growth? Patricia Kessler Poppe: Yeah. I would say prediction that it is going to be higher. Yes. Yes. We definitely see. And as we shared, 3.6 gigawatts in final engineering. We had previously said about 1.5 of that would be online by 2030. Now we are saying it is closer to 1.8 gigawatts that will be online by 2030. Obviously, that continues to change and evolve. And as we get more applications and we can combine projects and bring things online faster, obviously, we would accelerate that. But the good news is that we do see that real load growth in project stages that makes it very real, and we have lots of confidence about that. We said 2% to 4% load growth in the simple, affordable model. That 4% is more at the back end of the five-year plan, but we definitely see it in there. And we also see, as Carolyn shared, an opportunity to continue to increase our O&M reductions as we continue to better serve customers. So it is really a combination. I will also say that we are still seeing EV load penetration. We had 18% EV penetration in the final quarter of the year, even after the incentives went away. So we definitely are still seeing increased EV demand as well, and that is an additional load driver. Jonathan Arnold: Okay. Operator: Great. Thank you. Your next question comes from the line of Shar Pourreza of Wells Fargo. Please go ahead. Patricia Kessler Poppe: Good morning. This is Marcella Petiprant on for Shar. Thanks for taking our question. Operator: Hi, Marcella. Patricia Kessler Poppe: Hi, Marcella. Patricia Kessler Poppe: Hey. Good morning. Maybe following up on that data center piece, how should we be thinking about the timeline for ramp beyond 2026? And then is that, just to clarify, final engineering stage fully incorporated into the 0% to 3% bill growth and CapEx opportunities on transmission or would be incremental when it reaches construction stage? Patricia Kessler Poppe: Yeah. So our load growth is part of the 0% to 3%. So to get to zero, we would need to see more of that load growth online. And so as I was sharing, as we look at the ramp to 2030, we can see about 50% of that 3.6 gigawatts online by the end of that range, so 2030. And so that is in that zone of 2% to 4% within that five-year time period. So consider that a ramp in that period. There are other things, though, that we have got in the hopper to help drive affordability. In addition to, you know, we talk about O&M and load growth on that, but the other line, you know, we held at 2%, but there are other parts of the bill, like supply costs. We had a good reduction in our supply costs here this year over year, thanks to our incredible supply team and work they have been doing to make the energy that we purchase and procure and produce more affordable. So there is a lot that goes into a customer’s bill that can help get us to that 0% to 3% range and trying real hard to bias as close to zero as we can get. And so we are going to keep working that every day. Jonathan Arnold: Great. Carolyn J. Burke: And then pivoting a little bit to credit metrics, investment grade one agency, how much incentive is there for continued balance sheet improvement? And then any line of sight to multi-agency investment grade? Yeah. So I will take that. This is Carolyn. So a couple of things just to remember. Fitch just upgraded us this past fall to investment grade. Patricia Kessler Poppe: Both Moody’s and S&P have said that our financial metrics are meeting the investment-grade criteria. What they are really looking at is, again, progress on SB 254, less of continued improvement in our balance sheet. With that said, we remain very committed to mid-teens FFO-to-debt metrics, and we continue to look at building a very sustainable financing plan to continue to meet those metrics. Carolyn J. Burke: Perfect. Got it. Thanks so much. Operator: Your next question comes from the line of Anthony Crowdell of Mizuho. Please go ahead. Anthony Crowdell: Hey. Good morning. Thanks for taking my—excuse me. How is it going? Just I wanted to follow up on Steve’s question. I only had one. On the legislature, there are some new faces or maybe old faces in new places in the state senate. Senator Limón is a pro tem of the senate, also new head of the energy committee. Just curious if you had any discussion with them. Just wondering if you think that may be a required big portion of support of getting something across the finish line. Patricia Kessler Poppe: Well, of course, we have been in conversation with the leadership, and we continue to be. And, you know, I think one of the hard things is our business model is hard to understand. And it is hard for people to believe and see that you can raise profits and lower rates all at the same time. That is why our performance is so important and why our mantra that performance is power really holds true at this time as we work to educate all of the legislators, including the leaders as well as others, that we can, in fact, invest in long-term infrastructure, make the system safe, make the system resilient, and lower costs. I think affordability is top of mind for all the legislature, and I think they are going to want to understand that as they make decisions on SB 254 and can see that SB 254 is actually contributing to the affordability issues for their constituents puts us on very much common ground. We want the same thing. We want a safe state. We want the ability for resources to respond when there is an incident and spread is taking place, but that our customers should not be subject to this regressive policy that has them bearing both the cost of the hardening of the infrastructure and claims then that follow when we were, in fact, prudent and capable operators. And so I think that that problem takes a long form to explain to people. And so the more we work with the legislators to help them understand the full picture, the better. So we look forward to engaging with those leaders to help make sure that they are making the best decisions for the people they represent, which happen to be the people that we serve. Anthony Crowdell: Great. That is all I had. Thanks again. Carolyn J. Burke: Thanks, Anthony. Operator: Your next question comes from the line of Julien Patrick Dumoulin-Smith of Jefferies. Please go ahead. Carolyn J. Burke: Morning, Julien. Julien Patrick Dumoulin-Smith: Hey. Good morning, team. Hey. Thank you guys very much. Appreciate it, Patty, team. Look. Hey. Hey. Just wanted to come back on the upside capital you guys have here, and look, away from SB 254, how do you think about that $5 billion and when you would be in a position to around that? Right? And as much as, obviously, you guys are talking about sales, and that trending in the right direction, I would love to hear how you think about upside of the $73 billion CapEx plan. Then in tandem, how do you think about financing that to the extent to which you were ever to go down that rabbit hole? I imagine that there is debt capacity that is latent to be able to accommodate that upside capital that you guys are identifying? And or how do you think about JSON? Carolyn J. Burke: Yeah. Hey, Julien. This is Carolyn. I will answer that. As we think about the additional $5 billion, as we have said in the past, we see three options. The first option is you can make the plan bigger. Right? You could increase your $73 billion. But that is probably the least likely given our current valuation discount. Then there is the potential to make the plan better. And when we say better, we mean in terms of affordability in particular. And an example of that is prioritizing certain capital that is associated with new load that could improve upon our bill trajectory. And then the third option is we could simply make it longer in terms of extending our above-average growth runway. So where we sit today and seeing the pipeline for load growth, the way we think about that $5 billion is if there is any additional capital coming in, it is probably option two, where we are looking to make the plan better, keeping to the $73 billion envelope of our capital plan, but ensuring that we can drive affordability for our customers with that additional capital. In terms of financing, I will just say that we continue to prioritize avoiding the need for equity at today’s low values and maintaining the FFO-to-debt to mid-teens. So as we look at financing that, those are two of our key principles. Julien Patrick Dumoulin-Smith: Awesome. Excellent. And then just if I could follow up a little bit on the process front. Any specific milestones after April 1 that you would be looking towards? I mean, I know at times it gets pretty dark and opaque through the summer months. But anything in particular you would flag here at least at the outset beyond the April 1 recommendation? Patricia Kessler Poppe: Yeah. I think that there are no specific milestones I would point to. I think there will be ongoing conversations, and it remains to be seen how much of those political conversations will be public, or will they be handled by a subcommittee or however the legislature intends to take on process once they have been given recommendations. Operator: Okay. I get it. Well, best of luck, Patty. Carolyn J. Burke: Thanks, Julien. Operator: Your next question comes from the line of Carly S. Davenport of Goldman Sachs. Please go ahead. Carolyn J. Burke: Hey. Good morning. Thank you for taking my questions. Carly S. Davenport: Hey. Just a couple of quick follow-ups to some other questions. Firstly, just on the data center pipeline, great to see that growth in the final engineering and the under construction. Just any color on the movement in the overall pipeline? Is that a high grading? Or are you seeing any shifts in sort of overall tone on demand? Patricia Kessler Poppe: Yeah. I would say that that will continue to move. As we mentioned, we just, or at least we said on the slide, we have just hired a Chief Commercial Officer. We are seeing lots of opportunity. You do not think about California when you think about manufacturing, but let me remind everyone on this call that California manufactures more products than any other state in the nation. California has more manufacturing jobs than any other state in the nation. I expect that those companies intend to grow, and so we are working to make sure that we can supply their growth as well, whether it is robotics or silicon manufacturing equipment and chip manufacturing equipment. That all lives here. And there is an electric bus company in—these companies intend to grow, and so we want to make sure that we grow for them as well. So I would say that number is a moment in time, and I expect over time when people realize that we have the capacity, that we can, in fact, deliver the timelines that they want and make sure that what we deliver is then affordable for all of our customers, that we are going to continue to be a key enabler to California’s prosperity, and that requires growth. And we are excited to power it. Carly S. Davenport: Really clear. Thank you for that. And then just back on the wildfire policy reform, just as you talked about given the urgency, but also the complexity here, I guess, is it your expectation that this will be sort of in this legislative session? Or do you see any potential for other processes to sort of be borne out of this one? Patricia Kessler Poppe: We are very hopeful that this is resolved. The substantive risk and cost allocation—we are very hopeful that this is resolved during this legislative session. That would be—this is the second phase of a two-phase process, a two-year session. And we have gotten—you know, I think we have seen what everyone has seen—that they are right where they said they were going to be. The process is working as planned, and the CEA is a very professional organization. I am impressed by the actions that they have taken and them following through on what they said they were going to do. Carly S. Davenport: Great. Thank you for all the color. Jonathan Arnold: Thanks, Carly. Operator: Your next question comes from the line of Gregg Gillander Orrill of UBS. Please go ahead. Yeah. Good morning. Thank you. Congratulations on the results. Patricia Kessler Poppe: Thank you. Just—I was wondering if you could talk about what you are expecting from the Kincaid and Dixie cost recovery proceedings, who handles that, and, you know, what you are expecting to see out of that. Carolyn J. Burke: Yeah. So we filed in November 2025 the first catastrophic wildfire proceeding that involves the presumption of prudency. What we submitted is a review of the costs that were paid by the Wildfire Fund associated with Dixie and Kincaid. That is the over $1 billion in claims. That is about $674 million. We are also looking for recovery of WEMA costs, which is about $1.6 billion, and that is primarily—if you think about this, remember, we did not have the self-insurance at that time. Patricia Kessler Poppe: And so it is the donut hole between what we recovered from insurance versus up to the $1 billion threshold before we can have access to the Wildfire Fund. So we are looking for—that is the second thing we are looking for recovery from, and then we are looking for recovery from CEMA costs, which are about $314 million. Carolyn J. Burke: So that is what we are looking for. I will just remind you that with Kincaid and with Dixie, we had a valid safety certificate, which is— Patricia Kessler Poppe: So we are deemed reasonable in terms of our prudency. We think we have made a strong case, and we believe the facts support our case. Gregg Gillander Orrill: Sounds good. Thank you. Operator: Your next question comes from the line of Ryan Michael Levine of Citi. Please go ahead. Had one clarifying question around some of your comments. Are you looking to accelerate the prudency determination through the CEA process for future liabilities or future claims? Is the CEA process— Patricia Kessler Poppe: Yeah. Ryan, there are a lot of things that we are looking at through the CEA process. So, really, not specifics. It is going to be a bundle of options and improvements and construct. And so I hesitate to have a specific outcome that we want. We want to make sure that the downside risk is knowable and affordable for both customers and investors. And there is probably a lot of ways to make that happen. Operator: Okay. Thanks for taking my question. Patricia Kessler Poppe: Yep. Thanks, Ryan. There are no further questions at this time. And with that, I will now turn the call over to Patricia Kessler Poppe, CEO, for closing remarks. Please go ahead. Patricia Kessler Poppe: Thank you, Kelvin. Thanks, everyone, for joining us today. I will just hit the high points. Look, our safety has improved. Our reliability has improved. Our customer satisfaction has improved. Our earnings have improved, and our rates are down. And at the fundamental aspect of running a great utility, I could not be more proud of this team and the work that they have done. And for a company that leads with love, happy Valentine’s Day. I hope you have big plans for tomorrow. Enjoy your time. Thanks so much. We will see you soon. Operator: Ladies and gentlemen, this concludes today’s call. We thank you for participating. You may now disconnect your lines.