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Operator: Thanks for holding. We appreciate your time and patience. Please stay on the line, and we'll be back in just a moment. Ladies and gentlemen, thank you for standing by, and welcome to the Lilly Q4 2025 Earnings Conference Call. Operator: At this time, all participants are in a listen-only mode. Later, we will be conducting a question and answer session and instructions will be given at that time. Should you request assistance during the call, please press 0, and an operator will assist you offline. I would now like to turn the conference over to your host, Mike Czapar, Senior Vice President of Investor Relations. Please go ahead. Mike Czapar: Good morning. Thank you for joining us for Eli Lilly and Company's Q4 2025 earnings call. I'm Mike Czapar, Senior Vice President of Investor Relations. Joining me on today's call are David Ricks, Lilly's Chair and CEO, Lucas Montarce, Chief Financial Officer, Dr. Daniel Skovronsky, Chief Scientific and Product Officer, Anne White, President of Lilly Immunology, Dr. Carole Ho, President of Lilly Neuroscience, Ilya Yuffa, President of Lilly USA and Global Customer Capabilities, Jake Van Naarden, President of Loxo Oncology and Head of Business Development, Patrik Jonsson, President of Lilly International, and Kenneth Custer, President of Lilly Cardiometabolic Health. We're also joined by Mark Heiman, Susan Hedlund, and Wes Tull of the investor relations team. During this conference call, we anticipate making projections and forward-looking statements based on our current expectations. Our actual results could differ materially due to several factors, including those listed on slide four. Additional information concerning factors that could cause actual results to differ materially is contained in our latest Form 10-K and subsequent filings with the SEC. Information we provide about our products and pipeline is for the benefit of the investment community. It is not intended to be promotional and is not sufficient for prescribing decisions. As we transition to our prepared remarks, please note that our commentary will focus on our non-GAAP financial measures. Now I'll turn the call over to David Ricks. David Ricks: Thank you, Mike. 2025 was a strong year for Lilly. We delivered robust revenue growth, advanced our pipeline, expanded our manufacturing footprint, and helped over 70 million people around the world. The 2025 full-year revenue grew 45% compared to 2024, driven by our key products. We launched new medicines like Inlureo, secured new indications for Omvo and Jayperca, and entered new markets as we completed the international rollouts of both Mounjaro and Kisanlo. We generated positive clinical data in more than 25 phase three trials, including registrational trials to support two new incretins, Orforglipron and Retatrutide. We submitted Orforglipron for obesity in the US and in more than 40 countries globally. We started 14 new phase three programs over the past few months, including Oloralintide and Brenepatide, and we have one of the largest clinical stage pipelines in our company's history. We executed 39 business development transactions across all our therapeutic areas and added multiple clinical stage assets through transactions, including Scorpion, FERV, SiteOne, Adverum, and the upcoming acquisition of Ventix. We continue investing in artificial intelligence to discover and develop new medicines. In addition to our new supercomputer, we recently announced a new collaboration with NVIDIA to open a co-innovation AI lab. This project will combine Lilly's scientific expertise with NVIDIA's leading technology to accelerate drug discovery. We progressed our manufacturing expansion efforts and announced plans to build multiple new manufacturing sites in the US and Europe. We increased our manufacturing capacity and began making medicine at our new sites in Wisconsin and North Carolina. We exceeded our goal to produce 1.8 times the number of incretin doses in 2025 compared to 2024. Since 2020, we've committed over $55 billion, the largest manufacturing build-out in company history. We announced an agreement with the US government to provide access to obesity medicines to millions of Americans with insurance through Medicare and Medicaid. We're proud of our ability to bring these important medicines to patients at a cost of only $50 per month out of pocket. The number of people engaging with our US direct-to-patient platform reached 1 million patients in 2025. Our most popular offering, the Zepbound self-pay vials, now makes up one-third of new patient starts who start on any brand of obesity medication. Lastly, we distributed $1.3 billion in dividends and $1.5 billion in share repurchases. We also strengthened our leadership team with the addition of two new executives, and I welcome both Carole Ho and Anne White to this call for the first time. Now I'll turn it over to Lucas to review our Q4 results and share details on the 2026 guidance. Lucas Montarce: Thanks, David. We delivered robust financial performance in 2025. Our full-year revenue of $65.2 billion increased by 45% compared to 2024, and earnings per share grew by 86% to $24.21. Q4 financial performance was also strong, as shown on slide seven. Revenue grew 43% compared to Q4 2024, driven by our key products. Gross margin as a percentage of revenue was 83.2%, consistent with Q4 2024. Favorable product mix and improved production costs were offset by lower realized prices. R&D expenses increased by 26%, driven by continued investments in our early and late-stage portfolio. Marketing, selling, and administrative expenses increased 29%, driven by promotional efforts to support our ongoing and future launches. Our non-GAAP performance margin was 47.2%, an increase of 4.2 percentage points compared to Q4 2024. Our effective tax rate was 19.7%, and earnings per share were $7.54, inclusive of $0.52 of acquired IPR&D charges. This compares to earnings per share of $5.32 in 2024, which included $0.19 of acquired IPR&D charges. On slide eight, we quantify the effect of price, rate, and volume on revenue. US revenue increased 43% in Q4, driven by volume growth of Mounjaro and Zepbound, partially offset by a 7% decline in price. Revenue growth was strong outside the US as well, driven by double-digit volume growth in Europe, Japan, and China. In the rest of the world, volume doubled, driven by the launch of Mounjaro in new markets. On slide nine, we provide an update on the performance of our key products, which contributed over $13 billion to revenue this quarter and grew by 91% compared to Q4 2024. Beginning with neuroscience, Kisanlo recently became the US market leader in the amyloid-targeting therapy space, with more than 50% share of total prescriptions. Revenue was $109 million, driven by overall market growth, increased awareness and diagnosis of Alzheimer's disease, as well as increased prescriber adoption based on Kisanlo's clinical profile. In immunology, Eblis delivered solid performance in atopic dermatitis, where use total prescriptions increased 25% compared to Q3 2025. Omvo continued its uptake, and global revenue increased 55% compared to the fourth quarter in 2024. Jayperca posted another strong quarter of sales performance, and global sales grew 30% compared to Q4 2024. We recently received an expanded US indication to include people previously treated with a covalent BTK inhibitor, significantly increasing the number of people who can benefit from this medicine. Verzenio global sales increased 3%, driven by volume growth outside the US. Verzenio remains the market leader in its early breast cancer indication; however, overall market penetration has reached a plateau, as reflected in US trends. Finally, in cardiometabolic health, Zepbound and Mounjaro both delivered strong results. Outside the US, positive uptake trends of Mounjaro continued, particularly in our newest launch countries in Latin America and Asia. We have launched in all major markets and are now the incretin share of market leader outside the US as well. Moving to the US, as shown on slide 10, we combine incretin analog market continued its robust growth trajectory, with total prescriptions increasing by 33% compared to Q4 2024. As market penetration within the population of people with obesity is only mid-single digits, we believe there is room for market expansion and sustained market growth in the quarters and years to come. We have Zepbound revenue more than doubled compared to Q4 2024. Zepbound continues to be the market leader in the branded obesity market with nearly 70% share of new prescriptions. US total prescription growth for Zepbound was robust, both in auto-injectors and vials. We are encouraged to see sustained growth uptake of Zepbound vials, which represented approximately one-third of total Zepbound prescriptions and nearly 50% of new Zepbound prescriptions in Q4. In the US, Mounjaro expanded market leadership in the type two diabetes incretin market, exiting the quarter with over 55% of new prescriptions. On slide 11, we provide an update on capital allocation. Moving to slides 12 and 13, we share our 2026 financial guidance and highlight key factors that will impact our financial outlook. We expect revenue to be between $80 billion and $83 billion. The midpoint of our revenue range is an increase of 25% compared to 2025. We expect to deliver industry-leading volume growth driven by our key products, partially offset by lower realized prices. Price is expected to be a drag on growth in the low to mid-teens. Three factors will impact US price: the government access agreement for obesity medicines, updated direct-to-patient Zepbound pricing, and lower Medicaid prices for later life cycle medicines. Pricing outside the US will be impacted by Mounjaro's inclusion on China's National Reimbursement Drug List for type two diabetes. We believe these price concessions will be more than offset by increased volume over time as we expand the number of people who can benefit from Lilly medicines. As I shared earlier, we continue to see robust growth trends in the US incretin analogs market, and we expect a similar trajectory to continue in 2026. As seen with other new launches, we expect the launch of oral GLP-1s to expand the addressable market. We expect Orforglipron to launch for chronic weight management in the US during 2026 and to launch in most international markets during 2027. We anticipate new Medicare access to obesity medicines will become effective no later than July 1, 2026. While we anticipate a reduction in Medicaid access in 2026 due to key states like California removing obesity coverage, we expect new states will add coverage for people with Medicaid in 2027. Within revenue, we anticipate Eblis, Jayperca, Inlureo, Kisanlo, and Omvo will all contribute to growth, whereas late lifecycle products like Trulicity, Talsa, and Verzenio are expected to be flat or decline. We expect our non-GAAP performance margin to be between 46% and 47.5%. Across the P&L, there are pushes and pulls that we anticipate will impact our performance margin expectations. We expect gross margin will be relatively stable to slightly down compared to Q4 2025, as favorable product mix and increased productivity are offset by price and new facilities coming online. Consistent with our strategy to invest in innovation, we expect R&D expenses will scale up in 2026. We have 36 active Phase III programs in our pipeline and plan to initiate even more new programs in 2026. With one of the largest clinical stage pipelines in company history, we are investing to maximize the impact of these potential new medicines. Marketing, selling, and administrative expenses are expected to grow as we invest to support new launches across therapeutic areas. As we launch new medicines, we will fully invest in variable expenses while controlling fixed costs by leveraging our existing commercial footprint. We expect earnings per share of between $33.50 and $35, setting us up for another year of strong top-line and bottom-line growth. Now I'll turn the call over to Daniel to highlight our progress on R&D. Daniel Skovronsky: Thanks, Lucas. Since our last R&D update, we've made significant progress in R&D. I'll share updates by therapeutic area, including select data highlights from recent phase three announcements, a final update on key events, and the potential 2026 outcomes on which we are now focused. Beginning with immunology, just a few weeks ago, we released top-line data from Together PSA, a randomized controlled phase 3b trial evaluating ixekizumab plus tirzepatide as compared to ixekizumab alone in people with psoriatic arthritis and obesity. This first-of-its-kind study assessed whether concomitant treatment with an incretin could deliver additional efficacy when added to an existing immunology treatment. As shown on slide 14, the combination not only achieved its primary endpoint of at least 50% reduction in psoriatic arthritis activity plus 10% weight reduction, but also showed a 64% relative increase in the proportion of patients achieving a 50% reduction in psoriatic arthritis symptoms compared to ixekizumab alone. An important finding from the study was the potential effect of tirzepatide when added to ixekizumab on psoriatic arthritis symptoms via both weight-dependent and weight-independent mechanisms. These results further support existing treatment guidelines for psoriatic arthritis that recommend treatment of comorbid obesity and shed further light on how incretins may have a positive effect on other diseases independent from weight loss. We look forward to publishing these data in more detail in a peer-reviewed journal and presenting them at an upcoming medical meeting. With this important result in hand, we are encouraged about our ongoing trial studying ixekizumab and tirzepatide in psoriasis. In two separate studies of mirikizumab, receptor, Crohn's disease, and ulcerative colitis, we also advanced our new GIP GLP-1 agonist, presenphatide, into a phase II study of asthma, another serious immunologic disease that we think may benefit from dual GIP GLP-1 therapy. Moving to oncology, the FDA granted full approval for pirtobrutinib, including the expanded indication for treatment of adults with relapsed or refractory CLL, SLL who have previously been treated with a covalent BTK inhibitor. This label update significantly increases the number of eligible patients and allows physicians to extend the use of BTK inhibitors to control disease longer. We also shared detailed data from two phase three pirtobrutinib trials, BREWN CLL313 and Bruin CLL314. As shown on the left side of slide 15, in Bruin CLL313, pirtobrutinib improved progression-free survival, reducing the risk of progression or death by 80% versus bendamustine plus rituximab in treatment-naive CLL, SLL patients. This risk reduction is among the most compelling ever observed for a single-agent BTK inhibitor in a frontline CLL study. In the second study, shown on the right side of slide 15, Bruin CLL314, pirtobrutinib was compared to a covalent BTK inhibitor, ibrutinib, in treatment-naive or BTK inhibitor-naive patients. The study met the primary endpoint of non-inferiority of overall response rate. And while progression-free survival data were immature, they trended in favor of pirtobrutinib. Notably, in the early analysis of the treatment-naive subpopulation, as shown here, pirtobrutinib reduced the risk of progression or death by 76% compared to ibrutinib. Both datasets were presented at the American Society of Hematology Annual Meeting and were simultaneously published in the Journal of Clinical Oncology. We submitted these results to regulatory authorities to potentially enable the use of pirtobrutinib in earlier lines of therapy. Later this year, we expect results from an additional phase three pirtobrutinib trial, Bruin CLL322. This trial evaluates pirtobrutinib in addition to a fixed-duration regimen of venetoclax and rituximab in previously treated CLL, SLL patients. If successful, this could form the basis for an additional regulatory submission later this year. We also presented updated combination data of Imlunestrant with Abemaciclib in metastatic breast cancer, which showed additional benefit compared to Imlunestrant alone. We submitted these data to regulators and are seeking to expand the Imlunestrant label. While we're encouraged by these new data for patients with metastatic breast cancer, we're even more excited about the opportunity for Imlunestrant in adjuvant breast cancer. Our ongoing 8,000-patient adjuvant breast cancer trial, EMBER-4, is fully enrolled and will be the next phase three readout of an oral SERD for patients with early breast cancer. In other oncology updates, we advanced sofetibart, mepetekcan, our next-generation antibody-drug conjugate targeting folate receptor alpha, into phase three testing for women with platinum-resistant ovarian cancer. We believe this program has the potential to benefit a broad population of patients with ovarian cancer, regardless of folate receptor alpha expression level. It may also offer improved tolerability compared to currently available antibody-drug conjugates. We plan to initiate a study in platinum-sensitive ovarian cancer later this year. We're excited that this medicine received breakthrough therapy designation from the FDA earlier this year. We also expect to initiate new phase three programs for two other oncology small molecules. The first is tirsolecimid, our mutant-selective PI3 kinase alpha inhibitor. We believe this program could represent the next generation of PI3 kinase alpha targeting agents by selectively targeting the pathway in cancerous but not in healthy cells, thus overcoming a key limitation of currently available medicines. This approach could potentially offer better disease control through deeper pathway inhibition, as well as improved tolerability. The second is vepubratinib, an FGFR3 inhibitor we believe may improve on the tolerability profile of existing agents and enable combination therapy in first-line metastatic urothelial cancer. In neuroscience, we began several trials exploring the use of incretins to treat substance use disorders and psychiatric conditions. Last quarter, we announced plans to initiate a phase three program of brenepatide in alcohol use disorder. Since then, we've begun dosing patients in this trial, and we have also launched additional brenepatide phase two trials in tobacco use disorder and bipolar disorder. We expect to initiate several more phase II and phase III trials in 2026, exploring how brenepatide may be able to treat other conditions, including a phase three trial for major depressive disorder, testing if brenepatide can prevent relapse of disease. In Alzheimer's disease, we continue to look forward to the results from Trailblazer ALS3, our study of donanemab in people with normal cognition but a positive blood test for Alzheimer's disease. This trial screened volunteers with a blood test for p-tau and randomized participants to a nine-month course of treatment with donanemab. By moving earlier in disease, even prior to individuals having any objective symptoms of Alzheimer's disease, the goal is to reduce the risks of them ever developing any impairment due to Alzheimer's. The primary completion is projected for 2027; however, the study will read out when the target number of progression events are accrued. Moving to cardiometabolic health, we had another busy quarter. We were excited to announce positive top-line results from the INTEIN VANTAIN trial, evaluating orforglipron for weight maintenance. This unique phase three trial was designed to answer a common question from doctors and patients: Can people successfully maintain weight loss achieved on the maximum tolerated dose of injectable incretins by switching to an oral GLP-1 therapy? Participants in ATTAINMANTAIN previously on injectable semaglutide or tirzepatide then switched to orforglipron or placebo. As shown on slide 16, orforglipron helped people maintain weight loss that they had achieved on injectable therapies, and the study met all primary and secondary endpoints. People who switched from semaglutide to orforglipron maintained their previously achieved weight loss, with an average difference of just 0.9 kilograms. This suggests that as an oral GLP-1 therapy, orforglipron may provide similar weight loss maintenance as the maximum tolerated dose of injectable GLP-1 therapy semaglutide. As expected, those who switched from maximum tolerated doses of the dual GIP GLP-1 agonist tirzepatide to oral GLP-1 inhibitor maintained much of their weight, although with a higher average difference of five kilograms. We expect to share detailed results later this year. Other orforglipron updates since our last call include submission of orforglipron to the FDA for treatment of obesity, with approval expected in Q2 of this year, submission of orforglipron for obesity and for type two diabetes in a number of other countries around the world, initiation of orforglipron phase three cardiovascular outcomes trials, and initiation of orforglipron phase three for treatment of peripheral artery disease. We look forward to completing the US regulatory submission of orforglipron for type two diabetes later this year after the Achieve IV trial is complete. We also announced new data for our GIP GLP-1 glucagon triple agonist, retreutide. In the first phase three trial to complete, TRIUMPH-4, we evaluated retreutide in adults with obesity and knee osteoarthritis. Participants taking retreutide 12 milligrams lost an average of 29% of their body weight at 68 weeks. Many people will not need this level of weight loss, but we see an important potential role for molecules such as retreutide in helping people with higher baseline BMIs or with more severe obesity-related comorbidities. Accordingly, we were pleased to see that retreutide reduced WOMAC pain scores by an average of 4.5 points, representing a 76% reduction in pain, and this was accompanied by a significant improvement in physical function. Impressively, more than one in eight retreutide-treated patients were completely free from knee pain at the end of this trial. The safety profile was generally consistent with other incretins, with gastrointestinal events being most common. We observed higher discontinuation rates due to adverse events in people with lower baseline BMI, including participants who discontinued for perceived excessive weight loss. As shown on slide 17, patients with a baseline BMI of 35 or higher, which represented 84% of the trial population, had discontinuation rates due to adverse events consistent with those observed in clinical trials of other injectable incretins. We expect to read out six additional phase three trials for retreutide in 2026, including the remainder of the core registration package for both the TRIUMPH obesity program and the Transcend type two diabetes program. Also in Q4, we started a phase three trial in high-risk metabolic dysfunction-associated steatotic liver disease, MACELD, studying retreutide as well as tirzepatide for treatment of this disease. We're planning to submit the results of the Core TRIUMPH program in 2026 to support applications for overweight and obesity, obstructive sleep apnea, and osteoarthritis of the knee for retreutide. Based on the data we've seen so far, depending on these upcoming data readouts, we believe retreutide may have the potential to become a new treatment option for patients with significant weight loss with certain complications. Moving to tirzepatide, we're pleased that Zepbound was recently approved in the US in a multi-use QuickPen device. This presentation of tirzepatide is already available in many countries around the world, a convenient offering that includes four doses in a single pen. We look forward to launching this new Zepbound offering in the US within the next few weeks. Slide 18 shows pipeline movement since our last earnings call. Slide 19 shows the full list of key events achieved in 2025. Notably, we achieved positive outcomes for nearly all R&D key events in 2025, a rare set of results in this industry. Slide 20 shows key events expected in 2026, with potential for data readouts and regulatory actions across our therapeutic areas. In addition to the substantial progress we're making in immunology, neuroscience, and oncology, I want to take a moment to reflect on our growth in the incretin and amylin portfolio. Of course, there's been a lot of focus on tirzepatide and orforglipron, which I think is well warranted. Now, excitement is growing for retreutide as well. I see each of these as an example of a leading molecule within its own class. Behind these three incretin innovations, we have a robust pipeline of further inventions with potential to address patient needs, including our selective amylin agonist, oloralintide, which is currently in phase three, as well as our next-generation GLP-1 dual agonist, brinepatide, which is also now in phase three trials. Behind these, we have a number of earlier-stage molecules that could similarly lead within new mechanisms and new classes of therapeutics for the treatment of obesity. We've built a substantial scientific lead in this field, and we aim to widen the distance through our R&D. This past year was busy and productive, and we expect more of the same in 2026 as we continue to create meaningful medicines on behalf of the patients that need us. I'll now turn the call back to David for closing remarks. David Ricks: Thanks, Daniel. We're pleased with all the progress in Q4 and throughout 2025. It was a year of strong execution for Lilly. We delivered exceptional business results, invested in our future, and helped millions of people around the world improve their health. Now I'll turn the call over to Mike to moderate the Q&A session. Mike Czapar: Thanks, David. We'd like to take questions from as many callers as possible. So consistent with prior quarters, we will respond to one question per caller and end the call promptly at eleven. If you have more than one question, you can reenter the queue, and we will get to your question if time allows. Paul, please provide the instructions for the Q&A session, and then we are ready for the first caller. Operator: Thank you. At this time, we'll be conducting a question and answer session. If you have any questions, please press 1 on your phone at this time. We ask that participants limit themselves to one question on today's call. If you do have a follow-up question, please rejoin the queue by pressing 1 at any time. We also ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. Operator: And the first question today is coming from Evan Seigerman from BMO Capital Markets. Evan Seigerman: Hi, guys. Thank you so much for taking my question. Congratulations. A year from now on this call, I'd love for you to characterize what you would ask for a good product launch. Specifically, what are some of the metrics that you're looking to meet? I know you're not gonna give guidance, but some qualitative kind of commentary would be most helpful. Thank you. Mike Czapar: Great. Thanks for the question, Evan. It cut out a little bit, but I think you were just asking about a year from now, what are some things we'll be tracking on for orforglipron? So I think for that question, maybe we'll go to Kenneth to maybe talk about some things that we'll be looking at. Kenneth Custer: Sure. Thanks for the question about orforglipron. We're really excited to have this medicine submitted not just in the US but now 40 countries and looking forward to launches beginning this year. You know, as I think about success factors for us going forward maybe towards the end of the year, looking at a few things. First of which is just market expansion. We're very encouraged by what we're seeing with oral Wegovy as it validates our belief that there's a substantial number of people with overweight and obesity who have been sitting on the sidelines waiting for an oral option. It looks like these are mostly new starts. That means it's expanding the market, and that's good news for Lilly. We feel really good about the competitiveness of the profile. We've talked about that a lot on previous calls. I think we're at the point now where we're gonna pivot to how do the real-world results play out. We think this is going to be about patient satisfaction, and our profile, which is simple with no restrictions on food and water intake, could make a big difference in the real world. So we're excited to get off to the races here, see this market expand, and really look at overall patient satisfaction scores and real-world efficacy with these agents. Thanks. Mike Czapar: Great. Thank you, Kenneth. Paul, ready for the next question. Operator: The next question will be from Courtney Breen from Bernstein. Courtney, your line is live. Courtney Breen: Hi, everyone. Thanks so much for taking the question today. Just building on the question around orforglipron, you mentioned that you have submitted in 40 countries. Traditionally, you tend to think about kind of a full-year cycle for most approvals in many countries around the world. Can you just help us understand if you're anticipating any kind of accelerated pathways that you might be able to access in these ex-US countries that would enable launch in 2026 for orforglipron products similar to some of the pathways that are available in the US, and you've been able to gather one of them? Thank you so much. Mike Czapar: Great. Thanks, Courtney. And so for the question about how we're thinking about OUS regulatory approval timelines, we'll go to Patrik. Patrik Jonsson: Thank you very much, Courtney. As I think we shared in the prepared remarks, outside the US, it's mainly going to be a matter of launching in 2027, with a few exceptions. There will be a few markets late in 2026, for countries like, for example, the UAE, that might reference an FDA-approved orforglipron. So mainly a play for late 2026, 2027 for international markets. Mike Czapar: Thank you, Patrik. Next caller, please. Operator: The next question will be from Christopher Schott from JPMorgan. Christopher, your line is live. Christopher Schott: Great. Thanks so much for the question and congrats on all the progress here. Can I just ask about international Mounjaro? This seemed like this was a very significant upside driver, at least relative to Street numbers in 2025. Just interested in your thoughts on the ramp from here as we think about the $3.3 billion 4Q result you just reported. I know last year was about a lot of new market launches. Now that you're in those markets, how do we think about sequential growth from these levels? Thank you. Mike Czapar: Great. Thank you, Christopher. The question on OUS Mounjaro performance and the ramp from here, we'll go back to Patrik. Patrik Jonsson: Thank you very much, Christopher. Well, you are right. Q4 was a very strong quarter for Mounjaro outside the US, and as Lucas referred to, we became the share of market leader for total incretins also internationally. When you look at 2026, I would just reflect back on 2025. We had major launches more or less in every quarter with the exception of Q4. So I would actually look for Q4 as a base for 2026 growth. Also consider that there was a slight impact in Q4 driven by the NRDL listing in China effective January 1, 2026, which slightly impacts the purchasing pattern in China in December. So see Q4 as a base for 2025 and 2026. Moving forward, our business now OUS is 75% chronic weight, and that's pretty much out of pocket. 25% is reimbursed for type two diabetes. So the priorities for 2026 will pretty much be market expansion, driving more penetration through patient activation when it comes to chronic weight management. And for type two, we are leaning in to gain reimbursement in more countries. We're currently reimbursed in nine, with the last one being China with the NRDL. And we will do that with a maintained discipline in terms of pricing. So I think overall, we are well positioned for continued growth for Mounjaro outside the US in 2026. Mike Czapar: Thanks, Patrik. Next question, please, Paul. Operator: The next question will be from Seamus Fernandez from Guggenheim. Seamus, your line is live. Seamus Fernandez: Great. Thanks so much for the question. So I'm actually gonna ask a non-obesity question. So while you can't take your eye off the ball on obesity, just wondering why you couldn't attack immunology broadly in the same way as you have obesity, investing earlier, faster, and more aggressively given the substantial generation that we're starting to see from the overall portfolio. What are the issues that would prevent you from doing something like this, whether it be by your internal efforts or perhaps a more aggressive business development approach, just because it seems like this is a cash-driven opportunity where there's a lot of spend, but a huge amount of upside opportunity with a $170 billion total market out there to access. Mike Czapar: Great. Thanks, Seamus, and extra credit for the non-obesity question. We'll go to Daniel to talk about our approaches on attacking immunology early. Daniel Skovronsky: Yeah, no, thanks, Seamus. It's a great question. And actually, I'll come to immunology in a second, but let me just first point out that across our non-obesity work, which is of course, oncology, neuroscience, and immunology, we have our thumb on the scale for investment decisions. We see lots of good opportunities in those areas, and we're reinvesting some of the proceeds from the obesity opportunity to make sure we can further accelerate growth in those promising areas. So today you heard me talk a lot about the oncology portfolio, which I think is really blossoming right now. I have high hopes for immunology behind it. I think there's really promising breaking science, including treating immunologic diseases earlier. And our research labs are doing everything in our power to harness that science. I talked a little bit about some trials that are ongoing for incretins in immunology, which I think is promising. As are a number of other combination therapies that we now have in our late clinical trials. So I'm excited both early and late. Won't give you a Great. Thank you, Daniel. Next caller, Paul. Operator: The next question will be from Terence Flynn from Morgan Stanley. Terence, your line is live. Terence Flynn: Great. Congrats on the quarter. Had a question on the guidance high level, Lucas. Just wondering if you can talk about what's embedded for Medicare volume ramp in the back half of the year and how that might drive the range we're seeing on the revenue side. And then if that's had any impact on employer opt-ins on the commercial side, I know you guys previously talked about how that might have some impact to get some of the other employers over the hurdle on coverage. So just wondering if you're starting to see that yet. Mike Czapar: Great. Thanks, Terence, for the question on guidance and kind of Medicare ramp in the back half of the year as well as if there's any commercial opt-in. We'll go to Lucas. Lucas Montarce: Yeah. Terence, thank you for the question. Maybe starting with Medicare. As highlighted in the call text, basically, we are expecting that access to be granted no later than July 1. And as I mentioned all along, this will take time to build over time. But we feel very, very positive about the opportunity to bring anti-obesity medications to patients in Medicare. As I mentioned, again, the co-pay of $50 for the patients would be a compelling value proposition. There is a bolus of patients that we have nowadays in the Lilly Direct business that we believe are also Medicare patients. So expect that bolus, I think, is between 10-20% will actually move into the Medicare space. I think that will happen relatively fast, and we will continue to build on top of that. So that's kind of the drivers to start to think about, again, the penetration, but we'll build over time. Think about, again, more about the size of the opportunity in Medicare, thinking about 2027 as well. The second part of your question was about the employer opt-in. Ilya is right next to me here as well to talk about it. But as I mentioned, of course, again, the practice on physicians prescribing this medicine will become more natural, more broader in the anti-obesity medications. And physicians will be, again, more broadly basically also thinking about prescribing this in commercial. How that will then impact the employer side, I think the message is clear. Right? Again, there is a clear recognition of the class as a chronic disease, and basically that will, in my eyes, propel also employers also to think about, again, this class and also employees to look for these class of medicines as well to be covered as well. But I don't know if there's anything else that you would like to add, Ilya. Ilya Yuffa: Yeah. Maybe just some additional context, Terence, on commercial opt-in. Obviously, we start the year roughly on balance, stable. There are some employers adding coverage, some removing some coverage. But putting additional focus in the employer space. We've stood up a team and also working with a number of third parties to actually provide alternative access channels to have some flexibility in design and transparency in the pricing. And the initial conversations and feedback have been positive. Of course, a lot of those decisions are for the following year. We anticipate having some of those decisions and increased coverage over time in the employer space as we head into the back end of this year and mostly into 2027. Mike Czapar: Great. Thanks, Lucas and Ilya. Next question, please, Paul. Operator: The next question will be from Geoffrey Meacham from Citi. Geoffrey, your line is live. Geoffrey Meacham: Great. Good morning, everyone. Thanks for the question. Congrats on the quarter. Daniel, I had one for you. The Together results are really super interesting. You're thinking about the potential for combo therapies with Zepbound and either I&I or oncology or neuro? I wasn't sure what drives the investment priorities, whether it's the drug or the indication, and if there's a clear path to labeling claim. Thank you. Daniel Skovronsky: Yeah. Thanks, Geoffrey. Again, another non-obesity question. Lots of extra credit on this call. We'll go to Anne to talk about some of the combination therapy approaches and some of the strategy there. Anne White: Sure. We see this as a significant opportunity. More than a billion people worldwide have immune diseases like atopic dermatitis, psoriasis, IBD, and asthma. Patients who have both immune diseases and obesity tend to have a higher disease burden. So we're really excited about the opportunity to find new ways to combat the underlying inflammation of these diseases and potentially unlock better, longer results for these patients. So we have broad efforts underway to look at additional combinations. We have the Together PSO trial evaluating the use of Taltz and Zepbound for adults with moderate to severe plaque psoriasis and obesity or overweight. Expect those top-line results in 2026. We're also looking at the Together Amplified PSA and Together Amplified PSO studies assessing the effectiveness of adding Zepbound after starting Taltz for adults with PSA and moderate to severe plaque psoriasis. We also have the Phase IIIb commit studies in both ulcerative colitis as well as Crohn's disease, where we're looking at the concomitant use of Omvo and Zepbound and addressing outcomes for those patients. And then the phase two study of brenepatide for people living with uncontrolled asthma. So we're excited to continue to pursue the applications of incretins and unlocking better outcomes for people with immune diseases. Mike Czapar: Great. Thanks, Anne. Thanks for the question. Next caller, Paul? Operator: The next question will be from Asad Haider from Goldman Sachs. Asad, your line is live. Asad Haider: Great. Thanks for taking the question and congrats on all the progress. Back to obesity with apologies, Mike. Maybe just given the focus on pricing dynamics, can you just talk about what you're seeing in the contracting environment broadly speaking across the incretin portfolio? And also, what's your view on pricing elasticity in the cash channel as the year progresses? Thank you. Mike Czapar: Yep. Asad, thanks for the question. To go through kind of pricing in the US and price elasticity, we'll go to Ilya. Ilya Yuffa: Yeah, sure. Thanks for the question. Maybe just for the first part in terms of the commercial access and contracting. Obviously, we start the year with similar coverages as we ended 2025. We continue to have coverage for Zepbound in two of the three large PBMs. We continue the conversations around expanding access in those PBMs for obviously the introduction of orforglipron in Q2. So we're in the discussions there. From a pricing standpoint, we've been pretty transparent on pricing for 2026 as it relates to Part D, as well as our direct-to-patient pricing, which we implemented in December. And then we have ongoing conversations with improving and continuing access in the commercial segment. In terms of price elasticity, we've seen over time, both in the US and outside the US, that affordability and opportunity on the entry as well as predictability of cost for patients matter. That's why the out-of-pocket in Part D of $50 is an affordable option, as well as we've seen an increase in utilization of even Zepbound vial at the end of the year when we implemented improved entry price of $2.99 for Zepbound. So we continue to see that, and obviously, we're seeing significant and encouraging uptake in the oral market, which is expansive and bringing new patients to obesity treatment, and we're excited to launch orforglipron soon with the entry price being similar to oral semaglutide. Mike Czapar: Great. Thank you, Ilya. Ready for the next question, please, Paul. Operator: The next question will be from Mohit Bansal from Wells Fargo. Mohit, your line is live. Mohit Bansal: Good. Thank you very much for taking my question. So a strategic one. So I would love to understand what is your latest thinking on the importance of getting obesity-related indications on the label because we kind of get a little bit of mixed messages when we talk to payers because they kind of think that these drugs are just for obesity for now. With NASH, there's coming for obesity. You know, with NASH, but do you think this could be an over time long-term differentiator here? Now that you are going into indications like I&I as well at this point? Thank you. Mike Czapar: Thanks for the question, Mohit. So to kind of think about and address our strategy on obesity and expansion of indications more broadly, we'll go to Ilya to go, and then Kenneth, you can add if you have any other development thoughts. Ilya Yuffa: Sure. Thanks, Mohit, for the question. You know, what we've seen thus far, even with Zepbound and looking at the Medicare population around sleep apnea, we're seeing an increase in utilization and thinking about obesity beyond weight and looking at outcomes related to obesity. And there's a lot of comorbidities, as Daniel had mentioned, even in our psoriatic arthritis trial with Taltz. When we talk to employers as well as payers, they think about the multiple aspects of obesity and what that means for coverage and cost long-term. So we do see a growing body of evidence to support covering obesity medications for the population and having a positive impact on public health beyond just weight. Kenneth Custer: And so thanks for the question on other potential avenues of exploration as it relates to complications and comorbidities. As our incretin portfolio and amylin portfolio expands, we're always facing the question of do we spend our resources replicating findings from previous incretins on comorbidities and complications where we know these drugs are efficacious, or do we push into new areas and generate new evidence? You've probably seen with orforglipron, we're actually starting to explore new ideas like stress urinary incontinence, peripheral artery disease, and hypertension. We'll continue to look for new opportunities in incretins in addition to what we've talked about in the I&I space. But we do also understand that with new molecules and new mechanisms, it's important to generate some data to continue to give prescribers and patients confidence that these medicines preserve the benefits of the previous class of medicine. So we continue to do that too, but very pleased, I think, with our overall balance of investment across the portfolio in both sort of established and emerging mechanisms of diseases of interest. Mike Czapar: Right. Thank you both. Ready for the next question, please, Paul. Operator: The next question will be from Umer Raffat from Evercore. Umer, your line is live. Umer Raffat: Thank you, guys. Pay, I feel like, has been a very important driver of growth among other drivers. And I'm just trying to think out loud what the long-term implications of that could look like, especially with all the competition coming. On the one side, obviously, there's gonna be tremendous brand loyalty, which is very important in cash pay. But on the other side, traditional PBM contracts and rebate walls may not apply. I'm just trying to think out loud how you're thinking about share retention and cash pay in the long run. Thank you. Mike Czapar: K. For the question, Umer. To discuss a bit about sort of the cash pay dynamics, I'll ask actually, Ilya and Patrik to discuss how it plays out internationally and what is going on in the US. So Patrik, you wanna start first? Patrik Jonsson: You know what? I think what we have been building the last couple of years, learning a lot from the US, has really been the consumer centricity. And I think some of our building platforms are on the lines as we've done in the US with Lilly Direct, where we are providing opportunity for patients both to seek start and to stay. I think that's a must that we need to continue to develop. Ilya Yuffa: Yeah. Just to add on, I think we've learned quite a bit. There are frictions in the system for a number of diseases in the US and globally. Obviously, we've seen that happen in obesity. What we've built within Lilly Direct has a pretty significant scaled direct-to-consumer platform that helps address some of the frictions. Of course, we can continue to think about how we evolve that consumer experience and make this more seamless, at the same time growing access across the different segments. And so both will play an important role, and we continue to look for ways for us to scale as well as improve on the experience over time. Mike Czapar: Great. Thanks both for the comments. Let's go to the next question, please, Paul. Operator: The next question will be from Alexandria Hammond from Wolfe Research. Alexandria, your line is live. Alexandria Hammond: Hey, guys. Thanks for taking the question. One on oloralintide. So the weight loss results you guys presented last year look really strong. But given prescribers and patients seem more interested in more favorable tolerability, how should we think about the potential for lower doses of oloralintide and lower dose combos of tirzepatide to potentially achieve a titration-free placebo-like with weight loss, let's say, comparable to monotherapy GLP-1? Thank you. Mike Czapar: Thanks, Alexandria. We'll go to Kenneth to talk about the oloralintide development strategies and different ideas we're assessing. Kenneth Custer: Yeah. Thanks for the question, Alexandria, on oloralintide and future avenues. We were really excited about the data we shared at Obesity Week where patients achieved up to 20.1% weight loss for oloralintide with excellent tolerability that was improved with titration. In fact, in the 3.9 milligram titration group, I think we only had one incidence of vomiting out of more than 50 patients. So that comparison we think is really favorable versus the existing incretin class. So we see a big opportunity for oloralintide in patients who maybe just can't tolerate incretin. We know that 5 to 10% of patients in our trials tend to discontinue on the incretin class, suggesting a pretty big opening given the size of the obesity market. Of course, we're also interested in thinking about oloralintide in combination with other mechanisms of action, and what you alluded to with GIP plus GLP-1 plus amylin as a very sort of physiological construct. Three nutrient-stimulated hormones, and we've shared that we are exploring that idea in the clinic. Nothing to share yet, but stay tuned maybe towards the end of this year. We're testing other possible combinations, including a GIP agonist mecupatide with oloralintide as well, and so really just trying to understand the range of options, and like you said, is there really an optimal very simple permutation of mechanisms that could allow minimal or no titration with competitive efficacy. Mike Czapar: Thank you, Kenneth. Paul, ready for the next question, please. Operator: The next question will be from James Shin from Deutsche Bank. James, your line is live. James Shin: Thanks, guys. Hey, good morning. One for David. For CMS' upcoming obesity demonstration, David, can you share any similarities or differences you foresee with what you went through previously during the Part D senior savings model for insulins $35 co-pay rollout? Thank you. Mike Czapar: Great. Thanks, James. And I will welcome David to get in the box score for the Q&A. Hey. Did share any similarities on the CMS obesity pilot versus the Part D senior savings? David Ricks: Yeah. I mean, I think there are quite a number of analogies to draw. I mean, first, arriving at what would be perceived as a relatively low out-of-pocket is an important fact by itself. And while we know in this case, we're not moving from high out-of-pocket to low only, moving from covered, plus low out-of-pocket. And I think patients who may be using GLP-1 and the data we have is that seniors are using these drugs at a lower rate than the general population, maybe because of income in particular, will benefit from that lower cost every month of $50. I think that's very expansionary to the class. And we'll draw a lot of interest from primary care prescribers who are concerned about the comorbidities of kind of lifetime overweight and obesity, which tend to manifest after 65 at a much higher rate. The second thing is the consistent variance. And I think when we negotiated this with the government, we wanted to make sure that we weren't just building a program that went into the normal Part D math in terms of out-of-pocket cost, but had a kind of that consistency. Independent of the absolute amount people pay, they get very frustrated with different amounts month to month. So I think that's another important feature. Thirdly, like the insulin deal, it's open to all innovators. And I think that's an important concept that the doctor and the patient choose the best therapy. Which could be one from us, one from our competitor. It could be oral. It could be injectable. It could include future therapies from Lilly or others. Like retreutide or oloralintide when they're approved. So I think that also has a parallel to what we do with insulin. If you look back at that insulin pilot, utilization rates increased pretty dramatically in Part D and frustration levels with that issue basically disappeared. I think this program has similar promise to be both enormously popular and drive a lot of new uptake. As I said, it's suppressed in the senior population. Probably benefit most, at least in the short term, from GLP-1 therapy. And I believe, and I know that CMS does as well, that within a few years, we'll demonstrate significant cost savings to the Medicare program. So that is different than the insulin part. But that's associated with, you know, new products being added. So we're excited to get going. We expect this to be effective by July 1, working through the details with the administration now, and you'll hear more maybe on our Q1 call. Mike Czapar: Thank you, David. Ready for the next question, please, Paul. Operator: The next question will be from Steve Scala from TD Cowen. Steve, your line is live. Steve Scala: Thank you so much. 2026 revenue guidance is $15 to $20 billion higher than that delivered in 2025. Mounjaro and Zepbound are doing great. But we can kind of see their trajectory. Are there scenarios where these incremental sales can be delivered without orforglipron being a $5 billion product in 2026? And does the guidance tell us that Lilly believes orals will grow the market and not cannibalize? Thank you. Mike Czapar: Great. Thanks, Steve, for the great questions as always. We'll go to Lucas to talk a bit about the revenue guide and some of the moving parts that are contained within that. Lucas Montarce: Yeah. Thank you for the question, Steve. Thinking about the guide, again, you can do the math on that perspective. But when we think about the process, maybe start from there. As always, we do a bottom-up approach on what we see in the marketplace and then across all the therapeutic areas and geographies as well. And we have, again, pointed our guidance as kind of what is our goal for the year to start with. There are many multiple pushes and pulls, and I described that during the call text as well. Talking about, again, the expansion in Medicare that David just covered. Talking about the launch of orforglipron as well, and a continuation of growth that we expect to see both in the US and our US market. I think it's fair to go back as well about the basically, the price component as well that is embedded into the guide as well. That's another component that is gonna be actually accelerated in 2026, that erosion versus 2025. And I call out basically low to mid-teens. That's a new component to basically some of the math that you were thinking about 2025. That you need to factor as when you're doing those forecasting and models that you described. In terms of your orforglipron question, I think it's important to highlight looking at even just the last four weeks of the data of the competitor launch, is mainly expansion of the market. So we are very, very encouraged from, again, the first month of seeing that data and it's very much consistent with our expectations and our guide. We will see how much, again, that class will continue to grow over the years, and we will update our guide throughout the year depending on that. Mike Czapar: Great. Thanks, Lucas. Time for a couple quick ones. So if we could do the next question, please, Paul. Operator: The next question will be from Akash Tewari from Jefferies. Akash, your line is live. Akash Tewari: So David, you mentioned that investors really understand Lilly recognize it's a consumer stock. Can you talk about some consumer analog you'd point investors towards when you're thinking about long-term penetration for both the US and OUS for your weight loss product? And then maybe just on the cannibalization point, is it fair to say your guide isn't expecting meaningful cannibalization of the oral and obesity products versus what we've seen with Novo? Thank you. Mike Czapar: Definitely a two-parter there, Akash. So we'll give David to talk about the more analogs. David Ricks: Well, I think Lucas covered the cannibalization, but it's not what we're seeing right now nor is it what we really expect. In a way, though, just strategically, it doesn't really matter to us. I think we're interested in having people on the medicine that they think and their doctor think is best for them. If it comes from Lilly, that's our goal. So not too concerned about that. I don't actually expect a ton of cannibalization, to be honest. In terms of consumer analogs, it's a difficult question. I'd be open to your feedback on this. We spent a lot of time modeling out the trajectory of the out-of-pocket business. Patrik and Ilya commented on that. I think at the JPMorgan conference, I spoke about this. I think it is a bit of a wildcard in our short and midterm outlook. Because I am hard-pressed to think of an analog where you have this many people paying out of pocket for prescription medication. People could look back at the PDE wars and the ED drugs. We were part of that. We've learned some things from that, but it's not the same as this. You can look at cosmetics and aesthetics where it's quite common, but that also has some overlap but not complete because here you have really profound health benefits. And noticeable results that really drives a success cycle for people in their lives. It's kind of different. So I think it's hard for us to think about that. What we can do is take learnings from other industries that were able to reduce consumer friction, unlock the power of first-party data in marketing, consider, you know, a platform and an interface with consumers that allows us to bring our really robust and deep pipeline that Kenneth's been talking about to market in a way that might be quite differentiated over time. Play with pricing opportunities, subscription models, these kinds of things. All that is in our future, and I think Lilly Direct, direct discussion, out-of-pocket business, all enables those things. It's pretty interesting strategically because I don't think there's a good analog in our industry. And we're working through that and excited by the potential. As you know, we already see, you know, a million people in the US, hundreds of thousands more outside the US choosing this way to buy a medicine like Zepbound and Mounjaro. Mike Czapar: Great. Thanks, David. I will do one last question, then we'll have to close the call. Operator: Okay. Final question today is coming from Michael Yee from UBS. Michael, your line is live. Michael Yee: Just wanted to ask your expectation on the orforglipron launch general view of unit volume scripts vis-a-vis the tirzepatide launch, how you think either access or other channels are different here versus tirzepatide, and how you think about the launch here versus tirzepatide for orforglipron. Thank you. Mike Czapar: Yep. Thanks, Michael. We'll go to Ilya to talk a bit about the orforglipron launch. Ilya Yuffa: Yeah. Thanks for the question. Obviously, we're excited about launching orforglipron assuming in Q2. As we think about the overall market and every launch in this space, you're launching in a larger market and more greater consumer and provider awareness. We recognize that and we look for learning from how we've launched previously. I think what's different here and people on the call have discussed this, is that there is a typically in the cycle of launches, you start with access, build access over time, and you see gradual uptake. What we've seen in this space in particular, and we have a scale direct-to-consumer platform as part of that. You also have a significant self-pay and consumer awareness in this category. And so our expectations are high in terms of what we expect for orforglipron in our launch. And we again, we expect this to be market expansive and bring new people to therapy for obesity. That's our expectation for orforglipron over time. Mike Czapar: Thanks, Ilya. David, over to you for the close. David Ricks: Great. Well, as always, we appreciate your participation in today's earnings call and, of course, your interest in Eli Lilly and Company. Please follow up with the IR team if you have any questions that we did not address today and otherwise, have a great rest of your day. Take care. Operator: Thank you. And ladies and gentlemen, this does conclude our conference for today. This conference will be made available for replay beginning at 1 p.m. today running through March 10 at midnight. You may access the replay system at any time by dialing 803-326-854 and entering the access code 331160. International dialers can call (973) 528-0005. Again, those numbers are 803-326-854, (973) 528-0005 with the access code 331160. Thank you for your participation. You may now disconnect your lines.
Goh Lilian: Good morning, everyone. Thank you for joining us today for Keppel REIT's Full Year 2025 Results Analyst Briefing. I'm Lilian from the Investor Relations team. Before we begin, let me introduce the management team on this session. We have Mr. Chua Hsien Yang, Chief Executive Officer; Mr. Sebastian Song, Chief Financial Officer; Ms. Teo Xuan Lin, Head of Investment; and Mr. Jason Chua, Director of Asset Management. We will start with the briefing with a presentation by the management team, followed by a question-and-answer session. I will now hand over the time to the CEO, Hsien Yang. Hsien Yang Chua: Thank you, Lilian. Good morning, everyone. Thank you so much for joining us today. We'll begin with an overall overview of 2025 and also our focus for 2026. In the fourth quarter of 2025, we completed 2 strategic acquisitions in December last year, namely a 75% interest in Top Ryde City, which is a regional mall in Sydney and an additional 1/3 interest in MBFC Tower 3 in Singapore. Top Ryde City is our first pure-play retail asset and diversification into retail, enhancing our income resilience, allowing us to benefit from the resilient suburban retail segment, which has strong growth potential supported by long-term consumption growth and population increase. MBFC Tower 3 was a right opportunity that allowed us to deepen our ownership in Singapore's core CBD. It is the best asset in the best location and is a property that we know well. Backed by the strong office market fundamentals in Singapore, we believe that it was the right move to increase our stake in MBFC Tower 3. As the acquisitions were completed late last year on 19th and 31st of December, we will see the full contribution from these properties starting from 2026. Operationally, we ended 2025 with a strong set of results, recording year-on-year increases in NPI and portfolio occupancy. I will elaborate further on the 2025 performance in the next few slides. For 2026, we will continue driving organic growth within the enlarged portfolio through both rental growth and proactive cost management. We've already begun to see the impact of lower interest rates on our borrowing costs in the second half of 2025. In 2026, we will continue to monitor the interest rate environment closely and to the extent possible, continue to bring down our borrowing costs. Here are some of our focus areas for the year ahead. Moving on to our full year 2025 key highlights on Slide 4. NPI rose 6.9% year-on-year, driven mainly by contributions from 255 George Street asset, which we acquired in 2024 and higher occupancy at 2 Blue Street. Share of results of associates and joint ventures increased 13.3% year-on-year, supported by the continued demand for Singapore prime office space and lower borrowing costs. DI from operations, assuming management fees were paid entirely in units would have increased 6.3% year-on-year. As at 31st of December last year, our leverage stood at 47.9% due to the transitory impact of the equity bridge loans or the EBR obtained to fund the MBFC Tower 3 acquisition. Had the proceeds from the pref offering been received on 31st of December and were used to fund the acquisition, our leverage would have been 40.4%. We have since completed the pref offering and the equity bridge loans were paid full -- are repaid in full on the 20th of January 2026. The weighted average cost of debt was 3.41% per annum. Total borrowings on fixed rate is 53% and excluding the impact of the equity bridge loan, it would be 62%. Our Singapore portfolio continues to be a key contributor to our overall performance, supported by positive rental reversions and lower interest rates. As at 31st of December, on a portfolio basis, our committed occupancy improved to 96.7%, and we achieved a robust rental reversion of 11.5% for the full year with the Singapore portfolio recording 10.7%. The portfolio's weighted average lease expiry remained long at 4.4 years, while the WALE of our top 10 tenants was 8.1 years, reinforcing our income visibility. Through proactive leasing efforts, we had over 1.7 million square feet of leases committed in 2025. I will let Sebastian take you through the key financial highlights. Sebastian Song: Thank you, Hsien Yang. For the second half of 2025, we see continued strong performance. Property income, NPI as well as share of results of associates and joint ventures have all increased due mainly to higher occupancy at 2 Blue Street and higher contributions from our Singapore assets. Also contributing to the strong performance was lower borrowing costs, largely due to tapering interest rates. Looking at our full year performance. Property income and NPI increased 4.9% and 6.9% year-on-year, respectively, mainly due to contributions from 255 George Street and higher occupancy at 2 Blue Street. Share of results of associates and joint ventures increased 13.3% year-on-year on the back of better performance from our Singapore assets and lower borrowing costs. Borrowing costs increased 2% year-on-year due mainly to higher loan principal in 2025 as compared to 2024. DI from operations decreased 1.1% year-on-year to $192.4 million, mainly due to the payment of 25% of management fees in cash. Assuming management fees were paid entirely in units, DI from operations would have increased 6.3% year-on-year. Moving to Slide 9. DPU for the full year 2025 is $0.0523. DPU for the first half of 2025 was $0.0272 and was paid on the 15th of September. An advanced distribution of $0.0163 was announced for the period 1st July to 16th of October, pursuant to the private placement launched in October. This was paid on the 25th of November. For the remainder of the second half of 2025, being the period from 17th October to 31 December 2025, a DPU of $0.0088 will be paid on the 25th of March 2026. DUI for the distribution period of 17 October to 31st December is attributable to both the units issued at 31 December 2025 as well as the new units issued on 19th January 2026 pursuant to the preferential offering launched in December 2025. The enlarged unit base attributable to both the private placement and preferential offering exercises. Coupled with the absence of contributions from these 2 acquisitions, which were completed in the later half of December, led to a lower DPU for the short-term distribution period of 17 October to 31st December. Full contributions from these acquisitions will be recorded from 2026. On Slide 10, the increase in deposited property, total assets, borrowings and total liabilities is due mainly to the acquisition of 75% interest in Top Ryde City Shopping Centre and the additional 1/3 interest in MBFC Tower 3. Adjusted net asset value per unit as at 31st December 2025 is $1.27. Slide 11 outlines our key capital management metrics. Weighted average cost of debt for the full year of 2025 was 3.41% per annum. Interest rates, particularly the SORA had eased substantially in 2025 from the peak in 2023 and 2024. In 2025, we had also achieved favorable savings on low margins during the cost of refinancing. Riding on this momentum, we will continue to seek optimal outcomes for our refinancing activities in 2026 and achieved cost of debt for 2026 to be between low 3% and 3.3%. Aggregate leverage was 47.9%. If proceeds from the preferential offering were received on the 31st of December and used to repay the equity bridge loans, aggregate leverage would have been 40.4%. Fixed rate borrowings and sustainability-focused funding account for 53% and 67% of our total debt portfolio, respectively. The proceeds from the preferential offering were used to repay the equity bridge loans on 31st December. Fixed rate borrowings would have been 62% and sustainability-focused funding would have been 79%, which is above our target of 75%. Interest coverage ratio remained at 2.6x. Moving on to Slide 12. We're in various stages for the refinancing of loans maturing in the first half of 2026, which represent approximately 27% of the total debt due in that year. The equity bridge loans of approximately $890 million were repaid in full with proceeds from the preferential offering on the 20th of January 2026. With that, I will now hand it on to Jason, who will walk you through our portfolio review. Jason Chua: Thank you, Sebastian. Slide 14 shows Keppel REIT's portfolio breakdown as at 31st of December 2025 by geographical locations. Singapore remains Keppel REIT's largest market at 79.8%, while Australia, South Korea and Japan are at 17.2%, 2.3% and 0.7%, respectively. Keppel REIT's portfolio committed occupancy improved to 96.7% quarter-on-quarter, driven primarily by new leases secured for Ocean Financial Centre, Keppel Bay Tower, 255 George Street, Pinnacle Office Park and 8 Exhibition Street. We are pleased to share that in January 2026, Keppel REIT committed a new lease at 8 Exhibition Street with a tenant from the banking, insurance and financial services sector. The new tenant will occupy 5 floors at the Grade A commercial building backfilling space vacated by another tenant. Slide 15 provides a breakdown of our performance by geography. Driven by higher rentals, the attributable NPI of our Singapore portfolio increased by 2.9%. Supported by contribution from 255 George Street and higher occupancy at 2 Blue Street, the attributable NPI for our Australian portfolio increased by 6%, partially offset by a stronger Singapore dollar. Attributable NPI for our North Asia portfolio decreased 3.2%, mainly due to the stronger Singapore dollar. Proceeding to Slide 16. The majority of the leases committed in 2025 were for our Singapore properties. New leasing demand and expansions were primarily driven by tenants from the banking, insurance and financial services and technology, media and telecommunications sectors. We continue to maintain a well-spread lease expiry profile as shown on Slide 17. The weighted average signing rent for our Singapore CBD office leases in 2025 was $12.91 per square foot per month. By comparison, the average rent for the leases expiring in 2026 stands at $12.14, which is below both our signing rent and CBRE's fourth quarter 2025 average core CBD Grade A office rent of $12.30 per square foot. We have commenced discussions with tenants whose leases are due to expire this year and leasing demand continues to be healthy. Slide 18 highlights our well-established and diversified tenant base, comprising reputable blue-chip corporations and government agencies that contribute to the stability of our portfolio. The next 3 slides provides a summary of our portfolio valuations as at 31st of December. On Slide 19, valuation for our Singapore portfolio increased 25.2% as compared to 2024. Excluding the additional 1/3 interest in MBFC Tower 3, our Singapore portfolio valuation would have seen a 5.5% increase. The increase in valuations is mainly due to higher committed end market rents. Slide 20 shows our Australia portfolio Australian dollar valuations, which increased by 19.3%. In Singapore dollar terms, the increase in valuation was slightly lower at 15.2% due to a stronger Singapore dollar. Excluding the acquisition of Top Ryde, the Australia portfolio valuation remains relatively stable. Moving on to Slide 21. In local currency terms, valuation for T Tower in Seoul increased 2.2% and KR Ginza II in Tokyo increased 5.6%. The increases were largely due to the higher committed rents achieved in 2025. Due to the stronger Singapore dollar, our valuations for North Asia decreased by 3.5% in Singapore dollar terms. On an overall portfolio basis, we see a strong increase of 22.3% in our valuations. Excluding both the acquisitions of Top Ryde and the additional interest in MBFC Tower 3, we would have seen a valuation increase of 3.4%. Moving on, we are pleased to share the enhancement works done at 8 Exhibition Street. The end-of-trip facility was upgraded to a larger bespoke facility to meet tenant needs for more premium amenities, was launched in October last year for tenant use. Some ESG activities conducted in the last quarter of 2025 include festive event held at Keppel Bay Tower that supported children from Care Corner Singapore as well as building facade light up at Ocean Financial Centre in support of World Diabetes Day. We are pleased to announce that MBFC Tower 3 achieved the BCA Green Mark Platinum Super Low Energy, or SLE, certification in December last year. This marks a major sustainability milestone for the development, and it is our third Singapore asset to be granted this certification after Keppel Bay Tower and Ocean Financial Centre. Sustainability is integral to how we create and preserve long-term value. We continue to maintain our positions on ESG benchmarks and indices. Furthermore, we are extending our carbon reduction commitment this year from the existing target of a 50% reduction in Scope 1 and 2 emissions by 2030 to a new target of achieving net zero for Scope 1 and 2 emissions by 2050. At the asset level, our portfolio continued to uphold strong green credentials. As mentioned, MBFC Tower 3 achieved the BCA Green Mark Platinum SLE certification. SLE buildings feature the best-in-class energy efficiency, the use of on-site and off-site renewable energy and other intelligent energy management strategies. As at end 2025, all properties were Green certified, except for Top Ryde City, which was acquired on 19th of December. This is consistent with our long-standing commitment to operational excellence and environmental stewardship. I will now hand the time to Xuan Lin, who will go through the market. Xuan Teo: Thank you, Jason. The next few slides highlight key trends across the markets where Keppel REIT operates. This slide shows the average rent for Singapore's core CBD Grade A office increasing by 0.8% quarter-on-quarter to $12.30 per square foot per month in the fourth quarter of 2025, while average occupancy increased to 95.5%. For the full year 2025, prime office rents increased by 2.9%, backed by resilient occupier demand and a tightening supply pipeline. In 2026, only one new office development is projected to be completed. Accordingly, across major property consultancies in Singapore, there is a clear consensus that CBD Grade A office rents will continue to rise, supported by the scarcity of supply, combined with sustained demand for quality office spaces. Latest projections by these consultancies indicate year-on-year CBD Grade A office rent growth of between 4% and 7% in 2026. In Australia, JLL reported that prime grade office occupancies increased for Sydney, Perth and Melbourne CBDs in the fourth quarter and declined marginally in Macquarie Park compared to the previous quarter. In North Sydney, there is a sharper occupancy decrease, primarily due to the recent completion of Victoria Cross Tower. Meanwhile, prime gross effective rent in Sydney CBD continued its upward trajectory, increasing from $1,067 per square meters per year in the third quarter to $1,084 per square meters per year in the fourth quarter, reflecting the resilient demand for quality office space. Looking at the Australia's retail market, we note that household spending, both discretionary and nondiscretionary had seen year-on-year increases from 2022 to 2024. Total household spending remained strong in November 2025, having a 6.3% increase year-on-year, continuing the strong rises in services and goods spending seen in the previous month. Data for December 2025 has not yet been released by the Australian Bureau of Statistics. In Seoul, market occupancy of CBD Grade A office was flat on a quarter-on-quarter basis. Notwithstanding the upward rent trajectory continues. JLL reported that the net effective rent for CBD Grade A office increased by about 1.4% quarter-on-quarter. In the Tokyo office market, JLL reported that Grade A office occupancy increased to 99.3%, while Grade B office occupancy increased to 98.5%. Net effective rents for Grade A offices increased 5.3% quarter-on-quarter and Grade B offices grew 3.7%, reflecting continued strong demand for office space in Tokyo. That concludes our presentation. Thank you. Goh Lilian: Thank you, Xuan Lin. [Operator Instructions] There's the first question from Terence, JPMorgan. M. Khi: Congrats on completing the acquisitions in December. I wanted to ask on what your priorities are for 2026. I understand that Marina One is reportedly in the market. Are you going to be looking at that, too? Hsien Yang Chua: Okay. So I think that the first slide that we presented, we really talked about our focus for 2026. As I also mentioned in the past month, our focus is really to drive the organic growth, especially for 2026, given the very low supply and high demand in the Singapore market. And our Australian assets, we also want to continue to push for the best results that we can actually get. And of course, the other priority that we mentioned in the slides was also to reduce the borrowing cost. I also assured investors that I think that we have already done a fair bit of acquisitions. So we are not rushing to do any equity fundraising anything anytime soon. The first half, we really want to dedicate towards asset management. And of course, if the time is right, if we do find this attractive offers for some of our assets, one or more of our assets, we could look at strategic divestments as and when we see the window open. In terms of Marina One, we understand that is coming to the market. That is coming to the market in maybe the next 1 or 2 months. It is a very large asset. It's expected to cost between $5 billion to $6 billion. And -- I mean, just as a rough gauge, the agent is saying that of course, they will also take our MBFC Tower 3 transaction, taking that into consideration in terms of where the market price would be. So it will be at a market cap rate estimated at plus/minus 3-plus percent. So of course, the rentals in this particular building are lower than MBFC. So the -- obviously, the price per square foot is expected to be a bit lower. It is something that the whole market will look at. So obviously, we will take a look. But if you ask me, is it possible for us to take down this whole asset given that it's around $6 billion, I think it's going to be quite challenging. M. Khi: Okay. That's great. And maybe if I could ask a little bit on the leasing since that's going to be the focus. I understand you said that you leased up 5 floors at 8 Exhibition. Can you share when the current tenant comes off and when does this replacement tenant kick in? And also on ANZ lease, I understand it is in the media that ANZ will be leaving OFC. Have you started to look at that lease? Hsien Yang Chua: Okay. So there is -- okay, I won't be able to name specific tenants in 8 Exhibition. There has been a few you can read out that there's been speculation of who the tenant is. The tenant is -- there's one particular tenant that we have been talking about they'll be exiting the building towards end of this year. So they take up between 8 to 9 floors. And then this lease that we have actually signed is actually for 5 floors. But what I will be able to sort of give a rough guide is that outgoing and incoming rental is actually quite a big difference. The reversion that we're getting from this new tenant is around -- is the rate incoming rate is more than double that of the outgoing. So this new tenant will be coming into the building sometime next year. So there will be a bit of a gap. There will be a bit of a gap close to a year, but the rental is double or more than double actually. M. Khi: Okay. Great. That sounds great. Maybe I'll join back. Hsien Yang Chua: Okay. Hold on. I haven't finished. I haven't finished on 8 Exhibition, and I will talk that you mentioned the other tenant in Singapore, I will address that. So there is -- so we have also signed heads of terms with another tenant which wasn't covered in the slide. There is 3 floors also in the 8 Exhibition Street. Similarly, the rentals that we are targeting for that is also more than double of the exiting tenant. And that one also will be -- but that one is -- the start date for that talent will probably be sometime in 2028, probably in the first half of 2028. Okay? So they're moving to Singapore. So I will not be able to confirm which tenant is leaving, but I think that for Singapore, any tenant that gives us space back in our CBD assets, whether it's OFC, MBFC, ORQ and MBFC, we really don't mind, especially if they are full floor tenants. I think we have shared in the last 2 quarters that we have a lot of demand for full floors, especially in OFC. So if there is a tenant who leaves, there will definitely be a lot more demand for -- to lease the space at much higher rates. I'm not sure whether that specifically addresses but yes... M. Khi: Sorry, just a clarification for the 2 tenants at Exhibition. So I understand you're saying end of '27 and probably first half '28. Is that inclusive of the tenant incentives already in terms of... Hsien Yang Chua: No, that is the start date. The tenant incentives for these 2 tenants is around between 35% to 38%. M. Khi: Okay. And the number that you quoted more than double is on a gross or net basis? Hsien Yang Chua: Gross. Goh Lilian: Thank you, Terence. Next, we have Dale. Dale Lai: Sorry, I think Rachel was first, but I'll just proceed to answer. Okay. Anyway, I just wanted to ask with regards to valuations in Australia in local currency terms. I noticed that the North Sydney asset valuations came off a bit. Are you able to share more on that? Hsien Yang Chua: So I think that our asset is doing well in North Sydney, but there is a general weakness in all the -- basically all the markets, except for the core CBD. So we have shared that the core CBD is very strong. Similarly, no increase in supply and a strong demand. So there's flight to quality trend that we're actually seeing in Sydney. So that's the reason why the -- because of the weakness, that's why the valuations for 2 Blue Street came down slightly. Dale Lai: Okay. Okay. Got it. Got it. Okay. And just wanted to follow up. I think previously, we were talking about interest rate savings that will drive earnings going forward. How is this coming along? And how should we be expecting your overall interest rates for this year? Hsien Yang Chua: So I think that we -- I think we have guided that we will see savings in interest costs, especially going into this year and also next year because -- but, of course, how the REITs actually hedge interest rates. So there are hedges that will need to come off. So that's why you have this [indiscernible] out effect. When the interest rates went up, very, very quickly. You saw that our K-REIT's interest rates remain relatively flat, went up quite slowly. And then we also keep much later than many of the other REITs. Similarly coming down, of course, it works that way. The other way also works against us. You will see it come down gradually. I'm not sure at this time whether we can give any guidance, but we will see interest rates coming off. As to that extent, I'm not sure [ Seb ] how much more color can you give. Sebastian Song: Yes, they also -- so previously, I think in last quarter, we guided that our outlook for 2026 for cost of debt will be in the low 3% to 3.3%. So I think that has not changed. But I think one of the main levers that we are tapping on is to ride on the momentum of our refinancing exercise. So in last year, we have already achieved considerable savings on the margin front. So we're riding on that into our refinancing activities this year. So we had also carried out some early refinancing for debt that were originally due in 2026 that was done in December last year. So we also achieved the same margin savings for those refinancing exercises, and we will continue to look to ride on that this year. Dale Lai: Okay. Okay. So just to clarify, this rate hike in -- by the RBA, it won't derail this low 3% target interest rates? Sebastian Song: Not for the time being. So yes, so that was unfortunate that they hiked the rate. But I think it was a matter of time really, whether it was yesterday or it was -- it is to be at the next meeting. But yes, so what -- that aspect we cannot control, but what we can control is really to one of the levers, which I highlighted earlier, and that is to drive margin savings. Goh Lilian: Thanks, Dave. Next Rachel. Apologies for that. Lih Rui Tan: No race. Forget and let Dale go first. A few questions from me. I think, firstly, the 2 Blue Street rental guarantee, is it coming off in April 2026? And do you expect your occupancy to trend up further before the rental guarantee comes off? Hsien Yang Chua: Okay. So yes, it does fall off in April. So this building, you can see the occupancy is around 92%, 93%. We are continuing to lease out the space. So when we -- so the building for now has actually performed better than underwriting for all the space that we have actually leased out. So actually, technically, we can potentially drop the rates a little bit for the remaining space, which is on the ground floor and the level below, and then we will still meet our underwriting numbers. So I think we are still holding out for higher rates. So there will be -- so if you look at the total because right now, it's whatever we are getting plus a top-up. So if we do not manage to lease out the space, there will be a slight drop in this particular building, but it's actually quite small. So I mentioned just now that there is some weakness in the North Sydney area. Our building is really one of the better performing ones. It's in fact, one of the best performing ones and this is a brand-new building. So if anything -- if anyone signs a lease, I think our building will be in the best position to actually secure our tenant, but it is a slower market that we are still trying to lease up this remaining space, which is why it's not so much about the rates, but it's really about the demand, and we are chasing this demand at the moment. So the ground floor space is fully fitted. So we are just waiting for the right tenant who like the space and then they can actually pick up this space. Lih Rui Tan: So better than underwriting, which means actually now at 92%, you are same as your underwriting 100% occupancy kind of income levels, is it? Hsien Yang Chua: Not -- almost there but not quite there, yes. Lih Rui Tan: Okay. Okay. And the competition is Victoria Cross Tower, right? Could you -- what's like comparative to your Blue Street rents, what's your asking rents versus their rents? And what's the pre-committed levels at the Victoria Cross Tower? Hsien Yang Chua: Victoria Cross, it's actually -- the vacancy is actually quite high. It's more than 20%. Yes. So it's actually quite high. Rental, the rental is around -- yes. A bit higher. I won't be able to specifically give you what they are asking for. Lih Rui Tan: And then can I just follow up on the 8 Exhibition Street, the 2 new leases. In terms of income contribution, when should we expect income contribution to come through? Hsien Yang Chua: So like I mentioned, 1 lease is kind of next year. The other lease is in the first half of 2028. Lih Rui Tan: So when they move in, then we will get the inter commission. There will be rent free period in this offer. Hsien Yang Chua: So that's part of the incentives. So each of them is a bit different, but then it will be amortized. So I think that -- so okay wait, I think just now, I also wanted to clarify the rental reversion. So we compared the rental reversion on a like-for-like. So the more than double rental reversion is comparing net to net and gross to gross. So it is -- so on a net basis, it is still more than double after incentives. So I think that this was something that Terence was asking just now, yes. Lih Rui Tan: Okay. So on a net basis, rental reversions is also more than double. Hsien Yang Chua: Correct. Lih Rui Tan: Okay. Okay. And the lease signed, the number of years that after lease that they signed? Hsien Yang Chua: The one that was just signed is a very long lease, it's very long. Yes. Lih Rui Tan: 10 years or I don't know, 7 years? Hsien Yang Chua: So yes, something like that. More than 7. I would not tell you how many years. More than 7, more than 8, okay? Lih Rui Tan: Okay. Then the OFC lease vacancy that's coming up. Roughly when is the least coming up? Hsien Yang Chua: Hold on there. October 2026, but they are talking to us. This tenant is talking to us potentially staying for another few moments. So we are still working on with them. It really depends on the new tenant that we can actually -- they actually want to come in. So we might not -- we might or might not give them an extension. Lih Rui Tan: Okay. That's good. Good to know. Okay. Then my next question is in terms of your divestment do you think that it is now a good time to sell Korea or Japan office. I know last year you said they have very strong reversions. You want to write on that, but then do you think Korea and Japan is good to sell? Hsien Yang Chua: So definitely, this year is a better time than last year. So -- but we are still seeing healthy rental reversions. I think that I've shared that we are looking at it very closely. So if we can get the correct price, will we sell it, yes, I think the answer is that we definitely would look at selling it. Goh Lilian: Thanks, Rachel. Next, we have Terence from UBS. Terence Lee: Can you please help us characterize the relationship with Hongkong Land going forward? I mean K-REIT used to be partners and now ostensibly competitors. I mean for now, they seem to want to grow their private equity AUM. So I'm just wondering, does it affect how you think about partnerships and potential stake sales. Like if you look in the past in K-REIT's history, OFC, there was a stake that was divested to Allianz? And in the current context, your valuations for Singapore office is indeed at a high. And maybe just a little bit of a follow-on to that is, do you also see future opportunity for acquisitions if and when they do decide on the private equity side to exit from their funds? Hsien Yang Chua: So our relationship with Hongkong Land is still good. We are still partners in ORQ and MBFC's Tower 1 and 2. So in fact, we just had an ExCo meeting last week. So things are as per normal. It is -- I think that say what you like, we have always been partners and also yet competitors at the same time. Last time was Hongkong Land, us, Suntec. Now it is still basically these 3 except for Tower 3, our JV partner there is DBS. So nothing has really changed. Everyone, every company has their own aspirations. Every company has own strategy. So it's our strategy is -- although you look at, I mean, between Keppel, you look at Capital Light, you look at Hongkong Land, Mapletree, all of us have similar strategies. Suntec also has a similar strategy. Does that mean that the working relationship is not good? I don't think so. I think that all of us are professionals. We work well with each other. We are still -- we're working closely with them. So obviously, they have the aspirations they want to grow their portfolio. Any asset manager want to grow their portfolio. But how do you grow it? Where do you actually grow that one, I think it is a question that you can actually ask them. But even for us, right, are we expecting to just sit and do nothing, obviously, I don't think that is something that we are doing. So when we compete, we will compete, but it doesn't mean that we cannot work well together. I'm not sure whether that is your specific -- whether that sort of addresses what you are asking. But things are still working well. We still have the partnership in terms of managing the assets, and we are still working together to produce the best results for the assets that we co-own together with them. Terence Lee: Got it. Got it. And on Marina One, the $5 billion to $6 billion ask is a big range. I think it's like a 17% delta. So let's say, if the closing price comes in towards the low end of that and let's say, you get a high 3% cap rate, how would you expect the valuers to factor this towards your valuations when the time comes? Hsien Yang Chua: So it is not -- okay. So I think it's our speculation, right? So Singapore premium office cap rates have always been around the 3.5% mark. I don't know how the valuers will value this. Do they value this as premium? Do they value this as more of a grade A. But even then, the difference usually between prime -- between premium and Grade A, we are talking about maybe 20 bps difference, so between 3.5% to 3.7%. So logically, I would expect the cap rates to be around kind of price -- this kind of range. If it ever goes to -- your example is, say, high 3s, if you ask me, the only reason for that is because of this ticket size being so big, that basically a lot of the buyers have actually been priced out because they are not able to come out such a big quantum. But logically, it should not be at this kind of cap rate. And of course, just now what I mentioned to you between $5 billion to $6 billion is what is given by the agents because you have to look at the underlying NPI, you need to look at the cap rates, you need to look at the in-place rentals before you can determine what the fair market price would be. But I think just on -- specifically on the question, how the valuers will look, there is a difference between, say, NBFC and Marina One. Marina One, it is in the vicinity. But if you walk, you will understand. If you walk -- just try to walk to Marina One, it is a street away. It is quite a fairly long walk. The difference between the ORQ and the Marina One or MBFC versus Marina One, they walk into the buildings, the feeling is different. You walk MBFC, it's really -- it's a different feeling versus Marina One, you look out, you're looking at a swimming pool, you're looking at the swimming pool of the residential there. And the whole feel and ambience of the place is actually quite different. So I think it's a bit early to tell how the property will actually transact. But all I can say is that it is a bit different in -- from a quality perspective between our building and their building. Terence Lee: Got it. And last one, quick one, just on ADS. Noticed that the valuation moved relatively little compared to -- I think Hsien Yang, you were alluding to the doubling of net rents. So just curious why it didn't have a more material positive influence on the valuations. Hsien Yang Chua: That hasn't factored in the new leases because the lease was only recently signed and the other HOA was also just recently signed. Goh Lilian: Thanks, Terence. Next, can we have Xuan? Xuan Tan: First question is on acquisitions. Do you rule it out entirely for 2026? If not, what are the factors that you will consider? And specifically, can you comment on Keppel South Central? Hsien Yang Chua: So sorry, do I -- the first question, again, do I... Xuan Tan: Do you rule out acquisitions? I understand it's not a priority, but do you rule it out for 2026? Hsien Yang Chua: Why would I want to rule out any acquisitions? Maybe that's maybe my question back to you. There's no need for me to rule out. All I say just now is that we are not actively looking at anything, especially for the first half. Second half, could we look at something? Of course, the answer is it's always possible, but are we going to do it? Without considering any divestments, the answer is probably not. I think if you want to buy something, as I have mentioned to a number of you, it's only logical for us to consider doing some divestments first before rushing to do more acquisitions. We are not rushing to do it, but there is no reason why it should come itself to stop work and not look at any investments. That's just not very, very logical from the way we look at things. So your question was -- the other one was on Keppel South Central, right? So I don't think there is any further update. What I mentioned to you is we have not commenced discussions with the sponsor for this asset. My understanding is that the occupancy is still not at a level that makes it interesting for us to start discussions with them at this point in time. So -- and of course, even if the occupancy level is at a level that's high enough for us to talk about, there's still a lot of things that we need to figure out. For example, what cap rate do you acquire that at, what's the price per square foot, what's the in-place rentals. There's a lot of things that we need to look at. But at this point in time, we haven't started even looking at it or considering even to talk to the sponsor about this asset. Xuan Tan: Okay. Got it. Second question is around rent reversion. If I compare the gap between expiring and signing, it's around mid-single-digit reversion. Is that fair based on your current leasing discussions? Hsien Yang Chua: So no. So I think that we have only just started the year, right? How are the rental rates going to go to this year, no one really knows. No one really knows. You are just comparing spot, but the market rentals can move quite quickly. So it is a bit too early to speculate where the rental reversions will be for this particular year. I think that like what I mentioned, we want as high a number as possible. So we will continue to work towards that. But what I can share is that there is continued demand in the market for especially quality and premium office space, and we are going to capitalize on that. Xuan Tan: If I recall one, 2 briefings ago, you were guiding for double-digit reversion for 2026. Does that still stand? Hsien Yang Chua: That is the aspiration of course. Goh Lilian: Thanks, Xuan. Next, we have Donald? Donald Chua: A couple of follow-up questions. Also back to acquisitions. How is the appetite for Australia retail right now, given that a lot of transactions in the market and demand is starting to really nicely picked up. And also to follow up on that is any color on your operational performance for Top Ryde in terms of leasing spreads and so on is the first question. Hsien Yang Chua: So I think that it's not just Australia. I think Singapore also has -- we have seen a number of transactions being recorded both in Singapore and Australia. So there is also a lot more people look at retail. It is -- everyone sees the strong tailwinds in retail and people are chasing these deals. In Singapore, we have seen Clementi Mall transacted at quite a good cap rate. And of course, recently, we have seen Anchorpoint and White Sands come to market. In Australia, there are also a number of transactions happening, including Westfield Marion in Adelaide. This is owned by Cascadia in Singapore. So there's a few transactions. Like I said earlier, we -- of course, there's no reason why we shouldn't look, but the acquisitions is really not the priority for us, especially in the first half. We will take some time to digest what we've actually done first, and then we will focus really on asset management. Second half really depends on where we see ourselves and also dependent on divestments that we might be looking to do more if we can recycle some capital. So that remains unchanged. So notwithstanding what transactions happened in the market, I think that, that is something that we have said we will do, and this is something that we will keep to at least for the time being.. Donald Chua: Capital allocation will be. Hsien Yang Chua: Sorry, yes, you mentioned capital allocation. Donald Chua: Yes. I think previously, post the Top Ryde acquisition, you were talking about more than not 20% or something like that. That still holds? Hsien Yang Chua: Yes. Yes. And I think that still holds. I don't think we are looking. But having said that, it's not like we want to go to 20%. It really depends. That is just like we just set ourselves like an upper limit, but we are happy to just own Top Ryde for now. And like I mentioned, we are not looking to just go out and continue buying. We do want to take this time to sort of reflect and also to focus on the management. And I think you were asking about Top Ryde, you will be able to see the contribution of this asset from first quarter onwards. We will not be able to share too much at this point in time. But I think based on the work that we have done so far together with our partners, definitely in line with underwriting, we are hoping to exceed our underwriting for this asset at least as expectation. And the demand continues to be very, very strong, especially for space in this particular retail mall. And then cap rate, maybe just a quick one, you didn't quite ask that, but I think we have -- we are starting to see a compression of cap rates, both in Singapore and Australia when it comes to retail assets. Donald Chua: Got it. On the debt side, right, for your guidance of low 3% to 3.3% WACD, feels a bit slow in terms of the decline. I mean my question is, what is -- any color on the currency breakdown on the expiring debt for 2026 and 2027? Is it more Aussie? Sebastian Song: '26 would be -- I would say -- okay, so we have a medium-term note, so that's in Sing. The remaining bank loans are split between Korean won and Aussie dollar. That's for 2026. Donald Chua: So it's 50-50? Sebastian Song: Yes. Donald Chua: Okay. So 50% SG and 50% Aus and Korea. Sebastian Song: Yes, that's right. I think maybe just one... Donald Chua: Would that the reasonable reason why the paper is a little bit slower and it could come in more in 2027? What's the breakdown in 2027? Sebastian Song: I think we need to get back to you separately on the breakdown for 2027. But yes, the reason why it is not going to taper as quickly as maybe expected is because we don't have that much Sing dollar debt. that is unhedged or floating. So -- and also the refinancing because it's only just that medium-term note that we have, which is currently about 3.72%. But whilst we think we could get a good rate when we refinance that closer to the end of the year, I don't think that will move the cost of debt significantly downwards, yes. Donald Chua: And your floating, you say, is mostly offshore currency, is it? Sebastian Song: My floating, yes. Donald Chua: And it's mostly also Aussie, I would presume. Sebastian Song: Aussie and won. Donald Chua: Okay. Sorry, I don't want to harp on this, but last question. On the 8 Exhibition, can I confirm that your income contribution for your first tenant that is going to lease up 5 floors will only coming in 2027. And then the remaining 3 floors is 2028? Sebastian Song: Correct. Donald Chua: Okay. And that will be the whole building. Hsien Yang Chua: No, no, this building has many, many floors. This is -- this -- we are only talking about 2 leases, yes. Donald Chua: And that will be somewhat around -- sorry, can you remind me how many percent of GRI? Hsien Yang Chua: So this whole building has 35 floors. It is a 35-storey building, yes. Donald Chua: So proportionate. Okay. That's all for me. Sebastian Song: Donald, just to get back to you with the breakdown of the loans for 2027. So for Sing dollar is about 60% of total debt due in 2027. Aussie is about 30% and the remainder is Japanese yen. Goh Lilian: Next, can we have Vijay? Vijay Natarajan: Just a couple of questions from me. Firstly, in terms of Singapore CBD office demand, can I get some color in terms of is this still driven by flight to quality? But with now the gap widening, do you see this flight to quality slowing down or even possibly reversing? Maybe also give some color in terms of new or expansion demand. Is this from new setup that is coming to Singapore? Hsien Yang Chua: So it is -- I won't say it's all flight to quality. It's really a good mix of we have quite a lot of expansion. In OFC, we are seeing a lot of expansion at the moment. Our priority is if our tenants want to expand, we will give them space. And for OFC, one of the -- I won't mention who are the tenants, but the only reason why this tenant is leaving is because we can't give them additional space. They actually ask us for -- they have 2 floors, they ask us for one additional floor. We are not able to give it to them. And that's why they are actually leaving our building going to another building. So that's the only reason. In fact, I just caught up with them. They're actually quite sad to leave, but they just needed one extra floor that we're not able to give. So OFC, like I mentioned, it's mostly expansion. The new tenants that we are talking to are not flight to quality. They are all -- okay, the majority of them are new tenants altogether, some flight -- you can say flight to quality, they are moving from other buildings. And across ORQ and MBFC is a good mix. It's expansion, it is new tenants, it could be flight to quality. But it's not like what you say majority flight to quality, not quite there, yes. Vijay Natarajan: Okay. Can you give some color on who took up the additional space in Keppel Bay Tower? I mean is this from an existing expansion? Or is this a new tenant in the same area? Hsien Yang Chua: So these are new tenants. Vijay Natarajan: Okay. Okay. My last question, would you consider share buyback as a strategy? Hsien Yang Chua: Yes. I think we did mention that we didn't -- we stopped our share buyback program because our gearing is at a slightly more elevated level. But now that our gearing has come off, if we do do some divestments, that is share buyback is definitely something that we are looking or considering. Vijay Natarajan: Okay. Only upon divestments? Hsien Yang Chua: Yes, not now, yes, definitely not now. Once we have done some divestments, as and when we do it, we're look into it, yes. Goh Lilian: Perhaps I think we're just in time for one last question from Derek. Jian Hua Chang: Just a follow-up on Hsien Yang's comment on Singapore retail as potentially attractive. Would that include your sponsors, i12 more. Hsien Yang Chua: Yes, we have -- we are not looking at it at this point in time. Yes. So I think that's all I can say. This asset, I think they have been doing repositioning and all that. I'm not sure of the latest, but that's not something that we have considered. Jian Hua Chang: Yes, that's why -- yes, hence, why I just want to check because they've been doing it for quite some time already, yes. And for Sebas, I think I just want to ask on the tax expense this time around $9 million. Is all that from withholding tax in Australia and that's cash,right? Sebastian Song: Yes. So part of it will be withholding tax. There is also a deferred tax component that we will provide for when there are valuation increases in Australia, Korea and Japan. So because there are capital gains tax regimes there, so we have to provide for some deferred tax or rather exit tax when there are valuation gains. Jian Hua Chang: And the $9 million is all cash, right? It hits the DI. Sebastian Song: No, no, no. The deferred tax component is noncash. So that will only be realized when there is an actual exit or divestment. So the remainder will be withholding tax that is actually paid in cash. Jian Hua Chang: How much of it is withholding? Sebastian Song: How much of it is withholding? Sorry, Derek, can I get back to you on this one? Jian Hua Chang: Yes. Goh Lilian: Thanks, Derek. I see that, Terence -- please go ahead. M. Khi: Sorry, just a quick question for me. I want to ask on how is the tax transparency for T3? And when should we expect that to come in? Hsien Yang Chua: We have started work on this one already. We are doing the documentation. So I think the last time we mentioned it should take around 6 months. So that's the estimated time frame at this point. M. Khi: Okay. That's good. And also for the new borrowings for MBFC Tower 3 and the acquisition side, what were the loan rates that you secured for the T3 acquisition? Hsien Yang Chua: So actually, when we bought Tower 3, there was already debt in place, which is locked in. Our own debt, we only took a very, very small loan. That one we borrowed at mid-double digits, plus/minus a bit. M. Khi: And the all-in cost? Hsien Yang Chua: Under 3%. Sebastian Song: Maybe just to get back to Derek, Morgan Stanley's question. So for the income tax for the year, that's $13.7 million. About $9 million was withholding tax being cash. Goh Lilian: Derek, you still have your hand raised. I believe you're okay, right? Thanks, Derek. Thank you, everyone. We've come to the end of the call today. Thanks for joining us. Hsien Yang Chua: Thank you. Sebastian Song: Thank you.
Alexis Bonte: Good morning, and welcome to the Stillfront Q4 Presentation. I am Alexis Bonte, the CEO of Stillfront. I'm joined today by our CFO, Emily Villatte, who joined us in December. I would like also to take the opportunity to thank Tim Holland for his work as interim CFO during 2025. As we summarize the first quarter of 2025, I am pleased to report that Stillfront is delivering margin expansion despite revenue decline. We successfully expanded our adjusted EBITDAC margin to 27%, up from 25% in Q4 last year despite an organic revenue decline of 9%. This follows our cost savings efforts during the year, disciplined deployment of UAC alongside the continued rollout of our direct-to-consumer channel. Looking at our business areas. In Europe, we delivered a big franchise new game launch with early positive signs, and we divested our noncore narrative portfolio, which has been impacting our organic growth. In North America, the continued revenue decline reflects a deliberate strategy of prioritizing cash flow and efficiency over short-term volume. MENA and APAC delivered strong results with 7% organic growth. Now let's dive into the details. So first, turning to Europe. Net revenue in BA Europe landed at SEK 622 million for the quarter. That represents an organic decline of 6%. The revenue performance in Europe has been heavily impacted by the narrative games portfolio. And in late December, we concluded the divestment of the narrative franchise for a total consideration of $4 million. That reflects a 4x EBITDAC multiple for that portfolio. So excluding the narrative portfolio, organic growth for BA Europe was actually flat in the quarter. In December, I'm happy to announce the release of the new game Big Farm Homestead. The game did not have material revenue impact in the quarter, but early performance metrics were encouraging. You will note that user acquisition costs correspond to 37% of net revenue, which is higher than the 31% we saw last year. This is -- this reflects a deliberate choice as we increased UA within the big franchise to capitalize on the good momentum there. The Supremacy Warhammer 40,000 game, which was expected to launch in the middle of Q4 2025, did not meet yet the higher quality thresholds that we now report to ensure a strong launch. And therefore, we're polishing the game a bit more. We're adding some content, and we'll launch it later in the year. Adjusted EBITDAC for BA Europe came in at SEK 94 million with a margin of 15% in the quarter. The lower margin compared to last year is primarily due to the lower revenue volume combined with the increased growth investments in UA, particularly in Q5 towards the later part of the quarter. Moving on to North America. Net revenue for the quarter came in at SEK 197 million, corresponding to an organic decline of 31.3%. The decline was driven by our commitment to focus on profitability and cost efficiency over short-term revenue growth. While our volumes are lower, the quality of our revenue in North America has improved. Gross margin increased to 83%, up from 79% last year. A key driver here is the accelerated rollout of our direct-to-consumer channels in North America. Following successful Webshop integration in Bitlife in Q3 and the Home Design franchise in Q4, direct-to-consumer bookings now account for 24% of the total, a significant jump from just 7% in Q4 last year. And during the quarter, we have exercised continued strict cost discipline. User Acquisition Costs were reduced to SEK 88 million compared with SEK 258 million in the same period last year. Personnel expenses were up to SEK 30 million, down from SEK 60 million before, and that demonstrated the full effect of the cost savings program that we implemented, in particular, Storm8 and Super Free. The result of these actions is a clear turnaround in profitability for North America. Despite the lower revenue base, adjusted EBITDAC increased to SEK 23 million for the quarter, up from SEK 6 million last year, and this translates to a margin expansion to 12% compared to just 1% a year ago. And full year EBITDAC was up from SEK 100 million to SEK 108 million in North America. Finally, let's look at MENA, APAC, which delivered a very strong performance this quarter. Net revenue amounted to SEK 537 million, representing a solid organic growth of 6.6%. This was primarily driven by the continued strong performance of our Jawaker and Board franchises. In addition, we see the structural effects of transferring the word franchise from North America to this region, which has increased the total revenue base. User acquisition landed at SEK 40 million, corresponding to 8% of net revenue. This is slightly higher than last year where we're at 5%, and which is natural given the inclusion of the Word franchise as that portfolio carries a structurally higher UAC level. So the combination of organic growth and cost control has resulted in the high profitability. Adjusted EBITDAC grew to SEK 288 million. This delivers an impressive margin of 54%, an increase from the 51% of last year. And now I'm going to hand over to Emily for the financials. Emily Villatte: Thank you, Alexis, and good morning, everyone. It's really great to be here finally. Okay. Let's talk through the group financial results for the fourth quarter. We reported net revenues of SEK 1.356 billion for the quarter, representing an organic revenue decline of 9% year-over-year. While revenues were down, our strategic focus on our direct-to-consumer channel has been yielding results and our gross margin increased by 3 percentage points year-on-year, reaching a strong 83%. DTC revenue now accounts for 45% of bookings, which is a proper step-up from the 34% we had in Q4 last year. And this is strengthening not just our margins, but also our direct engagement with our player base. User acquisition spend for the quarter was SEK 356 million, down from SEK 504 million a year ago. And as a percentage of revenue, UA spend was 26% in this quarter, down from 30% in Q4 of 2024. And this shift was primarily driven by our North American business area, as Alexis just mentioned, where we have refined our strategy to prioritize long-term profitability over low-margin revenue. Moving on to profitability. Adjusted EBITDAC was SEK 368 million in the fourth quarter compared to SEK 410 million last year. And as noted in the report, you will have seen that the adjusted EBITDAC decline was driven by FX headwinds of approximately SEK 45 million explaining that shift. Despite the decrease in revenue, our adjusted EBITDAC margin amounted to 27% in the quarter, up from 25% last year. And this margin improvement is a direct result of, firstly, our successful cost savings program, which was concluded in Q3, but also our DTC focus and rollout of that channel and, of course, disciplined approach to user acquisition spend. Moving on to cash generation. Our free cash flow for the quarter was SEK 290 million, bringing our LTM free cash flow to SEK 922 million. And let's have a closer look at those cash flows. Overall, in 2025, we had a strong cash generation, allowing us both to deleverage and fund our earn-out obligations as well as to self-fund the investments that we're making into the business. In the quarter, cash flow from operations were SEK 440 million, which included a positive working capital movement of SEK 62 million, primarily driven by phasing of payments for user acquisition spend towards the end of the quarter. Cash flow from investing activities was SEK 122 million, and this primarily reflects our continued investment in product development, of course, which was slightly offset by the divestment, Alexis mentioned, of our narrative portfolio amounting to USD 4 million, USD 2.5 million of which was settled in 2025. Cash flow from financing activities of SEK 371 million in the quarter were mainly driven by first debt repayments of SEK 234 million, but also share buybacks of a total of SEK 146 million in the quarter, in line with the share repurchase program we announced in conjunction with the Q3 report. On an LTM basis, we generated a robust SEK 922 million in free cash flow for the full year 2025. And if we break that down, SEK 583 million of that went towards earn-out cash payments in the year, minority buyouts and the divestment of the narrative portfolio. SEK 273 million was directed towards deleveraging. And additionally, we completed a total of SEK 248 million in share repurchases over the full year. Now you will have seen no doubt that we did take a noncash goodwill impairment in the quarter. And this follows our annual impairment test, which did result in an impairment totaling just under SEK 2.3 billion related to goodwill write-downs in business area Europe and other acquisition-related intangible assets in business area North America. Turning now to our financial position. We ended the fourth quarter with a total net debt of SEK 5 billion, which is a significant SEK 1.1 billion reduction from the SEK 6.1 billion in total net debt we had in the prior year. This, of course, reflects our commitment throughout 2025 to settle our earn-out obligations and to deleverage the balance sheet. In terms of our net debt, including next 12 months cash earn-outs, it decreased from SEK 4.7 billion in Q4 of 2024 to SEK 4.2 billion in Q4 of 2025. And even with this decline that we've seen in the full year reported EBITDAC, we did achieve a decrease in our leverage ratio, which was 2.02x EBITDAC in Q4 of 2025, down from 2.1x EBITDAC in Q4 of 2024. And looking at our maturity profile in the center of this slide, you will note that we have no material debt maturities until 2027. So with that being said, I would like to hand back to you, Alexis. Alexis Bonte: Thanks, Emily. You will have seen that we today also announced a change to our segment reporting structure effective from the first quarter of 2026. During this year, we have made progress in focusing our North American business by transferring and closing games where it made sense. We have divested our narrative portfolio, as we've already said. And so following these developments and in line with our strategy to focus on our key franchises, we have aligned our reporting structure to reflect this. Going forward, we will move from geographical segments reporting to consolidated group reporting. This will be complemented by a set of clearly defined alternative performance measures to provide greater transparency into the performance and development of our key franchises, which are really the important part here. We have started by including our key franchise revenue data in the financial data pack that is reported alongside the Q4 report, and I would encourage you to have a look at those. Our key franchises will have the following: more than SEK 200 million of annual revenue and the consistency of core experience, a clear product pipeline and long-term growth potential, a common base of technology and game mechanics and recognizable and scalable IP. For our other games that do not fall within the key franchise grouping, we'll be focusing on product and operating efficiency to yield healthy cash flows to the group. As a business, we step into 2026 more focused, continuing the work of making incremental improvements to our operations. We'll be increasing our focus and reporting transparency related to our key franchises. We will continue to assess the performance of our games portfolio and we'll undertake measures, including sunsetting games where necessary. We will continue to make disciplined investment decisions and delivering healthy cash flows. In parallel, with our focus on day-to-day operations, the strategic review initiated in April of 2025 continues and the divestment of our narrative portfolio will improve our organic growth profile and allow us to redeploy resources towards higher potential projects. I appreciate the patience and trust that shareholders have shown during this process. On the final note, I want to thank the Stillfront team for the dedication and resilience they have shown during a year which has seen significant change. I am looking forward to 2026, and we'll approach it both with continued discipline and ambition. And now I suggest we open it for questions. Thank you very much. Operator: [Operator Instructions] The next question comes from Nick Dempsey from Barclays. Nick Dempsey: So just in terms of your commentary for 2026, so can we assume that you are aiming for an improved rate of organic revenue -- organic net revenue growth, in other words, less of a decline. Is that what you're shooting for in '26? And in terms of your commentary on investments, can I try and understand -- can I try and understand what that could imply for EBITDAC margins, whether we're talking about those going down or stable or up or whatever you can say about that to make that a little bit more precise? And then just a final thing. In terms of the other games, we're looking at the key franchises and then we have other games. how much of that is some of the U.S. franchises that we know have been challenged for multiple years versus how much of it is some other areas where there's perhaps a bit more hope. Alexis Bonte: Emily, why don't you start with the organic growth and invest may be back and I can talk about the other games and core. Emily Villatte: Absolutely. Let's do that. And I think you're right, Nick, to note that we've had a year of varied trading performance. We've had double-digit organic decline in 2025, 9 percentage points organic revenue decline in Q4. And we're, of course, aiming to take the business back to organic growth over time. You will have noted our notes around making incremental improvements to the business holistically to continue on that path. Of course, different quarters can have variations, and we will not give sort of a quarter-by-quarter forecast, but the holistic ambition is, of course, to get back to organic growth over time by doing incremental improvements. When it comes to the EBITDAC margins, looking at those on a quarter-by-quarter basis is sometimes misguided, for example, when you have a quarter where you have the opportunity to deploy more UA spend, capturing opportunities to drive future organic growth. So whilst our margin might fluctuate quarter-by-quarter, we are holistically aiming to make disciplined investments to support us on this path back towards organic growth. Alexis Bonte: Do you want to answer on the EBITDAC as well, I mean? Emily Villatte: Yes. When it comes to EBITDAC, I think our general comments there are that we will make disciplined investments to support this business back to organic growth. We're not going to guide on EBITDAC margin quarter-by-quarter. But for example, we've seen early positive signs from our big franchise Big Farm Homestead launch and where we see opportunities to deploy UAC in a disciplined and way that meets the robust criteria for those campaigns, we will deploy that to support the growth ambitions for the company. Alexis Bonte: I think to build on what Emily has said, really, if you look at 2025, 2025 has been a turnaround year. We've really been focusing on setting the business straight with the right priorities back to a healthy level is difficult for North America, but also making some of the required things that we have to do for -- in Europe. Of course, we've got EMEA and APAC that is continuing being very strong. What we're seeing is 2026 is really going to be kind of more of an investment year. We're seeing, as I said, encouraging signs with new game launches such as Big Farm in Europe. And that's something that we will see what kind of UA we can deploy around that, but there are some. But again, as Emily said, the objective is over time to return to organic growth. In terms of your question for the other games, and if most of that is the U.S. franchises. Actually, there's -- one of the U.S. franchises, Bitlife is one of our key franchises. We have a clear path in terms of how that franchise can grow. We're seeing -- we saw a good update to that franchise by putting a full accounting system that allows us to do a lot more live operations that we're not able to do with Bitlife. And we've also had a successful Vampire update, which is something that the comm really, really wanted to see. So that's been working. But we do have in other franchises, the Home Design Makeover franchise. where we've actually done a complete change of the economy, and we are seeing some improvements, but we still want to see more work being done there, and we want to see a bit more KPIs before we decide if that's a franchise that is -- that we should basically be investing more in or not. So we're being very, very focused and very disciplined about what we consider a key franchise and what we consider something that is not a key franchise. Operator: The next question comes from Rasmus Engberg from Kepler. Rasmus Engberg: I was just wondering with regards to the cash flow, how do you see that being able to maintain roughly the current levels? Or what's the ambition for the current year? Alexis Bonte: Do you want to take that? Emily Villatte: I love cash. I'll be delighted to take that question. We are, of course, aiming to maintain very healthy cash flows within the business. This has been one of our core strengths. When it comes to our core KPIs, we have not only market-leading EBITDAC margins, but we also have strong cash conversion from that baseline, and we have consistently delivered very healthy cash flows. And we, of course, want to continue to be a business that has strong healthy cash flows moving forward. You will have seen that in 2026, we have no debt maturity. We do have an earn-out obligation that we're due to settle. You will have seen that in our report. And the final earn-out obligation comes in 2027. So with no debt maturity in 2026, we are hoping to be able to utilize our free cash flows in an efficient way, both for earn-out obligations for deleveraging and to continue to fund the investments into the business that set us back to organic growth over time. So maintained healthy cash flows. Rasmus Engberg: Right. And with your new reporting structure, how do you sort of think about that in 2026? Is it continued like single-digit organic growth in the core franchises and continued big decline in the rest of the business? Or how do you sort of -- how do you think about that? Alexis Bonte: Yes. I think I'll start and then Emily, maybe you can build on that. We're looking at these key franchises, and we're seeing that we have the -- basically the density in terms of the team, the talent density to really kind of make them work and really be winners in the market. So we think that these key franchises are franchises that we can grow not only for the short term but over the long term. So that's what we're seeing. What we're seeing that is not in the core franchises are basically games that we feel are more about either optimizing for cash flows or potentially we'll also have some experiments in there. So that kind of allows us to really organize better how we're doing things. Also, a lot of the questions that we kept having was like what are the kind of the core -- how are the core franchises performing, how are the core games performing at Stillfront. And we think this is -- with this reporting, we're really giving you that transparency so you can understand how Jawaker is performing. You can understand how the Board franchise is performing. You can understand how the Supremacy franchise is performing year-on-year and quarter-on-quarter. And I think that will allow you to much better understand the business, and it also is a much closer and much more kind of accurate description of how we're actually running this games company. Emily, do you want to build on that? Emily Villatte: I think that's comprehensive. Nothing further to... Rasmus Engberg: So it looks -- I mean, we have very little history here, but it seems that what we're seeing is a maintained UA spend in terms of relative to revenues in the core franchises and then a decline or a low level in the other games. Is that sort of what we could expect going forward as well. Emily Villatte: That's a correct reflection of the numbers that we just posted this morning. And with Alexis' guidance on the focus on our key franchises, key investments, not just in product development, but deploying UA spend towards those key franchises as well. That is our strategy. Rasmus Engberg: And the question that many investors think about the strategic review, should we see that as now clearly indicating that it's not among the key franchises that we should expect a deal? Or is it disconnected from that? Alexis Bonte: So basically, as I've said before, so we -- the strategic review is still ongoing. The latest development of review has obviously been the sale of the narrative games, which were holding back our organic growth. But as I said before, we still consider that we should have everything on the table that we believe can create shareholder value in the best way, but we've been quite disciplined in making sure that we're focusing on selling first the things that we think are holding us back. Operator: [Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Alexis Bonte: Thank you very much for your questions, and thank you for joining the Q4 Stillfront report, and have a great day. Thank you. Bye-bye.
Operator: A warm welcome, and thank you for joining Cloetta's Q4 Interim Report Presentation. I'm Laura Lindholm, the Director of Communications and Investor Relations. We extend a special welcome to the more than 5,000 new shareholders that joined our journey last year. And of course, hope that many of you are listening in today. Our CEO, Katarina; and CFO, Frans, will as per usual, first go through our results, after which we will move to the Q&A. Where you either have the possibility to dial in ask questions live or alternatively post your question through the chat. The chat has already opened up for your questions. Over to you, Katarina. Katarina Tell: Thank you, Laura. I am really proud to share our fourth quarter and full year results with you today. And I'm so pleased that 2025 turned out to be a successful year. We closed it with an exceptionally strong profit in the quarter, and we are now taking another step closer to delivering on all our long-term financial targets. But first, over to the agenda. Today, it looks as following. I will start with Cloetta in brief, then I recap our strategic framework and our updated financial targets. After that, I'll move to our quarterly highlights. Our CFO, Frans, will then walk you through our quarterly and full year financials. And then as always, we wrap up with a Q&A. For any new listeners on the call, let me start to tell you a bit about Cloetta. As Laura already shared, during last year, we welcomed more than 5,000 new shareholders. So this slide might be a good recap, especially for you. Cloetta was founded in 1862. And today, we are the leading confectionery company in Northern Europe. We strongly believe in the power of true joy and our everyday purpose is to spread joy through our iconic brands. We have grown a lot since the early days, and we now have operations in 12 countries. In 2025, we hit SEK 8.5 billion in sales, and our operating margin was 12.1% to be compared with 10.6% in 2024. As I already mentioned last quarter, we have established a strong profitability uplift, which we will talk more about today. Over half our sales come from our 10 biggest brands, and we call them our Superbrands. Despite the current geopolitical uncertainty, including a tariff situation, our company remains largely unaffected. This resilience is due to several key factors: firstly, we operate in a noncyclical market with stable consumer demand, which provides a solid foundation even in uncertain times; second, our strong and trusted brands gives us the ability to adjust prices when needed without losing consumer loyalty; thirdly, our broad product portfolio allows us to offer a range of alternatives, helping us adapt quickly to shift in consumer behavior; and finally, we have, despite the current geopolitical uncertainties, still many attractive growth opportunities like the expansion of our Superbrands, our step-up in innovation and growing beyond our core markets. These strengths gives us the confidence to continue delivering solid performance and building long-term value for our investors, our customers and consumers and the people at Cloetta. I will now briefly walk you through how we bring our vision to life through our strategic framework and then in relation to this, also our updated financial targets. To learn more, please see the recording of our Investor Day 2025, which is available on our website. So let me start to talk about our vision at Cloetta because it really captures what we're all about. Our vision is to be the winning confectionery company inspiring a more joyful world. And it's not just something we say. For us, this is a real promise to do great work to keep innovating and most of all, to bring joy to people every day. This vision is what guides us, is what keeps us learning, improving and leading the way in our industry. We have created a clear strategic framework to guide us forward. And right at the center is, of course, our vision, to be the winning confectionery company inspiring a more joyful world. Our strategy is about some clear choices, choices that will help us scale, grow and make the biggest impact where it truly matters. We have 5 core markets. It's Sweden, Denmark, Norway, Finland and the Netherlands. And today, around 80% of our total sales come from these markets. Frans will talk more about our geographic mix a bit later. Our first strategic priority is to focus on our 10 Superbrands within these core markets. These are the brands with the strongest potential. By leaning into our expansion strategy, we can open new opportunities, grow faster and build real scale. I will also share one example today of how we are working with one of these brands in our core markets. We are not stopping there. We're also looking beyond our core markets. We have identified 3 high potential markets that sits outside our core. That's the U.K., Germany and North America. Today, I will share an update of our progress in North America, but also a short update of our global agreement with IKEA. Our third priority is to elevate our marketing and acceleration in innovation. The market keeps changing, and we need to stay ahead, not just following trends, but also help to shape them. In our strategic framework, we are now also opening up to explore M&A, but only if it fits our strategy and when it makes good business sense. That said, any M&A would serve as an accelerator. It's not something we rely on to reach our financial targets. And to make all of this work, we need, of course, the right enablers in place. This means having a focused, efficient operating model and a structure that actually supports our strategy and goals. In Q2 last year, we announced changes to our organizational setup, including some role reductions and updates to our group management team. Those changes are now in place, and we have aligned our structure with our strategy so we can move faster and strengthen our path to profitable growth. People and culture are, of course, at the heart of everything. Without them, the rest is just the black box. Our culture is the foundation of how we work, and we're committing to building an organization that is strong, capable and filled with joy in what we do. So let me share an example of how we expand with our Superbrands into new markets. And this time, I will use Kexchoklad as an example. In Sweden, Kexchoklad isn't just a popular chocolate. It's actually the best-selling product in the entire food and beverage industry. Everyone in Sweden knows the yellow-checkered pattern. Many of us also connect Kexchoklad with skiing and an active lifestyle. Kexchoklad is part of Swedish everyday life. We have been selling Kexchoklad in Denmark, too, but only through a few retailers with limited distribution and often discounted. It has not reflected the strength of the brand. So last year, we decided to change that. We took the marketing materials that worked so well in Sweden, translated it and brought the same strong story to Danish consumers, and it worked. Demand grew and so did the sales. Now Finland is starting the same journey. We just launched Kexchoklad there, and the response has been very good. At launch, we reached 90% weighted distribution, and we also hit our market share target during the first week. It's early days, but momentum is strong, and it shows what's possible when we bring our Superbrands to new markets with the right focus and investment with a good return. Then let me move to 2 examples connected to our strategy of growing beyond our core markets. The first one is IKEA. In 2025, we signed a global agreement with IKEA. And today, the now broader assortment has been made available in 14 countries in Europe. This means that some of our most iconic Superbrands are now also available at IKEA stores. And we're not stopping there. We plan to roll out these products in even more markets during 2026 and 2027. The details of the agreement with IKEA and Cloetta are, of course, confidential, but we will continue to share updates whenever the agreement allows us to. Now let us look at another example, how we're growing beyond our core markets. It's about our progress in North America. Today, we have a small but growing business there. We are continuing to build on what we started while at the same time, preparing for the next stage of expansion and putting the right long-term infrastructure in place. We have set a 3-year plan because for us, it's more important to have a solid, well thought-out business plan than to rush. We want to make sure that every investment really counts. Building a brand and expanding on a new continent is exciting and is really full of opportunities, but it has to be done in a controlled and pragmatic way. And we are already taking important step. We have signed a contract with a local commercial leader who will further drive our go-to-market strategy and build the local organization. We also finalized the packaging and recipes for our key branded packaging products. These are now needed for any larger fast-moving consumer goods company to be able to operate in the U.S. This was an important step to meet the different food regulation in North America, and it positions us well for the rollout in 2026 and 2027. For Pick & Mix, we run a pilot project to gain deeper consumer insights, which now guides us our long-term rollout. And as a part of building our Pick & Mix brand and awareness, we also opened a CandyKing store at Bleecker Street on Manhattan, and I will tell you more about that on the next slide. So we are moving on to the update on our newly opened CandyKing store on (sic) [ in ] Manhattan. This store is an important step for us. It helps us build the brand, increase awareness of our leading concept and introduce local consumers and retailers to the Nordic tradition of pick and mix. The store is an excellent way to showcase what we can do and have done in more than 4,000 retailer stores in Europe. The store opened 2 months ago, and the response has so far been fantastic. Both consumers and the press have welcomed us warmly and the store has been profitable from day 1. Yes. Now over to the long-term financial targets. So in March 2025, we updated our long-term financial targets to match our strategic priorities and our vision. With a clearer plan in place, we raised our long-term organic growth target from 1% to 2% to 3% to 4%. As inflation now is stabilizing, it's obviously difficult to justify price increases driven by inflation. This means that further growth primarily needs to come from higher volumes, exactly what our strategy is designed to deliver. Our long-term adjusted EBIT target stayed at 14%, and our goal is now to also reach at least 12% by 2027. As many of you saw in the report, we're already above 12% in 2025. As Frans will explain later, Q4 got an extra boost, and we will wait to celebrate 12% EBIT when it's fully repeatable. Historically, our net debt target has been around 2.5. Since we are -- have been consistently reached that over the years, we now set a new target below 1.5. Of course, if a strong M&A opportunity appears, we may go above that temporarily, but only if it clearly supports our strategy and with a clear deleverage plan in place. And finally, we have also updated our dividend policy. Instead of paying out 40% to 60% of profit after tax, we are now aiming for payout about above 50%. Frans will talk more about this year's dividend proposal later on, but I'm, of course, happy that also our shareholders are able to be part of our successful journey. And now a short quarterly update. As previously mentioned, we had a successful year that ended with a strong quarter, and I'd like to highlight some key takeaway. As a start, I would like to emphasize that I'm really, really pleased that we've shown growth in both business segments this quarter. And more importantly, this growth is coming from stable and increasing volumes. As mentioned earlier, with inflation stabilizing, volume growth becomes even more important for us going forward. We are the leading confectionery company in Northern Europe. And this quarter, we continue to see strong performance in the Nordics and in North America. In the rest of Europe, sales were stable compared to the previous quarter. This quarter was also exceptionally profitable. That was driven by our long-term margin-enhancing activities, our savings related to the change in our operating structure and the fact that we received a partial compensation for the supplier quality incident we had early 2024. With the strong results we deliver in 2025, the Board will also propose increasing the dividend to SEK 1.40 per share. So in short, as we close 2025, we can clearly see that we're getting closer to delivering on all our financial targets. Growth is important. And by strengthening our profitability, we're also giving ourselves the room to invest more so we can drive stronger growth ahead. Now it's finally time for the financials, and I hand over to Frans, who I know is more eager than usual to walk you through both our fourth quarter and our annual financials. Frans Rydén: Thank you, Katarina. Yes. Let me take you through both the full year and Q4 in a bit more detail and 4 best ever results when it comes to profit, cash leverage and subject to shareholder approval, also dividend and with important steps towards the long-term net sales growth target. And let me start with the sales. So in the quarter, we again delivered stable, profitable organic sales growth of 1.1%, bringing the full year organic growth to 1.9%. Now Q4 may then at first seem like a slowdown versus year-to-date. So I want to highlight what I think is our 3 really interesting things on how our new more focused strategy is gradually starting to take effect. Firstly, the last major round of pricing took place in Q3 2024. So Q4 2025 is the first full quarter without the benefit of strong pricing versus the comparator. So instead, while in Q3, I mentioned that volumes were down about 1%, I can now share that Q4 volumes are stable to growing. So from a perspective of satisfying the consumer demand, we're actually moving in the right direction. Secondly, while for the full year, we have been able to continue to rely on our broad portfolio to ensure organic growth, so where the decline in the Packed segment was more than offset by growth in Pick & Mix. Now in Q4, as Katarina mentioned, both segments are growing again, and that is really important. Thirdly, as in quarter 3, in quarter 4, we continue to see strong growth in the Nordic region as well as in North America, but partially offset by the rest of Europe. Although in Q4, also the rest of Europe has stabilized a bit. So that helps us grow stronger in Q4 than what we did in Q3; and again, despite the absence of the pricing benefit that I mentioned. You can actually see this for yourself in the report. So in Q4, the Nordic market adds up to 70% of our total sales. That's up 2% versus 2024. And a 2% bigger slice of the pie when the pie has grown 1.1% organically, that means arithmetically, that the Nordics has grown about 4% in the quarter, and that's well within our long-term target, while the other markets have declined and despite that, the strong North America. We're, of course, not content with 1.9% in the full year. But what I just shared indicates that combined with the new organization structure in place as of October 1 to support the new more focused strategy, we are in a good position to progress towards our long-term target of 3% to 4% organic growth. There is also a fourth interesting thing I want to mention on the topic of resilience, and that is about the currency effect on our reported net sales. So down 2% on the full year, 3-some-percent in quarter 4; and based on that, it would be easy to erroneously include Cloetta in the current focus on the negative effect of the strong Swedish krona on Swedish companies. So for obvious reasons, if you are a Swedish company incurring costs in Swedish krona in Sweden to make products that you then export and sell in euro, you have a challenge today. But Cloetta, we -- of course, we largely sell our products where we make them. So products made in Sweden are mostly sold in Sweden and products made in euro-denominated countries are mostly sold in those countries. So the real effect of the strength in Swedish krona is limited for us. And the lower reported sales, that's primarily a translation effect. Then moving on to the normal page I have showing the segments over and under. Actually, I think I've covered what's on this slide pretty well when I said, number one, Q4 growth is without the benefit of pricing. Volumes are actually up. Number two, both segments are growing, and Packed is now back to being over 70% of our sales. And three, the Nordics is doing really well with the rest of Europe a bit more stable. And on the pricing, you can see the impact on the sales in 2023 and 2024 is pretty clear in the graph. But we're, of course, incredibly proud that consumers appreciate and love our brands and products have continued to visit our customers to buy them to the same extent as they used to despite the higher price that they find in the stores; and actually for Q4, buy even more. Now I also want to call out here that Easter in 2026 is now going to happen a little bit earlier than it did in 2025. So we expect that around SEK 30 million to SEK 40 million in sales will shift from Q2 into Q1 as a result of the Easter phasing, and that's largely Pick & Mix in Sweden. So our sales will be up, but also with a slightly softer gross margin in Q1. Regardless, there are more opportunities for growth. And as mentioned, we are on track to reach long-term growth target, but we want to grow with profit, including us taking a fair share of the value that our products generate. So let's look at the profit. So you have surely noted, and Katarina mentioned, with an exceptionally strong quarter 4 at 13.9% operating profit margin adjusted, we are for the full year reporting 12.1%. And you should be wondering sort of why is that not the headline of the report, to deliver the midterm target of 12%, which was supposed to happen no later than 2027 already in 2025. And Katarina mentioned this, and the reason is quite simple. In 2024, as we shared at the time, we incurred significant cost on account of a supplier having delivered a nonconforming component to us. This Q4 results includes a partial compensation for the cost related to that incident. So the negotiation is still ongoing, and I will not go into detail on the amount for now. But just as those costs weighed down our result in 2024, the partial compensation now lifts the Q4 results and our full year operating profit margin tips over to the reported 12.1%. Now we expect to close this process in the first half of 2026, but we will wait with celebrating reaching 12% until we are there in a repeatable manner. But we shouldn't get distracted by that compensation because also without it, we are delivering our strongest full year margin in almost a decade and an operating profit adjusted, and this is the first best ever today. As you can see in the report, it's a profit of over SEK 1 billion. We continue to lift our margins back up again with cost control, including the restructuring of the organization this year, net revenue management, product portfolio and via fair pricing, and all the while, while continuing to invest behind our 10 Superbrands. And it is these actions that make Q4 our seventh consecutive quarter with improved margins versus the same period the year before. And it is these consistent improvements that puts our midterm target of at least 12%, no later than 2027 in sight already for 2026. Now I did say lift back up again. So let's move to the slide showing the margins by segment, and let me comment a little bit on that. So looking at the segments over and under, both segments margins improved in the quarter over last year and for the full year. And the Pick & Mix segment on the lower half, quarterly margin of over 8%. That's right in the middle of our target to be between 7% and 9%. We believe the targeted long-term range is the appropriate range to continue to drive growth in the category as well as geographic expansion in line with our strategy. On the full year, the margin is at the upper end of that range at 9.2%. For the Branded segment, the full year margin is just over 13%, which is a great recovery of 150 bps versus last year, including with the compensation that this brings us closer to the average margin we had during 2022 and 2023 when we were just shy of 13%. So Packed margins are still below the pre-pandemic levels, and we will continue to seek to further strengthen these margins and over time, return to the level where we were before the pandemic and the pricing compression. Now I should mention here that irrespective of the partial compensation, the Q4 margins are normally a bit stronger than in Q3 and the following Q1 margins are generally a bit down versus Q4, including due to portfolio mix. And for Q1 2026, given the mentioned shift with more Easter sales, which is Pick & Mix, that will negatively affect the margins for quarter 1, given the higher relative margin in the Packed segment. Nonetheless, let's move to the sales, general and administration. So the result is helped by the change in the operating structure we announced in Q2, executed in Q3, and we went live with at the start of Q4. We had shared that we expected that 20% of our full year announced savings of SEK 60 million to SEK 70 million will be realized in 2025. And I'm pleased to share that we have done better than that, delivering roughly 30% of the annualized savings this year. So just about SEK 20 million and the majority of that, of course, in quarter 4. Now in the table, you can see favorable items affecting comparability, and that's mostly about the provisions for the restructuring being smaller than the impairment for Nutisal the year before. So the items affecting comparability comes out as a favorable variance. But in Q4, we actually released some earlier provisions relating to the restructuring since we managed below the expected cost in certain areas, again, helping the Q4 margin a bit. And we are tracking well against our previously announced total budget of SEK 60 million to SEK 70 million. On the column with the currency effect, I should also say, you can see the translation effect that I mentioned earlier has also led to lower -- it led to lower reported sales, but it also leads to lower reported SG&A cost. That apart, the rest is a further step-up in spend to support our 10 Superbrands, both in the quarter and for the full year. There's also higher merchandising costs given higher volumes. There's a general inflation, and that is largely offset by the in-year savings from the restructuring. So overall, the SG&A costs are held in check. And for Q1, we will step up A&P further. We're launching a lot of new exciting products, which is a direct effect of our new strategies, third pillar to excel in marketing and innovation, and we will support these products to ensure they get a good start and help us drive the top line. We have fairly obviously created space in our P&L for a higher level of investments in our 10 Superbrands and then drive a virtuous cycle of growth leading to profit and reinvestments. Coming then to our cash flow. I shared in Q3 that the strong cash flow that quarter and year-to-date was not a phasing. And I can also show it with what is our second best ever, for the full year 2025, we have, for the very first time, delivered over SEK 1 billion in operating cash flow. It's actually SEK 1.057 billion. Now the operating cash flow is, of course, in the report, but it's not visible on this slide. But you do get a sense from it when you look at Q4 step-up in free cash flow by almost 50% from SEK 264 million last year to a strong SEK 394 million there in the middle of the upper graph. Now the key drivers of free cash flow are, of course, the stronger operating results and then a favorable working capital management. CapEx in the quarter, that's SEK 31 million. That continues to be on the low side, in line with what I have said throughout 2025, which is that the investment will start to rise in the future to secure the growth and profit, and we will come with an update on the strategy for operations in the first half of this year. And that brings me to my last slide, which is on the financial position and the third best ever, which is that our leverage where we closed the year with a net debt-to-EBITDA of 0.7, so well below our new target to stay below 1.5. And the result is a combination of the strong cash flow, resulting in a lower debt, which is now below SEK 1 billion at SEK 956 million and of course, the improved earnings. And with the low debt, we have plenty of access to additional unutilized credit facilities and commercial papers, which together with cash on hand, totals SEK 2.8 billion as we close the year. So we are pleased to have created good conditions also with respect to our fourth financial target on dividend and for the Board having proposed and assuming shareholder approval, what will be our fourth best ever for Cloetta, and that is an ordinary dividend for 2025 of SEK 1.40. That will be a 27% increase versus last year. And Cloetta will have paid out ordinary dividends of SEK 1.6 billion in the last 5 years, which is almost a 50% increase versus the 5 years prior. And on that promising note, I will again conclude that our financial position developing in line with our set target is really strong, and I hand back to you, Laura. Laura Lindholm: Thank you very much, Katarina, and thank you, Frans. It's now possible to either dial in and ask questions live or alternatively post your questions through the chat, and we have quite many questions already in the chat. So let's get going. The first question comes from DNB Carnegie. With the high volatility in cocoa prices, do you expect a consumer price drawdown in your chocolate offering going forward? And how do you roughly see the time line for this going into 2026? Frans Rydén: Maybe I'll take that one. So well, I hate to disappoint you in the sense that we are Northern Europe's leading confectionery company. And given where we are in the market, we shouldn't be price signaling what we will do going forward. So we will, of course, continue our fair pricing strategy and to ensure we get a fair share of the value that our products are generating and make sure that people continue to visit our customers to buy them and enjoy them. That's all I can say on that. Laura Lindholm: Very good. And we continue with questions from DNB Carnegie, still on topic of pricing. Maybe something on your current best guess regarding peers' pricing on chocolate products or general pricing in the market and current perception on consumer price elasticity for the chocolate brands? Frans Rydén: Okay. I don't want to comment on the competition. beyond that I hope that they also buy our products and enjoy them in their office. But no, but what we can say is we've said it before and that was quite -- it was visible to all the manufacturers is that when the cocoa cost was going up and prices were going up, consumers sort of moved into adjacent categories to enjoy the chocolate flavor, but not with the same level of cost. For example, you would take a chocolate muffin because it tastes chocolate, but there's not so much cocoa in it or some chocolate ice cream. And obviously, now depending on what happens with prices, you could imagine that some of those consumers will come back into the pure confectionery category. But for us, now chocolates is a little bit over 20% of our portfolio. So for us, this hasn't been such a big thing, but I can imagine for some of the competitors that are really dependent on the chocolate category that this would play a bigger part. Laura Lindholm: And then focus on 2 of our growth markets. Peers have cited some increasing price elasticity among consumers relating to cocoa prices, especially in Germany and U.K. towards the end of 2025. Do you experience similar market pressure in those regions currently? Frans Rydén: So -- well for us, chocolate is predominantly in the Nordics, in Sweden and Finland, and we don't really have a chocolate business in Germany and in the U.K. But I think, generally speaking, price elasticity is about people being insensitive to pricing and continuing to consume at the same level also when it goes up. And to some extent, I think consumers have gotten used to higher prices, but let's see what happens. I think for us, what we have flagged is that we have really strong growth in the Nordics, and it's been more challenged on the continent, although now in Q4, it's improved and it's a bit more stable. And that's -- but that is more about overall societal discussion around food pricing than any specific category. Laura Lindholm: Good. And then one last question from DNB Carnegie. I think, we touched upon this already, but maybe a recap. So you mentioned end of the year that you're ahead of the expected run rate to deliver 20% of the annualized savings from the April 2025 structure change. Can you give us some more details on that? Is that saving larger than expected or rather realized ramped up faster than anticipated? Frans Rydén: Now, that's nice. It's almost like I paid someone to ask that question because no, we're super pleased. I mean we announced it in Q1 -- sorry, in Q2, executed in Q3, and we went live beginning of Q4. So I think as a company, we move fast. And what we're saying is that out of the full savings of SEK 60 million to SEK 70 million. We are now delivering closer to 30% of that within the year. So it's a faster -- so we're phasing more of it into this year than what we had originally hoped. So we move faster. It's not that the total amount is changing. Laura Lindholm: Excellent. And it's a busy results today. So the questions from Nordea also comes through the chat. Looking at your long-term growth target of 3% to 4%, how should we think about the contribution from Nordic Superbrands versus the IKEA agreement and the U.S? Katarina Tell: Yes, I can answer that one. So as we presented during the Investor Day, in the beginning of our strategy, more of the growth will actually come from our Superbrands in our core markets, while on the longer term, we will see a bigger growth coming from outside our core markets. So I hope that answered the question. Laura Lindholm: It does. And then second one, could you also update us on the performance in Germany and the U.K., which had some softness in Q3? Frans Rydén: Yes. I touched on it as well that it's more stable, but it's not growing at the rate that our Nordic countries are. And this -- you could say that if you wonder why we made a specific strategic priority of growing beyond the core markets, this is kind of the reason why. We think that there's huge opportunities, but it was also an area that required extra focus, and you can see why we decided to put the focus on it. Laura Lindholm: Good. And then we move on to IKEA. Could we get some more color on the IKEA strategy and what you expect from that agreement? Katarina Tell: Yes. So we made a global agreement, as I said, during 2025. And of course, the details in this agreement is confidential, so we can't share. But what we can share is, of course, that we have our Superbrands. We have a portfolio now available in 14 different countries, and we have planned to roll this out in more markets during 2026 and 2027. Laura Lindholm: Very good. And then for the compensation, you received partial compensation for the 2024 supplier quality incident. What would Q4 margins have looked like on a normalized basis, excluding the compensation impact? Frans Rydén: So we are currently in negotiation around this. That's why it's a partial compensation. So we're not providing a specific number here. But what we've shared is that obviously, this gave an extra jolt to Q4, and it's sort of the full year tipped over to a 12% EBIT margin and which is why we're not really celebrating as we otherwise would have. We want it to be repeatable. But we shouldn't get too distracted by that. This is now 7 quarters of expanding margin versus the year before. And it's obviously come from what we are controlling on a day-to-day basis, which is innovation, pricing, mix, other margin-enhancing initiatives as well as our own cost control, and that's what's driven this. It would still be really, really good, but it would not have been 12% for the full year. Laura Lindholm: Good. And then a final question from Nordea before we move on to other people. Pick & Mix, showed softer profitability and growth in Q4 versus Q3. What explains the quarter-on-quarter change? And what should we expect in the near term? Frans Rydén: Yes. I think, we -- again, what we're doing is we are managing the full portfolio. We're looking to expand Pick & Mix, as we said also when we launched the strategy into new markets. Katarina shared about North America. We've also spoken about other markets. And we will do that in a profitable manner. And we're right in the middle of where we're supposed to be. And between quarters, sometimes it will go up a bit, sometimes it will go down a bit. But long term, I think it's the trajectory is very clear. Laura Lindholm: Very good. And then we have 2 more questions in the chat. They are on the same topic. So I will hence only take the first one. Is it possible to quantify -- it comes from Danske Bank. Is it possible to quantify the compensation amount during the quarter? And would Branded Packaged increase profits without the compensation? Frans Rydén: So it's a super popular topic here. But yes, so we didn't quantify it in 2024 when it happened. We obviously shared with the market and made it clear, and we're not quantifying it now given the fact that it's still an ongoing discussion, but we have received partial compensation. It did help the quarter. It helped the full year tip us over 12%. But by segment or for the full company, we would nonetheless have been improving versus the prior year. Laura Lindholm: Excellent. Thank you very much, Frans. Then Meruna, just to check, do we have any questions from the telephone lines? Operator: There are no questions from the phone. [Operator Instructions] Laura Lindholm: Thank you. It also appears that our chat questions have been answered. So Meruna, nobody there. No last question from the line? Operator: No. Laura Lindholm: Thank you very much. Then it's time to start to conclude our event today. Now some of you might have noticed that we actually used the same image of the delicious looking CandyKing candy that we have used in the presentation. I'm very happy to share on behalf of our Pick & Mix team that this CandyKing collab product will be available in stores in Denmark this week, and in Sweden and Norway next week. In Finland, you will find it during May. And in the U.K., you have to wait until fall. These collab products will exclusively be available in CandyKing points of sale. We, of course, also take the opportunity to remind everybody of our upcoming IR events. Our next report Q1 is published on the 6th of May. But in addition to that, as per usual, quite a lot is happening. Tomorrow, we attend an investor lunch in Stockholm hosted by Danske Bank. You can still sign up. And the IR program for the spring also includes 2 plant visits. I'm super happy that one of them arranged by DNB Carnegie's Montrose team, is especially focusing on private investors. Our next seminar will be Handelsbanken's Nordic Small And Mid-cap Seminar, which is held in Stockholm in the beginning of June. It's now time to conclude for today. Before we meet again, we, of course, hope that you get the chance to enjoy our wide portfolio of confectionery products during many joyful occasions. Many thanks for joining us today.
Operator: Ladies and gentlemen, welcome to the Fourth Quarter and Full Year 2025 Conference Call. I'm Vicki, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Aritz Larrea, President and CEO. Please go ahead, sir. Aritz Uribiarte: Thank you very much. Good morning, everyone, and welcome to the fourth quarter and full year 2025 presentation for Loomis. My name is Aritz Larrea, and I'm the CEO of Loomis. And with me here today, I have our CFO, Johan Wilsby; and Jenny Bostrom, our Head of Sustainability and Investor Relations. I'll start by providing a quick summary of our fourth quarter as well as our full year performance, and we'll also talk about our accomplishments for the first year of this strategic period before taking questions. Let's start the presentation by turning to Slide 2. We delivered a solid and positive performance in the fourth quarter with revenues reaching SEK 7.7 billion despite a 10% negative impact from changes in exchange rates. Currency adjusted growth reached 7.5%, driven by 4% organic growth, solid despite the headwinds in our ATM business and a solid contribution from acquisitions. In the quarter, we saw very strong growth within the International and FXGS business lines due to an increased demand for the movement of precious metals, driven in part by geopolitical uncertainties. Our performance was driven not only by market conditions, but also by our expansion of the addressable market through the opening of new geographic lanes and our ability to capture global demand. We also continued to deliver strong growth within the Automated Solutions line of business during the quarter. The business mix, along with higher efficiency resulted in an increased operating margin of 13.2% versus 12.9% in prior year, with an operating income of above SEK 1 billion. This is the highest EBITA we have achieved for fourth quarter, and I'm pleased to see that the restructuring and efficiency initiatives we have taken, successfully growing the business without increasing headcount are supporting the margin expansion. We delivered another quarter of strong operating cash flow with a cash conversion of 99% for the year, and the free cash flow in the quarter was close to SEK 1.2 billion. This robust cash generation enables us to continue investing in the business while also delivering attractive returns to our shareholders. In the fourth quarter, we completed the acquisition of the precious metal storage facility in Toronto that was announced in the third quarter. This acquisition strengthens our local presence in Canada and expands our depository services and storage capacity within the International business line. During the year, we remained active in M&A while maintaining a disciplined approach to capital allocation. Despite continued investments in the business and the execution of our share repurchase program, our net debt-to-EBITDA ratio improved year-over-year. This discipline is also reflected in a return on capital employed of above 16% in the quarter. During the quarter, we repurchased about 540,000 shares for a value of SEK 200 million. In total, during 2025, we have repurchased close to 1.5 million shares for a value of SEK 600 million. The Board of Directors has proposed a record high ordinary dividend of SEK 15 per share to the Annual General Meeting. And in addition, the Board of Directors has proposed an extraordinary dividend of SEK 5 per share in an extraordinary dividend. This brings a total distribution to shareholders above SEK 1.3 billion. Let's now turn to our reporting segments, starting with Europe and Latin America. Our European and Latin American segment delivered a solid performance in the quarter with revenues reaching close to SEK 3.7 billion. We achieved an organic growth of 1.9%, which was strong considering the communicated decline in the ATM business line. The uncertain geopolitical climate has increased global demand for secure logistics and the management of physical assets such as precious metals, and our teams have successfully grown the business in this environment. It's impressive to see that the International business line grew over by 30% in the quarter compared to prior year. The operating margin increased by 40 basis points to 12.5%. And for the full year, we increased our operating margin by 0.7 percentage points to 11.8%, demonstrating that our focus on operational efficiency yields positive results. Let's move on to the next slide to talk about the U.S. The U.S. segment delivered another strong quarter. If we adjust for the currency impact, which was negative 13%, the U.S. achieved record high revenues and operating profit. Organic growth was 5.5%, and the acquisition of Burroughs contributed positively to the overall growth. The International and Automated Solutions lines of business had notably strong performance in the quarter. It's worth highlighting that it was the 16th consecutive quarter that the Automated Solutions business line has achieved double-digit organic growth. Our implemented operational efficiency measures continue to show results, allowing us to grow the business without adding employees. At the same time, we have secured a high service quality and maintained customer satisfaction. The integration of Burroughs into our U.S. operations and our Loomis culture is progressing as expected, and we are still early in the integration process. Burroughs is a strong strategic fit, and it allows us to provide a fully integrated ATM and Automated Solutions service offering to our customers. We are actually working on stabilizing the revenue and on improving our service quality. Once this is achieved, we will shift our efforts to improving operational efficiency and over time, focus on gaining market share. The volume growth, combined with improved efficiency contributed to the improvement of operating margin. The operating margin surpassed 17%, which is a new record for us. Let's turn to the next page and talk about SME/Pay. Revenues in the SME/Pay segment increased to SEK 71 million in the quarter. Nearly 40% of this revenue now comes from core and adjacent business lines, demonstrating that our strategic focus on SMEs is delivering both growth and margin. The reduction in the operating loss compared to the previous year is in line with the strategic priorities for the segment. Transaction volumes within the Loomis Pay business line increased 24% in the quarter compared to the previous year and reached SEK 2.3 billion. The migration to new POS platforms allows Loomis Pay to focus on larger SME customers in additional customer verticals. In this process, Loomis Pay has chosen to not migrate nonprofitable customers, which somewhat impacts settled transaction volumes going forward. Let's now move to the next slide, where I'll share a few updates on our sustainability progress. I'm pleased to share that we are progressing well towards our strategic sustainability targets. We have reduced our recordable work-related injury rate by 10% in 2025 compared to 2024. While this is in line with our target, we have never done and will continue our efforts to keep our employees safe. The Board has adopted a new group operational health and safety policy. This program will be rolled out during 2026, strengthening our group-wide focus on employee safety. Compared to 2024, we have reduced our Scope 1 and 2 emissions by 4%, if we exclude the emissions from the acquisitions of Burroughs and Kipfer-Logistik. Including these, we reduced emissions by about 2%. Continuing to grow the business while reducing emissions is, of course, challenging, but something we are committed to. And we, of course, aim to do so in a cost-efficient way that also supports our business. Efforts are already ongoing to include Burroughs in a carbon reduction plan by renewing their vehicle fleet. To put this in perspective to our CO2 targets, with the restated baseline for acquisitions, we have reduced our emissions by close to 26% compared to 2019, which is a step in the right direction to reaching 34% reduction by 2027. Now let's turn to the income statement slide, where I'll begin by noting that despite a significant negative impact from exchange rate fluctuations, we have achieved strong currency adjusted growth. This quarter includes costs classified as items affecting comparability, primarily related to the communicated impairment of goodwill as well as provisions for the ongoing legal case in Denmark. The impairment also had an impact on the effective tax rate since this was largely nontax deductible. For 2026, you can expect an effective tax rate of about 30%. Our financial net has declined compared to the previous year, following lower financial expenses driven by declining interest rates. I would also like to highlight that also our net debt-to-EBITDA ratio has declined year-over-year and is well below our ambition to be below 2x. Now let's move on to the next slide, where I'll summarize our 2025 performance in relation to our history. As we can see, we have a stable and resilient business model that continues to deliver. We ended 2025 with a record high operating margin of 12.7%. Despite the significant currency headwinds, we maintained the level of SEK 30 billion in 2025. Our currency adjusted growth was 6%, fully in line with our financial targets for the strategic period. If the exchange rates had been at the 2024 levels, our revenue would have been above SEK 32 billion for the year. 2025 was the beginning of a new strategic period for us. It has been a year characterized by macroeconomic uncertainties, a heightened emphasis on societal resilience and an increase in demand for security services amid a shifting and volatile global geopolitical landscape. In this environment, we made significant progress against our strategic priorities and delivered on our commitments, positioning the group well for the remainder of 2025-2027 period. Before opening up for Q&A, I want to remind you of what we have committed to last year at our Capital Markets Day and what we have achieved after the first year of the strategic period. Here, you see our 4 strategic priorities for '25 to '27, and I want to share my perspective on where we stand in relation to where we said we would be. Starting with growing in our established markets, a clear focus here is to accelerate growth within the SME customer segment. We are seeing healthy revenue momentum and solid margin contribution from SMEs across our key markets. We have also seen strong performance within International and Automated Solutions. However, as you know, we have been managing the impact of ATM business losses and are in the process of restructuring certain markets in Europe. Cash infrastructure is increasingly being called out as being an important piece in crisis preparedness and societal resilience, and we are a key part in keeping cash flows functioning in society. At the same time, we keep diversifying and our noncash-related services keep growing as well. In this environment, we have adapted and grown our addressable market within precious metals by opening new geographical lanes and expanded our storage capacity. While we have some more to do over the next couple of years, I'm confident about our journey. Moving to the second pillar. We have been very active in M&A during the year. Within core, we have acquired expertise and capacity within temperature-controlled logistics for pharmaceuticals as well as acquired a new storage facility in Toronto. Within adjacent, we have expanded into first and second-line maintenance of ATMs and Automated Solutions. And lastly, we have strengthened our digital offer on the POS side in Spain. We will continue to focus on generating both geographical presence but also diversifying our product and service portfolio through value-creating acquisitions. Our margin expansion is a clear demonstration of our progress within the third pillar, driving operational excellence and scalability. Our restructuring initiatives in Europe and Latin America are showing results, and we've been seeing clear margin improvements over recent quarters. In the U.S., the staffing planning measures and efficiency programs within CIT and CMS that were implemented since last year have consistently contributed to our profitability. And lastly, as I already touched upon earlier, we are advancing on our sustainability initiatives. We are dedicated to focus our efforts on where we have the most impact and where it also makes sense from a business perspective. We have submitted climate reduction targets to the science-based targets initiative for validation, taking a clear step towards focusing on reducing our Scope 3 emissions. This concludes my summary of the quarter and the year. Operator, we are now ready for questions. Operator: [Operator Instructions] We have a question from Simon Jonsson, ABG. Simon Jönsson: I hope you can hear me. A few questions from my side. First, on the International business, I think, obviously, it was one of the positive surprises on the report. Taking a step back, you have been clear before that comps will become tougher. And you also said before that some of these volumes should be viewed as temporary or short-term oriented. Of course, a lot has changed here in the recent months regarding the precious metals prices and so on. But my question is, where do you think we stand now from a broader perspective for your business? And do you think the long-term market dynamics have changed in any way? And I mean, what should we expect here in the coming quarters? Was there -- you said it before that we should view it as temporary, but I mean, was it even more temporary this quarter? Or yes, can you say anything about that? Aritz Uribiarte: Simon, thank you for your question. First of all, as you said, we need to understand that these businesses are cyclical in nature. But it is true that we have worked on growing our addressable market, as I said before, within the VIT. We have diversified our portfolio, expanding into the pharmaceutical. And we still have other areas like mining, let's say diamond and jewelry, low-value packages. When it comes to the trend, we were saying that we had difficult comps because we had a big increase last year in fourth quarter due to the U.S. tariffs. But the shipments, especially of silver have remained strong. And then both the prices of gold and silver have increased, and that benefits us. How do we see this trend is difficult to say, but we think it will remain very similar during the first quarter, first 2 quarters. And then I don't have a view on how it will end up the year. But we will keep increasing and try to grow the business organically. Simon Jönsson: Got it. And then moving on to other business areas. I mean, Automated Solutions also remains a very good growth driver, remain at good levels here. It looks like the growth is mainly coming from the U.S., but also from a broader perspective, can you maybe give us an update about the market for Automated Solutions mainly, I think, smart safes, for example, which you comment about on the CMD, for example. So maybe an update on what's going on in the market for -- in the U.S. specifically on smart safes. And do you think you're growing in line with the market? Or do you think you're taking market shares, or yes? Aritz Uribiarte: Here, it varies, as you said, when you look at the different regions. So I would say the first thing is we still have a strong pipeline in Automated Solutions in both regions. I would say that we have been growing -- gaining market share in both regions as well as in the U.S. and in Europe. In Europe, although we started the year a bit slower, I think the last -- the second half of the year has been really good when it comes to Automated Solutions. At the same time, we've taken advantage of the acquisition that we did with CIMA. CIMA is now our main supplier, not just in Europe, but also we're also exporting safes and recyclers and front office machines to the U.S. where we plan on growing. And that's what we said at the Capital Markets Day, Simon. I mean it's not only smart safes. We're talking about recyclers. We're talking about front office machines. We're talking about kiosks. So everywhere where we could add the cash component to the digital or the technology-driven solutions, we will be there. And as I said before, in the U.S., it's been 16 consecutive quarters growing at double-digit growth. As I said, we still have a strong pipeline, and that will remain strong in the following year. Simon Jönsson: All right. Do you think it makes sense to assume that you expect double-digit growth to continue then? Aritz Uribiarte: We will continue being strong, yes. Simon Jönsson: All right. But your view is that the underlying market is growing double digits? Aritz Uribiarte: Yes. Simon Jönsson: Yes. Moving on to maybe my last question here on capital allocation or a two-part question basically. You didn't announce any buybacks. I know sometimes you don't do it on every quarter, but I mean, it can be obvious reasons for it. But can you say anything on the buybacks and why you don't announce the program here? Or how should we view it? So yes, maybe start there. Aritz Uribiarte: Yes. To summarize, let me tell you that our capital allocation priorities remain exactly the same. Our aim is to use our capital in the best way to generate return and to maximize distribution to shareholders. That has not changed. So we will continue maximizing distribution to shareholders. That's what I would say. Simon Jönsson: Yes. All right. Do you think it's fair to say that you're also balancing the buybacks with -- now you have extra dividend. So should we keep that in mind that you are viewing it as a total pool of capital return? Aritz Uribiarte: Share buybacks are always in our mind, and we will continue doing share buybacks in the future. Simon Jönsson: Yes. All right. And then lastly on acquisitions. I think you made it clear that you will continue to look for value accretive acquisitions. But can you say anything about what is going on with the pipeline right now? Do you think it's -- is the pipeline building? Are you changing any sort of areas you're prioritizing? Have you made further shifts into how -- into what you look for, for example, do you look more into international areas to broaden that business? Or yes, where are you currently looking? And where do you think the M&A pipeline is more tilted towards? Aritz Uribiarte: So the M&A pipeline remains the same. It's a strong pipeline. We have not shifted. I mean when we presented our strategy at the Capital Markets Day, we did talk about not only investing in CIT, CMS, we were looking into the VIT and VMS areas as well, and we've proven to do that with the facility that we acquired in Toronto and the pharmaceutical business company as well. And we have those in our pipeline as well. So we haven't made a shift, the pipeline remains the same and our strategy remains the same as what we communicated. And it's both cash and noncash companies that we're looking into. And then as I always tell you, I mean, it all depends on meeting the seller expectations when it comes to price because obviously, we want these acquisitions to be accretive to us. But no major shift. And yes, we're focused on the International business as well. Simon Jönsson: All right. And in terms of price development, what have you seen here in recent quarters or in 2025 in general, what did you see in terms of shifts? Aritz Uribiarte: I think it's pretty stable. I mean I talked about in the past that before COVID, everybody had very high expectations. Then after COVID, those have come down. As I told you, we need to meet the seller and us regarding the price, and prices are more or less stable. That has not changed either. If you look into international, for example, obviously, with such a strong quarters in international business companies, the price is higher, obviously. But due to that it's cyclical, we need to do the right analysis. Operator: [Operator Instructions] Mr. Larrea, there are no more questions registered at this time. I would like to turn the conference back over to you for any closing remarks. Thank you. Aritz Uribiarte: Thank you very much all for listening in. And please reach out if you have any follow-up questions. Thank you. Bye-bye. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Michael Green: Good morning, everyone, and welcome to this presentation of Handelsbanken's results for the fourth quarter and full year of 2025. The bank reported a solid fourth quarter with net profits from continuing operations, up slightly compared to Q3 and a return on equity of 13%. The savings business continued to perform well with strong inflows in customer savings. Assets under management reached an all-time high in our home markets. Household lending has started to grow again in most of our home markets. And in the U.K. and the Netherlands, we now have also seen several quarters with steadily growth also in corporate lending. All in all, the income increased in the quarter, while the normal seasonal pickup in expenses was fairly modest. Asset quality remained very strong, and we added yet another quarter with net credit loss reversals, bringing the consecutive count to 8 quarters in a row with net reversals. So given the solid asset quality and strong financial position of the bank, the Board proposes a dividend of SEK 17.50 per share to the AGM, which an ordinary dividend of SEK 8 per share and an extra dividend of SEK 9.50 share. The CET1 ratio of 17.6% was 2.85% above the regulatory requirement. In other words, the bank is now back again in the long-term range of 100 to 300 basis points above the regulatory requirement. Now if we look closer at the financials of the fourth quarter compared to our previous quarter, ROE amounted to 13% and the cost-income ratio was 41%. Operating profits were down marginally, but net profit from continuing operations increased slightly. Adjusted for currency effects, the NII declined by 3%. The drop was explained by negative margin effects due to lower short-term market rates and by a year-end calibration of the deposit guarantee fee for 2025. Fee and commissions increased by 5% and were driven primarily by continued strong net inflows into assets under management and positive stock market develops, boosting the savings business. The NFT increased somewhat and over income -- and other income, sorry, was supported by VAT reassessment in Sweden and Denmark of around SEK 200 million. So all in all, the income grew by 1%. Expenses usually increased some in Q4 as the activity level is always higher after the preceding summer quarter. The increase of 2% was, however, relatively low compared to in previous Q4s, which reflects the increased cost focus in the bank. Net credit losses amounted to SEK 5 million. If we switch over and look at full year of 2025 compared to 2024, ROE amounted to 13% for the year and the cost-income ratio to 41.5%. And adjusted for currency effects, the NII declined by 7%, again, mainly as a result of the material cuts in central bank policy rates during this year, affecting the margins. Net fee and commission income, on the other hand, remained resilient and increased by 2% adjusted for FX effects. The key contributor was again the savings business. The NFT was down due to temporary negative effects in the second quarter in 2025. All in all, total income dropped by 9%. Expenses at the same time dropped by 7%. And when adjusting for the FX restructuring expenses and Oktogonen, the underlying decline was 3%. The reduction of the running cost base of the bank came as a result of the initiatives carried out over the year -- the last year-and-a-half. This enabled the bank to counter general inflation and annual salary increases by a wide margin. Net credit losses reversals amounted to SEK 313 million compared to the SEK 601 million a year ago. All in all, the underlying operating profit was down by 12%. Now if we take a closer look on the NII development compared to the previous quarter. As said, the NII dropped by 4%. Over a number of quarters, we have seen positive signs of recovering growth in particular in the U.K. and the Netherlands, but also in the mortgage lending market in Sweden. Overall, however, volume development only contributed with SEK 14 million to the NII in the quarter. The main effect in the NII rather related to effects from policy rate cuts with lower short-term rates, which impacted the net interest margins. In Q4, we received the final bill for the deposit guarantee fee in 2025 from the Swedish National Debt Office. It was a touch higher than expected and resulted in a top-up in Q4, burdening the NII with around SEK 50 million. Currency effects were negative due to the strengthening of the Swedish krona. Net fee and commission income increased by 5% in the quarter. The bulk of fees and commission relates to the savings business, especially in the mutual funds offering. That's an area where the bank has seen the bulk of the increase in fees and commissions due to both positive market development as well as continued strong net inflows into our funds under management. In both Sweden and Norway, the bank's market share of inflows into mutual funds exceeded the market share by the outstanding volumes by more than 2x in 2025. This has consistently been the case for over a decade in Sweden. In Norway, it has been the case since the bank refocused 2 years ago to a more balanced growth between lending and savings. Other fees have grown a bit more moderately. Now over to the expenses. As shown in the slide, the trend of increased cost has broken in 2024 and the expenses have since then traded -- trended down despite annual salary revisions and general cost inflation. Central and business support functions have been streamlined and the use of external consultants materially reduced. The positive trend has continued also in Q4 in 2025, and we can note that the underlying staff costs are down by 5% compared to the same quarter last year. Looking at the other expenses, they were down 4% -- were 4% lower compared to the same quarter in 2024. And the bank is now in a very good position in regards to cost efficiency. But that does not stop us from continuing to strive every day to increase our productivity. And as part of that daily endeavor, we always explore and embrace new opportunities arising from technological advancements. One obvious field today is the AI, where we spend a lot of time and resources in examining the potential for improved operational excellence and productivity as well as for further improvements of the customers' experience and the bank's value proposal. Now over to asset quality and the credit loss reversals. When summing up the last 5 years, meaning since before the pandemic, the bank has in total booked net reversals and as said now the 8 quarters in a row with reversals. The absence of credit losses is an evidence of the prudency in the bank when it comes to managing credit risk. It reflects the bank's underwriting procedures and policies, the risk appetite and the customer selection as well as the preference for collateralized lending. But also not least in the ability to detect early signs of credit risk deterioration and the ability to quick make this necessary actions and decisions. In this context, the local presence through our branches and the close relationships with our customers is essential, but cannot be emphasized enough. Now turning to Slide 9, a few words about our respective home markets. To start with our largest home market, Sweden, which accounts for 71% of group earnings. The market position for the bank is strong with the bank being the largest combined lender in private and corporate lending. Mortgage volumes are now growing again and have been since the last spring, although with a bit moderate pace. The market share of the net new mortgages was 6% in the first half of 2025, but doubled to 12% in the second half. Corporate lending volumes remains a bit on a standstill, but expectations for recovery along with general economic growth in Sweden going forward. The saving business, as I've touched upon earlier, continued to develop well. The cost-to-income ratio was 33% in Q4 and the profitability around 15%. The U.K. accounts for 14% of the group earnings. Household lending volumes has consistently grown since early 2025 and we were up another 1% in Q4. Corporate lending has grown consistently since the summer of 2024. In Q4, the volumes were up by 2%. We also see deposit volumes increasing steadily on both the household and the corporate side. In the recent quarters, the efficiency has gradually improved, and we are now starting to see initiatives filtering through in the cost base that offset margin pressure on the NII relating to lower short-term rates. The cost-to-income ratio improved in the quarter to 57.5% from 59% in Q3. The operating profit increased by 3% in local currency and the profitability was 13%. Norway accounts for around 9% of the group earnings. After a refocus period that started during the spring in 2024, the business is now gradually becoming more balanced between lending, deposits and savings. While the competition in especially the mortgage market is fierce, the bank continues to focus on deepening our customer relationships and also in the fields of deposits and savings. As mentioned, the savings business is progressing very well in Norway. In 2025, the bank attracted 6% of the net inflows into mutual funds in Norway compared to the market share of just about 2% on the outstanding volumes. For the full year, the cost-to-income ratio improved to 43% from 46% in 2024, and the profitability improved from -- to 11% from 10%. And finally, the Netherlands account for 2% of the group earnings. And just like in the U.K., the trend shifted 1, 1.5 years ago on the household and corporate lending side. We have now seen a steadily growth month by month. The positive volume development was, however, offset by the margins due to lower short-term euro rates. The ROE fell slightly in the quarter. The bank is in a very solid financial position. Credit risks, funding risks, liquidity risks and market-related risks are prudently managed and the capital position is strong. After the proposed dividend of SEK 17.50 per share, the CET ratio stood at 17.6% or 285 basis points above the regulatory requirement and therefore, now within the long-term range of 100 to 300 basis points. The dividend proposal corresponds to 146% of the earnings generated during the year. The bank should always be considered as one of the most trustworthy and stable counterparts in the industry. This is also the view in the lending rating agencies who rates the bank the highest among comparable banks globally. And finally, to wrap up, we see now positive household lending growth in most of our home markets and within corporate lending growth also in the U.K. now again and in the Netherlands. The commission business is growing, and we see momentum continuing to build in the savings market -- savings business with strong inflows of assets under management into the bank. Income was up in Q4 and the cost discipline is maintained. Asset quality is robust and the financial position is very strong. The customer satisfaction levels during the year follow the long trend of being higher than average of our peers in all of our home markets and on both the household and on the corporate side. And we will continue our endless efforts on making sure that our advisers in our branches are close and easily available to our customers, simply providing an offering in the customer ask for and appreciate, local and personal as well as through our digital offer and by our 24/7 service over the phone. And finally, I'm also pleased to note that the total shareholder return created during 2025, meaning the share price performance plus paid out dividends exceeded 30% in 2025. And with those final remarks, we'll now take a short break before moving into the Q&A session. Thank you. Peter Grabe: Hello, everyone, and welcome back to this Q&A session. This is Peter Grabe, Head of Investor Relations speaking. And with me, I have Michael Green, CEO; and Marten Bjurman, CFO. [Operator Instructions] And with those words, operator, could we please have the first question? Operator: [Operator Instructions] The first question comes from the line of Andreas Hakansson from SEB. Andreas Hakansson: Well, one question then. Can we talk about volumes. I'm looking at -- I mean, you're growing nicely in the U.K. and Holland, as you say. But in Sweden, there's been no growth in the fourth quarter or year-on-year on lending or deposits while we know there's growth in the market. So could you tell us what's driving that and how you're going to turn that around? And same question for Norway, where loan or lending actually fell quite a bit in the quarter and so the deposits, how are you going to turn that around? Marten Bjurman: Andreas, this is Marten speaking. On Sweden first, I think it's fair to say that we are the largest lender totally in Sweden. And by that, it's fair to say that we struggle a little bit to grow more than GDP over time. So as we have now a little bit of a steady market or slow market in the corporate lending side, I think we suffer from that a little bit. And also, I think you should bear in mind on the corporate lending side that you're looking at the net number, and that is not very impressive. But still, there are things going on underneath that. We are leaving connections that we do not see fit in our book for various reasons, and we are bringing on things as well. So things are going on. We strive for activity, of course, and we hope that the market picks up a little bit. We believe so. We've been waiting for it quite a bit. So that's on the corporate side in terms of lending in Sweden. On household lending in Sweden, I think it's fair to say also that what Michael was saying earlier on that we have seen a pickup in our volumes in the second half of the last year. And I'm pleased to see that increased activity, and we have high hopes for that continuing into this year '26. In Norway, I think it's fair to say that it's been a tough quarter in Norway. I agree with you, Andreas, on that point. We have seen consolidation in the market. We have seen compressed margins also as a result of cuts in policy rates. And above all, I think we have seen fierce competition. So it's tough for us in the quarter. But bear in mind, we are long term. A quarter is a very short period of time. We have a deep trust in our way of banking. So each and every branch manager out there is fit to navigate through this. And I'm very confident that they will do so in the future. So we have to be patient a little bit. And if you look at the year, the total year in Norway, it's not good, but it's decent, I would say, in terms of volumes. Operator: next question comes from Magnus Andersson from ABG SC. Magnus Andersson: Just one question on capital. If you could tell us what made you change your mind now to move within the management buffer range as -- I mean, in previous couple of years, you've chosen to be above your management buffer range because of an uncertain environment. And now you seem to think that the environment is less uncertain. Just trying to get some predictability into it. Should we now expect you to remain within the buffer for the foreseeable future? And what could trigger you to revise that stance? Marten Bjurman: Thank you for that question, Magnus. Yes, the short answer is yes. I think you should expect us to strive to be within the interval as from now on, but let's come back to that a little later. I think you should also bear in mind where we're coming from. We're coming from years back, we had a huge surplus of capital for various reasons. So that's the starting point. And then we have gone from there, taking it down step by step. And I think we've been fairly clear on our intention on moving into that interval. I think we touched upon it quite a bit during Q3 closing that our intention is to move into the interval. So it shouldn't come as a complete surprise in my world at least. So I'm very pleased to see us taking that step. It has not so much to do with us changing views. We still think that our credit book is of superior quality, of course, and we don't see anything else that is worrying from that sense. So it's just a matter of prudency taking it step by step into the interval, I would say. Magnus Andersson: Okay. And just on capital on Slide 19, when we look at your risk-weighted asset progression, it's down 3% quarter-on-quarter. Is there anything in there that you would say could -- anything that could impact that level in 2026, we should be aware of? I saw that you moved your op risk change to Q4 from Q1. But is there anything else? Or is this a reasonable starting level? Marten Bjurman: No, I think -- I don't think that there is anything to highlight in that picture. It's nothing to be worried about looking forward, no. Operator: Question comes from Nicolas McBeath from DNB Carnegie. Nicolas McBeath: So following up on the question on capital. So now that you are within the target range for the first time since before the pandemic, could you maybe help us understand how we should think about the long-term average buffer within this range because it's a pretty big range. So should we think that you want to be in midrange over time or rather at the top end of the interval? Marten Bjurman: I don't want to guide where we want to end up in certain situations. I think it's -- you should bear in mind that this interval was set so that it can fluctuate a little bit. That's the whole purpose of it. Is it a reasonable size interval? You can debate that, of course, but it was set a bit back in the years. When it comes to the outlooks, I think as it regards anticipated dividend and all that, we'll come back to that in Q1 closing. So we don't -- I don't want to guide anything further. I'm extremely pleased that we are now in the interval again. Operator: Next question comes from Shrey Srivastava from Citi. Shrey Srivastava: Just one from me, please. You talked about the momentum in the U.K., where I see average lending and average deposits plus 1% sort of on an annualized basis. Is this sort of volume growth something you're happy with or sort of how should we look at it? Is it more the momentum that you're carrying in, in terms of sort of pipeline into next year? Or is it the realized performance? Marten Bjurman: Thanks for that question. I'm happy to print those figures for U.K. And I feel that this momentum in the business is now stable. It is a broad and healthy growth that we see. It's not something odd in it. It's across our branches that we are growing now. And I feel confident that, that will continue. I had the pleasure to go over there a couple of weeks ago. And it's evident that the branches in U.K., they are in a different space now compared to a bit back. So it feels good. Are we happy with the speed in terms of lending growth in U.K.? I think we can -- we always want more, of course, but I'm happy to conclude that this has reached a turning point in that sense. Michael Green: And I can just -- it's Michael here. I'll just chip in here. I think the -- overall in the bank right now, the ambition level and the goals for -- in each country and also in every branch for 2026 is quite higher than it has been before. So the willingness and the ability to work with more customers, especially in the U.K. and the Netherlands and also in the Norway to some extent, are on a much higher level when it comes to ambition, and we will be very close following up how this will work out in the -- in our different home markets. Operator: Our next question comes from Sofie Peterzens from Goldman Sachs. Sofie Caroline Peterzens: This is Sofie from Goldman Sachs. So just going back to kind of the growth in Sweden, could you maybe just comment a little bit how you see competition for mortgages, what the outlook is, how much kind of growth you would expect in mortgage lending? And also related to this, do you see any risk for -- kind of the risk rate for housing associations, which I believe is 3.7% currently that, that could be increased to kind of low teens or at least double-digit levels? Marten Bjurman: No. Okay. Again, I think bear in mind the size that we have in the mortgage market in Sweden. It's difficult to grow extensively. So in terms of outlooks, it's hard to tell. Again, I'm happy to see the momentum that we have later in the quarter, and hopefully, that will continue. I think as it regards to your second question, the housing association and the risk weights, we don't have any view in that for the moment, no. Operator: Our next question comes from Namita Samtani from Barclays. Namita Samtani: Can we just go back to the corporate lending market in Sweden? And can you just talk a little bit more of how you see competition there? And how do you see pricing as well? And could you maybe just also touch on the property management lending where it looks like the loan book on a net basis didn't really grow in Sweden in 2025. Michael Green: Yes. So in general, when it comes to the lending book in Sweden and the market there, so we always follow our customers. When they grow, we are there and do our fair share of the business. And the activity from our corporate partners or clients has been a bit muted even this year. I think many of us were a bit more optimistic when we entered the year. But then you had the liberation day and the tariffs and all that, and that actually made the customers a bit reluctant to invest and also the consumers. It all starts with consumers, and they've also been a bit hesitant to really invest or increase their spending in the year. But I'm very hopeful actually if we listen to our experts in macroeconomics in the bank, they're very positive to the growth in Sweden. Now we need, of course, to bear in mind that things can change as we saw last year. But the general view now is that we will have a quite high growth in GDP in Sweden, which we will benefit from because our customer -- we follow our customers when they grow. I think there is a bit more interest in investing from our corporate clients in the late of the year. And you should also, as Marten previously said today, it's -- we -- of course, we report always net figures, there is a change in the portfolio. So there are volumes that we actually more or less has welcomed us to come out of our books, and there are much more strong corporate business that has come on to our books in the last year. So the risk level and the performance of -- in the lending book is better than it was when we started the year. Operator: Question is from Markus Sandgren from Kepler Cheuvreux. Markus Sandgren: So I saw the margins are taking the NII down this quarter again quite a lot. And you have probably upcoming rate cuts in the U.K. and in Norway. Do you expect NII to trough in Q1 or during the first half year? Or do you have any expectations on when we should see growth? Marten Bjurman: I don't want to guide and be that specific on the Q1 number, of course. But yes, you're right. We are expecting rate cuts in those countries. The margins in U.K., they are pretty healthy as it is. So if we end up in a policy rate where we think, then we can do healthy business there. And a reminder also, I think the volume growth in U.K. can compensate quite a bit as it regards to the fall in margins. Norway, yes, we are struggling a little bit this quarter. We'll see what happens. We have -- we don't guide into Q1, but obviously, we see a lot of activities in our branches and hope for the best. Operator: Questions comes from the line of Max Jacob Kruse from Bernstein Autonomous. Jacob Kruse: So just on the growth you're talking about, could you -- should we read this as the cost management side that you went through over the past couple of years that is changing here and looking at investing a bit more into your business and perhaps staff levels? And if I could just also ask the VAT refund that you took in the quarter, is that all the ones you're looking to get? Or do you have other applications in the pipeline? Marten Bjurman: Thank you for those 2 questions. On costs first, I think, yes, I'm personally a little bit surprised of the outcome here. It's extremely impressive if you ask me that we continue to perform well on the cost side. For the future, yes, I expect that we gradually pick up a little bit in costs and have investments near the customer, near the business, and we are happy to do so. But first, we need to see the business growing and the need for us to spend more money. But again, you should remember who we are. We are Handelsbanken, and we keep the money tight to our body. So it's about being stringent from that perspective. The VAT recoveries, yes, you saw us print SEK 200 million. It's booked on the line other income. Some of that -- a portion of that, I think the number is SEK 142 million is related to the parent company for the year of 2019. So yes, potentially, we have a little bit more coming from that and in terms of reimbursements for the year after that, obviously, it's a little bit too early to go into details in that. But yes, potential is there. Operator: Next, we have the line from Riccardo Rovere of Mediobanca. Riccardo Rovere: Just a quick one. Again, on the management buffer, what should happen to bring this to the midpoint of the range to 200 basis points? Because you ramped it to 400 basis points on uncertainty. The situation doesn't look different at least to me at the moment, even probably worse, but you bring it down to 300 basis points now. So I was wondering what could drive it to 200 basis points? And is this your decision or a decision that you have to take together with the Swedish FSA because by magic, all the Swedish banks now got to 300 basis points exactly at the same time. So I was wondering whether this is a management decision or someone else decision? This is my first one. The second one I have is, if you could shed a little bit more color on the decline of RWAs in the quarter. What is driving that? Michael Green: So can I just take the last part of the first question, I'd say it's absolutely a discretionary decision within the bank's Board, and there's nothing to do with any authorities or something else, if I understood your question correctly. And we -- and I emphasize, we're not on the 300 basis points range, we're 285 basis points. And we just do what we said. We said we're going to go and move into the interval, and we've said it for many quarters now. And we will always assess every quarter or year actually where we would like the bank to be. So that's something we work with. But now we're in the range, and that could vary within the range. And it's up to our decision to make sure that we always run the bank prudently, but also has the capacity to be one of the largest lending providers in our home markets. And this is the assessment we do right now. Marten Bjurman: And on the question -- the second question there, the movement in RWA, I think you can see the details in the slide pack there. There are different components, obviously, volumes, migrations and risk weight floors and currency effects and other, but those are explained in the pack. Operator: [Operator Instructions] We have follow-up questions from Markus Sandgren from Kepler Cheuvreux. Markus Sandgren: Now I was just coming back to costs since you're taking them down or at least being quite much below what people expected in Q4. What's your feeling about how staff are taking this? Are they -- do you feel that they're happy? Or do you -- are you afraid of that you should lose important people as the compensation is not up to standards? Michael Green: No, on the contrary, actually. So the thing -- when you manage a downturn in a number of employees, if you have the right kind of leadership and the story with that and you see that the effects on the bank are there, you actually create the opposite. You create a very strong sense of -- and the feeling for the bank. You really want to be part of something that is actually evolving in the right way. And also the -- it also puts the finger on performance. So we always need to have people working very intensively, very hard on the business. And what happened, we actually -- most of the downturn in staffing was not customer -- in close to customers. It was on the head office and central apartments. And what happens there is that the branches, they feel that everybody who's supporting the business is being more productive, more cost efficient that really empowers them to do more business. And the mindset within everybody who's still there and most of us are, we are much more business-oriented this year than we were a few years ago from the central department. So we always -- we really make sure that we are there for our employees dealing with customers, and they really feel that. So I think absolutely doing -- having less people as we have now creates a lot of good energy. And the -- when you look at the employee survey we do every fall, it has never been on a higher level as this year. So we have a very, very strong committed workforce, if I put it that way, both in the -- close to our clients, sorry, on the branches, but especially nowadays also in central head office. So I'm very happy with the mindset of how you work and what we do here in the bank for whom. Operator: Follow-up questions from Sofie Peterzens from Goldman Sachs. Sofie Caroline Peterzens: Thanks again for taking my second question. So just a follow-up on Oktogonen. We saw that there was a small reversal this quarter of SEK 39 million. How should we think about Oktogonen going forward? Is it fair to assume that, that will be kind of 0 going forward? Or -- and is that important any longer for your staff? So if you could just kind of help us how we should think about Oktogonen contribution going forward? Marten Bjurman: Yes. I think Oktogonen still plays a role, obviously, in our corporate culture. I think it's expected for that to last a bit. When it comes to the actual number going forward, I think we just have to wait and see. It's always a little bit of a guessing game where we come out. Now we have had a little bit of a reversal in Q4. So -- but I don't want to predict the future from that sense. Is the Oktogonen here to stay? Yes. I think it's fair to say that it still plays a big role for our employees. Sofie Caroline Peterzens: But what drove then the reversal in the quarter? What was the rationale for reversal? Marten Bjurman: It's a huge calculation behind that. And obviously, it's related to our corporate target to have a stronger ROE than our peers in our way of looking at it. And that's mainly driven by where do we want to compare us versus the peers in terms of geographies and different things. So there's quite a bit of calculation going on there. And in this case, we had to revert a little bit that -- the number in Q4 again. Michael Green: And we also wait for the British Bank to post their Q4s in order to make the correct calculations. So this is the best assessment with the information we have right now from our competitors that has posted their Q4s. Operator: We also have a follow-up question from Namita Samtani from Barclays. Namita Samtani: Thanks for taking my followup. And I just wondered what's happening to the IRB model review in the U.K. And also what's happening to the Swedish IRB model review? I think there's a 50 bps requirement in your CET1 requirement. So just wondering what the update is? Michael Green: Yes, I understand the question, but the complexity and the processes that goes into that work is really evident, and it's far too many details to go into that in this call, I'm afraid. The outcome, we don't really know. We are working on the situation that we have in the IRB world, both in U.K. and for that matter, in other places as well. It's too early to tell -- to be concrete in that matter. Operator: Lastly, we have the questions from Riccardo Rovere from Mediobanca. Riccardo Rovere: Thanks for taking a quick followup. Just wanted to ask you at the beginning of the call, when you were asked about loan growth in Sweden, if I understand and remember correctly, you stated something like you see in the market, something that does not, how can I say, kind of comply with your risk profile. If I understood it correctly, could you shed a little bit more color what you were referring to, if I got it right? Marten Bjurman: Yes. No, let me clarify that. And sorry for being a little bit vague if that was the case. What I was saying, and I think that you're alluding to here is that we are a large lender in Sweden. So to be able to grow significantly more than GDP, that would mean that we would have to alter our risk appetite, and we obviously do not want to do that. So in the long term, I think it's fair to say that you should expect us to grow with GDP more or less. So I think that was the core message. Operator: At this time, there are no further questions from the line. Allow me to hand the call back to the presenters. Please continue. Peter Grabe: All right. Thank you, everyone, for listening in and for all the questions. And we wish you all a good day. Thank you. Michael Green: Thanks. Bye-bye.
Operator: Good morning. Welcome to the conference call on the results of the First Quarter of Fiscal 2026 of Infineon Technologies AG. I'm Matilde. I'm your Chorus Call operator. [Operator Instructions] The conference call is being recorded. [Operator Instructions] The conference call may not be recorded for publication purposes. I would like to now hand the floor to Florian Martens. Florian Martens: Thank you very much. Good morning, ladies and gentlemen. I hope that you all got off to a wonderful start to the new year, and I would like to welcome you to our conference call on the results of the first quarter of fiscal 2026. Participating at this conference on behalf of the Board are Jochen Hanebeck, the CEO; and Dr. Sven Schneider, our CFO. Dear listeners, as usual, Mr. Hanebeck will start by giving you an overview of the business performance of Infineon. Afterwards, both members of the Board of Management will be available to answer any questions you may have. Our conference call will end on time at 8:45. Of course, our press team headed by Andre Tauber and me myself will be available for any follow-up questions. And I'd now like to hand the floor to Jochen Hanebeck. Jochen Hanebeck: Thank you, Florian. Hello, and welcome. Dear listeners, we're only 1 month into 2026 and yet a lot has already happened when you consider the numerous geopolitical developments of the past few weeks. The markets and Infineon as well have seen quite a few events in the few recent weeks, and our company has been successful. At our annual press conference call in November, we already noted that the highly dynamic conditions make it challenging to predict the breadth and the intensity of the recovery in the semiconductor markets, with the exception of the AI-related business. We are seeing initial positive trends in the short-term indicators, such as order intake and lead times, which means that visibility is slowly improving. Nevertheless, we still believe that our assessment, that the recovery will be gradual and uneven is correct. The automotive and industrial markets have passed through the cyclical trough, but demand has not yet really picked up. The markets for consumer communications and computing applications, with the exception of AI, are only slowly beginning to recover. In contrast, AI-related applications continue to experience rapid growth. This is driven by ongoing massive investments in data centers for AI and the associated infrastructure. To make the most of the highly attractive opportunities available to us as the market leader in powering AI, we will expand our manufacturing capacity in this area even faster and bring forward the corresponding investments. Let me start by commenting on our planned acquisition of the non-optical analog/mixed-signal sensor portfolio of ams-OSRAM, which we announced last night. The EUR 570 million acquisition is a perfect strategic fit. We are further expanding our leading position in sensors, and we'll be able to offer our customers even more comprehensive system solutions in the future. The additional portfolio includes advanced mixed-signal products and leading solutions for medical imaging. We are strengthening our leading position in sensors for automotive and industrial applications and expanding our product range in sensors for medical applications. The additional portfolio covers these 3 end-markets in equal parts. The acquired business is expected to generate revenue of around EUR 230 million in the 2026 calendar year and support Infineon's profitable growth. The transaction will have an immediate positive impact on earnings per share upon closing. Future synergies will enable additional substantial value creation. Part of the agreement is a multiyear supply agreement with ams-OSRAM. Now as part of the transaction, approximately 230 highly qualified and motivated employees with expertise in research and development, marketing and management will join Infineon from ams-OSRAM. They will strengthen our sensor unit and radio frequency business unit within the PSS division. We highly value the extensive experience and expertise of our future colleagues and are looking forward to welcoming them very soon. The transaction does not include any production facilities. It comprises sensor products, research and development expertise, intellectual property and test and lab equipment. The completion of the acquisition is subject to the customary conditions, including regulatory approvals. We expect to complete the process in the second quarter of the calendar year. We are convinced that ams-OSRAM's sensor portfolio is a perfect strategic fit for Infineon, not only technologically and financially, but also culturally. The acquisition opens up new opportunities to us in established as well as in emerging target markets, such as the market for humanoid robotics. Now as you can see, Infineon and the start of 2026 have one thing in common, momentum. Let's now take a look at the development in Q1 of fiscal 2026. Infineon generated revenue of EUR 3.662 billion, the decline of around 7% compared to the previous quarter and is in line with our expectations and usual seasonality effects. To put this development into context, compared to the same quarter last year, our revenue rose by 7%. Adjusted for currency effects, growth would have been almost 14% compared to the same quarter last year as the U.S. dollar has significantly weakened over the last 12 months. The segment profit has declined to EUR 655 million. The segment profit margin was at 17.9%, which was relatively stable compared to the previous quarter at 18.2%. Our order backlog rose by a good EUR 1 billion compared with the previous quarter. At the end of December, it amounts to around EUR 21 billion. We are encouraged by the fact that we have now seen a continuous increase for around 6 months. Free cash flow amounted to minus EUR 199 million in Q1 compared to minus EUR 1.276 billion in the previous quarters. The previous quarter's figure, however, was significantly impacted by the completion of the acquisition of Marvell's Ethernet business. When comparing the figures, the strong organic free cash flow of EUR 904 million in the September quarter must also be taken into account. Now this was offset in the December quarter by lower business volumes, less public funding, higher capital expenditures, the payment of most of the annual variable compensation and an overall negative impact on working capital, the latter, mainly due to higher inventories. Those have been deliberately built up in preparation for a broader market recovery. Now on to the results of our 4 business areas in Q1. The Automotive segment generated sales of EUR 1.821 billion. This represents a decline of 5% compared to the previous quarter. The main reason for this were the usual seasonal order patterns and as expected, our customers' pronounced inventory management at the end of the calendar year. Compared to the previous year, ATV grew by 4%. At constant exchange rates, growth would have been as high as 10%. Segment earnings amounted to EUR 403 million. The segment earnings margin remained virtually stable at 22.1% compared to 22.4% in the previous quarter. Lower sales volumes weighed on the margin. We were able to largely offset this effect through lower underutilization costs in our production and product mix effects. We shifted production capacities to AI-related products. Looking at the development of the automotive semiconductor market in 2026, we continue to assess the situation as cautiously as we did in November. Vehicle numbers are in line with expectations or slightly above. There are still some uncertainties regarding the dynamics in China and the effects of U.S. tariffs. As far as the development of the semiconductor value per vehicle is concerned, we see a mixed picture in the short term. In the field of electromobility, there are headwinds due to the less favorable regulatory environment and the withdrawal or reduction of purchase incentives. Recent announcements, such as the reintroduction of purchase premiums for electric cars in Germany, will only have a limited impact on the business development in the current year. In contrast, the transition to software-defined vehicles is gaining momentum as more and more models are launched worldwide. Progress is also being made in advanced driver assistance systems, more comfort features and the switch to 48-volt architectures. All of these trends are continuing unabated. With our leading range of automotive semiconductor solutions, we are ideally positioned to supply our customers in all of the above-mentioned areas of application. We are aware of the different developments and are aligning our portfolio accordingly. In the case of power semiconductors for electric vehicles, we are reducing our involvement in less differentiated silicon-based solutions for the powertrain. Instead, we are focusing more on silicon carbide solutions, supplemented by analog sensor and control and connectivity components. In the area of software-defined vehicles, our recently acquired automotive Ethernet expertise and portfolio are proving ideal for providing comprehensive support to our broad customer base. In addition, sales of our AURIX, microcontroller family, are growing faster than the market, and we expect several new vehicle platforms featuring our products to be launched this very year. Lenovo's decision to use our AURIX microcontrollers as the safety host in the company's most advanced zone controllers for autonomous driving is one of the latest examples. We are also seeing continued design win momentum with power semiconductors outside the powertrain and with analog semiconductors. These include the latest 48-volt-based control system from a major American automaker and a steer-by-wire system from a German premium manufacturer. Let's now move on to Green Industrial Power. This division posted sales of EUR 349 million. The December quarter is usually the weakest in the fiscal year, and all application areas recorded declines in sales with the exception of the grid infrastructure segment, where sales increased significantly. I would also like to point out at this point that we took the GIP gate driver business and transferred it to our Power & Sensor Systems division at the beginning of the current year. This business has an annual sales volume in the high double-digit million euro range. The historical figures have, of course, been adjusted accordingly. On a comparable basis, GIP's 21% decline in sales compared to the previous quarter is high. In addition to the seasonality mentioned above, it reflects the continuing difficult market environment for GIP. Accordingly, of course, segment earnings also declined significantly to EUR 31 million. The segment result margin fell to 8.9% after 16.3% in the previous quarter. Our sales in industrial applications are, of course, closely linked to the global economic situation. Now in view of the continuing macroeconomic uncertainties, we expect only a weak recovery for core industrial applications. There are also no clear signs of a recovery in demand for air conditioning systems or household appliances. In the renewable energy sector, we expect demand for solar and wind power systems to remain at a high level, but not to grow significantly compared to the record year of 2025. In contrast, demand for grid infrastructure looks more promising, steadily increasing investments in AI data centers and a higher share of renewable energies in the energy mix require the expansion, modernization and the stabilization of the power grid. This trend will support our growth in the midterm. With our product portfolio, in particular, our leading silicon carbide technology and power modules, we are excellently positioned to benefit from the grid expansion and conversion. Key elements include large energy storage systems, uninterruptible power supplies, electronic circuit breakers and semiconductor supported transformers. With regard to the latter, we are working on dozens of customer projects to drive forward medium-term business opportunities. Now on to the Power & Sensor Systems segment. Sales in Q1 amounted to EUR 1.171 billion, which represents a decline of 3% compared to the previous quarter. On the one hand, our power supply solutions for AI data centers continued to enjoy very high demand. But on the other hand, we saw the usual seasonal weakness in demand for smartphone components. In addition, as announced, we reduced sales of less profitable products compared to the previous quarter. The aforementioned revenue effects are also reflected in the segment results, which improved to EUR 204 million, and the segment result margin rose to 17.4%, up from 14.5% in the previous quarter. Now looking at market developments, we are seeing the first signs of a broader revival in demand for consumer, general computing and communications applications. However, given the overall economic volatility, customers continue to place orders on a short-term basis. The situation is quite different, however, for AI-related semiconductors. The power supply for AI data centers represents an unprecedented growth opportunity for Infineon, and we are the leader in this field. Our unmatched portfolio, our understanding of systems, our speed of innovation and our commitment to the highest quality and delivery reliability make us the partner of choice, both for leading manufacturers of AI chips and for large operators of high-performance data centers. Our sales of AI power supply solutions continue to grow rapidly. We are reaffirming our target of around EUR 1.5 billion for the current fiscal year, and this figure is limited solely by supply, which is by how quickly we and our manufacturing partners can actually increase capacity. Actual demand is, in fact, higher. I would also like to emphasize that unlike some competitors who do not distinguish between AI data centers and other data centers in their sales forecast, Infineon's EUR 1.5 billion is purely AI-related business. In addition, we expect further sales of around EUR 500 million with power supply solutions for traditional data centers. At the same time, forecast for the expansion of AI data centers and the associated infrastructure continue to rise. Artificial intelligence is demonstrating more and more tangible benefits and real-world applications. We are experiencing some of these in our own company. For example, the improvement and acceleration of chip design, software development and our customer support. Demand from our customers for our power supply solutions continues to rise from quarter-to-quarter. We are, therefore, bringing forward investments of EUR 500 million in the expansion of our AI-related manufacturing capacities to this fiscal year in order to drive growth beyond the current fiscal year. These investments, including the conversion of existing production capacities for IGBT power modules to AI products are capital efficient and will reinforce our market leadership position. We are using a large portion of the investments to accelerate the ramp-up of our new Smart Power Fab in Dresden, which we will open this summer, just at the right time. With the additional capacities, we expect to generate AI-related sales of around EUR 2.5 billion in fiscal 2027, which is an additional EUR 1 billion compared to the sales forecast for the current fiscal year. This would equal a tenfold increase in our AI sales within just 3 years. And very importantly, this is a margin-enhancing sales. Now to our Connected Secure Systems segment. In Q1, the division generated revenue of EUR 321 million. The 13% decline compared to the previous quarter is due in part to seasonality. In addition, however, we also had so-called capacity reservation agreements with our customers in the previous quarters, which we had fulfilled. Segment earnings declined to EUR 23 million. The segment earnings margin was at 7.2% compared to 12.2% in the previous quarter. The market for IoT solutions remains in a weak phase. Macroeconomic risks and low consumer confidence are weighing on expectations of a recovery. Over time, artificial intelligence in end devices will open up more and more opportunities for innovative industrial and consumer applications. Secure connected devices equipped with AI and lower power consumption will become more widespread. Market researchers expect their number to reach the threshold of 30 million devices. By further strengthening our hardware and software expertise in this area, we are positioning Infineon ideally to take advantage of structural growth opportunities. Connectivity is a good example. Infineon is launching the first Wi-Fi 7 20 megahertz tri-radio chip on the market. This new product integrates Wi-Fi 7 and Bluetooth Low Energy in a single device. Extremely low energy consumption, combined with high radio performance, the chip, which is optimized for the Internet of Things, enables our customers to achieve reliable performance in frequency congested environments. Dear listeners, this brings me to the outlook. It continues to be determined by our market assessment of a gradual and uneven recovery. The timing and momentum of the cyclical upturn vary greatly across different market segments. Despite ongoing geopolitical and macroeconomic uncertainties, visibility is improving as our customers place more and more orders for delivery in 2 or 3 quarters. In some cases, this appears to be due to concerns that strong demand in the AI sector could lead to capacity bottlenecks for similar products in non-AI areas. Inventories in the automotive supply chains have normalized, but our customers' confidence in the market still needs to increase before they replenish their semiconductor stocks. Against this backdrop, we are confirming our full year guidance today. Effects from the upcoming acquisition of the sensor portfolio as ams-OSRAM are not included in the guidance. For the current second quarter of our fiscal year, we expect sales of approximately EUR 3.8 billion. Our forecast is based on a U.S. dollar to euro exchange rate of $1.15. We expect the segment result margin to be in the mid- to high teens. We expect that volume growth will be partially offset by contractually agreed annual price adjustments as is customary in the first quarter of a calendar year. Now for the group, we expect price declines in the low to mid-single-digit percentage range, with significant differences between the individual business segments. For fiscal 2026, we continue to expect a moderate increase in revenue compared to fiscal 2025. The segment result margin should be in the high double-digit percentage range. The unfavorable currency development and the usual price decline will offset the positive effects of higher volumes and additional earnings contributions from our Step Up, structural improvement program. Now on to our investments. As previously mentioned, we are bringing forward investments of around EUR 500 million to accelerate the expansion of manufacturing capacity for power supplies for AI data centers and to support the expected strong growth in this area in the upcoming year. We are, therefore, now planning total investments of around EUR 2.7 billion in the current fiscal year. Our expectations for free cash flow are as follows: Reported free cash flow is expected to be around EUR 1 billion, slightly less than the EUR 1.1 billion previously expected. The reason for this is that part of the increased investments will be paid for in the current fiscal year. Free cash flow adjusted for major investments in front-end buildings and acquisitions is expected to be around EUR 1.4 billion, down from EUR 1.6 billion previously. This should be viewed in the context of the expected significant value creation from profitable AI growth. Dear listeners, this concludes my remarks. Before we now move on to the Q&A session, I would like to remind you of an important date. In just over 2 weeks, on February 19, our Annual Shareholder Meeting will take place. After several years, we are once again holding this as an in-person on-site event. We cordially invite you all to participate either on-site at the Munich, the trade fairground, or online via the live stream, which we will be, of course, offering on our website. And now together with Sven Schneider, I will be happy to answer your questions. Operator: [Operator Instructions] The first question comes from Sebastien Ash from Financial Times. Sebastien Ash: I wanted to know about the prices for raw materials. In recent weeks, they have changed substantially. They have fluctuated actually. Do you believe this will have ramifications on the business operations of Infineon during the course of the current fiscal year? Sven Schneider: Yes. Sven Schneider here. Thank you for your question. Indeed, you're right. We have witnessed price increases in a market that has been very volatile to a certain degree. Gold, palladium, silver have all demonstrated this dynamic. These increases have been calculated into our guidance. Of course, we have to brace ourselves for this situation continuing, but the price increases that we've seen so far have been considered. Operator: The next question comes from Joachim Hofer from Handelsblatt. Joachim Hofer: I have 2 questions. The first one is what volumes are you unable to handle when it comes to AI chips? Because you may be lacking capacity. What ballpark are we talking about here? That was the first question. The second question is you said that you are placing your bets on silicon carbide more than ever before. Can you tell us how these operations are actually faring? If I remember things correctly, ST last week had news that was not very encouraging. What is the situation at Infineon in this regard? Jochen Hanebeck: With respect to your 2 questions, what I have to say is that demand for AI chips is slightly above the EUR 1.5 billion mark, and we're working extremely hard also with our suppliers to remove the bottlenecks in the supply chain and in the value-added chain. On top of that, we have a ramp-up ahead of us. This is progressing quarter-to-quarter. Silicon carbide. Well, here at Infineon, the business is expanding this year as well. This has to do with the fact that from the very beginning, we placed our chips on a very broad basis, a number of applications, numerous customers, and all of that is paying off now. So we expect growth from one fiscal year to the next. Operator: The next question comes from Joachim Herr from Borsen-Zeitung. Joachim Herr: I have 3 questions with respect to the acquisition of ams-OSRAM or rather its subunit. Mr. Hanebeck, you said that from the beginning, it would be earnings accretive. Is it also margin accretive? The second question relates to a supply agreement that you have with ams-OSRAM. Are you talking about components that you will source from ams-OSRAM? Or will you also supply parts or products to ams-OSRAM? The third question is that in the Q1 report, you say that the acquisition was financed with equity and debt. How is the split? Jochen Hanebeck: I would like to answer the first 2 questions, and then Mr. Schneider will give you some information on the acquisition financing. The margin right after the acquisition, if you look at the segment result margin, right now is in line with Infineon's margin, and it will increase as a result of the transfer, which will be rolled out over a number of different years. A large share of the production volumes will then be shifted to our factories, in particular, Kulim. And this brings me to your second question. What you can see in the press release with respect to supply agreements, means that the products that we acquire now will initially over a certain period of time, be manufactured in Premstatten. And then a large portion of that production will be shifted to Kulim. This overall will lead to further significant synergies and will make the business extremely profitable for us. Sven Schneider: I will continue. I'm Sven Schneider. With respect to the margin, I have one further remark. The acquisition is, of course, in terms of scale, too small to have a huge impact on margins at the group level. We're only buying EUR 230 million in revenue, just to put that in perspective. The second question related to refinancing. No, no equity. I must be clear about that. This is a fully debt-financed acquisition, and we will embed this in our normal customary refinancing measures in terms of investments because we also have other maturities. So it's all debt, no equity. Operator: The next question comes from Christina Kyriasoglou from Bloomberg. Christina Kyriasoglou: You're increasing your investments, as you said, in particular in Dresden. Could you give us some more information on the other manufacturing capabilities that are going to be expanded? Jochen Hanebeck: This is Mr. Hanebeck speaking. The increase in the investment budget by EUR 500 million is purely related to AI, in other words, the AI chips, and it relates to capabilities in Dresden, in Module 4, for highly differentiating leading-edge MOSFET -- silicon MOSFET generations, the type of which are required in data centers in order to maximize efficiency. And we also have the analog/mixed-signal products that latch on to that. A small portion of that goes to Villach, where we have a similar product portfolio. What is wonderful, however, is that the market for AI chips and the strong demand for AI chips is a perfect match for our timing with Dresden. We'll be opening the fab in summer and actually can ramp up production right away as well. Operator: The next question comes from Christoph Meyer from DPA. Christoph Meyer: I would like to have some more information about the dollar exchange rate and your forecast, the $1.15 rate, is lower than we have seen in recent times. How danger for your forecast is the fluctuation in the dollar? Could you give us your assessment on this? Now for example, if average over the year, it were $1 to $1.20, what would that mean? Sven Schneider: Well, Mr. Meyer, this is Sven Schneider. Thank you for your question. First of all, the dollar indeed has weakened substantially in the last quarter. In the last fiscal year, we had an average ratio of $1.11. And now we're in Q1 and at $1.16, and now it's at $1.18. We can all see that it's extremely volatile and that it hinges on statements made by major market participants, they cause spikes and valleys. So we will remain at $1.15 for the time being. You asked for the effects. Well, we have a rule of thumb here. It's a formula. If you see a change by $0.01, it has an effect of EUR 25 million on revenue per quarter and EUR 10 million per quarter in the result. So if instead of $1.15, the dollar wound up at $1.20 over the year, we would be speaking about 5x25 over 3 quarters. So that is roughly the effect that we would feel as a result of the weakness of the dollars. And of course, the opposite is also true. Operator: [Operator Instructions] The next question comes from [ Samuel Reis ] from [indiscernible]. Unknown Analyst: Last month, there were reports about an Infineon transistor being used in a drone in the Ukraine. Do you know how this component found its way into the Russian drone. It's a Russian drone, not a Ukrainian drone. It was used on an attack on Ukraine. Do you know how it found its way there? And do you know who supplied that transistor to Russia? Sven Schneider: Thank you for your question. This is Sven Schneider. First of all, we take these events and incidents very seriously, and that is very displeasing, of course. But it is outside of our remit. We have no control over this. Since the beginning of the war on Ukraine, we have informed all partners, and we continue to do this time and again that we always comply with all statutory regulations because we're obliged to do so. We have certain customers and also countries that have been ruled out because of that. On the other hand, if you look at Infineon, globally, we sell 30 billion chips worldwide, and they go to partners who may sell them on. And this is exactly the link in the chain that we cannot control. But believe you me, we're doing everything we can through order tracing and monitoring to ensure that what we can influence complies with the law. Jochen Hanebeck: This is Mr. Hanebeck. I would like to add that this is very demoralizing, but only 50 nations have signed off on the sanctions list. That leaves us with a number of countries who have not agreed with the sanctions, including countries in which a lot of our products are purchased. And if these products are then sold on 3 or 4 times, we cannot track them anymore. We regret this, but unfortunately, that's a reality. Operator: [Operator Instructions] We have a follow-up question from Hakan Ersen from Thomson Reuters. Hakan Ersen: I have a question with respect to the AI chips. You spoke of bottlenecks, which you intend to remove. At the same time, however, you anticipate for 2027 a weakening of growth in this sector. Could you give us some more information on that? Jochen Hanebeck: This is Mr. Hanebeck speaking. I don't quite understand what you mean, weakening growth. We're talking about EUR 1.5 billion this year, going up to EUR 2.5 billion. So that means that we continue to grow. Now if you look at it in relative terms, we are talking about a doubling this year over last year, EUR 2.5 billion isn't quite a doubling, but quite a lot would have to happen for us to be able to implement this. On the one hand, we're talking about applications that are very sophisticated from a technical point of view, and we have very demanding customers as well. On top of that, we have to make sure that the capacities are available along a long value-added chain that Infineon has through to assembly. We have a series of bottlenecks along the way, which we have to remove. So this means we have a lot of on our plate. And of course, we want to leverage the maximum potential on the market, both this year and next year. Sven Schneider: And this is Mr. Schneider speaking now. With respect to the figures, I would like to offer you a commentary. We have said before that the biggest growth driver in our history is the AI server business, and this is just this year. The conventional server business also accounts for 10% of group revenue. If we go up to EUR 2.5 billion -- let us look at the consensus figures for 2027 in terms of revenue. We are trending towards 15%. For a company the size of Infineon, this is quite a substantial step. You can see how strongly this business is growing and how greatly it influences the company. Operator: Ladies and gentlemen, that was the last question. I would now like to hand the floor back to Mr. Hanebeck for his concluding remarks. Jochen Hanebeck: Thank you very much, ladies and gentlemen. Allow me to summarize. Infineon had a great start into 2026. The results of Q1 are at the top range of our expectations. The geopolitical and macroeconomic uncertainties continue to dampen economic momentum. This is in line with our base scenario of a gradual and uneven market recovery. We are reaffirming our forecast for the fiscal year. Fact is, of course, without electricity, without power, there is no AI, and we want to seize this historic opportunity for our company in this area. We confirm our revenue target of around EUR 1.5 billion for the current fiscal year and expect around EUR 2.5 billion in fiscal 2027. The acquisition of the automotive, industrial and medical sensor portfolio from ams-OSRAM strengthens our outstanding portfolio. In the future, we will be able to offer our customers even more comprehensive system solutions. This puts us in an ideal position to leverage structural trends for profitable growth. Thank you very much for your interest, and goodbye. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Unknown Executive: Good morning, everyone. Welcome to 2025 Results Conference Call. First, let me introduce our management. CEO, Khun Pratthana; CFO, Khun Tee; Chief Enterprise Business, Khun Phupa; and Chief Retail Business, Khun Prapat. Khun Nattiya and myself also joined this call and will be briefing you to the results and running this session. At this moment, please allow our CEO to give an opening remark. Pratthana Leelapanang: Good morning, everyone. I would like to take this opportunity, firstly, to address the very most recent incidents of the misuse of AIS corporate Internet from one of our corporate customers. You may already seen our formal disclosures, but I would like to really emphasize that we take this matter very seriously. We view this matter as a reminder of our responsibilities as a national digital infrastructure provider. While this is one of the isolated incidents, we are using it to really strengthen our internal processes and technologies to enhance the capabilities of detecting, preventing and monitoring, in order to make sure that we protect our stakeholders properly. Governance, integrity and trust remain at the core of our business that we run. Safeguarding our reputations, trust from the investor, as well as public are our priorities, and we will continue to invest in that what I'd like to address as the first part. Secondly I'd like to say that we do expect that the market will be pleased on the capital return we deliver, or rather surprised and pleased the capital return we deliver. I would like to reiterate that AIS is not about maximizing our short-term cash return. We are building sustainable digital infrastructure business with scale and financial strength. Our capital reallocations, I'd like to put it, reflecting our confidence in long-term business growth with a strong cash flow and balance sheet. We will continue to invest in leadership, grow responsibly and return capital only if it strengthens long-term shareholder value. So that's the second piece I really like to address here. Lastly, I'd like to address our business direction going forward. This year forward is about laying foundations of AIS's next road chapter. Beyond the connectivities, we are expanding our capability in network intelligence, advanced IT, and very important digital backbone of data centers, cloud and AI. With all of these foundation components, we truly believe it will support AIS to capture new opportunities across consumer, businesses, and expanded digital ecosystem. So that's in brief what I'd like to start with. Thank you. Unknown Executive: Thank you very much. Now let me begin with a short brief and going directly into Q&A. At this time, you may also reserve to ask the question through the chat box. Please type your name and corporate name. So firstly, we delivered this year with a strong and resilient performance, supported by growing customer demand and solid content proposition to upsell our existing base, amid the modest economic recovery. In mobile, growth momentum remained strong, driven by rising data usage. In the latest quarter, the data consumption exceeded 34 gigabyte per subscriber. This is up 16% year-on-year. The 5G adoption continued to be a key driver, reaching 17.9 million subscribers or 38% of our subscriber base, growing nearly 50% year-on-year. The broadband service continued to grow steadily with subscribers exceeding 5.2 million and ARPU at THB 530, both were up more than 4% year-on-year. Take note that the net add was softer in this latest quarter due to temporary resource allocation to support the flood relief efforts in the Southern Thailand. The Enterprise business delivered double-digit growth, supported by strong connectivity demand. Our data center business through GSA is progressing as planned. The 01 is already commercialized, and 02 and 03 are expected to be ready by 2027, bringing total capacity close to 200 megawatts. The retail sales grew 15% year-on-year, driven shop renovation, stock training and better channel and product mix. Our virtual bank initiative is also progressing well with commercialization targeted within this year. With the above, we exceeded the upper end of our guidance for both core service revenue and EBITDA, driven by strong operating performance and efficiency. The net profit was THB 47.9 billion up 37% year-on-year. The normalized profit was THB 46 billion, excluding FX impacts and onetime tax item related to tax loss carryforward utilization. This is up 32% year-on-year. Our performance remained strong with good momentum from 2024. The Board approved an ordinary dividend of THB 15.30 per share, representing a 95% full year payout ratio. In addition, the Board also approved a onetime special dividend of THB 19 per share, paid from retained earnings to unlock shareholder values. The ordinary dividend remains our priority, aligned with the earnings growth. The rationale for unlocking the special shareholder value is based on 3 key considerations. First, we have strong visibility on growth and cash flow generation across our businesses, even after accounting for necessary investments to sustain leadership and build long-term digital foundations. Secondly, we remain committed to maintain prudent leverage and an investment-grade credit profile while preserving financial flexibility for future opportunities. Third, this visibility allows us to optimize the balance sheet and return excess capital to shareholders without compromising financial discipline. Importantly, our dividend policy remains unchanged with a minimum payout of 70% of NPAT. And again, the ordinary dividend continues to be our priority. Let us put this into the context. Operating cash flow is approximately around THB 100 billion, with expectations to grow alongside the business. The annual investments are around THB 50 billion, covering CapEx, current and future spectrum and JV investments. This would result in the free cash flow approximately THB 50 billion to THB 60 billion after investment. With improved cash flow visibility and strong leverage profile, we see an opportunity to unlock shareholder value through balance sheet optimization while preserving our investment grade rating. This optimization is executed in a favorable interest rate environment to support our investment requirements while the special dividend is funded from operating cash flow, which remains a dynamic over time. We expect the leverage to gradually decline with improved performance while maintaining room for financial flexibility. Turning briefly into sustainability. We received an MSCI ESG rating AA. This places us the ESG leader category. AIS is the only Thai telecommunication company to achieve this MSCI rating. In addition, we also received a AAA ESG rating from the Stock Exchange of Thailand, the highest level, reflecting clearer development plans, strengthened supply chain practice, enhanced stakeholder engagement, and this is in alignment with strong corporate governance standards. Looking ahead in 2026, we guide core service revenue growth of around 3% to 5%. The EBITDA growth of around 2% to 4%, and the CapEx investment excluding spectrum of THB 30 billion to THB 35 billion. The growth will continue to be driven by connectivity demand across consumer data usage and enterprise digital connectivity. The higher expense and CapEx are deliberate investment to build foundations for midterm and long-term growth. The CapEx increment reflects a new investment phase. This is aligned with the anticipated growth in data consumption and long-term network quality leadership with year-on-year increase primarily reflecting higher mobile network investment. Beside network modernization, we also emphasize on IT enhancement for customer stickiness while this would lay a strong foundation for future revenue growth. The allocation within the CapEx is approximately 55% to 60% mobile, around 20% broadband, 10% enterprise and 15% for IT and others. Before we move to Q&A, I would like to remind you our upcoming event for which invitations have been -- already been sent. If you have not yet registered and would like to attend, please kindly confirm your participation by today. The online session will be arranged for overseas participants and the access link will be sent following the confirmation. With that, we are happy to take your questions. Unknown Executive: Please be reminded that you may reserve to ask the question through the chat box with your name and corporate name. And also please limit your questions to 3 per round to allow others to also participate. We have the first one from Khun Pisut from Kasikorn. Pisut Ngamvijitvong: Congrats on your record breaking results and dividend. Pisut from Kasikorn Securities. I have 3 questions for this round. The first one is about the core revenue growth guidance, which basically comes down from 7% last year that you achieved to 3% to 5% this year. Just want to know that, I mean, the key reasons why the growth is coming down, that's coming from the competition, it's going to be more intense or the economy, which is quite subdued, which 1 is going to be weaker in your perspective? And also from the 1-month operation that's passed -- just passed, what do you see about the revenue momentum from the previous quarter? My second question is about your EBITDA growth guidance. Why the growth also came down from 9% last year to 2% to 4% this year, and why the magnitude of the growth target of 2% to 4% go below the core revenue growth of 3% to 5%. I understand that you mentioned about the initial loss from the new venture that you may have booked in the share of profit, probably from virtual bank data center. But if you're stripping out share of profit from your associates, is it possible for your 2026 EBITDA to grow faster than your core revenue growth, and also from the operating leverage effect? My last question is about your tax loss carryforward. In the note, you have remaining tax loss carryforward of about THB 15 billion, which could save tax about THB 3 billion spreading over 2 to 3 years. If I am correct, could you please confirm about this couple of numbers? And what's your plan to utilize most of it? Nattiya Poapongsakorn: Let me take the question on guidance. I think overall, if you look at our total guidance from revenue to EBITDA and CapEx, we're trying to say to the market that we're actually looking for new growth areas. In the past few years, a lot of our growth has been built in with more rationalization of the competition within the market. Going forward, we need to build a lot of new foundations for new growth areas. However, going into 2026, especially now at the beginning of the year with the Bank of Thailand and many houses announces the GDP forecast, we've also seen that consumer sentiment and the potential spending and the underlying economic growth of Thailand may seem to be on the low side, likelihood somewhere lower than 2%. So I think that's the main concern we may have and reflected on the 3% to 5% in terms of the revenue growth. Rather than the issue around competition, I think for the past year and also in the fourth quarter, we have not yet seen anything that put us in a concerned mode in terms of the competition. Fourth quarter may not be the best quarter to reflect in terms of the growth partly also because in terms of fixed broadband, as you see, the net add has been a bit slow because we were mobilizing our effort to address the southern flood for quite a long period of time. But we expect some of that growth to be able to resume within this year. On the EBITDA guidance, as I mentioned, because we now want to establish new growth initiatives, whether it's in the IT system, you see that we are now having more diversified business portfolio going into building a stronger retail distribution channel across online, offline. A lot of that will require that we advance or modernize many parts of our internal IT system. Plus another thing that we have started last year was on the entertainment business, which covers the sports and entertainment content. So this year, we are also looking forward to be selective in some of the key strategic contents that we want to continue building our brand, perception and customer engagement. So with all of that, we do see that some of the building foundation will incur costs within 2026, and that's why the EBITDA guidance is landed slightly lower than the revenue growth. Another point would also be that in the past 3 years, we did integrate 3BB with AIS operation. So you see some of the early cost savings from the integration effort, which would be mostly done for 3 years period. Last question on the tax loss remaining amount. I don't think we can say how we plan. But yes, as we disclosed in the notes to financial statement, those are -- there are the schedule of the tax loss to be expired within each year. So I think our intention is continue to build the broadband business as a single operation entity and making profit. So with the entity making profit, we'll be able to utilize the tax loss. Unknown Executive: Now we move to Khun Wasu from Maybank, please. Wasu Mattanapotchanart: So 3 questions from me. The first question is about the projection of net debt to EBITDA on Page 28. My question is regarding this chart of the declining net debt-to-EBITDA is that have you factored in any more special dividend in that projection? And what is your assumption of payout ratio in that chart? So that's the first question. The second question is about the forward-looking of the net debt to EBITDA. Let's assume that AIS pay special dividend every year, and the net debt to EBITDA stays in the range of 2 to 2.5x, will AIS be able to keep the credit rating with S&P? So that's the second question. And my third and final question is regarding Page #6 of the slide. It is mentioned that CapEx budget will be 15% of the total revenue in the medium term. My questions are, how long is the medium term? And will the CapEx budget go up or down after the medium term? Nattiya Poapongsakorn: Thank you for the question. On net debt to EBITDA forecast that in corporate how we see the business growth and upcoming investment we need to make across different businesses, including the spectrum. On special dividend, we would like to emphasize again that this is a one-time nonrecurring capital return. We execute this because at this point in time we see a low interest rate environment. And we see that we have accumulated a fair amount of retained earnings to be able to return this capital to the shareholder. And this leads to the retained earnings number -- post this distribution of dividend, you will also see that the retained earnings remaining would be fairly minimal. So it comes back to the point that this special dividend is really a onetime that we restructure or optimize our balance sheet to be at a more efficient level. On the credit rating, as you see, because we have looked into that. So I don't think we have any concern around the credit rating. The last question on the CapEx level, which is 15% of revenue in medium term. I think when we talk about medium term, basically, we look across the technology. Right now, we would say that we're approximately may be in the mid-cycle of the 5G. So I think we have a pretty solid idea of how much in terms of 5G capacity is needed in each year, given the forecast of the traffic growth from consumer point of view, embedding in with the AI. If there are more AI use case for the new 60 technology upcoming, you see that normally in those new cycle there may be a period of time where the CapEx as a percent of revenue may increase. And then afterwards, I think it should -- for us it should come down to more of a normalized level. Wasu Mattanapotchanart: So how long is the medium term? How many years? Nattiya Poapongsakorn: I think for us 3 years outward is a fair outlook we see -- even that we haven't seen the 60 technology becoming materialized in the next 2 years. Unknown Executive: Now we could have Khun Thitithep from KKPS. Thitithep Nophaket: I have 3 questions. Number one, do you think that you have to adjust the long-term strategy given the big change in the shareholder of your competitor, True? Number two, is it fair, both you and True suggest that the payout ratio has become more aggressive than a year ago. Do you think it's fair to say that it's a suggestion that the mobile phone business in Thailand is reaching a situation of becoming a mature stage. And that's why there is no need to be aggressive in reinvestment in the mobile phone business? Number three, your payout ratio, including special dividend, it's rather aggressive like you said you don't have any [ return ] left after the payment. But then you did say that you are in the process of laying the foundation for new growth. Do you have to reserve some cash in order to invest in the new growth areas? Pratthana Leelapanang: Let me address the strategy piece. We are very firm on the strategy we are taking especially the expansions of the digital infrastructures from mobile, 5G, to broadband and to the enterprise of which it expanded into data centers, cloud and AI. And on top of that, it would be digital ecosystem around the distributions as well as digital finance. Regardless of what True about to be, I think these foundations are key to serve customers across multiple segments, as mentioned, on consumer side, on the enterprise side and other related party. We remain firm on that piece. On the competition, we do expect that competition will continue on, having multiple prong of strategy anyway. So I'd like to address that we stand firm our strategy. Add on to that, related to the maturity of the markets, if we look real hard on how consumers behave and use the product and service. On mobile side, we still continue to see the growth in consumption. Thailand has roughly about 30-plus percent 5G penetrations. We have not reached 50% yet. In many countries ahead like China, it went on to 60%, 70%. And about to come on new service and applications as we've seen from AI related, they're going to be introducing more data on the uplink. So on the consumption side, I don't think we are near saturation on consumption. In our plan that we described earlier, we have factored in our midterm forecasts of how the consumption would grow on mobile, broadband and enterprise as part of our medium-term plan. Unknown Executive: I think a lot of questions about the payout ratio and special dividend. I think as Khun Nattiya mentioned, when we look at the -- I think expect that investment in the future and also the growth prospect of our business. I think we have sufficient investment that we -- or cash reserve that we have within the company to invest in the growth and also provide, I think, extra return to the shareholders. I recall that also many quarters or even many years now, I think most of the analysts asked about payout ratio, whether it can be more than 100%. So when we does -- when we do that, then the question is also a little bit concerned on whether we have enough cash reserve to invest. And I just want to point out that we do feel confident in the industry right now, the dynamics, the growth industry, we do feel mobile, broadband, enterprise and also the new businesses that we are expanding into can provide sufficient growth for the future. And with the -- I think the current leverage status, we do feel that we are not taking on [ more risks ], we basically optimize capital structure that we have to be able to provide, I think, optimal return to the shareholders and also to provide growth for the business as well. We have deleveraged quickly since the time that we took over 3BB, that based on a lot of synergies that we create, the industry repair and also the growth in the business that we expanded into. So all those things gave us the opportunity today that we can do the thing that we think it's the most optimal to the shareholders. Unknown Executive: Next we can have Ranjan from JPMorgan please. Ranjan Sharma: Congratulations on the results. A couple of questions from my side. Firstly, on your guidance for EBITDA, if you can help us understand the major investments that you are planning on the OpEx side, which results in EBITDA growing slower than revenues. And I can completely appreciate that you're taking a longer-term horizon for our business rather as it should be. So if you can also walk us through the revenue opportunities that you can unlock with the investments that you're planning in this financial year. The second question is, there are related party transactions with GSA02 as disclosed in your release. I think the financing arrangements or details have not been disclosed, especially for GSA02, if you can share more details around it. Nattiya Poapongsakorn: On the EBITDA guidance, I think basically, the IT is one of the big part that we would see OpEx costs coming into 2026. That's one of the big part. And then the second part would be on the content entertainment related business. That's the main second part. There could be a fair bit of some of the incremental in utility and maintenance stores are more likely in line with the growth of the network that we have been seeing. So those are the major ones that we would see. Ranjan Sharma: So if I can just follow up. So the impact on revenues or the revenue opportunities that these investments can unlock in the next 3 to 5 years, if you can comment on that as well. Unknown Executive: Let me put this way. Sorry, my voice a bit hard to understand today. Basically, if you look at last year performance, we did deliver higher growth on EBITDA than revenue. And I think probably going to be the same for the year before as well. But we can't keep that trend as we embark into a lot of new things. I think in the end, we want to make sure that we do spend on the things we need to spend to make sure that we modernize our system, both on the network side and also on the IT side because the business model has changed a bit. Actually, going forward, we also want to do a lot more things with our customers because to me, the real asset that we have is the vast base of customers, both on mobile, broadband and enterprise side. So to go to do new services, we need to modernize a lot of our infrastructure. So that's one part. What else we can sell, the channel that we're going to sell to them, the way you're going to sell to them, the personalization that we talk about all along and even the AI at the back end, right? So all these require investment, both in the network and in the IT system, plus in the capability of the people as well. All this, including the apps and everything we have to be modernized. So I think we are going through that journey. That's why you see a bit of an elevated forecast on CapEx for the next few years. We can't give you a pinpoint portion to go which one is which, but -- and those are directions we want to go. Whether it can unlock? Which revenue can unlock -- I think there will be a lot one mobile, we can optimize the package for each of the users. We can also lay on more detailed services. Same thing with broadband and enterprise, right? So all those, I think, hopefully, we can keep growing the ARPU. Then the question, why we forecast lower revenue growth this year versus last year? I think a lot of that is coming from the headwind on macroeconomics in a situation. If the country can grow at a higher GDP, we are happy to push the growth of the company as well. So I think that's more or less the first question you asked. We do hope that the -- I think, investor community understand that we want to spend a bit this year or next year to make sure that we have a stronger foundation to embark on the next growth phase of the company, right? I think for GSA, normally, it's -- I think, project finance. So it takes a bit of time to be able to get the funding from the bank. So we need to pass certain stage to be able to get the funding from the bank. So a lot of time we did a bit of the own funding first and then we get the loan back from the bank and then we use that money to reinvest in the next project. Nattiya Poapongsakorn: This upcoming Friday, when we have the Analyst Meeting, I think the presentation from the management will lay out more clearly about the strategy and the growth that you asked. Unknown Executive: Now we have Piyush from HSBC. Piyush Choudhary: Congratulations for a set of results and special dividend. A few questions. Firstly, you mentioned about CapEx being higher, right, around THB 30 billion to THB 35 billion this year. In addition to this, can you talk about capital allocation and other growth initiatives? Like how much of capital will be going in virtual bank, data center in 2026, '27 and if you can, in 28? Just want to get the 3-year kind of capital commitment to the growth areas? And secondly, if you can talk about the outlook for the mobile and broadband ARPU for 2026, any initiatives being taken by you or your competitor to uplift ARPU? How is the consumer sentiment at the moment? Unknown Executive: Yes. On the new investment through the JVs that we have set up, in the end, I think we estimate it to be about THB 8 billion to THB 10 billion over the next 2 years because a lot of those are in the JV format. So we don't hold 100% of the whole company. As for virtual bank, I think you know the detail from the regulation that the first year around THB 5 billion paid up. And if we want to exit DR5 and as we have THB 10 billion paid up. So that will be -- if you need to forecast something, then that's the number for you to look at. For GSA and other JVs that we have on the cloud as well, that mostly was subject to the project that we can secure. I think so far, we have disclosed up to GSA03. Anything you can maybe forecast the growth of the JV of the data center business and then work backwards for any capital commitment that we need to make. But in the end, it is proportionate to the shareholding level that we have. Pratthana Leelapanang: For overall customer needs, which is get translated into our services, we continue to see and we forecast that the consumption will grow higher for both sides, mobile and broadband. For mobile, as mentioned, there are still huge amount under 4G moving forward to 5Gs that would help consume more and also uplift the ARPUs. For broadband, we see 2 important expansions. The first one is the expansion to home whereby they have not had our broadband before. At this point, the broadband penetration is roughly about 50-plus percent towards the occupied household. So there are room to expand on broadband in terms of customer. And second prong is in terms of consumption and services. We also see more demand in consuming broadband at home as well as extra services, inclusive of content and digital services, which cuts across back to mobile as well. So as those 2, we do expect ARPU to continue on increasing. The overall economic situation may taper off a bit of sentiment, that's why we also be mindful about how we offer the product and service for customers, what's the price point we are going after. So I think that's the big picture. Piyush Choudhary: Just to clarify on that THB 8 billion to THB 10 billion over 3 years, that is AIS contribution, right, into the JVs over 3 years? Unknown Executive: Yes, that's our position. Unknown Executive: Now we have Khun Kijapat from Bualuang. Kijapat Wongmetta: Congratulation on strong performance and solid results. I have a few questions. First is about the special dividend. From my calculation, I think it's over THB 50 billion for this special dividend. So I calculated that the equity part may drop like half. And can I imply that how it will go double? And at the same time, for the gearing ratio, could it also like go to 3x? And will it affect our credit rating? Do we have any debt covenant on DE ratio. This is the first question. Nattiya Poapongsakorn: Yes, in terms of special dividends, it's over THB 50 billion. The equity definitely will drop and therefore the IE will substantially increase. However, I think your gearing number might be on the high side because as we presented earlier on our chart, we do not expect the gearing -- in this definition is net debt to EBITDA, whereby net debt already include the lease liability and the spectrum payable should not exceed to 0.5x net debt to EBITDA. Kijapat Wongmetta: So we don't have it on DE, right? Nattiya Poapongsakorn: No, none of our debt has covenant. Kijapat Wongmetta: Okay. For the second question, I would like to ask about the -- in the medium term. Do we have, like, comfort range of gearing or equity level that would trigger another special dividend? Nattiya Poapongsakorn: I think the questions around target gearing has been asked by many investors in the past. Our capital allocation framework doesn't fix on any target gearing. In terms of financial resiliencies, one key point is that we are committed to being an investment-grade credit profile. That's number one. Number two, we want to ensure that the leverage aligns prudently with the risk appetite we aim on the business growth. That also implies that we need to ensure that we have sufficient financial flexibility to exercise any future initiatives that we aim for, not just in the existing business that we are running, but also in new opportunities that we aim to grow. So rather than fixing on any particular target gearing, we actually look at where we want to grow the level of risk appetite and the prudent level of the balance sheet we aim at any given point in time. Kijapat Wongmetta: For the last question, I would like to ask about the recent change in major shareholders in our key competitors. Do you think about -- does it -- will have any potential implication for the mobile and broadband industry? Pratthana Leelapanang: We believe that we're always in the situation that in the market we all compete even before changing in major shareholder of competitors, every day we see mobile, broadband and even enterprise, we both compete in the arenas of providing service for customers. My belief is the focus of competition may shift a bit as they address in the public. And I think you pick it up as well. But once again, coming back to AIS, our goal remains unchanged, that we are expanding our digital infrastructures and building the foundations that we have said in the morning and there are some reinforcement along the way that we are investing in technology and building blocks to support that. Unknown Executive: We have Khun Pisut coming back for a second round. Pisut Ngamvijitvong: I have 2 follow-up questions. The first one is about data center. As also mentioned that AIS and the partners, we will have 200-megawatt data center capacity under 3 phases of GSA. But when I read your financial statements, a lot of restructurings inside. So just want to update about your economic stake on this venture on this business, I mean, data center, is it still 25% at the bottom line? And if this 200 megawatts being fully utilized, I mean, how much the amount of share profit we will be able to generate? The ballpark figures is [ 5-megawatts ] per year. And also, what is your capacity target in the next 3 to 5 years from 200-megawatt to at what certain level? My second question is about the 6G technology. As you may see some global leading operators increasingly investing into the low earth orbit broadband satellite business. My question is, have you been ever exploring into this new technology at this point? And also, will this be real thing or just a nice to have technology for telco to deploy at this stage in your view? Nattiya Poapongsakorn: Okay. So under the JV where we invest for the data centers that have already been 3 phases. The first 2 phase is a JV among 3 shareholders. AIS has 25% share in the first 2 phase. On the Phase 3, it is a shareholding between 2 shareholders, where AIS has shareholding of 30%. You asked about the contribution, I think, because this is the early stage. So in the next 3 years' time, it might not be a big move to the bottom line yet unless we have more because at least the Phase II, Phase III, it only begin in 2027. So it will be fairly small to the bottom line in terms of share profit. Pratthana Leelapanang: For the future of emerging technologies, [ LEO ] is a very important one. The low orbit satellite is the latest technology on a satellite whereby it can cover globally with multiple thousands of satellites cover all over the place around the globe. It will definitely support and complement other communications, especially on the outdoor and outdoor very far away as well as in the sea. So we see as the very much complement technology, even though in Thailand right now, there has no right to provide a service yet. And some have started to provide a service like NT. We look at it very carefully amongst many of the collaboration model. At this point, we may not be able to release any information, but we look at it very carefully. The second piece is 6G. 6G standardization may come out in 2030, putting extra important functionalities like sensing network and collaboration with mobile and satellites. So those pieces are upcoming, but not very fast. It will be the second way from now, maybe 2031 onwards. We also look at it very closely as well. Overall, for now, we understand that consumers, enterprise and businesses and others require to use Internet bandwidth whereby it can be served with the current technology of fiber and mobile 5G. We see upcoming uptick in consumption generating in the very near future from AI and a lot of interactivity of things to things that would require more bandwidth and a variety of connectivities. As an overall, we consider all possibility of technology we can adopt. Unknown Executive: We have Khun Nuttapop from TNS. Nuttapop Prasitsuksant: Two questions from me. On data center, I believe GSA is more external service. You didn't touch much about what you might need to build on your own to serve your enterprise business, if I may call. Is that already included in your guidance? Or do you prefer to go asset light for the enterprise service that you may rent someone else, including GSA? The second question on IT CapEx. It feels one-off to me when we talk IT CapEx. Is it going to be like that? Or it will be recurring for a few years? And may I ask whether it will be more the revenue unlocking factor, or I should see it as the long-term cost-saving machine? And you touch on retail channels with this IT investment. Can we dream of like open platform of the retail business or it has better efficiency of your product sales? Lastly, I would like to say, may need to please with your capital management plan nicely done and congratulations. Pratthana Leelapanang: Maybe I address as the big pictures for infrastructures. As I mentioned, one of the very strong building blocks, new one coming in as the digital infrastructure is data center, cloud and AI. The data centers that we have built in GSA01, 02 and upcoming 03 are by and large, serving a very big computer system. That computer system will definitely serve in both cloud and AI in combined. That will be also be part of serving inside that we need to expand the system. So the answer is, yes, both inside, internal that we are expanding the system as well as for external customer. When it comes to external customers is both hyperscalers as well as the local enterprise. So I think that's the big picture of data center infrastructure. It is very important infrastructure for the modern AI era that must have locally. I haven't addressed the important piece so-called a sovereign cloud and sovereign AI, of which it will play a very important role as the backbone of the AI era that we are going after. In IT, as mentioned earlier, is the very important piece when it comes to IT, intelligence and AI. Software infrastructure as well as intelligent, which provide both as the customer experience, the personalization engines will help us uplift revenue. On the other side, it also provide automation and intelligent to serve to uplift the operation efficiencies. So both are very important. When I talk about operational efficiency, it cuts across network planning, optimizations, customer operation as well as internal operations. So the IT CapEx may be mixed with the OpEx that as a core engine for us to bring in intelligence from now on. Lastly, when it comes to retail, IT-related sometimes we call it omnichannel, is the distribution platform, whereby we would serve customer in many ways that they like, reaching them at the right point, right time with the most convenient. You can also imagine that with the ecosystem that we have been working with, the platform of the distribution will also open -- it has been open some for our partner to be on board jointly with AIS distribution platform. The answer is yes. Unknown Executive: We have Khun Arthur from Citi, please. Arthur Pineda: Two questions, please. Firstly, with regard to the THB 8 billion to THB 10 billion contribution that you were putting in into the JVs over the next few years, is this on top of the CapEx target that you've stated and the 15% long-term capital sales trends that you do it earlier? Or is that built into these targets? I'm just trying to better understand the free cash flow trends for the company. Nattiya Poapongsakorn: It's on top of the CapEx. Arthur Pineda: That's on top? Nattiya Poapongsakorn: Yes. JV is not guided in the CapEx. CapEx is purely from operational core businesses guiding. Arthur Pineda: Understood. And the second question I had is with regard to capital management. So you opted for a one-time bumper dividend instead of a staggered release of capital over several years, which I think would have allowed you to better match higher yield while your investments are in GSA, digital bank, are gestating. Why the urgency for an upfront dividend payment instead of an extended payment cycle wherein you could keep yields higher for longer? Unknown Executive: I think in the end, you have always asked us whether we need the cash to do investment or we're going to release it back to shareholders. I think we have waived the option of giving one-time versus over a period. And then in the end, with the current situation, current environment, we do feel that giving a one-time could potentially maximize the shareholders' return. I can't give you much more than that. In the end, we will look at this, and we feel it's the optimal time to do so. Unknown Executive: Yes. And last person, we have Khun Wasu from Maybank, again. Wasu Mattanapotchanart: And I have one follow-up question for Khun Nattiya. So I think you mentioned that there are 3 key items for the OpEx increases that would impact EBITDA growth in 2026. The first one is IT OpEx, the second one is content and entertainment, and the third one is utilities. My question is about the first item, the IT OpEx. Could you please elaborate what is it for, the increase in IT OpEx for the 2026? Nattiya Poapongsakorn: I think what both CEO and CFO mentioned earlier about the overall business strategy and how we want to serve our customers, that's all embed into both the IT CapEx and OpEx, which embed into the guidance of 2026. So I don't think we would be able to break down into the system. But basically, it incorporates both customer-facing engines as well as some of the back end data-related, data analytics engine that can help serve the hyperpersonalization, how we build the omnichannel to ensure that customer walked into whether online or offline, we'll be able to seamlessly -- we will be able to seamlessly deliver a seamless customer experience across different channels, how we upsell and cross-sell to customers, as well as some of the back end for operational efficiency. Unknown Executive: Thank you for today's question. And please be reminded that you can still register for our Investor Day upcoming Friday, 6th February, at Pearl Bangkok Building. The main session will be from 1:00 p.m. to 3:30 p.m. in the afternoon half. So thank you all for participating and see you again in the Analyst Meeting or our Investor Day. Thank you.
Operator: Welcome to Tobii Q4 2025 Report Presentation. [Operator Instructions] Now I will hand the conference over to CEO, Fadi Pharaon and Interim CFO, Asa Wiren. Please go ahead. Fadi Pharaon: Good morning, everybody. This is Fadi Pharaon, new CEO of Tobii. And I'm joined here by Asa Wiren, our Interim CFO; and Rasmus Lowenmo Buckhoj, who is heading Communications. It's my absolute pleasure to be addressing you today in my new role at Tobii, and I'm really looking forward for a good collaboration together. So let's start. We ended the year with solid and significant cost efficiency measures that are here to support our journey towards profitability. However, the fourth quarter of 2025 has been weak in terms of both revenue and results. We've witnessed continued headwinds from the global state of geoeconomics as well as currency-related challenges as the Swedish krona continued to strengthen. All in all, this has led to generally weaker sales. But at the same time, the solid work towards cost efficiencies has continued, and in Q4, SEK 43 million have been achieved in run rate cost reductions. Well, this means that we have already achieved SEK 72 million in total cost reductions since Q2 of last year. And hence, we are moving steadily towards the SEK 100 million. Now these lower costs have contributed to an underlying EBIT for the company of negative SEK 1 million. Furthermore, we've made substantial noncash fair value adjustments and write-offs to a net value of negative SEK 195 million. So these comprise write-offs of goodwill and projects as well as fair value adjustments of contingent considerations for previous acquisitions, mainly related to Autosense. These adjustments are mainly because new business deals haven't materialized in the anticipated rate. And that has delayed the original plans for Autosense. In addition, we've seen that the international automotive market has developed weaker than expected at the time of the acquisition, which has further now affected negatively. So all in all, the reported EBIT for Q4 is negative SEK 196 million. Now for those wondering why we published the report earlier than planned, is because as soon as the Board decided on these adjustments and write-offs, we released the press release as well as the report. Now we're also encouraged by the fact that our free cash flow has strengthened during this period to positive SEK 57 million. And as we informed earlier, Tobii continues to evaluate and engage in strategic initiatives that will help us strengthen this cash position. As one outcome of such initiatives, we had a driver monitoring system technology asset licensing deal was actually secured in Q4. And that resulted in onetime revenues that we partially paid in Q4, while the remaining majority will actually be paid in the first half of 2026. So now let's review the performance of the 3-year business segments. As you know, we at Tobii have 3 business units. We address different use cases and different customer segments. I'll start from the top with the Products & Solutions business unit, which delivers vertical solutions to thousands of customers yearly, ranging from university research lab to enterprises as well as PC games. In Q4 of 2025, the Products & Solutions business represented 57% of Tobii's net sales. The EBIT result in Q4 is negative SEK 1 million, and it's not been impacted by any adjustments or write-offs. The result is partially due to the strengthened Swedish krona but mainly due to trade barriers that continue to affect our product sales in the U.S. as well in China. We are focusing on our consultancy services as a way forward to balance out the mix. Second, the integrations business. This unit engages with customers who want to integrate Tobii's technologies into their own offerings like assisted communication or VR technologies. Again, in Q4 of 2025, this business represented 24% of Tobii's net sales, and the EBIT was negative SEK 24 million. But if we exclude the adjustments and write-offs, the EBIT would be -- or would have been a positive SEK 8 million. We also saw a new design win for a VR headset, which was secured during the quarter. And we noted an uptick in interest in smart glasses. And the third business unit, Autosense is one that focuses on developing and providing driver and occupant monitoring solutions to automotive OEMs and Tier 1s. And in the fourth quarter of '25, this unit represented 19% of Tobii's overall net sales. This is actually a significant increase compared to last year. And the reason for that is the onetime of revenues that were generated by the DMS technology licensing agreement that was signed in that quarter. As I mentioned, the majority of the revenue of this segment will come in the first half of 2026. This segment delivered a negative SEK 172 million EBIT. And if we, again, exclude adjustments and write-offs, it would have been a negative SEK 9 million. Here, I'd like to invite our CFO, Asa to please go through the financials. Asa Wiren: Thank you, Fadi, and good morning to everyone. The fourth quarter continued with weak revenue development with total revenue amounting to SEK 193 million. The stronger Swedish krona had a negative impact of SEK 17 million in the quarter. Reported EBIT amounted to minus SEK 196 million and includes the noncash impairments of goodwill and projects together with adjustments of contingent considerations, totaling a net of minus SEK 195 million, resulting in an underlying EBIT of SEK 1 million. Although this represents a decrease to previous years, cost reductions have efficiently offset lower revenue. This is also evident when looking at the development over the past 8 quarters. Please turn to the next page for further comments regarding products and solutions. Fadi mentioned explanations for weaker sales. But here, it's clear how cost reductions have -- are having an impact. The drop in results in Q2, as you may recall, was impacted by project impairments of SEK 33 million. On the next page, we can see the development for integrations with both lower revenue and margins. One contributing factor is imagining related revenue that ceased in the second quarter of 2025. The margin on this revenue was 100%. Underlying EBIT adjusted for goodwill impairment of SEK 32 million amounted to a positive SEK 8 million. On next page, we can see the development for Autosense during the quarter. Revenue have been positively impacted by the initial part from the DMS agreement. Reported EBIT includes noncash goodwill impairments, a minor part, SEK 36 million regarding Tobii's legacy automotive business and SEK 176 million relating to the acquisition of FotoNation. The seller's opportunity to receive additional considerations in the first case, expired on last of December 2025, resulting in the reversal of a previously recognized earnout liability of SEK 18 million. SEK 49 million of the reversal is attributable to the revaluation of variable considerations related to the FotoNation acquisition. In addition to this, projects have been impaired by SEK 18 million during the quarter. All in all, as previously mentioned, noncash adjustments add up to minus SEK 195 million. Underlying EBIT adjusted for noncash impairments and revaluation amounted to minus SEK 9 million. The goodwill impairment is a result of the annual goodwill review for which Fadi previously presented the reason in his presentation. The reported values represent management's and the Board's best assessment at the time of the report. And then if we turn to the next page and take a look at the balance sheet. Tobii's balance sheet has naturally been affected by actions taken, such as lower intangible assets via impairment, reduced liabilities due to repayment to the Swedish Tax Authority earlier this year or last year, reduced liabilities due to revaluation but also due to the stronger Swedish krona, which decreased the debt denominated in U.S. dollar. Cash and cash equivalents as of December 31 amounted to SEK 117 million. We report a strong free cash flow for the period, SEK 57 million, key components include the payment of SEK 47 million from Dynavox, which I mentioned already in the third quarter was to come in the fourth and the initial payment for the DMS transaction in the fourth quarter. Our credit facility of SEK 50 million was utilized with SEK 47 million as of the balance sheet date and is reported in the Q1 2025 report the credit runs until 31st of March this year, and we are in ongoing discussions regarding financing solutions. During 2025, SEK 91 million relating to the COVID loans was repaid to the Swedish Tax Agency and a further SEK 40 million will be repaid during Q1 2026. Given the company's current position, there remains a risk that Tobii may not have sufficient financing for the coming 12 months. Addressing this is one of our top priorities and also describe additionally in the year-end report. I would like to take this opportunity to summarize a number of the strategic measures that have been implemented during the year. The ongoing strategic review encompass the entire organization and can be structured into 4 different categories, one being cost adjustments, another one being product portfolio valuation, third divestments or development of partnerships for various business segments and the fourth, of course, being strengthening our financial position. Some examples. When it comes to cost adjustments, in 2025, the initial savings program was completed, resulting in a reduction of OpEx by SEK 263 million. The goal was SEK 200 million. A further savings initiative of SEK 100 million was launched in Q3 with additional cost reductions already identified, SEK 43 million in Q4 and SEK 29 million in Q3. Several projects aim to enhance competitiveness and improve cash flow. When it comes to product portfolio evaluation, such as duplicated functions arising from the acquisition have been consolidated, and a clearer prioritization is being applied to future investments with unprofitable segments discontinued. For divestments and partnerships, noncore assets have been divested including the [ tech ] spin-off as well as nonstrategic patents that were divested during the first quarter of 2025. And new forms of collaboration and partnerships are being developed, and the DMS deal presented in Q4 is a notable example to that one. And to strengthen our financial positions, all the mentioned categories are designed to improve the company's financial position and cash flow resulting in a more focused and efficient Tobii. In addition to operational measures and divestment, work is being conducted in parallel with advisers to explore various financing and capital market solutions. While significant progress has been made across all areas, the review process is ongoing and will continue over several quarters. By that, I would like to hand over to you, Fadi, for some final words. Fadi Pharaon: Thank you very much, Asa. So let's summarize the quarter. Q4 2025 was a weak quarter for us, but with strong delivery on our SEK 100 million cost-cutting program, as well as a strategic review initiative with the DMS technology licensing agreement as one proof point. This has enabled us to achieve a healthy cash flow for the quarter of SEK 57 million. Now we took significant write-offs and adjustments mainly towards Autosense. We remain fully committed to grow our business with DMS and OMS and the recent single camera DMS+OMS launch with a premium European OEM has garnered keen interest in our interior sensing offering. Our ambition for the long term is to achieve a sustainable positive cash flow, so we can enable value creation and also ensure we have the full capabilities to drive profitable growth. We will continue our focus on our sales and commercial initiatives to do so. Now in the near term, we remain focused on addressing our financial needs. These previously announced cost reduction target is progressing well, and it will definitely improve our liquidity in 2026. We continue executing on strategic reviews, which include potential divestments. And as earlier announced, the Board has engaged an external adviser to evaluate financing and capital market options. So the ongoing work is aimed at resolving our financial needs, and that allows us to further focus on our objective to achieve sustained profitability and positive cash flow. Considering all of what I mentioned, the Board decided to remove the current financial targets announced in 2024, and we will be sharing new ones in due times. Finally, on a personal note, I'd like to share that I'm very delighted to joining Tobii, and I'm highly motivated and energized to work closely together with the team in shaping the company's trajectory forward. Thank you very much for listening. And Rasmus, can we please now open the Q&A. Rasmus Buckhoj: Yes. Thank you. And we will start with questions online. And we have a question from Daniel Thorsson from ABG Sundal Collier. Let me let you into the call, Daniel. Operator: The next question comes from Daniel Thorsson from ABG Sundal Collier. Daniel Thorsson: Yes. Fadi and Asa, can you hear me? Asa Wiren: Yes, Daniel. Daniel Thorsson: Excellent. So a couple of questions. I'm a bit curious, how large was the free cash flow from the DMS deal in Q4 alone? And then what do you expect in H1 from this one? Asa Wiren: We don't comment on specific customers or projects, but as we've said, there was a part coming in Q4, but the significant part will come in Q1 during the first half year of 2026. Daniel Thorsson: Okay. So more expected than we saw in Q4, at least? Asa Wiren: Yes. Daniel Thorsson: Was the underlying business in Q4 free cash flow positive? Asa Wiren: Yes. Daniel Thorsson: Okay. And then for your full year 2026, you mentioned a comment that you -- if I heard correct, that you may not be 100% financed throughout the next 12 months. But do you expect a positive or a negative free cash flow in 2026 based on what you see today? Asa Wiren: We don't comment -- we don't do forecasts or outlooks in that way. We have mentioned like the long term and the assessment of the 12 months ahead of us. And I think that is what I can comment on at this stage. Daniel Thorsson: Okay. Excellent. Then I have 2 questions regarding the business. First one, in terms of automotive progress, is the market more challenging due to higher competition and price pressure? Or is it just customers delaying some projects that you expect to come later? Fadi Pharaon: Well, the market is part of the expansion for the delays. As we all know, the automotive market has had a lot of different competitive forces, strategies between conventional fuels and electricity. So there's a lot of moving parts, let's say, in the entire supply chain, and that would naturally sometimes lead for certain delays. However, of course, with the EU regulation coming in, in this 2026 year, we will see that putting in, let's say an acceleration on those plans. Daniel Thorsson: Okay. It doesn't sound like you have lost business to competitors, it's more the market being delayed? Is that correct? Fadi Pharaon: We're seeing now more and more keen interest actually in our single camera DMS and OMS solution since we have press released last year, we are working with a European OEM. So we believe that we will have to work, of course, on all this keen interest and do our utmost to put it in the pipeline. Daniel Thorsson: Okay. Excellent. And then the last question on the business here. I'm a little bit curious around the smart glasses market. Do you have any design wins that you can share or customer names or any expected design wins that will result in product launches within the next 12 months or so? Fadi Pharaon: No. I mean we don't share any forward-looking statements on design wins or not. But I mean, as you can see from the general trend, the smart glasses is a developing market. It's still being shaped. I would say, early days, a lot of course, of technology interest, and eye tracking would play a certain role in the smart glasses market. So we are very keen here at Tobii to make sure that we cement our role in that market and let's see where that would lead us. Daniel Thorsson: Okay. But can you comment if you are involved in any projects that you expect to start production phase in the next 12 months or not? Fadi Pharaon: Once these events take place, we will be able to communicate it. At this moment, we won't comment on any projects. Rasmus Buckhoj: We have no more people in the queue waiting to ask a question online, but we do have a number of questions written in the chat. So we will head over and start to go through them. Now the first question comes from [ Jeppe ] asking. Can you explain what the major automotive supplier will receive through the DMS licensing agreement and what the total revenue for Autosense will be from this deal? Fadi Pharaon: I'm assuming the question is targeted towards the newly signed DMS technology license agreement. So as the word in itself says, it is actually a technology licenses. So it's a new way for Tobii to monetize on the R&D work that we've done. In terms of explicit terms on the value, that's something that we will not be commenting on. But we will see, of course, the outcome of the payments that will come in H1 of 2026. Rasmus Buckhoj: And a follow-up question from Jeppe. What revenue contribution was recognized from the DMS licensing agreement with the major automotive supply in Q4? And what contribution is expected in Q1? Additionally, from which quarter, should we assume that no further revenue will be recognized under this agreement? Asa Wiren: As I mentioned, when Daniel asked the question that we are not commenting on specific customer deals or amounts. So -- but what we have said is that part was recognized in Q4, and the remaining part will come during H1 2026. Rasmus Buckhoj: A follow-up question from Jeppe. Why haven't new business deals materialized in the anticipated rate for Autosense? Fadi Pharaon: I mean, as I mentioned before, partially, it's because of the international automotive industry where we've seen a weaker-than-expected development. But also mainly because we have been working very hard on getting that very important single camera DMS and OMS project out with the European premium OEM. And since we've done that, I think it has been a clear signal to the industry that single camera interior sensing does provide a very high value. So we are going to definitely leverage on this kind of a premium flag project that has been now out in the market, and we're going to put all of our efforts to ensure that we can work with all of the interested parties and engage in the sales engagement as required actually to turn those into hopefully, contracts in the future. Rasmus Buckhoj: Another follow-up question from Jeppe. With no new OEM design wins for SCDO, should we interpret this as evidence that competitive intensity is higher than expected, driven by peers delivering solutions that match or exceed your offering? Fadi Pharaon: I think it is no secret that this is a competitive market, and I'm sure you have seen consolidations as well over the past few months. But that's why our strategy is to carve a clear leadership role by being first with a market implemented and validated single camera for DMS and OMS. Rasmus Buckhoj: Follow-up question from Jeppe. Autosense competitors have secured design wins that include alcohol impairment detection. When will Autosense be in a position to deliver this capability? Fadi Pharaon: I think I need to get back to you. I don't have the full road map to be honest yet in my head, but let's get back to you with this, Jeppe offline. Rasmus Buckhoj: Another follow-up question from Jeppe. What was the license revenue contribution for SCDO in Q4? Asa Wiren: We don't comment on that specifically for SCDO. Rasmus Buckhoj: And [ Jacob ] is asking what was the impact of the DMS payment? And what is the expected sales of DMS contract in Q1 '26 and Q2 '26? Asa Wiren: And I think I repeat myself once again that we don't comment on specific customer deals, and we don't give any forward-looking statements. Rasmus Buckhoj: And a follow-up pressure from Jacob. You utilized SEK 47 million of the credit facility. Will we have to repay this in Q1? And will you be able to extend the credit liability? Asa Wiren: We have described the situation in the report. And as we say there, we are in discussions. So I think that is what I leave it to that at the moment. Rasmus Buckhoj: A question from Peter. How much of the performance in Autosense is driven by onetime licensing agreements? And how does the performance excluding any onetime payments compared to Q4 '24? How much of the performance in Autosense is related to the Autosense division is driven by the commercial market versus the passenger vehicle market? And the fourth question, let's break them up. Let's start with how much of the performance in Autosense is driven by onetime licensing agreements? And how does the performance excluding any onetime payments compared to Q4 '24? Asa Wiren: The answers to those questions would be too detailed to share publicly. So we don't comment on that. Rasmus Buckhoj: How much of the performance in Autosense is related to the -- is driven by the commercial market versus the passenger vehicle market? Fadi Pharaon: Again, I would say, same answer that Asa has already given. We will -- we're not in a position to deep dive into proprietary information. Rasmus Buckhoj: And final question from Peter. Does your outlook for this division differ between these 2 segments versus the performance so far? Fadi Pharaon: Same as... Rasmus Buckhoj: A question from Jacob. Have you received cash for the DMS deal? Can you elaborate on the... Fadi Pharaon: Working capital... Rasmus Buckhoj: Working capital dynamics of the deal. Asa Wiren: We have received one part of it, but the main part will come during the first half of 2026. And what was invoiced during the fourth quarter was also received in 2025. Rasmus Buckhoj: And a question from [ Emil ]. So no more revenues from the Tier 1 deal after H1 and the Tier 1 deal referring to the DMS licensing agreement, I understand. Asa Wiren: As we've communicated, it will come during the fourth quarter and the first half year of 2026. Rasmus Buckhoj: And I don't see any further questions in the chat. Is there any other questions? Fadi Pharaon: If not, thank you, everybody, for listening in and your interesting questions, and we'll be meeting you for the next quarter financial report. Thank you very much. All the best. Asa Wiren: Thank you.
Operator: Welcome and thank you for joining the Cencora, Inc. Fiscal 2026 First Quarter Results Call. My name is Lucy, and I will be coordinating your call today. During the presentation, you can register a question by It is now my pleasure to hand over to your host, Bennett Murphy, Senior Vice President of Investor Relations and Enterprise Productivity to begin. Please go ahead. Bennett Murphy: Good morning, good afternoon. Thank you all for joining us for this conference call to discuss Cencora's fiscal 2026 first quarter results. I am Bennett Murphy, Senior Vice President, Investor Relations and Enterprise Productivity. Joining me today are Bob Mauch, President and CEO, and James Cleary, Executive Vice President and CFO. On today's call, we will be discussing non-GAAP financial measures. Reconciliations of these measures to GAAP are provided in today's press release, which is available on our website at investors.cencora.com. We have also posted a slide presentation to accompany today's press release on our investor website. During this conference call, we will discuss forward-looking statements about our business financial expectations on an adjusted non-GAAP basis, including, but not limited to, EPS, operating income, and income taxes. Forward-looking statements are based on management's current expectations and are subject to uncertainty and change. For a discussion of key risks and assumptions, we refer to today's press release and our SEC filings, including our most recent 10-Ks. Cencora assumes no obligation to update any forward-looking statements, and this call cannot be rebroadcast without the permission of the company. You will have an opportunity to ask questions after today's remarks by management. We expect you to limit your questions to one per participant in order for us to get to as many as possible within the hour. With that, I will turn the call over to Bob. Robert Mauch: Thank you, Bennett. Hi, everyone, and thank you for joining Cencora's fiscal 2026 first quarter earnings call. I'll begin by thanking our team members who drive our strong performance while advancing our purpose. This morning, we were pleased to announce that we've completed our acquisition of the majority of the remaining equity interest in OneOncology. And I welcome CEO, Dr. Jeff Patton, and the entire OneOncology team to Cencora. Your commitment to and expertise in supporting community oncology practices is a cornerstone of the Cencora strategy. In 2026, we delivered adjusted operating income growth of 12% and adjusted diluted EPS growth of 9%, driven by our market-leading capabilities. To reflect our performance and the contribution from our recently completed acquisition of OneOncology, we are raising our fiscal 2026 guidance to reflect year-over-year adjusted operating income growth of 11.5% to 13.5%. Our results were driven by continued strength in our US healthcare solutions business, as we executed our pharmaceutical-centric strategy and worked to advance commercial solutions. Our dedication to understanding customer needs and delivering tailored services creates long-standing strategic relationships fueling our growth. We are furthering the customer experience and our operational excellence leveraging technology and advanced analytics. Our solutions differentiate us in the market and allow us to capitalize on strong specialty pharmaceutical utilization trends. We have three growth priorities core to our strategy. First, strengthening our leadership in specialty. Second, leading with market leaders. And lastly, enhancing patient access to pharmaceuticals. On today's call, I'll focus on how our MSO expansion is advancing each growth priority. I'll begin with how our MSO footprint strengthens our leadership in specialty. Our investments in pharmaceutical-centric MSOs represent a natural extension of our long-standing leadership in specialty pharmaceuticals, complementing our existing specialty distribution and GPO services. Our MSOs provide practices with critical back-office and administrative support while strengthening our relationship with pharmaceutical companies. We expect to drive significant value for physicians across OneOncology and Retina Consultants of America by creating an MSO platform that leverages the capabilities of these market leaders. We'll unlock new opportunities and enhance our solutions for both providers and biopharma by leveraging our platform strength and scale in areas like clinical research, revenue cycle management, and data-driven clinical insights to support physicians and advance care. Focusing on our growth priority of leading with market leaders, our MSOs demonstrate the value of our commitment to support healthcare leaders at the forefront of innovation. While much focus today will be appropriately on completing the acquisition of OneOncology, in January, we celebrated the one-year anniversary of RCA joining Cencora. Over the past year, we've been very pleased with the addition of RCA, both in terms of their performance and leadership in driving pharmaceutical innovation. RCA has clearly differentiated itself with its clinical trial and research capabilities, contributing to more than one-third of all retina clinical trial research conducted in the United States across our MSO platform. And we see significant potential in extending this offering. In addition to expanding research capabilities, RCA physicians continue to enhance the patient care journey by adopting advanced technologies in their practices that have a meaningful impact on patient experience. Since completing the acquisition, we've supported the deployment of hundreds of advanced imaging devices across RCA practices, enabling more precise noninvasive assessment of patients' clinical conditions. And finally, our MSO expansion is supporting our growth priority of enhancing patient access to pharmaceuticals. As specialty pharmaceutical innovation continues to accelerate, physicians are navigating more advanced treatment options while facing increased operational complexity. Our MSOs help address these challenges by providing a robust portfolio of services that support physicians in delivering the most modern, high-quality care. Both RCA and OneOncology physicians are active contributors at leading retina and oncology conferences, presenting research across a wide range of disease states. Recently, OneOncology partner practices presented dozens of abstracts covering emerging treatments, including cellular therapies, subcutaneous bispecific antibodies, and CAR T. These activities highlight the important role OneOncology physicians play in advancing cancer care and expanding access to complex treatments for patients in local communities. Another recent example of our MSO physician's leadership advancing clinical practice is RCA's research chair, Dr. Charles Wyckoff, and team performing the world's first procedure of a new FDA-approved cell-based gene therapy for MacTel type two, a degenerative retina disease that previously had limited treatment options. We've also seen the real-world impact of this leadership in the retina biosimilar market. RCA physicians were highly involved in supporting research for a key biosimilar product, and due to their clinical familiarity and confidence, were leaders in its early adoption, helping to drive patient access to this high-quality, lower-cost treatment. Across both platforms, OneOncology and RCA physicians are leading in the adoption of advanced and individualized treatment approaches, expanding access to clinical trials, and ensuring patients have access to the most cutting-edge treatments in an accessible setting. In closing, Cencora delivered a strong start to our fiscal 2026, continuing to execute at a high level. We are advancing our strategy and strengthening our position as a leading healthcare company. Guided by our purpose, growth priorities, and strategic drivers, we are well-positioned to drive sustainable value creation for our stakeholders over the long term. Before handing it over to Jim for a detailed review of our quarterly results and updated guidance, I want to once again thank the Cencora team. Their expertise, commitment, and dedication to our purpose power our strong performance. With that, I'll now hand the call over to Jim for an in-depth review of our performance and updated expectations for the year. Jim? James Cleary: Thanks, Bob. Good morning and good afternoon, everyone. Before turning to a review of our fiscal 2026 first quarter financial results and updated guidance expectations, I want to take a moment to echo Bob in expressing my excitement on our announcement that we have completed our acquisition of OneOncology. OneOncology and its partner practices are leaders in community oncology, having built a differentiated MSO platform that has delivered exceptional growth since its founding and has been a key contributor to Cencora's leadership in specialty. As innovation and biosimilars continue to advance, our partnerships with pharmaceutical-centric MSOs will allow us to better support physicians, patients, and manufacturers, enhancing our specialty offering. We are confident our investments in MSOs will unlock new value creation opportunities and support our long-term growth as evidenced by our recently increased long-term guidance. Moving now to our consolidated first quarter results. And as a reminder, unless otherwise stated, my remarks today will focus on our adjusted non-GAAP financial results. For further discussion of our GAAP results, please refer to our earnings press release and presentation. Starting with adjusted diluted earnings per share, we completed the quarter with adjusted diluted EPS of $4.08, an increase of 9% driven by performance in our US healthcare solutions segment. Consolidated revenue was $85.9 billion, up 5.5% due to solid growth in both reportable segments and in other. The drivers of which I will detail when I speak to our segment level results. In the quarter, we continued to see strong sales growth in the US for GLP-1 products, which increased by $1 billion or 11% over the prior year quarter. Turning to gross profit, consolidated gross profit was $3 billion, up 18% primarily due to growth in the US healthcare solutions segment. Consolidated gross profit margin was 3.48%, an increase of 37 basis points driven by the January 2025 acquisition of Retina Consultants of America. Moving to operating expenses, in the quarter, consolidated operating expenses were $1.9 billion, up approximately 22%, driven primarily by the RCA acquisition and to support our revenue growth. Consolidated operating income was $1.1 billion, an increase of 12% compared to the prior year quarter due to strong execution by our teams and continued growth in our US healthcare solutions segment. Moving now to our net interest expense and effective tax rate for the first quarter. Net interest expense was $72 million, an increase of $44 million versus the prior year quarter primarily due to debt raised to finance a portion of the RCA acquisition. Our effective income tax rate was 19% compared to 20% in the prior year quarter. And as we look at the balance of fiscal year 2026, we now expect our full-year effective tax rate to be approximately 20%. Finally, diluted share count was 195.3 million shares, a 0.1% increase compared to the prior year first quarter. As a reminder, due to the OneOncology acquisition, we have paused share repurchases as we prioritize debt pay down and anticipate our full-year diluted share count to be approximately 105.5 million shares. Regarding our cash balance and adjusted free cash flow, we ended December with $1.8 billion of cash and had negative adjusted free cash flow in the quarter of $2.4 billion as a result of seasonal working capital needs. This compares to negative adjusted free cash flow of $2.8 billion in 2025. We continue to expect full-year adjusted free cash flow to be approximately $3 billion as the working capital dynamics unwind in the balance of our fiscal year 2026 as they did in fiscal year 2025. This completes the review of our consolidated results. Now I'll turn to our segment results for the first quarter. Beginning with the US healthcare solutions segment, US healthcare solutions revenue was $76.2 billion, up 5% as we continue to see good volumes and revenue growth across our customer segments, including growth in GLP-1s, and in specialty sales to health systems and physicians. As a reminder, this quarter, we faced a more challenging revenue comparison due to a large grocery customer we off-boarded in 2025 and the 2025 loss of an oncology customer as a result of it being acquired. US Healthcare Solutions segment operating income increased 21% to $831 million, primarily driven by the RCA acquisition and continued specialty growth in health systems and physician practices, more than offsetting the headwind from the oncology customer loss. Our teams continue executing at a high level across the segment, contributing to our strong performance. In the quarter, we saw particularly good volumes and trends in our health systems business where we continue to see benefits from our focus on strategic partnerships leveraging our expertise in specialty. At RCA, we saw better than expected volume, excellent trends in research, and new physicians joining the platform. Turning now to our international healthcare solutions segment. In the quarter, international healthcare solutions revenue was $7.6 billion, up approximately 10% on an as-reported basis and 6% on a constant currency basis driven primarily by our European distribution business but also reflecting revenue growth at each of the businesses within the segment. International Healthcare Solutions operating income was $142 million, down 14% on an as-reported basis and down 17% on a constant currency basis. The decline was driven by lower operating income in our European distribution business largely due to the timing of manufacturer price adjustments in a developing market country, partially offset by operating income growth in our global specialty logistics business. In the quarter, we continued to see encouraging trends for our Global Specialty logistics services with volumes growing again this quarter. Our teams have been prioritizing operational excellence and targeted business development which are positioning us for success as the market begins to rebound. Moving to other, revenue in other was $2.1 billion, up 6% primarily due to growth at MWI Animal Health and ProPharma, and offset in part by a revenue decline in our legacy US hub consulting services. Operating income was $91 million, down 6% primarily due to a decline in operating income in our US hub consulting services business resulting from the fiscal 2025 loss of manufacturer program, partially offset by operating income growth at MWI Animal Health. The teams continue to execute well across companion and production animal markets. That completes a review of our segment level results. I will now discuss our updated fiscal 2026 guidance expectations. As a reminder, we do not provide forward-looking guidance for certain metrics on a GAAP basis, so the following information is provided on an adjusted non-GAAP basis except with respect to revenue. Beginning with adjusted diluted earnings per share, when we announced the acquisition of OneOncology, we indicated that we had expected to be towards the lower half of our EPS range due to pausing of share repurchases. Today, we are pleased to now be reaffirming our full guidance range of $17.45 to $17.75 to reflect our strong execution, the continued performance of our US healthcare solutions segment, and the expected contribution from OneOncology. Moving now to revenue. We expect consolidated revenue growth to be in the range of 7% to 9%, up from the previous expectations of 5% to 7%, reflecting increased growth across both reportable segments and in other. In 7% to 9% revenue growth, which includes the OneOncology MSO revenue and continued solid utilization trends across the segment. In the International Healthcare Solutions segment, we now expect revenue growth to be in the range of 7% to 9% on an as-reported basis to reflect the weakening of the US dollar against many currencies. On a constant currency basis, our International Healthcare Solutions segment revenue growth remains unchanged at 6% to 8% growth. For other, we now expect revenue growth to be in the range of 1% to 5%, reflecting updated expectations for ProPharma and positive volume trends we have seen at MWI, which represents a significant majority of revenue in other. Moving to operating income, we expect consolidated operating income growth to be in the range of 11.5% to 13.5%, up from the previous guidance of 8% to 10%. This is primarily driven by our increased growth expectations for the US healthcare solutions segment, where we now expect operating income growth to be in the range of 14% to 16% due to our acquisition of OneOncology and the continued strong execution and performance of the segment. As a reminder, we expect OneOncology to be neutral, net of financing costs, to adjusted diluted EPS in its first twelve months. There is no change in our full-year operating income expectations for the International Healthcare Solutions segment, as the largest driver of the year-over-year weakness for the first quarter was timing-related within the European distribution business, which we expect to pick up in the balance of fiscal 2026. As it relates to our operating income expectations for other, we now expect to see operating income flat to the prior year revised reportable segment results. This is due to the full impairment of depreciable assets of the US consulting business as of December 31, 2025, thereby eliminating the need for future depreciation expense. While this consulting business is small in the context of the Cencora enterprise, we are pleased that we are making progress on focusing our portfolio. Before moving to our updated interest expense expectations, I wanted to spend a moment providing details on non-income contributions we expect from the OneOncology acquisition. Due to the nature of non-wholly owned investments held by OneOncology, we expect to have the following two additional benefits to Cencora's net income. First, we expect to record approximately $30 million of income on our other income and loss line for the full year fiscal 2026, primarily relating to a joint venture in which OneOncology's UUG subsidiary holds a noncontrolling stake. Second, we expect to have a noncontrolling loss add back to net income also related to UUG that will largely offset the noncontrolling income we eliminate from ProPharma, resulting in our noncontrolling interest line being relatively small in fiscal 2026. While these items are helpful callouts as you incorporate OneOncology into your models for Cencora, we do not anticipate them being regular points of discussion. The OneOncology platform is well-positioned, high-performing, and will be a meaningful contributor to Cencora's operating income both in 2026 and in our long-term plans. Moving now to interest expense. We expect interest expense to be in the range of $480 million to $500 million, up from our previous range of $315 million to $335 million, primarily due to additional borrowings required to fund our acquisition of OneOncology. As a reminder, our second quarter is typically our highest interest expense quarter due to the seasonal working capital needs. And with the OneOncology financing, we would expect second quarter net interest expense to be about double our first quarter interest expense. That concludes our updated full-year guidance assumptions. In closing, Cencora delivered a strong start to fiscal 2026. As our purpose-driven team members executed to support our partners and patients. Our strategy, centered on our growth priorities and strategic drivers, is powering our performance, informing our capital deployment, and will allow us to drive long-term value creation for all our stakeholders. Now I'll turn the call over to the operator to open the line for questions. Operator? Operator: Thank you. When preparing to ask your question, please ensure your device is unmuted locally. The first question comes from Glen Santangelo from Barclays. Your line is now open. Please go ahead. Glen Santangelo: Yes. Thanks for taking my question. Hey, Bob and Jim, I'm just going to talk about operating income growth for a second for the balance of the year. I think with so many moving parts like around, you know, RCA, the retina deal, and Florida Cancer, and now adding OneOncology. I think what the market's kinda confused a little bit about is the deceleration, Jim, that we saw in that in the US segment from the September to the December. And so I'm kind of curious if you can give us a little bit more color there. And within your full-year guidance, should we just assume continued deceleration throughout the year due to the more difficult comps? And I don't know if there's any other headwinds or tailwinds to that operating income line that you think are worth calling out as we think about the balance of the year? Thanks. James Cleary: Sure. Glenn, thanks a lot for asking that question. And then, you know, I'll start out with the December. And during that it's December, as you know, in the US, we had adjusted operating income growth of 21%. And I'll start out talking about our long-term guidance. As you know, our long-term guidance for adjusted operating income growth in the US is 7% to 10%. And we've increased that twice in the last few months. And the reason I bring that up is if you look at the first quarter, and look at that 21% operating income growth in the US, if you back out RCA, and RCA had a very good quarter, but if you back out RCA, our performance in the US was still towards the higher end of our long-term guidance range, and that's even with the headwind from the customer that we lost. And so if you back out that headwind, we were meaningfully above our long-term guidance range in the first quarter, and the US. And really, those positive results are due to things like utilization trends. We've talked about for some time, really strong performance in Specialty in the quarter. We had particularly good performance with health systems, but also with physician practices and really good sales to both OneOncology and RCA and then just broad performance across the US segment. And so as a result of that and as a result of the contribution, of course, from OneOncology, we're increasing our guidance for the full year from in the US from 9% to 11% adjusted operating income growth to 14% to 16%. And so if we look at the balance of the year guide that you asked about, and if we exclude RCA and exclude OneOncology, we're still solidly within that long-term guidance range of 7% to 10%. And that's in spite of the headwind that we have from the loss of the oncology customer that was acquired by a competitor. And, that, you know, very good performance is, you know, is driven by the same factors, including utilization trends, strength in specialty sales, and broad-based performance. And so if you look at our performance now, I think we are performing really well. It may not be the same level of outperformance that we've had in some of the recent past. Of course, the comps that we're hitting are very strong comps. But I will say that we, you know, feel very good about our long-term guidance and very good about even when you x out things like RCA and OneOncology, we're performing, you know, solidly within that long-term guidance range that we've increased a couple of times in the last few months. So thanks a lot for the question, Glenn. Operator: Thank you. The next question comes from Elizabeth Anderson of Evercore ISI. Your line is now open. Please go ahead. Elizabeth Anderson: Hi, guys. Good morning, and thanks for the Appreciate all the details. I was wondering if you could go into a little bit more detail on some of the MSO platform AOI accelerators such as, you know, you've owned RCA for about a year. You obviously have just rolled up OneOncology in terms of closing that. Where is it like shorter-term opportunities in terms of helping to drive AOI growth? And what sort of like a longer-term driver as we think about that platform, going forward. Thank you. Robert Mauch: Hi, Elizabeth. Thank you for the question. You know, I'll just I'll take a step back and just kinda explain a bit kind of what why the MSOs fit so well within the Cencora strategy, and I'll get right to your specific question. But the MSO strategy is a natural extension of the relationship that we have with specialty providers as well as specialty biopharma. It's, in addition to the strong businesses that we have in specialty distribution and GPO. So the acquisition of RCA was a good important first step. And as we saw the performance of that business, it became clear to us that we should, if we could, accelerate the acquisition of OneOncology, which we're extremely happy that we were able to accomplish. So what that gives us now, which gets to your question, is now we have two platform MSOs who are market leaders with significant capabilities within each MSO. And then the answer to your question is as we look across those MSOs, we have opportunities to leverage those capabilities, which we which we've talked about and we, you know, we restated in the prepared remarks today. But the clinical trial excellence that exists within RCA is something that we believe we can quickly leverage across the entire platform. Revenue cycle management is a very strong capability, which within the MSOs that can become even stronger. That's a value driver. And then things, you know, around future products and future technologies. That these excellent physicians have leadership in, that's where you get to a little bit of the medium and the longer term. We're confident that there will be new capabilities and new services that will be built over time. That most importantly, will be there to support the physicians and you know, to restate again, the purpose of the MSO is to support the physicians and the physician practice. That allows them more time to focus on their patients, on clinical excellence. And driving. So as we build those capabilities, we have a scale and the footprint now to deploy them in a significant way. So we have short-term opportunities, which we talked about, but we're also excited about medium and long-term opportunities that we'll talk more about once they become more apparent. Operator: The next question is from Lisa Gill of JPMorgan. Your line is now open. Please go ahead. Lisa Gill: Thanks very much. Bob, I have one question for you and then just a follow-up for Jim. Bob, on your side, I appreciate everything you're talking about from an MSO perspective and the physician relationship. But one of the comments that stood out to me today is the benefits of strategic partnerships with health systems. Can you talk a little bit more about the opportunities that you see there? You know, what's in the numbers today and what the future opportunity is? And then Jim, can you just help us to understand the cadence of earnings? I just want to sure I know you don't give quarterly guidance, but anything to call out as we think about the next several quarters? Robert Mauch: Hi, Lisa. Thank you for the question. You know, we certainly are focused, the MSOs today, but your question is spot on. With our strategy and the way that we think about our specialty business because certainly, the physician community physician side of care is critically important for patients and for Cencora, but we also see significant growth in our relationship with health systems who are also focused on that specialty growth. And we've been, you know, focused there over a number of years. We feel really comfortable with the customer portfolio that we have. And we expect to continue to see growth there. And you know, as I mentioned in my prepared remarks, you know, we spend a lot of time understanding those customers, these health systems customers, understanding their strategy, how they want to grow, and then we bring the capabilities of Cencora to help them do that. And so that's worked out well to this point. We expect it will continue, but your question really is indicative of the way that we think about the specialty pharmaceutical growth and that we want to be a leader in the sites of care where all of our customers are, and we're doing so certainly in the physician space, the health systems, but then others as well. We want to make sure that we're the right partner for those providers. Thanks for the question. James Cleary: Lisa, thanks a lot for the follow-up question. I'll just call out two things. The first is, of course, the oncology customer that was acquired by a competitor. That will be a headwind like it was, the last two quarters. That'll be a headwind in the second and third fiscal quarter, and then we'll no longer have that headwind in the fourth quarter, which will enhance our operating income growth rate in the fourth quarter. Then the only other thing I'll call out which I said in my prepared remarks, and we kind of gave a lot of detail here to help with the modeling is due to the debt that we're taking on to fund the OneOncology acquisition, we're indicating that our interest expense in the second quarter will be approximately 2x our interest expense in the first quarter. Thanks a lot for that follow-up question. Robert Mauch: Thank you. Operator: Next question comes from Michael Cherny of Leerink Partners. Your line is now open. Please go ahead. Michael Cherny: Good morning. Thanks for taking the question. Maybe can talk about the market construct a little bit. Obviously, the first range of IRA price negotiations hit the market. Start of this year. Can you just give a sense, as you prepared for calendar '26 any changes or discussions, relative to the supplier side terms of how you go to market and any changes in terms of the contracting relative to any of the list price changes that were absorbed? James Cleary: Yeah. Let me make a couple of comments there. Thank you for that question. We have a very strong strategic global sourcing team and we were well prepared. And when there were the in list price, as we've said before, we have terms in our contracts which indicate that we'll get into discussions with manufacturers. And we were very successful in those discussions with manufacturers because of the value we provide the supply chain. So we were very successful in maintaining our economics and our gross profit dollars. And so we were, you know, pleased with the way that that turned out. And we had talked about, you know, for some time, the insulin example and how we had protected our gross profit dollars, and this was just another example at the end of this year of us, because of the value we provide in the supply chain, able to come out of those discussions with maintaining good economics and gross profit dollars. And then the only other one thing I'll comment on is just in general, what we saw at the end of the year in terms of, you know, brands and any price increases and those sorts of things was very much in line with our expectations. Thank you very much for the questions. Operator: Thank you. The next question is from Erin Wright of Morgan Stanley. Your line is now open. Please go ahead. Erin Wright: Great. Thanks. So I'll switch to international. It does seem to be more of a timing dynamic. Can you describe that a little bit more? Is there a specific geography that this was attributable to in terms of in the quarter? And I guess, give a little bit more detail on what that headwind was or quantify it for us? Then what gives you confidence in that ramp? What are you seeing in, like, bulk courier, for instance, and other areas as well? Thanks. James Cleary: Yeah. Thank you. Appreciate the question, Erin. And so, I think the key thing is that in the international segment, we're maintaining our operating income guidance of adjusted operating income growth of 5% to 8% for the fiscal year. And what we saw during the first quarter in the International segment was a challenging quarter due to a timing difference for manufacturer price adjustments in a developing market country. And that price adjustment on last year happened at the beginning of the fiscal first quarter and this year, it happened at the very end of the fiscal first quarter. And so that'll really just be a timing difference that we'll see year over year. And as a result of that, there's no change in our guidance for the fiscal year, and we expect it to pick up in the balance of the fiscal year. But then I think in the international segment, the thing we were really pleased to see during the quarter is operating income growth in our global specialty logistics business. And what we've seen the last two quarters is really volume growth in that business. And so we're executing well as a team there, and we're really pleased by the positive signals that we've seen of volume growth there. And of course, that translated in the most recent quarter to operating growth. So those are the things that enable us to maintain our guidance of 5% to 8% in international for the fiscal year. Thank you, Erin. Operator: Thank you. The next question comes from Steven Baxter of Wells Fargo. Your line is now open. Please go ahead. Steven Baxter: Hi, thanks. I was hoping to spend a minute on the revised US EBIT guidance. It looks like that came up about $160 million or $170 million. I was hoping you could perhaps break that into perhaps the contribution from OneOncology, whether we should think about any kind of transitory costs or kind of ramping going on with that to kind of consider. And then in terms of organic guidance provision, is there any organic guidance provision in the segment allowed to point to there? Thank you. James Cleary: Yeah. Thanks a lot for the question. And, of course, in the US, we increased our guidance from 9% to 11%, as you know, to 14% to 16% and that was driven by the OneOncology acquisition and also by continued performance in our US healthcare solutions segment for all the reasons that we've been talking about. And as I said before, if you back out RCA and you back out OneOncology, in the first quarter, we're towards the higher end of our long-term guidance range of 7% to 10%. And in the last March, if you back out RCA and OneOncology again, we're within that long-term guidance range. And both those things are in spite of the loss of the oncology customer that was acquired. Now one other thing that I want to raise, and this is why we got into a little bit of detail in my prepared remarks, is there are some OneOncology benefits that happen below the operating income line and part of those benefits are in the other income line, and part of those benefits are in the noncontrolling interest line. And now these were covered, but just to quickly go through them, we expect approximately $30 million of benefit in our other income and loss line for the full year fiscal 2026, and that's primarily related to earnings from a joint venture in which UUG holds a noncontrolling stake. And then second, we expect to have a noncontrolling loss add back to net income also related to UUG and just to size it, this add back will largely offset the noncontrolling income we eliminate from ProPharma. That results in our noncontrolling interest line being relatively small in fiscal 2026. And that's a lot of detail there, but we just really wanted to make the point that there's the operating income benefit from OneOncology, and then there's also some income below the operating income line. Steven Baxter: Thank you. Operator: The next question comes from Eric Percher of Nephron Research. Your line is now open. Please go ahead. Eric Percher: Thank you. Jim, I might ask you for a little bit more detail on top of that detailed description. When you look at 9% to 11% to 14% to 16%, it looks like this quarter's performance would add a point recognizing there's a range here. But can you remind us maybe how the OneOnco acquisition contribution flows in at the segment level versus what you gave us at total company being neutral? And how much of that is attributed February 2 to the end of the fiscal year? James Cleary: Yeah. Thanks for asking that follow-up question. And so that increase in guidance from 9% to 11% to 14% to 16% in the US is largely driven by OneOncology, and it's also as a result of the continued strong performance in the US. And, you know, what you'll see is in the other income line, for the first four months of the fiscal year, we have our, you know, our 35% of the net after-tax earnings from OneOncology and that's after interest after tax. So it's a relatively small number. And then, of course, that moves up to operating income for the last eight months. And so it's really just kinda eight months there that drives the increase from 9% to 11% to 14% to 16%. And, you know, just one other thing that I'll add is that it does ramp. And so we'll see the OneOncology contribution ramp as the year goes on, which is due to, you know, both organic growth and inorganic growth, some inorganic growth that we'll see there. But we do see a nice ramp over the course of the fiscal year that'll, of course, continue to ramp in future years. Thanks a lot, Eric. Eric Percher: Thank you. Operator: The next question is from Allen Lutz of Bank of America. Your line is now open. Please go ahead. Allen Lutz: Good morning, and thanks for taking the questions. One for Jim. You mentioned if you back out RCA and OneOncology, you're toward the high end of the long-term EBIT guidance in the quarter. And then over the last three quarters, you're within that range. How should we think about what's embedded in that core business for the rest of fiscal '26 if we exclude RCA and OneOncology? Should we just assume it's basically within that? And then what gets you within US Healthcare Solutions on the EBIT side? What gets you to the low end and the high end of that range? Thanks. James Cleary: Yeah. And, you know, really, it's the things we've been talking about for quite some time. And so it's solid utilization trends. It's on strength and sales of specialty to both health systems and physician practices. And we've seen really strong performance there in health systems. Given our strength in specialty in oncology, that's really helped us with health systems. And then broad-based performance throughout our US business. And so it's really, you know, just kinda all those sorts of things, and it's a range, because, of course, it's very strong performance, and it's just kinda what's that level of strong performance within the range. And then, of course, you know, our business has been good for, you know, for so long. That, that, we have, we have strong comps that we're comparing against. But, also, you know, we have a lot of confidence in our guidance because of our success and because of those underlying trends that we've been talking about for quite some time. Thanks a lot for the question. Allen Lutz: Thank you. Operator: Next question is from Charles Rhyee of TD Cowen. Your line is now open. Please go ahead. Charles Rhyee: Yes. Thanks for taking the question. Jim, maybe just to go back to the below the line items related to OneOncology. I guess, if I remember correctly, when you announced the deal, you know, you guys did say that you wouldn't be consolidating 100% of that, and I assume that this is that portion that is not being consolidated and will continue to be below the line. You call it out this time, but is it right to think that this $30 million amount is an ongoing kind of an NCI piece that we should be modeling? And then I guess then, you know, how much of that so I guess, really, how much of total OneOncology are you owning in going to the future? Is this, like, is this, like, a 10% piece that will remain kinda staying outside? Or is it less? And then and then if I could just add a follow-up on share repurchase. I understand you're pausing in the short term, but when I look at your total leverage, it's still pretty low. And that would seem like you would have the ability to both pay down debt and buy shares. I'd love to understand maybe you're thinking why you necessarily have to pause if there's any kind of covenants or anything like that. Thanks. James Cleary: Okay. Great. There was a lot there in that question. And what I'll say is that the two below the line items that I specifically related to OneOncology's UUG subsidiaries, and that they will continue to, you know, be there over time and will continue to have those benefits that below the line below the operating income line contributions as a result of that. The second part of the question had to do with our ownership stake in OneOncology. And we increased our ownership stake when we made the announcement today from 35% to 92%, and we're really pleased to say that the practices and management will own the remaining 8%. And so I think that was the second part of the question. And then the third part of the question was share repo. And as we've said, you know, we're pausing share repo and focusing on deleveraging. But I will add that our, you know, long-term capital deployment priorities remain the same, which are, of course, investing in the business, strategic acquisitions that you've seen, share repurchases that you've seen over time, and then having a nice growing dividend, which we grew at 9% this year. So a lot for the question. Charles Rhyee: Thank you. Operator: The next question is from George Hill of Deutsche Bank. Your line is now open. Please go ahead. George Hill: Good morning, guys, and thanks for taking the question. And I'm gonna ask another one on MSL accounting. So first, I guess my question is, could you unpack a little bit of the revenue guidance change in the US business? It's about $5.7 billion. And I'm interested in you if you can provide some color on the OneOncology contribution, the growth in the core, and kind of how to think about any of the puts and takes in WAC price reductions, whether or not that played a point at all. I recognize that you guys have offset at the earnings line of inch I'm I'm surprised there's kinda no impact on the revenue line at all. And maybe growth of GLP-1. Then my quick follow-up would be know that we were all looking at the OneOncology acquisition as a multiple of EBITDA. Is that EBITDA number the right proxy to use for AOI as we model OneOncology? And, like, are there are there any significant puts and takes between the AOI line and the EBITDA line for OneOncology? Thank you. James Cleary: Yeah. So there was a couple of things there in that question. The first was on revenue and revenue guidance. And, you know, OneOncology does not have a large impact on our revenue guidance and the growth there. And, of course, the MSO business model is a lower revenue business model, but a really nice operating margin business model. And that's similar to what you've seen from RCA. It really impacts our operating income margin. And then the other thing I'll say there is, you know, we don't count the revenue twice that we, you know, of course, we sell to MSO, but, yep, but only count the revenue once, of course, and I'm sure you're aware of that. And then the other things I'll say is that as we, you know, look at our revenue growth this year, of course, we have a grocery customer that we off-boarded, and we also have the oncology customer that was acquired by a competitor. So that impacts our revenue growth this year. And then also the we fully anticipated the changes in list prices when we put together our revenue guidance for this year. And so we're, you know, pleased with the increase in guidance because it just shows, you know, the underlying strength of our business when we have the increase in revenue guidance. And then you, you know, you asked a question about kind of any differences between EBITDA and operating income other than the components. There is no meaningful difference there that I would, you know, call out other than, of course, the depreciation and amortization. Thank you for the questions. George Hill: Thank you. Operator: The next question is from Steven Valiquette of Mizuho. Your line is now open. Please go ahead. Steven Valiquette: Yes. Great. Thanks. Good morning. I guess within the international business, your revenue growth is pretty strong. Any color just on the drug pricing trends in Europe? Really on the back of all the MFN drug-related policies from the US might be impacting pricing in Europe or the UK? Any impact from that one way or the other? Or is it just kind of business as usual in Europe aside from your one call out? In the, that developing country? Thanks. Robert Mauch: Hi, Steve. Thanks for the question. I'm gonna take this so we can give Jim a break, he can take a sip of water here. No, we haven't seen any real changes in the markets from MFN. So, you know, as Jim said earlier and you just restated, we did have the timing issue in one market. Overall, the international business is performing, you know, within our expectations, and we expect to, you know, meet our fiscal 2026 commitments there. But no changes based on MFN. We're also seeing, Steve, you know, which may be a sub-bullet of your question kinda within we talked about the World Courier business improvement, but, you know, I do want to state how strong our growth is in our global 3PL platform. So, again, part of our specialty strategy and within that specialty strategy in Europe, those products are delivered, you know, through 3PL and not necessarily through wholesale. And we have a pan-European market-leading service there. Also includes, obviously, the United States and all of North America. So which is performing very well. But full circle, no real changes in pricing that we're seeing in that market. Thanks for the question. Steven Valiquette: Thank you. Operator: The next question comes from Kevin Caliendo of UBS. Your line is now open. Please go ahead. Kevin Caliendo: Hi, thanks for taking my question. I want to change it up a little bit. There was a relatively credible story about a private equity firm potentially being interested in buying MWI. I want you to you're not gonna comment on the story, but just broadly speaking, can you talk about how you think about asset divestitures in the context of long-term growth rate or impact to long-term growth rates, impact near term to earnings? Like, does that would you contemplate dilution? Or anything like that if strategically it made sense for you long term? And also maybe just speak to what's happening in that marketplace right now. In MWI's positioning, you called it out. It had a good quarter. I'm just wondering strategically how it fits long term for you guys. Robert Mauch: Yeah. Thank you for the question. As you said, we're certainly not gonna comment on any rumors, but I will, you know, reiterate, you know, what we said very specifically last quarter and really have been working on over the past year or so. And that is our strategy is being, you know, refocused and one of our strategic drivers is to make sure that we're prioritizing growth-oriented investments. And so we went through a process of assessing all of our businesses to make sure that they are very well aligned with our strategy and our future strategy going forward. And made the determination that we would put certain businesses in the other category. And at that time, we said we would be looking at strategic alternatives for those businesses in other. The purpose of that is really to create that focus, management focus and strategic focus, and then we believe, you know, growth rate benefit from doing that. But I'll hand it over to Jim and talk about some of the potential, you know, short-term impacts if any divestitures were to occur. James Cleary: Yeah. So let me comment on a couple of things that you said. First of all, MWI continues to perform very well within its market. In this most recent quarter, it had 7% revenue growth. And performed well in both the companion and production animal markets. So we're pleased that it continues to perform well. With regard to one aspect of your question is, any potential dilution from a divestiture. You know, from some divestitures, there could be potential dilution. But as Bob was saying, you know, we think it's the right thing to do for the long term. And one of Bob's real strategic priorities is to prioritize growth-oriented investments, as he was saying. And that's why we're investing in businesses like MSOs that bring competitive advantage to the balance of the enterprise. And so while there might be dilution in the short term, we think it will, you know, it could enhance growth and enhance returns over the long term. Thanks for the questions. Kevin Caliendo: Thank you. Operator: The next question is from Daniel Grosslight of Citi. Your line is now open. Please go ahead. Daniel Grosslight: Hi, thanks for taking the question. It sounds like RCA is performing better than initial expectation which has been the case for the past couple of quarters here now. I think when you initially announced that deal, you were thinking around $0.50 of accretion from RCA in the first full year. There was that kind of accounting change, and so I'm accounting for that. Now that we've passed that, one-year mark, I was wondering if you could provide an update on how much accretion you saw from RCA in the first year or maybe quantify that app performance for us? And then maybe provide a little bit more detail on the sources of that outperformance. Thanks. James Cleary: Sure. Yeah. We've continued to see, you know, very strong performance at RCA. And we've seen, you know, good performance organically, and we've seen good tuck-in acquisition opportunities. So we've been just, you know, really pleased by the performance of the team there. And we've, you know, it exceeded the expectations that we had and the clinical trial part of the business, but really performed well throughout the business. So we're very pleased with the acquisition. And seeing the growth continue to ramp over the balance of the year. And then, hey. Just one follow-up I want to make on the OneOncology. Some of the below the operating income line items that I was referring to, I just want to make it clear that, you know, those are accounting nuanced items related to one of the OneOncology subsidiaries related to the UUG subsidiaries. And this will be a part of the model going forward. It's not one so we'll continue to have that benefit from OneOncology below the operating income line, but we don't anticipate that we'll be talking much about it, you know, this year or in the future years because, you know, we fully expect, given the strength of the very strong performance we've seen in the business in the past and what we expect that there'll be very good operating income growth. Thank you for the RCA question also. Operator: Thank you. That concludes today's Q&A session. I'd like to hand back to Bob for closing remarks. Robert Mauch: Thank you very much. In all seriousness, do want to thank Jim for carrying the heavy load today, and thank you all for your questions and interest today. I'm proud of how Cencora continues to execute to drive value for all our stakeholders. Investing internally in our infrastructure and externally to extend our solutions for customers. We're well-positioned to drive long-term growth and are pleased to have raised our long-term guidance this year. Demonstrating our confidence and our ability to continue to execute and create shareholder value. Thank you all very much. Operator: This concludes today's call. Thank you all for joining. You may now disconnect your lines.
Operator: Conference is being recorded. Good day, and welcome to the Silgan Holdings Fourth Quarter 2025 Earnings Call. At this time, I would like to turn the conference over to Alexander Hutter, Senior Vice President, Strategy and Investor Relations. Please go ahead. Alexander Hutter: Thank you, and good morning. Joining me on the call today are Adam Greenlee, President and CEO; Philippe Chevrier, EVP and COO; Sean Fabry, EVP and CFO; and Robert Lewis, EVP Corporate Development and Administration. Before we begin the call today, we would like to make it clear that certain statements made on this conference call may be forward-looking statements. These forward-looking statements are made based upon management's expectations and beliefs concerning future events impacting the company and therefore involve a number of uncertainties and risks, including, but not limited to, those described in the company's annual report on Form 10-K for 2024 and other filings with the Securities and Exchange Commission. Therefore, the actual results of operations or financial condition of the company could differ materially from those expressed or implied in the forward-looking statements. In addition, commentary on today's call may contain references to certain non-GAAP financial metrics including adjusted EBIT, adjusted EBITDA, free cash flow, and adjusted net income per diluted share or adjusted EPS. A reconciliation of these metrics, which should not be considered substitutes for similar GAAP metrics, can be found in today's press release and under the non-GAAP financial information portion of the Investor Relations section of our website at silganholdings.com. With that, let me turn it over to Adam. Adam Greenlee: Thank you, Alex, and we would like to welcome everyone to Silgan Holdings Inc.'s fourth quarter earnings call. Before we begin our discussion on our fourth quarter and full year results and our outlook for 2026, I want to welcome Sean Fabry, who was promoted to CFO in November, to the call. Sean joined the company through the IPEC closures acquisition in 2010 and has served in senior finance roles in each of our operating segments, and most recently on our corporate development team. Sean brings a wealth of knowledge and experience to his new role, which I know will make him and our company successful well into the future. Sean is looking forward to meeting our analysts and investors in the coming quarters. Please join me in welcoming Sean to the call. I also would like to take a moment to thank Robert Lewis, who informed the company of his decision to retire in March, for his over twenty-one years of steadfast commitment to our company. Since Bob joined the company in 2004, our sales have nearly tripled, and our stock price has appreciated over seven times, representing a 10% compound annual growth rate. Bob's leadership in our finance and corporate development efforts has contributed meaningfully to our growth and value creation. He has been a trusted and valued partner to me, our executive team, and our advisers. We wish Bob all the same success as he enters his retirement. Moving now to our results. Our team continued to show exceptional focus and determination in 2025. Our business navigated evolving consumer spending trends throughout the year, which created a more challenging operating environment for our customers and our company. We delivered our second highest adjusted earnings and free cash flow in the history of the company, returned approximately $150 million in capital to our shareholders, and returned to within our target leverage range just over a year after closing the Vayner acquisition. We made significant progress towards our strategic goals in 2025 as we successfully integrated the Vayner acquisition, continued to outpace the market and our peers, and targeted organic growth products and end markets. We completed our multiyear cost savings program as expected. We continue to validate the success of our unique operating model in our customer partnerships and are being rewarded in the market with new business opportunities and awards as a result of our unmatched focus on operational excellence, market-leading innovation, and relentless efforts to provide the best total value solutions to our customers. Our dispensing and specialty closures segment, which now represents over half of our adjusted EBITDA, delivered another year of record sales, adjusted EBIT, and adjusted EBITDA, with continued EBITDA margin expansion and significant free cash flow generation. With the Vayner acquisition now fully integrated and our run rate synergies fully achieved, the business is positioned to continue to achieve organic growth well in excess of our peers as we continue to win an outsized proportion of new product launches in the market. The combined innovation engine of these two market-leading businesses has already yielded additional contractual business wins, and the business pipeline in dispensing products continues to accelerate. While 2025 included some unforeseen challenges, our team adapted during the year to the changing landscape and, more importantly, have used the learnings from 2025 to further strengthen our processes, which will help the businesses operate and serve their markets in an even more agile and adaptive way in the future. Our metal containers business delivered another year of positive earnings and volume trends, with 4% growth in volume led by 7% growth in pet food products. While our business was faced with a very challenging circumstance with one of our long-term customers during the year, our teams were focused on protecting our business ahead of this outcome and worked diligently to nearly fully offset the secondary impact of this customer exiting certain markets. More importantly, with the recently announced developments with this customer, we believe we are uniquely positioned to continue to supply this business in the future and at this time do not anticipate any further impact from this situation. In custom containers, our teams continue to build on our commercial success, and despite significant destocking in personal and home care products in the fourth quarter, delivered a record year of profitability driven by our cost reduction programs and continued commercial successes. Our adjusted EBIT and EBITDA margins expanded by 150 basis points to a level well above the target we laid out about a decade ago, and the business is now in a strong position to transition into an accelerated growth phase over the next several years. Our team continues to demonstrate and validate our unique position in this market, and despite being of smaller scale than some of our competitors, the levels of service we provide, new product innovation, and the value of our long-term customer partnerships create significant opportunity to deliver organic growth in this business. As we turn our focus to 2026, we continue to see significant opportunities to grow our company both organically and inorganically. Our teams remain focused, our strategic initiatives continue to bear fruit, our balance sheet is within our target leverage range, and we believe the opportunities for significant value creation for shareholders in 2026 and beyond remain as compelling as at any time in our history. At the segment level, we are expecting dispensing and specialty closures organic volumes to grow by a low to mid-single-digit rate in 2026, driven by another year of growth in our dispensing products and improved mix. We expect metal containers volumes to grow by a low single-digit percentage, driven primarily by another year of mid-single-digit growth in pet foods. In custom containers, after a record year of profitability, volumes are expected to be flat as the first quarter is expected to see some continued but limited impact from customer destocking. Importantly, we anticipate this impact to be offset in the remaining three quarters as the business repositions to longer-term growth with key franchise customers. As we enter 2026, we remain excited about the opportunities that lay ahead for the company and are confident that the structural changes and evolution in our portfolio have positioned us to drive growth in our business in the near and long term. Our teams remain focused on meeting the unique needs of our customers as we continue to compete and win in the markets we serve. Our strategic growth initiatives continue to shape the company's future. The power of our portfolio, the strength of our teams, and the discipline of our capital deployment model continue to drive significant opportunity to create value for shareholders in 2026 and beyond. With that, Sean will take you through the financials for the quarter and our estimates for the first quarter and full year of 2026. Sean Fabry: Thank you, Adam. As Adam highlighted, we reported another year of strong financial results for 2025, driven by the continued success of our long-term strategic initiatives, the discipline of our capital deployment model, and the resilience and growth of our products and end markets. During the year, we successfully integrated the Vayner transaction and achieved full run rate synergies. We returned our balance sheet leverage to within our target range in just over a year following the closing of the transaction and completed our multiyear cost reduction program. Turning to the fourth quarter 2025 results, net sales of approximately $1.5 billion increased 4% from the prior year period, driven primarily by the contractual pass-through of higher raw materials, mostly in our metal containers business, and favorable foreign currency translation. Total adjusted EBIT for the quarter of $150.6 million was relatively flat from the prior year, with higher adjusted EBIT in our Metal Containers segment offset primarily by higher corporate expense. Adjusted EPS of $0.67 decreased by $0.18 from the prior year period due to higher interest expense and a higher tax rate in the fourth quarter. The fourth quarter tax rate was negatively impacted by certain non-recurring, non-cash tax items, which impacted the tax rate in the quarter by approximately 3% and the year by approximately a half percent. Turning to our segments, fourth quarter sales in our Dispensing and Specialty Closures segment increased 1% versus the prior year, primarily as a result of foreign currency translation of 4%. Higher volumes for high-value fragrance and beauty products were offset by the destocking impact for products in the personal and home care markets. Fourth quarter 2025 dispensing and specialty closures adjusted EBIT was comparable to the record level in the prior year. As expected, the contribution of double-digit growth in high-value fragrance and beauty products and favorable foreign currency translation were largely offset by the anticipated impact of lower volumes of products for personal care and home care markets and related under-absorbed costs for production and inventory reductions in the quarter. Relative to our expectations entering the quarter, both sales and adjusted EBIT in Dispensing and Specialty Closures were largely in line. In our Metal Containers segment, sales increased 11% versus the prior year quarter as a result of the contractual pass-through of higher raw material costs, principally for steel and aluminum, and higher volumes of 4%. Our volume growth in the quarter was largely a result of higher volumes for pet food markets of 7%, as we continue to experience strong volume growth in this category. Additionally, we did see a limited amount of pre-buy volume in the fourth quarter, as certain customers pulled forward volume ahead of the anticipated raw material inflation in 2026. Metal Containers adjusted EBIT increased approximately 5% for the prior year quarter, as the segment benefited from both strong operational cost management, which was responsible for the majority of the outperformance in the segment versus our expectation entering the quarter, and a limited impact from pre-buy volumes. We estimate the impact of pre-buy volumes to 2025 adjusted EBIT was approximately $2 million. In Custom Containers, our results were largely consistent with our expectations as sales decreased 8% compared to the prior year quarter due to lower margin business exited as a result of a planned footprint optimization. Excluding these volumes, our volume increased 1% versus the prior year quarter. Custom Containers adjusted EBIT was comparable to the prior year levels. Looking ahead to 2026, we are estimating EPS in the range of $3.70 to $3.90, as compared to $3.72 in 2025, with higher operating income partially offset by higher interest and tax expense during the year. This estimate includes interest expense of approximately $205 million, a tax rate of approximately 25% to 26%, corporate expense of approximately $45 million, and a weighted average share count of approximately 106 million shares. Interest expense is expected to be above 2025 levels due primarily to the maturity of our 1.4% senior secured notes that come due in April. At the midpoint of our 2025 adjusted EPS range, we will exceed the prior year levels of adjusted EBIT and adjusted EBITDA achieved in 2025. From a segment perspective, low to mid-single-digit percentage total adjusted EBIT growth in 2026 is expected to be driven primarily by a low to mid-single-digit percent increase in dispensing and specialty closures adjusted EBIT and a low single-digit percent increase in metal containers adjusted EBIT. Custom Containers segment adjusted EBIT is expected to be comparable to 2025 levels as the business completes its multiyear cost reduction initiative and transitions to organic growth during 2026. Volumes in 2026 are expected to grow by a low to mid-single-digit percentage in dispensing and specialty closures, driven by a mid-single-digit increase in dispensing products. Metal containers volumes are expected to grow by a low single-digit rate as a result of mid-single-digit growth in products for pet food markets, which now represent more than half of the segment volume. Custom containers volumes are expected to be comparable to prior levels as first-quarter volume will be lower than the prior year due to a limited carryover of destocking activity, which is expected to be offset by growth in the subsequent quarters. Based on our current earnings outlook for 2026, we are providing an estimate of free cash flow of approximately $450 million as operating earnings growth will be partly offset by higher cash interest and tax, and slightly higher CapEx of approximately $310 million to support investments in future growth in dispensing and pet food products. Turning to our outlook for the first quarter of 2026, we are providing an estimate of adjusted earnings in the range of $0.70 to $0.80 per diluted share as compared to adjusted EPS of $0.82 in the prior year period. First-quarter interest expense is anticipated to be in the range of $45 million with a tax rate of approximately 25% to 26%. From a segment standpoint, first-quarter dispensing and specialty closures adjusted EBIT is expected to be below the prior year period, principally as a result of the year-over-year impact of the benefit of selling through prior year inventory in an inflationary environment in 2025 as compared to the headwind assigned to prior inventory in 2026 for steel food and beverage products in Europe. Metal containers adjusted EBIT is expected to be comparable to slightly below the prior year level in the first quarter as a result of the impact of limited pre-buy volume in 2025 that pulled volume forward from 2026. Custom Containers adjusted EBIT is expected to be modestly below prior year levels in the first quarter due to the carryover destocking activity into January. With that, we will open the call for questions. Melinda, would you kindly provide the directions for the question and answer session? Operator: Thank you. If you would like to ask a question, please press star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, that is star one to signal for a question. We will take our first question from George Staphos with Bank of America. Please go ahead. George Staphos: Thanks very much. Hi, everyone. Good morning. Thanks for the details. Bob, congratulations on a well-earned retirement. And Sean, nice to chat with you again, and welcome to the call. I guess my first question, Sean, could you give us a bit more detail in terms of the first quarter outlook for DSC? Just kind of the puts and takes that you see. I think you mentioned there was also some impact from pre-buy. More broadly, with DSC having grown now to being the largest business, I would imagine maybe you disagree that the order patterns, the operations, the way that business runs might be different than what you know, you normally would have seen in a traditional Silgan business, say, you know, five and ten years ago. Philippe and Sean, what and Adam, you know, how do you manage the business? How do you manage forecasts? Do you keep your customers in a narrower band relative to say what traditionally you would have seen in metal? And then I might have one follow-on after that. Thank you. Sean Fabry: Sure. So I will take the first part of that question, Adam will take the second part. So for the DSC segment in the first quarter, we are seeing low to mid-single-digit volumes. And one of the challenges that we are facing there is that we do have some low-cost inventory that we put through the system in 2025. So a little bit of a headwind going into the quarter to overcome that EBIT benefit from that position. Adam Greenlee: And then, George, on the dispensing and specialty closures business, you know, the portfolio evolution that we have been talking about for the last decade, you are right. It has moved that business to our largest business in the portfolio now. And also correct that, you know, it is a bit of a different business than kind of the historic food can business for Silgan or maybe even some of the rigid plastic packaging businesses that, you know, the company started with when we were founded back in the eighties. You think about colocated facilities that, you know, you are integrated very deeply into your customers. In many cases, you are buying customer assets so you are part of their production model already right out of the gate. And I think as you think about, you know, the growth that we have had in fragrance and beauty and some of the care and home care products and dispensing, especially closures, it is a bit of a different supply relationship or more of a supply partner with an outside-in perspective versus being kind of on-site and in the weeds with how they are running their business. So I think, you know, it has we have some learnings from '25. We will be very clear about that. And I think what you know, part of those learnings are taking a broader view, broader perspective on the macro environment and other influences that may affect our customer businesses more so than maybe just what is within our own two, four walls. As we are on-site near site in those kind of food can operations. So yeah, part of that, George, is as we have talked, you know, we have taken a broader view of risk as we have come out with our guidance now for Q1 and also for 2026. To try to take into account some of the unknown risks that maybe we had not included in guidance before, again, taking those learnings from 2025. George Staphos: Adam, thanks for that. May my follow-on, I will turn it over to everyone else. If for you to be and recognizing there are no guarantees in life. Right? Forecast can be significantly above or below. That is the world that we are all in. At the low end of your guidance, what would be some of the key volume and margin considerations across the business? So, again, not saying that is where you are necessarily going, nothing is guaranteed. But at your low end of guidance, what is embedded in that? Thank you. Adam Greenlee: Yes. I think, George, I mean, Sean walked through kind of our volume expectations for each of the segments. I think we have got a pretty good feel for demand profiles and patterns with our customers and with the business that we have. I think maybe to try to answer your question, I would say, you know, broader market conditions that might influence our customers' demand for their products probably is one of the items I would point you to that move us closer to the low end of the range. But, again, we have taken a very broad approach to taking those risks into consideration to develop the range that we have and that is included in our guidance to the midpoint as well. George Staphos: Okay. Thank you. Operator: If you find that your question has been answered, you may remove yourself from the queue by pressing star 2. We go next to Matt Roberts with Raymond James. Please go ahead. Matt Roberts: Hey, Adam, Sean, Alex. Good morning. Congratulations to Sean and Alex on your new roles. First on the PSC volume for 2026, wondering if you could help me parse that out and bear with me. I am going to put about three in one here. But first, on hot fill beverage, how did volumes perform in 4Q? And the outlook there for '26 or contribution from new contracts there. In Home and Personal Care destocking, was there any lingering impact in 1Q in DSC that might have missed that? And lastly, in fragrance, I mean, that continues to grow double-digit growth. And by now, for comps alone, you would think that it would have slowed at some point, but based on customer orders or innovation pipeline, what are you expecting there? And is it a function of high-end consumer doing well or continued new product launches or partners expanding their distribution channels? What is going to sustain momentum there? Adam Greenlee: Sure. So maybe just jumping back to kind of fourth-quarter volume. So, you know, for DSC, Matt, really volumes were very close to what we expected. Right? So, you know, as Sean pointed out, double-digit growth in our fragrance and beauty volumes. You know, personal care and home care had anticipated the destocking. It did happen in Q4. It was essentially right in line with our expectation. I think there is a slightly different answer here than containers. So to be really clear, we think the destocking activity is complete in our dispensing and specialty closures segment. And so, you know, volumes were right in line with expectations, including food and beverage as well. So fourth quarter played out pretty close to what we thought. As we turn to the full year of 2026, you know, again, as Sean just outlined, you know, significant growth, again, expected in fragrance and beauty. You think about food and beverage and maybe some of my comments I just made to George. Our assumption for volume right now is going to be comparable. So you mentioned, you know, new contractual wins. Yes. There are some. We have taken an approach that we are going to include some conservative guidance for the market. For our food and beverage, hot fill products, and sports drinks, etcetera. As we are looking at 2026, and we will see how that plays out. Fragrance and beauty, it is really more of the same story. And I think, Matt, as we have talked before, you know, the development pipeline for these products, it is multi-year. It is probably not quite as long as some of our health care products, but you are talking two to three years. So all of this volume that we are going to deliver in 2026 has really been in the innovation pipeline for us for several years. So, you know, there is really no surprise to us. I think the really important point here is that we keep getting rewarded with our performance from our customers with new business wins. We get a disproportionate amount of the new product launches they have, and that is what is continuing to drive, you know, I will say the double-digit growth that we had in the last February 2025. In our estimate for 2026 as well. So maybe to go back to your question, Matt, I would say it is for fragrance and beauty, it is all of the above. All of the things that you outlined are the reasons why we continue to grow faster than the market. And, again, we take a lot of pride in that. We take it very seriously. We are right now on twenty-seven and twenty-eight product launches. And have a pretty good feel for what that is going to look like at this point. Given that development pipeline. So hopefully, that covered all your items. Matt Roberts: Certainly did. Appreciate all the detail there. And as a follow-on, I think I asked about metal. So 4Q EBIT came in better than I think your prior expectations and margin even improved with the higher pet volume mix. So you continue to invest and see pet food growth there, are there any contractual changes in metals that are going on as you continue margin expansion, excluding any raw materials impact, of course? Or was it cost outs that are driving strong results there? Any additional color you could have on margin expectations absent raw materials in '26? Adam Greenlee: Sure. There are probably three things to really think about. I think the single largest is the cost reduction initiatives that we put forward in actually all three of our segments. Certainly, metal containers have had a good portion of that cost savings program over the last two years. So they have executed really well against that cost savings initiative and have lowered the overall cost structure. As you can imagine, you know, volume leverage in this business is incredibly important. So as you continue to deliver growth in pet food and 4% growth in the entirety of the business, that leverage is pretty strong as well. So that it is helpful for the operating margin. And then finally, you know, you are right. We continue to invest to grow with our largest customers. I think it was and guys, correct me if I have got it wrong. It was 2024 that we announced a significant long-term extension with our single largest customer. And we said at that time that, you know, there is nothing structurally changing about the contract, Matt. But we thought that that contract would be margin accretive over the life of the agreement. And it is playing out the way we anticipated. So it is that is a little bit more on the margin versus our cost reduction initiative. But, you know, our anticipation is our largest contracts are going to be slightly margin accretive over the life of those agreements as well. Sean Fabry: Matthew, the only other thing to add is as you think about 2026, remember we have, you know, again, raw material inflation in this segment. So that will have a mathematical impact on margins, so probably stable on margins for 2026 given the incremental leverage on pet food offset partly by the higher sales from pass-through raw materials. Matt Roberts: Adam, Alex. Super helpful. Thank you again. Operator: We will go next to Ghansham Panjabi with Baird. Please go ahead. Ghansham Panjabi: Yes. Thanks, operator. Good morning, everybody. And my congrats to Sean, Bob, and Alex as well for all the news and the promotions. Best wishes into the future. I guess, you know, Adam, if we go back to the dispensing closure segment and thinking back from a high-level standpoint on 2025. Right? So if you know, I think you started to see the destocking impact on beverage pretty early on. Relative to your initial guidance, and then broadened to other categories as the year unfolded. Have you seen normalization in demand for the categories that were initially into the downturn? And just more broadly, where are we on destocking? Do you still see some lingering impacts into, you know, early part of the year, given the sequence of what unfolded last year? Adam Greenlee: Sure. Yes, I think you pretty much got that right, Ghansham. So the food and beverage destocking activity really took place for us. We saw that in Q2. And to your point, you know, the rest of the year in food and beverage roughly played out as we expected. We think those volumes are now normalized. We think that year-end inventory levels in the system are at the level that our customers had targeted for year-end. And as we turn the page going to 2026, you know, we are calling out comparable volumes for food and beverage. So we had a little bit of destocking in Q4 for our personal care and home care products in the segment. We believe that is completed in Q4 and will not have an impact on Q1 volumes for the dispensing of specialty closures segment. Shifting gears slightly, there is a little bit of a carryover of destocking for custom containers. And really, that just is a simple probably unique position that that business has in our portfolio. As you know, Ghansham, most of our customer relationships are direct. We have got a 10 to 15% distribution business in our custom containers or our plastic bottle business. And typically, destocking just takes a slightly different timeline in that distribution segment. Again, thinking just the simple fact that there is another layer of inventory in the supply chain. So typically, destocking starts a little bit later, ends a little bit later, and so we are seeing that carry over a little bit into Q1. Saw that activity a little bit in January as well. So that is included in our guidance. But to be really clear about DSC, that destocking activity is now completed as of the 2025. Ghansham Panjabi: Gotcha. Perfect. Thanks for that. And then Vayner packaging, you know, I think originally when you outlined it the logic behind the transaction, it was going to be additive as it relates to growth. It was very complementary, etcetera. It sounds like the integration is well underway. What about the commercial synergy specific to the asset? The underlying growth that you are seeing there? Any specific wins you can cite as it relates to, you know, step functioning, your position in pharmaceuticals and health care and so on? Adam Greenlee: Sure. You are right. It has been a great addition to our portfolio. I would say the acquisition integration is now complete. We achieved our synergy targets. You know, we are now at fifteen months, let us call it, post-acquisition. We have achieved our run rate synergy targets. And I think, you know, you are touching on an item that the commercial synergy is not really something we typically include in our synergies, but they are absolutely there in this business. And you are taking two market-leading dispensing businesses and combining them, you know, particularly you think about Vayner's position in North America, great products, very limited reach, and very limited scope in North America. We have been able to take some of their products, their technology, to our large food customers that Silgan has such a great history and relationship with. And we have been awarded new business not only on the food side but some of our other consumer products as well. So, you know, I think we are getting the best of both worlds. Between the two businesses, leveraging those relationships wherever they may exist, whether it is legacy Silgan dispensing or at the Vayner customer relationship level. And we are seeing growth opportunities on both sides of that equation. Ghansham Panjabi: Okay. Thank you for that. Operator: We go next to the line of Gabe Hajde with Wells Fargo. Your line is open. Gabe Hajde: Yes. Sorry about that. Adam, Alex, Sean, good morning. Wanted to ask, we are hearing a lot of mixed messaging from some of your peers as well as, you know, customers trying to navigate the current environment. Do not want to go down the laundry list but population trends, affordability, GLP-1, etcetera. We are seeing some restagings, some strategy changes at big CPGs. I am just curious, in this type of an environment, obviously, nothing has been sort of normal, let us say, the past five, six years. But just as you look across your portfolio, think about your go-to-market strategy, your long-term relationships and contracts, etcetera. Do you see the current environment where it seems like customers are looking to reduce costs complexity, things like that, in the supply chain, as an opportunity for Silgan? And, you know, how would you say that is incorporated into your thinking and or the guidance for '26? Adam Greenlee: Sure. I mean, I think, you know, '25 was a very volatile year for all the same reasons that you outlined, Gabe. And I think, you know, we all had to deal with that one way or another. And I think, you know, for us, you know, the vast majority I mean, almost all of our products are in consumer staples category. So, you know, we get away from the discretionary spend quite a bit of our portfolio. So, you know, I think we feel confident that our products continue to have good underlying demand even with population trends and affordability conversations. You know, the food can will continue to say even with some inflation that we pass through, is the lowest cost means of getting nutrition to consumers that need it. So we feel like our portfolio of products is advantaged in this kind of environment. And I would agree with you that we think there is quite a bit of opportunity with our customer relationships, our portfolio of products, and, you know, some of the sustainability initiatives that we have got underway, not only just at Silgan, but with our customers as well. Whether it is lightweighting or other cost-out initiatives, you know, those are always top-of-mind activities between us and our customers. So to answer your question, Gabe, you know, yes. We think those are opportunities. How that fits into our guidance for 2026, what I tell you is we have actually broadened the kind of view of the unknown risk as it relates to things like population trends, GLP-1s, affordability discussions. And, you know, we have taken probably a more conservative approach to how those opportunities might play out. But, you know, it gives us confidence that our products are well-positioned for the marketplace and the volatility that we are all dealing with. Gabe Hajde: Alright. Thank you for that. One, I guess, digging into maybe Ghansham's question a little bit with Vayner. As well as I want to say in 2021, you guys had acquired Unicep. But just anything that you can talk about maybe higher margin products beyond fragrance in the dispensing business. You are seeing growth opportunities I think you guys were working on a couple of maybe, you know, dose products and things like that. Adam Greenlee: Sure. Look. I think health care and pharma is probably the next logical step of the conversation. As we have talked about before. And clearly, the margin profile, the growth rates of that part of our portfolio really are similar, if not even stronger than what we have seen in our fragrance and beauty business. The size and scale of our pharma health care business, you know, it is growing rapidly, but it started from a much smaller starting point at Silgan. Obviously, with the Vayner acquisition, what we brought in from their health care, assets and business portfolio has been very complementary, very beneficial. We are continuing to grow. It is a longer development cycle than what I mentioned on fragrance and beauty as I think you will all appreciate. So, yes, we have been working for many years on some of these products. And have some that are reaching market now, some that are in final stage development. But the pipeline is as strong and active as we have seen, you know, really since you go all the way back to the acquisition of WestRock. And I think it you know, we were talking at one point that it would be disappointing if we did not double the size of our health care business and call the next three to five years. Gabe Hajde: Great. Thank you. Operator: We turn next to Mike Roxland with Truist Securities. Your line is open. Mike Roxland: Thanks, guys, for taking my questions. Sean, congrats on the role. Bob, congrats on your upcoming retirement. It has been great working with you. First question that, Adam, just want to follow up on what Gabe mentioned in terms of Vayner. Can you provide some more color just around the wins that you achieved? You mentioned that in your in some of your remarks. So can you tell me the type of products that were or be maybe speak broadly about the type of products that you are gaining wins in and what type of growth you are expecting this year from Vayner with those wins? Adam Greenlee: Yeah. I think, you know, again, we will try to say, Mike, that Vayner has been fully integrated into our dispensing business. So when we talk about dispensing products growing in a mid-single-digit, that is including Vayner. Again, we fully lapped the comparative. You know, we acquired the business, I think, in October of 2024. So yeah, those results, for the most part, were already fully comparable in our fourth-quarter results. So, you know, I think combined, we feel confident with that mid-single-digit growth. I mean, either the product portfolio and where we are able to get new business awards with the combination. I will give you a great example. Again, in the North American market, you know, we talked a lot about during the acquisition that they have a terrific valve technology for their business and for their portfolio of products. And that is really something that we were very small in Silgan. We have been able to take that technology and apply it with other customers that really advanced kind of Silgan technology with existing customers. So, you know, I do not know how we want to get credit there. It is an existing customer for Silgan. And we are using Vayner's technology. So I think we all win in that scenario, including our customers. But it is really the power of the combination as I think the bigger part of the discussion. Have some other products again just to, you know, deodorant products that are winning. I think they were a little stronger in some of their personal care kind of shower, you know, multi-use products with dispensing closures. And we have just been able to continue to leverage that strength on the Vayner side and grow out that part of our portfolio, particularly in North America, with our existing customer base. Mike Roxland: Very helpful. Appreciate the color there, Adam. And just one quick follow-up. In the past, I believe one of your peers around medical containers may have picked up some of the tomato business, which cost you some share. With this bankruptcy settlement, it appears that one of the asset buyers is getting some of that business back. So could you potentially regain some of the Tomato share that you previously lost? And then relatedly, you mentioned, in your script that you expect no further issues from this customer that was in bankruptcy. If there are no other changes on the assets continue to run as is, can you remind us as to the total EBITDA loss in medical containers if any? I am not saying there is any, but if there is any EBITDA, if there is a reset lower, could you remind us if that what that is? And does Silgan still intend to pursue any rationalization and consolidation in metal containers? Thank you. Adam Greenlee: Sure. And maybe I think the first thing I would say, Mike, is that, you know, the situation with that customer is not fully resolved. It is a process. And they are making progress in the process. So you are right. There was an auction, and there were three winners of the auction. I mean, the business that we are talking about really falls into three categories. There is a broth business, a fruit business, and a core vegetable business. So good news for us is that from an outcome, again, there are still procedural steps that have to be taken before, you know, the winners of the auction take over the assets and the brands. But the broth and the fruit are going to our customers that we supply today. And so we feel pretty good about the ongoing relationship there. The veg business is a new player into canned vegetables, but a prominent player in the fresh category. So, you know, I look at that and I say, you know, on the veg side, we are colocated. We are incredibly well-positioned to continue to supply all of the can requirements that that new customer would need to continue to operate the facility where we are colocated. So I think that, you know, again, we will see what happens as this final resolution plays out. You know, we are taking, again, a cautious approach to our thoughts here. We do not think there is significant upside. We do not think there is significant risk from where we are either because of those ongoing relationships and the supply situation of where we are. Regarding our facilities, again, we are going to wait and make sure we understand exactly what the go-forward position is once the proceedings have reached a resolution. But, you know, we as part of our $50 million cost reduction program, we had closed a facility in 2024 that was supplying fruit products to that customer. And we consolidated that into other operations to get the benefit of the consolidation. So really nothing to do from that perspective. And, you know, I think it is a great question for the next earnings call. Hopefully, the entire process will be resolved. But, you know, for us, Mike, I do not view 2026 as having any further risk than what we experienced in 2025. Mike Roxland: Great to hear, Adam. Good luck in the quarter and the year. Adam Greenlee: Thank you. Operator: Our next question comes from Anthony Pettinari with Citi. Anthony Pettinari: Good morning. With regards to the steel and aluminum tariffs, is it your view that customers and consumers have sort of fully absorbed the impact of the tariffs and it is reflected in their behavior and the price of the package? Or is it possible that you could see some kind of lagged customer change or consumer change over the course of the year? Either changing product positioning or consumer change in behavior, just wondering how you kind of think about that in 2026. Adam Greenlee: Yes. Well, maybe let us start with 2025. It was a very volatile year on raw material costs because of those tariffs and kind of the limited notice that we had to deal with that prior to the implementation of tariffs. And Anthony, as you very well know, you know, our contracts are sort of designed to make sure we are insulated from those kinds of activities. So, you know, we contractually pass through those costs and those tariffs onto our customers and they then onto the consumer. So, you know, I think, you know, those tariffs were kind of let us just round about, call it, midyear, you know, April, May, June of '25. So there is some full-year annualization of those costs in 2026 as we get a full-year impact of those. I do think the market has absorbed those costs. In many cases, our customers had passed those costs on through to consumers. And they are now really challenging themselves on kind of promotional activity trying to understand what the price elasticity is across the board for those products. But to be really clear, the food can we still think is competitively advantaged from a cost standpoint on the store shelf. Again, for those consumers that are looking for nutrition, we think it is the lowest cost means of getting nutrition to those consumers. So, you know, we are still talking to our customers about their pricing activities for 2026. It is a blend. It is different by customers. You can imagine there is a blend of promotional activity trying to drive some volume. There is also, you know, still some conversation about cost recovery. So I think we will see it play out more as we get through the year, but I think it is a balanced approach that all of that means I think it is fairly well absorbed in the market. I think our volumes, again, nice growth for food cans in 2025. See continued growth in 2026 as well. So we think that particular package is positioned very well even with the tariffs that they have already incurred. Anthony Pettinari: Got it. That is very helpful. And then just switching gears and following up on health care and the opportunity there. I think you disclosed that health care was 3% of sales in 2024, maybe at better than company margins. When you talked about doubling, I think, over the next few years. So, I guess, just make sure I got it right, should we think about healthcare maybe going from low single-digit percentage sales maybe to high single-digit percent of sales, you know, in the next three years or so or something like that? And I guess, related, are there acquisitions that could really accelerate that exposure or is it really more kind of the organic growth with clean rooms and all the stuff that you are doing internally? Adam Greenlee: Sure. Again, it is a great market. We are excited that we are continuing to grow and what the future looks like for our healthcare business. So I think you are right. I think you mentioned a 2024 number, so it has grown a little bit beyond kind of that number. I would say we are still in that 200-ish million just as a proxy of total revenue. So could that easily get to 400 million over the course of the next couple of years? Yes. We absolutely think so. How we get there? That is with our own pipeline, and that is with our own kind of contractual obligations that we have already secured over the next three to five years with the drugs and pharma and health care products that are in development with our largest customers. I think you raised a really good point, Anthony, that, you know, I think as we, you know, have continued to expand our dispensing and specialty closures segment, with each acquisition, we say it opens a broader horizon for future acquisition opportunities. Vayner is a great example. It brought a lot of products, but it brought a very strong health care business with it. And we think that opens up even more opportunities from a corporate development perspective and where we can inorganically continue to grow out the business as we have done in the past. So I think, yeah, we even said it in maybe some of the prepared remarks, you know, the opportunities for organic and inorganic growth for Silgan are probably as great as at any time in my twenty-one years that I have been with the company. And, you know, we are extremely positive and excited about what the future, particularly in health care products, looks like for the company. Anthony Pettinari: Great. That is very helpful. I will turn it over, and congrats to Bob and Sean. Operator: Move next to Daniel Rizzo with Jefferies. Please go ahead. Daniel Rizzo: Good morning. Thank you for taking my questions. So not to belabor the point, but on the last call, thought consumer caution within dispensing and also in custom containers was kind of something that they are watching because of, again, affordability issues and things like that. But it does it seems to have faded. So I was wondering if that was just kind of a temporary blip amongst your customers or something that kind of bears monitoring over the rest of the year. Adam Greenlee: Well, I definitely think it bears monitoring over the course of the year. I think, you know, what I was trying to convey, Dan, is that in that affordability discussion, we think our products are incredibly well-positioned to be a very positive value driver for customers that are seeking affordability across a whole bunch of different products. And that is really where a good swath of our portfolio sits. So we actually encourage that conversation and, you know, we will be watching it closely. But we think our products are very well-positioned for that discussion. Daniel Rizzo: Right. And then everything that has happened with your bankruptcy with the customer, does that change how you kind of, I do not know, design contracts or do business with the customer like that or just in metal containers in general? I mean, is this just kind of a one-off thing that you just move past? Adam Greenlee: Well, again, I think since our founding, it would be the first large customer bankruptcy that we dealt with in our metal containers business. And I, you know, I go back to the contractual nature of this part of our portfolio that it is just the contracts have been so well written over a long period of time that, you know, the company did not face any detriment during the course of one of our large customers going bankrupt during the year. So, you know, our teams did a great job of protecting the company, but in fairness, the contracts allow us to do that as well. So, you know, I think it is just again, it is more of the same as far as the contractual nature and the protections that we build into those contracts to make sure we protect our company and our shareholders from any adverse outcome. Daniel Rizzo: Thank you very much. Operator: We will go next to Anas Shah with UBS. Please go ahead. Anas Shah: Hi, good morning, everyone. Thanks for taking my questions. We have some new FDA food guidelines that came out recently promoting protein. It seems to me like that would be pretty positive for your metal cans business. Do you see that as a significant opportunity for you, or are there offsets elsewhere in the portfolio from these guidelines? Adam Greenlee: Sure. I think, you know, we are working very closely with our customers to make sure that we help them position products into the marketplace to really accommodate or maybe incorporate the new FDA guidelines. So, you know, we look at protein as part of our portfolio. And, you know, our high-protein products. Again, the can is a great vehicle to get that nutritional value to consumers. And, sure, I mean, we think it is an opportunity, but there are several opportunities that we continue to work on. You know? So I do think we are working with our customers. There is nothing specific that we are outlining in our guidance or anything at all. It is just one of the puts and takes. We would typically consider as we give forward guidance. Sean Fabry: And then noted just for context, protein is about 10% of the metal containers volume. Anas Shah: Right. Thank you. Okay. Thank you for that. And then also, just your CapEx this year is stepping up modestly. I think, $10 million year over year. And you mentioned dispensing and pet food growth sort of driving that. Any details you can give there on what way you expect CapEx to step up? Sean Fabry: Yes. I think our guidance was $310 million for 2026. And really, that is driven by increased growth in pet food, as you mentioned, and dispensing products. We are really happy with our pet food customers, and we are continuing to invest money in that space where we see the growth prospects. And, honestly, we are under a long-term agreement to do so. So we are happy to do it and to invest in that space where we see the growth. Adam Greenlee: And I think I just maybe to add to that, if you look back over the last thirty years of our CapEx portfolio, you know, investments in wet pet food have been very consistent in our CapEx profile. It might not be every year, but we are investing to support that customer growth, again, driving significant volume growth for the company over a very long period of time. Anas Shah: Great. Thank you. Operator: We go next to Arun Viswanathan with RBC Capital Markets. Please go ahead. Arun Viswanathan: I guess, yes, first off, congrats to Bob. Great working with you over the last several years. And Sean, look forward to working with you as well. And then just on the results. So, the guide, I guess, first on volume. So I think you said low to mid-single digits in DSC. And low single digits in metal driven by pet food. Just curious on the pet food item because you do face a pretty tough comp there, and you have seen some volatility. So maybe you can just kind of parse out, what drives that and I guess, where are you in kind of penetration in wet pet? And then on DSC, you know, I think you had a relatively kind of choppy year last year just given some of those consumer trends. Would you say that, you know, you have kind of settled down? And were there any execution issues that you had last year that you have maybe addressed, or was it just mainly market impacts? Thanks. Adam Greenlee: Sure. Maybe just to address the DST item. I think really, the big items that we talked about during the year were much more related. Right? So you had the food and beverage item, and sports drinks in Q2 that we talked about earlier on the call. Yes. A little destocking in Q4 for personal care and home care products. Those are definitely market-related activities that were the two items, I think, in DSC that went a long way to challenge kind of the performance and fragrance and beauty that was fantastic through the course of the year. So moving over to metal containers. Again, you know, I think if you think about wet pet food, this has been an annual grower for us for decades. And we have been a requirement supplier to our largest customer since we bought assets associated with their business. And, you know, they continue to invest in capacity. Arun, you know, I know we have talked about this before, but the primary animals that we are talking about here are cats and primarily cats and a little bit of small dog as well. So those populations have grown over time. They continue to grow going forward. I think wet pet food in these categories is considered to be a premium product. So, you know, we have not talked a lot about the k-shaped economy on this call, but it is as you get back to some of those larger macro trends, high-end consumer is still seemingly doing pretty darn well. And we see that in our wet pet food segment. And then the last piece of it, and we have seen this for decades again, once pet owners feed their animals wet pet food, it is very rare that they move out of the category and they in a cat or a small dog. Large dog moves in and out, and we have always talked about that. It is a very small part of our portfolio. But for cats, you know, we have seen the stickiness of that product with pet owners and with the consuming animals for a very, very long time. Arun Viswanathan: Thanks for that. And just as a quick follow-up, just on the cash flow. So the $450 million guide, was there any inventory impact? And is there potential for upside if that is not as bad? Or how would you kind of characterize that $450? Is there any, you know, kind of variability in that? Thanks. Sean Fabry: Yes. This is Sean. We normally have working capital improvement initiatives every year in our free cash flow and 2026 is no different in that regard. I would call it a modest amount of working capital improvement, but generally speaking, we are expecting our operating earnings to go up, call it, $20 million, $25 million. And that is offset mostly by cash higher cash interest and taxes in the year. And that gets us to the $450 million for 2026. Bridging that versus our 2025 number. Arun Viswanathan: Thanks a lot. Operator: And we will return back to the line of George Staphos with Bank of America. Please go ahead. George Staphos: Hi, guys. I will try to make it quick. So you have talked a lot about on this call here and there kind of the impact of healthier living and the like. As you have analyzed across your categories, is it a net positive, neutral, negative all that commentary relative to the end market growth and demand you would see across food can DSC and custom containers as you have analyzed it? Second question related we have seen over the last year or so new products, zero-calorie products on the beverage side. Anything that we should be aware of that could perhaps help growth in the dispensing segment for this year or in the next couple of years that you know. Last question from me, just on availability and supply chain in metal, steel, and aluminum. I assume you are doing fine. Just wanted to check the box on that. And has there been any commentary at all from your suppliers about maybe bringing back some tinplate capacity to the US? So thanks for that, guys. Again, congratulations to everybody to Sean, Alex, and Bon Voyage, Bob. Talk to you guys soon. Adam Greenlee: Thanks, George. As far as the healthier conversation that we were having and its impact on volume growth. I mean, I think it is relatively neutral to our volume growth. I mean, I think we are, you know, we are well-positioned already for a variety of outcomes across the portfolio that we have. It is a bit of the intentional nature of how we built out the portfolio that we can do well in different economic circumstances. We can do well with different consumer preference patterns evolving. And feel pretty good that, you know, we have got that captured. And we will support our customers in whatever way we need to. You are right. I think 2026 on the food and bev or on the beverage side, is going to be a year of innovation. You know, one of our largest customers has clearly stated that. And, you know, whether it is zero-calorie or better-for-you products, you know, we are watching very carefully to see what is new volume brought into the category versus cannibalizing some of the existing products. So, you know, again, I would say roughly we are neutral in that scenario because the cannibalization is just it is a similar volume comp volume to what we already had. I think they are looking at it from a value perspective as well. With potentially healthier for you products requiring a premium in the marketplace. And then as we think about, you know, aluminum and steel supply, you know, our two largest expenditures that we have and critically important to our success as well. So, you know, we have talked a lot about tinplate in particular and the US market, and the US market being a net importer now with significant tariffs. So it is a challenging environment. You know, we are one of the largest buyers for both steel and aluminum can sheet anywhere in the world. So you are right. You can check the box for us. We get the products that we need. Our contracts allow us to pass through those costs. Whatever they need may be to our customers. Take that very seriously, and we fight like crazy to get the lowest cost for ourselves and for our customers, George. But, you know, I think the market dynamics are continuing to evolve. I would love to tell you there might be more tinplate capacity coming on in the US. It has to be high quality, wide tinplate capacity. For it to really work well in the manufacturing systems and not just Silgan. But can manufacturers have assembled now over time. So there will be some hurdles to that. So I think our perspective is it is going to be more of the same as we go forward. We will get the products that we need. And regardless of where that supply comes in from, we would love to buy product raw materials in the market where we are making products and selling products. Unfortunately, the way the tinplate market in the US has evolved over time, we are no longer able to do that. George Staphos: Thank you, Adam. Adam Greenlee: Sure. Operator: We have no further questions. I will turn the floor back over to Adam Greenlee, President and CEO, for any additional or closing remarks. Adam Greenlee: Great. Thanks very much, Melinda. We appreciate everyone's interest in the company, and we look forward to discussing our first-quarter results near the end of April. Thank you. Operator: This concludes today's conference. We thank you for your participation. You may disconnect at this time.
Hanna-Maria Heikkinen: Hi all, and welcome to this news conference for Wartsila Q4 '25 results. My name is Hanna-Maria Heikkinen, and I'm in charge of Investor Relations. Today, our CEO, Hakan Agnevall, will start with the group highlights. He will continue with the business performance. And after that, our CFO, Arjen Berends, will continue with key financials. After that, we will discuss the dividend proposal and also the outlook. After the presentation, there is a good opportunity to ask questions. Time to start, Hakan. Håkan Agnevall: Thank you, Hanna-Maria, and before you leave, congratulations. You were voted to the most popular investor relations professional in Finland. Hanna-Maria Heikkinen: Thank you, Hakan. And thank you, first of all, to Hakan, Arjen and all of the Wartsila management, but also all of the analysts and investors who have been engaging in our dialogue and providing very inspiring questions. Thank you. Håkan Agnevall: Yes. Thank you. Thank you. So Q4 and 2025, I think this has been a great year and we are on a great journey, I would say. If I sum it up in one word, great. But you also need to look a little bit beyond, and I will come back to that. So if we start with Q4, all-time high operating profit and cash flow. And look at the order intake, and if we focus on Energy and Marine, it's developing quite positively. So Marine order intake increased by 8% while the organic growth, which when we exclude FX impact and impact of acquisition, was actually 11%, double digit. On the Energy side, the Energy order intake increased by 4% while the organic was 13%. So also there, double digit. Now total order intake, and this is where it gets a little bit complex, the total order intake for the group was down 11% to EUR 2.2 billion due to two drivers. Basically a strong comparison period on Energy Storage. Energy Storage had decent order intake in Q4 2025, but it was very strong in the year before. In general, we continue to have a challenge on order intake in Energy Storage. And then the second driver for the down 11% is the divestment in Portfolio Business, which is actually we are in a good trajectory divesting the business units. But as we take them out, it has an impact, of course, on our overall order intake for the group. But key message is, Marine and Energy, double-digit organic growth. Now we also continue to have a strong order book, around EUR 8.2 billion, and that is after the elimination of about EUR 900 million related to the divestments. Net sales increased by 8% to about EUR 2 billion. And then we continue the journey of improving our operating profit. So comparable operating results increased by 23% to EUR 256 million, and that is 12.8% of net sales. Operating results increased by 10% to EUR 251 million, and that is 12.5% of net sales. And then on services, a lot of attention on services. The 12-month rolling book-to-bill continues to be above 1. On the Energy side, it was 1.1, and on the Marine side, it's 1.01. And cash flow, and Arjen will talk more about that, strong cash flow from operating activities of EUR 652 million. So strong Q4. And if we look at the full year, we have all-time highs in four key metrics: so in order intake, in net sales, in operating results and in cash flow. So a very strong year. Now I will talk through these numbers, and I will do it rather quickly. Because of these effects on portfolio and storage, we actually made an additional slide this time where we drill a little bit deeper. But if we start with the group level's order intake, you could clearly see it's down 11%, EUR 2.2 billion. Net sales is still up with 8% to EUR 2 billion. Book-to-bill also on group level, 1.11, clearly above 1. Comparable operating results, up 23% to 12.8%. Operating result, up 10% to 12.5% of net sales. Then looking at the full year before we move on. Order intake, rather flat on group level. Net sales, up 7% to EUR 6.9 billion. Book-to-bill for the full year, 1.17. Comparable operating results, up 20% to EUR 829 million, which is 12% of net sales. And finally, the operating result, up 16% to EUR 833 million at 12.1% net sales. And that's a milestone, the 12.1%. You remember our old financial targets for the whole group, we achieved them, and now we move on. Now this is a little bit breaking down into details because this is the underlying message. So let's look first -- this is our full year numbers. Let's look at Marine and Energy combined and then Energy Storage. So here, you see a little bit different picture. So order intake was actually up on full year 17% to EUR 6.9 billion. Even if you look at organic growth, it's even higher, it's 20%. If we look at service and equipment, it's flat on service, but we do have an FX effect here of about 4%. Equipment is up 43% to EUR 3.3 billion. Order book, up 18% to EUR 6.7 billion. Net sales, up 12% to EUR 5.5 billion. And organically, it's even up 15%. You look at the services. Services is actually up 6%. It's up 10% if you look organically. Equipment, up 22% and book-to-bill moving to 1.24. And comparable operating results, up 21% to EUR 758 million, and that is 13.7% of net sales. We are on a good path, solid path to reach our targets of 14% for Marine and Energy combined. Now that's all good, developing really well. We do have and continue to have a challenge on storage. I mean, you can clearly see it here. Order intake has been a real challenge during 2025. So order intake is down 60% to EUR 455 million. If you look at the order book, it's also down 36% to EUR 719 million. Net sales, down 13% to EUR 694 million. And book-to-bill, clearly below 1 at 0.66. And comparable operating results also deteriorated to EUR 24 million, 3.4% of net sales. So still within the 3% to 5% EBIT span that we've been talking about. The team is doing a good work in executing projects and delivering and doing that in a profitable way. But of course, order intake is a major challenge. Now looking at our two industries, some comments on the general industry development, starting with Marine. I mean the sentiment for our key segments remain on a good level. Of course, overall contracting in 2025, decreased from the extraordinary activity levels we saw in 2024. So the number of vessels ordered in the review period decreased to 2,000 about from 2,400. Now one driving factor, the regulatory uncertainty, but also high newbuild prices and softer market conditions affected negatively the newbuild investment in some segments. Ordering has been rather uneven across vessel segments. But the appetite in our core segments -- in Wartsila's core segments, cruise, containerships and LNG bunkering vessels has been rather good, and contracting in our key segments are expected by Clarksons and by ourselves to remain clearly above the 10-year average level. Shipyard order books are at the highest level since 2009 and shipbuilding capacity expansion is primarily in China. In January to December, 366 orders for new alternative fuel capable ships were reported. That's about 37% of the total, so to say, which is down from 50% in the comparison period. And that is mainly mix driven because during the last time, there has been a bigger share of tankers and conventional bulk carriers, so to say. But the key thing here, when we see the graphs here, is still the same message. If you look on the overall demand, it is still below -- the forecast from Clarksons is still above, sorry, the 10-year average. Focusing on Wartsila core segments, it's clearly above the 10-year average. Energy market. Increased demand drives the energy transition and investments in the energy transition and it continues. The transition continues to move forward. Two key things stood out in energy-related macroeconomic development in 2025. One was load growth and the other was tariff-related uncertainty. The investment environment for energy technologies has improved along with global macroeconomic conditions. In engine power plants, the market demand for equipment and services has been strong. Demand for baseload engine power plants is expected to remain stable with further growth opportunities in data centers. The driver for engine balancing power plants continue to develop favorably. In the battery energy storage, the demand is closely linked to the increasing share of intermittent renewables in the energy system, which continues to progress strongly. The U.S. market is still facing regulatory headwinds, though several drivers remain solid with data centers also for storage as a potential new opportunity going forward. And after significant growth driven by solar up to the mid-20s (sic) [ mid-2020s ] renewable capacity addition are expecting to decrease slightly in 2026. Growth prospects towards the end of the decade, though, remain solid. So there is still definitely a positive trend. So going through the numbers, looking at the graphs, and now we are back to group level. So organic order intake decreased by 4%. Order intake decreased by 11%. But as we talked about, Marine order intake increased by 8%. Energy order intake increased by 4%. Energy Storage, though, order intake decreased by 40%. If we look at equipment overall, equipment order intake decreased by 15%, primarily driven by storage, and service order intake decreased by 5%. We have a strong order book, and rolling book-to-bill continues above 1, I think now for the 19th quarter -- consecutive quarter. But as we talked about, the order book decreased due to the elimination of about EUR 900 million related to divestments in Portfolio Business. Now this is a new slide that we have added, and our intention is to keep this as a standard slide in our reporting going forward. And we are really trying to describe how our order book will translate into sales going forward. So because the existing order book will generate sales that is distributed further into the future. So here you can see the distribution in time of the deliveries of the existing order backlogs for 2024, 2025 and 2026. And you clearly see how it is stretching out. We have also given the numbers and the size of the order backlog to help the analysis. And you can say there are two driving factors here that you really need to look very careful on. First of all, we are selling capacity further and further out in time. And that is, of course, a function of a hot market, so to say. And the other major driving factor, as you know, in Energy, we are very much about equipment deliveries and much less on EPC deliveries these days. And there are two different revenue recognition models. I mean, basically, the EEQ, you could say the major revenue recognition, it's rather lumpy because it's actually when you deliver the engines. And that is different from the EPC way because the EPC way, you could say you gradually continuously over the project recognize sales. So these two factors really affect how we think about translating the timing, how we translate the order backlog into sales. Very important going forward. Organic net sales increased by 16%. Net sales increased by 8%. Marine net sales increased by 10%, and Energy net sales increased by 29%. Energy Storage, though, net sales decreased by 20%. Overall, equipment net sales increased by 15% and service net sales remained stable. Profitability continued to improve. Net sales, we talked about, that increased by 8%. Comparable operating result increased by 23%, and the comparable operating margin 12-month rolling to 12% from previous 10.8%. Now technology and partnership highlights. There's a lot of exciting things happening. As you know, Wartsila, it's all about innovation and technology and services. And there, we are really making progress. First of all, data center orders. We continue to break into the U.S. and global also data center market. We talked about it, that off-grid data centers really growing in its market, so to say. And the power need is, in many installation is right in our sweet spot. So this is the example from end of last year, where we got an order of 507 megawatt power plant supplying data center in the U.S. We continue to grow. And we will deliver 27 engines to provide continuous primary power for a new data center in construction in the U.S. The on-site power facility will operate with this 24 (sic) [ 27 ] Wartsila 50SG engines with a power of 507 megawatts. They will run on natural gas that can later be converted to run on sustainable fuels in the future. And the order was booked in our order intake in Q4 2025. The equipment will be delivered in 2027. Then moving to Marine. We had our second order for an ammonia engine on the Marine side and to a Norwegian customer, Skarv Shipping cargo vessel. So we will provide our advanced Wartsila 25 Ammonia solution to power a new cargo vessel for Skarv. And this vessel will be built at the Huanghai shipyard in China, and it will be the first newbuild to benefit from the solution. And this order was also booked in our order intake in the fourth quarter of 2025. You have also seen the other press release that we have made this morning, and it's about setting us up for continued growth, further investments in our capacity. So we will expand our production capacity in Vaasa in Finland. We will expand the technical capacity with 35% to meet the global increase in demand in Energy and Marine. We will invest about EUR 140 million to further expand our production capacity with 35% in our STH technology center and also in the associated global supply chain. The vast majority of the investment is in STH. This expansion will increase our industrial capacity and strengthen the capacity of the associated global supply chain. And the new capacity will be installed within the STH expansion that we announced in April 2025, and it's expected to be commissioned in the first quarter of 2028. So a major step for STH in Vaasa. I think overall now, the last few years, we have invested about EUR 400 million in Vaasa facility. But it's not only about Vaasa. We also continue to invest in our service business in a very concrete way in our global spare part distribution center in Kampen in the Netherlands. And that investment is also to continue to support the growth. So we will expand our main spare parts distribution center in Kampen by 40% and consolidate nearby leased storage facility into Kampen. And this is a smaller investment but a very important one. We will invest about EUR 14 million in expanding the facility, and we expect to have it commissioned by 2027. Then expanding capacity is a lot about the supply chain, as we all know. And I really wanted to highlight this partnership agreement that we have signed with one of our key suppliers, Siempelkamp foundry. We have formed a strategic partnership to secure the supply chain to support our continued growth. And we strengthened the supply chain by this strategic partnership with Siempelkamp in the supply, and they are a supplier to us of large cast components for our engines. And as a result, we can, in our turn, support the growing demand from our customers and the markets in sustainable technologies for the marine and energy sectors. We are also continuing our work on streamlining Wartsila, becoming a more focused and profitable company. So we have made progress in our Portfolio Business divestments. This is nothing new. But we wanted to sum up some of the metrics here to help you with the analysis of Wartsila. So as you remember, we divested ANCS, Automation, Navigation and Control Systems to Solix. The divestment was completed in the 1st of July last year. Now the annual revenue of this business was EUR 127 million in 2025 and close to EUR 230 million in 2024. And ANCS has also clearly been the most profitable unit of our Portfolio Business, representing about 80% of the operating results during the first half of 2025. So that was ANCS. Then we had MES, the divestment of Marine Electrical Systems to Vinci Energies that was completed on 31st of October last year. Here, the annual revenue of the business was about EUR 92 million in 2025 and EUR 100 million in 2024. And the group order book has now been adjusted with, in this case, EUR 620 million. So it's one big part of the EUR 900 million that I was talking about before. And finally, the divestment of Gas Solutions to Mutares is expected to be completed. We have signed and we expect to complete the transaction in the second quarter this year. The annual revenue of the business was EUR 394 million in 2025, about EUR 300 million in 2024. And after these divestments, we have one business unit left, and that is Water & Waste. And that is a business unit with an annual sales of about EUR 50 million. And of course, our ambition is to move ahead and also sign and close during this year. Work is ongoing. Now looking a little bit on our businesses, how have they developed. So on the Marine side, growing order intake and net sales as well as improving our comparable operating results. So order intake, up 8%. We talked about that. Net sales, up 10%. And if we look at the development, continuous improvement of the profitability, on the positive side, we have higher service and equipment volumes providing better operating leverage. We also have improved newbuild margins in what we have delivered, positively contributing. And on the investment side or the cost side, we do run increased R&D investing into our future. Service continues with a book-to-bill above 1. We see 9% CAGR on the net sales. And you see the different disciplines here. And then you notice, if you see agreements, it looks like it's going down. It's the blue line there. That is more periodization. Because agreements there, it's a little bit like project business, and you can have -- it could be a bit lumpy based on periodization. And you also see the retrofit business. That is really below 1 now but also there, it's project business, and we have a positive outlook going forward. So we will continue to grow in Marine service. Going over to Energy. So growing order intake as well as significantly improved net sales and comparable operating results. Order intake, up 4%. You might think that was not so impressive growth. But I look at the newbuild side there and look at the orders we announced here just in the beginning of the year, where the other week, we announced an additional 550 megawatts plus. It's about periodization of order intake of big orders, so to say. There is a strong underlying demand, and we will come back to that when we give the demand guidance. Net sales, up 29%. Here, if we look at the development of the comparable operating results, continue to improve our profitability. Also here, the higher equipment volumes provides better operating leverage. We have a better service margin mix. I can also say that we are building the margins in our order backlog, but that will be delivered later, so to say. On the same side as Marine, we continued to increase in R&D. Also on the Energy side, we continue with service book-to-bill above 1. We have had 4% CAGR. Here, you see, if we look to the right, on the Energy side, on the blue dotted line, we had a good service agreement order intake at the very last week. So periodization, here, we were a little bit lucky but the overall trend is positive. Similar to Marine, you see retrofit here. Periodization, we see underlying growth going forward. Storage. So in storage, on the positive note, we had a revived order intake development after three slow quarters. However, it was clearly below the exceptionally high comparison period in the fourth quarter of 2024. And this is why you see the order intake is down with 40%. Now we do have a challenge overall through the 2025 on order intake. Let's be very frank about that. Net sales was down as a consequence of that with 20%. If we look on profitability, which has decreased, on the positive side, as I talked about, very solid execution of the projects, I mean, in the backlog by a strong team. But the lower volumes, and also R&D, we continue to invest in R&D, is affecting the profitability negatively. Here's the bridge Q4 Q-on-Q, so to say, and how the different businesses are developing. So from the group, we go from 11.3% to 12.8% comparable operating results. Marine is up from 11.8% to 13%. Energy is also up from 15.1% to 16%. And Storage, down then from 6.9% to 4.3%. Portfolio is actually executing well, improving 3.7% to 7.4%. And overall, the comparable operating results increased by 23%. Now Arjen, over to you. Arjen Berends: Thank you, Hakan. Very happy to talk about other key financials as they look all very, very good. Very happy with that. If we start with operating cash flow, EUR 652 million for the quarter and EUR 1.6 billion for the full year. Both on the quarter as well as the full year, it's an all-time high, as Hakan also mentioned earlier. The previous all-time high is actually also on the slide. It's EUR 1.2 billion in 2024. Great support from the profitability to the cash flow. Let's say, you can see it on the EBITDA line, which is clearly getting higher. And that, of course, over time, will convert into operating cash as well as, let's say, the working capital. Working capital, in fact, is actually at an all-time low as well. Big element in the working capital is, of course, the advances. It's about EUR 1.3 billion and a little bit more. If you exclude the advances from the working capital, still I would say it's a very good working capital level. It's about EUR 80 million positive compared to, let's say, 2 years ago at the start of, let's say, 2024, it was EUR 600 million. So working capital excluding advances being EUR 600 million at that time, now about EUR 80 million. So it's not just the advances that help us, but it's also all the good work that we are doing in other areas of working capital. Clear highlight on this slide is this, the ROCE, clearly going up. Okay, it's close to double, I would say, from previous year. And of course, that is really driven by also good profitability development and, in particular, also a very good working capital development. Solvency, I'm also very happy with. Let's say, I think it's a couple of years ago that we had a number above 40%. Now we have 40.5%, up from 37.4% last year. And earnings per share, also here, an all-time high at EUR 1.06. So I can only say that I'm super happy with these numbers. If we look at the trend, and let's say all trends go in the right direction. Cash flow, clearly, let's say, the orange trend is up and the working capital trend is down. Also good to remark here that, let's say, the 5-year average working capital to net sales line, the dotted line on the right side graph, is now for the first time in a negative number, minus 0.6. Just for reference, at the end of Q2, I think we had 2.4, if I remember right. So really, let's say, going well on a long-term basis as well. If we then move to dividend, the Board will propose to the AGM -- or has proposed to the AGM basically a base dividend of EUR 0.54 to be paid in two installments and then an extraordinary dividend of EUR 0.52, altogether making up 400% of EPS at EUR 1.06. Final slide from my side. Solid progress towards the financial targets. If we start at the Marine and Energy combined graph in the top left corner, first of all, very good growth, organically 15%. Newbuild was 25% and service was 9%. So really in both areas, really good growth. Also the orange line, 13.8% on the operating margin, really improving significantly, I would say, in Q4 on a rolling 12-month basis. Q3 was 13.2%. And 1 year ago, at the end of 2024, we had 12.8%. So it's 1 full percent up year-on-year -- percent point, I mean. On Energy Storage, as Hakan also explained already, we have been suffering from, let's say, low order intake that translates then, of course, also in lower sales, and that has a consequence to, let's say, absolute profitability as well. Still having said that, let's say, the performance was on a acceptable level, 3.3%, which is within the range of the financial targets for Energy Storage, 3% to 5% operating margin. Gearing, it further goes down. I don't need to comment too much about it. And I think the dividend distribution, I just mentioned. With these words, back to you, Hakan, on the outlook. Håkan Agnevall: Yes. So let's look then on the guidance. So on the Marine side, we expect the demand environment in the coming 12 months to be similar to that of the comparison period. But please note that the last 12 months have been very, very strong. So we continue to -- the demand continue on a very good level, driven by our core segments. On the Energy side, we expect the demand environment for the next 12 months to be better than the comparison period and driven by -- not only by data centers, but by balancing power, other baseload. So better demand environment. On Energy Storage, we expect the demand environment in next 12 months to be better also, of course, coming from a very low level. But particular in the Energy Storage, we note that the current geopolitical uncertainty particularly impacts this business and may affect the growth. Then we make the general comment that we underline that the current high external uncertainties make forward-looking statements challenging. Due to high geopolitical uncertainty, the changing landscape of global trade and the lack of clarity related to tariffs, there are risks of postponement in investment decisions and of global economic activity slowing down. Okay. That was the presentation. Hanna-Maria Heikkinen: Thank you, Hakan, and thank you, Arjen. Now we will continue with the Q&A. [Operator Instructions] Handing over to the operator, please. Håkan Agnevall: It's a very silent operator today. Hanna-Maria Heikkinen: Yes, it looks like so. Maybe it was crystal clear already. Maybe while waiting, do you, Hakan, want to elaborate what was kind of what do you consider as key achievements last year? Håkan Agnevall: No, I think we talked about it. All-time high in a number of dimensions. But not only the financials. We have, for the first time in Wartsila, we were recognized by Forbes as being in the top 1,000 employers in the world actually based on surveys that are made of our employees. So it also shows that we are on a very positive development when it comes to the culture of Wartsila and engagement of our people. I mean, we continuously have extremely high score, very high in our engagement surveys, which I find very, very positive. And I think, of course, now we are in a positive role, that helps. But I think also we know a couple of years back, it was tougher. I think the whole narrative on decarb and the focus on innovation and technology and services is really resonating with our people. So very good development. Hanna-Maria Heikkinen: Thank you. So once again, handing over to the operator. Operator: [Operator Instructions] The next question comes from Daniela Costa from Goldman Sachs. Daniela Costa: But I wanted to start on getting a little bit more color on the 35% capacity increase. I guess, a couple of items related to that. But how much of that is already things that you have, let's say, on 1Q '28 you will open up? How much of that is already covered by things that you have on the backlog? And then would we have sort of any margin impact before 1Q '28 because you're hiring people? And how should we think about sort of like any financial implications before you open? But starting with that, and then I'll ask a follow-up. Håkan Agnevall: So I think now what we can say, well, we are starting to open up our backlog. I'm referring to the slide that we presented here. So it's a new standard slide going forward. But I don't think it has reached 2028 yet. So I think it's a little bit early to open up there. I mean, I can say that... Arjen Berends: Of course, we have orders for '28 already. Håkan Agnevall: We have orders for '28. And for certain parts of our offering, I mean, engine types, as you know, we have different engine types, if you want to order a new engine of that particular type, the delivery time is definitely in 2028. Then we have other engine types where we can deliver at the end of this year. So it's a mixed situation. I think that is as precise as we will go. On the cost side, I think that, that will not affect our profitability in a major way going forward, so to say. Daniela Costa: Got it. And then just as a follow-up. Can you talk a little bit about like how prices per megawatt have evolved '25 versus '24 and the general trend you're seeing given the demand has been so strong, particularly both for engines and turbines and everyone in this supply chain? So to have an idea of how the mix is also maybe improving going forward. Håkan Agnevall: No. As I briefly mentioned before, I think the margins in our order backlog are going up. I mean, it is, of course, a very vibrant demand side. And so that leads to some pricing realization. But I don't want to go into the details. But it's developing. The margins are... Arjen Berends: Positive. Operator: The next question comes from Akash Gupta from JPMorgan. Akash Gupta: My question is on your announcement on increasing capacity by 35%. So again, I mean, when we look at the other power equipment makers, the decision is not surprising. But I think what is different is on other guys, we have a lot of visibility from firm orders, backlog and some slot reservations. While at Wartsila, based on what you have reported, we don't yet see that. So I wanted to ask, like what has changed in the last few months that led to this announcement of 35% increase in capacity? Is this more bottleneck on these 50SG engines that has been commonly used by data centers based on your order announcement or anything that is in pipeline? But any clarity that you can provide behind this capacity expansion, that would be great. Håkan Agnevall: So I mean, first of all, please note that we communicate around our technical capacity. And right now, and you see that in our Q&A document, which we also posted, 2025, we have been operating around 75% of our technical capacity. So 75% of technical capacity. Now the expansion is to expand the technical capacity with 35%. So then you understand we are coming from one level and going to another level over a few years. So that's one important element to look into. Now why do we do this? I mean, you could also say already in April last year, we took one step. We announced a EUR 50 million and where we started to expand, and now we continue. And the drivers, they are several. On the Energy side, yes, data center is clearly a driver and it's certainly there. We have several opportunities in various stages of maturity. You also saw we started the year in a very strong way. But it's not only about data centers. On the balancing power, the narrative is playing out still in the U.S., still in some other countries as well. And then on the, you could say, the traditional base load, we have strong demand in Southeast Asia, in Latin America. So it's a strong underlying demand situation overall in Energy. And on the Marine side, we continue to operate, as we talked about, even though we guide similar, this is on a very high level for us and in a good level. And we continue to see strength in cruise. We continue to see strength in offshore, in special vessels, to a certain extent, the containers as well. So it's more than data centers. And the expansion, just also to clarify, it's not only for W50. W50 is the standard energy engine. So you're right from that perspective. But this expansion is not for W50 only clearly. Arjen Berends: The engine is very flexible. So you can swap slots quite easily. Håkan Agnevall: Thank you for clarifying. The engine is very flexible, you run different engine models... Arjen Berends: Correct. Yes. Akash Gupta: And this 75% of technical capacity, that is on total engines, I mean, including Marine and Energy both together? Or is it just only Energy? Håkan Agnevall: Total, both Marine and Energy. Operator: The next question comes from Uma Samlin from Bank of America. Uma Samlin: I just have one on the service opportunities for your data center orders. So far, it seems like most of the orders you booked are more on the OE side. And how should we think about the service opportunities there? I presume that a lot of the data center developers are not keen to do service themselves. How should we think about that, like the timing of those opportunities and the pricing power you have there? Håkan Agnevall: So I think there will be a strong service business, first of all, because these plants will operate 24/7 with high requirements and uptime reliability. And that is a strong base for a good service business. Within the data center customers, some want to go to full O&M where we do the operation and maintenance. Some want to do a little bit more themselves. There is not one solution fits all. We will adapt. But if you sum it all up, it's very strong potential for service business there. And that has not started to accumulate in order intake yet. Arjen Berends: So baseload opportunities -- baseload is good. The more running hours, the more service. Uma Samlin: So when can we expect to see that coming into your orders then? Håkan Agnevall: In the coming -- I mean, as we said, I'd say a little bit similar like on the newbuild side, that we are in negotiation with customers and service agreements. These negotiations are in various stages of maturity and they will -- certainly, some of this will materialize this year. Operator: The next question comes from Vlad Sergievskii from Barclays. Vladimir Sergievskiy: Could I ask about the Marine service business? The order intake growth rate slowed a bit from obviously very impressive levels historically. What's your outlook there? What's driving the slowdown? And perhaps what would be potential impact from the reopening of the Red Sea on the service opportunity that you have? Håkan Agnevall: So if you look, I mean -- and you're right, Vlad, that if you look Q-on-Q we are down. And I think there are a couple of drivers. One is that in Q4 2024, we had a big order from Royal. And so that creates this effect. Then there is also some periodization. I mentioned that earlier on the agreement side, things moving from one quarter to the other. Similar also on the retrofit side, a bit of periodization from one quarter to the other. There is also a little bit of FX. Clearly, it's mainly U.S. dollar exposure. So those are combined. But our underlying message, and I'm reiterating it, we are above 1. And we have a positive outlook on the growth of the service business also in Marine. Vladimir Sergievskiy: Super. Very helpful. And anything you can comment on potential impact of Red Sea reopening? Is it meaningful for your business? Is it not at all? Håkan Agnevall: So I mean, what will happen and what I hear now, that there are some of the major liners, they are kind of testing. Of course, everybody is very much focused on the safety side. I mean, it's pretty obvious that right now, people have been running longer hauls south of Africa. And if you go back to the Red Sea, that will reduce the route that you travel. However, yes, first of all, that has not been -- I mean, the whole Red Sea has not been a major driver for our service growth. I would say there has been some addition but it's not a major driver. And there are some other elements because some people are also saying that the operators, they will go slower to try to compensate. So they will try to keep some of the fleet. I mean, they will not just scrap out vessels. So let's see how the -- I think the dynamic is a little bit hard to predict what will happen. It will have some impact on our service business but not a major impact. Arjen Berends: Not majorly. And then also good to remind you that the majority of the vessels that sail through the Suez canal is two-stroke main engine. And that's the main engine running. We have, of course, a lot of auxiliary engines on merchant fleet. But typically, let's say, they don't run less or more typically on a journey. Håkan Agnevall: And there is not a lot of cruise vessels going through Suez. Arjen Berends: No, no, definitely not now. Operator: The next question comes from John Kim from Deutsche Bank. John-B Kim: Congrats on the results. If we could go back to Slide 5 where we talk about where you're indexed into contracting trends. It looks like you're addressing about 25% of the overall market just kind of correlating the two graphs, one on top, one on bottom. On that kind of better indexation over the next 3 years, is it fair to assume that there's production slots on these vessel classes already, i.e., within the contracting numbers, the mix is skewing to your favor over the next 3 years? Or am I reading too much into this? Arjen Berends: Okay. If I understand your question right, let's say, is on these upper lines on the '26, '27, '28, do we have already contracts to be part of that? I would say the answer is yes. Because, let's say, our order books, as you could also see from the other slide, are getting longer and longer also in Marine. So clearly, let's say, we have orders for '27, '28. So they are part of those lines. John-B Kim: Sorry, Arjen, my question is actually more on the production slots in the yards because yard capacity is still an issue... Arjen Berends: But then can you repeat the question because then I misunderstood it most likely. John-B Kim: Sure. So within those orders or that pipeline, do you have visibility on production slots? Are the yard constraints still valid? Or are these already planned in the yards for the next 3 years? Håkan Agnevall: I would say it's a mix. It depends what type of vessel you're ordering. I mean, if you take on cruise, for instance, I think the slots are pulling out longer and longer in time. Whereas on certain bulkers or tankers, there are shorter lead times. But to Arjen's point, when we talk about Wartsila supporting or delivering to the shipyards, if you look at '26, '27, we clearly have in our order backlog deliveries for yard slots in '26, '27 and '28 as well. Operator: The next question comes from Sven Weier from UBS. Sven Weier: The first one is just following up on the announced capacity expansion. There, I was just wondering, I mean, if you say we raised capacity, technical capacity by 35%, should we assume that this is also raising the revenue potential by at least 35%, given where the prices per megawatt are heading? And I was also wondering why is the expansion only completed in Q1 2028. Because I think it's probably a bit more of a brownfield. Why is this taking like 2 years? That's the first one. Håkan Agnevall: Yes. So of course, over time, if you expand a certain capacity, it will translate to revenues, so from that perspective. But then, and I know you know this, Sven, but there is also we have our production schedule, which is factory related. And then we have our project schedule, which relates to when we deliver to customers and the projects. And sometimes there is not a perfect correlation year-by-year. But I mean, the fundamentals, you're right. I mean, as we expand capacity, revenues will go up as well. Then, of course, with a twist, which is positive maybe from a revenue perspective. If we have EPC, then it's engine plus. Now I mean, we are not changing our strategy. Our focus is still having a majority of EEQ and less EPC. But we will still have EPC. So that will, of course, then you get leverage on the engine capacity that you have. Sorry, your second question? Arjen Berends: It was on the capacity. Why only in early '28? Håkan Agnevall: Yes, that's what I'm asking my team as well. Let's go faster. But on a serious note, I think there is lead time for equipment that we need in our -- for instance, in our testing facilities. These are big power equipment, they have certain lead time. The concrete needs to dry before you pit certain things in. And also it's also -- it's very -- since we are now we are really -- the team is doing a great job in trying to do a lot of things and squeeze it in, but there is a limit what you can do in one space, so to say. But believe me, we have really tried to accelerate still. Arjen Berends: And to add, let's say, the supply chain needs to follow, right? So I think it's... Håkan Agnevall: Very good point. I think the supply chain, as we all know, is critical. But however, I would say, I mean the partnership that we announced with Siempelkamp, and we wanted to make that point to show to the... Arjen Berends: It's one example of. Håkan Agnevall: That we are working very actively with our supply chain. That's just one example. We have a very good dialogue with our core suppliers, and we have long-term relationship. So it's a major work. We should not diminish the importance. But we are -- step by step, we are in a good role here to be able to go live in beginning of 2028. Arjen Berends: If you have a nice factory with capacity, but you miss some parts, then you can still not make engines. So we need to make sure that the supply chain can follow. Sven Weier: That makes sense. Just maybe on the Energy margin itself. I mean, obviously, impressive outcome here. But when you look at GEV and Siemens Energy, they've obviously given new long-term margin outlook for the divisions that obviously looked quite nice. I was just wondering, I mean, are you planning kind of a Capital Markets Day for this year where you also intend to give us revised new longer-term margin targets, at least for the Energy business? Håkan Agnevall: I think this is a very relevant question. We fully understand it. We will have to come back and answer it. I don't have the answer today. But clearly, we understand the logic for the question. Operator: The next question comes from Max Yates from Morgan Stanley. Max Yates: Just sorry to come back on this capacity expansion. You talked about the fact that this was in addition to the announcement that you announced kind of last year. So I guess if we just look at kind of the base in terms of what you're delivering today, it looks like kind of 1.2 gigawatts in terms of deliveries when I back it out of your revenues. Just thinking about what is the total technical capacity increase when we include this latest round, but also what went before? And I guess I'm trying to tie it back to this year in terms of sort of megawatts, it looks like your orders are roughly around EUR 2.3 billion. Is that the kind of end technical capacity that we should be thinking for in terms of what you can deliver when we look out to 2028? Håkan Agnevall: I understand the -- here, we will not be so explicit. I mean, for instance, we will not give out the megawatts. I know some of our competition is doing that. We are very happy because we make a lot of analysis of those data. We don't want to give out those data. So that's why we are talking about where we are moving in relationship to our technical capacity. So as I said, 2025 full year, 0.75% of technical. And then beginning of 2028, once we have commissioned this, we will have a technical capacity that is 1.35%, so to say. So you see where we are going from and where we are going. Arjen Berends: It's about 80% up then from the operating level. Håkan Agnevall: Correct. Max Yates: Okay. But we shouldn't assume that you had a given capacity, you increased it last year, and then this 35% comes on top, 35% of the total, all in. Håkan Agnevall: That I can be very clear. I mean the April announcement, EUR 50 million, you could say that is also coming online in connection with this additional EUR 140 million. So it's not on top. You could say we are going from 0.75%, 2025 to 1.35% in beginning of 2028. And that is including all the investments that we have announced. Max Yates: Okay. And sorry, maybe one quick clarification. When we look at your data, when we look at your orders this quarter in Energy in new equipment, you did 520 megawatts. I mean, it looks like it was almost entirely that data center order that you booked. And yet the value per megawatt on the orders is only about EUR 0.7 million per megawatt. So I guess I'm just trying to square the fact that kind of we're talking about pricing on these data center orders being very good. We're seeing huge numbers in terms of dollars per kilowatt coming out of the gas turbine guys. Yet when I very simply look at your Q4 number, which I know is mostly the data centers, I don't see that kind of uplift. So maybe if you can help us understand. It doesn't look like you're getting a huge price uplift to these data center customers based on what you booked this quarter. Håkan Agnevall: Well, I can say like we stated, we have definitely improving our order backlog and we are on a good journey there. I would rather say it shows that we are very competitive. Max Yates: What does that mean? Sorry. That means you're pricing aggressively versus the other... Håkan Agnevall: No, that we can improve our profitability and be very competitive with the gas turbine competition. Arjen Berends: And also with other engine manufacturers. Håkan Agnevall: And just for clarity, I mean, I understand your analysis, but I should also say it so we are fully clear, there was more than data center orders. But the data center was a major chunk of the order intake. So from that perspective, you're right. Operator: The next question comes from Panu Laitinmaki from Danske Bank. Panu Laitinmaki: I actually wanted to ask about the same topic. So it seems that in Q4, majority of the energy equipment orders were the single data center order. Just a bit surprised, like why didn't you get more of the other orders? Was it just timing? Or was it tariff-related delays? Or did you increase pricing so much that there were delays? Or what caused this? Håkan Agnevall: So first, I mean, this is a project. I mean, Energy is a project business. Power plants, whether they go for data centers or balancing power, you negotiate. And sometimes, you don't close the deal in the end of December or the 20th of December. You close it in the 15th of January instead. And that's why I underline, look at how we started the year with 550 megawatts. One is clearly the biggest one there is for a utility, that the demand is driven by data center. The smaller one, I would say, it's one of our traditional, you can say, it's balancing borderline baseload. I think that's the answer to your question. It's about periodization. Panu Laitinmaki: So if I can ask about a follow-up, what does your pipeline in Energy equipment orders look like? So if you would directionally comment, like if things go as you plan in first half or full year this year, will it be like half of orders coming from data centers, half balancing? Or any comments how does it look like? Håkan Agnevall: No, we don't go into those details. The only thing I can point to is the guidance. It's going to be better. Arjen Berends: It looks good. Otherwise, we would not extend capacity either. Håkan Agnevall: Yes. And I think there are some really -- look at how we expand capacity, look at how we communicate. We increased the guidance. We give an extra dividend. We are on the road. Hanna-Maria Heikkinen: We are running out of time. We still have one additional slide. It's regarding our data center theme call, which is taking place next week. So it's an excellent opportunity to continue the discussion, what are Wartsila's opportunities in growing data center market. Besides Hakan and Arjen, I'm very happy that also Anders Lindberg, President of our Energy business, will join the call. So hopefully, you can also be there. And our Q1 report will be published on April 28. Thank you. Håkan Agnevall: Thank you for today, and a warm welcome to our data center call. Looking forward to that. Arjen Berends: Thank you.
Even Westerveld: Welcome, everyone, and good morning. Welcome also to everyone following us on the stream because we are also online with the stream, we need to wait until the right time to start this session. And now it's 9:30, and we are ready to present the results for the fourth quarter and for the full year 2025. We see a lot of smiles in the audience. We hope it's because of the dividend. And I will give the floor to our CEO, Kjerstin Braathen, and also to our CFO, Rasmus Figenschou, for the first time on this stage. We will go through the results, and there will be time for questions after also from the online audience. Please, Kjerstin. Kjerstin Braathen: Thank you so much, Even, and a very warm welcome to all of you, even if it's cold outside to this presentation of our fourth quarter results but where also I would like to highlight some of the key points for the year 2025 as a whole. I think it surprises no one if I say that these are historic times in terms of uncertainty. But we often say also that uncertainty does not mean that there are not opportunities out there for businesses and across industries. In fact, we almost see the contrary. Uncertain times in a bigger picture does not mean either that we need to forget the little things. And today is an important day for us because of our results but it was also an important day to pick because it's an important day for a few of our colleagues. And in DNB, we like to talk about the importance of people. So first, I need to say that we have also invited you to celebrate Even's birthday today. But more importantly, we have invited you to celebrate Stig, our long-term photographer, who turns 60 years today. So that is an illustration to the DNB team. In this environment where uncertainty is the new normal, the economy continues to perform well and prove its resilience in Norway. We also see that our customers continue to have a high activity, and they perform well across sectors. We focus on our core with our unwavering commitment to our customers and the development of our relationship and our business with them. We are, we believe, presenting a solid set of numbers today, demonstrating the activity level in the Norwegian economy and also the strategic value of the positions that we continuously build across the business. I would like to start with a couple of highlights concerning our customers because we like to start with the customer in DNB. First, DNB Carnegie. In 2025, DNB Carnegie was the institution that took part in the highest number and the largest volume of IPOs across all of Europe. The position and the strength of the position is clearly demonstrated by being #1 in the Nordics in investment banking, #1 across equities and #1 in Norway and Sweden on also mergers and acquisitions. On the retail banking side, we continue to make life easier for our customers. One of the things they achieved in '25 was to reduce the time it takes for a mortgage application to be implemented by 24%. We also note that Montrose, which is our challenger platform for retail savings in Sweden was awarded the best bank in Sweden in '25 and this only after having been in operation for a year. And we are motivated to see that the level of customer satisfaction is on its way upwards across many areas of our operation and that we see the highest level of customer satisfaction in Sbanken after the integration. For the smaller customers, we have made it easier not only to become a customer in the bank but also in terms of registering your new business with an automatic process and through this, reduced the time consumed by these 2 activities by 37%, more time for our customers to focus on the business and creating value. I am very proud of the team that works very hard to deliver all of these results across the group and creates value for our customers every day. Key highlights financially for the quarter is a return on equity that comes in at 16.6% in the quarter, driven by growth across lending and deposits but also very high activity in other areas. The return on equity is well above the minimum targeted level of 14%. NII is up by 1.2%, driven naturally by growth in the business as well as other interest income elements, and it's partly offset by mix effects as well as rate cuts that takes effect in this quarter. Net commission and fees is up by more than 40%, 40.3% from fourth quarter last year, naturally reflecting the integration of the Carnegie activities since then. But I would highlight the fourth quarter with very strong performance across asset management and investment banking. Our portfolio remains very robust. 99.4% of our exposure is in Stage 1 and 2. There are no negative migration. On the contrary, there are positive development in credit quality in areas such as large corporates but we do book some impairments in the quarter and have a cost of risk of 15 basis points. These are primarily related to specific customer situations. Earnings per share, up by 9.6% compared to the third quarter this year, for the year, NOK 28.45 per share. And this is thus the basis for our Board's decision to propose a dividend of NOK 18 per share as a cash dividend for the year. This is up 7.5% from last year, fully in line with our dividend policy. Our capital ratio remains rock solid, I would say, with a capital core equity Tier 1 of 17.9% after the deduction of dividend and after the deduction of an additional share buyback program of 0.5 percentage points that we do announce today, a headroom of 160 basis points towards the expected and required level by the FSA, comfortably to support a growing business as we move ahead, but also to deliver on dividend policy. The outlook for the Norwegian economy remains robust. Our economists expect a healthy growth this year by 1.5 percentage points GDP, 1.6% next year. Unemployment remains low, 2.2%, and this is the level where we expect it to remain in the coming years. And unemployment is probably the most important factor for financial stability and economic health across the Norwegian economies and households. While inflation is still not fully down at the targeted level of 2%, we continue to see that it comes down. There is also an expectation in the market that the annual wage growth this year will lead to a growth in real wage for most people, and this will continue to drive consumption as a key element to support further economic growth. We have seen, as you may recall, 2 cuts in the key policy rates during 2025. DNB Carnegie expects another cut in key policy rate in June this year and thereafter, a stable level for the key policy rate. With an additional cut, this would take the policy rate from 4% today to 3.75%, and this is the level it's expected to remain at for the remainder of the forecasting period. While the level of global economic uncertainty remains high, the activity level and the underlying fundamentals for our business and the opportunities that we see for our customers continue to provide a very favorable backdrop for our business as we move ahead. A few highlights on the business areas and now for the full year of 2025. The growth in lending in '25 comes in at 4.9% across the group. Deposits are up 2.8% for the year. The growth is slightly above the 3% to 4% that we usually indicate. We believe this is a strong point. This is profitable growth. And I think it clearly demonstrates the value of our growth platform where we have talked about having a slightly different position than many, given our growth platform internationally, both in the Nordics but also outside in specific industries. And we see that this growth platform over time enables us to deliver even when the market is in Norway is somewhat slower. Deposits, on the other hand, 2.8% is slightly below the 3% to 4%. What is important is that the attractive growth in deposit we see comes across Personal Customers and corporate customers in Norway by 7.7% for Personal Customers and 3.9% for our corporate customers. These are the areas where the deposits are the most sticky and the most valuable. There is a decrease in large corporates. This is related to a desired reduce on specific volumes on specific names and not very accretive to the NII. So all in all, 2.8% is also a number that we're pleased with. On the personal customer side, we've seen a high activity, a growth of 2.2% for the year, a year with a lot of activity also generated by the fact that we have seen rate cuts. The net interest income is up for the year despite 2 rate cuts. And there is quite a substantial uplift in other income by 30.2%, of course, due to the integration of Carnegie but very strong contributions from assets under management and continued increasing quarter-by-quarter of the savings accounts that we offer to our customers. We see during the year '25 that our real estate broker is doing increasingly better and better. And it's a good reference to note that of the sales that we saw in the previous quarter, we finance 32% of the sales that we have brokered, almost 10% higher than our market share, an element that demonstrates the value of having that type of a business within the group. Cost-wise, nominally, it's up. If we look at the underlying cost development ex the effects from Carnegie, there is a flat cost development in this area, clearly demonstrating a very strong cost control. For our corporate customers, we also see profitable lending growth, 7.7%. There are growth in commercial real estate but I would like to highlight also growth among SMEs. We do follow that. We like to see that also the broader and regional part of the businesses are growing, which they are at a higher pace than the market. And the growth in NII is accompanied by an even stronger growth in revenues related from other areas than the interest-bearing one. Higher customer satisfaction, in particular, for the smaller customers that are very attractive to many. We're working hard on that. And during the year, we have seen an uplift in the market share for start-ups, newly established companies by 3 percentage points up to 28.7%, which is a very strong position long term for the business. Large Corporates, total revenue up 12% and NII growth of 4.4% also here despite the rate cuts. Other income, a strong up 29%, demonstrating the cooperation across with DNB Carnegie, a strong development in asset management and a strong development of the business as a whole. The quality in the portfolio is improved. The impairments across both Corporate Customer Norway and Large Corporates are this quarter related to customer-specific situations but the portfolios and the credit quality remains very robust. A couple of comments on DNB Carnegie and our business in wealth management. You can see the uptick in revenues that we deliver in 2025. We believe this clearly demonstrates the value in the improved strategic position that we have across these 2 businesses, together with DNB Carnegie. The customer income in DNB Carnegie in '25 is up by 27%. More so, I would say we're very motivated by the strong reception from customers, having experience that we are working on and being awarded many transactions that we have not been -- we not would have been able to compete on if we had not joined forces. We have received strong recognition of our positions or not even strong recognition, but I would say a strong track record in terms of the magnitude of the business that has been done. And we increasingly see how the organization works well together and markets are active across ECM, across DCM and even across M&A as we enter into 2026. Wealth management, total income is up by a whole 41.7% from the prior year, NOK 527 billion growth in assets under management. More importantly, there is also a meaningful contribution from flow in this number, NOK 47 billion for the year as a whole, and 40% of this is related to retail volumes. This is a solid development. It solidifies our position as Norway's largest asset manager but it also demonstrates the value of having built a broader position. We see that we are also continuing to strengthen our share as -- our market share in distribution of funds to the retail segment and see that now NOK 4 out of NOK 10 that are saved in mutual funds in Norway are actually saved in a DNB fund. We're still not even a year into having merged the Carnegie business into these 2 areas, and we continue to look forward to putting our efforts into further strengthening these positions, a broader offering to add even more value to our customers as we move ahead. Lastly from me, I talked about the dividend and our Board's intention to propose a dividend of NOK 18 per share, which is a nominal increase per share per year, in line with our dividend policy. We have completed 2% buyback. So with an additional 0.5 percentage point of buyback, that brings us to 2.5% and a total payout for the year 2025 of 86.3%. We expect to continue to have a share buyback program with the Board asking the general assembly for a proxy also this time around. We have a strong capital position and ability to support our customers in their future growth and deliver dividend, and we continue to remain very firmly committed to our dividend policy that we have been for many years. And with that, I have the pleasure to welcome on stage our rock-solid brand-new CFO, Rasmus Figenschou. Rasmus Aage Figenschou: Thank you, Kjerstin. I will now take us through the financial results for the fourth quarter in more detail. We noted strong activity across the group with a currency-adjusted volume growth of 2.2%. In the personal customer side, the growth was 0.3% for the quarter. And on corporate customer Norway had a strong lending growth of 5.2%. This was driven primarily related to several specific transactions within the commercial real estate side and is expected to be syndicated and taken out in the bond market during the first quarter of this year. Growth in Large Corporates and International came in at 2.7%, driven by increased activity across both geographies and industries in mainly low-risk customers. Currency-adjusted deposits are up by 0.2%. Firstly, corporate customers in Norway increased by 4.3%, driven by increased volumes across industries as well as public sector related to increased allocation through the government budget. Both within Personal Customers and LCIC, there is driven by seasonal effects and the underlying development in the portfolio remains stable. We continue to maintain a strong deposit-to-loan ratio within the customer segments of 72.2% in the quarter. The net interest margin was up by 1 basis point in the quarter, ending at 181 basis points, supported by volume growth and an increase in other NII. Combined spreads in the customer segment was down by 6 basis points, driven by repricing effect, product portfolio mix effects and margin pressure from stronger but rational competition. NII is up 1.2% for the quarter. The effect from the lower combined spreads showed on the previous slide is noted here with a reduction of NOK 504 million. Keep in mind that in the fourth quarter, we had full effect of the August repricing and partial effect of the November repricing, which will have full effect in this coming quarter. Interest on equity is up NOK 40 million, driven by average increased volumes of equity. Amortization effects and fees are up NOK 47 million, reflecting higher activity during the quarter. Other NII is up NOK 476 million, of which NOK 171 million is related to nonrecurring year-end adjustments. Please note that from year-end, regulatory change related to tax accounts in Norway, which means that corporates will no longer be required to maintain a separate liquidity buffer in their banks for tax payments. The estimate is to have a negative annual effect on the NII of approximately NOK 300 million. Moving on to commission and fees. We have a robust and well-diversified fee platform and the performance this quarter clearly signals the potential for continued future growth. Customer activity picked up during the quarter and net commission and fees are up NOK 1.3 billion or 40.3% from an already all-time high in the fourth quarter of 2024. Real estate broking was up 6%, where reflecting higher activity in the real estate market and the number of properties sold came in at 4.7%. Investment banking services was up by 101%, a strong performance compared to an already strong quarter in the previous year. We note particularly strong performance within ECM, DCM and bank syndication, driven by high activity and several landmark deals in the quarter. Asset management and custodial services was up by 68%. Assets under management was up NOK 88 billion, well balanced between the commercial -- the retail segment and the institutional investors, retail being an attractive segment for us. We noted a positive net flow of NOK 20 billion, also evenly split between the retail and the institutionals. And finally, we noted a positive development in the number of savings schemes. Money transfer and banking services were down by 25%. The result in this quarter is mainly driven by increased use of credit insurance and LCIC. This is a tool to ensure capital efficiency, driving origination and distribution strategy and ensuring increased profitability for the group as a whole. In addition, we saw pressure on profits from the used car sales in DNB Finance this quarter. Sale of insurance product was up by 15%, supported by continued strong income from defined contribution in our life insurance business and positive development in the non-life insurance business as well. In addition to what can be seen on this slide, we also noted positive momentum in other income with strong results from our life insurance business, DNB Liv and our non-life insurance company provider, Fremtind. The strong performance and high level of activity is also reflected in our costs, where operating expenses are up NOK 878 million. The high activity during the quarter resulted in an increase of NOK 330 million in variable salaries. The fixed salary uptick is related to Q3 lower costs due to Swedish holiday pay. Further reflecting seasonally high activity, we noted increasing costs in the next 3 categories on the slide. We also note a one-off effect on NOK 200 million, driven by an integration cost of NOK 50 million as well as year-end effects related to variable salaries and other operational expenses. To paint the full picture, I also want to highlight the full year cost perspective as well, where inflation outgrew the underlying cost growth. Norwegian core inflation came in at 3.1%, where underlying growth in DNB was 2.6% for the year. The tax rate for 2025 came in at 18.5%. And going forward, as previously indicated also, our tax guiding is adjusted from 20% to 23%. We note integration costs of NOK 250 million in 2025 also communicated to the market in relation to the Carnegie transaction during the year. For 2026, we estimate up to NOK 200 million of integration costs for the same. At year-end, we have 226 more FTEs than we had at the same time of last year, while at the same time, welcoming 840 new FTEs with the Carnegie merger. This illustrates a considerable gross reduction in FTEs in line with the cost reduction measures communicated at our Capital Markets Day in 2024. Now over to our portfolio, which remains robust and well diversified with 99.4% of the portfolio being in Stage 1 and 2. The Personal Customers portfolio, which accounts for roughly half of our exposure, remains strong. Continuing the trend over the last few quarters, we note record low request for installment holidays and continued reduction in interest-only loans. For the Corporate Customers, impairments came in at NOK 793 million. The portfolio remains robust and well diversified. There is no structural changes to the portfolio or migration in general to note, negative migration. The impairments in Stage 3 is related to specific names and specific situations in both LCIC and Corporate Banking Norway. These are typical exposures that we have been following closely and most are in industries that have been challenging for some time, such as residential, real estate, construction. Relating to the legacy portfolio in Poland, we incur a NOK 34 million provision. We remain comfortable in the credit quality in the portfolio but please bear in mind that losses will vary from quarter-to-quarter. I brought that from Ida and continuing on. Now moving on to capital. Our CET1 ratio remained strong at 17.9% with 160 basis point headroom to the regulatory expectations. Pillar 2 guidelines was reduced by 25 basis points during the year from the SREP. The CET1 ratio was positively impacted by profit generation and the repayment of excess capital from DNB Liv. It was offset by the proposed cash dividend of NOK 18 per share, and the annual operational risk adjustment, which is driven by the average income over the last 3 years. We recently finalized the previous 1% share buyback program and today announced a new 0.5% buyback program, reducing the CET1 by 19 basis points. We expect that the Board of Directors will request an authorization from the AGM for a share buyback program as they have done so in previous years. The leverage ratio remains strong at 6.6%, well above the regulatory requirements of 3%. Combined with a CET of 17.9%, our capital position remains strong and enables us to continue to deliver on our dividend policy. Summing up, we delivered a strong quarter in the with key figures of 16.6% return on equity, 39.7% of cost income and earnings per share of NOK 7.65, an increase of nearly 10% from the previous quarter. And with that, I thank you for your attention and open up for questions. Even Westerveld: So much, Kjerstin and Rasmus. We have some microphones in the audience. Please wait for the microphones before you ask your questions. Anyone wants to be the first one out, Thomas Svendsen, SEB, in this side. Thomas Svendsen: So question to the capitalization. Why are you not using the opportunity today to sort of adjust the CET1 ratio lower down towards the requirements? And is that a signal of your growth opportunities during '26 or maybe some smaller M&As? Kjerstin Braathen: We have a capitalization level that remains fairly consistent to what it has been in previous quarter, and it's an ample room to have 160 basis points above the expected and required level. We are proposing a dividend with a substantial uptick. That's in line with our dividend policy. And we are mindful of having the capacity to grow for further growth and also have an intention to continue to do some share buybacks. You will, when you look at the growth in the previous quarter, see that in this quarter, in particular, the growth was very capital efficient. So probably more efficient than it is likely to be over time. There is no signaling or no change in the way we think about our capitalization. Priority #1 is to support our customers and to grow. And beyond that, we aim to pay out excess capital over time to shareholders, and this gives us an ability to amply deliver on that. Thomas Svendsen: Okay. And just a final question on the growth on the Personal Banking side, it was quite slow in the quarter. Do you have some reflections on that? Kjerstin Braathen: In our mind, the growth is not so slow in the fourth quarter. It's usually not one of the strongest quarters in the year. The fourth quarter this year also saw a lower activity in general compared to other quarters because the rate cuts that happened in the second and third quarter generated a lot of activity where customers reoriented themselves where they looked at swapping banks, and we could see a very positive impact on this on our Sbanken brand, which is typically a strong offering in such a situation, whereas fourth quarter is a calmer market where what we primarily see is refinancings and people buying new homes. We have a decent growth. We have a sound development of margins given the market where competition is strong. So all in all, we're pleased with the performance of the teams throughout the year with 2.2% but also fourth quarter and how the business develops. Even Westerveld: Yes, Simon in ABG. Simon Skaland Brun: Simon Brun, ABG Sundal Collier. Following up on Thomas' questions but turning to the Corporate side. As you mentioned, strong lending growth in Corporates in the quarter but also for the year, around 8%, well above the market growth. When you -- when you take market share on the corporate side, do you do that without any compromising on the margin? Are you -- are you comfortable with sort of the profitability on that growth? Yes, that's the first question. Kjerstin Braathen: Yes. Good question. We are very comfortable with the profitability and the sustainability of the growth. If I start with large corporates, it's primarily a growth in low-risk category of clients, which is also one of the reasons why it's very capital efficient. Bear in mind that half of this growth comes from our international platform. So it's very hard to measure the credit growth and certainly in the specific quarter towards market share. And if you look at our growth platforms outside of Norway, they are industry-specific. And if you look at the Nordics, we have more of a challenger position. So we have a much broader room to grow, and we do this together with our team members from DNB Carnegie, where we have offerings where we package together a broader spread of products. Growth will vary from quarter-to-quarter. But of course, we are very pleased to see that for the year 2025 for Large Corporates, our growth platform enables us to deliver 7% growth. Now moving to Corporate customers in Norway, there are 2 elements to consider. One is commercial real estate, which is a substantial part of that portfolio. And the other is SMEs. SMEs is where we look at market shares. And SMEs, our growth for the year was 2.8%, I believe, whereas market growth of 1.8%. So that confirms the picture that we have communicated for some years that we are able to take some market share on the SME side due to our offering having competitive advantages amongst others in areas such as the broadness of product [indiscernible]. This is a very profitable business, a complex business to deliver on, which is also why we're happy to see customer satisfaction increase and an increased market share for start-ups. Competition is strong. we don't win every deal. We are focused on the profitability in the growth. And when we see we're able to deliver on that, we are happy to see that. The area that is still lagging because the growth is lower than what you have been seeing for many years up until a couple of years ago is the construction activity for homes. That has still not picked up. We ask our team every day. And from what I hear now, they are seeing more inquiries for new projects, but it's a little bit early to say how well they will sell, and it's going to take a while before those volumes come back on the book but they will at some stage. Now in '24, there is also some substantial transactions on the property side, commercial real estate. And this impacts the number, the overall gross number and is also why you cannot read the total number as a market share indicator. Typically, we do the transactions that are more complex that requires delivery of more than just the debt. And fourth quarter growth in Corporate Customers Norway, there are such deals in the numbers. And there are also some of these transactions that already have been syndicated, distributed to the market, which means that, yes, there is a tailwind going into the first quarter but maybe not as strong as it looks at the outset end of year numbers. Simon Skaland Brun: Thank you for a very comprehensive answer. Maybe one for Rasmus then on the NII bridge you showed. Obviously, a negative impact on the spreads, which I guess relates to the rate cuts and fierce competition, as you say. But on the other NII, very helpful in this quarter, I guess, and some nonrecurring items. But in general, how should we think of the other NII? Is that untypically beneficial this time around? Or how sustainable is that sort of tailwind from other NII? Rasmus Aage Figenschou: The other NII will vary from quarter-to-quarter, as you see, and it's related to non-direct deposit and lending interest income. That could be, for example, on the prime financing, which externally we call... Kjerstin Braathen: Securities financing. Rasmus Aage Figenschou: Securities financing. Thank you. And within treasury, et cetera. So this quarter, there were some of numerous factors that point to positive. Others, there will be more balanced and sometimes more on the negative side. So I think in some, there is -- we see in this quarter some of several positives playing in on the other NII. Even Westerveld: Yes. Herman Zahl in Pareto. Herman Zahl: I have 2 questions on costs. So first, you say underlying costs are up by 2.6% year-over-year. So I know you have a cost income target but could you help us with what we should expect on the underlying cost into next year and highlight some cost lines where you think there will be some cost pressure and where you will be able to be more cost efficient medium term? Rasmus Aage Figenschou: Cost pressure is related to underlying inflation is obviously driving the costs and FTEs directly hitting that, some of those 2. IT costs are also hit in terms of cost pressure. So the -- looking at -- that's directly sort of the posts that are driving it. For us, I think looking at the year as a whole is much more conducive to looking forward rather than the quarter as a whole. The quarter as a whole -- the quarter, sorry, this last quarter was driven by high activity, as mentioned, also one-offs of NOK 200 million, as mentioned, NOK 50 million being to -- relating to the integration costs and also some year-end adjustments on variable costs, et cetera. So I think looking at the year as a whole is a more correct way of looking at the cost going forward. Kjerstin Braathen: So the clear guidance we have, as you're saying, it's sub 40. We don't nominally guide on cost, but I think comments were given on the quarterly development where there are several sort of activity-related elements as well as one-offs. But I think to add to just what Rasmus is saying, the annual development demonstrates that we are underway also in terms of delivering on the cost initiatives that we described at CMD with a reduction of more than 600 employees. So it very much highlights the fact that we are growing and we have specific areas of the business that we're growing, but we're also, at the same time, very much focusing on competitiveness and efficiency. Herman Zahl: But then on the parts of the SEK 200 million nonrecurring, just to understand it correctly, some of it is related to sort of accrual of bonus payments and should be seen in the context of the strong fee performance? Kjerstin Braathen: Not in the quarter as such but as an adjustment for the year, which is why we're also showing the full year because it's not representative for the quarter as such. Herman Zahl: Yes. And then just on the associated companies accounted for by equity method, Fremtind, obviously very strong. And -- but it also seems like maybe other contributions are improving. Could you update on the profitability in Vipps and Luminor or the other contributions there? Kjerstin Braathen: I think definitely, Fremtind is delivering very well, and we're pleased to see that new strategy, new management, better pricing. I mean, of course, they've been through the same cycle as many other non-life insurance businesses but we certainly also see strategic effects from repositioning the company, which is working well. They are the largest contributor to associated companies, representing roughly half -- more than half of the contribution. We are not obviously specifically guiding on the other companies but we're seeing a healthy development. Vipps had a positive contribution for the third quarter in a row. So all of these businesses are doing well. Nothing in particular to highlight or that stands out, and we expect a meaningful contribution for them also as we move ahead. Even Westerveld: Thank you. Roy Tilley from Arctic next up. Roy Tilley: Just 2 questions from me. Just one quick one on tax. You had a 14% effective tax rate in the quarter, which I guess is that usual tax deductibility of interest expenses. In the national budget, they tried to change that regulation. So just wanted to check if your long-term tax guidance, is that still around 23% or 20%. Rasmus Aage Figenschou: That's correct. We affirm the long-term tax guidance of 23%. Roy Tilley: So this will be the last year with this effect most likely. Rasmus Aage Figenschou: Correct. Roy Tilley: All right. And then just on -- just one follow-up on growth and margins. So looking at your lending margins in the personal customer segment, it's down 18 basis points in the quarter, which I guess could be some timing effects, but also the competitive pressure we talked about. So just how do you see those margins into 2026? And if we look at the full year '26, will you -- is your guess that your -- most of your growth will come on the Corporate side? Or are you kind of targeting still high growth -- higher growth in Personal Customers given the backdrop? Kjerstin Braathen: Thank you, Roy. We are targeting growth and profitable growth across all sectors, and I think we've proven our ability to do so throughout this year. Now looking at margins and in particular, when rates are moving, it's important to look at the volume weighted to have a representative move. And I think that is -- that's not what is 18. That is a lower number for Personal Customers. But clearly, as highlighted with the 6 basis points decrease on the margins volume-weighted wise for the group, there is a meaningful impact from rate cuts where they are impacting with a little more than one rate cut for the quarter as such, and there is the rest of the second rate cut that takes effect in the first quarter this year. There is also a mix effect due to higher growth on the lending side than on the deposit side. And there is a competition impact in the margins. There is also the fact that the growth in large corporates happens on low risk, which normally you would expect lower margins. So there's a mix of effects. I think we could add that we have competitive prices. And our observation on the personal customer activity is that the margin pressure in fourth quarter was less than it was in the third quarter. But we do work very actively and very proactively in terms of leveraging the performance competence and platform, if you will, in order to deliver the growth that we do with the platform we have across all of Norway. Even Westerveld: Thank you, Roy. Since it's my birthday, I will allow a second question from Thomas. Go ahead. Thomas Svendsen: Final question, just on the number of employees was slightly down Q-over-Q. So is it fair to assume stability over the next 12 months? Kjerstin Braathen: Nice question. We do not guide on FTEs. We guide on costs. Even Westerveld: Nice try. Rune, any questions from those working remotely? No, not today. Okay. So thank you all for joining both remotely and physically. And for those of you who are from the press, there will be a press session in the area outside afterwards where members of the management will be available. And with that, this concludes our session. Thank you so much for listening and being here. Kjerstin Braathen: Thank you.
Unknown Executive: Good morning, everyone. Welcome to 2025 Results Conference Call. First, let me introduce our management. CEO, Khun Pratthana; CFO, Khun Tee; Chief Enterprise Business, Khun Phupa; and Chief Retail Business, Khun Prapat. Khun Nattiya and myself also joined this call and will be briefing you to the results and running this session. At this moment, please allow our CEO to give an opening remark. Pratthana Leelapanang: Good morning, everyone. I would like to take this opportunity, firstly, to address the very most recent incidents of the misuse of AIS corporate Internet from one of our corporate customers. You may already seen our formal disclosures, but I would like to really emphasize that we take this matter very seriously. We view this matter as a reminder of our responsibilities as a national digital infrastructure provider. While this is one of the isolated incidents, we are using it to really strengthen our internal processes and technologies to enhance the capabilities of detecting, preventing and monitoring, in order to make sure that we protect our stakeholders properly. Governance, integrity and trust remain at the core of our business that we run. Safeguarding our reputations, trust from the investor, as well as public are our priorities, and we will continue to invest in that what I'd like to address as the first part. Secondly I'd like to say that we do expect that the market will be pleased on the capital return we deliver, or rather surprised and pleased the capital return we deliver. I would like to reiterate that AIS is not about maximizing our short-term cash return. We are building sustainable digital infrastructure business with scale and financial strength. Our capital reallocations, I'd like to put it, reflecting our confidence in long-term business growth with a strong cash flow and balance sheet. We will continue to invest in leadership, grow responsibly and return capital only if it strengthens long-term shareholder value. So that's the second piece I really like to address here. Lastly, I'd like to address our business direction going forward. This year forward is about laying foundations of AIS's next road chapter. Beyond the connectivities, we are expanding our capability in network intelligence, advanced IT, and very important digital backbone of data centers, cloud and AI. With all of these foundation components, we truly believe it will support AIS to capture new opportunities across consumer, businesses, and expanded digital ecosystem. So that's in brief what I'd like to start with. Thank you. Unknown Executive: Thank you very much. Now let me begin with a short brief and going directly into Q&A. At this time, you may also reserve to ask the question through the chat box. Please type your name and corporate name. So firstly, we delivered this year with a strong and resilient performance, supported by growing customer demand and solid content proposition to upsell our existing base, amid the modest economic recovery. In mobile, growth momentum remained strong, driven by rising data usage. In the latest quarter, the data consumption exceeded 34 gigabyte per subscriber. This is up 16% year-on-year. The 5G adoption continued to be a key driver, reaching 17.9 million subscribers or 38% of our subscriber base, growing nearly 50% year-on-year. The broadband service continued to grow steadily with subscribers exceeding 5.2 million and ARPU at THB 530, both were up more than 4% year-on-year. Take note that the net add was softer in this latest quarter due to temporary resource allocation to support the flood relief efforts in the Southern Thailand. The Enterprise business delivered double-digit growth, supported by strong connectivity demand. Our data center business through GSA is progressing as planned. The 01 is already commercialized, and 02 and 03 are expected to be ready by 2027, bringing total capacity close to 200 megawatts. The retail sales grew 15% year-on-year, driven shop renovation, stock training and better channel and product mix. Our virtual bank initiative is also progressing well with commercialization targeted within this year. With the above, we exceeded the upper end of our guidance for both core service revenue and EBITDA, driven by strong operating performance and efficiency. The net profit was THB 47.9 billion up 37% year-on-year. The normalized profit was THB 46 billion, excluding FX impacts and onetime tax item related to tax loss carryforward utilization. This is up 32% year-on-year. Our performance remained strong with good momentum from 2024. The Board approved an ordinary dividend of THB 15.30 per share, representing a 95% full year payout ratio. In addition, the Board also approved a onetime special dividend of THB 19 per share, paid from retained earnings to unlock shareholder values. The ordinary dividend remains our priority, aligned with the earnings growth. The rationale for unlocking the special shareholder value is based on 3 key considerations. First, we have strong visibility on growth and cash flow generation across our businesses, even after accounting for necessary investments to sustain leadership and build long-term digital foundations. Secondly, we remain committed to maintain prudent leverage and an investment-grade credit profile while preserving financial flexibility for future opportunities. Third, this visibility allows us to optimize the balance sheet and return excess capital to shareholders without compromising financial discipline. Importantly, our dividend policy remains unchanged with a minimum payout of 70% of NPAT. And again, the ordinary dividend continues to be our priority. Let us put this into the context. Operating cash flow is approximately around THB 100 billion, with expectations to grow alongside the business. The annual investments are around THB 50 billion, covering CapEx, current and future spectrum and JV investments. This would result in the free cash flow approximately THB 50 billion to THB 60 billion after investment. With improved cash flow visibility and strong leverage profile, we see an opportunity to unlock shareholder value through balance sheet optimization while preserving our investment grade rating. This optimization is executed in a favorable interest rate environment to support our investment requirements while the special dividend is funded from operating cash flow, which remains a dynamic over time. We expect the leverage to gradually decline with improved performance while maintaining room for financial flexibility. Turning briefly into sustainability. We received an MSCI ESG rating AA. This places us the ESG leader category. AIS is the only Thai telecommunication company to achieve this MSCI rating. In addition, we also received a AAA ESG rating from the Stock Exchange of Thailand, the highest level, reflecting clearer development plans, strengthened supply chain practice, enhanced stakeholder engagement, and this is in alignment with strong corporate governance standards. Looking ahead in 2026, we guide core service revenue growth of around 3% to 5%. The EBITDA growth of around 2% to 4%, and the CapEx investment excluding spectrum of THB 30 billion to THB 35 billion. The growth will continue to be driven by connectivity demand across consumer data usage and enterprise digital connectivity. The higher expense and CapEx are deliberate investment to build foundations for midterm and long-term growth. The CapEx increment reflects a new investment phase. This is aligned with the anticipated growth in data consumption and long-term network quality leadership with year-on-year increase primarily reflecting higher mobile network investment. Beside network modernization, we also emphasize on IT enhancement for customer stickiness while this would lay a strong foundation for future revenue growth. The allocation within the CapEx is approximately 55% to 60% mobile, around 20% broadband, 10% enterprise and 15% for IT and others. Before we move to Q&A, I would like to remind you our upcoming event for which invitations have been -- already been sent. If you have not yet registered and would like to attend, please kindly confirm your participation by today. The online session will be arranged for overseas participants and the access link will be sent following the confirmation. With that, we are happy to take your questions. Unknown Executive: Please be reminded that you may reserve to ask the question through the chat box with your name and corporate name. And also please limit your questions to 3 per round to allow others to also participate. We have the first one from Khun Pisut from Kasikorn. Pisut Ngamvijitvong: Congrats on your record breaking results and dividend. Pisut from Kasikorn Securities. I have 3 questions for this round. The first one is about the core revenue growth guidance, which basically comes down from 7% last year that you achieved to 3% to 5% this year. Just want to know that, I mean, the key reasons why the growth is coming down, that's coming from the competition, it's going to be more intense or the economy, which is quite subdued, which 1 is going to be weaker in your perspective? And also from the 1-month operation that's passed -- just passed, what do you see about the revenue momentum from the previous quarter? My second question is about your EBITDA growth guidance. Why the growth also came down from 9% last year to 2% to 4% this year, and why the magnitude of the growth target of 2% to 4% go below the core revenue growth of 3% to 5%. I understand that you mentioned about the initial loss from the new venture that you may have booked in the share of profit, probably from virtual bank data center. But if you're stripping out share of profit from your associates, is it possible for your 2026 EBITDA to grow faster than your core revenue growth, and also from the operating leverage effect? My last question is about your tax loss carryforward. In the note, you have remaining tax loss carryforward of about THB 15 billion, which could save tax about THB 3 billion spreading over 2 to 3 years. If I am correct, could you please confirm about this couple of numbers? And what's your plan to utilize most of it? Nattiya Poapongsakorn: Let me take the question on guidance. I think overall, if you look at our total guidance from revenue to EBITDA and CapEx, we're trying to say to the market that we're actually looking for new growth areas. In the past few years, a lot of our growth has been built in with more rationalization of the competition within the market. Going forward, we need to build a lot of new foundations for new growth areas. However, going into 2026, especially now at the beginning of the year with the Bank of Thailand and many houses announces the GDP forecast, we've also seen that consumer sentiment and the potential spending and the underlying economic growth of Thailand may seem to be on the low side, likelihood somewhere lower than 2%. So I think that's the main concern we may have and reflected on the 3% to 5% in terms of the revenue growth. Rather than the issue around competition, I think for the past year and also in the fourth quarter, we have not yet seen anything that put us in a concerned mode in terms of the competition. Fourth quarter may not be the best quarter to reflect in terms of the growth partly also because in terms of fixed broadband, as you see, the net add has been a bit slow because we were mobilizing our effort to address the southern flood for quite a long period of time. But we expect some of that growth to be able to resume within this year. On the EBITDA guidance, as I mentioned, because we now want to establish new growth initiatives, whether it's in the IT system, you see that we are now having more diversified business portfolio going into building a stronger retail distribution channel across online, offline. A lot of that will require that we advance or modernize many parts of our internal IT system. Plus another thing that we have started last year was on the entertainment business, which covers the sports and entertainment content. So this year, we are also looking forward to be selective in some of the key strategic contents that we want to continue building our brand, perception and customer engagement. So with all of that, we do see that some of the building foundation will incur costs within 2026, and that's why the EBITDA guidance is landed slightly lower than the revenue growth. Another point would also be that in the past 3 years, we did integrate 3BB with AIS operation. So you see some of the early cost savings from the integration effort, which would be mostly done for 3 years period. Last question on the tax loss remaining amount. I don't think we can say how we plan. But yes, as we disclosed in the notes to financial statement, those are -- there are the schedule of the tax loss to be expired within each year. So I think our intention is continue to build the broadband business as a single operation entity and making profit. So with the entity making profit, we'll be able to utilize the tax loss. Unknown Executive: Now we move to Khun Wasu from Maybank, please. Wasu Mattanapotchanart: So 3 questions from me. The first question is about the projection of net debt to EBITDA on Page 28. My question is regarding this chart of the declining net debt-to-EBITDA is that have you factored in any more special dividend in that projection? And what is your assumption of payout ratio in that chart? So that's the first question. The second question is about the forward-looking of the net debt to EBITDA. Let's assume that AIS pay special dividend every year, and the net debt to EBITDA stays in the range of 2 to 2.5x, will AIS be able to keep the credit rating with S&P? So that's the second question. And my third and final question is regarding Page #6 of the slide. It is mentioned that CapEx budget will be 15% of the total revenue in the medium term. My questions are, how long is the medium term? And will the CapEx budget go up or down after the medium term? Nattiya Poapongsakorn: Thank you for the question. On net debt to EBITDA forecast that in corporate how we see the business growth and upcoming investment we need to make across different businesses, including the spectrum. On special dividend, we would like to emphasize again that this is a one-time nonrecurring capital return. We execute this because at this point in time we see a low interest rate environment. And we see that we have accumulated a fair amount of retained earnings to be able to return this capital to the shareholder. And this leads to the retained earnings number -- post this distribution of dividend, you will also see that the retained earnings remaining would be fairly minimal. So it comes back to the point that this special dividend is really a onetime that we restructure or optimize our balance sheet to be at a more efficient level. On the credit rating, as you see, because we have looked into that. So I don't think we have any concern around the credit rating. The last question on the CapEx level, which is 15% of revenue in medium term. I think when we talk about medium term, basically, we look across the technology. Right now, we would say that we're approximately may be in the mid-cycle of the 5G. So I think we have a pretty solid idea of how much in terms of 5G capacity is needed in each year, given the forecast of the traffic growth from consumer point of view, embedding in with the AI. If there are more AI use case for the new 60 technology upcoming, you see that normally in those new cycle there may be a period of time where the CapEx as a percent of revenue may increase. And then afterwards, I think it should -- for us it should come down to more of a normalized level. Wasu Mattanapotchanart: So how long is the medium term? How many years? Nattiya Poapongsakorn: I think for us 3 years outward is a fair outlook we see -- even that we haven't seen the 60 technology becoming materialized in the next 2 years. Unknown Executive: Now we could have Khun Thitithep from KKPS. Thitithep Nophaket: I have 3 questions. Number one, do you think that you have to adjust the long-term strategy given the big change in the shareholder of your competitor, True? Number two, is it fair, both you and True suggest that the payout ratio has become more aggressive than a year ago. Do you think it's fair to say that it's a suggestion that the mobile phone business in Thailand is reaching a situation of becoming a mature stage. And that's why there is no need to be aggressive in reinvestment in the mobile phone business? Number three, your payout ratio, including special dividend, it's rather aggressive like you said you don't have any [ return ] left after the payment. But then you did say that you are in the process of laying the foundation for new growth. Do you have to reserve some cash in order to invest in the new growth areas? Pratthana Leelapanang: Let me address the strategy piece. We are very firm on the strategy we are taking especially the expansions of the digital infrastructures from mobile, 5G, to broadband and to the enterprise of which it expanded into data centers, cloud and AI. And on top of that, it would be digital ecosystem around the distributions as well as digital finance. Regardless of what True about to be, I think these foundations are key to serve customers across multiple segments, as mentioned, on consumer side, on the enterprise side and other related party. We remain firm on that piece. On the competition, we do expect that competition will continue on, having multiple prong of strategy anyway. So I'd like to address that we stand firm our strategy. Add on to that, related to the maturity of the markets, if we look real hard on how consumers behave and use the product and service. On mobile side, we still continue to see the growth in consumption. Thailand has roughly about 30-plus percent 5G penetrations. We have not reached 50% yet. In many countries ahead like China, it went on to 60%, 70%. And about to come on new service and applications as we've seen from AI related, they're going to be introducing more data on the uplink. So on the consumption side, I don't think we are near saturation on consumption. In our plan that we described earlier, we have factored in our midterm forecasts of how the consumption would grow on mobile, broadband and enterprise as part of our medium-term plan. Unknown Executive: I think a lot of questions about the payout ratio and special dividend. I think as Khun Nattiya mentioned, when we look at the -- I think expect that investment in the future and also the growth prospect of our business. I think we have sufficient investment that we -- or cash reserve that we have within the company to invest in the growth and also provide, I think, extra return to the shareholders. I recall that also many quarters or even many years now, I think most of the analysts asked about payout ratio, whether it can be more than 100%. So when we does -- when we do that, then the question is also a little bit concerned on whether we have enough cash reserve to invest. And I just want to point out that we do feel confident in the industry right now, the dynamics, the growth industry, we do feel mobile, broadband, enterprise and also the new businesses that we are expanding into can provide sufficient growth for the future. And with the -- I think the current leverage status, we do feel that we are not taking on [ more risks ], we basically optimize capital structure that we have to be able to provide, I think, optimal return to the shareholders and also to provide growth for the business as well. We have deleveraged quickly since the time that we took over 3BB, that based on a lot of synergies that we create, the industry repair and also the growth in the business that we expanded into. So all those things gave us the opportunity today that we can do the thing that we think it's the most optimal to the shareholders. Unknown Executive: Next we can have Ranjan from JPMorgan please. Ranjan Sharma: Congratulations on the results. A couple of questions from my side. Firstly, on your guidance for EBITDA, if you can help us understand the major investments that you are planning on the OpEx side, which results in EBITDA growing slower than revenues. And I can completely appreciate that you're taking a longer-term horizon for our business rather as it should be. So if you can also walk us through the revenue opportunities that you can unlock with the investments that you're planning in this financial year. The second question is, there are related party transactions with GSA02 as disclosed in your release. I think the financing arrangements or details have not been disclosed, especially for GSA02, if you can share more details around it. Nattiya Poapongsakorn: On the EBITDA guidance, I think basically, the IT is one of the big part that we would see OpEx costs coming into 2026. That's one of the big part. And then the second part would be on the content entertainment related business. That's the main second part. There could be a fair bit of some of the incremental in utility and maintenance stores are more likely in line with the growth of the network that we have been seeing. So those are the major ones that we would see. Ranjan Sharma: So if I can just follow up. So the impact on revenues or the revenue opportunities that these investments can unlock in the next 3 to 5 years, if you can comment on that as well. Unknown Executive: Let me put this way. Sorry, my voice a bit hard to understand today. Basically, if you look at last year performance, we did deliver higher growth on EBITDA than revenue. And I think probably going to be the same for the year before as well. But we can't keep that trend as we embark into a lot of new things. I think in the end, we want to make sure that we do spend on the things we need to spend to make sure that we modernize our system, both on the network side and also on the IT side because the business model has changed a bit. Actually, going forward, we also want to do a lot more things with our customers because to me, the real asset that we have is the vast base of customers, both on mobile, broadband and enterprise side. So to go to do new services, we need to modernize a lot of our infrastructure. So that's one part. What else we can sell, the channel that we're going to sell to them, the way you're going to sell to them, the personalization that we talk about all along and even the AI at the back end, right? So all these require investment, both in the network and in the IT system, plus in the capability of the people as well. All this, including the apps and everything we have to be modernized. So I think we are going through that journey. That's why you see a bit of an elevated forecast on CapEx for the next few years. We can't give you a pinpoint portion to go which one is which, but -- and those are directions we want to go. Whether it can unlock? Which revenue can unlock -- I think there will be a lot one mobile, we can optimize the package for each of the users. We can also lay on more detailed services. Same thing with broadband and enterprise, right? So all those, I think, hopefully, we can keep growing the ARPU. Then the question, why we forecast lower revenue growth this year versus last year? I think a lot of that is coming from the headwind on macroeconomics in a situation. If the country can grow at a higher GDP, we are happy to push the growth of the company as well. So I think that's more or less the first question you asked. We do hope that the -- I think, investor community understand that we want to spend a bit this year or next year to make sure that we have a stronger foundation to embark on the next growth phase of the company, right? I think for GSA, normally, it's -- I think, project finance. So it takes a bit of time to be able to get the funding from the bank. So we need to pass certain stage to be able to get the funding from the bank. So a lot of time we did a bit of the own funding first and then we get the loan back from the bank and then we use that money to reinvest in the next project. Nattiya Poapongsakorn: This upcoming Friday, when we have the Analyst Meeting, I think the presentation from the management will lay out more clearly about the strategy and the growth that you asked. Unknown Executive: Now we have Piyush from HSBC. Piyush Choudhary: Congratulations for a set of results and special dividend. A few questions. Firstly, you mentioned about CapEx being higher, right, around THB 30 billion to THB 35 billion this year. In addition to this, can you talk about capital allocation and other growth initiatives? Like how much of capital will be going in virtual bank, data center in 2026, '27 and if you can, in 28? Just want to get the 3-year kind of capital commitment to the growth areas? And secondly, if you can talk about the outlook for the mobile and broadband ARPU for 2026, any initiatives being taken by you or your competitor to uplift ARPU? How is the consumer sentiment at the moment? Unknown Executive: Yes. On the new investment through the JVs that we have set up, in the end, I think we estimate it to be about THB 8 billion to THB 10 billion over the next 2 years because a lot of those are in the JV format. So we don't hold 100% of the whole company. As for virtual bank, I think you know the detail from the regulation that the first year around THB 5 billion paid up. And if we want to exit DR5 and as we have THB 10 billion paid up. So that will be -- if you need to forecast something, then that's the number for you to look at. For GSA and other JVs that we have on the cloud as well, that mostly was subject to the project that we can secure. I think so far, we have disclosed up to GSA03. Anything you can maybe forecast the growth of the JV of the data center business and then work backwards for any capital commitment that we need to make. But in the end, it is proportionate to the shareholding level that we have. Pratthana Leelapanang: For overall customer needs, which is get translated into our services, we continue to see and we forecast that the consumption will grow higher for both sides, mobile and broadband. For mobile, as mentioned, there are still huge amount under 4G moving forward to 5Gs that would help consume more and also uplift the ARPUs. For broadband, we see 2 important expansions. The first one is the expansion to home whereby they have not had our broadband before. At this point, the broadband penetration is roughly about 50-plus percent towards the occupied household. So there are room to expand on broadband in terms of customer. And second prong is in terms of consumption and services. We also see more demand in consuming broadband at home as well as extra services, inclusive of content and digital services, which cuts across back to mobile as well. So as those 2, we do expect ARPU to continue on increasing. The overall economic situation may taper off a bit of sentiment, that's why we also be mindful about how we offer the product and service for customers, what's the price point we are going after. So I think that's the big picture. Piyush Choudhary: Just to clarify on that THB 8 billion to THB 10 billion over 3 years, that is AIS contribution, right, into the JVs over 3 years? Unknown Executive: Yes, that's our position. Unknown Executive: Now we have Khun Kijapat from Bualuang. Kijapat Wongmetta: Congratulation on strong performance and solid results. I have a few questions. First is about the special dividend. From my calculation, I think it's over THB 50 billion for this special dividend. So I calculated that the equity part may drop like half. And can I imply that how it will go double? And at the same time, for the gearing ratio, could it also like go to 3x? And will it affect our credit rating? Do we have any debt covenant on DE ratio. This is the first question. Nattiya Poapongsakorn: Yes, in terms of special dividends, it's over THB 50 billion. The equity definitely will drop and therefore the IE will substantially increase. However, I think your gearing number might be on the high side because as we presented earlier on our chart, we do not expect the gearing -- in this definition is net debt to EBITDA, whereby net debt already include the lease liability and the spectrum payable should not exceed to 0.5x net debt to EBITDA. Kijapat Wongmetta: So we don't have it on DE, right? Nattiya Poapongsakorn: No, none of our debt has covenant. Kijapat Wongmetta: Okay. For the second question, I would like to ask about the -- in the medium term. Do we have, like, comfort range of gearing or equity level that would trigger another special dividend? Nattiya Poapongsakorn: I think the questions around target gearing has been asked by many investors in the past. Our capital allocation framework doesn't fix on any target gearing. In terms of financial resiliencies, one key point is that we are committed to being an investment-grade credit profile. That's number one. Number two, we want to ensure that the leverage aligns prudently with the risk appetite we aim on the business growth. That also implies that we need to ensure that we have sufficient financial flexibility to exercise any future initiatives that we aim for, not just in the existing business that we are running, but also in new opportunities that we aim to grow. So rather than fixing on any particular target gearing, we actually look at where we want to grow the level of risk appetite and the prudent level of the balance sheet we aim at any given point in time. Kijapat Wongmetta: For the last question, I would like to ask about the recent change in major shareholders in our key competitors. Do you think about -- does it -- will have any potential implication for the mobile and broadband industry? Pratthana Leelapanang: We believe that we're always in the situation that in the market we all compete even before changing in major shareholder of competitors, every day we see mobile, broadband and even enterprise, we both compete in the arenas of providing service for customers. My belief is the focus of competition may shift a bit as they address in the public. And I think you pick it up as well. But once again, coming back to AIS, our goal remains unchanged, that we are expanding our digital infrastructures and building the foundations that we have said in the morning and there are some reinforcement along the way that we are investing in technology and building blocks to support that. Unknown Executive: We have Khun Pisut coming back for a second round. Pisut Ngamvijitvong: I have 2 follow-up questions. The first one is about data center. As also mentioned that AIS and the partners, we will have 200-megawatt data center capacity under 3 phases of GSA. But when I read your financial statements, a lot of restructurings inside. So just want to update about your economic stake on this venture on this business, I mean, data center, is it still 25% at the bottom line? And if this 200 megawatts being fully utilized, I mean, how much the amount of share profit we will be able to generate? The ballpark figures is [ 5-megawatts ] per year. And also, what is your capacity target in the next 3 to 5 years from 200-megawatt to at what certain level? My second question is about the 6G technology. As you may see some global leading operators increasingly investing into the low earth orbit broadband satellite business. My question is, have you been ever exploring into this new technology at this point? And also, will this be real thing or just a nice to have technology for telco to deploy at this stage in your view? Nattiya Poapongsakorn: Okay. So under the JV where we invest for the data centers that have already been 3 phases. The first 2 phase is a JV among 3 shareholders. AIS has 25% share in the first 2 phase. On the Phase 3, it is a shareholding between 2 shareholders, where AIS has shareholding of 30%. You asked about the contribution, I think, because this is the early stage. So in the next 3 years' time, it might not be a big move to the bottom line yet unless we have more because at least the Phase II, Phase III, it only begin in 2027. So it will be fairly small to the bottom line in terms of share profit. Pratthana Leelapanang: For the future of emerging technologies, [ LEO ] is a very important one. The low orbit satellite is the latest technology on a satellite whereby it can cover globally with multiple thousands of satellites cover all over the place around the globe. It will definitely support and complement other communications, especially on the outdoor and outdoor very far away as well as in the sea. So we see as the very much complement technology, even though in Thailand right now, there has no right to provide a service yet. And some have started to provide a service like NT. We look at it very carefully amongst many of the collaboration model. At this point, we may not be able to release any information, but we look at it very carefully. The second piece is 6G. 6G standardization may come out in 2030, putting extra important functionalities like sensing network and collaboration with mobile and satellites. So those pieces are upcoming, but not very fast. It will be the second way from now, maybe 2031 onwards. We also look at it very closely as well. Overall, for now, we understand that consumers, enterprise and businesses and others require to use Internet bandwidth whereby it can be served with the current technology of fiber and mobile 5G. We see upcoming uptick in consumption generating in the very near future from AI and a lot of interactivity of things to things that would require more bandwidth and a variety of connectivities. As an overall, we consider all possibility of technology we can adopt. Unknown Executive: We have Khun Nuttapop from TNS. Nuttapop Prasitsuksant: Two questions from me. On data center, I believe GSA is more external service. You didn't touch much about what you might need to build on your own to serve your enterprise business, if I may call. Is that already included in your guidance? Or do you prefer to go asset light for the enterprise service that you may rent someone else, including GSA? The second question on IT CapEx. It feels one-off to me when we talk IT CapEx. Is it going to be like that? Or it will be recurring for a few years? And may I ask whether it will be more the revenue unlocking factor, or I should see it as the long-term cost-saving machine? And you touch on retail channels with this IT investment. Can we dream of like open platform of the retail business or it has better efficiency of your product sales? Lastly, I would like to say, may need to please with your capital management plan nicely done and congratulations. Pratthana Leelapanang: Maybe I address as the big pictures for infrastructures. As I mentioned, one of the very strong building blocks, new one coming in as the digital infrastructure is data center, cloud and AI. The data centers that we have built in GSA01, 02 and upcoming 03 are by and large, serving a very big computer system. That computer system will definitely serve in both cloud and AI in combined. That will be also be part of serving inside that we need to expand the system. So the answer is, yes, both inside, internal that we are expanding the system as well as for external customer. When it comes to external customers is both hyperscalers as well as the local enterprise. So I think that's the big picture of data center infrastructure. It is very important infrastructure for the modern AI era that must have locally. I haven't addressed the important piece so-called a sovereign cloud and sovereign AI, of which it will play a very important role as the backbone of the AI era that we are going after. In IT, as mentioned earlier, is the very important piece when it comes to IT, intelligence and AI. Software infrastructure as well as intelligent, which provide both as the customer experience, the personalization engines will help us uplift revenue. On the other side, it also provide automation and intelligent to serve to uplift the operation efficiencies. So both are very important. When I talk about operational efficiency, it cuts across network planning, optimizations, customer operation as well as internal operations. So the IT CapEx may be mixed with the OpEx that as a core engine for us to bring in intelligence from now on. Lastly, when it comes to retail, IT-related sometimes we call it omnichannel, is the distribution platform, whereby we would serve customer in many ways that they like, reaching them at the right point, right time with the most convenient. You can also imagine that with the ecosystem that we have been working with, the platform of the distribution will also open -- it has been open some for our partner to be on board jointly with AIS distribution platform. The answer is yes. Unknown Executive: We have Khun Arthur from Citi, please. Arthur Pineda: Two questions, please. Firstly, with regard to the THB 8 billion to THB 10 billion contribution that you were putting in into the JVs over the next few years, is this on top of the CapEx target that you've stated and the 15% long-term capital sales trends that you do it earlier? Or is that built into these targets? I'm just trying to better understand the free cash flow trends for the company. Nattiya Poapongsakorn: It's on top of the CapEx. Arthur Pineda: That's on top? Nattiya Poapongsakorn: Yes. JV is not guided in the CapEx. CapEx is purely from operational core businesses guiding. Arthur Pineda: Understood. And the second question I had is with regard to capital management. So you opted for a one-time bumper dividend instead of a staggered release of capital over several years, which I think would have allowed you to better match higher yield while your investments are in GSA, digital bank, are gestating. Why the urgency for an upfront dividend payment instead of an extended payment cycle wherein you could keep yields higher for longer? Unknown Executive: I think in the end, you have always asked us whether we need the cash to do investment or we're going to release it back to shareholders. I think we have waived the option of giving one-time versus over a period. And then in the end, with the current situation, current environment, we do feel that giving a one-time could potentially maximize the shareholders' return. I can't give you much more than that. In the end, we will look at this, and we feel it's the optimal time to do so. Unknown Executive: Yes. And last person, we have Khun Wasu from Maybank, again. Wasu Mattanapotchanart: And I have one follow-up question for Khun Nattiya. So I think you mentioned that there are 3 key items for the OpEx increases that would impact EBITDA growth in 2026. The first one is IT OpEx, the second one is content and entertainment, and the third one is utilities. My question is about the first item, the IT OpEx. Could you please elaborate what is it for, the increase in IT OpEx for the 2026? Nattiya Poapongsakorn: I think what both CEO and CFO mentioned earlier about the overall business strategy and how we want to serve our customers, that's all embed into both the IT CapEx and OpEx, which embed into the guidance of 2026. So I don't think we would be able to break down into the system. But basically, it incorporates both customer-facing engines as well as some of the back end data-related, data analytics engine that can help serve the hyperpersonalization, how we build the omnichannel to ensure that customer walked into whether online or offline, we'll be able to seamlessly -- we will be able to seamlessly deliver a seamless customer experience across different channels, how we upsell and cross-sell to customers, as well as some of the back end for operational efficiency. Unknown Executive: Thank you for today's question. And please be reminded that you can still register for our Investor Day upcoming Friday, 6th February, at Pearl Bangkok Building. The main session will be from 1:00 p.m. to 3:30 p.m. in the afternoon half. So thank you all for participating and see you again in the Analyst Meeting or our Investor Day. Thank you.
Operator: Welcome to Tobii Q4 2025 Report Presentation. [Operator Instructions] Now I will hand the conference over to CEO, Fadi Pharaon and Interim CFO, Asa Wiren. Please go ahead. Fadi Pharaon: Good morning, everybody. This is Fadi Pharaon, new CEO of Tobii. And I'm joined here by Asa Wiren, our Interim CFO; and Rasmus Lowenmo Buckhoj, who is heading Communications. It's my absolute pleasure to be addressing you today in my new role at Tobii, and I'm really looking forward for a good collaboration together. So let's start. We ended the year with solid and significant cost efficiency measures that are here to support our journey towards profitability. However, the fourth quarter of 2025 has been weak in terms of both revenue and results. We've witnessed continued headwinds from the global state of geoeconomics as well as currency-related challenges as the Swedish krona continued to strengthen. All in all, this has led to generally weaker sales. But at the same time, the solid work towards cost efficiencies has continued, and in Q4, SEK 43 million have been achieved in run rate cost reductions. Well, this means that we have already achieved SEK 72 million in total cost reductions since Q2 of last year. And hence, we are moving steadily towards the SEK 100 million. Now these lower costs have contributed to an underlying EBIT for the company of negative SEK 1 million. Furthermore, we've made substantial noncash fair value adjustments and write-offs to a net value of negative SEK 195 million. So these comprise write-offs of goodwill and projects as well as fair value adjustments of contingent considerations for previous acquisitions, mainly related to Autosense. These adjustments are mainly because new business deals haven't materialized in the anticipated rate. And that has delayed the original plans for Autosense. In addition, we've seen that the international automotive market has developed weaker than expected at the time of the acquisition, which has further now affected negatively. So all in all, the reported EBIT for Q4 is negative SEK 196 million. Now for those wondering why we published the report earlier than planned, is because as soon as the Board decided on these adjustments and write-offs, we released the press release as well as the report. Now we're also encouraged by the fact that our free cash flow has strengthened during this period to positive SEK 57 million. And as we informed earlier, Tobii continues to evaluate and engage in strategic initiatives that will help us strengthen this cash position. As one outcome of such initiatives, we had a driver monitoring system technology asset licensing deal was actually secured in Q4. And that resulted in onetime revenues that we partially paid in Q4, while the remaining majority will actually be paid in the first half of 2026. So now let's review the performance of the 3-year business segments. As you know, we at Tobii have 3 business units. We address different use cases and different customer segments. I'll start from the top with the Products & Solutions business unit, which delivers vertical solutions to thousands of customers yearly, ranging from university research lab to enterprises as well as PC games. In Q4 of 2025, the Products & Solutions business represented 57% of Tobii's net sales. The EBIT result in Q4 is negative SEK 1 million, and it's not been impacted by any adjustments or write-offs. The result is partially due to the strengthened Swedish krona but mainly due to trade barriers that continue to affect our product sales in the U.S. as well in China. We are focusing on our consultancy services as a way forward to balance out the mix. Second, the integrations business. This unit engages with customers who want to integrate Tobii's technologies into their own offerings like assisted communication or VR technologies. Again, in Q4 of 2025, this business represented 24% of Tobii's net sales, and the EBIT was negative SEK 24 million. But if we exclude the adjustments and write-offs, the EBIT would be -- or would have been a positive SEK 8 million. We also saw a new design win for a VR headset, which was secured during the quarter. And we noted an uptick in interest in smart glasses. And the third business unit, Autosense is one that focuses on developing and providing driver and occupant monitoring solutions to automotive OEMs and Tier 1s. And in the fourth quarter of '25, this unit represented 19% of Tobii's overall net sales. This is actually a significant increase compared to last year. And the reason for that is the onetime of revenues that were generated by the DMS technology licensing agreement that was signed in that quarter. As I mentioned, the majority of the revenue of this segment will come in the first half of 2026. This segment delivered a negative SEK 172 million EBIT. And if we, again, exclude adjustments and write-offs, it would have been a negative SEK 9 million. Here, I'd like to invite our CFO, Asa to please go through the financials. Asa Wiren: Thank you, Fadi, and good morning to everyone. The fourth quarter continued with weak revenue development with total revenue amounting to SEK 193 million. The stronger Swedish krona had a negative impact of SEK 17 million in the quarter. Reported EBIT amounted to minus SEK 196 million and includes the noncash impairments of goodwill and projects together with adjustments of contingent considerations, totaling a net of minus SEK 195 million, resulting in an underlying EBIT of SEK 1 million. Although this represents a decrease to previous years, cost reductions have efficiently offset lower revenue. This is also evident when looking at the development over the past 8 quarters. Please turn to the next page for further comments regarding products and solutions. Fadi mentioned explanations for weaker sales. But here, it's clear how cost reductions have -- are having an impact. The drop in results in Q2, as you may recall, was impacted by project impairments of SEK 33 million. On the next page, we can see the development for integrations with both lower revenue and margins. One contributing factor is imagining related revenue that ceased in the second quarter of 2025. The margin on this revenue was 100%. Underlying EBIT adjusted for goodwill impairment of SEK 32 million amounted to a positive SEK 8 million. On next page, we can see the development for Autosense during the quarter. Revenue have been positively impacted by the initial part from the DMS agreement. Reported EBIT includes noncash goodwill impairments, a minor part, SEK 36 million regarding Tobii's legacy automotive business and SEK 176 million relating to the acquisition of FotoNation. The seller's opportunity to receive additional considerations in the first case, expired on last of December 2025, resulting in the reversal of a previously recognized earnout liability of SEK 18 million. SEK 49 million of the reversal is attributable to the revaluation of variable considerations related to the FotoNation acquisition. In addition to this, projects have been impaired by SEK 18 million during the quarter. All in all, as previously mentioned, noncash adjustments add up to minus SEK 195 million. Underlying EBIT adjusted for noncash impairments and revaluation amounted to minus SEK 9 million. The goodwill impairment is a result of the annual goodwill review for which Fadi previously presented the reason in his presentation. The reported values represent management's and the Board's best assessment at the time of the report. And then if we turn to the next page and take a look at the balance sheet. Tobii's balance sheet has naturally been affected by actions taken, such as lower intangible assets via impairment, reduced liabilities due to repayment to the Swedish Tax Authority earlier this year or last year, reduced liabilities due to revaluation but also due to the stronger Swedish krona, which decreased the debt denominated in U.S. dollar. Cash and cash equivalents as of December 31 amounted to SEK 117 million. We report a strong free cash flow for the period, SEK 57 million, key components include the payment of SEK 47 million from Dynavox, which I mentioned already in the third quarter was to come in the fourth and the initial payment for the DMS transaction in the fourth quarter. Our credit facility of SEK 50 million was utilized with SEK 47 million as of the balance sheet date and is reported in the Q1 2025 report the credit runs until 31st of March this year, and we are in ongoing discussions regarding financing solutions. During 2025, SEK 91 million relating to the COVID loans was repaid to the Swedish Tax Agency and a further SEK 40 million will be repaid during Q1 2026. Given the company's current position, there remains a risk that Tobii may not have sufficient financing for the coming 12 months. Addressing this is one of our top priorities and also describe additionally in the year-end report. I would like to take this opportunity to summarize a number of the strategic measures that have been implemented during the year. The ongoing strategic review encompass the entire organization and can be structured into 4 different categories, one being cost adjustments, another one being product portfolio valuation, third divestments or development of partnerships for various business segments and the fourth, of course, being strengthening our financial position. Some examples. When it comes to cost adjustments, in 2025, the initial savings program was completed, resulting in a reduction of OpEx by SEK 263 million. The goal was SEK 200 million. A further savings initiative of SEK 100 million was launched in Q3 with additional cost reductions already identified, SEK 43 million in Q4 and SEK 29 million in Q3. Several projects aim to enhance competitiveness and improve cash flow. When it comes to product portfolio evaluation, such as duplicated functions arising from the acquisition have been consolidated, and a clearer prioritization is being applied to future investments with unprofitable segments discontinued. For divestments and partnerships, noncore assets have been divested including the [ tech ] spin-off as well as nonstrategic patents that were divested during the first quarter of 2025. And new forms of collaboration and partnerships are being developed, and the DMS deal presented in Q4 is a notable example to that one. And to strengthen our financial positions, all the mentioned categories are designed to improve the company's financial position and cash flow resulting in a more focused and efficient Tobii. In addition to operational measures and divestment, work is being conducted in parallel with advisers to explore various financing and capital market solutions. While significant progress has been made across all areas, the review process is ongoing and will continue over several quarters. By that, I would like to hand over to you, Fadi, for some final words. Fadi Pharaon: Thank you very much, Asa. So let's summarize the quarter. Q4 2025 was a weak quarter for us, but with strong delivery on our SEK 100 million cost-cutting program, as well as a strategic review initiative with the DMS technology licensing agreement as one proof point. This has enabled us to achieve a healthy cash flow for the quarter of SEK 57 million. Now we took significant write-offs and adjustments mainly towards Autosense. We remain fully committed to grow our business with DMS and OMS and the recent single camera DMS+OMS launch with a premium European OEM has garnered keen interest in our interior sensing offering. Our ambition for the long term is to achieve a sustainable positive cash flow, so we can enable value creation and also ensure we have the full capabilities to drive profitable growth. We will continue our focus on our sales and commercial initiatives to do so. Now in the near term, we remain focused on addressing our financial needs. These previously announced cost reduction target is progressing well, and it will definitely improve our liquidity in 2026. We continue executing on strategic reviews, which include potential divestments. And as earlier announced, the Board has engaged an external adviser to evaluate financing and capital market options. So the ongoing work is aimed at resolving our financial needs, and that allows us to further focus on our objective to achieve sustained profitability and positive cash flow. Considering all of what I mentioned, the Board decided to remove the current financial targets announced in 2024, and we will be sharing new ones in due times. Finally, on a personal note, I'd like to share that I'm very delighted to joining Tobii, and I'm highly motivated and energized to work closely together with the team in shaping the company's trajectory forward. Thank you very much for listening. And Rasmus, can we please now open the Q&A. Rasmus Buckhoj: Yes. Thank you. And we will start with questions online. And we have a question from Daniel Thorsson from ABG Sundal Collier. Let me let you into the call, Daniel. Operator: The next question comes from Daniel Thorsson from ABG Sundal Collier. Daniel Thorsson: Yes. Fadi and Asa, can you hear me? Asa Wiren: Yes, Daniel. Daniel Thorsson: Excellent. So a couple of questions. I'm a bit curious, how large was the free cash flow from the DMS deal in Q4 alone? And then what do you expect in H1 from this one? Asa Wiren: We don't comment on specific customers or projects, but as we've said, there was a part coming in Q4, but the significant part will come in Q1 during the first half year of 2026. Daniel Thorsson: Okay. So more expected than we saw in Q4, at least? Asa Wiren: Yes. Daniel Thorsson: Was the underlying business in Q4 free cash flow positive? Asa Wiren: Yes. Daniel Thorsson: Okay. And then for your full year 2026, you mentioned a comment that you -- if I heard correct, that you may not be 100% financed throughout the next 12 months. But do you expect a positive or a negative free cash flow in 2026 based on what you see today? Asa Wiren: We don't comment -- we don't do forecasts or outlooks in that way. We have mentioned like the long term and the assessment of the 12 months ahead of us. And I think that is what I can comment on at this stage. Daniel Thorsson: Okay. Excellent. Then I have 2 questions regarding the business. First one, in terms of automotive progress, is the market more challenging due to higher competition and price pressure? Or is it just customers delaying some projects that you expect to come later? Fadi Pharaon: Well, the market is part of the expansion for the delays. As we all know, the automotive market has had a lot of different competitive forces, strategies between conventional fuels and electricity. So there's a lot of moving parts, let's say, in the entire supply chain, and that would naturally sometimes lead for certain delays. However, of course, with the EU regulation coming in, in this 2026 year, we will see that putting in, let's say an acceleration on those plans. Daniel Thorsson: Okay. It doesn't sound like you have lost business to competitors, it's more the market being delayed? Is that correct? Fadi Pharaon: We're seeing now more and more keen interest actually in our single camera DMS and OMS solution since we have press released last year, we are working with a European OEM. So we believe that we will have to work, of course, on all this keen interest and do our utmost to put it in the pipeline. Daniel Thorsson: Okay. Excellent. And then the last question on the business here. I'm a little bit curious around the smart glasses market. Do you have any design wins that you can share or customer names or any expected design wins that will result in product launches within the next 12 months or so? Fadi Pharaon: No. I mean we don't share any forward-looking statements on design wins or not. But I mean, as you can see from the general trend, the smart glasses is a developing market. It's still being shaped. I would say, early days, a lot of course, of technology interest, and eye tracking would play a certain role in the smart glasses market. So we are very keen here at Tobii to make sure that we cement our role in that market and let's see where that would lead us. Daniel Thorsson: Okay. But can you comment if you are involved in any projects that you expect to start production phase in the next 12 months or not? Fadi Pharaon: Once these events take place, we will be able to communicate it. At this moment, we won't comment on any projects. Rasmus Buckhoj: We have no more people in the queue waiting to ask a question online, but we do have a number of questions written in the chat. So we will head over and start to go through them. Now the first question comes from [ Jeppe ] asking. Can you explain what the major automotive supplier will receive through the DMS licensing agreement and what the total revenue for Autosense will be from this deal? Fadi Pharaon: I'm assuming the question is targeted towards the newly signed DMS technology license agreement. So as the word in itself says, it is actually a technology licenses. So it's a new way for Tobii to monetize on the R&D work that we've done. In terms of explicit terms on the value, that's something that we will not be commenting on. But we will see, of course, the outcome of the payments that will come in H1 of 2026. Rasmus Buckhoj: And a follow-up question from Jeppe. What revenue contribution was recognized from the DMS licensing agreement with the major automotive supply in Q4? And what contribution is expected in Q1? Additionally, from which quarter, should we assume that no further revenue will be recognized under this agreement? Asa Wiren: As I mentioned, when Daniel asked the question that we are not commenting on specific customer deals or amounts. So -- but what we have said is that part was recognized in Q4, and the remaining part will come during H1 2026. Rasmus Buckhoj: A follow-up question from Jeppe. Why haven't new business deals materialized in the anticipated rate for Autosense? Fadi Pharaon: I mean, as I mentioned before, partially, it's because of the international automotive industry where we've seen a weaker-than-expected development. But also mainly because we have been working very hard on getting that very important single camera DMS and OMS project out with the European premium OEM. And since we've done that, I think it has been a clear signal to the industry that single camera interior sensing does provide a very high value. So we are going to definitely leverage on this kind of a premium flag project that has been now out in the market, and we're going to put all of our efforts to ensure that we can work with all of the interested parties and engage in the sales engagement as required actually to turn those into hopefully, contracts in the future. Rasmus Buckhoj: Another follow-up question from Jeppe. With no new OEM design wins for SCDO, should we interpret this as evidence that competitive intensity is higher than expected, driven by peers delivering solutions that match or exceed your offering? Fadi Pharaon: I think it is no secret that this is a competitive market, and I'm sure you have seen consolidations as well over the past few months. But that's why our strategy is to carve a clear leadership role by being first with a market implemented and validated single camera for DMS and OMS. Rasmus Buckhoj: Follow-up question from Jeppe. Autosense competitors have secured design wins that include alcohol impairment detection. When will Autosense be in a position to deliver this capability? Fadi Pharaon: I think I need to get back to you. I don't have the full road map to be honest yet in my head, but let's get back to you with this, Jeppe offline. Rasmus Buckhoj: Another follow-up question from Jeppe. What was the license revenue contribution for SCDO in Q4? Asa Wiren: We don't comment on that specifically for SCDO. Rasmus Buckhoj: And [ Jacob ] is asking what was the impact of the DMS payment? And what is the expected sales of DMS contract in Q1 '26 and Q2 '26? Asa Wiren: And I think I repeat myself once again that we don't comment on specific customer deals, and we don't give any forward-looking statements. Rasmus Buckhoj: And a follow-up pressure from Jacob. You utilized SEK 47 million of the credit facility. Will we have to repay this in Q1? And will you be able to extend the credit liability? Asa Wiren: We have described the situation in the report. And as we say there, we are in discussions. So I think that is what I leave it to that at the moment. Rasmus Buckhoj: A question from Peter. How much of the performance in Autosense is driven by onetime licensing agreements? And how does the performance excluding any onetime payments compared to Q4 '24? How much of the performance in Autosense is related to the Autosense division is driven by the commercial market versus the passenger vehicle market? And the fourth question, let's break them up. Let's start with how much of the performance in Autosense is driven by onetime licensing agreements? And how does the performance excluding any onetime payments compared to Q4 '24? Asa Wiren: The answers to those questions would be too detailed to share publicly. So we don't comment on that. Rasmus Buckhoj: How much of the performance in Autosense is related to the -- is driven by the commercial market versus the passenger vehicle market? Fadi Pharaon: Again, I would say, same answer that Asa has already given. We will -- we're not in a position to deep dive into proprietary information. Rasmus Buckhoj: And final question from Peter. Does your outlook for this division differ between these 2 segments versus the performance so far? Fadi Pharaon: Same as... Rasmus Buckhoj: A question from Jacob. Have you received cash for the DMS deal? Can you elaborate on the... Fadi Pharaon: Working capital... Rasmus Buckhoj: Working capital dynamics of the deal. Asa Wiren: We have received one part of it, but the main part will come during the first half of 2026. And what was invoiced during the fourth quarter was also received in 2025. Rasmus Buckhoj: And a question from [ Emil ]. So no more revenues from the Tier 1 deal after H1 and the Tier 1 deal referring to the DMS licensing agreement, I understand. Asa Wiren: As we've communicated, it will come during the fourth quarter and the first half year of 2026. Rasmus Buckhoj: And I don't see any further questions in the chat. Is there any other questions? Fadi Pharaon: If not, thank you, everybody, for listening in and your interesting questions, and we'll be meeting you for the next quarter financial report. Thank you very much. All the best. Asa Wiren: Thank you.
Tom Foss-Jacobsen: Good morning, everyone, and welcome to the fourth quarter 2025 presentation for Borregaard. My name is Tom Erik Foss-Jacobsen. I'm the CEO of the company. And I'll be joined today by our CFO, Per Bjarne Lyngstad. Together we will take you through this agenda. I will start with the key highlights for the quarter and give an update on the market situation across our business segments. I'll then summarize the outlook for 2026 and finally present our dividend proposal for 2025 before handing over to Per Bjarne, and he will then take you through the financial performance in more detail. And before we begin, I'd also like to remind those of you that watch the webcast live that you are welcome to submit questions any time during the presentation, and we will address them at the end. Let's begin with the highlights for the quarter. EBITDA came in at NOK 405 million, slightly up from NOK 398 million in the same quarter 2024. BioSolutions delivered a solid quarter, supported by high biovanillin deliveries and continued growth in sales to agriculture, a trend we have now seen for the 2 last years. BioMaterials delivered good results, driven by higher specialty cellulose prices and increased sales volume. In Fine Chemicals, our Fine Chemical Intermediates delivered a strong performance. Bioethanol sales prices remained at the lower levels that we've been seeing throughout the year. Wood and energy costs were down in the quarter and partly offset the increases we saw in other costs. We also recorded impairments of, in total, NOK 245 million of the bio-based start-ups we are invested in. This is due to delays and increased capital needs. In the coming period, we will focus on our current positions in bio-based start-ups. We had a strong cash flow in the fourth quarter. Looking at the full year, we delivered another all-time high EBITDA, reaching NOK 1,878 million, just etching past last year's record of NOK 1,874 million. In BioSolutions, sales to agriculture were strong throughout the year, and we also saw higher sales of biovanillin products. In BioMaterials, sales prices increased and the product mix improved, supported by higher sales of high-purity cellulose. Fine Chemical Intermediates also delivered a strong result. And again, sales prices for advanced bioethanol declined significantly during the year, mainly due to a significant increase in market supply driven by favorable incentive schemes in Europe. Wood costs increased during the year and the increase in other costs exceeded general inflation. Net currency effects were positive. The cash flow was strong in 2025. Overall, we are pleased to present another all-time high EBITDA, driven by a strong momentum across our business segments. And this is despite the sharp decline we have seen in the advanced bioethanol sales prices and higher costs. Now let's turn to the fourth quarter in BioSolutions. This was a solid quarter with the average price in sales currency 6% above Q4 2024, driven by an improved product mix. We saw high deliveries of biovanillin and continued growth in sales to agriculture. The anti-dumping duties on vanillin from China continued to have a positive, though limited impact on our vanillin business. The average gross sales prices in NOK are impacted by a weaker U.S. dollar compared to Q4 2024. Sales volume was 3% lower than the same quarter last year, which was at the high end of our Q4 guidance and on level with what we see as a more normal fourth quarter volume. For the full year, BioSolutions delivered solid performance. Average price in sales currency increased 2% and sales volume increased 1% compared to 2024. Strong sales to agriculture continued across both specialty and industrial applications. We saw rising demand for multi-active ingredient solutions in crop protection and the reauthorization of Borregaard's lignin for use in EU, animal feed, helped us gain additional business. We also recorded higher demand for biovanillin and a positive but overall limited impact from the anti-dumping duties on the vanillin from China in both the U.S. and EU. The average gross sales prices in Norwegian kroner are impacted again by a weaker U.S. dollar compared to the previous year. Moving on to BioMaterials and the fourth quarter. This was a strong quarter with the average price in sales currency up 6%, primarily driven by price increases. The average gross sales prices in Norwegian kroner were impacted by a weaker dollar compared to Q4 previous year. Sales volume increased 5% compared to the same quarter 2024. As we informed last quarter, specialty cellulose exports from Norway and Brazil are subject to an ongoing U.S. anti-dumping investigation. A preliminary decision is delayed and now expected at the end of May 2026, with a final decision towards the end of 2026. And here, any duties may apply retroactively for up to 90 days. Looking at the full year for BioMaterials, the segment delivered a solid result with average sales prices up to -- up 9% and sales volume down 9% compared to 2024. The main drivers here were increased sales prices and an improved product mix, including increased sales of high-purity cellulose to regulated applications, food, pharma, personal care and also to bio-based plastics. The highly specialized share increased with 4% from 83% to 87%. The average gross sales prices in Norwegian kroner were also here impacted by the weaker U.S. dollar compared to previous year. Sales to the Construction segment declined as the European cellulose ether producers, typically our customers, were negatively impacted by increased imports from Chinese cellulose ether producers, and they are based on cotton linters as their raw material. The disruption we had in specialty cellulose production in Q3 2025 also affected the sales volume in the quarter. Now moving to Fine Chemicals Q4 and full year. We continue to see a significant decline in sales prices for the advanced bioethanol throughout the year. And this was due to the significant increase in market supply driven by the favorable incentive schemes in Europe. Prices have now returned to levels that we considered normal before these incentives were introduced. For Fine Chemical Intermediates, we saw higher sales prices and a strong product mix, both in the quarter and for the full year. Then I would like to share our outlook for 2026. In BioSolutions, we expect the sales volume to be approximately 340,000 tonnes with continued growth in the agriculture segment. First quarter sales volumes are expected to be around 80,000 tonnes. In BioMaterials, the full year sales volume is forecast to be in the range of 155,000 to 160,000 tonnes. Sales volume of highly specialized grades is expected to be slightly above the 2025 level. The average sales prices in sales currency is expected to be 3% to 4% lower in the first half of 2026 compared to the second half of 2025, and this is partly due to mix on customers and products. The European cellulose ether producers are expected to continue facing competition from the Chinese cellulose ether producers within the Construction segment. First quarter sales volume in BioMaterials is expected to be in the range of 37,000 to 39,000 tonnes. In Fine Chemicals, sales prices for bioethanol are expected to be largely in line with the levels we have seen in 2025. Sales volume for Fine Chemical intermediates is expected to increase compared to 2025. On the cost side, the wood costs in the first half of 2026 are expected to be around 15% lower than in the first half of 2025. We continue to monitor global uncertainty related to tariffs, war and geopolitical tensions, which may affect our markets and costs. The final outcome of the U.S. anti-dumping case may also affect several specialty cellulose markets. Before I conclude, I would like to present the dividend proposal for 2025. The Board of Directors has decided to adjust the dividend policy to a target range of 40% to 60% of the net profit compared to the previous range of 30% to 50%. We will continue to pay regular and progressive dividends, reflecting expected long-term earnings and cash flows. For 2025, the Board proposes a dividend of NOK 4.75 per share, an increase of NOK 0.5 or plus 12% compared to last year. This represents 55% of our net earnings before impairments, corresponding to a dividend yield of 2.4% based on the year-end share price. The total payment amounts to NOK 474 million. With that, I will hand over to our CFO, Per Bjarne Lyngstad, who will take you through the financial performance and key figures for the quarter and for the full year. Thank you. Per Bjarne Lyngstad: Thank you, Tom Erik, and good morning, everyone. Borregaard's operating revenues in the fourth quarter were 5% higher compared with the fourth quarter of 2024, mainly as a result of higher sales prices and sales volume in BioMaterials. EBITDA increased to NOK 405 million, NOK 7 million above the fourth quarter of 2024. BioMaterials had an improved result, while BioSolutions and Fine Chemicals had a lower result. Net currency effects were slightly positive by NOK 5 million compared with the fourth quarter of 2024. An 8% weaker U.S. dollar compared to the Norwegian kroner was offset by reduced hedging losses. The EBITDA margin ended at 22.1% in the fourth quarter, 0.7 percentage points below the corresponding quarter in 2024. In the quarter, as Tom Erik has mentioned, Borregaard has recorded NOK 245 million of impairments on investments in bio-based start-ups. Excluding the impairment, earnings per share ended at NOK 1.64 compared with NOK 1.30 in the fourth quarter of 2024. As I said, Borregaard has made impairments totaling NOK 245 million on its investments in bio-based start-ups. The impairments reflect recent development in these companies and is recorded under financial items in our profit and loss statement. The major part, NOK 225 million is an impairment of the investment in Alginor, where recent information indicated project delays and additional capital needs. The impairment is based on an impairment test in accordance with IFRS. After the impairment, the remaining book value of Alginor is NOK 250 million, about NOK 10 per share. In addition, a total impairment of NOK 20 million has been made on the investments in Kaffe Bueno and Lignovations. The Danish bioscience company, Kaffe Bueno faces delays in its project, and Borregaard has decided not to exercise its warrants to subscribe for additional shares, but we will participate in a minor convertible loan to the company. The Austrian technology start-up, Lignovations has also had delays and consequently faced lack of funding. On the 27th of January 2026, Borregaard received a notice of decision from the Financial Supervisory Authority of Norway following their regulatory financial reporting review of Borregaard's financial statements for 2024. Borregaard has been required to perform a new calculation of the value of Alginor at the end of 2024. If a correction is deemed necessary, figures for 2024 will be restated in Borregaard's annual report for 2025. Borregaard is currently in the process of preparing documentation for the valuation at year-end 2024 as requested by the Financial Supervisory Authority. Then turning to the full year for Borregaard. Operating revenues increased by 1% to NOK 7.7 billion. EBITDA had a marginal NOK 4 million improvement and ended at NOK 1.878 billion. Both BioSolutions and BioMaterials had an improved result, whereas Fine Chemicals had lower results compared with 2024. Strong sales to agriculture and higher sales of biovanillin in BioSolutions, increased sales prices and improved product mix for BioMaterials and positive net currency effects contributed strongly to the all-time high EBITDA in 2025. The result was negatively impacted by a significant reduction in bioethanol sales prices and cost increases exceeding the general inflation. The additional cost increases were mainly related to increased manning in Norway, mainly and also in the U.S. in addition to higher costs for certain chemicals and insurance and reduced government grants, among other things. EBITDA margin ended at 24.3%, close to the margin in 2024. Return on capital employed ended at 15.7%, below the 2024 level, but above our targeted level of minimum 15% pretax. Excluding the impairment, earnings per share were NOK 8.67 compared with NOK 8.24 in 2024. Operating revenues in BioSolutions were in line with the fourth quarter of 2024 and 4% above for the full year. EBITDA was NOK 245 million in the fourth quarter compared with NOK 251 million in the fourth quarter of 2024. High deliveries of biovanillin and sustained growth in sales to agriculture were more than offset by increased costs at the U.S. manufacturing sites in addition to general cost inflation. The net currency effect were insignificant in the quarter. For the full year, EBITDA reached an all-time high of NOK 1.209 billion, NOK 105 million higher than in 2024. Strong sales to agriculture also for the full year were the main driver of the improved result. This was partly offset by increased costs, the same explanations as for the quarter with the U.S. manufacturing sites and the general cost inflation. The net currency impact was positive compared with 2024. The fourth quarter EBITDA margin was 24.3%, 0.7 percentage points below the margin in the fourth quarter of 2024. For the full year, the EBITDA margin was strong and improved to 27.5%, 1.5 percentage points higher than in 2024. In BioMaterials, operating revenues in the fourth quarter were 11% above the fourth quarter of 2024 as a result of higher sales prices and sales volume. For the full year, higher sales prices were the main contributor to a 3% increase in operating revenues. EBITDA reached NOK 127 million in the fourth quarter, NOK 25 million above the same quarter in 2024. The improved result was due to higher sales prices and increased sales volume, together with the lower wood and energy costs in the quarter. This was partly offset by an increase in other costs, including certain chemicals, costs of the anti-dumping case in the U.S. and the general inflation. Net currency effects were positive in the quarter. For the full year, EBITDA ended at NOK 495 million, an improvement of NOK 61 million compared with 2024. For the full year, higher sales prices and improved product mix were the main reasons for the improved result, partly offset by lower sales volume and higher wood costs and the net currency effects were positive for the full year. The EBITDA margin ended at 18.7% in the fourth quarter, 2 percentage points above the same quarter in 2024. For the full year, the EBITDA margin was 18.4%, close to 2 percentage points also there above 2024. Improved product mix and sales prices for Fine Chemical Intermediates, partly offset by lower bioethanol sales prices were the main reasons for a 13% increase in operating revenues for Fine Chemicals in the fourth quarter. For the full year, operating revenues decreased by 16% due to lower sales prices for Borregaard's advanced bioethanol. EBITDA was NOK 33 million in the fourth quarter compared with NOK 45 million in the fourth quarter of 2024. Lower sales prices for bioethanol were partly offset by a strong result for Fine Chemical Intermediates. Fine Chemical Intermediates had a favorable product mix and increased sales prices in the quarter. Net currency effects were insignificant for Fine Chemicals in the quarter. For the full year, EBITDA ended at NOK 174 million, NOK 162 million lower than in the fourth quarter of 2024. The reduced result for the full year was due to lower sales prices for our advanced bioethanol. Fine Chemical Intermediates improved compared with 2024 due to improved product mix and increased sales prices. The net currency impact was positive for Fine Chemicals for the full year. The EBITDA margin was 21% in the fourth quarter, about 11 percentage points below the same quarter of 2024. The EBITDA margin for the full year was 26% compared with 42% in 2024. The net currency impact on EBITDA was positive by NOK 5 million compared with the corresponding quarter in 2024. Driven by a weaker dollar, the Norwegian kroner strengthened by 6% -- about 6% in the quarter using Borregaard's currency basket. Hedging losses were NOK 24 million in the fourth quarter compared with a loss of NOK 93 million in the fourth quarter of 2024. For the full year, the net currency impact on EBITDA was positive by about NOK 115 million. Hedging losses amounted to NOK 174 million compared with a loss of NOK 365 million in 2024. Using currency rates as of yesterday, the net currency impact for the full year 2026 is estimated to be positive by about NOK 55 million compared with 2025. The corresponding impact for the first quarter this year is estimated to be negative by about NOK 5 million compared with the first quarter of 2025. Borregaard had a strong cash flow from operating activities of NOK 419 million in the fourth quarter with a positive impact from a reduced net working capital. Also for the full year, the cash flow from operating activities was strong and close to NOK 1.4 billion an improvement of close to NOK 300 million compared with 2024. A more favorable development in net working capital was the main reason for the strong cash flow from operating activities. Investments were NOK 383 million in the fourth quarter. The largest expenditures in 2025 were related to environmental investments and debottlenecking at the Sarpsborg site, specialization projects within BioSolutions and participation in capital raises in Alginor. Net interest-bearing debt increased by NOK 18 million in the fourth quarter. For the full year, net interest-bearing debt was reduced by NOK 150 million to NOK 2.90 billion. At the end of 2025, Borregaard is well capitalized with an equity ratio of 61% and a leverage ratio of 1.11 compared with 1.2 at the end of 2024. Finally, I'll go through an updated investment forecast for 2026 and 2027. Borregaard has a financial objective to keep replacement investment at depreciation level, excluding depreciation from leasing. In 2025 to 2027, targeted CO2 and COD reductions and general cost increases explain replacement investments above target level. These environmental investments will also support specialization and value growth investments. The largest project is the debottlenecking at the Sarpsborg site, where we now expect a production output to increase gradually from the second quarter of 2027 instead of the second half of 2026. The delay is due to unforeseen challenges with buildings layout. However, the cost estimate for the project is unchanged at about NOK 800 million. The delay in the debottlenecking project is the main reason for lower-than-expected investments in 2025 and a slight increase in the forecast for 2027. Additional investments in bio-based start-ups are not included in this forecast. There are, of course, uncertainties in these estimates related to final decision, execution time, payment schedules, among others. And that concludes today's presentation. Tom Erik and I will now be ready to answer any questions, both from the audience present here in Oslo and from those who follow the webcast. Our Vice President, Finance, Veronica Skevik will moderate the webcast questions. Veronica Skevik: We have received some questions. The first one is related to U.S. legal costs. It comes from Mr. Niclas Gehin at DNB Carnegie. Could you give us a ballpark figure on how much you have spent on U.S. legal costs in Q4? And how much is the total sum that you expect to use? Per Bjarne Lyngstad: We have now passed in total NOK 10 million in costs for these investigations, most of it in the fourth quarter. We have answered a lot of questionnaires. So hopefully, that process is coming towards the end. It's still difficult to estimate how much more, but it will be somewhere, I think, between NOK 15 million and NOK 20 million as the end cost here as our best estimate as of today. Veronica Skevik: Next question is regarding the specialty cellulose competition from China. It comes from Mr. Magnus Rasmussen from SEB. Has the competition from China or on specialty cellulose intensified in recent months? Or is it on par with 2025? Tom Foss-Jacobsen: I would say that there has always been some imports from China, either cotton linters as a raw material, cotton linters pulp to blend in, but also exports of cellulose ethers in the low-end segments, typically construction because it's non-GMO origin and cannot be used for other applications. But I think we have gradually seen over the past 5 years that exports has been gradually increasing. But now over the last year, also with tariffs in U.S. and also with low construction activity in China, we see -- what we see in many other industries that the overcapacity in China is being exported. And now it can't be exported to U.S. without tariffs, even more is coming into Europe. So I think we definitely are seeing an increasing trend of imports of the cellulose ether products from China into Europe. Per Bjarne Lyngstad: But also remember that Borregaard's strategy has been to move more of our cellulose production going into ethers to food and pharma applications, and we have succeeded quite well with that over the last years also. So that's been our strategy. We've seen this coming, and we've changed our strategy. Tom Foss-Jacobsen: Yes. And it proves why this strategy is very sensible. Yes. Veronica Skevik: Thank you. Next question is related to developments in markets within BioSolutions. And it also comes from Mr. Magnus Rasmussen from SEB. You continue to refer to strong agriculture markets in BioSolutions and improvements in biovanillin, yet, except from Q1 EBITDA in 2025 has not been much stronger than 2024. What can you say about the developments in other markets than agriculture and biovanillin? Tom Foss-Jacobsen: Yes. I think, first, we have to bear in mind what has been said here on the cost side for Borregaard and for BioSolutions. We have seen increased -- significantly increased costs throughout the year. And specifically BioSolutions was mentioned both the wood cost, but also that we have cost in the U.S. and that they exceeded the general inflation, the other costs. But on the market side, agriculture is clearly one of the main driving segments for the growth. We have said before, this is roughly 1,000 customers, 200 products. So there's definitely a mix also within that portfolio. We have also seen weaknesses in certain markets. I would say, construction market should be no surprise that there are weaknesses in certain markets within construction and also oil throughout the year 2025 has been weaker. Veronica Skevik: Thank you. Next question is related to the price reduction in specialty cellulose and the mix effects. It comes from Mr. Elliott Jones at Danske Bank. With regards to BioMaterials, 3% to 4% price declines in the first half versus second half last year. Can you shed some more light on the mix effect? And if you only partly due to mix, what are the other reasons for the drop? Tom Foss-Jacobsen: Yes. First of all, it's important to notice that we are referring to that is partly explained by mix, which means mix of products and customers. And we sold about -- was it, 146,000 tonnes in 2025. We have in our outlook that we will sell 10,000 to 15,000 tonnes more. So that means also an additional volume with a mix with different pricing. And also the -- within the Construction segment to sell ethers, we have done some selective price adjustments. And we also have the 4,000 to 5,000 tonnes we need to sell to the market during the year from the production disruption we had in the last quarter. And I think these things together explains why the average sales price will be impacted in the range of 3% to 4%. Veronica Skevik: Thank you. Next question, and so far, the last I have here, also comes from Mr. Elliot Jones from Danske Bank related to costs. With regards to costs, excluding wood and energy that have exceeded inflation this year, 2025, can you provide some more rationale as to why this is? And how do you expect this to develop in 2026? Per Bjarne Lyngstad: Yes. I mentioned a few key factors there. Manning is one, we have increased our manning mainly in Norway, but also in the U.S. entities. So that gives an increase above inflation. We have had quite an increase in insurance premiums. That's also due to that we have chosen to improve our coverage on some of the insurance. And then we have given -- or we have gotten less grants from -- to our innovation activities in 2025, which normally is booked as a reduction in fixed costs. So these are some of the explanation. It's a lot of different things on the cost side, but we've seen. Also we have, in addition to manning at the U.S. manufacturing sites, the upgrade of the facility in Wisconsin and also an upgrade of the competence in the organization has led to additional costs there. Veronica Skevik: Thank you. There are no more questions on the web. So I'm not sure if there are any questions from the audience. Tom Foss-Jacobsen: That's concludes our presentation. Thank you very much. Per Bjarne Lyngstad: Thank you.
Conversation: Operator: Welcome to the PowerCell Group Q4 2025 Report Presentation. [Operator Instructions] Now I will hand the conference over to the CEO, Richard Berkling; and CFO, Anders During. Please go ahead. Richard Berkling: Good morning, and thank you for joining us. 2025 was an important year for PowerCell, not because everything moved fast, but because the right things moved forward. We operated in a market where interest in hydrogen and fuel cell clearly increased, but the investment decision remained cautious and uneven, which affected the market. With that combination, market conditions requires discipline more than optimism and execution more than ambition, and that is what we saw in 2025 and what we will present here in this quarter 4 presentation. So against that backdrop, parts have continued our shift from technology development to more industrial execution. We delivered a record year when it comes to several aspects. We had improved margins materially. We generated positive EBITDA for the first time for a full year, and we strengthened our cash position, all this while operating at a slightly lower top level than we initially anticipated. So this is not where we want to end up, but it's also a very clear confirmation that our fundamentals are strengthening. It shows that we, as a company, can execute, control costs and deliver industrial performance in a very demanding environment. So as we enter into 2026, we're not managing towards a single market forecast. We are deliberately building a structure that can protect earnings at a lower activity scenario while still remaining ready to scale when the opportunity materialize. Marine is remaining to be our execution backbone where we see the most growth and more stable income. But power generation is now emerging as a second pillar, designed for scalable growth with a limited cash capital exposure. So we said that 2025 was about execution over ambition. We said it was readiness over prediction and more from promise to performance. And that's really summarizing the year. We have executed on more or less all strategic ambitions, but we are also setting the bar higher for the future. So key takeaways on 2025 and quarter 4. Our Q4 and cumulative 2025 results demonstrate a very solid execution on strategic priorities. Most notable, start of production deliveries to marine on time to customers, the product launch of the power generation platform that gives us an additional pillar for future growth. The first industrial order on the methanol power plant, which was a significant milestone. And I really like the fact that when we do product introductions, we see immediate market traction, which gives us a confirmation that we have rather good precision in the efforts in product development, investment into new features and then also market positioning to a very demanding market. And also for a company like PowerCell to find the breakeven point and deliver on it is extremely important. So it is encouraging that we can deliver organic growth in a volatile or flattish market to some extent. If we look at growth year-over-year, we take out the FX effect, it's actually 24% organic growth, which is strong. Once again, not necessarily to the level that we have as an ambition, but on the market conditions we see, we're quite happy with the development. We also delivered a very strong product offering in Marine introduced in 2024, which now was materialized into 0 production and customer deliveries, which we are now in commissioning and start of deployment. 2025 was about testing and proving that PowerCell can execute, deliver and remain financially disciplined also when the market is uneven. And to that we stood the test. And going back to a year ago, when we started -- when we reported Q4 2024 and gave the introduction to '25, we said that 25 is a slightly different year because it's more even over the quarters. We don't have the hockey stick revenue, which is then why we see that the quarter 4, compared to quarter 4 last year is a lower top line, but the full year is according to our expectation, and we're happy to see the progress. With that, I will hand over to Anders and a more detailed presentation on numbers. Anders During: I will not skip so many slides at once. I will start here with the fourth quarter and the numbers. Now Richard has been through basically the numbers and everything that's in essence. I'd just like to highlight 2 things, I think that's still important. When you see the numbers for last year, SEK 144 million, the majority of that number is from one order that we had in -- very late in the year. So as in this year, we have had several orders rather in the fourth quarter, building up the SEK 95 million. And then I think what we did after Q3 or when we presented Q3, we felt urge to give some guidance on the cash situation and the cash flow situation because we all realized that we have seen 3 quarters in a row where the path had been quite downward. And we wanted to make sure that you, the market and everyone around us understood that, yes, without living or giving forecasts, we would like to say that we are hopeful for the last quarter when it comes to cash flow. And now as you can see, the last quarter came in approximately -- which I say here, in line with expectations and then everyone would ask what were your expectations? Well, now you know this was what our expectations were, and we did our best to guide you without leaving a forecast. And that felt very pleasant to have that feeling for the company that one can say things and you see that, that's delivered. Moving on to the full year. Like Richard said, looking at the numbers straightforward, I mean, the growth is 15%. If you reduce that for FX effects in '24, which were positive and FX effects in '25 that were negative, you end up with 25% or 24% rather. The EBITDA level, I will get back to that on the next page. But just running through the numbers here, you see that we are basically doing better on all levels, and that includes the operating cash flow, of course, that ended up only minus SEK 10 million. And I think every one of you that listening to us and read our report after Q1, Q2 and Q3, we're a bit nervous about this, but we are happy to be where we are. And as you also noticed, we have added liquidity through this new credit facility on customer projects to our, let's say, asset bank when it comes to liquidity. So that feels good. Then just for the comparison because Richard said in his introduction that the underlying business is growing. And I think the stress when the underlying business is growing, that important to recognize how -- what the differences really are. If we eliminate the FX and the extraordinary items, and I think when it comes to extraordinary items, you that have followed us recognize that last -- in '24, in Q2, there was a huge ticket on SEK 30 million plus to the profit. And in this year, in Q3, we had a negative similar thing basically related to reorganizations. If you eliminate all those and the FX effect for the 2 years, the underlying growth, 24%, like Richard said, but it's important also to recognize that EBITDA change 24 to 25 on that same account is 79 million. And that is an effort that I think should be recognized. With that, Richard, I'll leave it back to you. Richard Berkling: Perfect. Thank you. So then we can also promote upcoming events, interim report quarter 1, which will be on April 23, and then the AGM here in Gothenburg on May 11, which we obviously want to invite as many people as possible. So if we then look at what we see over the year and what 2025 gave us, we see that we have proven resilience. Once again, EBITDA on the full year, the lower top level absorbed and we managed some headwinds. We are happy with the outcome. We are pleased to see that we have a resilient organization and a rather strong business model. But we're not yet at the ambition level that we want to be. And this is something that we're working quite hard on. And 2026 will be more of a normal year in PowerCell context where we most likely will have more of a hockey stick because you don't have the same even distribution over the quarters. This is also how it is to run a business in a technology shift. And reflecting a bit on this one, if you look at the market context, we try and visualize this with the navigation of a sailing yacht where you -- sometimes you have the headwind, you could have the tailwind, you have the current running with you. As we said, we are not operating in a one market scenario. We are really working hard to optimize what we have to work with. So what we see right now is supporting us is the awareness. We see regulation supporting the transition, especially in marine. And we also have a number of proof points from the use cases where we now have a rather strong deployed product portfolio, which are out in operation, giving us really, really solid proof points to more demanding customers. What is a headwind or ahead current is that we see a lot of capital discipline. We see risk averse money on the sideline. Also, of course, the macroeconomics and geopolitical landscape is not supporting areas where you are investing into new technology. But at the same time, we also see the cost and the drivers for especially marine, and this is something that we have been a bit surprised on the strength of this. Regardless of IMO postponing a decision 1 year to impose new emission regulation, EU has already moved ahead and EU have stricter policies than what the IMO proposed. So if you break this down, cost for fossil fuels for the marine industry will double between the year 2024 and 2030. And then it will be equally amount until 2035. So you have an exponential cost development. This is driving a change of behavior. This is driving transition. So when we signed the order with GAMMA [indiscernible] in quarter 3 or quarter 4, just in the break there for the bulk carrier, that was a breakthrough order because we see that they can deliver breakeven on the new technology rather early. So their ROI is well on this side of 2030. We see more of that going forward. So we have a strong support from regulation and also the early movers proving that this is really, really working. We also see the particle emissions is a growth driver because of the health effects, especially related to port and harbors and urban dense areas, where respiratory illnesses is causing massive cost to society. That is now the #1 driver compared to C2 that was the driver up until 2022 and 2023, in combination, of course, with energy resilience in society. So looking at the market going forward and what is resisting us is, of course, the risk-averse capital market. But what we have seen from 2021 until now is the -- what we call a market normalization phase. We have now seen a washout event where the more sustainable business solutions and business setups and strategic positions will survive. And we feel that we're quite well positioned in this market going forward. If we look at quarter 4 segment and what was in focus there, we can now see that the MS225, the marine systems are delivered completely to the customer and now are progressed into commissioning and deployment, which is quite encouraging. We also reported a SEK 43 million methanol-to-power order secured with a European shipyard, which is confirming the commercial traction beyond just pure hydrogen, which is important to us because that is doubling the availability of fuel, which is important to be able to scale up the new technology. In power generation, the PS190 and the portfolio for power generation gained traction following the market launch, which was quite encouraging. We have field validation agreement with the U.S.-based data center, which is, of course, really interesting to us because the data center industry is growing. It's a very demanding application. I will not stand here and say that our fuel cells and the #1 driver for energy for data centers, but we are in the energy mix, especially when it comes to clean power for backup power and peak shaving. So we look forward to experiencing this first installation and then come back and report on the progress. In aviation, we had a SEK 12 million follow-on order from a European Aerospace Research Institute on products and then an additional SEK 5 million on engineering services, which was encouraging. So if we then look at power generation and why we are so happy to be able to introduce this and why it's so important to us, it is that power generation is something that is creating a second pillar to us. It's the same core technology as we use in marine. We have a lot of synergies between ourselves and Bosch, both when it comes to core technology and volume. It is a highly competitive product portfolio. It is optimized in its performance and price for power generation, and it has a very interesting package when it comes to size, performance and functionality, especially in combination with the software platform, which is the integration platform that is really, really important in order to optimize the asset of a fuel cell. So with that core component and the software platform that we are promoting to the market, we give a package that is easier to install and you can better optimize over the life cycle, extending durability, extending lifetime and also optimizing our fuel efficiency. So we have a very, very strong product package to the power generation market. And the contribution to PowerCell is, of course, that it gives us another growth potential. It is an extension of our core business without the capital spend of start of production and market introduction when it comes to the industrialization phase. So really important proof point of our asset-light business model. Marine and Power Generation, it doubles the growth potential for us. And it's really, really valuable for us to be able to protect our EBITDA and protect the bottom line if the market is sideways or slow, but it gives us a really strong opportunity to capture growth when and if it happens. It also gives us an opportunity to continue to protect the breakeven margin on around SEK 400 million that we have proven this year. So expanding without adding too much of additional cost or fixed cost is, of course, important in the market conditions that we are operating in. Briefly touching on the underlying market and what we see in different segments. Marine is continuing to be the strongest segment for us. We have the most clear business cases. We have the first customers that can clearly define their breakeven point. And we also see now an infrastructure that is supporting more growth with availability of hydrogen in port and harbors. 2025 was actually a year where you saw more final investment decisions regarding hydrogen production than we've ever seen before. So marine is continuing to be the backbone of PowerCell short term. Power generation, the addition of the product portfolio that we launched is really important. And hopefully, we can have the same development and traction as we did when we introduced the marine portfolio, and that is a focus area for 2026. Off-road is continuing to be a segment that we're following and not necessarily actively developing. A bit slow. You see some traction in rail and locomotive, but other areas, we have customers operating with our products, but we don't really see the traction that we do in marine and power generation. Aviation is a segment that is, as we have said before, it's not our volume segment, but it is the segment that is qualifying new technology and pushing the boundaries on safety, robustness and quality. We have seen ZeroAvia communicating that they are scaling down some of their cost portfolio. What they have protected is the development and certification of the fuel cell driveline, which is, of course, where we are operating. We are continuing to supporting them, and we are looking forward to completing the certification. But it is sometimes difficult for heavy capitalized companies in that energy transition to continue full speed ahead. So seeing them completing a new funding round was good. It was fortunate that they have decided to protect the part of the business that is focused on what PowerCell is doing. So if we look at 2026 and how we continue to build the company, we have a very clear strategic focus. We need to continue to leverage the platform, the systems and the product that we have in production today. We need to continue to focus on growing. We need to grow the top line. Right now, we are at a position where we have a really strong leverage on growth, being able to protect breakeven at a low level, also means that when you see a strong growth going forward, the leverage is going to be quite interesting for us. The industrial partnerships are important to us. We need to continue to build business and market and volume through the larger OEMs that we're operating with. And then fiscal discipline is going to be in focus also for 2026. It's going to continue for PowerCell. And I'm happy to say that we have proven that resilience in 2025. So 2026, we are focusing on staying the course. It's going to focus on real demand and the practical applications. We are going to continue with the step-by-step progress. Positive EBITDA is something that we're going to focus on and trying to protect really, really hard for 2026. We are proud to say that we have an operational model that is remaining lean and cost discipline. You need to bear in mind that starting production as we did in 2025 comes at the cost, not necessarily always a financial cost, but there's also a cost and challenge to the organization. And to see that we managed to start production, deliver on time to customer and come out protecting the bottom line is something that I'm extremely proud of, and that is a new phase for PowerCell. So I'm really happy to see that we are progressing. The focus for 2026 is, of course, that we need to be very strong industrially. We need to have credibility as we are moving to customers that are really demanding. We need to broaden our commercial footprint. Power generation is one aspect of that. And then, of course, a focused sales effort into areas where you see traction, India, Middle East and Europe, of course. Summarizing PowerCell, we are built for volatility, but we're also built to capture the opportunity that we see there. And if I'm reflecting on the Q4 2025 compared to the Q4 that was my first report 5 years ago. So this is actually the 20th report that I'm doing. What we can see is that the value creation, and this is where running a company and reporting numbers, numbers tells a story. Numbers can also share the history and the progress of the company. In 5 years, the Q4 report in 2020, which was summarized in the full year, the development from that point until now is a completely different company, progressing product portfolios that are optimized and industrialized for specific segments, building a completely new company where you have industrialized processes, you have output of demanding industrial components that are put into operation in OEM applications. But more importantly, is the internal value creation because the revenue in 2020 consisted of some throughput revenues that was really not value creating in PowerCell. So growth is from that point until now, 720% when it comes to the value-generating abilities of PowerCell, where we go out and sell something, where we have designed something, where we are producing and delivering something. And those 720% really tells a story. And to be able to do that and leverage growth and deliver a positive EBITDA for full year, it is, of course, something that we're quite happy with. And then we say that we have not reached our full potential. We have more ambitions going forward. But if that ambition is completely fulfilled in '26 or '27, that is also up to the market conditions to decide. And this is why we build a company that is able to protect bottom line if the market is soft, but also to act on the opportunity going forward. So with that, we open up for questions on 2025 and Q4 report. Operator: [Operator Instructions] Richard Berkling: So one question that is coming in is why haven't we uncovered the full power generation lineup? Will HTS be part of that lineup? So good question. The market introduction we did with power generation indicated 2 products that are available immediately or 2 system products and then 1 complete delivery. We have a road map to introduce more solutions, most likely with the higher power rating and also with some new functionality. So continuing to build that portfolio and expanding to be able to provide value to more customers is also part of the market introduction. We also want to see where we get traction. So we are not overinvesting too soon. So we are going to continue to build more products and more offerings into the product portfolio to be able to continue to see where we see traction and where we see real customer value. HTS will most likely be part of the lineup going forward. But as we have indicated, the development cycle is that the HTS will be commercialized and industrialized sometime around 2028. So it will be part of the lineup, but not in the short term. So one question from Stefan is he missed the reason for decrease of sales in the last quarter. How are we going to strengthen the sales channel? And he's also asking and commenting that he's not seen and heard a commission situation. A good question. As we said, 2025 was a different year compared to what is a normal year for PowerCell. And I would say for the whole industry when you're working in the energy transition. Quite often, you have a hockey stick development over those years because they are quite often budget driven, quite notably in China, where you saw a very low activity in the second half of 2025 because that was at the end of their 5-year plan. In October, they communicated that hydrogen and fuel cells will be a very important part of the new 5-year plan, which is now then in place and is going to accelerate sales and volume in China. So it is the nature and the conditions of the sales distribution. So in 2025, we had more of the large orders, as Anders commented, we had 2 really big orders that were evenly spread throughout the quarters. This year, we still have medium-term and large orders, but they are more centralized throughout the segment. So volatility will continue to be part of the segments. And in quarter 4 this year, the volume was lower than quarter 4 last year. But for the full year, it was a rather solid growth. So it is about the distribution between quarters. And this is also one reason why we're not making forecast because it is difficult to predict exactly how the distribution will be throughout the different quarters, especially when you're still a very small growing company. That means that specific orders can have a big impact, whether or not they are fulfilled and delivered before a quarter or after a quarter. So we're continuing to see volatility, but we feel very solid in the performance and that we have a good growth strategy. And then the sales, we have an extremely strong product offering. In Marine, after the introduction of the Marine System platform, we have an estimated 80% to 85% market share. After introducing the power generation lineup, we immediately signed a number of orders. No big volume orders yet, but we are hoping to have the same precision in that introduction. And that is because we are we are quite determined and focused on making sure that we capture end user value and not just selling products. But still, the proof is in what we deliver going forward, but it's a really good question. So one question from Carnegie. Given the current uncertainty around customer investment timing, the marine project execution and the ramp-up of power generation with Bosch, what are the key factors that would determine whether or not 2026 lands on the high versus the low end of the outcome range? A very good question. A number of aspects to answer that question. And the question was well articulated because Marine segment is quite often projects with a longer cycle. When we deliver something, it goes into a vessel that is being built and the build period is between 2 and 3 years. Quite often, we deliver our hardware much earlier than the final commissioning. So we have a shorter time to market than the actual vessel built, but it is a slower process. What we saw in 2024 and what we continue to see is that we have a rather short time between order and delivery also in Marine, much shorter than in the past. We also now see with the new emission trading into effect in Europe, we also see a market opening up for retrofit, which could accelerate the order to delivery in Marine. But that is also why power generation is complementing our portfolio in a nice way because power generation has a much shorter order to delivery cycle. Quite often, we can deliver something and it can be up and running within 2, 3 months. You don't need to wait for a vessel to be built, commissioned and put into operation. So that is complementing it. So I would say that what would determine whether or not 2026 lands on the high versus the lower end of the outcome range is the distribution between marine projects, marine orders, power generation and, of course, IP, royalty and engineering services because all of those are also very short turnover business. So product mix is going to determine the outcome. We are quite confident in the long-term development and the long-term ramp-up, but the short term is definitely decided by the product mix. And this is where we are going to be clear when we get the orders on when the revenue is occurring and how it's distributed. But a very good question from Carnegie. From Ari, we have an update related to Bosch and opportunities and threats. I would say that our collaboration with Bosch is a very solid foundation for PowerCell. The fact that we have a collaboration with one of the really strong industrial partners in any industry is something that gives a solid backbone to PowerCell. I have been in industries like this for 25 years. I can honestly say that without PowerCell, without Bosch, PowerCell would not be in the situation we are right now. They have matured our offering with at least one industrial cycle. So that is really, really valuable. And then the opportunity, China is going to be an important market for hydrogen and fuel cells. China is the #1 market when it comes to investment into infrastructure into investment and availability of hydrogen, and they have a clear strategy on how hydrogen is going to be part of the energy mix in society. Having Bosch as our sales channel in China is valuable. So working with them and supporting them in leveraging that opportunity is going to be really, really important. Threats, I don't see any immediate threat. I view Bosch as a very strong owner and industrial partner. So one question from [indiscernible] is, are the Norwegians very fully invoiced and paid now? I would say no to that. And we have some deliveries and commissioning left to do. And in that, we also have payment milestones. So revenues and liquidity is going to also affect 2026 in a positive way. What would you say that this year is overall better in general compared to last year? Question from Fredrik. A good question. I would say that the fact that we managed to achieve what we did in all aspects of running a company is what is overall better. I mean, first, the underlying growth. Adjusted for FX, 24% with the FX fully affecting us plus 15%. It is a growth year, not on the levels that I want to be because I want to grow faster. But at the same time, doing that organically on a slower market, it is still a good year. But doing that, delivering positive EBITDA for the full year and also doing a full industrialization and start of production is a complexity that is not easy. It's been a tough year here at Ruskvadersgatan. The employees have really, really pulled through. Some areas of the company or the company as a whole has sometimes done more than you can ask for because it takes a lot of commitment to be able to start production. And anyone who's been in an industrial company knows the pain of labor to do that. So being able to pull through and still protect EBITDA, have a strong operational cash flow in the end of the year, delivering on what we said, I think, is what makes this year overall better. But we always want to do more. So hopefully, we can come back and show even more progress. But it's been a year where we've proven organizational and commercial resilience. And that is something I am quite happy with, and that gives me comfort going forward because it's continuing to be a difficult market out there. Hopefully, we can see some progress in the macro effects. But unfortunately, that is not under my responsibility. Anders, do you see any questions that you want to know? Anders During: Well, I think there are some items that I've seen some questions popping up around. That is changing in assets in the cash flow analysis that is predominantly related to the payers of the license fee from Bosch that turns into long-term assets. And I also noticed that some of you have comment on the fact that in our notes where we do the segmentation reporting, royalties and IP gets a bit confused. In Q4, we had a classification of the royalties/IP revenues going into the service line because in the agreement with Bosch, we changed -- which slightly changed the terms and condition on that arrangement, which made it classified as IP for the most in Q4 rather than royalties. And that is the confusion. Otherwise, to clarify it, the amount of money that we received on IP and royalties in Q4 is approximately equal to what we received last year in '24 for that same items. But we will make sure to take this confusion on our segmentation reporting away that will change that going forward. So that's more clear directly. Richard Berkling: So let me see if we have any more questions. I think we have covered them all. So if we then close -- here we had one -- let's see if we have one more. So from Carnegie, if market development remains slow, what cost or prioritization levers can you pull to continue being EBITDA positive without compromising long-term competitiveness? This is a very good question. I should probably have noted that one, but in the positive sense, there is one thing I'm really proud of and also grateful for the support that we had from the Board. It is a balance point of not reaching EBITDA positive by being anorectic by really scaling down. The fact that we have continued to invest in new products that we're introducing to the market as well as core technologies that will be the revenue engine from 2030 and onwards, I would say that balance point is really, really important. With that said, I was commenting going back to 2020 and reporting on my quarter 4 2020, which was my first report from the previous year when I was not here. We have more or less the same cost structure as we did then. But now we are producing industrial components. So we have made a rather interesting transition in the company. We have more levers to pull. We made a restructuring of the management team last year, which is going to have a positive effect on 2026 when it comes to cost structure. We have cost levers to pull. Now with production, if we see a slower development, we can ramp down the shifts that we have in production. We are going to protect sales and business development because that is what is really the important thing right now. We have levers to pull also when it comes to investment, which we can push or postpone. So we have a number of levers to pull. But the balance point, so the question is really well articulated. This is the #1, I think, obligation I have is to protect PowerCell and balancing between the short-term performance and protecting EBITDA, still being able to catch the potential growth that is out there, depending on how it materializes between product mixes. And continuing to have strong competitiveness going forward because the energy transition and any technology shift, it is a marathon. We are now starting to see some tailwind when it comes to awareness, regulatory support and also infrastructure and availability of critical components like the hydrogen. But it is a marathon. So thank you for asking that question. And I should probably have mentioned the balance point and how I am happy with the support we get from the Board in doing this. But this is something we need to come back to going forward over the year because defending this balance point is what we do in the management team. So with that, we have a company now that is built to endure, adapt and win as this transition unfolds. What we do is not easy. Business development in technology requires a pioneering mindset, but also clarity to see things for what it is in the short term. We see a rather clear path going forward. And the simple golden rule for us as a growth strategy is to grow number of installations in the market as well as grow the value creation per installation. When we do that, we capture the volume that is out there, we drive more penetration in the market, and we will also see growth that is sustainable and that we can leverage. So we are looking forward to 2026 that is going to be important to us, where we hope to prove our competitiveness as an industrial partner to our customers and also to continue to deliver growth that we can leverage and protect both bottom line while still being able to capture the potential that is out there. So thank you very much. Thank you for joining us. And as always, you are more than welcome to visit us in Gothenburg.
Operator: Greetings. And welcome to Azenta, Inc. Q1 2026 Financial Results. During the presentation, all participants will be in listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the star followed by one. As a reminder, this conference is being recorded Wednesday, 02/04/2026. I will now turn the conference over to Yvonne Perron, Vice President FP&A and Investor Relations. Yvonne Perron: Thank you, operator, and good morning to everyone on the line today. We would like to welcome you to our earnings conference call for the 2026. Our first quarter earnings press release was issued before the open of the market today and is available on our Investor Relations website located at investors.azenta.com in addition to the supplementary PowerPoint slides that will be used during the prepared remarks today. Please note that effective 2025, the results of B Medical Systems are treated as discontinued operations. I would like to remind everyone that during the course of the call, we will be making a number of forward-looking statements within the meaning of the Private Litigation Securities Act of 1995. There are many factors that may cause actual financial results or other events to differ from those identified in such forward-looking statements. I would refer you to the section of our earnings release titled Safe Harbor Statement, the Safe Harbor Slide on the aforementioned PowerPoint presentation on our website, and on our various filings with the SEC, including our annual reports on Form 10-K, and our quarterly reports on Form 10-Q. We make no obligation to update these statements should future financial data or events occur that differ from the forward-looking statements presented today. We may refer to a number of non-GAAP financial measures which are used in addition to and in conjunction with results presented in accordance with GAAP. We believe the non-GAAP measures provide an additional way of viewing aspects of our operations and performance but when considered with GAAP financial results, and the reconciliation of GAAP measures, they provide an even more complete understanding of the Azenta business. Non-GAAP measures should not be relied upon to the exclusion of the GAAP measures themselves. On the call with me today is our President and Chief Executive Officer, John Marotta, and Executive Vice President and Chief Financial Officer, Laurence Flynn. We will open the call with remarks from John, then Laurence will provide a detailed look into our financial results and our outlook for fiscal year 2026. We will then take your questions at the end of the prepared remarks. With that, I would like to turn the call over to our CEO, John Marotta. John Marotta: Thank you, Yvonne. Good morning, everyone, and thank you for joining us today for our first quarter earnings call. As we start fiscal 2026, I want to acknowledge the focus, discipline, and execution our teams continue to demonstrate across Azenta. Their commitment to serving our customers and continuously improving how we operate is central to our momentum and is driving meaningful progress across the business. Because of their efforts, we are entering the year well-positioned for continued success. Together, we are building a stronger, more agile, and high-performing Azenta. As I've said before, our turnaround continues, and it will not be a straight line. No turnaround is. After establishing a stronger organization and structural foundation last year, we are accelerating efforts to streamline processes and elevate performance. While macro conditions remain mixed, we enter the year with a much stronger foundation, clearer accountability, and a sharper strategic focus. This is the playbook for a successful turnaround, and I am confident in the path we are taking. Our priorities for 2026 are clear: embed operational excellence throughout the organization, accelerate growth, expand margins, and strategic and disciplined capital deployment. These are the pillars that will drive Azenta to outperform the market and deliver long-term value creation for our customers, employees, and our shareholders. In the first quarter, organic revenue declined in line with our expectations, down approximately 1%. As we discussed last quarter, our outlook incorporated continued uncertainty in the macro environment, particularly around capital spending, and academia and government funding. And those dynamics largely played out as anticipated. From a market perspective, conditions remain uneven. Capital spending decisions continue to be cautious across parts of the life sciences ecosystem. We see positive momentum across Europe, and while the US is still slow, we are cautiously optimistic with improvement in the capital markets as well as renewed M&A activity. Bookings during the quarter were impacted by weak capital spending and the government shutdown at the end of the calendar year. While this is causing timing shifts, we expect these orders to be recognized in future quarters and do not anticipate it to impact the full-year results. Over the coming months, we expect greater clarity around government academic funding, which we believe will offer greater stability across end markets broadly. 2026 is shaping up to be a transitional year for the life sciences sector. With macro conditions and sentiment being mixed, yet the underlying industry tailwinds remain consistent. Last year, we demonstrated Azenta's ability to deliver on our commitments even in a challenging environment, proving that we can execute with discipline and precision. These strengths provide a solid foundation as we advance our turnaround initiatives this year. We anticipate acceleration in 2026 as delayed approvals are processed, capital investment ramps, and our growth investments begin to take hold. Importantly, the current environment highlights why Azenta is the partner of choice for life sciences customers navigating complexity and change. Our differentiated solutions and deep expertise uniquely position Azenta to help our customers optimize operations, accelerate innovation, and manage resources more effectively. We are the trusted partner for organizations seeking scale, reliability, and differentiation with an expert team that knows the science, understands the workflows, and delivers results for our customers. The combination of expertise, technology, and operational discipline enables Azenta to turn challenges into opportunities. Operational excellence is the engine behind everything we do. The Azenta business system continues to guide how we operate, driving measurable improvements in on-time delivery, quality, and productivity across operations, commercial, and support functions. During the quarter, we advanced ABS deployment through Kaizen's daily management routines and problem-solving that are taking root. Teams across the organization are embracing a continuous improvement mindset, proactively identifying opportunities and shaping solutions that enhance efficiency and execution company-wide. ABS is not just a set of processes; it's a differentiator for Azenta, enabling sustainable, scalable, operational excellence that supports both growth and margin expansion and reinforces our ability to deliver for our customers and our shareholders alike. We also continue to benefit from the simplified and decentralized operating model implemented last year. Clearer accountability at the operating company levels supports faster decision-making and more disciplined execution. Productivity gains are being reinvested in line with our priorities, including commercial excellence, innovation, and customer-facing capabilities. Our core growth investments in scaling biorepositories, regionalizing gene synthesis, and investing in technology and automation are gaining traction. During the quarter, we announced the definitive agreement for the sale of B Medical, which is expected to close on or before March 31. This transaction further sharpens our focus on our core portfolio of differentiated solutions and enhances our financial flexibility, supporting our strategic approach to future capital allocation. Combined with the $250 million share repurchase authorization announced at Investor Day, these actions reflect our ongoing commitment to delivering value to our shareholders while strategically deploying capital. Let me cover a bit more in the first quarter performance and our full-year outlook. As expected, on a year-over-year basis, organic revenue declined approximately 1%. Within Multiomics, next-generation sequencing and gene synthesis showed growth, reflecting continued customer demand for advanced workflows and the value of our differentiated solutions. In sample management solutions, we saw solid growth in biorepositories, demonstrating strong execution and sustained customer adoption. While our automated solutions line remained under pressure, particularly in stores, due to ongoing budget constraints. As I've said, turnarounds are never linear and may be lumpy. In the quarter, we faced higher costs in automated stores on late-stage projects related to quality issues that remained from last year. We're working closely with our customers to make it right and expect to lapse these issues post the second quarter. In Multiomics, we experienced regional mix dynamics with softness in North America leading to lab inefficiency. We are taking decisive actions to address these pressures. We expect margins to improve as we progress through the second half of the year and execute on the transformation of our company. Laurence will go into more detail on our quarterly financial performance. Lastly, as you know, we do not guide quarterly. Our operating rhythm in the business is to drive performance monthly. Yes, our job just got harder. And looking ahead, we are committed to our full-year 2026 guidance of 3% to 5% organic revenue growth and adjusted EBITDA margin expansion of approximately 300 basis points. While macro conditions remain mixed, we view 2026 as a transitional year for the sector and we are confident that our initiatives, including the revamped commercial engine, strong leadership, and disciplined execution, will gain traction as the year progresses. With that, I'll turn it over to Laurence to walk through the financials in more detail. Laurence Flynn: Thank you, John, and good morning. I'll begin with our Q1 2026 fiscal results and the key financial drivers, then cover segment performance, our balance sheet, and fiscal 2026 guidance. Today's results exclude B Medical Systems, which is classified in discontinued operations unless stated otherwise. During the quarter, we recorded an additional $10 million non-cash loss related to assets held for sale. As communicated in December, we expect the sale to close on or before 03/31/2026. To supplement my remarks today, I will refer to the slide deck available on our website. Turning to Slide three, Total revenue was $149 million, up 1% reported and down 1% organically with a 2% headwind from foreign exchange. Results reflect mixed performance across the portfolio with strong growth in biorepositories and next-generation sequencing, partially offset by softness in our capital-intensive businesses. Overall, these trends are consistent with our initial expectations for the quarter and reflect the impact of the continued uncertainty in the macro environment. Non-GAAP EPS for the first quarter was $0.09. Adjusted EBITDA margins were 8.5%, down approximately 230 basis points year over year, impacted by pressures in gross margin. Despite this, we remain confident in the opportunity for margin expansion in 2026 and beyond. We are focused on leveraging disciplined cost management while optimizing operations as we continue transforming the company. Free cash flow, including B Medical, was $15 million for the quarter, driven by increased customer deposits and deferred revenue, partially offset by usage in working capital. We ended the quarter in a strong financial position with $571 million in cash, cash equivalents, and marketable securities, an increase of $25 million quarter to quarter. This provides us with the flexibility to deploy capital and return value to our shareholders as we progress through 2026. In December 2025, our Board approved a $250 million share repurchase authorization. We remain committed to maintaining financial flexibility to support disciplined, strategic capital deployment that drives long-term value creation. Now let's turn to slide four to take a deeper look at our results in the quarter. Total revenue was $149 million, up 1% reported and down 1% organically, with a 2% headwind from foreign exchange. Multiomics was supported by next-generation sequencing, which contributed to year-over-year growth, as well as gains in gene synthesis, which was partially offset by continued softness in Sanger sequencing. Within Sample Management Solutions, growth in biorepositories and consumables and instruments was offset by a decline in automated stores and cryo. Overall, these trends are consistent with our expectations reflecting macro uncertainty. Turning to gross margin, we delivered 44.1% for the quarter, down 360 basis points versus the prior year. The decline was primarily due to underutilized lab capacity driven by lower North America volumes, coupled with additional costs related to rework on several automated storage projects. Despite these headwinds, we continue to make meaningful progress on our ABS efficiency initiatives that position us well for margin expansion over time. Adjusted EBITDA was $13 million, representing an 8.5% margin, a contraction of approximately 230 basis points driven by the gross margin pressures I just described. Our operational transformation and disciplined cost management journey continues, as evidenced in the $5 million decline in SG&A year over year, and more importantly in G&A. Again, non-GAAP EPS for the first quarter was $0.09 per share. With that, let's turn to Slide five for a review of our segment quarterly results starting with Sample Management Solutions, or SMS. Sample Management Solutions delivered revenue of $81 million for the quarter, flat on a reported basis and down 2% organically. Growth in biorepositories demonstrated strong momentum with early wins in our commercial growth initiatives. This growth was partially offset by expected softness in automated stores and cryo, due to slower bookings from macro-driven budget constraints. Consumables and instruments delivered modest year-over-year growth reflecting steady demand and the ongoing contribution of these products to the overall portfolio. Turning to gross margin for Sample Management Solutions, we delivered 45.4% for the quarter, down 370 basis points versus the prior year. The decline was primarily driven by higher rework costs incurred on automated stores projects and the negative impact of a nonrecurring item. The incremental automated stores cost stems from quality issues that we have been addressing through targeted efforts with our customers. We expect our remediation efforts to be completed by the end of the second quarter and to incur a full-year estimated impact between $3 million to $5 million. Turning next to the Multiomics segment. Multiomics revenue for the quarter was $67 million, up 1% on a reported basis and flat organically. Next-generation sequencing continues to benefit from strong customer demand. Gene synthesis growth was supported by strong oligo demand in China. These gains were offset by continued weakness in Sanger sequencing, which declined meaningfully compared to last year. Geographically, Europe and Asia performed strongly, supported by our commercial initiatives and improved execution, with China continuing to perform well with 26% organic growth. North America was softer, reflecting macro-driven budget constraints and the temporary disruption from the government shutdown, which impacted customer activity during the quarter. Multiomics non-GAAP gross margin was 42.6%, down 350 basis points year over year, driven by regional mix and loss leverage from lower North America sales volume. Next, let's turn to Slide six for a review of the balance sheet. As I mentioned, we ended the quarter with $571 million in cash, cash equivalents, and marketable securities. We had no debt outstanding. Capital expenditures for the quarter were approximately $6 million, reflecting continued investment in automation, capacity expansion, and technology to support scalable growth. Turning to guidance on Slide eight. We are reaffirming our guidance for fiscal 2026 with organic revenue growth expected in the range of 3% to 5%. Multiomics is projected to deliver low single-digit growth, while Sample Management Solutions is anticipated to contribute mid-single-digit growth. We continue to expect the second half of the year to accelerate as our commercial investments and growth initiatives gain traction. On the profitability front, we are also reaffirming our target of approximately 300 basis points of year-over-year adjusted EBITDA margin expansion, driven by continued operational efficiencies, disciplined cost management, and scalable operating leverage, as well as over 30% year-over-year improvement in free cash flow generation. Overall, we remain optimistic about the year's progression and committed to the full-year outlook. In closing, we remain encouraged by the progress of our growth initiatives and operational improvements. As we move through fiscal 2026, we remain confident that the strategic priorities outlined at Investor Day provide a clear roadmap to drive sustainable, profitable growth, and long-term value creation for our shareholders. This concludes our prepared remarks. And I will now turn the call over to the operator for questions. Operator: Thank you, sir. Ladies and gentlemen, if you do have any questions, you will then hear a prompt that your hand has been raised. And should you wish to decline from the polling process, please press star followed by two. If you're using a speakerphone, you will need to lift the handset first before pressing any keys. And out of consideration to other callers and time allotted today, we ask that you please limit yourself to one question and one follow-up. Thank you. And your first question will be from David Saxon at Needham. Please go ahead, David. David Saxon: Great. Good morning, John and Laurence. Thanks for taking my questions. So I wanted to start on the gross margin. So maybe can you talk about just your level of confidence in getting the SMS margins back to where you want them to be, you know, what's in your control versus, you know, impacted by maybe customer dynamics. And then just on the growth, sorry, EBITDA margin, you reiterated that 300 basis points of margin expansion here. I guess, what's your level of confidence that the GMOM mix is gonna be two hundred and one hundred basis points. OpEx looks like it was below what we were modeling. So does OpEx drive more of the 300 basis points this year? Laurence Flynn: Yes, David. Good morning. John Marotta: Good to be with you. Thanks for the question. So let me just pull us back for a second. Around, you know, what's happened since our Investor Day and just kinda talk through that. This will kind of lead into some of the answers to your question. So 18 stores that we had some quality issues. We're starting to lap some of those. We've got only a few more that we've gotta continue to go and solve for. A lot of this has been more noticeable this year due to what we've been flagging with the investor community around softness on the first half. So less of those tailwinds there. And then lastly, Azenta-specific developments is kind of this North America reboot commercially. Both in Multiomics and SMS. We had been we're way ahead on our reboot in Europe, in The Middle East, in parts of APAC, North America lags in certain areas. That's really kind of an update there. And market-wise, listen, slower than expected in North America. Government shutdown impact, that was pretty it's pretty well understood right now. Sanger continues to slide from an end market perspective, and you've got some geopolitical instability. I think in terms of our confidence, we're continuing to reiterate our guidance for the full year. What I can tell you is, yes, our job just got harder on the margin line. But that's our job. We're pulling some hard levers here. We're gonna continue to do that. We've been very clear that we're not managing this business on the quarter. We're not going to do that within the three years of our turnaround that we've signaled very strongly at our Investor Day, so we're confident. And I'll let Laurence get into those particulars of that, David, but thanks for the question. Laurence Flynn: Yeah, David. This is Laurence. Maybe let's just talk a little bit about Q1 and give you a bit of a breakdown. So as you know, adjusted EBITDA was 12.7 in the first quarter, or about 8.5%, which was down $3.3 million versus prior year. So, broadly, the decline of the components of the decline were $2 million related to the store's quality issues that John talked about. Really, we anticipate these quality issues to be fixed by the '2. Secondly, there's about a million dollars related to some of the lab inefficiencies that we saw, particularly in North America. As you saw from a top-line perspective, we met kinda what we expected, but certainly the mix was leaning towards Asia than North America. So, certainly, that impacted some of our lab inefficiency in the region. And then lastly, there was about $700,000 in nonrecurring charges related to inventory adjustments. So when you look at that, those are kind of the broad strokes of the Q1 decline. One you know, what I'd say is particularly around your question on the myths on the overall profitability in the model, we still hold firm that gross profit would be around this 200 basis points in the GP side and a 100 basis points. And when you think about that, that's going to generally stem from half related to sales volume. As we talked about on Investor Day, there's a second-half ramp. We've always tried to telegraph that you know, we are fully aware that the first half would be softer than kind of our traditional phasing. Just because we are kind of putting all this growth investments in place. So, again, we're still holding to the 200 on gross profit, 100. Because of volume. ABS, lean productivity really kind of taking hold. And then price. David Saxon: That was super helpful. So thanks to both of you. And then my follow-up was just on capital spending in that academic and government group, I guess, can you characterize the conversations you've had with customers in those segments during the quarter and just level of confidence that that will improve and, you know, how that will drive North America demand and growth? So much. John Marotta: Sure, David. Yeah. Listen. Great conversations with those that end market in terms of customers. I think we so from a European perspective, really, really a lot of momentum in Europe and The Middle East. In the US, I will tell you there's a lot of green shoots. I mean, I think the back half, we still feel bullish on that. And the conversations we're having with our academic and government customers are confirmatory at this point. So good momentum there in North America specifically. Operator: Your next question will be from Matt Stanton at Jefferies. Please go ahead, Matt. Matt Stanton: Hey, thanks. Maybe just to go back to the second half ramp you guys talked about. I think you talked about for the acceleration in the back half, improvement in the approval process, capital spending ramp, and then growth investments. Could you just talk about level of comfort or visibility into some of those key drivers? And then on the gross margin side, I think you said of 2Q. So $3 million to $5 million was tied to some of these quality issues that will largely be done at the end that implied the absence of that headwind in the back half is kind of a 100 basis point plus step up alone to gross margins. Just wanna make sure I have that clear. Thanks. John Marotta: Sure. Let me just give you some context around capital spending. Again, we're feeling pretty confident that North America is coming back. We do think this is a back half story. You know, when we talk to our customers and more importantly, our sales team, we are driving a lot of conversations with our sales team at a high frequency. They're feeling pretty bullish right now. And a lot of the programs we're working on specifically in C&I instruments and stores, we continue to gain some momentum there. In terms of growth investments, as you know, our growth investments are specifically in feet on the street, innovation, some productivity gains, and just driving performance in those areas. We continue to ring-fence those investments. We are not coming off of those. We think that, as a part of our, you know, the transformation in the next few years, getting these growth investments now is gonna be pretty meaningful. Specifically, in R&D and innovation. I'm pleased with where the teams are in terms of where these investments have been made. Our hiring around that, and more importantly, to the roadmaps that the teams have on the product side. So pleased around that. Let Laurence talk about the second half ramp and give you some of the specifics there. Laurence Flynn: Yeah. Hi, Matt. So when we look at overall EBITDA for the year and the 300 the road to the 300 basis points, it's $22 million incremental year on year. And particularly, you know, we talked a bit about with Dave about this kind of 200 basis points, 100 basis points 200 basis points in gross margin, a 100 basis points in OpEx. When you look at the gross margin mix, it's driven by the sales volume. Half of it's gonna be sales volume, what John just talked about. Right? As our sales reps, particularly in North America, start to ramp, in the second half of the year, usually, you know, we brought in north of 25 reps. And usually, they take about three to six months to ramp. So that's kind of in our calculus. The other component in there is around ABS and productivity. Some of these topics we covered at Investor Day. Right? You know, we are having Kaizen events in our labs as well as our shop floors and manufacturing. And that's about 35% of the overall GM improvement. So volume's fifty. ABS is about 35. And then, certainly, we talked a bit about last earnings call is about our price initiatives. That makes up the rest of because gross margin improvement. And that price improvement is particularly focused around SRS, and our C&I businesses. We've put those in place really at the start of the calendar year, and that really starts a ramp in the second half of the year. Operator: Thank you. Next question will be from Mackie Tok at Stephens. Please go ahead, Mack. Mackie Tok: Hello, good morning. I appreciate you taking my question. Maybe just follow-up. I appreciate color on the back half ramp. But just given the performance in 1Q, you give us a sense of your expectations for top-line performance in 2Q? And then maybe your expectations around the cadence from 2Q to 3Q? Laurence Flynn: Yeah. Hey, Mack. So when we look at the second quarter, I you know, certainly, we've talked we first, let me step back and say, look. We're really not guiding quarterly. But when we look at overall revenue wrap, right, you know, again, it's weighted in the second half of the year. And those are really the components there. So you'll probably see an uplift in versus the first quarter but certainly, a lot of what we're gonna see in terms of growth is in the second half. John Marotta: Yeah, Mack. I mean, we can be helpful and give you some detail, but, again, I just wanna continue to reiterate this the fact that we're just not gonna manage this business quarterly. We are taking a longer-term view on it. And our growth investments continue around sales, marketing, and R&D. That's gonna continue to ramp nicely. Gonna drive that gross margin improvement over time. Gotta get some more volume in here. And then I think once North America comes online, we're gonna be clicking on all cylinders. We're not right now. But that's the journey. I mean, that's part of a turnaround. So we'll be helpful there when we connect here later. Operator: Did you have a follow-up, Mack? Mackie Tok: I appreciate it. I'll leave it there for now. I appreciate you taking my questions. Operator: Thank you. Next question will be from Vijay Kumar at Evercore. Please go ahead, Vijay. Mackenzie (for Vijay Kumar): Guys, this is Mackenzie on for Vijay. Thanks for taking the questions. First one, I know you called out the government shutdown impact in the quarter, but I was just wondering if you could speak to US academic a little bit more broadly specifically, how are you thinking about performance in this end market given that it seems like NIH budgets will be flat in 2026? John Marotta: Yeah. So in general, I think what we're seeing is a shift in some of the where the dollars are moving to in terms of universities based on larger projects. I mean, we're seeing a little bit of that. The customer base we have right now with the government shutdown, we saw some of the larger programs just frankly just standing still, and so there was no movement around that. That's been freed up. And so we're now supporting some of those programs. I think in general, things are settling down. There's a clear shift in where that NIH funding is going right now, and we're just continuing to support those programs. On balance, the team is really highly focused on pharma and biotech. I mean, we've always been highly focused on that. I think we continue to do that. Over time. We're always supporting our academic customers and the universities. We think that there's an opportunity specifically with the pressure on Core Labs. And driving productivity on Core Labs, we think that our multiomics business is well-positioned to continue support the Core Lab is in the pressure on getting more research out, getting more data out, and so we're doing that right now. We feel pretty good about that. I think that's gonna continue on, Mackenzie, but thank you for the question. Mackenzie (for Vijay Kumar): Thanks. That's super helpful. And just to follow-up on that, you talked a little bit about your pharma and biotech customers. What are you seeing from these end markets right now? Is pharma continuing to accelerate? And your peers have talked a little bit more about seeing some positive sentiment from biotech customers. Are you also seeing something similar? Or what should we expect in the latter half of the year? John Marotta: We are. What I would characterize that end market is there's more clarity there than last year. What do I mean by that? So a lot of restructuring, a lot of there was uncertainty around what programs were gonna continue and what programs were gonna they were gonna double down on and invest behind. I think we've got, you know, our team and the conversations we're having from those customers is clarity. Here's what we're doing. We're moving forward in this direction. And we're clearly seeing that in most of the segments of the in our business. Operator: Thank you. Ladies and gentlemen, once again, a reminder to please press star followed by one if you have any questions. Thank you. Next question will be from Andrew Cooper at Raymond James. Please go ahead, Andrew. Andrew Cooper: Maybe just one more kinda nitty gritty on some of the extra cost here on gross margin. So you call out the $3 to $5 million. 50 to 80 basis points or so. Where do you think you can find some of the offset there to achieve the 300 basis point expansion? I know you talked about the job being harder, but where are some of those places that you're looking to find that little bit extra room, or pull it a little bit forward from fiscal '27, and how do we think about kinda what that looks like? Laurence Flynn: Yeah, Andrew. Thanks for the question. So you know, a couple of things that we have in our favor. And John's right. You know, our job got a little bit harder but we're certainly pulling additional levers. And let me be more helpful on that. Certainly, as we see the second half increase in volumes, particularly around North America, generally, we'll get a better mix. That's number one. Secondly, around ABS and productivity, certainly areas like Kaizen events, in the labs and manufacturing we've actually seen some really good results preliminary that we expect to read through. Other areas such as automation in our biorepositories are being accelerated to help us look at some recoveries. The one thing I would say in a step back is that one of the things we did in fiscal 2025 was to put managers, general managers in place of these businesses. And that's really helped us get laser-focused on operations and optimizing processes. One more two more items I think, you know, we're addressing more acutely is around our fixed cost in our Sanger business. And then finally, in really accelerating opportunities around indirect cost savings. Some of the workshops we run in the last couple of weeks have actually been yielding meaningful opportunities for us to attack it. So, certainly, these have always been in our portfolio of levers to optimize our margin but with some of the particularly the quality issue, we've really started to accelerate these initiatives. Andrew Cooper: Great. And then maybe just a little bit kinda higher level one. You know, in the past and at the Investor Day, you've talked about the notion of leveraging bundling a little bit more and kind of cross-selling within segments as opposed to necessarily across. Just would love a little bit of an update there. I know it's a noisy end market environment. Kind of across the board right now, but how have those conversations gone as you talk about trying to drive kinda more of that breadth of portfolio at an individual customer level? John Marotta: Sure, Andrew. So what I would say from a customer perspective, a lot of that bundling is basically within the segments. Okay? So let me be more helpful. Specifically around kind of let's go from a multiomics perspective. The one-stop shop is really important to customers where they can we can read and write genes for them specifically. That bundling is going very well. I mean, from a customer perspective, it's ease of use. We're working on more. We've made more investments, specifically around UX and UI to make that journey a little easier for customers to bundle, using our e-commerce platform. So those investments are in flight. Where we continue to see a lot of strength is in our C&I business, continue to bundle. Instruments and consumables there. We're also seeing bundling with our stores. I mean, if you look at these stores, some of them are 2 to 10 million sample opportunities. Our customers are using our consumables with those. We see high attachment rates in service. I think the teams have done a really nice job in bundling within the segments. That is where our focus is because there's so much there. We don't wanna confuse the organization and bundle up really across the segments right now. There is an opportunity in academic and medical there, but it's an opportunity that we think will solve in different ways. But right now, commercially, we're focused in the segments similar with SRS, our biorepository business. That team has done an excellent job of bundling more product solutions for our existing customers. As you know, we do a real we've got high market share in active clinical trials. And we're doing a lot in manufactured product and some other areas right now. So I'm very pleased with this. I mean, our breadth and our ability to continue to solve some of these issues for our customers where they wanna do business with what's clear to me is pharma and biotech, they're consolidating suppliers. But they wanna do business with partners that are high quality, give them a fair price, but give them a broader reach of products and solutions and we're clearly meeting those needs right now. So hope that helps, Andrew. Operator: Next is a follow-up from Matt Stanton at Jefferies. Please go ahead, Matt. Matt Stanton: Hey. Thanks. One on capital deployment. Think the message prior was likely you're unlikely to do deals before B Medical was completed. Now that that's set to hopefully close here shortly, the agreement is in hand. Maybe, John, just talk a little bit about actionability, the funnel, any more color on size of deals. And I know historically, share repurchase have been kind of down the pecking order for capital deployment. But with the $250 million authorization out there, you know, post the Analyst Day, any shift in appetite around repurchases? Thanks. John Marotta: Yes, Matt. So a couple things to think about. We are constantly comparing our you know, we talked about before is our four levers for capital deployment around gross margin productivity. Growth, specifically M&A and share repurchase. All of our three levers we always compare to buybacks. And we're gonna be pulling all these all four of these levers throughout this journey in the next few years. I can tell you that. And in terms of actionability, we are very busy around M&A right now, and we're very excited about what is in our hands right now. We're gonna continue to put our capital to work in this area. But, again, I think you're gonna see us pull all four of these levels levers. I've mentioned this before. But it's worth repeating. We want our investors to come away and say, hey, listen. These guys are good operators. They've got a grip on the business. Yes. There's not a lot of linearity to turnarounds. But we understand it. They're calling balls and strikes, and they're very straightforward about the journey we're on on the operating side. On the capital allocating side, we also want our investors to come away and say, hey. They're very thoughtful capital allocators. They understand how this works, and we're always looking at those returns versus share repurchase. You know, last point on is I think you're gonna see us pull all four of those levers. Operator: Next question will be from Paul Knight at KeyBanc. Please go ahead, Paul. Paul Knight: Hi, John. As you remediated these automatic stores, QC issues, and I think it's what two left out of 18. Or, these permanent fixes, was there a commonality of what you saw in so you know, is this kinda behind us now? John Marotta: Yeah. Paul, good to hear from you. A thoughtful question. So couple things to think about. I mean, we have been we have been really dealing with this issue since we started. Okay? When we started getting the business, we weren't meeting our customers' needs. 18 stores issues. So that's the last few years of sales we've had these problems in. And, you know, bluntly, you're not delighting your customers, what are we here to do? So we attack this head-on. All 18 of the stores understanding what were our offsets, what do we have to countermeasure, and how do we go out and delight our customers. We've been spending a lot of money around that. I've been personally meeting with our customers all of them, around these stores. So that was the first thing. Is what was the specific issue? How do we go solve that real-time for our customers and get them operational? The second is what is the permanent fix in which we're doing this from a design perspective? I can tell you we've got great R&D teams. Okay? So what was the issue ultimately? We had too much demand. The teams were being stretched, and we weren't structurally aligned around serving our customers. What do you have to do there? First thing is structurally align yourself to go win for the customer. One, is around new product development. Two is around POC. That business is a POC business. Percentage of completion. And three around sustaining engineering. We have restructured that R&D team. We have teams that wake up every day around MPD, MPI, POC separately, and sustaining engineering. Okay? That was the big step that we've made. There's some tweaks on the design side. All of that has been implemented. And I'm pleased to say that moving forward here, ADS has really helped us specifically around getting line of sight on this POC, getting us more in control, and going out and delighting our customers and putting our best foot forward. So we've done that. We are lapping that. Listen. There's always a cost of poor quality. Whether that is you delay your NPI projects, whether you are not meeting the customer's needs from a brand perspective, but we have gone in and we're meeting those customers where they are today. I've personally met with them. And it just is part of the turnaround journey, Paul. But I'm very, very pleased that how the team has responded. I mean, that's the mark of a good organization is how do you respond. This adversity. How are the customers understanding this? And are you making it right? The bottom line is we're doing that right now. So we're lapping it. Some of these have taken more time than we expected. But we've got a grip on that right now, and there's clear line of sight there. So hopefully that helps, Paul. Paul Knight: Yeah. Last question would be Sanger is down, but what was the growth of NexGen? And is the increasing accuracy of NexGen really one of the reasons why Sanger finally is, maybe shrinking as a part of market? John Marotta: Yeah. You know, this Sanger we've been we've been talking about Sanger for a while here. I'd rather not, but let's address it. So the next-gen plasma EZ, I mean, that is a mid-single-digit grower for us. We worked doubling that size of that business. We told the team and we invested heavily behind it, said this shouldn't be a hobby for us. We have a broad footprint 4,000 we've got 4,000 drop boxes globally. We should have been investing in this earlier. We are now very heavily, and we're growing it nicely. So we're doubling our growth there. That's one part of it. Sanger, as you know, I mean, I have to tell you, Paul. I've been out, talked to a lot of customers. I've talked to a lot of our sales reps. We're triangulating in on this. It's not going away. There's a clear need from an end market perspective and a customer perspective with Sanger. Then the question is, where's the bottom and how do you right-size your cost structure? The bottom line is we don't know where the bottom is yet in Sanger, but we are rightsizing our cost structure around that. So I would tell you that's more on the come. But in general, we're well aware of what's going on in Sanger, and more importantly, we're more focused around growth in terms of that plasma EZ to offset that. I'll tell you the team's done a nice job there. You know, it was an area bluntly where when we came into the business, last year, said, what's going on here? You know? We need to be investing heavily here, and we've done that. Operator: Thank you. Next question will be from Brendan Smith at TD Cowen. Please go ahead, Brendan. Brendan Smith: Maybe just first, actually, on the regionalization of multiomics and NGS services. How should we maybe think about impact to margins there relative to kind of what you're doing in biorepositories and automated stores just over the next couple of quarters? Especially in the context of your commentary on margin expansion this year, really just trying to kind of understand the relative pushes and pulls, I guess, across segments as you're restructuring. And then I have a follow-up. John Marotta: Sure, Brendan. Always good to hear from you. So Laurence can get into the particulars around this, but all of that's forecasted good line of sight into what we wanna do there. From a regionalization perspective, specifically around synthesis. I mean, we're very pleased with how we are moving into that strategy right now and executing on that strategy. I think you're gonna be hearing more about that in the coming months. You know, our gross margin, we make we do well. I mean, that's a 65 plus gross margin product category for us. You know, we're seeing some North America share loss in synthesis, but we're also seeing some traction in certain areas right now in North America. So there's a bit of an offset right now. Specifically. I think you're gonna see gross margin improving in certain areas because of our automation investments, but some of the technology side that we've got in our hands as well. So more to come on that. Specifically. Laurence Flynn: Yeah. Brendan, I you know, certainly, really pleased with what the China team is doing. But when you look at kind of the dynamic of Asia and North America there, lower margins in total for multiomics. As we talked about, certainly, we've got a North America sales team reboot here. Certainly will read through in the second half of year. So you're gonna see a significant ramp in North America, which really does translate to a higher gross margin profile overall. Brendan Smith: Great. Thanks, guys. And, actually, you just took question out of my mouth. Just on the NGS strength in China, I think you noted 26% of organic growth there, if I'm not mistaken. So can you just quickly maybe give us a sense of what you're seeing that's kind of underpinning that? And if you expect kind of growth at that rate to continue over '26? Thanks, guys. John Marotta: You bet. Biotech and pharma are I mean, they're really we're seeing a lot of momentum in that segment. We've always been well-positioned because of our China for China brands, go to market, very regional. We show up. I mean, our China team is fantastic. If you look at kind of the framework that we look at, in our business in general, it's people structure, process, performance. That team is hitting on all cylinders. And so you're seeing that read through on the results right now, of course. In other regions, it's a mixed bag right now because we're in the turnaround. But our China team shows up really well with our customers in pharma and biotech. A lot of investment going into those end markets right now. As you know, geopolitically, I think and we've shared this with you all separately, but I think it merits a broader comment here publicly. You know, where I think geopolitically, there's a lot of focus around kind of 5G, 6G quantum AI, and semi biotech and life sciences. We're also seeing that read through. And China is very much investing behind that life sciences and biotech sector, and that's where our team shows up really, really well. Operator: Thank you. Ladies and gentlemen, at this time, we have no other questions registered. So I would like to turn the call back over to CEO, John Marotta. John Marotta: Very good. Thank you all. And first off, I want to thank the team as always. I mean, nothing gets done without our team showing up every single day, and we're really proud of the direction we're going in in our leaders here. As well as our individual team members. I wanna thank you for joining our earnings call today. In summary, we're continuing the work we're doing in the company-wide turnaround and transformation. This is an important journey we're on, and we're very excited about creating long-term shareholder value over the next few years. Thank you again. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Enjoy the rest of your day.
Gabrielle Brown: Ladies and gentlemen, thank you for standing by. Welcome to the Fox Corporation Second Quarter Fiscal Year 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. I would like to emphasize the functionality for the question and answer queue will be given at that time. If you require assistance during the call, please press star then 0 on your touch. As a reminder, this conference is being recorded. I'll now turn the conference over to Chief Investor Relations Officer, Ms. Gabrielle Brown. Please go ahead, Ms. Brown. Gabrielle Brown: Thank you, Krista. Good morning, and welcome to our fiscal 2026 second quarter earnings call. Joining me on the call today are Lachlan Murdoch, Executive Chair and Chief Executive Officer, John Nallen, President and Chief Operating Officer, and Steve Tomsic, our Chief Financial Officer. First, Lachlan and Steve will give some prepared remarks on the most recent quarter, and then we'll take questions from the investment community. Please note that this call may include forward-looking statements regarding Fox Corporation's financial performance and operating results. These statements are based on management's current expectations, and actual results could differ from what is stated as a result of certain factors identified on today's call and in the company's SEC filings. Additionally, this call will include certain non-GAAP financial measures, including adjusted EPS and adjusted EBITDA, or EBITDA as we refer to it on this call. Reconciliations of non-GAAP financial measures are included in our earnings release and our SEC filings, which are available in the Investor Relations section of our website. We also refer to free cash flow, which we define as net cash provided by operating activities less capital expenditures. And with that, I'm pleased to turn the call over to Lachlan. Lachlan Murdoch: Thank you, Gabby, and thank you all for joining us this morning. As you can see from our release, the operating and financial momentum that we have delivered over the last several years has continued to build over 2026. It is the product of both a highly differentiated strategy and high-quality execution that reflect the power of our leadership brands across news, sports, streaming, and entertainment. Our favorable results were broad-based, including notable strength in advertising revenue where, despite high political advertising a year ago, we still adroitly grew total company advertising revenue. I made the comment last quarter that we were experiencing the most robust advertising market we have seen for some time. That remained true during the second quarter, and it continues to be true today, where we are seeing unabated healthy trends and positive metrics across our portfolio. In sports, we achieved record-breaking ad revenue for the Major League Baseball postseason capped off by a seven-game World Series. We also generated records for both the National Football League and college football regular season. Looking forward, we've had a strong NFL postseason, and we're now gearing up for our marquee motorsports events, the Daytona 500 and Indy 500. And, of course, the highly anticipated FIFA Men's World Cup starts in June. At NEWS, despite comparisons to a heavy political news cycle in the prior year, we not only grew advertising revenue in the second quarter but also achieved our highest second-quarter advertising revenue ever. News business, further demographic expansion, and pricing growth in both direct response and national advertising all contributed to this strong result. Distribution revenue grew 4% during the quarter, with subscriber declines notably improving sequentially even when excluding the contribution from Fox One, which continues to exceed our expectations driven by both direct sign-ups as well as partnerships. At this point, we have not observed any noticeable cannibalization of traditional subscribers, a result of our targeted marketing to cord-cutters and cord-nevers. Although Fox One launched just five months ago, we are encouraged by consumer reception to the product, and we've already gained meaningful insights into audience engagement trends. While live sporting events continue to drive the majority of engagement, news accounts for approximately one-third of total minutes viewed on Fox One. Notably, news viewers engage with the platform twice as many days per week as non-news viewers, and watch it nearly three times as many minutes per week on average. These patterns reinforce our view that Fox One is not only the premier destination for live sports but also the leading platform for timely, relevant live news streaming. Whether streaming, linear, social, or digital, Fox News Media continues to meet our audiences where they are. Over the past twelve months, a fast-moving and consequential news cycle has reinforced Fox News Media's leadership position with audiences turning to the network for live coverage and in-depth analysis. Fox News again finished the quarter as the most-watched cable network in total day while maintaining its lead as the most-watched cable news network and producing the top 11 cable news programs. Again, according to recent Nielsen data, Fox News is the number one cable news network among all three political parties, which bodes well for the upcoming political election cycle. On the digital side, social media views for Fox News Digital were up an astounding 170% over the prior year, and both Fox News and Fox Business ranked number one in YouTube video views amongst their peers during the quarter. There is no question that Fox News Media remains front and center with today's audiences while actively engaging with the next generation of news consumers. We are focused on expanding our podcast content and talent across Fox News and the broader Fox platform, supporting our strategy to meet our audiences wherever they are. Underscoring fan engagement across the Fox brands, Fox Sports ended 2025 as the leader in live sports event viewership, a title it has held for six of the last seven years. From the World Series that drew over 27 million viewers for game seven, to a ten-year high NFL regular season viewership and the Big Ten championship setting the record for any championship game on any network, the strength of the Fox Sports portfolio is unmatched. We capped the season with the Seattle Seahawks NFC championship victory over the LA Rams, drawing 46 million viewers and providing a powerful lead-in to Fox Entertainment's "Memory of a Killer," the most-watched series premiere on any network this season, with over 11 million viewers across multiple platforms. The trend of strong engagement was further extended at Tubi, which delivered its most streamed quarter of all time and grew total viewer view time 27% year over year. Supported by an expanding content slate including the NFL Thanksgiving game simulcast and the premiere of "Sideline Two," a Tubi original that has become a fan favorite. This engagement growth was the strongest in seven quarters and powered by an on-demand viewer, which is over 95% of consumption on Tubi. Tubi's most streamed quarter translated into record quarterly revenue, which grew 19% in the quarter on an absolute basis. And this revenue growth once again translated to the bottom line, with Tubi achieving EBITDA profitability for the second quarter in a row. Meaningful audience engagement is a consistent and enduring theme across our results, highlighting Fox's unique cultural position. Ensuring that we constantly and deeply connect with fans across our brands is at the forefront of our strategy. As an example of this strategy in action, total minutes viewed across sports, news, entertainment, and Tubi increased 15% year over year in calendar year 2025. Amid strong competition, Fox stands out through compelling storytelling and deliberate investment in fan-driven content that delivers unmatched real-time reach. Together, these elements reinforce Fox's position as a trusted destination for audiences today while building lasting connections with future fans. We enter the second half of our fiscal year with strong momentum and with confidence in our strategic direction. Our emphasis on live sports and news, together with the strength of Tubi and increasingly Fox One, has driven exceptional performance and reinforced our leadership position across the portfolio. This focus, together with our strong financial position and best-in-class balance sheet, underpins our ability to deliver sustained growth and shareholder value. And with that, I will turn the call over to Steve to take you through the details of the quarter. Steve Tomsic: Lachlan, and good morning, everyone. Fox delivered yet another strong quarter, with our fiscal second-quarter total revenues reaching $5.18 billion, a 2% increase from the prior year quarter. Distribution revenues grew a healthy 4%, reflecting the strength of our brands and the must-have nature of our channels. Advertising revenues grew 1% despite facing a difficult comparison to last year's record political cycle, driven by strong linear pricing across our portfolio, continued robust revenue growth at Tubi, and a seven-game World Series of sports. Content and other revenues were flat compared to the prior year quarter as high sports sublicensing revenues were offset by lower entertainment content revenues. Quarterly adjusted EBITDA was $692 million as compared to the $781 million reported in the prior year quarter, as the increase in revenues was offset by higher expenses including growth-driven spend at our digital-led growth initiatives and higher sports programming and production costs partially offset by lower entertainment programming and production costs. Net income attributable to stockholders was $229 million or $0.52 per share compared to the $373 million or $0.81 per share reported in the prior year period. Excluding non-core items, adjusted net income was $360 million and adjusted EPS was $0.82. Turning to our segments, starting with cable, which delivered revenues of $2.28 billion and adjusted EBITDA of $687 million, both representing growth of 5% versus the prior year quarter. Cable advertising revenues grew a robust 7% driven by higher pricing in news and sports. Cable distribution revenues increased 5% as pricing gains from our affiliate renewals outpaced the impact from net subscriber declines, which continue to improve both inclusive and excluding the contribution from Fox One. Cable content and other revenues grew 4% predominantly due to high sports sublicensing revenues, which were offset by a corresponding level of sports rights expenses. Reported expense growth at cable was 5%, with higher sports programming and production costs partially offset by lower news gathering costs relating to our coverage of last year's presidential election. Now turning to our television segment, which reported $2.94 billion in quarterly revenues. Advertising revenues at television were unchanged, as continued growth at Tubi, the impact of additional MLB postseason games, and pricing strength across our sports schedule were offset primarily by the absence of last year's political advertising revenues. Television distribution revenues increased 1% in the quarter as healthy growth in fees across Fox-owned and affiliated stations more than offset the impact from industry subscriber declines. Television content and other revenues were down 19% year over year, primarily due to lower revenues tied to our entertainment production studios which were impacted by the timing of deliveries. Expense growth at our television segment was held to a modest 1% driven by high sports programming rights and production costs, and continued investment at Tubi, partially offset by lower entertainment programming and production costs. All in, EBITDA at our television segment was $143 million compared to the $205 million in the prior year quarter. Turning to free cash flow, where we recorded a deficit of $71 million this quarter. This is consistent with the seasonality of our working capital cycle where the first half of our fiscal year reflects the concentration of payments for sports rights and buildup of advertising-related receivables, both of which reverse in the second half of our fiscal year. In terms of capital allocation, demonstrating our commitment to utilizing our full buyback authorization fiscal year to date, we have repurchased an additional $1.8 billion through our share buyback program. This brings the total cumulative amount repurchased to $8.4 billion or approximately 35% of our total shares outstanding since the launch of the buyback program in 2019. This includes $1.5 billion of the accelerated share repurchase transaction we announced last quarter, for which the initial tranche of approximately 8.5 million Class A and 10.9 million Class B shares have been retired, with the remainder to be settled during the second half of this fiscal year. In addition, today, we announced a $0.28 per share semiannual dividend. With this dividend distribution, our total cumulative cash return to shareholders in the form of both dividends and share buybacks will have reached approximately $10.4 billion since the establishment of Fox Corp. These capital return measures are supported by the strength of our balance sheet, where we ended the quarter with approximately $2 billion in cash and $6.6 billion in debt. And with that, I'll turn the call back over to Gabby. Gabrielle Brown: Great. Thanks, Steve. And now we will be happy to take questions from the investment community. Operator: Ladies and gentlemen, I would like to emphasize the functionality for the question and answer queue. If you wish to ask a question, please press star then 1 on your touch-tone phone. You will hear a tone indicating you have been placed in queue. You may remove yourself from queue at any time by pressing the star then 1. If you are using a speakerphone, please pick up the handset before pressing the numbers. It has been requested that you limit yourself to one question. Once again, if you have a question, please press star then 1. At this time. One moment for the first question. Our first question comes from John Hodulik with UBS. Please go ahead. John Hodulik: Great. Thanks. Good morning, everyone. It looks like cable advertising is really the standout. Can we talk a little bit about that? First, on the news side, you guys closing the gap with in terms of CPMs with broadcasting? And how should we expect that to sort of move forward as the comps get easier as we move into the midterm elections? That's on the news side. For sports, any color there in terms of pricing? And how should we think of the how you guys look at profitability of the World Cup this year versus what you've had in the past given it's in the US? Thanks. Lachlan Murdoch: Good morning, John. Thank you. Good to hear your voice. First off, on cable advertising, the news I say the news advertising market, but certainly the advertising market for Fox News has been incredibly robust. This half, we've added about 200 new advertisers. And you have to remember that's on top of the 350 new advertisers that we added last year. So the demand for the product and the demand for the audience remains incredibly strong. That's also, you know, reflected in our scatter pricing, per news, which is, you know, which is up sort of an embarrassing, 46 or 47% year on year. We don't compare scatter pricing and news to the upfront because news doesn't have traditionally large upfront, so we compare it sort of on year on year pricing. So scatter pricing is very strong, direct response pricing is strong. And we couldn't be more pleased with the performance of advertising sales at Fox News. Moving forward into the political cycle, we expect that that's only a positive for us. We expect a robust political advertising cycle. Of course, we benefit from that primarily at our local station group. If you'll remember from the last political cycle, you know, news has started to see a growing appetite for national political advertising, and we would expect to be the primary beneficiary of that Fox News. And why do we expect to be the primary beneficiary? Because Fox News is not only the number one news source for Republicans and conservatives, but it's also the number one has more Democrats and more independents watching Fox News than watching our competitors. So we feel that we're in a very good position, going forward into this political cycle. As for the I think your second question was on the World Cup. Will it be profitable? Yes. It will. There's a tremendous excitement around the World Cup by, you know, the sponsors and other traditional advertisers. We're looking forward to a great competition and to a sort of robust advertising market on our sports platform. Operator: Next question, please. Operator: Your next question comes from the line of Jessica Reif Ehrlich with Bank of America Securities. Please go ahead. Jessica Reif Ehrlich: Thank you. Good morning, everybody. I have two questions. On the NFL, like, step up, we all know that's coming, and, obviously, the positive is it will give you certainty. But, you know, we're also expecting, like, a big step up in cost. I don't know if you can address that or not, but do you think about offsetting increased cost thinking there are there any new ways to monetize? Like, how are you thinking just about the NFL, like, new contract? And then, Stephanie, it's a little little bit weird, but it I mean, unusual for me, but it's we we never talk about entertainment on this call. But it seems like you've you've been making a lot of talent deals in the last few months. And it it seems notable. So how are you thinking about the entertainment business overall? Are there any changes that you're contemplating? Thank you. Lachlan Murdoch: Hey, Jessica. Hope you're well. So starting with the NFL, look, we we don't want to speculate in terms of what the you know, how the NFL will will choose to move forward in terms of their option to renegotiate their their their rights. I would agree with you that, obviously, the benefit of that is is giving us certainty as we move forward. It's obviously, you know, tremendous, tremendous content for us. And they've been a really fantastic partner. And although this year's Super Bowl is not is not ours, you know, we're we're certainly looking forward to it as we're all all fans. So again, without speculating, you know, we have the ability to offset a portion of any kind of cost increases. Because we look at our sports portfolio as a whole. So, you know, we were certainly, you know, consider, you know, balancing or rebalancing our portfolio as as we move forward, you know, those when those opportunities become available. So we feel we feel pretty comfortable about sort of the the sports business as as we as we move forward. On entertainment, you know, we we the we continue with our our existing strategy on the entertainment network. Now as you know, we balance scripted and non-scripted programming efficiently to maintain sort of an efficient and, you know, sort of ultimately sort of profitable cost base in that business. But we will always sign first-look deals and and and their creative deals, you know, with the best content creators and producers and and writers in the in the industry. And, you know, the proof is in the pudding, because, you know, this past season, with the launches of, good medicine, with the launch of, fear factor, with the launch of, a memory of a killer, all these launches achieved over 10 million viewers in in their first week across multiple platforms. This is the best season launch we've had in approximately thirteen years. So and and that's that's also reflected in revenue at at at the entertainment network, which was up in this quarter or this half for the first time in in in many years. So we're we're we're pleased with that strategy. It's not a assigning first appeals or signing a creative deals. It's something that we've we've we've always done, and we'll continue to do so. Operator: Right. Next question, please, operator. Operator: Your next question comes from Michael Ng with Goldman Sachs. Please go ahead. Michael Ng: Hey, good morning. Thank you for the question. I just have two. First, Lachlan, I was just wondering if you could talk a little bit more about the performance of FOX-one what's been driving the upside relative to your expectations? And as we go into the rest of the year and think about things like sports seasonality, do you expect any of the subscriber momentum to be impacted by that? And then second for Steve, relatedly, could you just explain where FoxOne sits in the P and L? Is it in distribution revenue? Is it in corporate and other or both perhaps? But, I think there have been some disclosure changes I just wanted to make sure we understood how Fox One was flowing through the P and L. Thank you very much. Lachlan Murdoch: Thanks, Mike. Alright. I'll start with the first question. So you know, we we are incredibly pleased with the performance of Fox One. It has exceeded our expectations in terms of its enthusiastic take-up by consumers. I think as I might have mentioned in my comments and but you would know, about two-thirds of the audience are sports fans and come to the platform first for sports. And about a third are news fans and regular news viewers. The you know, we we would maintain our I I'll say we would maintain our expectations of having sort of low to mid-single-digit millions of subscribers the next three or four years. We're well on track to hit those benchmarks for us. And we'll see as we move forward. But sports seasonality. What we're actively doing, very proactively doing, is promoting the sports now that the football season is over. Promoting, you know, the tremendous sports site that that we have on the on Fox One on the platform, whether it's Daytona 500 or Indy 500, the start of the baseball season, and obviously moving forward into the World Cup. So it's too early to tell what sort of a how how significant seasonality will be, but we're actively working to ameliorate any sort of declines that that we might have. Steve Tomsic: Hey, Mike. It's Steve. Just on how we trade Fox One through the P and L. So the best way to think about it is the platform cost, the cost of sort of running Fox One as a business. It's in our corporate segment. And so you'll have seen that the corporate segment, the EBITDA negativity there has gone from $81 to $138. That's predominantly sort of the Fox One cost. It then pays, like, almost like a virtual MVPD. It then pays an affiliate fee to the networks for the programming, and we record that in the two segments, cable and TV. Operator: Next question, please. Operator: Your next question comes from Michael Morris with Guggenheim. Please go ahead. Michael Morris: Thank you. Good morning. Wanna ask one about distribution and then one about Tubi, if I could. On distribution, can you share a bit more detail on the improvement in the rate of subscriber declines that you saw? How much did that improve? What do you think the drivers are there? And I think you're in your last year of renewals under your current contract vintages. How do you see yourself positioned for the upcoming renewals? So that's the first question. And then second on Tubi, can you share some more detail about the growth rate that you saw there on advertising during the quarter, how that's pacing for the balance of the year? And what some of the drivers there are. Thank you. Lachlan Murdoch: Thanks, Michael. On distribution, yeah, we're we're pleased to see the sub 6.5% decline in our subscriber base. That's 6.3% but it's I don't know why we don't say 6.3, but it's sub 6.5 to 6.3. And and that's the, you know, that's a that's that's a great improvement, you know, and and and to improvement actually over over over some quarters. So we're very pleased to see that. That number excludes Fox One. So if we were to include our Fox One subscribers that are paying subscribers of our content just in the way that the cable subscribers are, that number would be would be better. But we've chosen out of an abundance of caution not to include the Fox One subscribers in that in that subscriber numbers. And, nevertheless, we're we're very pleased with the 6.3% decline and and improving. What's driving that? It's too early to say, but we would expect that the emergence of skinny bundles in the cable universe will be playing a factor and potentially an increasing factor in keeping sub declines down. It's early because a lot of the distributors are only launching now or planning launch soon, their skinny bundle packages. For us, for Fox, we like skinny bundles. We are in the skinny bundles. We are paid by the distributors for all of our channels. We bundle our channels when we sell them to distributors, and we give them some flexibility in how they want to take those channels and market them to their consumers. So for us, skinny bundles are a positive, and we look forward to distributors continuing to make their packages more effective, more efficient for the consumer. On Tubi, you know, Tubi has continued to grow. Obviously, TBT growth is a the lead sort of indicator of what we can then translate into revenue. Growth of 27%. Coupled with, you know, a very strong upfront for Tubi, a healthy, direct response and partner trends, and also direct advertiser trends with big clients, all of that really drove that revenue growth of 19% in the second quarter. You have to remember that Tubi's audience is younger. It's more diverse. And it's hard to reach 70% of Tubi's user base are cord-cutters or cord-nevers. This is higher than any of our competitive set and really puts us in a prime position with our advertising clients. Steve Tomsic: Yeah. Mike, just to pick up, I think you asked also about vintages. In terms of renewals come we're pretty much done for the year. There's not much in the back end of our current fiscal year, but then we ran in '27 and '28. '27 will be more skewed towards TV in '28. More skewed towards cable. Operator: Next question, please, operator. Operator: Next question comes from the line of Robert Fishman with MoffettNathanson. Please go ahead. Robert Fishman: Good morning, everyone. Can I just follow-up on the Skinny Bundles? We've talked about this for for many years and waiting for these launches. The upcoming launch with with YouTube TV's sports pack depending on how aggressively they price it, I'm curious if you can talk specifically about the Fox News economics, which I don't think is included in that specific package. If there is a trade down from other pay TV subscribers, who might only want sports, are there protections in place that you were just kind of referencing that to limit that downside? And then on the sports betting side, just curious your updated thoughts on the prediction market. Lachlan Murdoch: Whether this is a new opportunity to license or, you know, how you see this playing out like the partnership ESPN did with DraftKings. How how you think you want to approach the whole FanDuel partnership in general? Thank you so much. Thanks, Robert. So on skinny bundles, as I said, we are we are a net beneficiary of Skinny bundles. The short answer to your question is yes. We as we sell to our distributors our entire bouquet of channels, we are not impacted by whether they choose to offer a sports bundle or a news bundle or another type of bundle. They acquire our channels as a bundle, then they have flexibility in terms of how they market them to their consumers. So we do have that downside protection when it comes to how skinny bundles are offered, as each distributor chooses to uniquely offer them to their customer base. I should just say that it's we are a fan of the of the bundle, right, of the core bundle. You know, we think consumers and sort of our consumers want to enjoy all of our content and enjoy all of our brands. And that's why we have the number one sports brand and the number one news brand in the market. So I should note that YouTube post this football season is offering a discounted bundle for the all traditional channels. So before they launched their sports pack, they're actually offering a bundle including news, including sports, and other channels to retain their customers. So we're a big fan of the big bundle. You know, obviously, YouTube and others are big fans of the big bundle. But when ultimately these skinny bundles roll out, we think we're a net beneficiary of them. In terms of sports betting and prediction markets, I should preface this with saying that, you know, we continue to be big fans of Flutter and FanDuel. Our two and a half percent of Flutter is worth about $700 million. And our option, if you look at the sort of average sort of buy-side valuation of our option of 18.6%, in FanDuel remains worth about $2.1 billion. If you take the two of those together, $2.8 billion, that's worth about 6 to $7 per share on our share price, which we don't think is reflected today. So we are big fans of sports wagering, particularly Flutter and FanDuel. And we're watching the prediction markets growth with interest. It is an opportunity for us in terms of advertising and sort of deals with these emerging prediction markets. And I think over time, you'll see revenue flowing to us from an advertising significant revenue flowing to us from an advertising perspective from these clients. Operator: K. We'll take the last question, operator. Operator: Last question comes from Thomas Yeh with Morgan Stanley. Please go ahead. Thomas Yeh: Good morning. Yeah. Back on the ad market last night, you mentioned new advertisers coming into news. Can you just help unpack which categories you're seeing particular strength in? Or are these new categories like the prediction market one that you just mentioned or GLP ones and consumer AI services being additive? And then on the midterms, is there a view on whether more political spend either at the national or local level migrates towards CTV, and how do you position Tubi in that particular instance to capture more of the political revenue opportunity? Lachlan Murdoch: Sure. Thanks, Thomas. So on the ad market, if I just step back one step for some perspective, if you look at the Fox portfolio of brands and businesses, about 94% of our ad of our sorry. I should preface our national advertising sales. 94% come from sports, news, and streaming. 6% comes from entertainment. Of course, you know, what we know is the live news, live sports, and streaming are the segments where there's where there is growth and there is a, you know, great advertiser appetite for those segments. And the vast majority of our business is in those segments. When I look at the category spend, and, again, I'm just talking national, and I can didn't ask about it, but I can touch briefly on local in a minute. If I look at advertising category across our national portfolio, this includes sports and news. You know, of the top 10 categories that we track, you know, financial, pharma, retail, packaged goods, etcetera, automotive. Eight of the top 10 categories are significantly up. We've had significant demand for the eight of the top categories. Leading that is financial, which is obviously, you know, really led by the insurance companies. So great strength across all categories. The ones that are modestly down entertainment, which is just, you know, movie premieres, and then sort of government and some sort of corporate political spending, which we expect to obviously increase as we get into the political cycle. You know, so what does that translate to? Well, at Fox News Media, we've had the highest ad revenue. Fox News Media's history, for the first half. With, as I mentioned, 200 new advertisers added. For Tubi, the highest quarterly weekly, and daily ad revenue in Tubi history. On Fox Sports, in the NFL, the highest ad revenue for any Sunday package in history. The highest ad revenue for postseason at NFC championships game in Fox Sports history, the highest full-season ad revenue on college football in Fox history, and in Major League Baseball, the highest postseason ad revenue in Fox Sports history. So tremendous strength across our portfolio. I should also mention not to leave them out at Fox Entertainment. We had ad revenue exceeding prior year for the first time in four years. Locally, as I mentioned, the local market is more mixed. This is really a factor of the Super Bowl and the Olympics in this quarter we're now entering. But we feel pretty good about the local market. Although there it is mixed as historically is always true, Super Bowls and Olympic cycles absorb some of that local advertising revenue. Now it's a great quarter for us and the momentum continues into the third quarter. But I should just say that if you look at the sustainability of this strategy, if I look back over four years or five years of 2021, if I look at our peer set, excluding Fox, total advertising including streaming, for as a group. It's obviously mixed within it. It's down about 4% CAGR in advertising revenue over those, each year over those four or five years. At Fox, we're up about 8%. Of course, including streaming, you know, over those four or five years. 8% per year CAGR. And I think that just shows that the strength of the strategy the sustainability of the strategy, and why we're so excited about Fox's future. Thomas Yeh: Great. Gabrielle Brown: Thank you so much. At this point, we're out of time. But if you have any further questions, please give me or Charlie Casanzo a call. Thanks so much for joining us. Lachlan Murdoch: Thank you, everyone. Have a good day. Operator: Ladies and gentlemen, that does conclude the Fox Corporation second quarter fiscal year 2026 earnings Conference Call. Thank you.
Jeffrey S. Knutson: Welcome to the Twin Disc, Incorporated Fiscal Second Quarter 2026 Conference Call. We will begin with introductory remarks from Jeffrey S. Knutson, Twin Disc's CFO. Good morning, and thank you for joining us today to discuss our fiscal 2026 second quarter results. On the call with me today is John H. Batten, Twin Disc's CEO. I would like to remind everyone that certain statements made during this conference call, statements expressing hopes, beliefs, expectations, or predictions for the future, are forward-looking statements. It is important to remember that the company's actual results could differ materially from those projected in such forward-looking statements. Information concerning factors that could cause actual results to differ materially from those in the forward-looking statements are contained in the company's annual report on Form 10-Ks, copies of which may be obtained by contacting either the company or the SEC. Any forward-looking statements that are made during this call are based on assumptions as of today, and the company undertakes no obligation to publicly update or revise these statements to reflect subsequent events or new information. During today's call, management will also discuss certain non-GAAP financial measures. For the definition of non-GAAP financial measures, a reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued earlier today. Now I'll turn the call over to John. John H. Batten: Good morning, everyone, and welcome to our fiscal 2026 second quarter conference call. Despite a challenging operating backdrop, our diversified portfolio continued to demonstrate resilience. The demand remained robust across marine, defense, and select industrial applications. This strong demand continues to fuel confidence in the positioning of the business as our six-month backlog reached a record level once again during the quarter. As anticipated, tariff impacts were elevated in the quarter, approximately 3% of the cost of sales, as they continue to create friction across the industry, influencing customer behavior related to order placement timing and shipping lead times. Importantly, these impacts reflect modest delays in timing rather than lost orders. In response to these pressures, we continue to make progress implementing the mitigation strategies we've outlined in previous quarters, including pricing discipline, operational enhancements, and footprint optimization. During the quarter, we advanced planning efforts focused on evaluating footprint utilization and operating flexibility across our existing manufacturing network. Including actions such as adjusting production flows, or where appropriate, overtime, relocating certain activities to reduce structural tariff exposure. For example, we are planning to move RF assembly to our Lufkin facility, which allows us to assemble products in a tariff-advantaged environment, reducing the impact of import duties on finished goods. In the coming quarters, we'll expect tariff-related impacts to moderate, mix to improve, and our mitigation tactics to take effect. Our actions, combined with a record backlog, leave us well-positioned to capture underlying demand and drive further progress toward our long-term growth and profitability objectives. Defense continues to be a strategic growth driver for Twin Disc as demand builds across multiple programs and geographies, supported by elevated defense spending in The United States and NATO. Defense-related opportunities represent an increasingly diversified and durable portion of our total backlog, up 18% sequentially. As governments prioritize the modernization of marine, land-based, and autonomous platforms, we continue to support a broad range of defense platforms, including naval vessels, autonomous and unmanned systems, and land-based applications. This includes higher content items on US Navy patrol and autonomous vessel programs, as well as drivetrain and power transmission solutions supporting NATO land-based vehicle initiatives. Overall, our defense-related pipeline exceeds $50 million, which, in combination with our robust backlog, reflects our growing presence in the defense market. To support this growth, we have a substantial portion of the required capacity in place today, particularly in North America, leveraging our existing footprint and operational flexibility. Investments regarding capacity are expected to be related to European demand, focused on test stands and assembly capacity, not machining capability. Now let me walk you through the segment performance. Our marine and propulsion business demonstrated mixed results as sales were flat year over year. Robust demand across workboat, government, and specialty marine applications, supported by ongoing interest in higher content systems, hybrid propulsion, and advanced maneuvering solutions, drove performance during the quarter. However, this strength is partially offset by challenges in our commercial marine business in Asia Pacific amid a dynamic environment. Jet Propulsion specifically performed at a high level during the quarter, with customer engagement remaining strong. We also continue to see progress in autonomous and unmanned vessel applications where Twin Disc technologies are increasingly specified in higher value platforms. Aftermarket activity experienced some short-term softness late in the quarter, driven largely by customer timing and year-end dynamics. Encouragingly, early indications in the subsequent period point to improving activity, reinforcing our view that the demand environment remains constructive. With land-based transmission, sales decreased 8.1% year over year, to $17.5 million, primarily driven by shipment delays to ARF customers. Oil and gas customer behavior remained cautious, particularly in North America, where rebuilds and refurbishments continue to outpace new equipment purchases. That said, we are beginning to see signs that this cycle is maturing, which could support replacement demand over time. Internationally, oil and gas demand showed early signs of improvement, including increased activity in China, where customer engagement exceeded our initial expectations. We recently received a strong order for our 8,500 transmission and continue to see favorable demand trends in the region moving forward. International ARF demand remained healthy. We continue to advance next-generation electrified and hybrid solutions that position us well as customers evaluate longer-term fleet upgrades. Our industrial business continued to benefit from the breadth of our portfolio and the contributions from recent acquisitions, with sales up 22% year over year, to $11.5 million. Demand remains steady, and we are increasingly leveraging CASA's engineering and manufacturing capabilities across the broader organization. While the quarter included temporary operational disruptions, we are encouraged by underlying customer demand and the opportunity to drive higher content solutions across industrial applications as we work to enhance mix, further differentiate our offerings, and support long-term margin performance. Our backlog of $175.3 million was up 41.4% year over year and 7% sequentially. This record backlog remains a key strength for Twin Disc, providing solid visibility into 2026, reflecting underlying demand across our markets, with particular strength in global defense-related applications. Inventory levels increased during the quarter, primarily due to delayed shipments. However, inventory as a percentage of backlog improved by approximately 400 basis points sequentially, underscoring the strength of our backlog position. As these dynamics unwind and backlog converts, we expect working capital to improve as we move through the remainder of the year. Moving forward, our long-term strategy remains unchanged. We are focused on global footprint optimization, operational excellence, and disciplined capital allocation. We are continuing to streamline our organization and operate as a more integrated global platform, an important enabler of our tariff mitigation and capacity utilization strategies, as improved cross-business coordination allows us to better centralize sourcing, optimize resource allocation across sites, and respond more quickly to changes in demand or cost dynamics. Looking ahead, while near-term volatility remains, we are confident in our ability to execute through the cycle. Our diversified end markets, growing defense exposures, strong backlog, and ongoing operations initiatives position Twin Disc to improve performance as conditions normalize, and we deliver sustainable value over the long term. With that, I'll now turn the call over to Jeffrey S. Knutson to discuss our financial results in greater detail. Jeffrey S. Knutson: Thanks, John. Good morning, everyone. During the second quarter, we delivered $90.2 million in sales, up 0.3% from $89.9 million in the prior year period, primarily driven by strength in the marine and industrial product groups as well as the addition of CoVelt. On an organic basis, adjusting for M&A and FX, revenue decreased approximately 7.9% in the quarter, partially due to shipment delays related to customer attempts to time tariff impacts. Second quarter gross profit rose 3.2% to $22.4 million, and gross margin improved 70 basis points to 24.8%, reflecting the absence of inventory-related charges recorded last year, partially offset by unfavorable product mix in the quarter. ME&A expenses were $20.7 million in the second quarter compared to $18.9 million last year. The increase reflects the addition of CoVelt as well as ongoing wage and professional service inflation. Net income attributable to Twin Disc for the quarter was $22.4 million or $1.55 per diluted share compared to income of $919,000 or 7¢ per share last year. This large year-over-year improvement is due to an income tax benefit of $21.8 million, primarily related to the reversal of the domestic valuation allowance. EBITDA was $4.7 million for the second quarter, representing a 25% decrease versus the prior year, due to higher M&A expenses, tariff-related impacts that affected mix, and nonrecurring items. Geographically, sales growth was led by North America and Europe, supported by sustained demand for Veth products and incremental contribution from recent acquisitions. As a result, North America represented a higher share of quarterly revenue, while Asia Pacific and Latin America made up a smaller portion, reflecting regional market dynamics, a trend that we expect to continue and should soften tariff impact moving forward. Net debt increased to $29 million in the second quarter, primarily reflecting our strategic acquisition of CoVelt. We ended the quarter with a cash balance of $14.9 million, down 6.4% from the prior year. Turning to cash flow, we generated $1.2 million in free cash flow during the second quarter, representing a meaningful sequential improvement from the first quarter. This improvement was driven primarily by stronger operating performance and disciplined capital spending. However, working capital remains a headwind during the quarter as shipment delays and customer behavior resulted in higher inventory levels. As these shipments convert and backlog is realized, we expect working capital to improve and cash generation to strengthen as we move through the second half of the fiscal year. As such, our focus remains on disciplined inventory management, converting backlog into cash, and improving overall cash flow consistency over time. Although lower sequentially, gross margin improved 70 basis points compared to the prior year period, reflecting the absence of prior year inventory-related charges. Margins in the quarter were pressured by several temporary factors, including unfavorable mix due in part to delayed aftermarket shipments as well as incremental costs associated with an isolated warranty replacement. While these near-term pressures weighed on results this quarter, they are largely timing-related or nonrecurring in nature. Moving forward, as shipment patterns and mix normalize, we remain confident in our ability to deliver sustainable, profitable growth. From a capital allocation perspective, our priorities remain unchanged. We continue to focus first on supporting the business through organic investment, including capacity, operational efficiency, and product development, while maintaining a strong and flexible balance sheet. We remain disciplined in our approach to capital deployment with an emphasis on preserving liquidity, managing leverage, and selectively evaluating acquisition opportunities that align strategically and meet our return thresholds. At the same time, we continue to balance growth investments with cash generation and working capital efficiency, particularly as we focus on converting backlog into revenue and cash in the second half of the fiscal year. I'll now turn the call back to John for his closing remarks. John H. Batten: Thanks, Jeff. In closing, while the second quarter included near-term challenges, the underlying fundamentals of our business remain strong. Demand across our core markets continues to be supported by a strong and diversified backlog with growing defense exposure and a portfolio that is well aligned with our customer needs. We are actively addressing the factors that impacted results during the quarter, including mitigating tariff exposure, improving operational execution, and continuing our focus on converting backlog into revenue and cash. As these actions take hold and shipment patterns normalize, we believe Twin Disc is well-positioned to deliver improved performance over the balance of the fiscal year. With that, I would like to open the line for questions. Operator: Thank you. We will now begin the question and answer session. Raise your hand and join the queue. If you would like to withdraw your questions, our first question comes from David S. MacGregor from Longbow Research. Please go ahead. David S. MacGregor: Hey. Good morning. This is Joe Nolan on for David. Hi, Joe. Joe? Jeffrey S. Knutson: Hey, guys. David S. MacGregor: So this quarter, you guys faced a pretty difficult revenue comp of up 23%. Year ago, compares get a little bit easier in the second half, but are still up low double digits. I guess my question is, just with the delayed shipments and some of these factors, just wondering how much push for it on some of that business you got from 3Q and what do you think is achievable for top line growth for the balance of the year? Jeffrey S. Knutson: Yeah. I mean, it's a good question, Joe. Think tariffs are unpredictable. I think you know, we expect to see good growth in the second half and sort of progressing from Q2 to Q3 to Q4. So with March being our stronger quarters, I don't really have a percentage growth, but I think, you know, we should trend sort of like what we did in the previous years as we grow through the year. With the you know, like, we had the noise in Q2. Right? Which it's a little bit unpredictable what customers are going to do regarding tariffs, and it's unpredictable how the tariff environment will evolve. Sort of day to day, week to week. But given some consistency in that, I think we're set up for a pretty good second half revenue-wise. Got it. Okay. David S. MacGregor: And then on gross margin, could you just talk about the puts and takes in sequential gross margin bridge from '26? I know you mentioned the delayed shipments, and I believe you mentioned the warranty cost impact, if I heard correctly in the prepared remarks. Jeffrey S. Knutson: Yeah. We had a few things happen. So some isolated things. I think you know, if we get into the details of it, they're all kind of you know, not huge impacts, but, you know, they move the needle. For instance, as we invoice tariff revenue, so the tariff expense flows through our revenue line with no margin, that serves to gross up our revenue and dilute our margin percentage. That has an impact of 50 or 60 basis points compared to Q1. We had an operational delay at our factory in Finland. We had an isolated quality issue that we captured in the quarter. Those two in combination are about 60 basis points. So those are what we would call kind of noise in the quarter that wouldn't recur. And then the rest is essentially mix. So aftermarket, you know, being our higher margin business saw some delays in the quarter. Again, with customers pushing out shipments and orders related primarily to tariff and timing of when they're gonna get that inventory. And outside of that, it's, you know, project-related revenue and margin at Veth, some of that was a bit of a drag on the quarter compared to Q1. So, you know, kind of a broad-based mix impact outside of those two kind of discrete items impacting the quarter. David S. MacGregor: Got it. Okay. And then, just on tariffs, it sounds like you're expecting tariff impact to moderate as we move through the year. If you could just maybe give any detail on just how mitigation efforts are going on your end and just kind of how you expect that impact the trends for the year? John H. Batten: Yeah, Joe. I would it's John. So I guess what will so the tariffs, the 230 Twos, Right Now, Our Assumption Is That We're Gonna Have The Same Percentage On Steel, And Aluminum So We're Not So What's Gonna What's Gonna Help The Overall Mix Of Tariffs Tariff Impact That We're Going To Be Selling More Products That Aren't As Affected As Much By The Tariffs. The Primary So The Products That Have The Most Impact Are ARF Transmissions Where A Lot Of It Is Sourced A Lot Of The Components Are Sourced Overseas. We Assemble And Test In Racine, Wisconsin. And then ship out overseas. So we get a big a 50% tariff on a lot of the parts and we ship the transmission out from Racine. The other part the other components sorry. The other product line that's the most effective is our industrial products at Lufkin. Again, a lot of those parts come from India. They're now tariffed at 50%. And the majority of the shipments are into The US. So there's the tariff impact there. One of the things that we're doing, and it won't affect this year, but it will set up 27, is we're moving assembly and test of the majority of the ARF transmissions down to Lufkin, which is in a free trade zone. And so we can bring the parts in from India or wherever they're coming in from, assemble and test, and paint in Lufkin, and then ship out, and we won't have the tariff impact. And that's about Right now, the tariff impact on those units is probably 10 full percentage points of gross margin. So thankfully, the balance of the year, the ARF transmissions aren't as big a percentage of sales as they were the second quarter. Or the first half. So the margin improvement we're slated is to take effect in fiscal 'twenty seven. So that's the big I would say biggest thing that we're focused on right now is changing the location of assembly test paint of our RF transmission to mitigate the gross margin percentage. But that won't have an effect on the balance of this year We'll see that in the '7. David S. MacGregor: Got it. Okay. That's helpful, Pete. I also just wanted to ask about that margins. You guys had a nice margin performance. I assume those margins are continuing to improve. Can you just talk about your confidence in that business and confidence in growing margins over the next few quarters? John H. Batten: Yeah. It's John again. So they have done a great job coming out of COVID where a lot of projects were quoted. At a fixed price, and then we saw the inflation and supply chain issues. They've done a much better job at estimating their cost. Building in known inflationary increases, But then just on pricing discipline, understanding the value in the marketplace, and going after markets that appreciate the value of what they're selling. So I'm fairly confident that they can, you know, continue this level and even continue to grow. They've they have now tapped into our supply chain in India. And are finding alternate sources that may have been sourced in Europe in lower-cost countries. So pretty confident in that group. They're doing a very good job understanding their business. What the cost drivers are, how they can mitigate it, and more importantly, where they can find value in the market to warrant a higher price. David S. MacGregor: Got it. Okay. Alright. And then also on oil and gas, the international oil and gas business, you mentioned seeing some improvements in China and then that Yeah. Exceeded expectations. Can you just talk about what was happening there? John H. Batten: Yeah. So, I can't make a direct correlation, but we got the order more or less within a week of Venezuela. So, I can't say there's a direct correlation. But it seems like the activity for domestic production in China started to grow, and they realized that there may not be a reliable supply chain coming from someplace else. No one said that, but it was just kind of interesting timing When we've been hearing that for the last quarter, of the calendar year, so our fiscal second quarter, that things were slow. They had too much inventory sitting idle. And then all of a sudden, you know, the very first week of the year, They basically came in. What he anticipated we were hoping for a budget you know, for the entire fiscal '26. They came in with one order and exceeded that budget. David S. MacGregor: Got it. That is interesting timing. And then just just last one for me. Could you just update us on I think, military orders you said backlog up 18% sequentially. Just talk about the strength in that business. John H. Batten: Yeah. It's I Jones, it's I'm a broken record. It's really, again, two buckets primarily. It's the unmanned vessels that the navy are doing. We got more orders for those vessels. And in Europe, at our at Casa in Finland, more orders for the four sorry, the six by six and the eight by eights. That are being built for the NATO countries. So the OEM got more orders from more countries and therefore, we got more orders from the OEM. So that is, you know, the focus for us is to make sure that we have the capability to we can meet production today, but we're fully anticipating that both programs are gonna grow significantly. We've been told that. So you know, there's focus here in The US to make sure that we have capacity for those marine transmissions. And likewise, in Finland, make sure that we can grow that we have the capacity to meet that growing demand. And keep all of our other business. So we're hyper-focused on both of those areas. David S. MacGregor: Okay. Great. That's all for me. Thanks, guys. I'll pass it on. John H. Batten: Alright. Thanks. Thanks, Joe. Operator: There are no further questions. I would like to turn the call back over to John Batten, CEO, for closing remarks. John H. Batten: Thanks, Jericho. We hope that we've answered all of your questions today. If not, please contact either Jeff or myself. And we'll answer as quickly as possible. And, again, we appreciate your continued interest in Twin Disc and we look forward to speaking with you in May after our third quarter results. Jerica will turn the call back to you. Operator: Thank you. This concludes today's conference call. Thank you for joining. You may now disconnect.