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Operator: Hello, and welcome everyone to the ATI Fourth Quarter and Full Year 2025 Results Conference Call. My name is Becky, and I will be your operator today. All lines will be muted throughout the presentation portion of the call with a chance for Q&A at the end. I will now hand over to your host, David Weston, to begin. Please go ahead. Good morning. David Weston: And welcome to ATI's Fourth Quarter 2025 Earnings Call. Today's discussion is being webcast at atimaterials.com. Joining me are Kimberly Fields, President and CEO, Rob Foster, Senior Vice President and CFO, and Don Newman, ATI's retiring CFO now Senior Adviser to the CEO. Before starting our prepared remarks, I would like to draw your attention to the supplemental presentation that accompanies this call. Those slides provide additional color and details on our results, capabilities, and outlook and can also be found on our at atimaterials.com. After our prepared remarks, we'll open the line for questions. As a reminder, all forward-looking statements are subject to various assumptions and caveats. These are noted in the earnings release and in the accompanying presentation. Now turn the call over to Kimberly Fields. Good morning, everyone, and thank you for joining us. Kimberly Fields: Before I begin, I'd like to welcome Rob Foster as ATI's new Chief Financial Officer. Rob brings deep operational experience, strong financial discipline, and proven leadership to this role after more than a decade at ATI. He has been a trusted financial partner of mine since 2019, and I'm confident he will help lead ATI into its next phase of profitable growth. I also want to thank Don Newman for his leadership over the past six years. Under Don's tenure, ATI completed a successful transformation, expanding margins, strengthening cash flow, and sharpening our focus on differentiated aerospace and defense markets. Don will share highlights from our 2025 performance shortly. Turning to our results, the fourth quarter capped a very successful full year. We exceeded profit and free cash flow expectations, expanded margins, improved operational reliability, and deepened our customer relationships. We are entering 2026 with momentum across our core markets in aerospace and defense. Let me start with the key results in the fourth quarter. Q4 revenue was $1.2 billion. Adjusted EBITDA was $232 million, above the high end of our guidance range. Adjusted EBITDA margin was 19.7%, an increase of 180 basis points from Q4 2024, demonstrating continued progress toward our 2027 margin goals. For full year 2025, revenue was $4.6 billion, up 5% year over year, driven by 14% growth in aerospace and defense. Adjusted EBITDA exceeded $859 million, up 18% year over year. Adjusted EPS was $3.24, up 32% from 2024. Adjusted free cash flow totaled $380 million, up 53% from 2024, also exceeding the high end of our guidance. We returned $470 million to shareholders this year, representing 124% of free cash flow. These results reflect disciplined execution, strong pricing, and favorable mix driven by our most differentiated products. Given our confidence in customer demand and our ability to execute the ramp, we are guiding to $1 billion of adjusted EBITDA at the midpoint of our guidance range for 2026, a 16% increase year over year. There are three key reasons we are confident in this outlook. First, aerospace and defense demand continues to be strong entering 2026. Commercial aerospace demand is accelerating across narrow body and wide body platforms. Next-generation engines continue to gain share. Airframes and engines rely on ATI proprietary alloys, forgings, and specialty materials. We're seeing a step change increase in order activity beyond what we would normally see in seasonal first quarter strength across both long-term agreements and transactional demand. Within A&D, full-year jet engine sales grew 21%. As fleets transitioned from legacy to next-gen engines, ATI's content per engine is increasing. With these newer platforms moving into service, we also see aftermarket demand growing. Together, these dynamics create compounding growth that strengthens our position year after year. A clear example of the growth we've seen is isothermal forging deliveries to Pratt and Whitney, where ATI's content has grown six times from 2023 to 2025, with further growth ahead. This is largely in support of Pratt's GTF accelerated shop visit program. As a priority supplier to our key aerospace customers, we continue to gain share and expand content as customers increasingly value on-time delivery, execution, quality, and reliability, particularly in areas where other suppliers have experienced constraints meeting ramp-up requirements. In defense, demand remains strong and diversified, increasing governmental spend across naval, air, missile, and ground systems. ATI's annual defense revenue grew 14% year over year, with missiles up 127%, driven by sustained demand for alloys like C103 and titanium 64 across multiple programs. In 2025, aerospace and defense represented 68% of our full-year revenue, up from 62% in 2024. With forecasted double-digit growth in jet engines alongside continued strength in defense and airframe demand, this mix will continue to increase over time. Beyond aerospace and defense, specialty energy is emerging as a meaningful growth driver for ATI, delivering 9% year-over-year growth in Q4. While it remains a smaller portion of our portfolio today, the growth is supported by multiyear customer commitments. The business is ramping as demand for AI-driven power accelerates across nuclear and land-based gas turbine markets. We recently renewed a long-term specialty energy contract that expanded our share by more than 20%, establishing ATI as their majority supplier and further strengthening our visibility and pricing position as the demand cycle continues to build. ATI's differentiated capabilities in zirconium, hafnium, and other exotic alloys position us as a preferred and increasingly key supplier. The second thing driving our confidence is ATI's growth is anchored in proprietary products and long-term agreements that expand share, improve mix, and secure enhanced pricing. Turning to slide six, I'm pleased to announce that ATI is now producing six of the seven most advanced jet engine nickel alloys, with the remaining alloy produced exclusively by the OEM. We're expanding our proprietary portfolio and reinforcing ATI's competitive moat on the key components of next-generation engines. These products are supported by long-term agreements that secure volume, pricing, and returns and align capital deployment with customer demand. Very few suppliers can match our capabilities at scale. Number three, capital discipline and operational execution remain central to our strategy. As I've shared in the past, our top priority is unlocking capacity through productivity, yield improvements, debottlenecking, and equipment reliability. In 2025, these actions delivered measurable results, including double-digit increases in remelt output, significant cycle time reductions in downstream heat treat, and increased equipment uptime, all without significant incremental capital. When we do invest, projects are secured with long-term customer commitments, often a decade or longer. Many include direct customer funding, enhancing predictability and increasing returns above our 30% return threshold. Each investment is evaluated to ensure durable pricing and protect long-term returns. In 2026, capital investment net of customer funding will be in the range of $220 million to $240 million, with growth CapEx focused on proprietary engine alloys and high-return opportunities. This CapEx guidance includes investment in our nickel melt system, including a new primary melt VIM furnace, along with the previously announced remelt equipment. We are modernizing and upgrading our melting systems, expanding capability, improving quality, and delivering operating efficiencies for our differentiated engine alloys our customers rely on. The new capacity will come online in 2027. Contract-backed, with customer co-funding, these projects target a run rate of about $350 million of incremental nickel revenue by mid-2028. Our targeted phased investment strategy is focused on differentiated nickel capability, not broad capacity expansion. These commitments reflect strong demand for ATI's proprietary hot section alloys and customers' willingness to partner with us to secure essential supply. 2026 is off to a strong start. Incremental operational improvements are already underway, and we see tangible opportunities to streamline processes, reduce costs, and expand margins. As an operations leader at heart, I know the value created by integrating our capabilities and delivering as one ATI. And I'm confident that opportunity remains firmly within our control. I'll now turn the call over to Don. Thanks, Kim. Don Newman: 2025 was a proof point for ATI. Strong aerospace and defense demand translated into a richer mix, sustained margins, robust cash flow, and a stronger balance sheet. In the fourth quarter, we finished the year with solid execution across the business and strong cash generation. This reinforces our confidence in ATI's long-term strategy. Revenue for the full year totaled $4.6 billion, our highest annual revenue since 2012. Sales were up 5% over 2024, powered by 14% growth in aerospace and defense overall. Within A&D, jet engine sales grew 21% year over year, and defense grew 14%. Our transformation continues as we focus our mix on ATI's most valuable products and customers. Full-year adjusted EBITDA exceeded $859 million, up 18% over 2024. Adjusted EBITDA was $232 million in the fourth quarter, $1 million above the high end of our guidance. This is a 3% sequential increase over a strong third quarter and up 11% over last year's fourth quarter. Free cash flow for the full year totaled $380 million, up 53% year over year. Full-year operating cash flow increased more than 50% to $614 million. Managed working capital improved sequentially to 32.5% of sales in the fourth quarter. Capital expenditures for the year totaled $281 million, of which customers funded $25 million, for a net expenditure of $256 million. These investments supported growth, reliability, and improved product flow focused on our highest return differentiated products. Other deployments include repayment of $150 million of debt in Q4 and repurchasing a total of $170 million of our shares during the year. We are pleased with the continued progress in expanding margins. In 2019, our adjusted EBITDA margins were 10.7%. Then we launched our strategic transformation. The strategy to focus on our differentiated products in the A&D markets, along with improving operations, resulted in adjusted EBITDA margins of 19.7% this quarter, a 900 basis point increase in profitability. The momentum is building. Full-year 2025 consolidated adjusted EBITDA margins were 18.7%. That's a full-year increase of 200 basis points, up from 16.7% in 2024. Both segments are contributing. In HPMC, our full-year margin was 23.6%, up 330 basis points over 2024. Q4 margins were 24%, up 400 basis points from the same period last year. The 16.3%, up 90 basis points over 2024 AANS Q4's margin was 18.5%, an increase of 220 basis points from the same period in 2024. Let me say it's been an absolute pleasure and honor to be ATI's CFO these past six years. I am confident the strategy we have put in place will be successful. The transformation we've achieved together in my time here is nothing short of extraordinary. And there is much more to come. This is a business with unique and integral capabilities perfectly positioned in key end markets that will see robust growth for years to come. I have absolute faith in Kim, Rob, and the team to take ATI to its full potential. Thank you to our entire ATI team for their tremendous performance. This is only the start. As Kim and Rob will outline, there's a long runway for growth ahead with a fantastic next chapter beginning in 2026. Now I will turn the call over to Rob. Thank you, Don. I'm honored and privileged to serve as the next Chief Financial Officer for ATI. Building upon the record of success you and Kim have delivered for many years. Let's jump right in with our 2026 guidance. As I look at 2026, I see ATI growing the top and bottom lines, expanding margins every quarter. That growth and margin expansion reflect price capture under LTAs, volume increases, improved mix, as well as operating efficiencies. For 2026, we are positioned for adjusted EBITDA of $216-$226 million, which equates to an EPS range of $0.83 to $0.89. At the midpoint, this represents a 14% increase in adjusted EBITDA over Q1 2025. The guidance for Q1 reflects seasonality, including planned maintenance and HPMC. For the full year, we are setting initial adjusted EBITDA guidance of $975 million to $1.025 billion. The midpoint of $1 billion is a 16% increase over 2025 as we extend the path for profitable growth in our core markets beyond aerospace and defense to include specialty energy. These earnings translate into an initial full-year range of adjusted EPS of $3.99 to $4.27. Turning to adjusted free cash flow, we target a full-year range of $430 million to $490 million. The $460 million midpoint is $80 million higher than 2025, a 21% year-over-year increase. Embedded in this range are gross CapEx investments of $280 to $300 million, which will be partially offset with customer CapEx funding of about $60 million. As we said before, our growth plans include substantial commitments from our customers. Net of customer funding, which is the most meaningful representation of cash invested by ATI, our adjusted 2026 CapEx range is $220 to $240 million. These investments prioritize our differentiated products and are supported by customer product purchase commitments under LTAs with contracted prices. Our adjusted free cash flow range reflects a reduction in managed working capital as a percentage of sales to 31% or lower in 2026. We continue to build upon the efficiencies we are unlocking in inventory and receivables management. The successes we've achieved in 2025 point us towards more consistent cash flow generation by quarter as we work to reduce the seasonality in our cash flows. In terms of capital deployment beyond CapEx, we have no meaningful debt maturities until December 2027, and no significant planned debt repayments in 2026. Returning capital to shareholders has been and will continue to be a priority for ATI. Since 2022, we have repurchased about $1 billion of our shares at an average price of $51 per share. We currently have $120 million remaining under our existing share repurchase authorization, to be completed in 2026. As this program completes, we intend to seek Board approval for additional share repurchase authorization. Let me share some of the key building blocks and financial metrics that support our 2026 outlook. Here's how we see growth for the year, starting with end markets. In jet engines, our largest end market, we see rates in the mid-teens for the full year 2026 as we leverage price and mix to our advantage. In airframe products, we see mid to upper single-digit growth, with most growth occurring in the second half of the year as OEM production rates increase and customer inventory balances normalize. The projected increase in defense spending is well represented in our diversified portfolio of defense products. We are on track for 2026 to mark our fourth consecutive year of double-digit growth in defense, with growth rates in the mid-teens. Our A&D sales mix will continue to increase in 2026, with our A&D portfolio in line to represent more than 70% of our sales for the full year 2026. We're evolving into a model of sustainable and growth in specialty energy, targeting double-digit growth in 2026. This will be underpinned by an expanding portfolio of long-term contracts with accretive margins similar to our A&D LTA portfolio. We are purposely prioritizing A&D and specialty energy using 80/20 and allocating differentiated production capacity to focus on our highest value markets. We're strategically reducing capacity allocations in industrial, medical, and electronics, with our 2026 sales trending down by low to mid-single digits. As a reminder, medical and electronics each represent only 3% to 4% of our total sales. Turning to adjusted EBITDA margins, we see continued margin expansion in 2026, with full-year consolidated margins in the range of 20%. To put a finer point on it, margins are tracking to the upper teens in the first half of the year, then above 20% in the second half. That reflects planned maintenance in the first quarter. In the second half, price increases under LTAs will lift sales, profits, and margins. For modeling purposes, consider that first-quarter consolidated EBITDA margins will be between 18.5% and 19%. At the segment level, full-year margins for HPMC will be in the range of 25%, and A&S in the upper teens, with sequential expansion each quarter. Building out the model a bit further, plan for consolidated incremental margins for the full year to average 40%, with second-half 2026 margins above 40% due to LTA price increases. As noted in the past, HPMC incremental margins are typically higher than AANS, reflecting sales mix and end-market pricing dynamics. Both are general guidelines that can vary by product, end market, and customer, that serve as top-level indicators of ATI's anticipated growth impact this year. These incremental margins are higher than we have signaled in the past. That increase reflects improved mix, price, volumes, and operational performance delivered across our portfolio. There are additional elements to our guidance included in the slide deck shared this morning that will help with modeling 2026. As I begin my tenure as ATI's Chief Financial Officer, I'm confident in our opportunities and energized to extend and build upon the performance of this highly differentiated and capable enterprise. Kim, I will turn the call back over to you. Kimberly Fields: Thanks, Rob. ATI enters 2026 with a strong foundation. Differentiated capabilities, robust contractual partnerships, disciplined capital deployment, and a proven ability to execute. Over the past several years, we've transformed ATI into a business where these strengths reinforce one another. Differentiated materials lead to long-term contracts. Those contracts secure premium pricing, expand share, and generate cash. And that cash is reinvested with discipline, expanding capacity, improving reliability, and deepening our role across the most strategic customer platforms. The world increasingly relies on ATI's differentiated capabilities to support next-generation aircraft, advanced defense systems, and expanding energy generation. And we are delivering to meet that demand. With that, let's open the line for your questions. Operator: Thank you. Please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Seth Seifman from JPMorgan. Your line is now open. Please go ahead. Seth Seifman: Hey, thanks very much, and good morning, everyone. Don, just want to say thanks for all the help over the years. And congratulations, and best of luck. Why don't you start off maybe with a little bit of a big picture question? I know you probably can't talk about a lot of the details, but when we're thinking about expanding capacity with customer support, how do we think about how much of the new capacity is to the customer versus how much you have at your disposal to serve other customers? And then also, you know, the customer support helps to reduce the denominator and the ROI. How do we think about the numerator? Kimberly Fields: Hey, Seth. Yeah. And you're right. We can't share a lot of details around what products or what projects these go to unless we've done a public press release, which we have on some of these in the past. The way to think about that and the way that these are structured, these agreements, is that it's really around security of access to highly constrained differentiated materials. And so, as we are partnering to do these investments, the customers are one looking to ensure that that capacity is available and they have right of first refusal for, you know, whatever that negotiated amount is. But beyond that, as we are managing our mix and managing demand, we're able to flex and move that to support whatever business at the time makes the most sense for us. So, you know, it does give them, like I said, that surety that there's investment and supply coming. Work very closely. I think the other benefit for us, maybe twofold. One, is that alignment around customer demand when they need it. So it's coming on exactly when that demand's coming, but also the becomes much more abbreviated because of the focus around resourcing and the investment and alignment of interest there. On your question around the return, you know, I've shared in the past our threshold for returns on our projects are all 30% plus. And obviously, with this contributed capital from our customers, that helps drive those projects even more robust returns for us over the project timeline. Seth Seifman: Excellent. Excellent. Thanks. And maybe just as a quick follow-up, if you could provide an update on I think you talked about airframe growth being more pronounced in the second half of the year. Just maybe an update on the stocking situation there and what kind of visibility that you have? Kimberly Fields: Yeah. I would say, you know, airframe inventories are getting much closer to being in line. Inventory alignment has progressed meaningfully through 2025. As I shared in the past, they only had pockets where the inventory they were working to normalize that. And so from our perspective, as we see inventories across that supply chain, it's largely will be rightsized by 2026 and that's where we are anticipating that we'll start to see some modest improvement in order rates and demand as we get into the second half. And clearly, Boeing had some great news to share this week. They're on a great path. And as they continue to pull and increase their ramp, build rates, we anticipate that normalization, you know, moving even quicker. Seth Seifman: Great. Thank you very much. Operator: Thank you. Our next question comes from Pete Skibitski from Alembic Global. Your line is now open. Please go ahead. Pete Skibitski: Hey, good morning, guys. Nice quarter. Hey, Kim, you've had some great history here in terms of defense sales and a, you know, nice projection, and we still seems like there's still a lot of runway there with this reconciliation bill spend yet to come. I was wondering if you could parse out some of the pieces of defense revenue. I think naval is about 50% of defense for you, but maybe you could talk about missiles some more in terms of how big that could be because we've seen some historic contracts for PAC-3 and THAAD. You know, items that you guys have content on. So we just wonder if you could parse through some of the growth drivers in defense there. Thank you. Kimberly Fields: Yeah. Sure. And, yeah, I'm very excited about the defense. You know, for the full year '25, it was up 14%. We're expecting that growth to accelerate into the mid-teens in '26. And as you said, the spending that is coming in the programs that we have content and are supported are gonna just continue to accelerate that. So as you said, as we break down and I look at the defense markets, just generally, naval nuclear is probably a little bit less than you said. Closer to 35% to 40% of that overall. And then missile today is around, say, 20% of that total. And as I mentioned, you know, we're continuing to win new content on both current programs as well as development in new programs. And so I mentioned in the prepared remarks specifically around PAC-3 and THAAD, utilizing our very specialized C103 material. We're one of the few US suppliers and producers of that material, and that really goes into that high temperature, high strength applications. And then the titanium six four, which goes to helping support the EV investment we made over the last few years. It's coming online very well. It's right at the right time. And as you said, both of those missile programs, I think they're up three to 4x in spending as we work to replenish our stockpiles. So defense is an area that has continued to grow. It's a very attractive market for us, and it does have a lot of improvement and opportunity as we go into '26 and beyond, frankly. Pete Skibitski: Great. Thanks, guys. Operator: Thank you. Our next question comes from Richard Safran from Seaport Research Partners. Your line is now open. Please go ahead. Richard Safran: Thanks very much. Good morning, everybody. Don, it's been great working with you. Best of luck. First question, I think it's the obvious one. Are you still good with your 2027 guide, you know, that you have out there? I'm curious if you'd like to update it right now. I mean, you're guiding to $1 billion to $1.2 billion in EBITDA in '27. And as Kim, you know, you said you're guiding to $1 billion in '26 at the midpoint. And, you know, if I heard you right, you're expecting 40% incremental margins in '26. So I just what does this all say about your 27% guide? Rob Foster: Yeah. Hi, Rich. This is Rob. I'll jump in here. You know, when I think about the 2027 guidance, you know, I'm really confident in the guidance. You know, it's not, guess everyone doesn't know, but I was a part of the team prior to being the president of our specialty alloys and components business. I was running the operational finance group. So been very closely involved with these numbers. And very confident in our ability to achieve these kind of targets. At this point, I'm going to spend some time in the chair, and we're going to get to reviewing the outlook in longer range and normal course. And I'll be in a position to give you an update whenever we get to that point. I'm not there yet. But I will say that I do have some bias to the top end of the EBITDA margin percent and I do feel really confident with those 2027s, but we're in a position right now to give an update. Richard Safran: Okay. Thanks. Second, Kim, I just was following up on some of your comments about defense, but possibly, but past few years have been, you know, pretty good for share gains. You know, Pratt VSNPO, you know, you picked up. I'm kinda curious. What the opportunity set is for share gains in 2026. And I'm thinking given spending levels, you know, are most of them in defense right now? I mean, you know, that's just my take on things, but I'm very interested in what you're seeing. Thanks. Kimberly Fields: Yeah. Rich, that's an interesting, you know, as I look at 2026, I see opportunities for share gains. And in fact, we've already had a couple here early in the year across three key markets. One is defense. As you mentioned, and I talked about some of those programs. In the missiles, but also in the Jets and Rotor Hub. Areas as well where I know we are winning share, taking share, winning new programs and new parts on those on that equipment. But the other two areas that I think we still have opportunities are one in jet engine. And second in specialty energy. Both of those, I would say, over just the last thirty to sixty days, we won significant new share positions and really those are related to where our peers maybe are challenged to meet the requirements of the ramp. Are challenged to meet the requirements of the OEMs, so the support those rates. And when that, you know? And, again, I mentioned those materials on slide six that we've got the proprietary differentiated materials. Those give us an opportunity then to grow and continue to grow that content on each of those engines. And, you know, I'm very pleased that our customers do feel like they can rely on us to deliver reliability, high product. And I'm seeing share gains account across all three of those. And, again, the tailwinds for the growth of those three markets as well and increasing demand, I think, are going to continue to open up new opportunities for us to go in and win share and win new program positions. Richard Safran: Thank you. Very much. Operator: Thank you. Our next question comes from Scott Deuschle from Deutsche Bank. Your line is now open. Please go ahead. Scott Deuschle: Hey, good morning. Kim, based on the $350 million revenue disclosure you offered, it looks like you'd be adding around 9,000 tons of annual nickel mill capacity, with this new VIM, at least based on my napkin math. Does that sound roughly right in the right ballpark? Kimberly Fields: Hey, Scott. Generally, it's a little bit mix dependent. Right? So the materials that this purpose-built capital is going in for have differences around melt rates, around production time. And so you're in the ball that's part of the reason we shared the revenue targets because some of these are very, very difficult and complicated to make. And so it doesn't equate to what you may see as a general-purpose capacity or run rate. Scott Deuschle: Just as a follow-up, can you share how the melt times typically compare for one of these exotic alloys like RENE 65 versus a more standard alloy like seven eighteen? Kimberly Fields: Yeah. I would say if you take kind of a seven eighteen versus maybe one of those proprietary alloys on that slide six, it could be up to three to four times longer melt times. These are all specified controlled melts to get that quality and grain structure required. Requirements that the OEMs are looking for. Scott Deuschle: That's really helpful. Thank you. And then, Rob, I was just wondering if you could walk us through the 2026 pricing outlook specifically for the exotic alloys that AANS makes. Zirconium, hafnium, niobium, obviously, some big moves on the hafnium market. So curious what that pricing outlook looks like for '26. Rob Foster: Yes. So at a high level, when I think about the walk from the 2025 EBITDA to the 2026 guidance, the way to think about it is roughly 50% pricing, 50% volume. And yeah, there has been some pretty significant movement with some of the alloys within our specialty alloys and components business, as well as some of the other businesses that we have. We don't really disclose that detail. We do talk about zirconium and related products. Thinking about that in the context, just under 10% of our kind of volumes in terms of revenue. But I will say that the pricing assumptions that were used in the 2026 guidance aren't too far from the current information available. So we've considered a lot of that movement into our 2026 guide. Scott Deuschle: Thank you. Operator: Our next question comes from Andre Madrid from BTIG. Your line is now open. Please go ahead. Andre Madrid: Yes. Good morning, everybody. And Don, thank you again for everything, and best of luck in future endeavors. Don Newman: Thank you, Andre. Andre Madrid: You know, not to nitpick, but when looking at airframe, I think you guys are now projecting mid to high single digit. But before, it was just high single digit for '26. I mean, what's giving you any pause there and what would need to happen for you guys to come in the lower side of that range? Kimberly Fields: Yeah. I'd say, you know, our guidance is built on executed customer production schedules and contractual commitments and not necessarily those headline build rate targets. So, you know, as you said, you know, we're coming in at that mid to high single digit growth rates. But specifically, what we base our outlook on is the OEM order rates, the schedules that they've given us for both Airbus and Boeing, you know, contractual minimums. I'll just remind you that our Boeing contract has contractual minimum. There's order frameworks and timing for both of those that tie demand material demand to those actual production plans. And I would say what's really coloring this is maybe a conservative view of the timing for particularly early in the year where we are today, rather than assuming immediate full rate execution. And so we'll continue to update that as we go through the year. But, you know, we're encouraged by that progress Boeing shared on production. But we're not assuming best case rate acceleration as we go through the year. The guidance is really a measured ramp airframe weighted toward that 2026. With production rates that convert to orders and shipments. And as far as up or what would have to be true, these contracts, as I shared with you, expanded both our mix, our participation, our product portfolio. We won price. We won share. And so as they start to accelerate those build rates, we anticipate capturing that share and that volume as we go into the back half of the year. So together, it's taking all this together, supports really a, you know, we're looking at a steady airframe growth throughout the year, modest in the first half, accelerating in the second half, resulting in that mid- to high single digit growth for 2026. Andre Madrid: Got it. That's helpful. Thank you, Kim. And if I could just squeeze one more in. I mean, looking at Jet Engine, it looks like, you know, this was second quarter MRO coming in at about half of Jet Engine. Do you expect similar contribution into '26? Is that what's baked into the guide? Kimberly Fields: Yes, Scott. So I look at the frame, I would say that the jet engine growth in 2026 assumes roughly that continuation of mix being 50% MRO, 50% OEM. Andre Madrid: Got it. Awesome. Appreciate the color, everybody, and have a great day. Operator: Thank you. Our next question comes from Myles Walton from Wolfe Research. Your line is now open. Please go ahead. Myles Walton: Thanks. Good morning. Kim, you commented on the nonseasonal nature of pickup of order activity at the start of the year. Can you maybe expand upon that directionally where that's coming from? How unusual it is in any quantification manner? And then where did the backlog end up at year end? Kimberly Fields: Sure. I could definitely, Myles, talk through that. So we did see an uptick in orders at strength in order inquiries as well as order placements. Just in the first, you know, thirty days here of the year already. And what we're attributing and what it looks like is that it's related supply chain readiness moves as people are moving and are taking, you know, the positive feedback and Boeing's progress to get in position for upcoming rate increases. I will say, you know, from a magnitude standpoint, it's coming in very strong, maybe stronger than we've seen in the last few years for these products and for these airframe applications. But we really don't rely on that short-term transactional buying. Nearly most of our exposure is governed by that airframe and long-term agreement that very closely tie to customer production plans. But, you know, we're going to continue to monitor that. It kind of goes to my earlier comments around the airframe market, and we'll monitor as they continue to make those rate increases, both Boeing and Airbus. And update that as we see opportunities. Myles Walton: And the backlog, the provide that at year end? Oh, sorry. Sequential year on year? Kimberly Fields: Yes. Yes. From a backlog standpoint, you know, our backlog today remains just under one year of revenue, which is about where we'd like to see that backlog at. You know, the one thing that I would anticipate seeing, you know, when I look at lead times for those materials as we just talked about in those proprietary materials around PQ titanium, nickel, alloys, those specialized nickel alloys, and the exotic alloys, like hafnium and zirconium, all of those are extending, some up to two times since a quarter ago. And so, you know, we are looking, and we would expect to see that backlog start to come up a little bit as we continue to implement productivity improvements and efficiency improvements to produce those orders and get those shipped. I'd say in general, those are up it's up about 3%, but as I said, we can we target around one year of backlog generally. I think the other thing I just mentioned is that the backlog is not an indicator. As we've talked about many times before, a lot of our customer demand is contracted. And with those contracts, what that affords our customers is a reserve place in line. And so what I say is it's been the supply chains have stabilized. I've seen some really nice order patterns generally coming in. But what we don't have is you don't have customers coming in and maybe speculative buying or putting in their orders extra early because they know when we get to the lead times in frozen windows that they've got a spot and they can load those against their forecast and what we've reserved for them. So the one pop was that early early in the year, watching the supply chain, ready for the airframe ramp, and that might have some impact. But, generally, we'll stay in about the range that we're at today. Myles Walton: Thank you. Operator: Our next question comes from Gautam Khanna from TD Cowen. Your line is now open. Please go ahead. Gautam Khanna: Hi. Good morning, guys. Kimberly Fields: Morning. Gautam Khanna: And congrats to both Rob and Don. I had two quick ones. First, I was wondering if you could just characterize the VIM capacity add as a percentage of your capacity. So how much does it add to it? And maybe if you could give us some context on how many nickel alloy bins you actually have. As well in the answer. Kimberly Fields: Sure. So we aren't really sharing the total capacity add. As I said, it's to measure given the product portfolio and how that mix can change, you know, depending on which products that we're making. As I said, you know, we're adding this capacity. It's targeted, and it's phased. It's going to focus on supporting those next-gen alloy platforms like LEAP and GTF with that differentiated rotating part alloys that are shown on slide six. So that's the $350 million run rate in '28 is a good way to think about incremental revenue. As you start to model and look forward. From a VIM capacity standpoint or VIM number of VIMs that we have, we have currently four VIMs, but what I might caution is obviously, this investment allows us to up with state-of-the-art equipment and technology helping to drive the highest quality product and cost competitive. And so we anticipate that there will be some improvements in productivity and output from the brand new equipment and new controls and so forth. So today we have four. This would be our fifth. Gautam Khanna: And just to put a finer point on it, I mean, I know it depends on mix and the like, and therefore, you're talking about revenue and not tonnage. But, you know, do you have a ballpark sense of what the capacity increase is? Is it, like, 10, 15%? Is it simple to say if you go to four to five, it's 25%? I'm just ballpark. I'm not asking for specifics. Kimberly Fields: Yeah. Well, I'd say, you know, I shared, previously the remount gives us kind of eight to ten. And I would say this is in that ballpark. Gautam Khanna: Okay. And, you know, again, part of that revenue uptick is really around, you know, the price and mix that we're winning with the LTAs that are supporting this asset. And we're about 80% contracted right now for that capacity. Gautam Khanna: Thanks, Kim. And I was just curious also, as we look to 'twenty seven and beyond, what's your ballpark sense of how much price we as outsiders should anticipate the company will get, you know, company-wide, if you will. Pricing year over year, '26 to '27, '27 and beyond. Kimberly Fields: As I well, as I look at '26, we see substantial price opportunities and mix as we're going forward. These assets and the products that we're making as I shared a couple times, proprietary hot section rotating parts, they go into both MRO and OE. Almost every shop visit's going to be looking at those compressor disks and turbine disks. And so, you know, as we're going forward, we're continuing to maintain that value-based pricing. It's protected under long-term agreements. You know, I would say as you look at our guide for 2026, for example, you can say half of that is related to price and mix, that uptick, and the other half is volume. And I would anticipate that continuing throughout the decade as we bring on these new assets and bring these new materials to our customers. Gautam Khanna: Thank you. Kimberly Fields: Sure. Thank you. Operator: Our next question comes from Phil Gibbs from KeyBanc Capital Markets. Phil Gibbs: Hey, good morning. Kimberly Fields: Morning. Good morning, Phil. Phil Gibbs: This one. Wanted to just ask a general question on headcount and what are your plans on staffing for '26 as you meet some of these growth aspirations? Kimberly Fields: Yeah. Thanks, Phil. I'd say, you know, we're stable on headcount, as I look at and that really stabilized through 2025. And you saw the efficiency and the equipment reliability and that improvement that was then flowing through our financials as our employees moved up the learning curve and became more experienced. So from an overall metric, we're not seeing any spikes in hiring or a lot of new hiring coming in. Now as you mentioned, for this new capacity, we are we've got some open positions to help support that even today. But I will tell you support from our current experienced workforce has been overwhelming. For example, I know they posted six positions here just in the last two weeks, and they had 60 of our current employees that are excited and want to be part of this project. And moving over. And so our goal is to bring in our most experienced operators that know how to make these very, very tough to produce and long qualification times. And that's really where I'm focused as we think about how do we accelerate the qualification of this new equipment that we brought in. I've given you kind of a six to nine-month qualification time with the revenue run rate. But I do anticipate the experienced operators will be moving in, and the installed base and quality systems that already support these products and obviously, the alignment with our customers that we'll be able to accelerate that. So overall, not huge hiring demands. We'll do it in a measured way. But we've got a lot of enthusiasm, I'd say, from our current workforce that want to be part of these investments in this new project. Phil Gibbs: And then this is a follow-up on isothermal forgings, you've got jet engine growth in the mid-teens for 2026. Is the isothermal forging piece likely to grow beyond that as you continue to gain share in content and new expanded wins with folks like Pratt? And I think you also have maybe more engine manufacturers and growing in that portfolio and beyond Pratt with capabilities. To maybe talk to some of that because I know it's an important differentiator for you. Thank you. Kimberly Fields: Yeah. ISO forging is, it's a very important part. It's in high demand. Our lead times are out beyond eighteen months at this point. As you look at the engine OEMs, we support all three. Almost as close to an even mix between the three, especially as you mentioned with the GTF and the growth and the share we've had over the last two years with them. That will continue to grow. I do see continued increased demand from all three where they're looking for things between MRO, upgrade packages, modifications. So those are continuing to come in, and we're really focused on the productivity, the debottlenecking, continuing to expand the new heat treat and ultrasonic test capabilities that we brought online. So we do see growth there. I do think as we work through this year, but as we think about the rest of this decade, that will be an area that, you know, we'll be talking with our customers closely around, making sure that we've got the right capacity in place to continue to support their needs. Phil Gibbs: Thank you. Operator: Thank you. We currently have no further questions. So I'll hand back over to Kim for closing remarks. Kimberly Fields: Thank you. So as ATI enters 2026, we're entering from a position of strength and momentum. I want to thank our customers for their continued trust, our shareholders for their support, and most importantly, our ATI team for another outstanding year of execution. We're confident in the path ahead and look forward to updating you on our progress. Operator: This concludes today's call. Thank you for joining. You may now disconnect your lines.
Operator: Good morning, ladies and gentlemen. Please remain on the line. Your conference will begin in just a few moments. Greetings. Welcome to AudioCodes Ltd. Fourth Quarter and Full Year 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please note this conference is being recorded. I will now turn the conference over to your host Roger Chuchen, Vice President of Investor Relations. You may begin. Roger Chuchen: Thank you, operator. Hosting the call today are Shabtai Adlersberg, President and Chief Executive Officer, and Niran Baruch, Vice President of Finance and Chief Financial Officer. Before we begin, I'd like to remind you that the information provided during this call may contain forward-looking statements relating to AudioCodes Ltd.'s business outlook, future economic performance, product introductions, plans, and objectives. Related thereto, and statements concerning assumptions made or expectations as any future events, conditions, performance, or other factors are forward-looking statements as the term is defined under U.S. Federal securities law. Forward-looking statements are subject to various risks, uncertainties, and other factors that could cause actual results to differ materially from those stated in such statements. These risks, uncertainties, and factors include, but are not limited to, the following: the effect of global economic conditions in general and conditions in AudioCodes Ltd.'s industry and target markets in particular, including governmental undertakings to address such conditions. Shifts in supply and demand, market acceptance of new products, the demand for existing products, the impact of competitive products and pricing on AudioCodes Ltd. and its customers' products and markets, timely product and technology development, upgrades, the advent of artificial intelligence, and the ability to manage changes in market conditions and evolving regulatory regimes as applicable. Possible need for additional financing, ability to satisfy covenants in AudioCodes Ltd.'s financing agreements, possible impacts and disruptions from AudioCodes Ltd.'s acquisitions, including the ability of AudioCodes Ltd. to successfully integrate the products and operations of acquired companies into AudioCodes Ltd.'s business, possible adverse impacts attributable to any pandemic or other public health crisis on our business and results of operations, the effects of the current and any future hostilities involving Israel, including in the regions in which we or our counterparties operate, which may affect our operations and may limit our ability to produce and sell our solutions. Any disruption in our operations by the obligations of our personnel to perform military service as a result of current or future military actions involving Israel and any other factors described in AudioCodes Ltd.'s filings made with the U.S. Securities and Exchange Commission from time to time. AudioCodes Ltd. assumes no obligation to update the information. In addition, during the call, AudioCodes Ltd. will refer to non-GAAP net income and net income per share. AudioCodes Ltd. has provided a full reconciliation of the non-GAAP net income and net income per share to this net income and net income per share according to GAAP in the press release that is posted on its website. Before I turn the call over to management, I'd like to remind everyone that this call is being recorded. An archived webcast will be made available on the Investor Relations section of the company's website at the conclusion of the call. With all that said, I'd like to turn the call over to Shabtai. Shabtai, please go ahead. Shabtai Adlersberg: Thank you, Roger. Good morning, and good afternoon, everybody. I would like to welcome all to our fourth quarter full year 2025 conference call. With me this morning is Niran Baruch, Chief Financial Officer and Vice President of Finance of AudioCodes Ltd. Niran will start off by presenting a financial overview of the core. I will then review the business highlights and summary for the core, and discuss trends and developments in our business and industry. We will then turn it into the Q&A session. Niran? Niran Baruch: Revenues for the fourth quarter were $62.6 million, an increase of 1.7% over the $61.6 million reported in the fourth quarter of last year. Full year 2025 revenues were $245.6 million, an increase of 1.4% over the $242.2 million reported in 2024. Services revenues for the fourth quarter were $34.6 million, an increase of 1% over the year-ago period. Services revenues in the fourth quarter accounted for 55.3% of total revenues. On an annual basis, service revenues were $130.7 million, an increase of 0.4% over the $130.2 million reported in 2024. Revenues by geographical region for the quarter were split as follows: North America, 47%; EMEA, 35%; Asia Pacific, 13%; and Central and Latin America, 5%. Our top 15 customers represented an aggregate of 58% of our revenues in the fourth quarter, of which 41% was attributed to our 10 largest distributors. The amount of deferred revenues that sold as of 12/31/2025, was $84.2 million compared to $84.4 million as of 12/31/2024. GAAP results are as follows. Gross margin for the quarter was 65.6% compared to 66.2% in Q4 2024. Operating income for the fourth quarter was $3.7 million or 6% of revenues compared to operating income of $4.1 million or 6.7% of revenues in Q4 2024. Full year 2025 operating income was $14 million compared to operating income of $17.2 million in 2024. Net income for the quarter was $1.9 million or $0.07 per diluted share. Compared to net income of $6.8 million or $0.22 per diluted share for Q4 2024. Full year 2025 net income was $9 million or $0.31 per diluted share compared to $15.3 million or $0.15 per diluted share in 2024. Non-GAAP results are as follows: Non-GAAP gross margin for the quarter was 65.9%, compared to 66.5% in Q4 2024. Non-GAAP operating income for the fourth quarter was $5.4 million or 8.6% of revenues. Compared to $7.5 million or 12.2% of revenues in Q4 2024. Full year 2025 non-GAAP operating income was $21 million compared to non-GAAP operating income of $28 million in Q3 in 2024. Non-GAAP net income for the fourth quarter was $4.5 million or $0.16 per diluted share compared to $11.6 million or $0.37 per diluted share in Q4 2024. Full year 2025 non-GAAP net income was $18.1 million or $0.61 per diluted share, compared to $27.3 million or $0.87 per diluted share in 2024. At the December 2025, cash, cash equivalents, bank deposits, marketable securities, and financial investments totaled $75.7 million. Net cash provided by operating activities was $4.1 million for the 2025, and $29.4 million for the year 2025. Day sales outstanding as of 12/31/2025 were 117 days. In October 2025, we received court approval in Israel to purchase up to an aggregate amount of $25 million of additional ordinary shares. The court approval also permits us to declare a dividend of any part of this amount. The approval is valid through 04/27/2026. During the quarter, we acquired 667,000 of our ordinary shares a total consideration of approximately $6.1 million. Earlier this morning, we also declared a cash dividend of $0.20 per share. The aggregate amount of the dividend is approximately $5.4 million. The dividend will be paid on 03/06/2026, all of our shareholders of record at the close of trading of 02/20/2026. Our guidance for the full year 2026 is as follows: We expect revenues in the range of $247 million to $255 million and non-GAAP earnings per share diluted earnings per share of $0.60 to $0.75. I will now turn the call over to Shabtai. Shabtai Adlersberg: I'm pleased to report another quarter of solid top-line growth in full quarter '25. This performance shows our focus progress towards becoming an AI-driven hybrid cloud software and services company. 2025 marked a period of stabilization and growth for our company. After facing economic challenges in 2023 and 2024 that affected our legacy and hardware business lines, and have led to a decline in revenue in past years. We saw 2025 a recovery of our connectivity business. Over the course of 2025, we saw promising signs of top-line growth inflection. The rate of decline in legacy business has moderated and we saw the newly invested Voice AI strategic areas maintaining their robust upward trajectory. This momentum in our strategic business has been driven by our two primary growth engines, our live managed services and the emerging voice AI business. Combined, these two units contributed to $79 million annual recurring revenue exit 2025. Representing growth of 22% year over year. While holding the line in our connectivity business, we executed well on our Voice AI initiative. Growing revenues by 35% year over year. The transition in overall company business trajectory is a result of deliberate actions. Reallocating our product development investments and efforts to high market potential areas and investing in sales and marketing to build market awareness to these innovative solutions. Looking ahead to 2026, plan to maintain this formula for success. Improving revenue growth, driving steady margin expansion, and strengthening our leadership in voice AI-driven business application for the UCaaS and CX markets. Now to highlight so far our business performance in first quarter twenty five and full year 2025. Fourth quarter total revenue grew as Niran mentioned, 1.7% year over year. As we have continued to build on the strength of our connectivity business and successfully leverage our enterprise customer base, installed base to drive cross-sell of GenAI business voice applications that make up our conversational AI operations. As discussed earlier, our solid fourth quarter results were marked again by strong traction in our dual growth engines. Lab services delivery for UCaaS and CX and Conversational AI. Business lines. Specifically, in all the years of a previous quarter, our conversational AI business increased in over 50% year over year for both the first quarter twenty five and also for the second half two thousand twenty five. Full year 2025 Conversational AI revenues reached nearly $17 million and accounted for 7% of total revenues. As a result, we're growing ever more optimistic about the continued stronger near recurring revenues momentum. For coming years. This conviction is further reinforced by the growing backlog of live and managed services that we convert to revenues in coming quarters. Exit 2025, our backlog for live services reached a level of $75 million compared to $69 million at the end of 2024. Now let me provide more of a visibility into how we operate so that our overall company financial results are better understood. As stated in previous course, we are now in transition in a transition period from our main focus on connectivity solution to expand and build a new AI-first voice AI-led business application operations for enterprises. I believe this will also provide more clarity into our financials too. At this stage, business can be generally broke down into two business units. Long established and running connectivity business provides for about 93 of the company revenue. It is a mature, profitable business, which runs steadily over the past five years, and which has delivered operating margin of above 14% in 2025. On a on a longer term basis, we target these businesses to deliver 16% to 18% operating margin. Relying on our success in these meetings along the past ten years, we are confident in our ability to continue and drive long term stable growth as we are the front runner in this connectivity business for both the UCaaS and the CX markets. The second business, the Voice AI business, focusing on software as a service recurring business model provided at the 2025 about 7% of the company revenue, growing from $12 million plus in 2024 to close to $17 million exit 2025, yielding revenue growth of about 35% year over year. Now that several product lines reached maturity and started to produce growing annual revenue, we are confident in our ability to keep growing this business line at a rate of 40 to 50% annually in coming years. And we plan to reach a revenue level of $50 million in 2028. Need to say, that we rely extensively using the Chennai technology in the solution to provide business voice application. For the UCaaS and CX enterprise market. It is important to note, though, that the Voice AI business is in investment mode currently. And generates an annual budget burn of about $9 to $10 million a year. With the 50% annual revenue growth plan for this business line, we believe we should reach breakeven two years from today. Before turning to detailed business line discussion, let quickly shift into the fourth core profitability metrics. As mentioned before, full score total revenue grew 1.7%, Our non-GAAP gross margin for the quarter of 65.9% is within our long-term target range of 65 to 68%. And a slight improvement sequentially from 65.8% last quarter. Fourth quarter rate related cost headwinds accounted to $600,000 and aggregated to $2.7 million for the full year 2025. We expect tariff-based impact to approximately get to $2.3 million in 2026. Fourth quarter non-GAAP operating expense of $35.8 million compared to $34.7 million in the third quarter and $33.4 million from the year-ago period. On a year-over-year basis, the higher expenses are attributable to targeted investment in marketing and sales tied to the Voice AI business. Allowing it to grow further and impact from the weakening US dollars against the euro in the full score. Full year 2025 non-GAAP operating expense decreased point two versus the year-ago period for the same reasons. In terms of workforce, concluded 2025 with 981 employees, representing an increase from 961, the previous score, and 946 at the end of 2024. Adjusted EBITDA for the fourth quarter was $6.5 million reflecting a 10.4% margin compared to 6.9 or 11.2% in the prior quarter. For the full year, adjusted EBITDA reached $24.8 million or 10.1% margin. Non-GAAP EPS was $0.16 in line with our plans, in the year-ago quarter. Net cash provided by operating activities was $4.1 million for the quarter, and $29.4 million for the full year 2025. On the guidance on the guidance front, we expect 2026 to be a gross year. We expect 02/2026 revenues of 200 I'm sorry, of $247 million to $255 million in the year and non-GAAP EPS of 60 to 75¢. This projection assumes continued strong growth of 40 to 50% in the voice AI business. And a stable connectivity outlook assuming no significant changes in the macroeconomic landscape. Our overall annual recurring revenues, which encompasses our managed services for connectivity plus conversational AI is expected to grow from 79 exit 25 growing 20% in 2026 and reaching a range of $92 to $98 million. In '26. Now let's move to the actual business line. Let let's talk first about Microsoft. During the fourth quarter, Microsoft business saw a sequential increase of 7%. This growth was largely driven by the continued strength of the connectivity franchise and rising attach rate for AI first Evocus EAC, which is our team certified CCaaS solution. The total contract value signed at the full score remained consistent with previous scores. On an annual basis, total contract value grew by 5% year over year reflecting steady progress. The Microsoft Teams Voice ecosystem continues to demonstrate very healthy situation. Recently, it was disclosed that the number of PSTN users reached 26 million, up from 20 million stated in April 2024. Which indicates an annual growth rate of 16 to 17%. Although Teams phone users represent less than 10% over the total team's monthly active worldwide user, which is estimated at 320 million seats, there's potential of total of 80 to 100 million prelicensing five users creating immediate large addressable market. Looking ahead to 2026, we anticipate an additional increase of three to 4 million users supporting the evolution towards an AI-powered workplaces. Stated by Microsoft. One notable win was a 30 win in the quarter was a thirty-six month contract signed with AT and T to support the large public university. Igorand provides for a comprehensive range of services including managed gateway, SBC, and calling plans, as well as IP phones. Facilitating the migration to Teams' words from Cisco. Another key contract was a sixty-month deal with an international equipment manufacturer based in Europe engagement began with the live premium managed service for initial phase of 2,000 users. Marking the start of a full migration to Teams Voice from Cisco. Upon completion of migration, the focus will shift to cross-selling additional business voice applications such as VocaC AC. In the fourth score, we actually we have been engaged in the other front extending and expanding our, efforts in The US market. So all the UCaaS front yesterday, we announced that we now offer an end-to-end push portfolio of certified voice solution for Cisco Webex calling. From CloudConnect PSTN connectivity analog gateways and desk phones. Webex calling is Cisco cloud phone system, a cloud PBX that provides enterprise telephony business calling features and PSTN connectivity, delivered and managed through Webex cloud. For 2025, Cisco publicly stated in November that Webex Calling serves now more than 18 million users worldwide. So for us, this new evolving cooperation with Cisco represents a major new opportunity in expanding our connectivity and devices business for UCaaS in coming years. Now to our conversational AI activity. In the last eighteen months, conversational AI moved from experimentation to expectation. In both UCaaS and customer experience, buyers are no longer asking should we use AI. They are asking, which AI? Where does it run? Who controls the data, and how fast can we scale it? That is exactly why we have been investing in past years in developing a rich portfolio of solutions. Across UCaaS, is about turning conversation into business assets meeting into decision, and voice interactions into actions. Across CX, it is about moving from basic cell service bots to real automation, voice agents that can resolve route, summarize, comply, and improve over time. Pivoting towards a more intelligent enterprise, our conversational AI portfolio is already built for this reality. Our solution namely Voice AI Connect, Live Hub, LocustCIC, Meeting Insights Cloud Edition, Meeting Insights on prem, and more. Are all designed to connect voice and conversation enterprise systems and to support multiple models and deployment options. But let me challenge one assumption. I see here in the market that AI value comes from the model. True. The large language model matters. However, is a durable value that comes from orchestration security, integration, and governance. So combining our vast telephony technology base, with our conversational AI portfolio, towards bring your own AI approach to deploying solution in various UCaaS and CX environments. It's our way to meet customers with the AR, make adoption faster, reduce risk, and expand what partners can deliver. To summarize the quarter, as mentioned earlier, fourth quarter, twenty five, Conversational AI revenue grew over 50% year over year. Now let's start with, the leading line which is the Voice AI Connect Live Hub line. This discussion focuses and revolves around the conversational AI platform market and the emerging voice AI agent sector, which gained significant traction over the past two years. Leading research firms estimate that the market for Voice AI agent will reach between $8 billion to $15 billion by 2028, with expectation that it will double by 2030. Regarding our business activities, both Voltia Connect and the Live Lab business delivered robust results in the 2025. For the full year, this segment achieved growth exceeding 50% compared to 2024, This strong performance was driven by consistent acquisition of new clients across The US Europe, and APAC as well as considerable expansion within our existing customer base. Live Hub service or Voice CPaaS self-service cloud platform empowering voice board developers to build solutions such as conversational IVR, voice agents, agent assist, and real-time translation services. In late third quarter two thousand twenty five, we announced enhancement to the live app voice CPaaS offering notably the integration of newly developed voice AI agents. By year end two thousand twenty five, Live App experienced substantial increase in both number of developers and platform usage in minutes, while monthly recurring revenue approached a 150% increase compared to the fourth quarter in 2024. Notably, many existing VoiceThera Connect Live Hub customers have accelerated their consumption rates beyond the initial projections, reinforcing our belief that the adoption of Gen AI enabled virtual agent virtual an agent assist application is entering a phase of rapid growth. A significant achievement in full score '25 was securing an initial order with a tier one international carrier adopting our voice and eye connect service to support their call summarization solution. The deployment initially targets enterprise fixed line customers, with plans to expand to the entire mobile consumer and enterprise user base in late two thousand twenty six. We view this contract as an important entry point with substantial potential for further expansion as the service is scaled across current clients new use cases are developed. Shabtai Adlersberg: Now to Vocacy, I see. 1,000 agent range, recorded another quarter of strong revenue growth for both fourth quarter and full year. Revenue for the year grew over 55% compared to previous year. Thousand twenty five was very proactive in terms of progress in the VOCA business line. During the year, we have developed cooperation with regional channel channel partners as well as with global system integrators. Activity has been fairly positive. By now, VOCA CIC has more than 200 enterprise customers worldwide We saw extremely success. We are extremely successful in the education space. Especially in North America, UK, and other regions where Microsoft Teams is dominant in the vertical. We have now more than 15 universities accounts acquired in 2025. We have introduced new out of the box practical AI experiences such as agent insights, then AI receptionist, some of which extends beyond the Microsoft Teams installed base. We have productized an on prem survival version of Vocus AIC, to act as a backup in case of cloud outage. Key for quarter highlights include, extending our momentum in higher education market, not only in The US, but also outside The US. We can talk about a large university in South Africa. Selected CIC contact center as part of their overall Microsoft Teams UCCX deployment. Success. Another major win is successful launch scale enterprise deployment with a top five global BPO provider. During the call, we issued a press release highlighting the deployment of Vocus EC with Aptento on a deal one in the Pricor. The new conversational AI voice solution supports more than 500 concurrent AI voice agent for a large healthcare organization. And was delivered in just few weeks compared to typical three to six month deployment timeline for project of this scale. New product was introduced, Agent Insights, as discussed earlier, Ascor, we recently launched Agent Insights, which brings GenAI into the Vocus AIC platform. Agent insight provides contact center with customer customer customizable AI summaries, sentiment analysis, and one click CRM updates. Built natively in agent workflows. Looking ahead, we expect 2026 to be another year of strong revenue growth driven by continued traction in both direct sales and channel partnerships. Moving on to Meeting Insights Cloud Edition. Meeting Insights Cloud Edition maintained impressive momentum throughout this quarter. Seeing consistent increases in new customer acquisitions. Record numbers again achieved in metrics such as total meetings and unique active users, leading to substantial year over year monthly recurring revenue growth as of December 2025. This strong performance was driven by continued product innovation boosting demand both across wider markets and within custom workflow solution designed for specific verticals such as higher education, local governments, HR, finance, and more. Meeting Insights now works independently of any particular UC systems. Expanding its flexibility. In fourth quarter two thousand twenty five, support was added for Google Meet. And we do expect integration with Cisco Webex in the current quarter. That adding to the existing compatibility we have with Microsoft Teams and Zoom. These updates enable GenAI meeting summaries for interactions on a major UC platform so I'll listen in person. Meetings. Beyond allowing customers to customize prompts, for their precise requirements, the platform now offers prebuilt templates created for specific enterprise roles and persona. Including those in legal and HR. This feature is expected to further streamline how efficiently customers can extract useful insights from meetings. Additionally, the platform's mobile app enables on demand recording, action item management, meeting preparations, and chat based search of meeting records. Its features make the meeting user mobile app essential for daily office operations. Now to another derivative of the meeting inside solution, which we call mia OP, mia on prem. Let's talk first about the cloud repatriation trends emerging. The proportion of businesses planning to retain users on premise jumped from 5% to 15% over two years. Driven primarily by data sovereignty concerns in European markets. And regulated sectors such as legal, finance, and defense. Even cloud committed enterprise now scrutinize where data is hosted and processed. This trend validates hybrid deployment capabilities and position data read residency controls as competitive differentiators. Countering pure cloud narrative that dominate previous market cycles. In fourth quarter twenty five, we continue to make good progress with the newly introduced MiaOP solution. With growing number of wins in the government and defense market in Israel. Positioning the business line to account for a growth in our conversational AI segment in 2026. Following last quarter, Israeli Nimbus contract award which streamlines procurement to form meeting intelligence services for all Israeli government ministries and agencies. We have already signed one first deal, and currently, I have several more additional proof of concept engagements across various ministries. We also received Nimbus care five approval, certifying that our solution meets the highest standard of security and compliance standards under the NIMBUS Israel and NIMBUS framework. We expect this designation to expand both the number of agencies we can serve and the range of services we can provide. The MeLP solution supports currently the English and The US English and Hebrew languages. We expect to substantially grow that number of supposed languages to tens basically, already in this first quarter. So we we expect deployment of MeiLP in more countries already in the second quarter and beyond. So to wrap up my presentation, we exit 2025 good operational momentum. The connectivity business has stabilized in second half of the year. Voice AI business grew 35% on a yearly basis. And about 50% in the second half of the year. With the continued pace of investment in our life managed services activity, and in the voice AI area, we expect continued momentum in 2026 and beyond. And I'd like to move over the call to the Q&A session. Operator: Thank you. Certainly. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that is 1 to ask a question. One moment, please, while we poll for questions. Your first question for today is from Joshua Reilly with Needham and Company. Joshua Reilly: Hey, there. Thanks for taking my questions. Maybe just starting off on the updated financial targets for conversational AI growth through 2028. Is the 40 to 50%, annual growth, is that intended to be a CAGR growth rate? Through 2028. And then along with that, should we think about the primary driver being customer growth or higher spend per customer driving that conversational AI growth. So you expect to get a lot more new customers, or sell more of the new conversational AI products to existing customers? Shabtai Adlersberg: Right. Thank you, Joshua. Yeah. Actually, we're looking for both. You know, as I've mentioned before, several of our conversational AI, you know, this voice application rich mature rich maturity in 2025, which really says that we we just started out with, you know, you know, few hundreds of of customers. We expect that this number will grow substantially as we adding more capabilities and more features. And, also, investing our sales operations. You know, I would say that in 2025, our sales ability was was a bit restrained simply because we didn't want to move too quickly into the cells phase without having a more mature, more complete product. Now we feel fairly confident with you know? And and we get the feedback from customers. So, yes, the number of potential customers should grow I would say I'll use the word using usually. It will grow dramatically, I expect. In certain areas. Also, you know, do you to the addition of new capabilities and new features, we do expect that per customer you know, expand on our solution will grow simply because we intend bring more capability. So, yeah, growth should come from both. And and I'll tell you that I'm talking now about 50% growth, but as as we talk, you know, there are new application popping up you know, on a weekly basis talking to customers. And, again, our ability to combine our vast telephony capabilities with the very large investments we made in, conversational AI. Just to give you a data point, You know, we we are known to be a company that investing, you know, rich in R&D out of about thousand employees. We have 350 employees, doing R&D work. We are moving fastly into moving, you know, big portion of that R&D force into Voice AI. So while we when we started out back in 2010, we had only about 40 to 50 employees on this line. Now we have a 150 out of those 350 employees. So all in all, big investment. We see success. That gives us all the reason to continue to invest and and and believe in growth such as you know, 50%, and it could be more. Joshua Reilly: Gotcha. And then you mentioned there's been a shift in market expectations around AI. Can you just help us understand how is that maybe positively impacted your pipeline visibility and size now that we're moving past the kind of a testing phase for customers with some of these voice AI products and now moving into broader adoption. Do you feel that your pipeline visibility and size, is improving and increasing? Shabtai Adlersberg: Yes. As I've mentioned, you know, we are increasing our sales force. We're spreading our operation into more countries. Some of these application are fairly you know, easy to use, you know, SaaS application that you know, a company can test, do a proof of concept for thirty to sixty days and then moving into production. And with some of the more complaint compelling capabilities we're bringing to the game, we do have better visibility compared to take networking deals or connectivity deals is you you know, being being larger, but still, you know, usually takes essentially more time could turn to be anywhere between three months to nine months. Joshua Reilly: Gotcha. And then last question for me is, how should we think about any impact from tariffs to the 2026 financials and gross margin and any other items to be considering regarding tariffs in 2026? Thank you. Shabtai Adlersberg: Right. Right. So gross margin, we believe, will step up simply because our products you know, mix of products will turn substantially more into software and services. We do expect to keep that range of 65 to 68%, you know, operating margin. I'm sorry, gross margins. And yeah, gross margin. And then I'm sorry. What was the second one? Yeah. The tariff was about $2.7 million in 2025. We currently estimate it to be a bit lower, you know, probably around $2.3 million in '26. Joshua Reilly: Thank you. Shabtai Adlersberg: Sure. Operator: As a reminder, if you would like to ask a question, please press 1 on your telephone keypad. We have reached the end of the question and answer session. And I will now turn it over to Shabtai for closing remarks. Shabtai Adlersberg: Thank you, operator. I'd like to thank everyone who attended our conference call today. With continuing good business momentum in our live managed services operations, continuing growth in our voice AI business. We believe we are on track to grow revenue profitability next coming years. We look forward to your participation in our next quarterly conference call. Thank you all. Have a nice day. Operator: Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning, and welcome to the ADM Fourth Quarter 2025 Earnings Conference Call. All lines have been placed on a listen-only mode to prevent any background noise. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's call, Kate Walsh, Director of Investor Relations for ADM. Miss Walsh, you may begin. Kate Walsh: Welcome to the fourth quarter earnings conference call for ADM. Our prepared remarks today will be led by Juan Luciano, Chair of the Board and Chief Executive Officer, and Monish Patolawala, our Executive Vice President and Chief Financial Officer. Juan Luciano: We have prepared presentation slides to supplement our remarks on the call today, which are posted on the Investor Relations section of the ADM website and through the link to our webcast. Some of our comments and materials may constitute forward-looking statements that reflect management's current views and estimates of future economic circumstances, industry conditions, company performance, and financial results. These statements and materials are based on many assumptions and factors and are subject to numerous risks and uncertainties. ADM has provided additional information in its reports on file with the SEC concerning assumptions and factors that could cause actual results to differ materially from those in this presentation and the materials. Unless otherwise required by law, ADM assumes no obligation to update any forward-looking statements due to new information or future events. In addition, during today's call, we will refer to certain non-GAAP or adjusted financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are available in our earnings press release and presentation slides, which can be found in the Investor Relations section of the ADM website. With that, I will now turn the call over to Juan. Thank you, Kate. Juan Luciano: Hello, and welcome to all who have joined the call. Please turn to slide four, where we have outlined our performance highlights. Today, ADM reported fourth quarter adjusted earnings per share of $0.87 and full-year adjusted earnings per share of $3.43. Total segment operating profit was $821 million for the fourth quarter and $3.2 billion for the full year. Our trailing fourth quarter adjusted ROIC was 6.3%, and cash flow from operations before working capital changes was $2.7 billion for 2025. We also made good strides in managing our working capital, and, for example, we realized a $1.5 billion cash flow benefit from inventory reduction. I'll share a few highlights from across our business for the fourth quarter. Our AS and O team delivered record crush volumes in South America, our carbohydrate solutions team capitalized on SNO opportunities, and our nutrition team continued to improve execution across the board. And throughout our operating footprint, global teams improved manufacturing efficiencies. I am proud of the team's rigor around focused execution and capital discipline throughout the year. And in the fourth quarter, we paid our 376th consecutive quarterly dividend. Please turn to Slide five. We navigated the dynamic and difficult market during 2025. And as we steered through those headwinds, we intensified our focus on areas within our control and prepared our business to take full advantage of what is expected to become a more constructive operating environment going forward. Here is a recap of the significant progress we made during 2025. First, we executed more than 20 projects as part of portfolio optimization and simplification initiatives that are helping strengthen our business and support our core strategy going forward. Through this work, we achieved approximately $200 million of cost savings and announced the joint venture with Altek, which I'm pleased to report has commenced operations recently. Juan Luciano: Second, we addressed plant efficiency issues across our asset network and reduced our unplanned downtime. We restored operations at our Decatur East plant and achieved an important safety milestone by having the lowest injury rate in the company's history. Third, we reached an important decarbonization milestone. We connected our Columbus, Nebraska corn milling plant to Tallgrass dryblazer pipeline, extending our carbon capture and storage infrastructure beyond our Decatur operations. Fourth, we advanced Nutrishna's recovery, improved execution, and increased revenue. Fifth, we generated strong cash flow as we relentlessly focused on improving working capital. And as we announced last week, we reached the closure of government investigations of ADM related to the company's prior reporting regarding intersegment sales. We are pleased to put these matters behind the company. Please turn to slide six. Our operating environment throughout 2025 was challenging. And our team demonstrated impressive resilience as we strengthened the core of our business through portfolio optimization, disciplined capital allocation, tighter working capital execution, enhanced cost control, and lower transaction costs. This strengthening of our business not only allows us to continue to increase our dividend and return cash to shareholders, but it also affords us the ability to invest in future growth regardless of the commodity cycle. There are five key focus areas for our next wave of growth. We are leveraging our assets and expertise along with technology to build out our operations in enhanced nutrition, biotics, biosolutions, precision fermentation, and decarbonization. Each of these businesses has a different growth profile and timeline for value creation. But each complements what we're doing today and presents the potential for compelling enduring returns. For example, we are advancing innovations in enhanced nutrition for allergen-free pea protein, unlocking opportunities in specialized nutrition, such as ultra-high protein drinks, protein bars, and fortified snacks. On the natural flavor side, we have created patented technology for cleanseed flavors that are high-value ingredients for beverages. In natural colors, we have developed a breakthrough natural blue addressing one of the food and beverage industries' toughest challenges: producing a natural, stable, water-soluble, and safe blue pigment, which is exceptionally rare in nature. We're also developing next-generation functional ingredients and combining the benefits of biotics and botanicals. Across operations, we continue to invest in sidestream valorization as part of our ongoing efforts to optimize our production processes and add value to our byproducts. We also see a long multiyear run rate of growth projects connected to the work we're doing around large-scale decarbonization, including carbon sequestration. I now like to discuss the key market trends and company growth drivers for 2026 that support our outlook for a more constructive operating environment. The recent progress with China trade relations combined with the expectation of pending US biofuel policy clarity should support an increasingly constructive market environment throughout this year, particularly for our AS and O business. We expect positive economic opportunities for the industry and the American farmer to materialize, which should drive additional long-term investments throughout our business and the agriculture sector. Our outlook also assumes segment operating profit for Carbohydrate Solutions remained relatively flat, with lower starches and sweeteners volumes and pricing, offset by higher ethanol margins. And nutrition is expected to continue its trajectory of stronger organic growth and execution. Overall, there is much to look forward to in 2026 and beyond. Our current outlook for adjusted EPS in 2026 is a range between $3.60 and $4.25, which reflects growth over 2025 and appropriately captures the fluidity and timing on market response as global trade and biofuel policies continue to evolve. With that, let me hand it over to Monish to share a deeper dive into fourth quarter and full-year 2025 financials, as well as the assumptions underpinning our 2026 guidance. Monish Patolawala: Thank you, Juan. Please turn to Slide seven. 2025 was a dynamic year in the global trade and biofuel policy landscape, both of which impacted AS and O results. AS and O segment operating profit for the fourth quarter was $444 million, down 31% compared to the prior year quarter. For the full year, AS and O segment operating profit was $1.6 billion, 34% lower compared to 2024. In the Ag Services subsegment, operating profit was $174 million for the fourth quarter, representing a decrease of 31% compared to the prior year quarter. The decrease was driven primarily by lower export activity from North America combined with net negative timing impacts of $50 million compared to the prior year quarter. For the full year, Ag Services operating profit was down 11% compared to 2024, driven by lower North American exports and a challenged global trade environment. Throughout the year, farmer selling was limited by muted pricing, and combined with customers reducing the amount of inventory held, we experienced fewer trading opportunities. In the crushing subsegment, operating profit was $66 million, down 69% from the prior year quarter. While global crush volumes increased over the prior year quarter with crush volumes increasing 7% sequentially and 4% compared to the prior year quarter, weaker crush margins in North and South America pressured results. Additionally, there were net negative timing impacts of approximately $20 million compared to the prior year quarter. Further, there were approximately $20 million of reducing insurance proceeds related to the Decatur East claims versus the prior year quarter. For the full year, crushing operating profit was down 81% compared to 2024, with the main reason being a significantly weaker crush margin environment. Year over year, there were approximately $44 million of reduced insurance proceeds. In the refined products and other subsegment, operating profit was $119 million, down 2% compared to the prior quarter as positive timing impacts helped offset weaker food demand and lower biodiesel and refining margins. We have a net positive timing impact of approximately $72 million as compared to the prior year quarter. For the full year, RPO operating profit was 4% lower than 2024 due to the same food and fuel dynamics that pressured fourth quarter results. Equity earnings from our investment in Wilmar were $85 million for the quarter. Excluding specified items, it was up 49% compared to the prior year quarter. We typically record our share of Wilmar's financial results on a three-month lag basis, with the exception of material transactions or events that occurred during the intervening period that materially affect the financial position or results of operation. During the fourth quarter, we recorded a $254 million gain related to the transaction Wilmar closed, and I presented this as a specified item. For the full year 2025, equity from Wilmar, excluding specified items, was approximately 14% lower as compared to 2024. Turning now to Slide eight. For the fourth quarter, Carbohydrate Solutions segment operating profit was $299 million, down 6% compared to the prior year quarter. Similar to 2025, we saw the continued weakness in starches and sweeteners be largely offset by strength in ethanol margin. For the full year, Carb Solutions segment operating profit was $1.2 billion, down 12% compared to 2024. Further, there were approximately $33 million of reduced insurance proceeds related to the Decatur East and West claims versus the prior year quarter. For the fourth quarter, starches and sweeteners operating profit was $256 million, down 16% compared to the prior year quarter, in part due to a continuation of consumer buying trends experienced throughout 2025. We are seeing SNS softness being driven primarily by less consumption of packaged goods, and this impacted both volumes and margins. Additionally, in EMEA, SNS volumes and margins continue to be impacted by persistent high corn costs related to industry-wide crop quality issues that we have previously disclosed. Importantly, for this quarter, there were approximately $33 million of reduced insurance proceeds related to Decatur East and West claims compared to the prior year period. For the full year, SNS operating profit decreased by 21% as compared to 2024, with the decline primarily attributable to the ongoing trends impacting the fourth quarter. Year over year, there were approximately $75 million of reduced insurance proceeds. For the Vantage Corn Processors subsegment, operating profit for the fourth quarter was $43 million, up 187% from the prior year quarter. Ethanol industry margins remained stable through October and November before experiencing typical seasonal softening in December. Export and pricing strength continued to be supported primarily by mandated markets, which has kept inventory levels balanced. Overall, ethanol EBITDA margins per gallon for the quarter were approximately 33% higher compared to the prior year quarter. For the full year, VCP operating profit was up $119 million compared to 2024, driven by stronger demand and improving ethanol margin. Now turning to Slide nine. In the fourth quarter, Nutrition segment revenues were $1.8 billion, remaining relatively flat compared to the prior year quarter. Human nutrition revenue increased by 5%, while animal nutrition revenue decreased by 4% compared to the prior year quarter. Animal Nutrition revenue was impacted by previously disclosed portfolio Nutrition segment operating profit was $178 million for the fourth quarter, down 11% compared to the prior year quarter. As previously disclosed, insurance proceeds related to Decatur East in 2024 were $46 million as compared to zero proceeds received in 2025. Human Nutrition operating profit was $56 million, down 10% compared to the prior quarter, with the decline attributable to a reduction in insurance proceeds. Excluding the impact of insurance, the growth was largely attributable to strong North America flavor sales and recovery in specialty ingredients. For the full year, human nutrition operating profit was $319 million, down 2% when compared to 2024. Human Nutrition experienced significant operating profit growth led by flavors and the recovery of specialty ingredients. However, this growth was more than offset by the reduction of insurance proceeds. As previously disclosed, insurance proceeds related to Decatur East in 2024 were $1 million as compared to zero proceeds received in 2025. For animal nutrition, operating profit was $22 million for the quarter, down 15% compared to the prior year quarter as a result of localized volume softness and the impact of one-time items. For full year 2025, Animal Nutrition operating profit was $98 million, 66% higher than 2024, with the growth driven by improved margins as a result of focusing on higher-margin product lines combined with portfolio streamlining actions and cost optimization efforts. For 2025, corporate and other business costs increased by approximately 25% compared to 2024. For the full year, corporate and other business costs increased by approximately 19% compared to 2024. In both periods, the increase was primarily due to higher charges related to revaluation losses, including impairment, contingency, and restructuring charges. These losses were partially offset by lower interest expense, higher other income, and lower unallocated corporate function costs. Turning now to slide 10. For 2025, ADM generated cash flow from operations before working capital of approximately $2.7 billion, down by $600 million relative to 2024 as a result of low overall total segment operating profit. Restricted cash increased $1.2 billion to $4.5 billion, mainly driven by ADMIS. We continue to maintain a solid cash position, and we have made good progress in improving our working capital efficiency. As Juan mentioned, we realized a $1.5 billion cash flow benefit from inventory reduction as we sharpened our inventory management practices and improved demand forecasts. We continue to be very disciplined in the areas in which we invest. For 2025, we continue to be very prudent in our investments and invested $1.2 billion in capital expenditures. We also returned $987 million in dividends to shareholders throughout 2025, with Q4 being the 376th consecutive quarterly dividend. And finally, our leverage ratio at 12/31/2025 was 1.9 times, in line with our previously communicated year-end target ratio of approximately two times. Now turning to slide 11. We have provided further details on our 2026 outlook. Earlier today, as Juan mentioned, we provided our current outlook for 2026. We are providing an adjusted EPS range of $3.60 to $4.25 for the full year 2026 and view this range of outcomes as highly predicated on several key factors. First, the timing of when we receive US biofuel policy clarity. The earlier we receive policy clarity, the larger the opportunity to take advantage of what we expect will be an increasingly more constructive operating environment. Second, the size of the RVO requirement and the SRE offset. With the final mandate still under evaluation, visibility into the magnitude of improvement in the operating environment and the pace of industry adoption remains limited. Juan Luciano: Third, we expect robust ethanol export opportunities to continue, driven by mandated markets. We also expect domestic demand to strengthen with US biofuel policy clarity, and ethanol margin strength to be further supported by policy incentives. Strength in ethanol is expected to offset the continued softness in FNS projected from a continuation of the same consumer behavior trend we experienced in 2025. Fourth, we are expecting continued growth in nutrition driven by growth in flavors, continued recovery in specialty ingredients, and growth in health and wellness as global consumption of biotics increases and customers expand their range of applications. And in animal nutrition, we expect margin expansion to contribute to nutrition's operating profit growth as we focus on higher-margin products and see the benefits of our portfolio optimization actions materialize. As Juan mentioned, we have commenced operations of the joint venture with Altec. And while we don't expect it to have a material impact on Nutrition operating profit in 2026, we will see revenue decrease as a result of contributing those operations to an equity investor. Fifth, moving to corporate. We expect a portion of the segment operating profit growth discussed to be offset by higher expenses year over year that reflect continued investment in R&D and digital platforms. The impact of lower performance-based incentive compensation relative to 2025, an expected effective tax rate between 18-20%, and lower ADMI interest income due to a lower interest rate environment. We will also maintain a disciplined capital allocation policy, including a focus on solid cash flow generation while we continue to pursue cost savings. And we remain on track to achieve our targeted aggregate cost savings of $500 million to $750 million over three to five years, which we began in 2025. Additionally, for 2026, we expect to invest approximately $1.3 billion to $1.5 billion in capital expenditures. With regards to 2026, as previously disclosed, we expect crush margins in 2026 to be similar to 2025 as we have already booked a large portion of our first quarter business. As a reminder, we don't exclude mark-to-market from our estimates, so depending on how factors, including board crush and cash margins move, we could see positive or negative mark-to-mark timing impacts that differ from our current expectations. In Carb Solutions, we see similar trends to those we saw throughout 2025 relating to demand softness in starches and sweeteners, and we expect ethanol margins to be tempered by higher industry run rates. Nutrition is expected to show continued improvement over the prior period and sequentially, as we drive revenue growth and continue to see benefits from the recovery of special ingredients. This improvement is expected to be partially offset by the previously disclosed employee incentive compensation favorability in 2025. Our team is also continuing to monitor consumer behavior as it relates to our human nutrition business. To conclude, I want to thank our ADM colleagues for their focus, disciplined execution, and continued commitment to our long-term success. These efforts remain essential to navigating today's dynamic operating environment and delivering value for our shareholders. Back to you, Juan. Juan Luciano: Thanks, Monish. Let me wrap up by saying thank you to our colleagues for the solid strides made during 2025 with our strategic portfolio optimization and cost reduction initiatives. All of which are expected to strengthen our business and our cash flow for years to come. We're building out the next wave of long-term value creation, and specifically for 2026, we will be highly focused on optimizing our results in what we expect to be an increasingly constructive operating environment. With that, we'll take your questions now. Operator, please open the line. Operator: Thank you. If you would like to remove your question, please press star followed by 2. When preparing to ask your question, ensure to unmute yourself locally. The first question goes to Manav Gupta of UBS. Manav, please go ahead. Manav Gupta: Good morning. And first, really want to congratulate the entire team. I know Monish and his team particularly worked very hard with the SEC and DOJ. So glad that's all behind you. Very happy for you about that. My first question here is, sir, that, I know it's difficult to provide a guide with RVO not out there, and thanks for doing that. Trying to understand renewable diesel margins are already on the way to amend. RINs are also moving higher. And so when the RVO finally arrives, do you expect a material jump in the operating rates and processing rates of both biodiesel and renewable diesel facilities because then they would know exactly how much RINs they would have to meet, you know, how much the market would know how much RINs obligation would be. So if you could talk a little bit about that. Juan Luciano: Yes. Thank you, Manav. And, yes, we're very pleased to leave these investigations behind us with disclosure. Listen. It's been very difficult to give guidance because there are so many things that you described outside our control, and we don't feel comfortable in that regard. That's why our guidance is wide. What we are discussing here is the timing of all these coming to the P&L. We know it's positive. We know it's gonna come. So I think that when it's coming, it depends on when the government makes a decision and clarifies the policies. But also on how the market digests those policies and those get implemented. We're gonna see board crush. We're gonna see RINs. But at the end of the day, we need to see cash margins moving. And, don't forget that our business, which is a very large business, works in anticipation of the market. So we tend to sell every time we get into a quarter. We are sold maybe 60% or 70% into the following quarter. So if these things will be done at the '1, for us, it will be mostly July onwards, if you will, that we'll be able to realize that. So that's what creates the uncertainty. I think in not in a calendar year, this is extremely positive for the industry and certainly for ADM, pulling more vegetable oils into biofuels. That's gonna happen not only in The US, with the RBOs, but it's gonna happen in Brazil, hopefully, with B16 started either in March or in June. It's gonna happen also in other places around the world. So again, I think we try to be very balanced in saying, we see improvement based on the year over year on the things that we can control. We see some clarity in trading, and as we're gonna have some volumes from soybeans going to China that we didn't have in '25 materially. And then we see this RVO that's gonna help with the leg of the oil for the crash. Mill continues to be supported. And then we see growth in nutrition as we described. So we're very constructive about the future of our ADM. We also I also talked, Manav, a little bit about the long term. We have identified five platforms that are really very exciting that they're gonna come over the next five years at different timelines based on the difficulties or easiness of their implementation. So when you think about our self-improvement, plus all the policy coming our way, again, that is a matter of timing. Plus our growth prospects, we feel very strongly about the next few years for ADM. Manav Gupta: Thank you so much for the detailed response. I'll turn it over. Thanks. Juan Luciano: You're welcome. Operator: Next question goes to Ben Theurer of Barclays. Ben, please go ahead. Ben Theurer: Hi, good morning. Thank you very much for taking my question. Juan, if I could just follow-up same wishes on my side. Congrats on closing the case. Wanted to follow-up on the outlook piece and dig a little bit into nutrition and, like, kinda, like, tying it back to some of the commentary you've made in the past, pick a tree is being back up. Obviously, the fourth quarter probably wasn't as good as expected what you had initially. Like, kind of, like, tacked down for the nutrition segment. So as we move into '26, maybe can you give us an update on where you stand with, like, gaining these customers back on the fulfillment, everything that you first lost on Decatur East that you now need to, like, kinda, like, gain back. And maybe within the range of the guidance, associated, what are, like, kind of, like, the bull and the bear cases here as it relates to a, demand, and then b, the fulfillment of the demand from your side? Juan Luciano: Thank you, Ben. Listen. Let me start addressing a little bit the performance of nutrition, the true performance, because I think it is important that we provide clarity on the operating performance of the business. If you compare apples to apples, Q4 2025 versus Q4 2024. Q4 2024 has a significant piece of insurance proceeds into the nutrition P&L. So if you exclude that just to see the operating performance, we had a very strong quarter in flavors with OP up close to 60% or something. Ambiotics, up north of that. Driven mostly from Flavor North America, which has a very strong quarter. We did have a little bit of a softer quarter from a demand perspective in Europe. And we don't know if it just was timing or something because we've seen it recovered when we started the year in 2026. So we saw that coming back in January. As you said before, specialty ingredients continue with the Decatur East plant back online. But, of course, this plant was down for eighteen months, so we are doing some plant stabilization, some driving productivity. You bring it first back on safety per premises. So and then you try to do the optimization of the plan. So we're in that process. And at the same time, again, our customers move away after eighteen months of us not being able to supply fully. So as you said, we need to recover that, and we need to recover that prudently. But we would like to claim our share of the market back. So we are in that process. And I think that process is going well, but it's gonna take some time. Animal nutrition was a little bit soft with some pockets of softness, but also we have some one-off impacts. I think the trajectory overall of animals year over year has been positive, and we expect that to continue. So I would say when we look at 26, as the overall year, and I can't call it by quarter, but overall year, so we will have still strength in flavors for both geographies. We also have continued to grow in Asia Pacific in flavors, which we had a record year in 2025. We're gonna see a good demand in biotic and we're gonna continue with our margin improvement quest in animal nutrition. So that's where we see the business. So, yeah, we see growth for operating profit into the business in 2026 versus 2025. And just a tactical bend for you is as I've mentioned in my prepared remarks, when you're doing your modeling, we've you know, Ian, Ishmael, and team have done a great job with the Altec JV that has gone live. So just make sure that from a revenue perspective, you won't see the revenue, the profit for 2026 is pretty much where it was as this JV takes hold. So it's a part of what Juan mentioned, which is moving to higher segments or higher product mix in the animal nutrition. Operator: The next question goes to Heather Jones of Heather Jones Research. Please go ahead. Heather Jones: Good morning. Thanks for the question. Wanted to my question is on CRUSH, and I just it's a it's a big picture question. So I've I've followed you guys for over a decade, and just have been sort of puzzled by ADM's performance during '25. I particularly Q2, Q3, and Q4. Y'all's performance relative to public comps has been the the gap has been much wider than historically and has been to the downside. And my understanding is that your runtime issues have improved in '25 and that y'all done a better job on the operations execution side. So just wondering, is there a change in how you're hedging? Or just because, obviously, the the biggest influencer of your results over the next couple of years is gonna be RVO policy, and it's gonna affect crush most dramatically. And so I'm just trying to get a handle on how we should be modeling how ADM will benefit. So if you could just help me understand that disparity, it would it would it would be very much appreciated. Thank you. Juan Luciano: Yeah. Thank you for the question, Heather. Of course, we spend a lot of time in in app services and all seats, which is our largest business. I don't see anything clearly from a commercial perspective that has changed for us to justify what you described. I would say the main difference since I've been running this full so many years is our manufacturing costs have gone up. Not actually the performance, as you said, online time, I think, has has recovered, and that's going well. But our cost in terms of energy or manpower or contract and things like that, is higher than than it used to be, and we're working hard to reduce that. But that's probably something that I can point out, and as I said, we have good plans to do that. Things have become a little bit more expensive to build. We have a large footprint. A little bit more expensive to repair. And labor has been more expensive, especially in North America. I would say if you look at our the cost of our plants in the rest of the world versus North America, North America has become a little bit more expensive over the last few years. I would say post-COVID. I got the impression or not exact science that post-COVID rest of the world came back a little bit more to the pre-COVID, if you will, cost standards, while North America will still have a little bit more of that. And of course, it's not fat, but but we need to find that productivity improvements, and we have plans to accomplish that. If you don't mind, Juan, I'll add one more. Sorry. Heather, just as you think about the cost out of 500 to the seven that we've talked about, and we've started that work in 2025 as Juan mentioned, one of the big items in that unlock is manufacturing cost product. And that's what the team has plans to keep driving it. They're made progress in '25, and we'll continue to make progress in '26 and beyond. Operator: Thank you so much. The next question goes to Andrew Strelzik of BMO Capital Markets. Andrew, please go ahead. Andrew Strelzik: Great. Thank you for the question. Good morning. I wanted to go back to the guidance and, in particular, your assumptions on the higher end of the range. And appreciate some of the uncertainties around timing and magnitude related to RPO. But can you just share a little more specifically what you've assumed from a crush margin perspective? And maybe an improvement timing perspective on the high end of the range? And I guess what I'm really trying to get at is isolating kind of a post-RVO EPS run rate implied by your guidance at the high end versus kind of the first part of it? Thank you. Monish Patolawala: Yeah. Andrew, as Juan mentioned and as we've said in our prepared remarks, too, at the end of the day, this is all going to depend on two things. One is what happens with the RVO guidance. What is in the RVO guidance, what's the timing of the RVO guidance, and what's the adoption of the market range. So it's very hard to sit here right now and pinpoint exactly a number that says when and how much crush margins are going to be because it's dependent on so many factors. But what we have assumed in our higher end of the range, and that's basically where we're sitting right now, one is, of course, the timing of RVO and whether the adoption of RVO happens faster, and does the and crush margins go up because of that. We have also assumed that the strengthening of consumer demand strengthens, which is both for starches, sweeteners, overall packaged goods, nutrition, as well as demand for biofuels could definitely help us out. We have also, you know, talked about saying you know, how does RINs move up? So we'll have to watch how RINs move up. And Manav asked the same question and RINs. Board crush has moved up. Already based on some of the commentary out. So Bold crush has gone up. You can depending on the near, it's gone up nearly $40.50 cents for sorry, for December 2026. That's board crush. At the end of the day, it all has to translate back to cash margins. And so, therefore, that's something you have to just keep working through and watch. So when I look at the trends that are happening, these are all good early indicators. All early indicators that says we are going to have a constructive environment. But as Juan mentioned, we are being cautious and making sure that we are giving you both the high end and the low end of the range. Where at the low end of the range, we are focused more on what we control. It's better than where we ended 2025, continued progress on our cost out mission, continued to drive where we believe that sweet starches and sweetener softness gets offset by ethanol margins and policy benefits, continued execution in nutrition. So therefore, put altogether, Andrew, unfortunately, we are just giving you a wider range. Because it's all gonna depend on ultimately where demand is and then where crush margins go. As the quarters get more clearer and as guidance comes out, we'll be definitely there to update you all. Just last piece of housekeeping advice. As you know, we don't predict mark to market. Mark to market within the quarters could move depending on which markets we hedge, when we hedge it, as well as what prices turn out to be as of the end of the quarter. So please do factor that in from a timing perspective as you all think about. Andrew Strelzik: Great. Thank you very much. Operator: The next question goes to Pooran Sharma of Stephens Inc. Pooran, please go ahead. Pooran Sharma: Great. For the question. I wanted to ask about just the weaker starches and sweetener demand. We've been hearing concerns related to GLP one adoption, and that's been leading a lot of cons customers to move to spot rather than forward buying. But we've also been hearing just maybe tariff pressures causing producers to raise retail prices and that impacting demand. Just wanted to get a sense as to kind of what you're seeing and get your thoughts onto what's driving some of the softness here. Juan Luciano: Yeah. Thank you, Brian, for the question. Listen. I think it's a combination of everything. There are we go when we produce what we produce in sweeteners, we go to so many applications that touch many, many end uses products and also channels. I would say certainly, when people adopt GLP ones, we see the consumption drops a little bit as a family. That stabilizes, if you will, after six months. But also also shift a little bit what they consume, going more into proteins and maybe less savory snacks or sweet snacks. I think there is a consumer desire to move away from ultra-processed foods to a certain degree, at least initially, and I think we're seeing part of that. It is true that although inflation for food has dropped, the actual level of prices has not dropped for some of these products. And we have seen some of our customers trying different price points to test that elasticity. Prices remained a little bit high. And I think that when the consumer sees shakiness, if you will, in the labor market, they start to become more prudent about what they do, and they become more sensitive to price. So I think it's a combination of things. We are very blessed to have the ability to make many, many products from corn. And we are blessed to have a marketing team looking at industrial applications, you know, whether it's in mining or packaging or construction and cosmetics and others, and I think that has helped us to soften some of that. But the reality is, yeah, liquid sweeteners volumes are down. Maybe in the range of five to 7%. And we're fighting hard to offset that. Part of that offset for 2026, we think will come from 45Ds and ethanol margins and that will keep probably carb solutions the way we think about it. Relatively flat year over year. But you know, we have an intense focus on protecting that volume and shifting it to other applications that may not be exposed to the same trends. Pooran Sharma: Good. Thank you very much. Juan Luciano: Good work. Operator: The next question goes to Tom Palmer of JPMorgan. Tom, please go ahead. Tom Palmer: Good morning, and thanks for the question. I wanted to maybe just clarify a few guidance items quickly. Just first, I think in the past, you've given dollar amounts for corporate and then percentages for kind of expected tax rate. Apologies if I missed it. I don't think we got it today. And then on AS and O, we've a lot of discussion, I guess, on the crushing piece, but are RPO and Ag Services, any framing of kind of relative to what we saw in 2026, where they might trend? Thank you. Monish Patolawala: So just you'll have to remind me all your questions. But I'll try if my memory is right, Tom. One is tax rate. So adjusted ETR or expected ETR for '26 is between 18 to 20%. On corporate, as I've said, corporate will be higher on a year-over-year basis driven by a few facts. One is the improvement in SEG OP. Some of that, we are going to use to reinvest back in the business in R&D and digital. Number one. Number two, we will continue to see the impact of a lower incentive compensation in 2025. That won't repeat in 2026. And three is we're going to continue to drive cost out as we have committed to keep driving cost on corporate. So that's corporate. When you think about ag services and oilseeds, I think that was your third question. As we have said before, there's a wide range that could happen between ag service and oilseeds. Again, depends on RVO clarity. What we have done, Tom, is at the low end of the range, said that assuming there's a deferral of RVO policy or US policy, we see crush margins to be flat and then so that's factored into the low end of the range. As Juan also mentioned, from an ag services perspective, North American exports should be higher based on the policy clarity that we have got for especially with China where we should see higher volumes sold to China versus what we did in 2025. And then at the high end of the range, I already answered that question, on different things to think through. For the first quarter, I would say, again, crush margins based on the book that we already had, and we have publicly previously disclosed that too when Greg was on stage in another conference. We expect crush margins for Q1 to be very similar to Q4 in crush margin. For Q4, we have also disclosed, but just again, as you're building your model, those crush margins include a recovery of Decatur East insurance proceeds of approximately $30 million. I think it's 32 to be precise. In those crush margins. So, hopefully, I answered your questions, Tom. But if I missed something, let me know. Tom Palmer: Thanks so much. Just on the RPO piece. Thank you. Monish Patolawala: When you say on the oh, so what's Outlook? Again, listen. At the end of the day, you know, Juan's mentioned this on multiple calls and so has the team. I think, Tom, it's gonna come down to what is the demand for RPO. I think that's number one. And number two, once RVOs come through, there's going to be a time lag between how much you start seeing in crush margins, what RINs do, and therefore then how does it incentivize producers to start manufacturing product again as consumers? So as of right now, I think that's all in our range. And it's all going to come down to what are your policy turns out to be and what demand turns out. Tom Palmer: Okay. Thanks for all the detail. Operator: Next question goes to Salvator Tiano of Bank of America. Salvator, please go ahead. Salvator Tiano: Yes. Thank you very much. I want to go back to essentially what happens once the RVLs are out, but you know, taking a step back from explicit crush margins. So the high end of your guidance at four twenty-five is it fair to say that it implies kind of that starting in July, assuming, as you said, with a lag you'll see the benefits in July in the high end in the best-case scenario. Of perhaps $1.30 in EPS per quarter, is that kind of where the new earnings power is going? And obviously, if that is the case, does this mean that with no other change in your outlook, on a full-year run rate in 2027, we could see EPS in the low five? Is that kind of your big picture view here? Monish Patolawala: So, Salvator, again, I think it comes down to it right now. Very hard to predict exactly what that number turns out to be. As we have said, there are multiple factors at the high end. It's not just crush margins. Which is definitely one factor that should help. There's sooner we get the clarity and the more the demand is, as long as the cash margins are there, not just board crush, I think our team is ready to continue to execute, to crush, and hopefully take advantage of those margins. The other drivers in my high end of the range were also making sure customer demand or demand remains strong. That's the second. And then third, as Juan mentioned on sweeteners and starches, and bare ethanol margins. So there are multiple factors that have to go into play. To answer your question on the long run, you know, as Juan mentioned, there are five pillars that we think over the long run that should start helping us, and the company has taken 2025 to continue to be very prudent on cost. But also on cash and using that as a way to invest in these growth platforms. That can create value over the long term for ADM. How that timing works out between '25 and '26 and '27 by quarter sitting today, Salvator, it's unfair for us to be able to make that prediction because there's so many factors at play. But long term, as Juan mentioned, you know, ADM's ability to keep growing, keep creating value, keep returning value to shareholders, whether in the form of dividend, or in other forms, to remain a big keystone of our capital policy and our thesis to return value to shareholders. Salvator Tiano: Great. Thank you very much. Operator: Next question goes to Steven Haynes of Morgan Stanley. Steven, please go ahead. Steven Haynes: Hey, good morning, and thanks for taking my question. I wanted to come back to the CARB solutions guide for the year. And maybe if you could just help us think a little about bit about how your sweetener contracting season went or is progressing and, I guess, kind of within your guide, how much of that weakness is related to maybe margin versus volume? And then secondly, if you've included any kind of explicit uplift from 45 c or 45 q. If you're willing to quantify that, that would be helpful. Thank you. Juan Luciano: So, yes, Steven. Carve Solutions, the contract season went well. As I said, with some softness in volume that, at the end of the day, impacts margin. I can't quantify how much of this. As I told you before, we don't have these big cliffs of contracts anymore. So I think that, you know, it is a blend. But certainly versus other negotiations, it has been a little bit softer this year than others. With regards to 45 c, there are many to consider, of course, as to estimate the benefit. As you know, we need to think about the carbon intensity by plant. The prevailing wage issue, the amount of carbon we sequester during all these, the production volumes. And, of course, we need to see how the industry will react in terms of pricing to all these 45 z. We still don't have final guidance, but we know that this has cleared the White House Office of Budget. So we hope to hear from them soon. We think when we put in our estimate, we think that it could be a $100 million. But as I said, just to give you a flavor, there are many variables, so take that with a grain of salt. Steven Haynes: Understood. No. Thank you. Appreciate the color. Juan Luciano: Welcome. Operator: Your last question goes to Matthew Blair of TPH and Co. Matthew, please go ahead. Matthew Blair: Great. Thanks so much for sweeping me in here. You mentioned that you're expecting robust ethanol exports to continue in 2026. I think India already hit its 20% ethanol blend rate target. So could you talk about other markets where you see incremental opportunities for ethanol exports from The U.S? Then also, do you have any thoughts on the likelihood of E15 and if that does pass, you know, is there any sort of range or any sort of guide on the potential uplift to your carb solutions business? Thanks. Juan Luciano: Yeah. Thank you, Matthew. Listen. The US continues to be very competitive in ethanol in world markets, and I think it's certainly more competitive than Brazil. And there are many, many countries that with the need for more energy for all the AI that you see and all that, there is a strong desire of removing a little bit of the burden of transportation into the oil segment. So bringing biofuels is important for sustainability perspective, but also to enlarge the energy pool. So we're seeing countries, and anecdotally, it's like Vietnam is gonna launch some, but there are like, Japan is having in the forecast. So are many countries queuing to do that. The blending rate could go high. I always make give the anecdote that when I was living in Brazil, like, thirty years ago, we were already driving cars with 20 something percent ethanol. And they were, you know, American-made cars, if you will, by brand. So that can be done. So whether we can go E15 or not, it's a matter of the industry to align to that. To have only one pipeline and only one but but there are no issues to move into E15. So we think that eventually we're gonna get there. Again, timing is the key, and I'm not into forecasting timing. So we feel very good about that. It continues to be a very cheap oxygenate. I mean, oxygenates comparable to that trade for, like, maybe $2.90. And, you know, ethanol is what, like, a dollar 60 or like that. So it continues to be very competitive. So we're optimistic into that. We also have plans that will have the opportunity to provide low carbon intensity to that based on our carbon cap and sequestration. And I think that will bring other avenues for ethanol potentially soft and other things, not only here, but outside the world. So I think we are positive about that. I think it speaks a little bit because at times, you know, biofuels become less of an impact to us. At times, like now, becomes more important. It speaks a lot about the strength of our diversified model, that we are global and very diversified portfolio. That allows us to do things like invest for growth while we are able to increase the dividend, like we increased this year, even at times in which you can consider this almost like trough conditions from an industry perspective. So I think it shows the strength of our model that provides a very strong base during the tough times. And now you're all asking questions about what could be the upside, and we would like to ride to that upside. And all we can do is improve our facilities to be able to run fully when that time comes and being able to take full advantage of the market opportunities or the regulation opportunities that will be presented to us. So we've been very satisfied with how we handle the cash and the increase of dividends over the last two years. There were tough market conditions, and now we are ready to ride the upper side of the cycle, if you will. Operator: Great. Thank you, Matthew. We have no further questions. I'll hand back to Kate Walsh for any closing comments. Kate Walsh: Thank you all for joining the call today. We appreciate your continued interest and support of ADM. And wish you a great rest of your day. Operator: Thank you. This now concludes today's call. Thank you all for joining, and you may now disconnect your lines.
Operator: Good day, and welcome to the PJT Partners Fourth Quarter 2025 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Sharon Pearson, Head of Investor Relations. Please go ahead, ma'am. Thank you very much. Good morning, and welcome to the PJT Partners Full Year and Fourth Quarter 2025 Earnings Conference Call. Sharon Pearson: I'm Sharon Pearson, Head of Investor Relations at PJT Partners. And joining me today are Paul Taubman, our Chairman and Chief Executive Officer, and Helen Meates, our Chief Financial Officer. Before I turn the call over to Paul, I want to point out that during the course of this conference call, we may make a number of forward-looking statements. These forward-looking statements are subject to various risks and uncertainties, and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements. We believe that these factors are described in the Risk Factors section contained in PJT Partners' 2024 Form 10-Ks, which is available on our website at pjtpartners.com. I want to remind you that the company assumes no duty to update any forward-looking statements. And that the presentation we make today contains non-GAAP financial measures which we believe are meaningful in evaluating the company's performance. For detailed disclosures on these non-GAAP metrics, and their GAAP reconciliations, you should refer to the financial data contained within the press release we issued this morning, also available on our website. And with that, I'll turn the call over to Paul. Paul Taubman: Thank you, Sharon. Good morning, everyone, and thank you for joining us to review our fourth quarter and full year results. Across the board, our 2025 results were record-setting as we reported record revenues, record adjusted pretax income, and record adjusted EPS. This strong performance reflects our sustained investment in building the best advisory-focused firm possible. A firm distinguished by its best-in-class talent and its unwavering commitment to a culture of collaboration and teamwork. This firm-wide investment continued in 2025; we added senior talent across industries, capabilities, and geographies. For the year, firm-wide partner headcount increased 12% while total headcount increased 7%. We ended the year with record cash balances of $586 million after directing a record $384 million to share repurchases. Our capital priority remains first and foremost to invest in our firm and our people, and second, to return capital to shareholders and to do so principally through repurchases. After Helen takes you through our financial results, I will review our business performance and outlook in greater detail. Helen? Helen Meates: Thank you, Paul. Good morning. Beginning with revenues, the full year 2025 total revenues were $1.714 billion, up 15% year over year. As Paul mentioned, this was a record result for our firm. All of our businesses had record revenues, with strategic advisory the primary driver of revenue growth for the year. For the fourth quarter, total revenues were $535 million, up 12% year over year, also reflecting a record revenue quarter for our firm. The growth in the fourth quarter was primarily driven by growth in restructuring and PJT Park Hill. Turning to expenses, consistent with prior quarters, we presented the expenses with certain non-GAAP adjustments which are more fully described in our 8-Ks. First, adjusted compensation expense. Full year adjusted compensation expense was $1.15 billion, representing a compensation ratio of 67.1%, which compares to 69% for the full year 2024. Given the higher compensation accrual for the first nine months of the year, the resulting rate for the fourth quarter was 66.2%. We will provide guidance on our 2026 compensation estimate when we report our first quarter results. Turning to adjusted non-compensation expense, total adjusted non-compensation expense was $207 million for the full year 2025, up 12% year over year. The main drivers of the year-over-year increase were higher occupancy costs, driven by additional space in New York and London, and higher travel and business-related expenses. In the fourth quarter, total adjusted non-compensation expense was $54 million, up 16% year over year with the same drivers of year-over-year growth: higher occupancy costs and higher travel and related business-related expenses. As a percentage of revenues, our adjusted non-compensation expense was 12.1% for the full year 2025, and 10.1% for the fourth quarter. We expect our total non-compensation expense in 2026 to grow at a similar rate to 2025, and we will provide more guidance on our outlook for the year when we report our first quarter results. We reported adjusted pretax income of $357 million for the full year 2025 and $127 million for the fourth quarter. Our adjusted pretax margin was 20.8% for the full year, and 23.7% for the fourth quarter. The provision for taxes, as with prior quarters, we've presented our results as if all partnership units have been converted to shares and that all of our income was taxed at a corporate tax rate. The effective tax rate for the full year was 14.1%, as we realized a significant tax benefit from the delivery of vested shares. The 14.1% rate was below our previous estimate of 15.5%, primarily due to the final income allocations across state, local, and foreign entities. For 2026, our current estimate for the tax rate is in the high teens percentage, which is between the 2024 rate and the 2025 rate. We'll provide an updated estimate when we report first quarter results. Our adjusted if-converted earnings were $6.98 per share for the full year compared with $5.20 in 2024, and $2.55 for the fourth quarter compared with $1.90 for the fourth quarter of 2024. On the share count for the year ended 2025, our weighted average share count was 43.9 million shares, slightly down year over year. During the year, we repurchased approximately 2.4 million shares and share equivalents. As Paul mentioned, we spent a record $384 million on share repurchases. Paul Taubman: We are in receipt of exchange notices for an additional 850,000 partnership units, and subject to Board approval, we intend to exchange these units for cash. We view the partnership exchanges as an effective way to repurchase shares without impacting the float. Consistent with our capital priorities, we will continue to invest in the business while using excess cash to, over time, reduce our share count. On the balance sheet, we ended the year with a record $586 million in cash, cash equivalents, and short-term investments, and $632 million in net working capital. And we have no funded debt outstanding. Additionally, the Board has approved a quarterly dividend of $0.25 per share. Finally, a note on our revenue reporting. Going forward, we will report our revenue as a single line item and will no longer break out the advisory, placement, and other designations. In our earlier years as a public company, the placement fee line was a reasonable proxy for PJT Park Hill. Today, more than ten years on, with the expansion of our private capital solutions business and the growth in our corporate placement capabilities, that is no longer the case. Given our strategic priority of expanding and further integrating our broad advisory capabilities, these revenue designations do not reflect either how we manage our performance or how we measure our progress. As we have done in the past, we will continue to provide context around the key drivers of our performance. Back to Paul. Paul Taubman: Beginning with restructuring. Notwithstanding broadly favorable macroeconomic and capital market conditions, an increasing number of companies continue to grapple with overleveraged balance sheets, challenged business models, technological disruption, and changing consumer preferences and governmental policies. In this environment, demand for our liability management and restructuring advice remained elevated, and we delivered record Q4 and full-year results. Turning to PJT Park Hill. Relatively modest capital returns have further strained an already challenged primary fundraising environment, prompting GPs and LPs alike to pursue alternative liquidity options. While investor interest in secondary products continues to grow, driven by an increasingly appreciated return profile. Against this backdrop, global primary fundraising volumes declined for the fourth straight year, while client interest in private capital solutions and other structured products continued to build. In this push-pull environment, our PJT Park Hill business delivered its strongest quarter ever, enabling full-year results to exceed 2024's record results. Turning to strategic advisory. M&A activity increased sharply in 2025, with global announced volumes up significantly as strength in debt and equity markets, greater confidence regarding regulatory outcomes, as well as improved CEO confidence all served to make this the second-best year ever for announced M&A activity. Our 2025 Strategic Advisory results benefited from this favorable deal environment as well as the continued investment in and maturation of our advisory platform. 2025 strategic advisory revenues significantly outpaced 2024's record levels, with revenues in our Strategic Advisory business reaching record highs for both the fourth quarter and the year. As we look ahead, the broader capital markets M&A environment continues to be highly constructive for deal-making. The momentum in global M&A activity observed in 2025 is likely to carry over through 2026, with strength in debt and equity capital markets, greater confidence regarding regulatory outcomes, and increased CEO confidence all providing ballast. But as events of the last couple of weeks have shown, market sentiment can turn on a dime. Geopolitical risks, as well as debates surrounding the pace of AI development and capital deployment, and the economic returns associated with this investment, continue to loom large. How these factors evolve will play a central role in shaping the year ahead. As it relates to our firm, in PJT Park Hill, the strength in our private capital solutions business should more than offset any declines in primary fundraising. In restructuring and liability management, we continue to operate in a sustained period of elevated activity, and our best-in-class team remains well-positioned to capture additional market share. In Strategic Advisory, while we began 2026 with a pipeline of announced transactions comparable to year-ago levels, our pipeline of pre-announced transactions, measured both by number of mandates and revenue opportunity, is up meaningfully from a year ago and now stands near record levels. We are better positioned than ever before to capitalize on a favorable deal environment due to our expanded footprint, enhanced capabilities, and growing brand awareness. Given our differentiated mix of businesses and the growth opportunities before us in each of these businesses, our firm remains well-positioned to prosper in nearly any market environment. As before, we remain confident in our near, intermediate, and long-term growth prospects. And with that, we will now take your questions. Operator: We'll take our first question from Devin Ryan with Citizens Bank. Your line is open. Devin Ryan: Good morning, Paul. Good morning, Helen. How are you? Very well. Good morning. Want to start with restructuring. Obviously, I think a lot of interest in that business in the industry just as new firms are saying kind of slightly different things on kind of the outlook there. And so I'm curious if you can just give a little more color around the type of activity that you're seeing. Is it kind of amend and extend or kind of comprehensive liability management? Is there more in court? And then just expectations there as we go out, I know you don't have a crystal ball here, but in a world where your M&A activity is kind of normalizing and accelerating nicely, does restructuring maintain? Can it still grow? Or does the normal pattern of it kind of falling off a little bit kind of play out? I'm just curious how thinking about not necessarily the next couple of months, but probably the next twelve to eighteen months. Thanks. Paul Taubman: Sure. I think we've been remarkably consistent on this point. Which is we're in a multiyear period of elevated restructuring activity. There are lots of reasons for that. Some of which is the benchmarks and the mindset relate back to historically low interest rates. That were aberrational and we're dealing in a more normalized rate environment today than before. The second is we're dealing in a world that is speeding up, not slowing down. And the technological innovation is fueling our global economy, but at the same time, it's creating winners, and those winners are redefining who the losers are left behind companies are in what industries and which companies. And as a result, you can have a world where you have robust GDP growth, you have broad consensus that the macroeconomic environment is constructive but at the same time, have very concentrated stress in certain industries and with certain companies. And I think that suggests to us that this has legs and is going to continue to play out for a period of time. The reality is we haven't really hit a recessionary environment for an extended period of time. If we were to, then all this commentary sort of gets taken off the board and you're looking at a meaningful leg up. But if you just assume the current economic environment, we think you're going to continue to see robust liability management and restructuring. We have not seen any diminution in that activity. And if anything, we think we're starting to see the very early signs of that growing. In addition, we have every day the goal of broadening our footprint. Broadening our footprint with sponsors, broadening our footprint in industry groups, broadening our footprint geographically. And every day that we broaden that footprint gives us a greater addressable market in which to market those leading liability management and restructuring capabilities. And as we're able to reach a broader group and become relevant to a broader group, that gives us the prospect of continuing to grow our business at rates that may be greater than what the overall liability management or restructuring data suggests. Devin Ryan: That's great color, Paul. And then just for my follow-up, want to talk about the kind of platform maturation. You kind of mentioned that a couple of times. Obviously, tremendous growth in Strategic Advisory over the last year or really last decade, but the last handful of years, really, the business has been maturing. So and again, I appreciate you don't break out a segment P&L. Not how you run the firm. But can you help us get comfort around the ability to drive operating leverage off of those investments? Is there any proof points that you're seeing that And then just kind of order of magnitude of operating leverage as the business backdrop transitions to a stronger M&A environment to the extent it does. I don't know if there's a way to think about an algorithm of revenue versus expense growth or just how you would frame just given the growth you've had and then the maturation of some of that growth as well? Paul Taubman: Well, I don't think we've had a year to date where our strategic advisory partners writ large have been more productive than in 2025. So clearly, as you just look at the maturation and the progression of our firm, that continues to be up into the right. At the same time, that that me direct to up and to the right, but that doesn't mean that every quarter every year is precisely up into the right. And as an example, one factor is just the pace of investment. And we've made it very clear that when we find individuals who match our expectations for talent relationships, and personal integrity and ability to operate in a culture of teamwork and collaboration we're not going to be shy about onboarding those individuals. So some of these productivity measures get masked from time to time based on what's the rate and pace of investment. So that's why it's never a straight line. And also, the strategic advisory business is a long scale cycle business. So many times, you could be having real impact and effect. And from the KPIs one would look at, you're seeing increased productivity, even if the revenue lags. But I think we look back on 2025, and we're just a fundamentally different firm, and maybe the easiest way to see that is if you just look at our firm-wide revenue, and compare it to 2021, which was the peak year for M&A activity of all time, on that basis, we're up nearly 75% in firm revenues from 2021 to 2025. So just to give you some perspective as to how this continued investment is starting to gel, I think there's been real returns. But we're not satisfied with where we are because we have really high expectations and aspirations. But we're going to just continue to methodically get after all of the white space that we see across the board. Devin Ryan: Alright. Thank you, Devin. Operator: We'll take our next question from James Yaro with Goldman Sachs. Your line is open. Song Jiang: Hi, this is Song Jiang stepping in for James. Paul, 2025 was a mega cap M&A driven backdrop. So can do you think can this part of market continue at this pace or improve further in 2026? Paul Taubman: I certainly think we're we haven't tasted the full extent of how robust the M&A market can be. But when you have a year like 2025, where depending upon how one counts, volumes are up 35, 40, even even higher than 40%. And you're looking at the second highest revenue year, it becomes a difficult comparison. But I focus less on whether we're going to ring the bell and top tick last year I asked myself, are we in a multiyear period of elevated deal activity? And I think given the current macroeconomic backdrop, the regulatory posture this administration the desire in Europe to address certain issues in terms of industry consolidation and the like, which is perhaps been a a negative for the continent. When I think about the attractive capital markets backdrop, and a world that is speeding up and not slowing down, which means you either need to press your competitive advantage. And one of the ways to do that is with more scale and to use your capabilities to continue to build moats or you find yourself left behind and you need to think about the corporate structure that you have, or you're vulnerable to shareholder activism or you need to pair the mission and focus on areas where you have clear core competencies and advantages. All of that suggests that we should be in a multiyear period of elevated deal activity. It's easy to talk about inflection points or things are going to get better or things are going to get worse. But when you're dealing with quite attractive macro backdrop, the issue is just simply how long is it going to continue, and we think it has legs. But whether we're continuously hitting new highs that's much harder to call. Song Jiang: Thanks. Very helpful. Just a follow-up here. You delivered a meaningful step down in the comp ratio in the quarter. Can you please help us think through the outlook for the comp ratio from here? Thanks. Paul Taubman: Well, I think we've said a couple of years ago that when we were delivering our financial results that we thought that based on everything we had seen our compensation as a percentage of revenue had peaked. And it had peaked because we had maximal investment in a period of relatively low velocity M&A activity, and that confluence had caused that ratio to gap out in the short term but we expected that to continue to work its way down. And I think we're done working it down. The question is just simply the pace and rate of that. And that's in part going to be a function of how the markets develop. Over the next couple of years and how strong they are and how much operating leverage we get by revenue growth, but some of it's also going to be the pace of investment. Which is still very much TBD. And we'll report at the end of the first quarter when we deliver our Q1 results our best estimate for what that ratio should be for 2026. Operator: We'll take our next question from Brendan O'Brien with Wolfe Research. Your line is open. Brendan O'Brien: Good morning. Thanks for taking my questions. Was hoping you can help me with something because I'm struggling a little bit here. So hear you loud and clear that restructuring the outlook is pretty good. Paul Taubman: But Brendan O'Brien: when we look at the revenues here in the fourth quarter, know you guys flagged in the press release that restructuring was up, but the multiple on the Dealogic revenue was one of the lowest that we've seen in years. So side than what we've been seeing. Me, that suggests that the actual quarter was a little bit lighter on the restructuring. So number one, I'd love to hear you maybe speak to those I know restructuring is chunky, right? So like, that can happen quarter to quarter. But maybe help reconcile when you're thinking about restructuring, could you speak to maybe certain sectors and where you're seeing a lot of activity? There's a lot of out there around software. So curious about what you're seeing in your Paul Taubman: business there. Okay. I don't spend a lot of time looking at deal logic data. I just focus on the business that we do. And we are pretty clear in how we communicate to our investors. We had our record quarter in restructuring. Q4 was the best restructuring quarter we've ever had. The year was the best restructuring year we've ever had. And we continue to be constructive and optimistic about the future prospects for our franchise. There can't be any clearer than that. Those are the facts. Brendan O'Brien: Okay. And sectors? Paul Taubman: Were you busy in restructuring? Sectors. Look, we're really busy across the board, but I think there are areas. I think you look at challenged industries, of the healthcare complex, there's a lot of pain. Software is an area where will be elevated focus just given events and pressures coming from AI. We've talked consistently about the fact that AI is going to be a disruptor. The whole digitization and the consumption of media has created significant opportunities in media. There are issues in retail, which also come from online versus offline shopping and changing consumer behavior. I think it's broad-based. It's not narrow. Because in many industries, there are companies that are being left behind and their business models took on or suggested they could support a quantum of debt, that as the world moves forward, it's clear that, that was not the right capital structure and companies are increasingly trying to get ahead of these issues, and they're looking at where they're choke points might be in the future as far as covenants for significant maturities and they're using the creativity and deep capital markets and the ability to access public or private markets to come up with a better capital solution. So it's really quite broad-based. And our focus is not narrow. And that's another reason why I have greater confidence that this trend continues. If it was just a couple of very narrow verticals, there's always the risk that, that well runs dry. But that's not what we see. Brendan O'Brien: Got it. Got it. Yes. And look, thanks for that color, strength of the restructuring franchise. That you've built is clearly quite good. Maybe I'm going to try my question a different direction. I know you don't pay attention to deal logic, but we're stuck here using the data that we've got. So could you speak to Park Hill? I know you spoke to challenges in the fundraising environment. But there's also the GPU at secondaries business, which has been better. What did trends in Park Hill revenue trends in Park Hill look like? And was that maybe a little bit weaker just because the fundraising remains so challenging? Paul Taubman: I think most of my commentary throughout the year was that we expected the year to come close to or be proximate to the prior year's record performance. 2024 was a record for the Park Hills business. We ended up with a record fourth quarter. And as a result of a record fourth quarter, we created a new full-year record. Our 2025 results eclipsed 2024. I mean, we just step back for a moment, we generated over $500 million of revenues in the quarter. We've never done that before as a firm. Had a record quarter. We pierced $500 million by a significant amount. We had the best quarter ever in restructuring. Had the best quarter ever in strategic advisory. Had the best quarter ever in PJT Park Hill. And the reality is we're dealing with a fourth quarter a year ago we also had records. So we had very tough hurdles there, and we cleared them across the board. So all of the businesses are very well positioned. Going forward. I think as you look at the Park Hill business going forward, you're going to see private capital solutions, structured products and the like increasingly represent the bulk of the revenue opportunity. And that market, as I said in the outlook, is growing meaningfully faster for us than any potential diminution or flatness in the primary fundraising line, which makes us optimistic about the Park Hill business in 2026. So we're feeling pretty good about where we stand at the 2025. Moving into 2026. Brendan O'Brien: Right. Operator: Sure. Absolutely. We'll move next to Jim Mitchell with Seaport Global Securities. Your line is open. Jim Mitchell: Hey, good morning. Paul Taubman: Paul, Jim Mitchell: last you mentioned that M&A volumes are the second-best year ever. But when we look at sort of the number of deals down for the fourth year in a row last year, so very much a mega cap kind of environment. So I guess number one, are you seeing activity starting to broaden out to more the middle market? And down? And then secondly, for you specifically for PJT, I know you've been looking to build out your touch points with financial sponsors. So just any kind of update on how you're positioned for that maybe middle market recovery among financial sponsors? Thanks. Sure. Paul Taubman: So volumes are up meaningfully. Deal count down. Although if you really double click on that, a lot of the reduction in deal count is in the sub-billion dollar transaction. And that's not a place that we play as much in. So in some respects, that's not as broad-based as people might think because a lot of that reduction in deal count is at the much, much smaller level than it is in chunky three, five, $10 billion transactions. That would be the first point. I think the second point is if you look at the buying bench, in private equity in 2021, and then the painful come up as in 2023, when there were somewhere like nine rate hikes in 2023. You've got a very low velocity private equity environment. And I think what we're doing is we're getting back to equilibrium between capital expended and DPI. And we've talked about this. It's not always the easiest way to shift from a fundamental imbalance where all this capital has been called and relatively little of it is monetized. If you do that for a period of time, you create stresses and strains in the system. I think the industry has worked through a lot of it. They haven't worked through all of it. But I would expect that we will continue to see some increasing activity amongst private equity firms as they become more comfortable in monetizing investments at these valuations. And the more that they can monetize, I think that will make it easier for them to be more forward-leaning and commit more capital, and we'll get the ecosystem better linked between sort of capital and capital return. I don't think that it's going to be perfectly imbalanced, which is why we're so constructive on the Private Capital Solutions business. I think that's an arrow in one's quiver that's going to continue. For a considerable period of time. And as far as the private equity ecosystem and how we touch it and how we cover it, one way we touch it and cover it is through all the liability management exercises we do. And as we continue to broaden our sponsor coverage, it shouldn't be a surprise that some of that benefits our restructuring special situations liability management effort. I think the next is we have a leading private capital solutions business. The more developed that business is, the more opportunities we have to use those distinctive capabilities and also our distribution and our ability to raise new capital to further penetrate the middle market or sub-mega fund complexes and that's an area where PJT Park Hill is particularly strong. And has real deep relationships. And as we continue to build out our industry groups and strategic advisory become more relevant to more sponsored firms. Because of our industry expertise and our industry verticals better matching where there might be investor focus. So we're continuing that journey to further grow that business. But I've always believed it needs to start with best-in-class advice. It needs to start with best-in-class corporate access. And then from there, you have things of real relevance that resonate with your sponsored clients. Jim Mitchell: That's really helpful. Maybe a quick one for Helen. I appreciate not giving the full-year tax rate, yet, but can you give us any help on the first quarter given the likely quite positive benefit in the first quarter? Any way to think about what the tax rate could be in the first quarter? Helen Meates: Sure. When estimating the taxes, Jim, we look at it over the full year and smooth it over the full year when we do the adjusted effective tax rate. So when we do that, when I gave you the high teens, that anticipated that benefit from the will be early March. So Jim Mitchell: right. You smooth it out. Okay. Thanks for the time. Yeah. Okay. Thank you. Paul Taubman: Thanks, Operator: We'll take our next question from Mike Brown with UBS. Your line is open. Mike Brown: Great. Good morning, Paul and Helen. Paul Taubman: Good morning. So Mike Brown: Paul, I wanted to just double click on the Private Client Solutions opportunity here. You've on it a number of times on the call. Just start on the secondary side of the market. What are you expecting from kind of the GP and LP side in terms of the mix in 2026 compared to 2025? And then your positive views there, it sounds like it's kind of a secular growth. But maybe can you unpack a little bit about PJT's opportunity for market share? Opportunity. And then just on the primary side, if you could spend a minute there, we are seeing realizations picking up for the industry. So when could that return of capital start to translate to stronger fundraising on the primary side for Park Hill? Paul Taubman: Okay. Why don't we start there? I think that the primary industry across the board is challenged for a variety of reasons, right? One of which is increasingly asset allocators are allocating larger and larger percentages of their allocations to the largest fund complexes. And as a result, many of those have their capabilities in-house. So you're really dealing with the next level. That trend towards consolidating relationships and the like I don't expect to change. I think that's the first thing. I think the second is the performance across the industry has been a bit uneven. And I think the 2021 vintage may choose may turn out to be a less than flattering vintage when history is written. And as a result, there's also the risk that just the absolute allocations to the asset class sort of move away. At the same time, there's immense interest and opportunity in credit in credit products, in structured credit, and I think we're very well positioned there. There's also real opportunities in real estate. And I think that the dynamics today are more favorable than they've been for a considerable period of time. So it's not like one monolithic industry. It's the fact that there were going to be pockets of opportunity always. And in a world where it's more difficult to raise capital, clients are going to be more discerning about whether or not to employ a placement agent if they use a placement agent who to use. I think all of those trends work to our benefit. And the more we solidify those relationships, that puts us in a pole position for more of the opportunities and looks as it relates to private capital solutions. So I think those businesses are highly synergistic as they work together. And I do think that as an asset class, if you just look at how many new funds are being raised, in secondaries, I think, as I said in my prepared remarks, there is an increasing realization of the attractiveness of the secondary opportunity from an investment perspective. The absence of a J curve, the ability to invest alongside sponsors where there's continuity of management specific identification of the assets real track record of performance, and increasingly, those assets that are being presented to the marketplace are the highest quality assets. So I think that, that's going to have a reinforcing effect and that's going to invite more capital. The more capital there is, the ability to run a more competitive process with better price discovery where you have a multitude of providers of capital to choose from. So all of that, I think, is a positive for the industry. And we're very comfortable with our market position, in the sense that we have unique capabilities particularly the secondaries joined with our unique primary distribution. Capabilities. And we expect to gain share in that business as we look at going forward. Mike Brown: Great. Thanks, Paul, for all of that color there. Just wanted to follow-up on the restructuring side. So very positive outlook here for restructuring. That was clear. Paul Taubman: Just wanted to ask, you seeing any competition for talent in the restructuring business? You've obviously got premier franchise and leading share. But we did observe that a partner looks like they spun out and creating their own restructuring business and just Mike Brown: curious how you're thinking about Paul Taubman: the war for talent and that Mike Brown: restructuring side of the business. Thank you. Look, we're a talent-focused firm, so we're always focused on making sure that we have the best talent and we believe we have the best talent. We believe we have the best culture. And we believe we have tremendous opportunities ahead of us as we start to get at the white space that we have. And I think our franchise enjoys more white space than most anyone else. So we're very comfortable that it is a highly attractive destination. And we'd love nothing more than to continue to invest in our franchise and to add more talent if those opportunities rise. Thanks, Paul. We'll move next Operator: to Alex Bond with KBW. Your line is open. Alex Bond: Thanks. Good morning, everyone. Most of my Paul Taubman: questions have been asked already, but maybe a quick one for Helen just on non-comp side. I heard the guide for the year of roughly similar to the year-over-year increase to last year. But maybe if you could just help us think through what are going to be the main drivers there Alex Bond: of the higher nominal amount in 2026, that would be helpful. Helen Meates: Yes. So as I said, we'll give a more refined view in the first quarter. But if you think of the tailwinds going into 2026, we definitely should experience less occupancy growth. We've made some pretty significant investments in New York and London. So that growth should slow. And we're always going to get leverage out of some of our costs around IT infrastructure or some of the professional fees that we have relating to being a public company. So they would be the tailwinds. And I think the headwinds more people bring more travel, more market data, more IT and comm support. So I think against that, that's where we're going to see the growth and just trying to figure out how we manage that. I think it will be fair to say we've been very disciplined in how we manage our expenses. But there are some just activity-related expenses that are going to drive those non-comp up. Alex Bond: Got it. That makes sense. And that's helpful. I'll leave it there. Thank you, everyone. Thank you. Operator: Thank you. That concludes our question and answer period. I would now like to turn the call back over to Mr. Taubman for closing remarks. Paul Taubman: Just once again, we want to thank everyone for joining us this morning as we reported our full-year results. We're very excited to get on with 2026 and we look forward to reconvening to report our Q1 results in April. Thank you very much, and have a great day.
Operator: Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the fuboTV Inc. First Quarter 2026 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star then the number one on your telephone keypad. I would now like to turn the call over to Ameet Padte, SVP of Financial Planning, Analysis, Corporate Development, Investor Relations. Ameet, please go ahead. Ameet Padte: Thank you for joining us to discuss fuboTV Inc.'s first quarter fiscal 2026 results. With me today is David Gandler, co-founder and CEO of fuboTV Inc., and John Janedis, CFO of fuboTV Inc. Full details of our results and additional management commentary are available in our earnings release and letter to shareholders, which can be found on the Investor Relations section of our website at ir.fubo.tv. Before we begin, let me quickly review the format of today's call. David will start with some brief remarks on the quarter and our business, and John will cover the financials. Then we will turn the call over to the analysts for Q&A. I would like to remind everyone that the following discussion may contain forward-looking statements within the meaning of the federal securities laws. These include statements regarding our financial condition, anticipated financial performance, expected synergies and benefits from our recent business combination, business strategy and plans, including our product, subscription packages, and commercial agreements, market, industry, and consumer trends, and expectations regarding growth and profitability. These forward-looking statements are subject to certain risks, uncertainties, and assumptions, which could cause actual results to differ materially from our current expectations. For further information, refer to the earnings release we issued today, our letter to shareholders, and our SEC filings, all of which are available on our website at ir.fubo.tv. During the quarter, we closed our business combination with Hulu + Live TV. As a result, our reported results for the current period reflect the results of the Hulu Live business prepared on a carve-out basis for the period from 09/28/2025 through 10/28/2025 and exclude fuboTV Inc.'s results for this period. For the period from 10/29/2025 through 12/31/2025, the results include the combined fuboTV Inc. and Hulu Live businesses. The reported prior year period fiscal Q1 2025 also reflects Hulu Live Financials prepared on a carve-out basis and excludes the results of the historical fuboTV Inc. business. To facilitate comparability between periods, we will discuss certain results on a pro forma basis, giving effect to the transaction as if it had been completed at the beginning of the first period presented. We will also refer to certain non-GAAP measures during the call. Please refer to our Q1 fiscal 2026 letter to shareholders available on our website at ir.fubo.tv for a further description of the pro forma presentation and reconciliations of these non-GAAP measures to the most directly comparable GAAP measure. With that, I will turn the call over to David. David Gandler: Thank you, Ameet, and good morning, everyone. Q1 marked our first as the owner of Hulu Live, and it validated the strategic rationale behind the combination, offering greater scale, broader distribution, and improved economics. On a pro forma basis, over the past twelve months, the fuboTV Inc. and Hulu Live businesses generated $6.2 billion of revenue and ended the period with 6.2 million subscribers in North America. This firmly establishes us as a scaled and relevant player in the pay TV market and one focused on growing. On a trailing twelve-month pro forma basis, adjusted EBITDA was $77.9 million. As a combined company, we believe there are meaningful opportunities ahead to unlock synergies and efficiencies that will support sustained growth and improved profitability. Since closing the Hulu Live combination in late October, our priority has been execution to expand reach, scale, and monetization across all of our services. And just a few months in, we are converting strategy into action. We are nearing completion of stage one of our integration plan, migrating fuboTV Inc.'s ad tech into the Disney ad server. Once live later this month, fuboTV Inc. inventory will be sold alongside Disney Plus, ESPN Plus, and Hulu. We expect this integration to drive a meaningful uplift in both CPM and fill rates. Stage two of our plan is focused on the consumer. We've experienced strong market traction for our well-priced fuboTV Inc. Sports Service. It resonates with value-oriented consumers and complements our broader content offering. fuboTV Inc. Sports includes major networks such as ESPN, ABC, CBS, and Fox, among others. Building on this momentum, we are pleased to announce that we are working with ESPN to include fuboTV Inc. Sports in ESPN's commerce flow. Customers will be able to purchase fuboTV Inc. Sports alongside offerings such as ESPN Unlimited and the ESPN, Disney Plus, Hulu bundle, and then watch directly on the fuboTV Inc. app. This opportunity is particularly exciting given ESPN's scale. Per comScore, ESPN's digital and social properties reached four out of every five US adults in November 2025, representing hundreds of millions of unique fans. It allows us to market fuboTV Inc. Sports directly to a sports-centric audience and drive subscriber growth more efficiently with meaningfully lower customer acquisition costs. We continue to focus on our Spanish-speaking audience, and in fiscal Q1 2026, delivered record-high subscribers on fuboTV Inc.'s Latino product. In January, Hulu Live launched the Spanish language bundle, meaning that Spanish-speaking customers now have two plan options within the fuboTV Inc. and Hulu Live ecosystem. Stage three of our plan focuses on achieving content cost efficiencies commensurate with our increased scale and applying greater portfolio discipline as we evaluate which content best supports flexible pricing and affordability. As major distribution agreements for the fuboTV Inc. services and the Hulu Live service come up for renewal, our objective is to move towards market-based pricing and penetration that reflects our combined increased scale. In the near term, I want to address NBCUniversal as we've received questions from investors and subscribers. Through November, our teams were engaged in renewal discussions with NBC. Following the confirmation of the Versant spin-off, we paused discussions to allow the separation process to proceed. Beginning in early January, Comcast ceased engagement in renewal discussions despite multiple outreach attempts. Comcast indicated that they are satisfied with their existing Hulu Live arrangement and do not intend to engage in renewal discussions on the fuboTV Inc. side at this time, preferring to reengage closer to the Hulu Live expiration. Given that most commercial terms had been largely aligned prior to the spin-off, this position is very difficult to reconcile. Importantly, the subscriber impact to date has been modest since the removal of NBC content and better than our expectations. We believe this reflects the resilience of our sports-focused value proposition, the actions we took to preserve consumer value, including our decision to lower prices, and customers' ability to supplement fuboTV Inc. with Peacock. While we remain open to constructive engagement, we will review the role of the NBCU and Versant portfolios as we continue to evaluate content alignment for our 6 million-plus subscriber base. Looking ahead, our 2026 North Star is simple: growth. We are focused on expanding our subscriber base through differentiated sports offerings, scale distribution partnerships, and improved monetization, driving long-term value for consumers and shareholders. I will now turn the call over to John Janedis, CFO, to discuss our financial results in greater detail. John? John Janedis: Thank you, David. Good morning, everyone. Fiscal Q1 2026 marked our first quarter reporting as a combined company following the completion of our business combination with Hulu Live in late October. As a reminder, because the transaction closed mid-quarter, to aid in analysis of the combined business, we will also discuss our results on a pro forma basis, giving effect to the combination as if it had been completed at the first period presented. Turning to the financial results for the quarter. In North America, reported revenue was $1.54 billion compared to $1.11 billion in the prior year period. On a pro forma basis, North America revenue was $1.68 billion compared to $1.58 billion in the prior year, representing growth of 6%. This reflects the scale of the combined platform and continued demand for live TV streaming across both the fuboTV Inc. and Hulu Live brands. On a combined basis, we ended the quarter with approximately 6.2 million North America subscribers compared to 6.3 million in the prior year. Turning to our profitability metrics. Our reported net loss for the quarter was $19.1 million, a meaningful improvement from a $38.6 million loss in the prior year period. On a pro forma basis, net loss improved to $46.4 million compared to $130.4 million last year. Importantly, we delivered positive pro forma adjusted EBITDA of $41.4 million, nearly doubling from $22 million in the prior year period. From a cash and liquidity perspective, we ended the quarter with $458.6 million in cash, cash equivalents, and restricted cash. Note that operating cash flow in the quarter was impacted by working capital timing, particularly a build on accounts receivable following the close of the transaction we expect to normalize over subsequent quarters. Earnings per share for the quarter reflected a loss of $0.20 based on 351.9 million Class A shares outstanding with an additional 947.9 million Class B shares outstanding on a vote-only basis. We also announced today a planned reverse stock split of our common stock. The reverse split is intended to make the stock more accessible to a broader base of investors and will reduce the number of outstanding shares of common stock to a level better aligned with the company's size and scope. We aim to execute the reverse split by the end of fiscal Q2 2026. In summary, fiscal Q1 represented a strong start to the year and an important first quarter as a combined company. Our results demonstrate healthy top-line growth and significant year-over-year expansion in profitability metrics, including positive pro forma adjusted EBITDA. As we move forward, we remain focused on disciplined execution, driving further efficiencies across the combined business, and continuing to improve our profitability metrics and cash generation over time. With that, I'll turn the call back to the operator for questions. Operator? Operator: At this time, if you would like to ask a question, press star. Then the number one on your telephone keypad. To withdraw your question, simply press 1 again. We kindly ask that you limit your questions to one and one follow-up for today's call. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of David Joyce with Seaport Research Partners. Please go ahead. David Joyce: Thank you. Two questions, please. First, to drill down a little further on the issue with NBCUniversal. With more streamers getting more access to sports rights, and industry consolidation out of the way, what's your view on being able to retain or regain sports rights to keep that focus going forward? And do you think that Comcast is not reengaging because they're driving the Peacock service in the near term because of the Olympics? Can you return to the table with Televisa Univision for soccer? When does the Peacock or when does the Comcast and NBC deal with Hulu Live come up for renewal? Any further thoughts on that, please? David Gandler: Yeah. Why I take that, John? So, David, thank you. This is David. I mean, there was a bunch of questions in there. So let me start with the NBC question. First, I want to say that, obviously, going forward, we're not going to separate out the numbers for Hulu Live and fuboTV Inc. But just to be very clear, we were up 3% year over year versus the prior year in subscribers, despite the fact that we were down with NBC for, I believe, over four weeks. So it speaks to the quality of the team, our ability to market on platform, and to really understand the type of consumers we have. We also were able to drive some traffic to Hulu Live TV. As it relates to the programming, look, we have strong relationships with the leagues. We have an excellent relationship with Major League Baseball. We've been working with them closely as teams begin to migrate to the MLB platform. But for the most part, I think the major content deals and partnerships that we have with, obviously, with Disney, Fox, CBS, those are still active. And let's not forget, NBC is still on Hulu Live, and we're working with Disney and the Hulu team to ensure that we can drive traffic to NBC on Hulu Live. John Janedis: As it relates to Univision, again, just want to be very clear here, we've exceeded our own expectations. We've reached an all-time high on our Latino package. And in the same vein, Hulu Live now has its own Skinny package, which does include Univision. And so going forward, we should be thinking about our subbase in totality. So we're north of 6 million subscribers, which is the second largest dMVPD in the United States. And we think that we'll be very focused on continuing to provide flexibility, optionality, and affordable packaging. Operator: Your next question comes from the line of Clark Lampen with BTIG. Please go ahead. Clark Lampen: Thanks very much. John, I know you guys aren't providing guidance for the year, maybe with regard to sort of '26. And if we refer back to the old forecast that you provided as part of the proxy, can you remind us whether those targets included any revenue and expense synergies? You guys have laid out a couple of things that seem potentially interesting with ad server integration and consumer packaging flows that could be accretive. Was that a part of the old guidance? And then maybe second question, for your fiscal Q2, the March, should we expect that assuming nothing changes with NBC, do you anticipate positive year-on-year growth with subscriber resource or any context that you could provide directionally for how we should think about the impact maybe for fiscal Q2 or fiscal Q3? Thanks a lot. John Janedis: Yeah. Sure, Clark. So let me handle the first question, and then I'll go on to the one about the March. So on synergies, when we put the deck out last January, what was in there, what we stated was that we expected and assumed $120 million plus in synergies. In that deck, we also stated that the assumption was those took place on day one in terms of when the deal closed. That was more or less a simplifying assumption. In terms of the timeline around that, maybe just a little bit more color. You know, in the short term, to David's point around the Disney ad server, that will come first in terms of the synergies. That's a combination of film and CPM. Maybe a little more color on that. If you think about our ad numbers at fuboTV Inc. stand-alone historically, call it there around, you know, say, $100 million-ish. And so I would say that the CPM and the fill opportunity is both in the double digits. The second piece was the content and slash programming synergies. Those are, I call, more medium to long term because those take place as contracts renew. There's a third piece that we didn't speak to a year ago, which was, I'd say, call it procurement. We're in the very early stages of that now, and I would say I'm optimistic that that could be a needle mover. And so those are the three. But, again, none of those assumed day one. Sorry. They all assume day one. But they will prove it's low in over time. Yep. Sorry, John. Just one more thing, Clark. This is David. Just around NBC, I understand that it's a concern. But as I mentioned before, we believe that it's very important for us to be able to provide various packaging across a spectrum where we're able to offer consumers enough flexibility. And it's very important to note that the fuboTV Inc. Sports service, which is a skinnier version of our legacy fuboTV Inc. package, includes NBC, is actually performing very well. We haven't been marketing it very hard. It continues to grow. You know, trial conversion rates are very high. And more importantly, when you look at, you know, I think that package is now in its third or fourth month. When you look at it from a retention perspective, retention is actually about 30% above what the legacy plan is. And so when I think about a future in the short term that might or may or may not include NBC, I think this package has a significant opportunity to grow. It fits very nicely into the overall ecosystem. With YouTube TV sitting in that sort of $80 plus dollar range. And then you have the ESPN, you know, Fox One bundle. If I'm not mistaken, is in that sort of, you know, high thirties range. And, you know, with our promotional pricing of $45.99 or $44.99, this is a very attractive entry point to get access to local NFL games, college football, and a very strong, you know, portfolio of programming. So again, you know, basically, what we're seeing now is just strong KPIs across that package. And you know, as I mentioned before, with ESPN, you know, if we can, I mean, if we can figure out very quickly, which as you've heard that we're doing, we should be able to drive a tremendous amount of traffic at some point when we go live with them. There are two different, you know, opportunities that we've been focused on. The first really is around marketing. Think of what YouTube is able to do for YouTube TV from a top of the funnel perspective. You know, ESPN, you know, engages with four out of five adults in the United States. So you know, if we can just leverage that, that should have a significant impact on our blended SAC numbers. David Gandler: And, frankly, could be a lot more measured and disciplined around how we market. So that's just one angle. And the second one in the commerce flow, again, this is another area where not only it would open up the funnel, but at the same time, I think it would have pretty significant, you know, retention metrics around it just given the fact that this would be part of a, you know, an ESPN umbrella or ID. So all of these things, I think, are positive. And I think this gives us a chance to continue to grow. We've demonstrated our ability to grow losing partners in the past, and you know, our goal is to continue to grow this product and reach new highs. John Janedis: And, Clark, maybe one last thing or an exclamation point on David's comment. As it relates to growth going forward, whether it's the March, June, you know, or beyond, let me just add a couple more things. One is, again, we've been pleased to date with the results. But, clearly, we'll know more following the Super Bowl and then the Olympics. And just as a reminder, traditionally, we don't spend much against the Olympics because those subs don't retain well. But our goal is to grow and to grow profitably. Operator: Your next question comes from the line of Brent Pinter with Raymond James. Please go ahead. Brent Pinter: Hey, everyone. Thanks for taking the questions. First one for me, David, you talked about your North Star being growth. And with the merger closed and now you have more scale and a bigger balance sheet, how do you think about your priorities in terms of investing for subscriber growth? Versus, as a stand-alone company? I think you're a little more focused on just generating free cash flow now. How does the merger increase your ability to invest? And then second, just any quantification for the benefits you might have seen from the Disney YouTube TV blackout in the quarter. Thanks. David Gandler: Yeah. Sure. So, first on the profitability front, I think we have now seen three consecutive quarters of profitability. I think this was a major concern dating back three or four years, so I think we've resolved that. The balance sheet, as John likely talked about shortly, is very strong. And we are very well positioned to be able to take advantage of various tailwinds. You did mention the fact that, you know, we're in a much stronger position. I think the beautiful thing about, you know, where we sit right now and the potential of the flywheel within the Disney ecosystem is that they reach hundreds of millions of people every year. And so, you know, if we can figure out, which we're in the process of doing, you know, what are the most efficient and effective marketing channels, it really shouldn't impact, you know, our cost structure very much. And so I think that flexibility does give us the chance to invest more into growth. But I will say, if you look at our, again, on a stand-alone basis, we spend less on marketing in the fourth quarter despite losing NBC and still been able to sort of maintain solid numbers on the fuboTV Inc. side. So from that perspective, we'll be working closely with the various teams within Disney. I want to say that the relationships have been great. Let's not forget this deal closed on October 29 right before the holiday season. And we're just getting to know the various folks who run different teams. And everyone's been very supportive. So we look forward to building those and driving value for the overall subscriber base. And then last question, I think, was around YouTube TV. What was the question? John Janedis: Just yeah. So I'll take that one. I'll just say the impact from YouTube TV going dark with Disney was immaterial to the overall platform. And then Brent, maybe just circling back again, going back to the balance sheet, and priorities. Like, I think it's important again, to look at the balance sheet evolution. And so David spoke to the But just as a reminder, if we look at where we were two years ago, you know, call it the '23, we had about $400 million debt outstanding with a maturity of February 26. Now we have call it, $320 million outstanding with virtually all of them maturing in '29 and '31. And then our adjusted EBITDA for '24 was a loss of $86 million. And now on a pro forma basis, we just reported that $78 million for calendar '25. So pretty major improvements. And so to the investment priorities, I would just say that the free cash flow generation should be an output of those investments. Operator: Your next question comes from the line of Patrick Scholl with Barrington Research. Please go ahead. Patrick Scholl: Hi, good morning. Thanks for taking the question. Just on the advertising front, is there any sort of ramp period after you merge the tech stack with Disney for the ad sales relationship until you get that, I think you said double-digit improvement in fill rates and CPMs? And then just on the variety of service offerings that you guys have in market now, could you maybe talk about the different seasonality trends and how to think about those? As we model out, you know, growth over the course of the year. Thank you. John Janedis: Yeah. Pat, why don't I start on the AdRamp? Look. This is a very straightforward business. The beautiful thing about the advertising integration is that, you know, essentially, Disney is selling ads. They've been selling ads for a very long time. They've been selling against live networks that they own themselves. They've been selling against Hulu Live. This is basically the same service with just more inventory. Our ad inventory will roll right into that ad server and will sit alongside these other, you know, channels and programs. And so, you know, our sense is that, you know, we should see an impact as soon as it's integrated towards the end of the quarter. Or maybe slightly thereafter. Patrick Scholl: And maybe I'll just quickly hit on the seasonality. Just as a reminder to David's earlier report, we're not really gonna break out the various services, but I can give you maybe a couple of high-level comments. One is that I think, you know, the Hulu Live service tends to be and historically been far less seasonal than the fuboTV Inc. service. Within the fuboTV Inc. service, as you know, it's been highly seasonal around fall sporting season. So the one thing we don't know yet is how seasonal the Skinny Sports Service will be. But then again, as it relates to that as a percentage of total subs, I don't think there'll be any visible incremental seasonality as it relates to those smaller services for the foreseeable future. Operator: Your next question comes from the line of Doug Arthur with Huber Research. Please go ahead. Doug Arthur: Yeah. Thanks. Just a couple of geeky, financial questions. John, the difference between sort of reported revenues and pro forma revenues is around $134 million, give or take. Is that the impact of closing Hulu Live late in October? Is that's question one. John Janedis: Yeah. Yeah. Sure, Doug. That's correct. And so it's a little bit quirky there in the sense that because Hulu Live was the accounting acquirer, it actually we're we reported the three months of Hulu Live, and then they called the two months and a couple of days of fuboTV Inc. And so the delta there is just, yeah, that fuboTV Inc. revenue more or less for the twenty-eight days of October. Doug Arthur: Okay. So when I look at the 8-K on page six where you kinda break down not the pro forma, but the actual reported revenue breakdown between related party advertising, etcetera. The fuboTV Inc. live numbers are sort of a stub period there I'm trying to just back out in terms of how fuboTV Inc. did ex fuboTV Inc. Yeah. John Janedis: Let me take up on the one. I don't have the 8-K in front of me, so we can talk about that offline. What I can tell you, though, broadly speaking, is that if we want to isolate the fuboTV Inc. business, what I can tell you to the points we made is, number one, that we had a better subscriber outcome than we expected. And that flowed through the P&L. So I'd say we're pretty pleased with the outcome on the fuboTV Inc. business. Doug Arthur: Okay. We'll disaggregate that later. Thank you. John Janedis: Yeah. Okay. Operator: Your next question comes from the line of Laura Martin with Needham and Company. Please go ahead. Laura Martin: Hey. My first one is breaking news. After the call started, Disney did announce that it is confirming the appointment of Josh D'Amaro as the next CEO to succeed Bob Iger. So this is the second time the board of the Walt Disney Company is telling us that Disney is a park company and not an entertainment company. So my first question to you, David, is how does that affect your world if Disney going forward is gonna be really focused on the real world, which is first assets and not its let's call it, traditional TV and streaming assets. David Gandler: Yeah. Well, first of all, congratulations to Josh. We didn't know about that. So thank you for letting us know. As it relates to, I think, the business, you know, Disney is a very large company. It takes a lot of time for them to decide on what their priorities are going to be. And I think, from what I heard, on the last earnings call, you know, Bob was very focused on highlighting the fact that they are still working on their technology stack, unifying their platform into one app. So I don't know what the impact will really be on us. You know, we're having conversations with the various teams, as I mentioned. Strong conversations with ESPN. You know, we have announced some of the things that we plan to do with ESPN. We've spoken to Dana and others, you know, the Hulu team. And our board has been very focused on trying to make sure that we're talking to the right people to really grow the business. So from my perspective, I don't really see any changes in the short term. But, obviously, that's yet to be determined. Laura Martin: Okay. And then my second one is I was really intrigued in your shareholder letter that you said you were investing in the next generation of consumer-centric innovation. And it sounded like your goal is to close the gap with YouTube Live TV, which has about 10 million subs. As your biggest competitor now that you guys are 6.2 million subs. What kinds of things are on that road map for the next generation consumer-centric innovations that would help you close that subscriber gap? David Gandler: Yeah. So, look, there's lots of things that we're focused on. I think that there's a huge opportunity around mobile. We see a significant number of subscribers, trial users, that enter our ecosystem through the mobile app. And so we'll be relaunching that experience shortly. And, you know, again, we're continuing to review some of the amazing capabilities that Disney and ESPN have. And when you look at, you know, their fantasy business, you know, which has over 10 million users, you think about their betting capabilities, and when you sort of look at all of the ways in which that we can engage, you know, a very large funnel, you know, we start thinking about ways in which we can really sort of develop our technology, our consumer apps and features around that. So, you know, there'll be more to come on that front, but, yes, we're very focused on product. Laura Martin: Okay. And I'm gonna violate the rule, and I'm gonna drill down on the betting. One of the things you did early on, David, is really want you really wanted to go into betting and then we just couldn't afford the cost. Could you get back into the betting business through ESPN? David Gandler: So, again, I don't think anything's off the table. You know, it's still early. Like I said, we've only been talking with Disney and ESPN for a couple of months. So we're trying to navigate the different teams. But I do think that, you know, we have a very strong engineering team. We have a strong product DNA at fuboTV Inc., and, you know, we'll be looking to bring ideas that, you know, we can deliver to Disney across the, you know, fuboTV Inc. platform. But, you know, as I think about Disney, generally speaking, I would say, you know, it's akin to being a kid in a candy store. You know, we're a sports platform. And when you look at, you know, the size, the reach that they have, the different elements, and touchpoints that they use to drive engagement, you know, I think that we can really develop a strong business there. And just some of the things that you and I already talked about, I believe, were highlight generation, which that we've been really focused on as well. I think there's an area to improve as well. And then the DVR experience, related to sports, I think, is another area where we continue to innovate given the number of events that we carry and the level of personalization that we afford consumers. So I'm very excited, generally speaking. It's just a matter of, you know, meeting with the right teams and focusing on delivering value for our consumers. Operator: Your next question comes from the line of David Joyce with Seaport Research Partners. Please go ahead. David Joyce: Thank you. Appreciate the follow-ups. There's a lot to digest here with the new fuboTV Inc. Two things. One, people were concerned when they saw Disney shelf filing for fuboTV Inc. shares, but could you please confirm that that two-year standstill is there and why the filing came out? And then secondly, what's your philosophy on, you know, guidance metrics from here? Normally, that's something you did to both stand-alone, but any sort of projections or guardrails you would put up for us? Thanks. John Janedis: Yep. Sure, David. Hey. Thanks for the question. So on the first one, look. The short answer is that's correct. So the two-year lockup remains in place. Look. The shelf was a routine housekeeping item following the Hulu Live closing that required us to just put up a new shelf including registering Disney shares. But Disney remains subject to the twenty-four-month lockup period and the filing does not change that restriction in any way. On the guidance, I would say no guardrails yet. Like, the comment in the letter around guidance suggests that there are just some factors that we're in the process of refining in terms of timing and sizing and that's gonna impact our subs and, therefore, our subscription and, therefore, the ad revenue. Just as an example, you know, today's agreement with ESPN, you know, the timing on that, for example, or the NBC programming. But, look, we're only ninety-eight days into this combination. So it's just gonna take us a little bit more time. David Gandler: Yeah. And just to add one more point on the reverse split. You know, again, I think we've been very transparent from the onset. People, of course, get nervous around hearing reverse splits. But the reality is, you know, it was important for us to align with our operational scale. We wanted to reduce volatility. And also, you know, attract institutional investment. These are, you know, natural things that have to take place. And it really is part of the corporate hygiene that we're trying to put in place, particularly after we've dealt with the, you know, the convert. So again, all of this is sort of trying to prepare fuboTV Inc. for a very bright future. And this is just one of those steps. Operator: That concludes our question and answer session. Ladies and gentlemen, this concludes the fuboTV Inc. First Quarter 2026 earnings call. Thank you all for joining. You may now disconnect.
Operator: Hello, and thank you for standing by. Welcome to Ashland's First Quarter 2026 Earnings Conference Call and Webcast. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. I would now like to hand the conference over to Sandy Klugman, Director of Investor Relations. You may begin. Sandy Klugman: Thank you. My name is Sandy Klugman, and I'm Ashland's Director of Investor Relations. Joining me on the call today are Guillermo Novo, Chair and CEO, William Whitaker, CFO, as well as our business unit leaders: Alessandra Assis, Life Sciences and Intermediates; James Minicucci, Personal Care; and Dago Caceres, Specialty Additives. Please note that we will be referencing slides during today's call. We encourage you to follow along with the webcast materials available at ashland.com under Investor Relations. As a reminder, today's presentation contains forward-looking statements regarding our fiscal 2026 outlook and other matters as detailed on Slide 2 and in our Form 10-Q. These statements are subject to risks and uncertainties that could cause future results to differ materially from today's projections. We believe any such statements are based on reasonable assumptions, but there is no assurance these expectations will be achieved. We will also reference certain adjusted financial metrics, both actual and projected, which are non-GAAP measures. We present these adjusted figures to provide additional insight into our ongoing business performance. GAAP reconciliations are available on our website and in the appendix of these slides. I'll now hand the call over to Guillermo for his opening remarks. Guillermo Novo: Thanks, Sandy, and welcome to everyone joining us. For today, I'm happy to join this call from Shanghai, China. I begin with our first quarter highlights and how we are advancing our strategic priorities. Later in the call, I'll return to share some of the latest innovation developments where we continue to see tremendous momentum and opportunities for differentiation. William will review our financial results, operational execution, and outlook. Our business unit leaders will provide additional insight into performance across their segments and markets. Please turn to Slide 5. Let's begin with a review of the key business drivers for the first quarter. We delivered solid results while navigating ongoing demand softness in coatings and constructions, supported by strong execution and disciplined cost actions. Life Science delivered healthy growth supported by resilient pharma demand and momentum across our Innovate and Globalize pillars. Injectables, tablet coatings, and high-value cellulosic excipients all contributed to year-over-year growth. Innovation continued to strengthen performance, with contributions from low nitride cellulosics, high purity excipients, and several new product introductions. Personal Care delivered stable performance with underlying demand broadly steady. Biofunctional actives grew double digits, and microbial protection continued to gain share as our Globalize initiatives supported high-value applications. Softer volumes in core hair and skin care primarily reflected unplanned and isolated customer plant outages, facing muted demand. Specialty Additives continued to with coatings and construction driving most of the year-over-year decline. Coatings weakness was most pronounced in China and select export markets, while construction softness reflected broader market conditions. Despite lower volumes, cost actions and HCC network benefits drove meaningful margin expansion. Sandy Klugman: Intermediate market conditions were modestly softer, reflecting trough-like dynamics across BDO and its derivatives, which pressured captive BDO transfer pricing. The merchant business was stable with steady volume and modest pricing pressure resulting in flat sales. Operationally, the team continued to manage through equipment replacement in Calvert City while delivering solid free cash flow. Although this issue impacted costs and pressured margins across the BPD chain, customer supply remained uninterrupted. The impact we expected to be contained within the first quarter will now extend into the second quarter, as commissioning of the new unit revealed additional equipment issues that are delaying the start-up. We anticipate completing necessary fixes and bringing the unit online later in the quarter. Guillermo Novo: Although outside Q1, recent weather-related events also have impacted our operations in the Mid-Atlantic. Customer supply remained uninterrupted, but we expect incremental costs, which William will address later in the call as part of our outlook for the year. While we saw month-to-month variability, we exited the quarter on a stronger footing, with December improving versus November and the momentum continuing in January. Taken together, these results reflect steady execution and continued progress across our strategic priorities. Now I'll turn the call over to William to walk through the first quarter financial performance in more detail. William Whitaker: Thank you, Guillermo. Please turn to Slide 6. Our first quarter performance reflects increasing consistency of our operating model. Across the portfolio, the team executed well, advanced our initiatives, and managed through operational impacts while maintaining solid cost discipline. The portfolio and manufacturing optimization actions we took last year are supporting margins through improved mix, lower costs, and a more efficient footprint. Evoqua was included in our Q1 results last year, but as we move into Q2, we fully lapped our portfolio actions, providing us with a clear performance baseline going forward and delivered strong operating cash flow. We've also strengthened our working capital performance, a focus area for the team. Altogether, the quarter reflects a strengthening foundation with early signs of improving momentum, indicating that a growth inflection is building as fiscal 2026 unfolds. Please turn to Slide 7. First, the consistency of our consumer-facing businesses, now roughly 85% of our portfolio, continues to provide meaningful stability and resilience. Second, our innovation and Globalize initiatives are gaining strong traction with sustained momentum in our highest value applications. Third, last year's structural actions are fully embedded, improving margin durability and positioning us for stronger leverage as demand recovers. And finally, even in segments experiencing more challenging conditions, our teams remain disciplined and focused on core fundamentals, ensuring we stay well-positioned as industry conditions evolve. Overall, the quarter reflects resilient performance as our streamlined portfolio, strengthened cost structure, and disciplined execution continue to support our long-term strategy. With innovation accelerating, Globalize expanding, and productivity initiatives progressing, we are well-positioned to build momentum throughout the year. And now on to the financial details. Please turn to Slide 9. Sales for the quarter were $386 million, down 5% versus last year. The previously announced Evoqua divestiture accounted for roughly $10 million or about 2% of the decline. Excluding this portfolio action, sales were down 3%, reflecting a mixed demand environment. Life Sciences continued to grow, supported by steady demand and ongoing innovation momentum. Personal Care remains stable overall and would have grown low single digits excluding the unplanned customer outages. Specialty Additives softened, reflecting broader demand conditions and ongoing competitive intensity. Pricing declined 2% generally across segments, primarily reflecting carryover adjustments from the prior year. FX contributed a favorable $9 million or 2% to sales versus prior year. And moving on to profitability. Adjusted EBITDA was $58 million, down 5% year-over-year, including a $1 million impact from the Evoqua divestiture. Sandy Klugman: Excluding that action, adjusted EBITDA climbed 3%, reflecting lower volumes and modest pricing pressure partially offset by favorable mix, lower SARD, and FX benefits. Importantly, the quarter included the anticipated $10 million adjusted EBITDA impact from the Calvert City outage. As Guillermo noted, we had expected the full effect to be recognized in the first quarter, but some impact will now carry into the second quarter, which we'll address in our guidance. Raw material costs remain generally stable to favorable, and we continue to benefit from our cost actions across the portfolio. Adjusted EBITDA margins held steady at 15%, with over 250 basis points of compression stemming from the Calvert City outage. Adjusted operating income grew 27% versus prior year, reflecting the stability of the underlying business as well as reduced depreciation and amortization from our optimization actions. Adjusted EPS, excluding intangible amortization, was $0.26, down 7% from the prior year, reflecting lower income. We delivered a strong quarter of cash generation, $125 million of cash provided by operating activities and $26 million of ongoing free cash flow, which excludes the previously disclosed tax refund. Lower working capital and CapEx drove healthy free cash flow conversion of nearly 50% in our seasonally low quarter. We ended the quarter with total liquidity of approximately $900 million, a strong position as we move into the balance of the fiscal year. Net debt was $1.1 billion, and our net leverage remains solid at 2.7 times, providing flexibility to invest in strategic priorities while maintaining disciplined capital allocation. Now let's turn it to our business unit leaders for a closer look at segment performance. Alessandra, over to you. Alessandra Assis: Thank you, William. Good morning, everyone. Please turn to Slide 10. For Life Sciences, sales were $139 million, up 4% from the prior year, driven by resilient pharma demand and continued strength across our Innovate and Globalize pillars. Pharma delivered low single-digit year-over-year growth, marking its third consecutive quarter of volume gains. Demand remains strong for our high-value cellulosic excipients, supported by broad customer engagement across regions. Injectables delivered another quarter of strong above-market growth with continued pipeline expansion and accelerating uptake of recently launched products, reinforcing our confidence in sustainable growth within this high-margin segment. Tablet Coatings delivered double-digit year-over-year growth across all regions, with particularly strong momentum in Asia Pacific. In Nutrition, recent wins and ongoing commercial activity continue to support improving traction as we move through fiscal 2026. Pricing was slightly lower year-over-year, in line with expectations and largely reflecting carryover impacts from prior year adjustments, but remained stable sequentially. Foreign exchange provided a $3 million benefit to sales. Turning to innovation, we continue to advance excellence in pharmaceutical ingredients. We saw meaningful contributions from our low nitride offering, including the recently launched Plasdome Low Nitride and Benacel Low Nitride Grain. In injectables, we launched our new high-purity viola sucrose stabilizer for biologics in October. Early customer engagement has been encouraging, with positive technical feedback and a growing commercial pipeline. In addition, multiple new injectable launches are planned for fiscal 2026, each supported by strong prelaunch customer engagement and rising market pull. These advancements reinforce our commitment to delivering high-quality solutions that meet evolving customer needs. Turning to profitability, adjusted EBITDA was $31 million, up 11% year-over-year. Margins expanded to 22.3%, a 140 basis points improvement, including a $4 million impact from the Calvert City outage during the quarter. The year-over-year increase was driven by favorable mix, resilient pharma demand, and lower SAR as restructuring benefits continue to flow through, partially offset by modest pricing pressure. Foreign exchange provided an additional $2 million benefit to EBITDA. Life Sciences continues to demonstrate strong operational discipline, resilient end-market demand, and consistent progress across both our Innovate and Globalize agendas. Please turn to Slide 11 for Intermediates. Intermediates' performance remained challenged, consistent with what we expected entering the fiscal year. Sales were $31 million, down 6% versus last year. Merchant sales were $22 million, with steady volumes and modest pricing pressure, resulting in flat year-over-year performance. Captive BDO sales declined to $9 million, driven by both lower volumes and lower transfer prices. Foreign exchange had a negligible impact on sales. Turning to profitability, adjusted EBITDA was $1 million, down from $6 million in the prior year, with margins declining to 3.2% from 18.2%. Margins compressed due to lower pricing, reduced operating leverage, and roughly $2 million of early quarter upstream production impacts from the Calvert City outage. The team remains focused on disciplined commercial execution, cost control, and navigating a market environment that is expected to remain challenged until broader industrial activity improves. Now I will turn the call over to Jim to discuss Personal Care. James Minicucci: Thank you, Alessandra. I'll now highlight our Personal Care results. Please turn to Slide 12 for Personal Care. Personal Care delivered resilient results, underscoring the stability of the portfolio despite mixed market conditions. Sales were $123 million, down 8% year-over-year, almost entirely due to the Evoqua divestiture, which reduced sales by approximately 7%. With the Evoqua divestiture now lapped, we have a clean baseline going forward into Q2. Organic sales declined 1%, reflecting a broadly stable demand environment. Biofunctional actives continue to perform well and delivered another quarter of double-digit growth versus the prior year quarter. Customer expansions and project pipeline conversions are accelerating. Colipepto, our 2025 hero product launch, is gaining broad-based market adoption. Colipepto mimics 20 collagen sequences in our skin, providing immediate flash hydration and corrects the appearance of both expression and deep wrinkles in the skin. Microbial protection delivered year-over-year volume growth above market, driven by share gains across most regions and customer wins. With a competitive and regional footprint, Microbial Protection is well-positioned to continue executing on a robust opportunity pipeline. Within Care Ingredients, performance varied by region and segment. In general, most regions performed well, with notable strength in the EMEA region and China. Care Ingredients experienced several unplanned customer plant outages in the quarter and softer demand in North America. Foreign exchange contributed approximately $3 million of favorability to segment sales. For Personal Care, innovation and commercial execution remain a strength, with continued momentum in our Globalize platforms and sustained demand for higher-value differentiated applications. Turning to profitability, adjusted EBITDA was $26 million compared to $30 million in the prior year. This includes a $1 million EBITDA impact from the Evoqua divestiture. Excluding that portfolio action, EBITDA was modestly lower, driven by the more than $4 million Calvert City impact and the demand trends noted earlier, partially offset by mix and cost discipline. EBITDA margins remained healthy at 21.1%, demonstrating the strength of the portfolio and the benefit of ongoing commercial and productivity efforts. Personal Care continues to deliver strong performance in our Globalize platforms, resilient margins, and meaningful traction in our innovation pipeline. Now I'll hand it over to Dago to review the results of Specialty Additives. Dago? Dago Caceres: Thank you, Jim. Please turn to Slide 13. Specialty Additives continue to operate in a muted demand environment during the first quarter. Sales were $102 million, down 11% year-over-year. Coatings and construction accounted for the vast majority of the year-over-year shortfall. In coatings, the decline was led by China, where weak demand and structural overcapacity continued to weigh on results. Additional softness came from export markets in the Middle East, Africa, and India, where competitive intensity remained elevated. North America continued to show muted demand in the coatings market. Outside these regions, coatings demand was relatively stable, with outperformance in Europe and Latin America. Construction volumes were also lower, reflecting soft conditions across the nonstructural repair and remodel market, our primary area of exposure. Across other industrial end markets, including energy and performance specialties, demand remained muted but generally stable. Pricing was modestly lower year-over-year, while foreign exchange contributed approximately $2 million to sales. Importantly, the team continues to focus on operational efficiency initiatives and capture benefits from prior manufacturing optimization actions, including the HCC consolidation, which improves our cost structure and mitigated the impact of lower volumes. Adjusted EBITDA was $15 million, up 15% from the prior year. EBITDA margin improved to 14.7%, a 340 basis point expansion supported by efficiencies from the consolidated HCC network. The team remains sharply focused on cost discipline and commercial excellence while continuing to advance innovation that helps our customers deliver differentiated solutions in a challenging market. Underscoring the strength of our innovation pipeline, we delivered approximately $5 million in sales from recent product launches this quarter. Looking ahead, Specialty Additives is well-positioned to benefit from an eventual coatings recovery, supported by disciplined cost management, a more efficient manufacturing network, and ongoing innovation progress. With that, I'll hand it back to William. William? William Whitaker: Thanks, Dago. Please turn to Slide 15. As we move through the first quarter, I want to highlight the progress we're making across our Execute pillar and how our operational transformation continues to support the business. Overall, our total cost savings target of approximately $30 million for fiscal 2026 remains on track. Specifically, our restructuring plan is completed and will be ratably recognized throughout the first half of the fiscal year. We continue to make progress on our network optimization targets. VP and D optimization and small plant consolidation efforts also remain on schedule, with benefits weighted toward the second half. As we talked about last quarter, we are addressing higher-than-expected unit costs at the consolidated HCC site as we scale operations. Following the Parlane closure and network volume rebalancing, we are delivering productivity improvements and stabilizing operations while strengthening the global HCC network. Our total savings target of $50 to $55 million remains intact, with upside to $60 million as China demand improves. Across the network, we're seeing potential for additional productivity improvements and capacity optimizations. This work is ongoing, but the trajectory remains positive. Our priorities with Execute remain clear: deliver structural cost improvements, simplify the network, and enhance systems and processes, which include sales and operations planning, standard costing, and forecasting. All of which strengthen planning, accountability, and ultimately performance. I want to recognize our operations team for managing through isolated challenges this quarter. We'll speak to these dynamics further in the outlook. Please turn to Slide 16. I'd now like to provide an update on our Globalize and Innovate platforms. As we move through fiscal 2026, I'm encouraged by the early year momentum we've seen across both pillars. On Globalize, we're seeing solid traction supported by increased engagement, focused commercial initiatives, and early benefits from our recent investments. Year-to-date, we've delivered $3 million of incremental Globalize sales towards our $20 million goal for the year, with notable contributions across the portfolio. In aggregate, the Globalize business lines grew 8% versus last year. On the Innovate side, momentum was even stronger. We delivered $6 million of incremental innovation sales towards our $15 million goal for the year. This reflects the continued strength of our innovation pipeline, particularly in pharmaceutics, as well as recent commercial introductions across multiple segments. Guillermo will speak to this in more detail shortly, but the team continues to advance a broad and healthy launch pipeline. The early performance across Globalize and Innovate highlights the strength of these levers and the strategic advantage they bring to our portfolio. While still early in the year, we remain on track to deliver our fiscal 2026 $35 million revenue commitment from Globalize and Innovate. Please turn to Slide 17. I will now walk through our updated fiscal 2026 outlook, which reflects a prudent view of market conditions and continued confidence in our ability to execute. For fiscal 2026, we are narrowing our adjusted EBITDA range to $400 million to $420 million. All other elements of our guidance remain unchanged. Let me briefly summarize the assumptions underlying this outlook. Life Sciences and Personal Care remain resilient, supported by stable end markets and momentum across our Globalize and Innovate platforms. Specialty Additives and Intermediates remain mixed, with a coatings recovery expected to be gradual and regionally uneven until broader housing and industrial activity improves. We're seeing healthy demand patterns in consumer-oriented categories to start the second quarter. Raw materials are expected to be stable to favorable overall, and supply chains remain reliable. Similar to prior years, we expect a second-half weighted performance. We continue to expect Innovate and Globalize to drive growth above underlying markets, and our total cost savings target of $30 million remains on track to support margin improvement through the year. As Guillermo discussed, repairs to the Calvert City unit are taking longer than anticipated. What we had initially expected to be contained to the first quarter will now extend into the second. In recent weeks, we also experienced brief outages at sites due to adverse weather. While the operations team managed safely without customer disruption, these events resulted in incremental costs and downtime. Our revised outlook reflects approximately $11 million of temporary impacts from the Calvert City start-up delay and recent weather-related disruptions, all isolated to the second quarter. The volume-related impacts, which were roughly two-thirds of the overall total, are fully recoverable, but the timing of absorption recovery is more challenging. VP and D cannot begin recovering absorption until the unit is back at normal operating rates, which will not occur until late Q2. This means recovery can only begin in Q3, with partial flow-through in the income statement into Q4. For HEC, recovery depends on the seasonal demand lift. Visibility into April through September demand typically firms in March, which creates uncertainty about when and how much recovery can be prudently initiated. Given these timing constraints and the current visibility on seasonal demand, we believe it is prudent to remain more cautious at the top end of the guide. We will continue to manage production, inventory, and free cash flow with discipline while ensuring uninterrupted customer supply. Overall, our fiscal 2026 guidance reflects balanced planning, disciplined execution, and visibility into the drivers of long-term value creation, even as we manage temporary operational challenges. With that, I'll turn the call over to Guillermo to discuss our technology platforms and leadership priorities. Guillermo Novo: Thank you, William. Please turn to Slide 18. Innovation remains one of the most powerful drivers of long-term value creation at Ashland. And the momentum we're seeing this early in fiscal 2026 is both exciting and strategically important. This slide highlights just a few of the breakthrough platforms that are reshaping our pipeline and opening new opportunities across multiple end markets. These are not isolated projects. They're scalable technology platforms built on science, customer collaboration, and disciplined execution, each with the potential to fuel long-term growth. Since the 2025 Innovation Day, our teams have delivered meaningful progress across multiple platforms. Our TVO technologies continue to advance through early commercial adoption, supported by regulatory filings across all key regions and multiple customer qualification cycles. In ag, our TVO for seed coatings, Agramer EcoCoat, received US EPA pre-approval in 2025 and is also REACH approved. Its performance and sustainability profile have been validated by multiple customer trials, with more trials ongoing. Customers are in the process of filing their own regulatory approvals for their formulated products in different regions. We're also making great progress in the development of a TVO for oral dispersions in ag formulations. This product would already have regulatory approval, the same as our Agramer EcoCoat. In Personal Care, we launched Lubrihands, a TVO-based product for hair conditioning, with great customer feedback, core customer approvals, and many other testing and formulations. Development of our TVO for hairspray and styling is maturing well, nearing generation one launch with encouraging customer evaluations underway. Our TVO technology for silicone alternatives has passed preliminary testing with key customers and is now in advanced evaluations. In coatings, we continue to make progress on developing TVO technology for TiO2 efficiency and for UV curing. Based on current performance profiles, all customers are showing strong interest in these technologies. Most other new TVO development projects continue to advance and are demonstrating strong performance and value for our customers. Our super wetting agent platforms, which offer PFAS-free and silicone-free sustainability advantages, achieved another successful launch in industrial and specialty coatings. Our coatings team recently launched a new version of our Weather EZ Wet 310, which has broader geographic regulatory approvals and is accelerating commercialization. We've had successful customer trials and feedback on our new super wetter for ag, validating performance benefits with no phytotoxicity relative to the current commercial wetters. We expect to receive US EPA referral feedback this April. In Personal Care, we're expanding this technology into hair care and home care applications. In hair, we are currently targeting textured hair. Our early beta testing feedback has been very positive. In home care, we're advancing the super wetter technology for auto dishwash applications. Especially in bioresorbable polymers, momentum is building in aesthetic medicine, next-generation dermal fillers, with fiscal year 2025 launches and recent customer audits supporting a strong multiyear outlook. We also continue to scale a strong pipeline with preclinical milestone sales for both generic and new drug development programs. We're also excited about the interest and performance feedback we've received in Personal Care for our new modified starch for rheology control and skin leave-on applications. And we will be launching this product this year. In addition, we're expanding our starch technology into hairstyling applications. These platforms are strategically important, each representing a scalable and high-value opportunity that strengthens our ability to compete and win in differentiated markets. They reflect the combined strength of our science, our global reach, and our ability to commercialize meaningful new technologies. Together, they reinforce why innovation remains a key driver of long-term growth. Lastly, although not part of our new technology platforms, our coatings team is launching a number of new multifunctional HEC products this year that can provide unique cost and performance benefits to our customers, including better cost and use and improved performance. Please turn to Slide 19. As we look ahead, I'd like to outline the leadership priorities guiding our execution. While markets are mixed as anticipated, we enter the year with momentum on several fronts. The business has become significantly more focused, resilient, and better positioned to drive high-value growth. Our cost actions are already supporting margin performance, with additional P&L benefits expected as the year progresses. Our innovation platforms and Globalize investments continue to gain traction. Our priorities for fiscal 2026 are clear: deliver on safety, profitable growth, free cash flow, and RONA; advance our manufacturing optimization and inventory performance; accelerate innovation, scale our Globalize platforms, and foster a productivity-focused culture; strengthen our systems and processes, including leveraging AI to enhance productivity; prioritize talent development, leadership stability, and organizational strength; and maintain transparent communications and consistent execution in our engagement with our investors. Fiscal 2026 is about converting our transformation into sustained performance. With a more focused and resilient portfolio, disciplined capital allocation, and a clear strategic roadmap, Ashland is well-positioned to deliver durable value creation for all stakeholders. And despite temporary operational and weather challenges, our strategy, strong execution, and commercial momentum give us confidence in delivering our fiscal 2026 commitments. Thank you to the entire Ashland team for your commitment and execution, and thank you for joining our call today. Operator, please open the line for Q&A. Operator: Thank you. Please press 11 on your telephone, then wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from the line of Joshua Spector with UBS. Your line is open. Joshua Spector: Yeah. Hi. Good morning. I have two questions. First, just specifically on Personal Care. Can you talk about the comments around the customer outage impacting demand? Is that an ongoing issue? Is that resolved? Do we catch up from that? And then second, Guillermo, in some of your prepared remarks from the release last night, you talked about some optimism, I think, on some of the demand you were seeing building in your second quarter here. Just wondering if you could give more color there if that's adding to any visibility or if it's still pretty limited? Thanks. Guillermo Novo: Okay. Let me do a quick comment on the demand and then on the PC outage. Jim, I'll pass it to you to give some comments. So we did start. If you look at Q1, we started the quarter strong in November, and I think like other companies, November was a bit softer. And then we did see the pickup really in December and January, as also as William commented, continued to grow. So and then it's pretty broad-based. In terms of Life Science and Personal Care, I would say in coatings, it's in line with our expectations. I'm not overreading the coating side because this is still low in the seasonality. You know, the season really starts to pick up in March, really April to September is when we see the bigger volume. So it's a bit early. But it's been stable, and I would say no big surprises. So overall, right now, we're not trying to overread. There's nothing really to change our outlook. So we're pretty confident. And I think over the next two months, we should start picking up. Our order book for February still remains strong too. So we'll see how that evolves. Obviously, we have now, I mean, China, Chinese New Year and all that. Hope it'll be a weaker February, but through March, it should pick up. Then on the PC side, I mean, there are outages. We just had our own outages on things. And so they're temporary and recoverable. But, Jim, do you want to comment on that? James Minicucci: Thanks, Guillermo and Josh. Thank you for the question. So as William had mentioned, excluding those customer outages, the business would have been up low single digits. Specifically, in North America, there were several customers that had unplanned outages. The outages were on the customer side, so it was not related to our inability to supply or anything driven from our side. And through conversations with customers, we understand that it was not demand-driven either. The outages all occurred in Q1. Some of them were multi-week, with a couple of them extending over a month, almost two months in one case. They all are back online. They all came back online before we closed Q1. And we do expect to recover most of it in Q2 and through the balance of the year. So we are starting to recover some of that in Q2. And by the end of the fiscal year, we do expect to recover most of that impact. Joshua Spector: Okay. Thank you. Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Michael Sison with Wells Fargo. Your line is open. Michael Sison: Hey. Good morning. For Personal Care, do we see volume start to turn the corner here in the second or third quarters? Is that because I think Evoqua is done, right, in terms of the outlook? Do we start to see positive volume growth? Guillermo Novo: Yeah. So Evoqua is done, as Jim said, so that from the comps are going to be cleaner. You know, if we see just the macro on the consumer side, and it's behaving resilient overall. Most of our customers are indicating that it's flat at the top. In the single digits. So from a volume perspective, we expect to continue to see that as the year progresses. So no big surprise there, Mike. Michael Sison: Great. And then maybe just revisiting kind of the longer-term outlook. How do you think about rebuilding EBITDA to higher levels from here? Guillermo Novo: So I think one, a lot of it has to do, you know, if you look at our strategy, Execute, Globalize, Innovate. Execute is about productivity. We've got a lot of projects going through. You know, we're already seeing the benefits. You see it the impacts on markets and competitive dynamics. Over the last year, our margins continue to hold up. And I think that's a reflection of a lot of the productivity actions. So we're already doing that. Obviously, as volumes pick up, you know, we'll have a lot more leverage in terms of our absorption and most of our key plans. So volume pickup obviously will be very helpful. For now, we continue to remain focused on driving that productivity. Most of the projects are going very well. I think that was the one plant that we're, you know, we're putting a lot of effort on because of all the network trends of the HEC network optimization is our Hopewell plan. They're very busy. There's a lot of activity there. When we closed Parlin, they've brought a lot of products. Yeah. We've had a little bit of cost issues there, so that one we're going to continue to focus. And, obviously, the storm, that was one of the spots that was hardest hit. So some of those initiatives have been stalled a little bit just as a result of the storm. But we're focused. We have a clear agenda, and we're going to continue to drive that. The rest is going to be the Globalize, Innovate. All those are higher margin areas. And the more we can grow, the more we can extend, you know, our margins and our EBITDA. And, equally, I would say, in Life Science, a lot of the cellulosic businesses, growth that we're seeing in our core businesses are all higher margin. William Whitaker: And then, Mike, just to add, it's William. I think the other key piece too to keep in mind is we have the $90 million program outstanding, right? That's the combination of restructuring and the manufacturing optimization. We got 25 of that in fiscal 2025. We've committed to another 30 in fiscal 2026. That leaves another 35 yet to play out. So that's the other component on top of what Guillermo referenced on the productivity side. I just wanted to make sure you had those levers as well. Michael Sison: Got it. Thank you. Operator: Thank you. Our next question comes from the line of John Roberts with Mizuho. Your line is open. John Roberts: Thank you. On the China coatings demand, is there a line of sight to the bottom so that you'll begin at least comping flat year over year at some point? Guillermo Novo: Yeah. So let me get some comments, and then I'll Dago, if you could comment. I'm here right now in China. I would say, you know, a lot of the impact of the down market started last year, and it's already happened. Most of, you know, the impact with our customers. I don't expect that this is going to improve, you know, that quickly. You know, we see a lot of actions by the government to stimulate, to reenergize the profit market, but the reality is it's going to take a while. I think the issue is for here, it's going to be expect muted demand for a while. With the overcapacity, you're going to continue to see deflationary pressures across the board. Most of that has already happened. You know, we've been hit hard on, you know, in our business here in China. So we're bottoming out. There's a limit to how much. You know, you can lose path. When you lost a business, you can't lose more. So I think what I'm excited now is the team we've rebalanced the network. So that we're not getting impacted with empty capacity in our plants. We're using a very cost-effective plant for us. Using it for exports now. Around the world and especially in The Middle East and Africa. So well-positioned, and today, you know, talking to our teams, they've really done a fantastic job in just looking at our portfolio using this time to get our plan costs in order. But it also expanding our product line both into more cost-effective, different performance, the cost parameters so that we can compete on the low end. And also some higher performance products that we can provide both lower cost and use but higher performance. So we're expanding our ability to go back into the market in a more constructive way than just price. Price gains as we move forward. But, Dago, do you want to comment on the comps and some of the other things your team is doing? Dago Caceres: Yeah. Sure, Guillermo. And I think you're spot on. So, I mean, the China comps are expected to ease in the second half following the second quarter. So we're ready to hit first of last year comps. So we'll be expecting to lap up to the next quarter. So that's number one. The other point that I would like to emphasize is, you know, what is it that we're making to resolve this with the situation. Right? What is it that we're working on? And there's three points that I want to emphasize. One is commercial discipline. The other one is productivity, and the third one is innovation. So on commercial discipline, which is a lot of focus on volume price management, to ensure that we do what's right for the business. And there is also a lot of focus on customer intimacy just staying very close to customers so that we can deploy our innovation. Productivity, the good news is that Nanjing is a really excellent plant that we have. It's a very strong asset, and they do have very clear productivity improvement targets that we're going after. So I'm very excited about that as well. But probably the best one is really on innovation. We're moving fast. We're moving with urgency. We expect some of the results that we're doing on the innovation on our core products to materialize actually in 2026. Which will really help us with the situation. And the intent here is to protect our core portfolio and then basically kind of produce create products that are made for the China market. So very excited about what we are doing here. And last point, I just want to reinforce what Guillermo was saying is this is a really good plant. This is a plant that I would say I would call it a global asset. Absolutely. Initial intent was to produce in China for China, but this plant can produce for any other parts of the world. So what we're doing is rebalancing. There are opportunities outside of China for sure that we're going after with a lot of focus. John Roberts: And then secondly, where are you facing the most risks and uncertainty around global trade issues? Guillermo Novo: Yeah. I think that the area that we're looking at more is what's Europe going to do. You know, I think there's a lot of push right now for our industry. In terms of some of the cost competitive, the plant consolidations. So there's a lot of dialogue going on there. But there's no clear decisions on what they're going to do. But I would say that's probably the area of focus for us at this point in time. We don't have anything that I would say specific, we know that this is probably one of the areas of higher pressure in terms of the regional interests to take some action. John Roberts: Thank you. Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Chris Parkinson with Wolfe Research. Your line is open. Chris Parkinson: Just turning back to Life Sciences. Break down the growth algo here now that you're passing multiple years of a little bit of choppiness. Just when you take a step back, how are you thinking about, you didn't mention BPND in the PowerPoint. So I'm kind of curious on what effect, if any, that had on the price mix in the quarter. And then it seems like actually gaining pretty decent momentum in tablets and cellulosics. So when we look at this for '26 and then, you know, kind of '27, is this I'm finally getting back to just the low kind of like a low single-digit volume growth rate, perhaps a little bit more constructive price mix. Getting margins back up to the prior year's levels? Like how should we be parsing that out? Thank you. Guillermo Novo: Let me make a quick comment, and then I'll pass it to Alessandra. She can give more detail. Color on the business. But I would say, just specifically on the BPND, that's the, you know, the Life Science business has been fine. That's where we had the issue. A while back, and you know the story. One big competitor coming back in and all that. Was the biggest issue for us. That has stabilized. Right? So the BPND, I would say, volumes are stable, pricing are stable. That's not the biggest growth driver at this point in time. We wanted to stabilize it. I think we're seeing that across the world. That's one of the issues of really driving productivity. Making sure that we're going to be competitive, and any price that we gave in the past that we're trying to recover through productivity, asset utilization, all those kinds of things. But the team, the broader strategy continues to progress and never really stopped. In terms of the cellulosics or some of these other areas. But Alessandra, if you could comment on that and on BPND as you see things, that'd be great. Alessandra Assis: Yep. Sure. So looking ahead, looking at the next few quarters, we expect to continue to deliver on healthy growth. So two aspects looking at the resilient pharma demand roughly low single digit. And then we are seeing the momentum across our both Innovate and Globalize pillars, and that represents around 200 basis points above market on the growth that we are projecting. As Guillermo mentioned, BPND is expected to be stable. We just concluded the contract negotiations in Europe. And they were mostly aligned with our expectations. Don't share and with modest price pressure on certain portfolios. But net-net, they were in line with our expectations, so we remain very much focused on positioning our Globalize Innovate growth strategy. And the share gain opportunities. When you're looking at injectables, we deliver an outstanding first quarter. Double-digit growth versus prior year. We are seeing a strong uptake on new Guillermo was talking about this on innovation on his prepared remarks. You're seeing the pipeline expansion and also a very effective regional business development model that we have put in place. Which is positioning us to continue to see sustainable above-market growth in the coming quarters. Tablet coatings specifically, we also saw double-digit growth. Year over year in the first quarter. The pipeline has expanded significantly. And our production efforts were focused in the last few quarters, and you're seeing that. We've seen the good momentum from a production from a productivity improvement. In Wilmington and also our new the new sites in Brazil and China supporting our growth for the fiscal year 2026. And we have a new plant that we announced before in India that is coming up in fiscal 2027. So Guillermo was just in India a few days ago, also visiting the new site is coming up in fiscal 2027. So overall, a lot of discipline from a commercial standpoint on price volume management and a focus on positioning our Globalize and Innovate growth strategies. Then we are confident in the growth we're projecting over the next couple of quarters. Chris Parkinson: Got it. And just as a real quick follow-up and kind of triangulating some of the things you said to Josh's question. In Personal Care, it seems like there's a lot of moving parts, and it seems like you're seeing a decent recovery in the biofunctionals and bioactives. In addition to some new products at NPI momentum. Is that a functionality of stronger demand in places like Asia? Stabilization in Europe? Is it too early to say? You know, I'm trying to get to know, kind of the growth rates ex the issues you saw in hair care, but it seems pretty constructive. So I'd be kind of curious on how you're thinking about that as we progress through fiscal year 26. Thank you. Guillermo Novo: Perfect. Make a quick comment and Jim, if you can talk about the specific regions and biofunctionals and all the areas. But just something make one thing clear. You know, if you look at our core Personal Care business, that's the established business that we've had for a long time. It's pretty stable. You know? The ups and downs are more driven by customer demand and there's not big shared shifts. I think that growth is coming from the new things. Our Globalize are in both biofunctionals and micro protection. And in the core, it's all these new technologies that we're working on that, frankly, Personal Care was the first business really in which we were developing the TVOs and all these products. So there is a level of stability. You know? A lot of these, it's up and down. It's the same customers that have been buying some of these products for a long time and there is a lot of stability there. But Jim, if you want to comment a little bit more color? James Minicucci: Sure. Thanks, Guillermo. Hey, Chris. So I, you know, I think we've really been working to make the Personal Care story as simple as possible just given all the different pieces and parts of the portfolio. And I think when you look at Q1, you know, we're very happy with Q1. As you mentioned, biofunctional performed extremely well. We have stabilization in our base, which we had talked about in the prior quarter. That base continues to be stable, and we're seeing even some growth there. We're more excited by all the work the team has done to expand the biofunctional portfolio. We've gained a lot of new customers, especially in Europe and in China. And we're getting our new product launches into those customers. As I mentioned, Colipepto, it's you know, I don't want to say a miracle product, but it's something that within three minutes, you already start to feel that hydration. Within a couple of hours, you already start to get real, you know, glowing in your skin, and the team's done a great job launching products. And you know, we feel biofunctional is really moving in the right direction going forward. Microbial protection, it's all about continuing to grow there, convert opportunities, and we've seen really nice growth across all the regions. And then as Guillermo mentioned, in our Care Ingredients business, aside from that, you know, there's always perhaps some noise as you go into the end of the year. But we had the customer outages specifically in Q1. Generally, it's very stable. The team's done a really nice job converting opportunities, especially in skin. You will see as we go through the balance of the year oral care will be, I would say, more smooth this year for us over the next three quarters. Sometimes it tends to be a bit more concentrated in a couple of quarters. But overall, you know, I would say Q1, really, it was the customer outages. It will be smoother through Q2 to Q4. North America demand that we're continuing to monitor. As I said, a bit of a mixed environment there. Chris Parkinson: Helpful color. Thank you. Operator: Please stand by for our next question. Our next question comes from the line of Mike Harrison with Seaport Research Partners. Your line is open. Mike Harrison: Hi. Good morning. Was wondering, Alessandra, in Life Sciences, you mentioned low nitrate cellulosic. Can you help us understand what differentiates those from typical cellulosics and why that's important? Guillermo Novo: Alessandra, if you could comment just on the ones that we've already launched and the ones that we continue to launch and not just cellulosics, but the whole theme of high purity that you guys are working on. Alessandra Assis: Yep. Yeah. So we launched the new low nitride grade for both plastones, which is VP and E, and Benacel, you know, cellulosics Benetcel. So this brings in the hands of product quality basically, nitrosamine. On the pharma industry. Versus their regulatory requirements. And it is the pharma companies overall across the board, not just large pharmas, but generics. All pharma companies are very much focused on that, on bringing the low nitride grade for excipient to help with the nitrosamine levels on their formulation. So that has been a good success for us with the launch on the low nitrides. And we see that more and more in our portfolio expanding into with no like type rates, not just some cellulosics in your question, but also VP and D and other areas. Mike Harrison: Alright. That's very helpful. And then I was also within the specialty additives business, was hoping for a little bit more detail on the $5 million of contribution that you're expecting from innovation. Is that mostly the super wetting agent that you referred to on Slide 18? Or maybe what product lines or technologies are really starting to show commercial traction within specialty additives. Thank you. Guillermo Novo: Yeah, thanks for the question. So, yeah, I would say it's across the board. It's across the board. So when you look at our strategy for specialty additives, it's a heavy focus, of course, on protecting our rheology modifier participation, and we have new products that are going in there. But then there is a big effort right now to go beyond this additive into other additives. So you have deformers. You have wetting agents. You have pH neutralizers, etcetera. And the team has been very focused on expanding our portfolio because it really solidifies the participation that we have with customers. It gives us higher access and also enables us to go after other parts of our customers' portfolio. For instance, we're very strong in architectural coatings. We know our customers also have participation in industrial coatings. It is really a great opportunity to branch out and to really solidify our position there. When you look at the sales and what we're working on for this year because we have very good targets, very strong targets for innovation. Really, the focus is going to be on, number one, solidifying our position in and differentiating in rheology modification. Both synthetic and cellulosic. Number two, continue to expand our additives. So you're going to see a lot of that and super wetting agents are included there. But then strategically and longer term, very much excited about the progress we're making with our platform technologies. In particular, TVO and TiO2 spacer, etcetera, where we do expect to see some traction this year. Mike Harrison: And, Mike, I wanted to highlight it. My comments talked a little bit on the regulatory, if you notice, on a lot of these innovations, not just the innovation and the customer but the regulatory side. When you're bringing new products to market in today's world, you have to deal with all the, you know, approvals for selling these products. In ag and reach in Europe. And I think the coatings team and that's it. The specialty additives team has done a wonderful job. The EasyWeb 310. We launched EasyWeb 300. It's working well. But given its profile, we have certain requirements in terms of the regulatory needs. So they were able to go in modify it enough so that no performance was changed, but it now allows us to accelerate the commercialization because it meets much more of the regulatory requirements around the world. So, you know, strategizing as we develop these products and making sure that we're within certain areas to accelerate commercialization. Within regulatory is really important. It seems that we've had a very good job there. So that launch will really help us get traction on commercialization. Mike Harrison: Alright. Thanks very much. Operator: Thank you. Our next question comes from the line of John McNulty with BMO. Your line is open. Bhavesh Lodaya: Hi. Good morning. This is Bhavesh for John. Just one question for me. So recently, we saw that an oral dose GLP-1 drug was approved by the FDA. Can you speak to whether your life science platform has exposure to this line of with the oral dose medication, and if yes, help us think about the potential for demand pull for this one. Thank you. Guillermo Novo: Alessandra, you want to comment on that? Alessandra Assis: Yep. Sure. So thinking about looking at the GLP-1, so both the oral GLP-1 and oral biologics present a significant opportunity for Ashland. And our VP and D portfolio is especially relevant to this space. And it is our tablet coatings. When you think about the high, you know, high volume, high throughput needed, for the types of demand that we're talking about. So our high solids coatings Aquarius Genesis is also especially relevant for that. So currently, we have multiple active projects with some of the biggest pharma players in this space. In addition, we are doubling down on innovation in this area as we have identified a pipeline with over 80 emerging opportunities. And one of those innovations is our sodium cap rate, which is a variation enhancer that we target to launch over the summer. We already have received multiple customer samples requests and are working with several customers on that upcoming launch for this summer. So in summary, yes, GLP-1 formulations and the overall oral biologic represent a significant opportunity for Ashland. And our VP and D portfolio is of particular interest and as well our new innovation programs. Bhavesh Lodaya: Thank you. Operator: Please stand by for our next question. Our next question comes from the line of Carl Vandenberg with Deutsche Bank. Your line is open. David Begleiter: Hi. This is Dave Begleiter. Guillermo, you mentioned improving momentum in January. Can you talk about and you do have some easy comps in Q2 across all three segments. So what does that mean for volume growth in those segments year over year? Guillermo Novo: As we said, it will be in line with what we had been forecasting. So Personal Care and Life Science. It's in the low single digits. You know, anything over that, we need to grow through some of the innovation, but the order book is in line with our forecast or our updated forecast on what we're doing. So no big surprise there. Same thing, you know, in the SA, we're seeing the same thing. All the orders coming in line. It's going to be still challenged versus prior year because of China. And some of the dynamics there. But even North America, Europe actually did very well for us. But I'd be I just be cautious. And that's a I'm not going to really be positive or negative until we start getting closer to the bigger season. You know, these months don't mean as much in terms of what the full year is going to come out. But for us, it's reassuring that January and the order book for February remains strong. David Begleiter: Got it. In terms of the first half outages, how much of that $20 million plus do you get back in the second half of the year? Guillermo Novo: So we're working we were going to start working on the first part this quarter, but, obviously, that's getting delayed. Most of the issues were in the BPND side. In Q1. Now that's why we're being a little bit more cautious. In theory, all of it is recoverable. The issue is when. We want to recover it. So in BPND, as William said, if we start at the end of the and, again, we're working just be clear, we're working to get it done as quickly as possible. We're expecting by, you know, the second half of the quarter, if we can get a few every week counts in terms of being able to improve our performance. So we've given ourselves some room there in terms of the timing of when the unit will come on stream. But in our current forecast, it would be at the end of this quarter. Which means we as William said, we need to get most of that in the third quarter to impact this year. If not, if we do it in the fourth quarter, we'll recover it, but it'll flow into next year. So BPND is an issue of getting the plan started, and then we can start getting the recovery of the absorption part. There are other costs. This is especially around the storm. That are costs energy costs that went up and other repair costs with the freeze. I mean, not huge items, but items that have added up that are going to be more of a I think it's one set two-thirds was absorption, one-third was cost. HEC is a choice. I think they're I'll be honest. I'm being very conservative. Until we start seeing the season, we can always produce more. Whenever we want. I think if this is a time of being prudent, like we've done in other years, I'm very open of the balance sheet. It's something we need to look at, not just the P&L. We're not here just to hit one quarter results. It's a long term. We want to do the right thing for the long term for the company. I think having a solid balance sheet, cash is king, in a lot of these times of uncertainty, so we're going to be a little bit more prudent. Again, decision. If the season starts in March, that's probably when we would start making that. That means, again, that third quarter would be the critical quarter to be built eventually. David Begleiter: Thank you. Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Lawrence Alexander with Jefferies. Your line is open. Dan Rizwan: Hi. This is Dan Rizwan for Laurence. Thanks for taking my question. I was just you mentioned injectable launches and some of the new products. But just in general, I was wondering how long it takes a new product to ramp up to mid-cycle and then to peak sales, you know, just the time frame? Guillermo Novo: It really varies by product line. But like we've said before, we're talking about everything we're doing. We want to show. We want to be very transparent. But reality, when these approvals come, they take time. If you go into the example I would use, a personal care. If customer x approves it's a big brand. You know, they have in next, you know, 2027, I'm going to reformulate. They approve now, but they launch in 2027. Or 2026. They have dates. On which they're doing. So our issue is make sure that we get the approvals, get everything ready, before those launch dates. So we have roadmaps of when all these big brands are doing reformulations. We're working with our customers. And it's very important to hit those dates. Coatings is a little bit different. They can move a little bit more quickly, again, they do a lot more testing, extras, you know, they like it. They want it, but then they get everything some testing. So everybody has their norm. On how they work through. I would say pharma is really partnering with them across their entire development, you know, cycle. So when they're ready to launch, you know, you will go with them, but that's depending if it's a generic. It could be three to five years. If it's a new drug, you know, you're in, like, a longer pipeline. But that's the importance of having a strong pipeline. And what we've been doing last year is build the pipeline, and that's what I'm excited about. That the technologies have now enhanced that they are in pipelines. We're getting validation. So it's really now going into, you know, our customers thinking we like these technologies. When are we going to commercialize? Are we going to commercialize this next year? So it's a very different conversation. As we move forward. Dan Rizwan: Great. Thank you very much. Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Eric Boyce with Evercore. Your line is open. Eric Boyce: First, could you please provide an update on the contract price renewals that I think recently occurred around year-end? And how might when those renewals go into effect impact kind of price by segment in fiscal 2Q and for the balance of the year? Thanks. Guillermo Novo: I think most of them, as Alessandra said, I think are mostly completed. We're in final form in pharma. It's mostly in Europe, and that's pretty advanced. So I think we're mostly done on there. I think, you know, the only ones and, Dago, where you can comment in some regions. We have some now that are ongoing, Middle East, Africa, India. That are going now in the March, April time frame. But most of the other ones are already done. But that any other contracts? Dago Caceres: No. I mean, in the case of coatings, some of the large contracts, I would say North America and Europe, they just follow the calendar year. So those contracts are done, and I guess, the results are as expected. Other areas in Asia, actually, the contracts were finalized in October. That's actually their cycle October to October. We're only missing areas in the Middle East, Africa, India where we have a couple of strategic customers, and that will be April. So the contracts are finalized. We're valid starting in early April. So that's the only one that is remaining. We're negotiating as we speak, and we expect to finalize some of those contracts pretty soon. Eric Boyce: Okay. Great. And then as a follow-up, are any further asset sales maybe in additives or intermediates under consideration either now or previously? And if not, and I suspect not, could you remind on why that may not make strategic sense? Thank you. Guillermo Novo: So we've done a lot of the changes already. In terms of selling the parts of the business that we didn't see fit. And most of them were stand-alone parts. We've consolidated some of the product lines that we didn't like. They couldn't sell, and have the asset that we can repurpose. That was more of our CMC asset in The US and MC asset in Europe, and I think the timing of that was very good. We shut down a plant and consolidated. So all those actions are done. Going to do some more optimizations more around the productivity where it would be more units within the plan, you know, that we're streamlining so that we can instead of having a lot of equipment and not having them utilized, really focus and invest on the ones that are higher end that can give us the best cost. But that wouldn't involve a sale. The rest of the business is integrated. This is the part, you know, everybody you want to just be live set. It's the same plan that supply across multiple areas. Frankly speaking, just from my past experience with other companies, I mean, all this artificially cutting up things haven't worked out that well. So for us, we like the portfolio we have. It is integrated. We feel that between the high-quality pharma, personal care, and architectural coatings being, you know, it is being impacted, but tended historically to be more consumer-oriented. We see that stability in North America and Europe. Would say what's happening in Asia is a little bit different than the norm. We like those. We think, you know, focusing on additives, low cost use, high value use can allow us a differentiation, and we can leverage the scale across the asset. So we think that integration is critical, and we think there's value in artificially. Eric Boyce: Cool. Operator: Our next question comes from the line of Stephen Haines with Morgan Stanley. Your line is open. Stephen Haines: Hey, good morning, and thanks for squeezing me in here. Just wanted to ask on your execute slide. You got the $30 million, I think, of restructuring, and then there's the additional productivity that currently says still TBD. I've been hopping between calls, so apologies if I missed this. But have you kind of outlined the timeline and maybe how to think about, like, what that uplift could look like relative to the cost savings that you've already kind of disclosed and quantified for us all? Thank you. Guillermo Novo: So we're working through that. We've done a lot of network as we looked at, for example, in our acetylene chain between the two plants in Texas City, Copper City, we had units that overcapacity. They've been overcapacity for a long time. We've consolidated, shut some down. Put all our volume on the more productive units. So that's driving our cost. Productivity. As we looked at across other production units, what we're finding is that there is an opportunity to continue to drive. So again, if we have, I think, a simple example, core reactors and they're over underutilized, can we concentrate on one or two? Put our volumes there. Invest in those reactors to get more throughputs. We do cycle times. Those kinds of things we're doing. So some of them we're already doing. We're planning out how much we can get. Others, we create the productivity, but the benefit will come as long pick up. So the issue is, you know, productivity, you can't wait to have the volume to do it. You do it, and as the volume comes, you're just going to be able to leverage it. But it allows us to reduce cost as we do some of these changes. So that's the part that we're trying to calculate. And, obviously, you know, this the storm and all that right now, our engineers and everybody's have been a little bit distracted over the last few weeks. But we continue to work. And throughout the year, we will be defining that. And our view is going to be continue to do what we're doing now, be very transparent, as to the goals that we want to commit to, you know, tell you what we're going to do, and then we'll be held accountable to deliver on those targets. Stephen Haines: Understood. Thank you. Operator: Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Guillermo Novo for closing remarks. Guillermo Novo: Well, thank you, everyone, for participating in the call. We really appreciate it. We're very excited, you know, the portfolio is in difficult times performing as we have expected. Will continue to drive our strategy. We believe that that's going to be the best way to generate significant value creation and create optionality for us to really drive our strategy of profitable growth. So we look forward to seeing all of you in the near future and having more discussions on Ashland. Thank you for your interest. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, and welcome to the Healthpeak Properties, Inc. Fourth Quarter 2025 Conference Call. All participants will be in listen-only mode. During today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touch-tone phone. To withdraw your question, please press star then 1. Please note this event is being recorded. I would now like to turn the conference over to Andrew Johns, Senior Vice President, Investor Relations. You may begin. Welcome. Andrew Johns: Today's conference call contains certain forward-looking statements. Although we believe expectations reflected in forward-looking statements are based on reasonable assumptions, statements are subject to risks and uncertainties that may cause actual results to differ materially from expectations. Discussion of risk and risk factors is included in our press release and detailed in our filings with the SEC. We do not undertake a duty to update any forward-looking statements. Certain non-GAAP financial measures we discussed on this call are exhibits of the 8-Ks we furnished to the SEC yesterday. We have reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. The exhibit is also available on our website at healthgate.com. I'll now turn the call over to our president and chief executive officer, Scott Brinker. Scott Brinker: Thanks, AJ, and welcome to Healthpeak's fourth quarter earnings call. Joining me for prepared remarks is our CFO, Kelvin Moses. First and most important, thank you to our entire team for battling through a historic life science environment. To finish 2025 with earnings in line with the midpoint of our original guidance range, and significant transaction activity that should drive future earnings growth. Couple of comments on our segments. 50% of our portfolio income. Kelvin will discuss our outstanding operating results in that segment, but I want to make some more general comments, including the benefits of the merger with Physicians Realty Trust. That merger created the best platform and portfolio in the outpatient sector, and positioned us to quickly and profitably internalize property management across our entire outpatient and life science portfolio. $70 million of synergies certainly helped offset the life science environment. The outpatient sector is benefiting from the ongoing shift in care delivery to lower-cost, more convenient outpatient settings. Policy changes from Washington also support demand, including CMS allowing more and more surgeries to be done in outpatient settings. And new supply continues to be very low given the cost of new construction. All of the above contribute to the favorable operating environment we spoke to when we announced the merger two and a half years ago. The private market is now recognizing this as well, which is driving down cap rates. We're taking advantage of that demand by selling fully stabilized less core outpatient assets at strong prices. Including $325 million in the fourth quarter at a low 6% cap rate. Turning to our lab segment. The operating environment over the past four years peaked in intensity in '25. Which is now fully impacting earnings. But in the last five months, we've seen continued improvement in capital raising and M&A. New deliveries will soon go to zero, and will remain at zero for several years. Certain life science buildings are pivoting to alternative uses, which helps address the supply overhang. All of the above points to early signs of an inflection point. Naturally, earnings will lag the underlying recovery because of the time to build a pipeline, sign leases, and build off the space before rent commences. The building blocks of a recovery are in place. Four years ago, we had the opposite view of the trajectory in the sector. And this team chose to cut off capital deployment in life science. Which at the time was by far our largest business segment. That decision combined with the merger and related synergies, has allowed us to grow the dividend and maintain earnings since 2022 when the downturn began. A significant accomplishment given the severity of the environment we've been up against. As the sector recovers, we now have opportunities to acquire properties that would have been untouchable in the past. And to do so at compelling basis. While others in the sector are retrenching, we're strengthening our portfolio and platform, including the recent gateway acquisition and hiring Dennis Sullivan to lead San Diego and Claire Brown to lead Boston. Our team was working hard over the New Year. In late December and early January, we closed the outpatient medical sales, and recycled that capital into a highly strategic 1.4 million square foot campus in South San Francisco. We see potential for significant upside as the sector recovers, as the campus has more than 500,000 square feet of vacancy in a prime location. We now own and control 210 acres in South San Francisco, which is roughly one-third of the land in the entire submarket. We own 6.5 million square feet of space at various sizes and price points, so we can provide unmatched solutions to current and future tenants. A recent report from a leading brokerage firm showed the Bay Area led all life science markets in the fourth quarter and full year 2025 in absorption and leasing activity, and has the largest volume of current tenant demand. That broker report is consistent with our own leasing activity and pipeline, and further supports the acquisition. Moving to senior housing. Our fourth quarter results were outstanding with 17% same-store growth. We point to three factors driving the growth. First are highly amenitized, full continuum campuses that resonate with seniors. Second, our asset management team collaborates with our operating partners to develop and execute property-specific business plans. And third, favorable supply and demand fundamentals. We expect all three factors to drive another year of strong growth in 2026. I want to comment on the Janus Living announcement from January 7. Our senior housing portfolio has been operating at a very high level, but was largely ignored inside Healthpeak given its relative scale. In addition, we have significant expertise and relationships in the sector, two valuable resources that were being underutilized. Over the past several quarters, with a singular focus on generating shareholder value, we worked alongside our board and advisers to review a range of strategic alternatives to the status quo. We chose to pursue the creation of a pure-play senior housing REIT. We believe the planned IPO is a unique and creative way to capture value in the near term through a higher multiple on our senior housing NOI and as a significant shareholder in Janus Living to participate in future value creation from internal and external growth. The transaction can be summarized as follows. Healthpeak intends to contribute its entire senior housing portfolio to Janus Living, in exchange for all the shares in the new company. Shares in the new company will be sold to the public in the IPO, which will dilute Healthpeak's ownership. Janus Living will own 100% of its properties in a RIDEA structure. Healthpeak will be the manager for Janus Living, with strong alignment given our ownership interest in the new company. Simply put, our economics will be driven by Janus Living's operating results and stock price. Since making the announcement in January, we closed on the purchase of our joint venture partner's 46.5% interest in a 3,400-unit senior housing portfolio for $314 million. We now have full control of those 19 communities. Over the next few months, we expect to transition 11 communities to Pegasus Senior Living and eight communities to CL Senior Living under highly aligned management contracts. We have long and successful relationships with the principles of each company. Both Pegasus and CL have successfully underwritten and executed operator transitions and they have strong track records in these regions. We have $360 million of additional relationship-driven acquisitions in our senior housing pipeline. These are newer vintage assets located in high-growth markets in Orlando and the Northern Suburbs of Atlanta. Both markets that we know very well. We expect the acquisitions will close in the first quarter and be contributed to Janus Living. We're excited to add Jonathan Hughes to our team as SVP of finance and investor relations. Jonathan knows the sector well and will lead our efforts with the street at Janus Living. While Andrew Johns will continue to lead that effort at Healthpeak. In terms of timing, we filed a confidential S-11 with the SEC in December. The SEC process will determine the ultimate timing of the IPO. But our current expectation is to close the offering in the first half of this year. I'll turn it to Kelvin to review our 2025 results and 2026 outlook. Kelvin Moses: Thank you, Scott. Before we get into the 2025 financial results, I want to briefly highlight one of our operational initiatives. We continue to make investments in technology, team, and process to deliver our investment management capabilities to a broader asset base. Even more efficiently than we have in the past. A component of the strategy is the acceleration of corporate automation which will streamline our internal workflows and deliver a best-in-class experience to our clients. We're excited to welcome Omkar Joshi, as our new head of enterprise innovation to lead us through this next chapter of our growth. Omkar previously held leadership roles in both healthcare and real estate at Palantir. Now turning to the results. For the fourth quarter, we reported FFO as adjusted of $0.47 per share, AFFO of $0.40 per share, and total portfolio same-store cash NOI growth of 3.9%. For the full year, we reported FFO as adjusted of $1.84 per share, AFFO of $1.69 per share, and total same-store cash NOI growth of 4%. Starting with outpatient medical, we continue to deliver sector-leading results. And for the year, we executed 4.9 million square feet of leasing including 1 million square feet of new leasing. This is the first time in company history that we have achieved this record milestone for new leasing. We also achieved cash releasing spreads of 5% on renewals, 79% tenant retention, and ended the year at 91% total occupancy. We also ended the year with same-store growth of 3.9% which was above the high end of our original guidance range. These results reinforce our leadership position in outpatient medical, highlight our focus on deepening relationships with leading health system partners, and demonstrate our ability to capitalize on strong sector fundamentals. Most importantly, this reflects a tremendous team effort and a fantastic outcome for our platform. Moving to lab. We ended the year with 1.5% same-store growth and total occupancy of 77%, inclusive of our recent Gateway Portfolio Acquisition in South San Francisco which depressed total occupancy by more than 150 basis points. For the full year, we completed nearly 1.5 million square feet of lease execution, including 562,000 square feet of new leasing. And positive 5% cash releasing spreads on renewals. Since year-end, we have an additional 100,000 square feet of leasing activity either or under LOI. And finally, senior housing. We ended the year with 12.6% same-store growth, which was meaningfully above the high end of our original guidance range and includes 16.7% growth in the fourth quarter. Our 15 life plan communities that comprise our same-store pool have delivered tremendous results over the last five years. Our entire senior housing portfolio is well-positioned to take advantage of healthy sector fundamentals. Congratulations to Patrick Chang, our entire senior housing team, and operating partners for achieving a record year in entrance fee sales. Highlighting excellence in execution, and underscoring the importance of aligning with the right operating partners to have the expertise to deliver leading results. Briefly on the balance sheet before moving on to guidance. We ended the year at 5.2 times net debt to adjusted EBITDA, and $2.4 billion of liquidity. We maintain focus on the strength of our balance sheet and prioritize this disciplined capital allocation to pursue strategic investments and fund portfolio growth. Now turning to 2026 guidance. We are forecasting FFOs adjusted to range from $1.70 to $1.74 per share. Our total same-store NOI growth is forecasted in the range of down 1% to up 1%. This assumes outpatient medical between 2% to 3%, lab down 5% to down 10%, and senior housing ranging from 8% to 12%. Our earnings guidance for 2026 reflects the life science environment over the past several years. The reduction in earnings is attributable to the loss of occupancy in lab which, as we have noted, has a lagging impact on earnings. This equates to 12¢ of earnings from the lost base rent, OpEx, and capital to release the space and includes the impact of a $68 million contractual purchase option exercised in Salt Lake City at an 11% cap rate. Strengthen our outpatient medical and senior housing segments, offset the impact of balance sheet refinancing at higher rates, the receipt of loan proceeds of $150 million in 2025 at an approximately 10% interest rate and drag from redevelopment and development. The leading indicators supporting each of our businesses give us a foundation to grow from an opportunity to capture demand as the life science sector recovers. Touching on sources and uses. We're off to a busy start to the year with transaction activity. So far in 2026, we've completed $464 million of acquisitions, including $314 million buyout of our joint venture partner in our senior housing rental portfolio, and the acquisition of the remaining South San Francisco Gateway Lab portfolio. We have an additional $360 million of senior housing investments under LOI or purchase agreement. To fund these transactions, we are well underway on our opportunistic capital recycling plan, including a billion dollars or more of asset sales, recapitalizations, and loan repayments in 2026. Given the strong private market for outpatient medical, we'll continue to take advantage of that demand as an attractive source of capital. And finally, we have approximately $1.1 billion of refinancing activity in 2026 including $650 million of senior unsecured notes maturing in July and an additional $440 million of secured mortgages maturing throughout the year, will either be refinanced or repaid. And finally, two housekeeping items related to Janus Living before we move into Q&A. With respect to our previously announced Janus Living IPO, the impact of the proposed formation and public offering are not reflected in our most recent supplemental materials or in our earnings guidance. We should note that we do not anticipate any meaningful impact on 2026 guidance from the transaction. And one last point on this, while we understand there will likely be many questions about the IPO, we are limited in what we can discuss specifically. We'll focus our answers on information that we have previously disclosed on the transaction and operational information that we provide in the normal course for our senior housing segment. Operator, with that, you can open the line for Q&A. Thank you. Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 1 so that everyone may have a chance to We ask the participants limit their questions to one and a related follow-up. If you have additional questions, please pre-queue. At this time, we will pause momentarily to assemble our roster. And our first question comes from the line of Nick Yulico with Scotiabank. Your line is open. Nicholas Yulico: Thanks. Good morning. I guess first question, perhaps for Scott. In terms of the gateway acquisition, can you just talk a little bit more about how you saw that as a complement to your existing portfolio in that market? How you're comfortable taking on more vacancy with the acquisition? Scott Brinker: Oh, hey, Nick. Good morning. Always first on the list. You must call in really early. It's all good. It gives you something to we we know what to expect. Nick is always first. Yeah. Gateway. No. It we're really excited about the gateway acquisition. We feel like decisions we've made over the past four years really positioned us to take advantage of these opportunities. It's a campus that never would have been available. At the peak. I mean, this is either the number one or number one a submarket in the whole country. We've got a huge footprint there already. This is complimentary. Really just gives Scott and Natalia and the team an additional 1.5 million feet of it's really opportunity, is the way we're about it, not so much vacancy. And we're using proceeds from our outpatient sales where there's a really deep market We're getting great prices, fully stabilized assets. They've had decent growth, but certainly not the type of potential growth that we see at this gateway. Campus. And and and we really view it as one enormous campus at this point. I mean, it's and a half million square feet. You can park your car once and walk through the whole thing. Mean, it's pretty impressive in terms of what we can provide to our current tenants and most important perspective tenants. We really are the market leader in South San Francisco. It had really a phenomenal four q, in terms of leases signed, a lot of tenants in the market. Doesn't mean that all that vacancy goes away within a year. The momentum is positive Love the team that we have on the ground, and, you know, we see kind of a breakeven year one yield with the opportunity to create some real growth over time at a basis that I think you know, in the five, ten years from now, people will look at and say, wow. That's an amazing buy at a time when there's really no one else at the table. So, yeah, we're pretty excited about it, Nick. Nicholas Yulico: Okay. Great. Thanks. And then, the second question is is on the lab segment, and I wanted to see if there's any way you can give us a preview of how to think about you know, occupancy, sort of total occupancy for lab, the cadence of that, throughout the year, And then, also, I think you you built in some cushion for some tenants where there may be a capital raise or not. So there's some contingency on that. If you could just sort of talk about that impact as well. Thanks. Scott Brinker: Yeah. Let's assume that the recent improvement in the capital markets and capital raising continues. We saw that commence around Labor Day in '25, and it's continued into the, first month of the the New Year. The conversations we have with bankers, capital markets desks, venture capitalists are are quite positive. So we are optimistic that that will continue. We do think total occupancy by year-end '26 should improve. From where we ended the year in 2025 just with the caveat that the leases in life science are are big. They're chunky. The average size is, like, 60,000 square feet. So you know, it can't jump around from quarter to quarter, but the pipeline is good. It's weighted more towards new leasing, which is a huge positive, and we don't have a ton of expirations this year. So it should be a good setup. To start growing occupancy again. But, again, it obviously depends on the capital markets can continue to be cooperative. Nicholas Yulico: Alright. Thanks, Scott. Operator: Our next question comes from the line of Farrell Grenot with Bank of America. Your line is open. Farrell Granath: Thank you. Good morning. This is Farrell Granat. I first also just wanted to dive in deeper with the lab leasing and just thinking about it going forward, I believe you made the commentary around a 100,000 of leasing activity under execution or LOI. You give us a little bit more background around that 100,000 seems a little bit lower than potential past LOIs that we've been seeing that you've stated on calls. Are you seeing a slowdown in incoming, or is it just year-end processes that now need to pick back up heading into '26? Scott Brinker: Hey, Farrell. It's Scott Bone. I I can I can take that one? Mean, I think when you look at where we are in the calendar year, you know, you you have the the holidays towards the end of the year, which are always a little bit slower, and you roll right into the JPMorgan conference. Which, you know, a lot of these companies you know, spend a lot of time preparing for. So it's it's typically a slower time time of the year. We do feel good with the pipeline with where it sits today. A little over one and a half million square feet. If you look at that compared to where we were last year, we're 50% you know, higher starting the year. So our our jumping off point going into '26 is much much improved from where we were a year ago. You know, I think what's important too on the pipeline as we look at it the the mix of that pipeline continues to shift towards new leasing. Versus being very heavy on the renewal side in nine, twelve months ago. Know? So we're I think it's a good indicator of where demand is broadening. Farrell Granath: Okay. Great. And and then also on the lab guidance, the negative five to negative 10% same-store NOI growth, Can you walk through a few of the underlying assumptions within that range? I understand that a chunk of that is coming from the 25 expirations, but then also looking forward to 26 what what elements are in that range that is building? Kelvin Moses: Yeah. Farrell, this is Kelvin. I'll take that one. I think what was probably most important from the fourth quarter results is that the disconnect between the occupancy decline and the NOI that we achieved for the quarter is probably important to note as you're looking into 2026 as you think about that five to 10% decline to same-store NOI. Occupancy today is in the high 77% area, We do have the opportunity over the course of the year to improve that As Scott and Scott just mentioned, But we're we're likely gonna see in the first quarter some incremental impact to NOI and earnings as a result of the lower occupancy at the end of the year. So that trajectory is not clear in the Q4 numbers, but will become a little bit more clear in the first quarter as that occupancy starts to set into income. Operator: Thank you very much. Next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Your line is open. Austin Wurschmidt: Hey. Good morning, everybody. Kelvin, I was hoping to better understand the impact that the lab occupancy loss are having on 2026 FFOA and if the $0.12 that you highlighted, is that specifically from the expirations that occurred in the fourth quarter of last year and tenants that didn't renew? Or are there additional move outs in that figure beyond maybe what was, you know, captured in the lease expiration schedule? Kelvin Moses: Yeah. So I I think it's a combination of things. We walk through the the component parts of that 12¢ impact. There's the Salt Lake City transaction that we mentioned that's a component of that. It's about a penny. From the $68 million sale at 11% cash cap rate. That's the component. There's also outside of the lab portfolio, our refinancing borrowing costs are just higher today. Than our in-place levels. So that's another reduction to our 2026 FFO We also received a $150 million of loan proceeds at a 10% interest rate. So that's offsetting the FFO performance, and that that 12p number that we're talking about. But, specifically, with respect to the lab occupancy, we did lose about 600 basis points of total occupancy for the year. And for each 100 basis points of total occupancy, that's about a penny to a penny and a half impact. On earnings. So that incorporates the base red reduction, the OpEx that we will absorb respect to the triple net and then some cost for releasing. So as we get into the first quarter again, 2026, you're looking at occupancy levels now that are more representative of where earnings are headed. So you'll start to see the income reduction in that first quarter and through the year. But, again, when we get to the end of the year, we hope that occupancy will start to tick back up again start to be able to capture earnings and and growth from there. Austin Wurschmidt: It and can you just you know, that was helpful. But can you just help me better understand what's driving the lag between, I guess, when he expiration occurs and the financial impact? Are these planned move outs where they've gone the month to month and you're still collecting you know, rental income? Or, you know, what what's driving that delay between, you know, what we're seeing, I guess, in the supplemental on you know, the operating metrics and then what actually flows through to the financials. Thank you. Scott Brinker: Yeah. I mean, part of it's also often you've got our our reported options. It's just that point in time. It's just literally December 31. So it can be a little misleading. And I get back to the point I made that our life science lease is tend to be pretty big. They're 60,000 feet. On average. So you did have a number of lease expirations in April where we got the rent for most or all of April, but then lost the occupancy. The very last day of the year. So that that's a material component And then when, we have an early termination, you know, we generally do have security deposits, letters of credit, In some cases, there are modest termination fees, all of the above. Can help cover up for a quarter or two the impact of an early termination, but it's really kind of that forward twelve to eighteen months where the full impact is is realized, and, of course, you're now putting capital into the building. So it's really a combination of all those things that that explains the lag in to the impact in earnings. You know, the same will be true on the way back up. As we sign leases and grow occupancy, it'll take a little bit of time for that to flow through earnings. So it it does go both ways. Right now, we're on the wrong of it, obviously. But we feel like the building blocks are there to get on the right side of it as we know, look towards 2027. Austin Wurschmidt: I appreciate the clarification there. And just lastly, I guess, the 1.5 million square feet, can you characterize the type of tenants looking for space? Are these large established biotech companies or more smaller kind of early stage type tenants that may have a greater sensitivity the capital markets backdrop. And that's all for me. Thanks for the time. Scott Brinker: Yeah. Hey, Austin. Scott Bone. I mean, I could take that. Think if you look the pipeline, it's it's a pretty good pretty good cross section of the industry. You know, we're from series a companies up through you know, established public biopharmas. You know? And some of that is new tenancy with it to that would be to our portfolio. Some of that is tenants you know, renewing some of those tenants expanding within the portfolio. So it it's a pretty it's a pretty wide range. In the in the pipeline today. Austin Wurschmidt: Thanks, Austin. Next question. Operator: Next question comes from the line of Rich Anderson with Cantor Fitzgerald. Your line is open. Rich Anderson: Thanks. Good morning, everyone. So back to gateway. And Scott, you you said in a to an earlier question, you know, five years from now, we'll look back. I don't think you're being scientific in saying that it's gonna take five years for that you know, that that campus to recover. But when you guys were thinking when you're underwriting this, what was the cadence of of the recovery at Gateway specifically, and how do you think that compares generally to life science overall? I mean, do you think it it moves quicker or slower for whatever reason versus the entirety of the life science continuum? Scott Brinker: Yeah. So, I mean, the the acquisition's breakeven. On day one, just to be clear. So the the upside probably gets captured over the next two to three years. Best guess, incrementally. So, yeah, the five years, ten years, obviously, I'm I'm not that wasn't intended to a comment about the lease up period. So Okay. I could clarify that if that was somehow misunderstood. Rich Anderson: No. No. Not at all. I figured that. Just wanted to it on record. Yeah. And so that okay. So to, you know, call it to two plus years to sort of recapture some of that vacancy. Or a a lot of that 500,000 square feet of vacancy. Is that about right? I mean, rough guess right now. Who knows? Scott Brinker: Yeah. I mean, it's not gonna go to a 100%, but yes. Yeah. Rich Anderson: Gotcha. Second question for me. Different topic for Kelvin. You got the 1.1 billion of refinancing activity for this year at a 4% rate. But then you look at your debt maturity schedule, you got a you got some chunkiness in the aftermath in twenty seven, twenty eight, twenty nine. Mostly at lower rates than the 4%. I'm wondering, is there a strategy around any of that, you know, pre preemptively for this year? Or do you let that ride out and see what what the day brings, you know, this time next year? For future debt expirations. Thanks. Kelvin Moses: Yeah. I think just like in years past, Rich, we'll be very opportunistic and access the market when we see the best pricing opportunity. The in-place rates are fairly attractive relative to This year, we'll focus on our maturities that are ahead of us. the new issue pricing. So we'll we'll continue to try to be opportunistic throughout the year. But there's no plan currently to accelerate some of our 2027 maturities into 2026. Rich Anderson: Okay. Thanks. Operator: Next question. Comes from the line of Seth Pergey with Citi. Your line is open. Nicholas Joseph: Thanks. It's Nick Joseph here with Seth. Just on the 2026 expirations for life science you know, what percentage of that do you know is moving out, and where are you on negotiations with the remainder? Kelvin Moses: Yeah. I can start there. This is Kelvin. So for 2026, we have about 450,000 square feet of exploration. And that'll be fully offset by commencements throughout the year. I think we did a great job of pulling forward some of our renewals into 2025 to to really pull that number down. As we head into 2026. And a substantial majority of our expert our explorations are actually in South San Francisco, our biggest where we have the deepest tenant relationships. So we feel good about being able to capture some of those renewals. But, Scott, maybe I'll kick it to you to add some more context. Scott Brinker: Yeah. No. I I think it's Kevin said. We we did address some of the twenty twenty six expirations already in 2025. So some of the ones we're working on they're later in the year or still, you know, still TBD, still probably a little bit too early to tell on some of the Nicholas Joseph: Thanks. That's helpful. And then just as as you've been going through the leasing process, have there been any changes to the pipeline in terms of converting to executed leasing and conversion timelines? Kelvin Moses: Yeah. I think you're still working through a process where, you know, it's different than it was in the peak when there was no space no space available. And people were making very quick decisions. You know, people are being boards and CEOs are being a little bit more cautious and taking the time to make sure that they you know, have the the the plans fully baked and the economics fully baked. So it is it the duration is still you know, longer than it used to be, but, you know, I think what we're seeing today is the the credibility of the pipeline is much stronger. And so much that you know, that we have more confidence in the the pipeline will transact versus if you go back to two years ago, was a lot of know, a lot of tire kicking. Versus deals that were actually gonna turn into transactions. Operator: Thank you. Next question comes from the line of Juan Sanabria with BMO Capital Markets. Your line is open. Juan Sanabria: Hi. Good morning. Just going back to the kind of the bridge from fourth quarter to first quarter. With regards to the annual the occupancy loss being back end loaded Can you comment on, like, on what that NOI bridge? Like, was there any can you quantify how much one timers there were in the fourth quarter that are going away and or what, like, the pro forma NOI is on the lap side just so we can have a clear or clean runway to start modeling for the full year? 26? Kelvin Moses: Yeah. This is Kelvin Juan. I I think maybe I'll start, and it's it's a lot to unpack. But you know, I think starting with total occupancy, at around 77%, we came down about 375 basis points. Sequentially And from an NOI perspective, that shift in NOI will be a lot more pronounced in the first quarter as we mentioned. If you think about our guide, between, you know, down 5% to down 10% for the segment, should give you some context for the decline that we'll expect in that first quarter from a same-store NOI perspective. As Scott mentioned, there were a number of other items that don't impact same-store as well that we got the benefit of in 2025 that you won't see in 2026. So there's incrementally more of an impact with respect to earnings. So if you look at from an earnings perspective, you know, our the midpoint of our guidance range at a dollar 72 if you take that over the the four quarters, it'll probably be a little bit higher in the first quarter, and the fourth quarter, and it'll be a little bit lower in the second and third quarters. Plus or minus a penny. As you think about it. But, hopefully, that gives you a little bit of direction in the trajectory that we're expecting. Juan Sanabria: Okay. Great. And then just a question on seniors housing. I know you guys kinda commented that you'd rather not get into specifics. But just curious, on the previous sovereign wealth JV how we should think about CapEx for that business and what kind of deferred CapEx there may be associated with that portfolio with your transitions upcoming. I'm not sure what kind of unit per year spend has been put into those assets, but just curious on how we should think about CapEx for that. That piece of the portfolio. Scott Brinker: Yeah. Hey, Juan. It it it's Scott. It's not that we don't wanna talk about it. We just have to focus our comments on Healthpeak just to be clear. So this is totally fair game. These are assets mostly in Houston. In Denver. So big markets. We think they've underperformed. Not be capital. There will be some normal transition. So that we have to put into the buildings, technology, signage, stuff like that, but it's not like there's some massive CapEx plan to revitalize these. We think this is more operational in nature, so we're glad to have full control of the assets. Again, and we've already moved decisively after that. Buyout to align ourselves with two groups that we've got a good track record with and we we have high confidence that they're gonna turn these around over the next two to three years. So there's significant opportunity in buildings, so we're excited to capture it. Operator: Thank you. Next question comes from the line of Wes Golladay with Baird. Your line is open. Wesley Golladay: Hey. Good morning, everyone. Can you unpack the lab watch list You know, how much has that list changed from a year ago? Obviously, flushed out a lot of the tenants in the last few quarters. And I guess maybe can you quantify the exposure to, call it, higher risk preclinical Phase I companies? Kelvin Moses: Hey, Wes. I'll start. This is Kelvin, and then I'll probably ask Scott to jump in as well. But I think if you start looking back at the capital markets activity over the last four months, we are certainly encouraged by the volume of activity both from an m and a perspective and equity capital markets perspective The IPO backlog is building, secondary equity offerings, have been far more prevalent than what we saw for the 2025 M and A activity is picking back up again. So there's a good amount of capital recycling again in the biotech sector, which is very important to see And as a result, our watch list has reduced considerably. As tenants have raised capital. So we're by that. That being said, in our portfolio, we're still monitoring tenants as we always do. It's just a part of this business. There's some folks that know, we expected to vacate in the fourth quarter that didn't. Could come out of our portfolio. So we're still keeping our eye on specific names. You know, we could be surprised to the upside as well where they, you know, continue to engage in BD discussions and engage in strategic discussions that could bring capital into their businesses. And allow them to continue beyond our expectations. So I don't know, Scott, if you have anything more. Scott Brinker: Yeah. I I think just from the in an industry perspective, too, which is fueling the capital markets, I mean, you know, that the interest rate cuts, you know, the three cuts last year, the two in the fourth quarter were were really helpful. For the industry in in from a policy perspective in DC. You know, they reached MFN deals with 14 companies Those deals had little to no impact on on share prices of those biopharma companies. So the the read through is the general impact on those deals is gonna be pretty minimal on biopharma, which is is, you know, helpful to understand and just get more more clarity there. And then you look to the FDA. The FDA approved 52 drugs last year. Which is right in line with the ten year average, a little bit below the five year average, but given all the chaos and change there, it it provides reassurance to the industry that the agency is still functioning. And hitting dates and processing approval. So we talked to our CEOs. I talked to 30 different CEOs at JPMorgan conference and asked the question to virtually all of them. You know, and the response was that the feedback they're receiving from the agency is normal and responsive. You know? And the FDA, again, if you look at this for the commissioner speaking, they're talking about process improvements and streamlining reviews and lowering costs, which are all changes helpful changes to the industry, which you know, again, isn't directly correlated to capital markets, but, you know, certainly helping the the sentiment behind the industry. And to go back to answer the first part of your question too, less than 10% of our ABR on the life on the lab side is is from preclinical. Pretty small. Wesley Golladay: Okay. Thank you for that. And then when you look at your leasing pipeline, is that starting to shift more towards some of the redevelopment and development properties? Scott Brinker: Yeah. You know, we we had a good quarter on the on the Devon side. We executed a 121,000 square feet of leases on our redevelopment properties in the quarter. Additionally, we we completed a 100,000 square feet of TIs and delivered space both at, you know, combined advantage and gateway in San Diego. So, you know, certainly, we have more credible activity again in ongoing discussion. On those development or redevelopment spaces today than we've had in a while. But nothing far enough to talk about in in in detail. Operator: Today. Wesley Golladay: Okay. Thank you. Operator: Next question comes from the line of Vikram Malhotra with Visible. Your line is open. Vikram Malhotra: Good morning. Thanks for taking the questions. I guess just to clarify, clarifications. So first of all, I guess, Kelvin, can you just confirm or clarify fourth quarter, I think you had between $02 or $0.04 of know, whether it was termination income or the benefit from the occupancy lag versus the income hit, etcetera. You know, like you mentioned, in terms of security deposits. So that's, like, the, you know, $12.13 cents. But how much of that is actually still flowing into one q? Because you mentioned one q FFO is likely higher. Before we still look full in before we see this the full impact It's because 3¢ is a lot in the quarter. I just wanna make sure we understand how much of that you know, 2 to 4 or 3¢ kind of percolates into one queue. Kelvin Moses: Yeah. And maybe just to to jump to first quarter FFO. It's probably down 3 pennies from where, you know, we ended the year. So 47¢ is something closer to 43. So, you know, maybe that helps give a little bit of context. I think the numbers that were benefiting the fourth quarter will naturally come out as we start in the first quarter. But, Vic, I I think that should give you some context in terms of Trajectory between Q4 to Q1. Just to get right to it. Vikram Malhotra: Okay. So there's there's some security deposit slash you know, term, you know, letters of credit that still benefit you in one q, and then they fully go away in two q onwards. Is that fair? Kelvin Moses: I think they largely go away in the fourth quarter, but you'll see the benefits that we got in the fourth quarter that were not related to vacates in our portfolio included some free rent burn off. So that benefit's coming in in the first quarter. as well. So there are other natural benefits escalation from leases in four q that started to provide some incremental earnings benefit you'll start to see in the first quarter as well. So not just those items that we're talking about around terminations and letters of credit, but you know, that should hopefully give you enough context relative to the year, how the first quarter will start. Vikram Malhotra: Okay. And then just on the life science occupancy build, just to maybe give us a bit more context, do you mind giving us kind of where occupancy is either portfolio wide or same store like leased versus, you know, economic today. And then just clarify again, I think you made a comment on expiration Like, what do you actually have baked in for renewal on the expirations in 2026? Kelvin Moses: Thanks. A lot of questions in there. What what was the first question, Vikram? Scott Brinker: I we didn't catch it. Vikram Malhotra: Just the, like, leads verse the leg. What's the leads versus occupied or like, economic versus lease rate? Like, what you've actually leased, which may not be, like, commenced which may have been leased but not commenced. So the difference there there's a difference between the two. So I think you had 77 ish total portfolio. We've got a couple 100 basis. Scott Brinker: Got a couple 100 basis points of leases that have been signed that haven't yet commenced that should start in '27. That probably offsets most of the nonrenewals. Although Scott already said, we don't have full clarity on the renewals. A lot of them are back end weighted, so I'll just repeat that. And I'll also repeat what I said earlier is we think total occupancy should increase from year end '25 to year end 2026. That is what is in our guidance. Vikram Malhotra: Okay. And that's the combination of your, like, you you hope it's a macro comment, but it's also based on kind of micro where you look at the pipeline today, and you can see a higher conversion rate perhaps than prior. Is that fair? Like, it's it's not just sort of a macro you need the macro to stay where it is, but you actually also see specific conversion. Scott Brinker: Yeah. It's certainly fair to say we're looking at the macro the submarket, the lease, I mean, from top to bottom that come in putting together our guidance. What's looking at all those components. Yes. That is fair to say. Vikram Malhotra: Thank you. Operator: Next question comes from the line of Mueller with JPMorgan. Your line is open. Michael Mueller: Yeah. Hi. Just a question for Sullivan. What's embedded you guys use for AFFO CapEx and capitalized interest for 2026? And most like CapEx split between the segments? Kelvin Moses: Yeah. Maybe we'll start. In our guidance, we had just over $500 million of CapEx in our plan. And that's a combination of redevelopment capital, the nonrecurring capital, development capital, So it it incorporates everything. The timing of that spend is, you know, naturally throughout the course of the year. Last year, we had about 600 million. This year, it's come down. A decent amount, and we'll be executing on that plan throughout the year. So the the amount I don't have it specifically in front of me just for the AFFO component of that, but, you know, I I think we're gonna be lighter on the capital spend this year than we were in 2025. Scott Brinker: Yeah. There there's no material change in AFFO, CapEx in '26 versus '25, Mike. So if you just look at the supplemental, in the disclosure there, that's that's a good run rate. For all three business segments. Michael Mueller: Got it. Okay. And what about capitalized interest? Kelvin Moses: Yeah. Cap interest is is flat. Actually, so no change to cap interest. Michael Mueller: K. Appreciate it. Thanks. Operator: Next question comes from the line of Omotayo Okusanya with Deutsche Bank. Your line is open. Omotayo Okusanya: Yes. Good morning, everyone. I wanted to go back to the gateway transaction I'm really kind of understanding it. Almost a little bit to Rich's know, question. Trying to understand exactly how you expect that to kind of ramp up over the next few years. And I guess I I I asked a question on the context of you know, you're kind of buying it at 60% occupied according to media reports. And also buying it from kind of two other well known, you know, players in the space. So it's like just kind of chosen the exactly, like, what are you seeing versus, like, they they kind of exiting and you're kind of doubling down and I'm trying to understand those dynamics a little bit and ultimately kind of, you know, you look at this investment three to five years down the road, how do you expect it to be performing? Scott Brinker: Yeah. Well, know, can't necessarily speak for others. I mean, they're in a joint venture. I think they made it public. They're looking to raise money. In 2026 to fund various things, development pipelines, etcetera. You know, we're in a much different situation. You know, we're we're being opportunistic, Balance sheet's in great shape. We don't have the big development pipelines. So we're in a position to opportunistically acquire assets with a lot of upside, but also good current yield. I think that's the right way to think about it. Low sixes going in. A lot of capital has already been put into these buildings. The future capital that we would need to invest is really good news capital tied to leasing. So that's a positive thing. If we're investing capital into these buildings, it means we signed a lease. And, you know, we see high single digit unlevered type return opportunity in this market. As it stabilizes. So that that's pretty compelling comparison to the things that we're selling. Omotayo Okusanya: That's actually very helpful context. And if I would just ask one more about you know, just, like, keep turning around Janice. I just I mean, it it it all your CCRC assets going to be going into this thing, or is it just senior housing stuff? And the scene and then the skilled nursing and the memory cares to kinda remain at at at the at health Scott Brinker: Yeah, Tyler. Let me clarify that. So when we complete the IPO, all of our senior housing assets whether entry fee or rental, would be contributed into Janus Living. So going forward, Healthpeak will not own any senior housing real estate. We'll just have an ownership interest in the stock of Janus Living. Omotayo Okusanya: Right. So the so the the the memory care and all the other stuff that's part of the CCRC is also going into Janet. Scott Brinker: That's right. Yeah. Those are campuses that you we can't break them up. That that's Not that one asset. They can't be broke broken up. Omotayo Okusanya: Gotcha. Alright. And I guess over time, you'll you'll kinda share more details about the external management contract and things like that. Right. Outside of what has already been made public. Kyle. So if you have a question about what's been made public, I'm happy to address that here. Thanks, sir. Alright. Sounds good. All the best. Thank you. Omotayo Okusanya: Thanks, Kyle. Operator: Next question comes from the line of Jim Kamrock with Evercore. Your line is open. James Kammert: Thank you. Good morning. With the gateway transaction behind you, what is the appetite just generically you still have some guidance in terms of $1 billion plus or minus of acquisitions in 'twenty six? What's your appetite for Opportunistic Lab now that you've already got gateway under your belt? Scott Brinker: Yeah. Hey, Jim. We've got $1 billion of acquisition and stock buyback. Built into our guidance. We've already closed or under contract to just over 800,000,000 between the Gateway transaction and the senior housing opportunities that you close here in the first quarter. So you're right. There's a little dry powder, you know, not significant, but we do have a pretty large pipeline of asset recycling whether outright sales, recaps, loan repayments. So there's at least the potential for that billion dollars to grow depending on whether we can recycle capital We're obviously not looking to issue equity. Our current stock price, but if we're, more in in selling assets or recapping assets, we we would have additional dry powder to look at opportunistic life science investments. There's a number that we're keeping our eye on, but certainly nothing that is ready to be disclosed or under contract. But it's fair to say that we'll be very disciplined in which assets and which submarkets we would pursue. That was the case even in the peak. We did not get overly aggressive. We stayed disciplined. Our entire portfolio is in the three core markets. That will continue. So anything we do, I think, would have a lot of crossover or similarities to what we just did in gateway. We're in a known submarket. A team that can execute, and what we feel is a real competitive advantage to drive lease up. James Kammert: Fair enough. Understood. And then here's something we haven't talked about. Are most of the synergies relating to the Physicians Realty on the outpatient medical side, are those synergies basically in run rate today or late twenty five, I guess, I should say, or should we sort of have some maybe a little further margin implications for the outpatient medical across '26? Scott Brinker: We've got another two or 3,000,000 of square feet that we could internalize property management over the next one to two years. So there's still a little bit of opportunity, but it it's not material. Most of that 70 plus million dollars of synergies are are basically included in our not only fourth quarter twenty five run rate, but our 2026 guidance as well, June. James Kammert: Okay. Thank you, guys. Next question comes from the line of John Pawlowski with Green Street. Your line is open. John Pawlowski: Hey, thanks for the time. My first question is on the operator transition of the assets held in the sovereign wealth JV. Do you expect occupancy declines in the near term as the new operators take over? And how long do you expect for the properties to reach more of a stabilized market type of occupancy level? Scott Brinker: Hey, John. Scott here. Hopefully, we can get those transitions done by April 1. At least the target. Teams are working hard. To do that, including the operators. So we appreciate their cooperation. There could be a small decline in occupancy, but I don't think it's material. We see significant upside, 50% plus NOI growth potential over the next two to three years in our view. Highly aligned management contracts and and operators that have a really good track record. With us and in these markets. So pretty optimistic about the upside, but, yeah, there could be a quarter or two of transition related occupancy loss, Joan. John Pawlowski: Okay. And then last question, maybe for Scott Bone. I wanna better understand the composition of tenants that have either signed leases or that are in your pipeline kinda the post Labor Day. Can you give me like rough ballpark, what proportion of tenants are more of the traditional wet lab users versus other perhaps AI or almost quasi traditional office users? Scott Brinker: Yeah. It's a it's a pretty good mix. We did have some office related users signed leases in the fourth quarter. We we did you know, one GMP manufacturing type space with an existing tenant of ours in a redevelopment project. And then several wet lab spaces. So pretty good mix. You know, we also signed one lease with a a group who, you know, we we announced it on on social media, but it's a actually, a a drone manufacturer would just raise $600 million at a I think it a $6 billion market cap. You know? So a wide variety of uses, and I think that underscores the ability within our buildings for to capitalize on the robust infrastructure that's in those buildings. And be able to play, you know, cast a wide net in our in our leasing. You know, and especially in in the Bay Area where we've seen a real convergence office demand increasing, you know, AI and AI adjacent. Both in office space, but also on the lab on the lab front as well. John Pawlowski: Maybe a follow on there. As as you see that convergence, what are the implications for the rents those tenants are paying? Are they are they decent all else equal, are they decently lower than the wet users going to pay? Scott Brinker: Yeah. I mean, you're just looking at a straight office space, which you know, we don't have all that much of. I mean, that's obviously gonna be a lower rent than a than a than a lapse rate. But, you know, each deal's different. You know, overall rents and economic or net effect is to tick down a little bit. But and we've seen a little bit more free rent in certain in certain deals in certain markets. But it's it's all, you know, specific. I mean, it depends on the space. It depends on the build out of the space. You know, we haven't able to to control the TIs quite well. If you look at our our second generation leasing and our renewal leasing that we're close to zero. And, you know, our our TIs on our new leasing ticked down as well. I think you so gotta look at a little bit more than just the face rate on these deals. It's the total economic package That's how we think about it. John Pawlowski: Okay. Thanks for the time. Operator: Our last question comes from the line of Jamie Feldman with Wells Fargo. Your line is open. James Feldman: Great. Thanks for taking the question. I'm pinch hitting for John Kilachowski here. So we appreciate all the guidance and all the moving pieces on 26 for the key line items As we think about know, how those move throughout the year, is it safe to assume that 26 is a bottom for FFO? Or do you think it can still be lower in 27? I know you I mean, I'm not really asking to give guidance, but how should we think about like, the key line items and how they how they progress throughout the year and what that means for 27? Scott Brinker: Oh, hey, Jamie. Yeah. So two-thirds of the portfolio is doing really well. Even if we're successful with the IPO, most of those, earnings will still flow through Healthpeak's financial statements. So there really isn't any impact from the IPO there, which is one reason we really liked it. As an as an alternative outcome for shareholders. The outpatient fundamentals are very strong. If anything, the growth outlook in '27 was even more favorable just given the leasing trajectory and occupancy trajectory, and we obviously see life science coming down. I mean, we said, throughout this call, we see occupancy increasing a bit. From year-end twenty five through year-end '26. That should be a positive. The variables are obviously what happens with interest rates, As Rich pointed out, we still have some refinancing to do over the coming years. But the the building blocks of the actual portfolio sure feel like '26 absolutely would be a bottom. James Feldman: Okay. Great. That super helpful. And then just how do you think about doing you know, an equity acquisition like you did versus some of the higher yielding mezz loan to own deals you had done in the past at higher yields. Like, why the transition to put so much capital into that type of investment versus more fixed income type stuff? Scott Brinker: Yeah. I mean, we only did two of the loans. Those are just unique situations in San Diego. About a year ago. We do like those. In terms of the risk profile versus the return. So if those are opportunities in '26, we continue to look at those. This was just a unique opportunity. To buy a campus we absolutely wanted to own from day one at a breakeven yield. The ability to capture a bunch of upside. It's just different dynamics. The the two loans we did, those buildings were essentially empty. So just a very different return profile where we thought the loan with a a a pathway to ownership was the right structure for those two particular deals. James Feldman: Okay. Alright. Great. Thank you for taking the question. Scott Brinker: Thanks, Jamie. Operator: This concludes our question and answer session. I would like to turn the conference back over to Scott Brinker for any closing remarks. Scott Brinker: Thanks for your time, everyone. Hopefully, we'll we'll see you tomorrow in Florida. Take care. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning. My name is Carly, and I will be your conference operator today. At this time, I would like to welcome everyone to Atkore's First Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. Thank you. I would now like to turn the conference over to your host, Matt Kline, Vice President of Treasury and Investor Relations. You may begin. Matthew Kline: Thank you, and good morning, everyone. I'm joined today by Bill Waltz, President and CEO; and John Deitzer, Chief Financial Officer; and John Pregenzer, Chief Operating Officer and President of Electrical. We will take questions at the conclusion of the call. I would like to remind everyone that during this call, we may make projections or forward-looking statements regarding future events or financial performance of the company. Such statements involve risks and uncertainties such that actual results may differ materially. Please refer to our SEC filings and today's press release, which identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. In addition, any reference in our discussion today to EBITDA means adjusted EBITDA in any reference to EPS or adjusted EPS means adjusted diluted earnings per share. Adjusted EBITDA and adjusted diluted earnings per share are non-GAAP measures. Reconciliations of non-GAAP measures and a presentation of the most comparable GAAP measures are available in the appendix to today's presentation. With that, I'll turn it over to Bill. William Waltz: Thanks, Matt, and good morning, everyone. Starting on Slide 3, we are pleased with our first quarter performance. We achieved net sales of $656 million and adjusted EBITDA of $69 million, both were above our outlook range. Our $0.83 of adjusted EPS was also above the top end of our outlook range. Organic volume increased 2% in the first quarter driven by strong performance in our Electrical segment. Our teams have been focused on improving manufacturing efficiency and controlling costs which has helped generate over $30 million of productivity savings year-over-year. We also continue to advance our strategic alternative process to evaluate opportunities to strengthen our business and maximize value for our shareholders. During the quarter, we completed the divestiture of our Tectron Mechanical Tube product line and manufacturing facility. The sale further enhances our focus on the electrical infrastructure portfolio and is aligned with our broader 80/20 initiative aimed at directing our manufacturing capacity to electrical end markets. And in the second fiscal quarter, we expect to complete the previously announced exit of three manufacturing facilities. We will continue to provide updates on our ongoing strategic alternative process as appropriate as we move forward. I also see some highlights release for fiscal year 2025 sustainability report, which we recently published. This report details our ongoing initiatives and accomplishments over 2025 goals. Looking ahead to the remainder of 2026, we are on track to deliver our FY '26 outlook that we presented in November. We expect for net sales to be in a range of $2.95 billion and $3.05 billion. Our net sales outlook adjust for approximately $40 million of annual sales related to our Tectron mechanical tube product line resulting from the divestiture. Our adjusted EBITDA between $340 million and $360 million remains unchanged. Adjusted EPS is expected to be in the range of $5.05 and $5.55. We remain focused on our core electrical infrastructure portfolio, which is supported by broader megatrends and where we see the most opportunity for growth. Our team is focused on continuous improvement initiatives in our plants and providing unmatched service and quality for our customers. By doing so, we are confident in our ability to drive sales volume and profitability. I'd like to take a moment to thank all of our employees for everything they do to support our key stakeholders. With that, I'll now turn the call over to John Deitzer to talk through the results from the quarter and provide more details on our outlook. John Deitzer: Thank you, Bill, and good morning, everyone. Moving to our consolidated results on Slide 4. In the first quarter, we achieved net sales of $656 million and adjusted EBITDA of $69 million. Adjusted EPS was $0.83 per share compared to $1.63 in the prior year. Our tax rate in the first quarter was 3%, a decrease from 21% in the prior year. The first quarter tax rate reflects a onetime discrete benefit associated with tax planning related to a foreign operation. Turning to Slide 5 and our consolidated bridges. Organic volumes were up 2% compared to the first quarter of fiscal '25. Our average selling prices declined 3% during the quarter, most of which came from our PVC conduit products, which were partially offset by increased average selling prices for our steel conduit products. Moving to Slide 6. Our 2% volume increase during the first quarter was driven primarily from our metal electrical conduit and our plastic pipe conduit product categories. Both product categories benefited from healthy nonresidential end market demand. Our metal framing, cable management and construction service businesses saw lower volume compared to the prior year, primarily due to the timing of certain project-based work. We expect growth from these businesses throughout the duration of the year. Our mechanical tube business, which includes our solar-related products is also expected to grow throughout the year due to the expected timing of large utility-scale solar projects. As we previously communicated, we are shifting certain available capacity from our existing nonsolar mechanical products to our electrical conduit products as part of our 80/20 initiative. We would expect that to continue throughout the year to help support electrical end market demand. Overall, we continue to expect mid-single-digit volume growth for the full year. Turning to Slide 7. Net sales increased year-over-year in our Electrical segment, driven by higher volume growth, offset by lower selling prices. Adjusted EBITDA margins compressed in our Electrical segment due to higher material costs and lower average selling prices. Net sales in our S&I segment were lower compared to the previous year, primarily due to lower volume. Adjusted EBITDA and adjusted EBITDA margins both increased year-over-year due to increased productivity. As Bill mentioned earlier, Atkore recognized over $30 million of year-over-year productivity, most of which was generated from our S&I segment. Turning to Slide 8. We ended the quarter in a favorable cash position despite a year-over-year decline in our operating cash flow. Keep in mind that our Q4 FY '25 operating cash flow was our strongest quarter, generating approximately $200 million. Our first quarter in FY '26 ended before we typically receive large collections from our accounts receivables. Those cash collections fell into the first part of our fiscal Q2. Our results included approximately $18 million in cash proceeds recognized from our Tectron tube divestiture. These proceeds represent a portion of the divestiture proceeds. We anticipate receiving an additional $7 million in the second quarter from the sale of our real estate where the products were manufactured. Our balance sheet remains in a strong position with no debt maturity repayments required until 2030. Moving to Slide 9. We continue to expect volume growth to be mid-single digits for the full year. Our volume growth expectations are a combination of core construction growth as well as contributions from certain growth initiatives such as solar and global construction services. The recent Dodge Momentum Index forecast continue to support growth in the core nonresidential end markets. As a reminder, we are no longer providing quarterly guidance. Rather, we will continue to update our full year expectations. In November, we communicated that our full year expectations are weighted more toward the back half of the year. We still believe this to be true. With that said, we expect our second quarter to be similar to but slightly better than our first quarter results from an adjusted EBITDA perspective. For the full year, we expect net sales to be in the range of $2.95 billion to $3.05 billion and adjusted EBITDA in the range of $340 million to $360 million and adjusted EPS in the range of $5.05 and $5.55. With that, I'll turn it to John Pregenzer to give an update on our end markets and our long-term strategic focus. John Pregenzer: Thanks, John. Turning to Slide 10. Last year, we announced our intention to consolidate 3 manufacturing facilities. This decision helps us to prioritize our portfolio for domestically manufactured electrical infrastructure products. These actions are part of our broader 80/20 initiative to serve our customers efficiently while also creating a more streamlined cost structure. We are on track to exit these facilities in our second fiscal quarter. As John mentioned, our expected volume growth in fiscal '26 is a combination of base market growth and contributions from certain key strategic investments. The Dodge Momentum Index continues to suggest favorable forward-looking indicators of growth. A recent Moody's ratings analysis suggests that $3 trillion of investment will flow into the data center market in the next 5 years to support the need for servers, computing equipment and new power capacity. Our portfolio of metal framing, cable management and the entirety of our conduit product line are well positioned to benefit from this growth. As the electrical industry plans to support these growth figures, available labor continues to be top of mind. The associated builders and contractors estimates that approximately 350,000 additional workers are needed to meet the demand for construction services in 2026, and that number grows to 450,000 in 2027. Atkore has a history of prioritizing labor-saving opportunities for installers through new product development. Our PVC junction boxes, 20-foot conduit and patented MC Glide armored cable are just a few examples of how Atkore has made construction installation more efficient. The electrical industry is a great place to be, and we are working to meet the market demand by executing our Atkore business system centered on strategy, people and process. With that, we'll turn it over to the operator to open the line for questions. Operator: [Operator Instructions] Your first question comes from Andy Kaplowitz with Citigroup. Andrew Kaplowitz: Can you give us a little more color on the core markets that you're seeing? I know you just talked about it, but it looks like core PVC and metal conduit markets in terms of volume accelerated a bit in Q1 versus what you saw in FY '25. So maybe you can talk about that. And then conversely, I know you've talked about construction services ramping up at some point. I mean there are a lot of mega projects out there, particularly in data centers, as you kind of cited. So when can we see that start to move? William Waltz: Yes. Andy, I'll start here and then turn it over to you to Johns. Yes, you are correct -- and again, John Deitzer, something if we want to get the precise numbers. But PVC, we're seeing good growth with, steel conduit we're seeing good growth with so up in good markets overall. And then regarding data centers, it truly is just the timing of year-over-year in those projects. We are seeing, again, with our -- giving you precise numbers, we are seeing strong backlogs and commitments for orders and expansion opportunities. So we're bullish in this fiscal year and then even more so as we get into fiscal year '27 and so forth. Andrew Kaplowitz: And Bill begs the -- sorry, did you want to say something else? John Pregenzer: No, Andy, just a few more information on that is strong Dodge Momentum Index in the quarter. We could really see obviously being driven by data centers. Warehousing is strong. and education, health care, some other end markets, we're seeing some growth. Specifically to PVC, we have seen some increases from the border wall. So it's been one of the areas that's been driving some of the stronger PVC conduit demand. Andrew Kaplowitz: That's very helpful color. And it begs the question. Obviously, it's early in the year, but you didn't raise your EBITDA and EPS despite pretty good Q1, especially given the good productivity. So is there anything incrementally you're concerned about? Or is it just really early in the year? John Deitzer: Andy, I'll jump in here. I mean. Yes, go ahead, Bill. William Waltz: Go ahead John. John Deitzer: Yes. Andy, I think it's just -- we're -- first quarter, we're pleased with the results here. I think as we look forward, we still have a lot to do. So I can walk through some of the other dynamics here as we're seeing. But just I think the good first quarter and want to maintain where we're at. Bill, anything if you wanted to add? William Waltz: I was going to do very much the same. It's like to sit here -- let's hit our numbers, grow. We had great productivity that we called out. So I mean, things are moving along at this stage. But before we get too far out ahead of ourselves, Andy, let's get another quarter before we even start talking about the second half of the year because there still is a reasonable pickup in Q3 and Q4. So it just seems like the wise thing to do at this stage. Andrew Kaplowitz: Agreed. And then just one more quick one. An update, I think you talked about the competitive environment a little bit. You mentioned PVC kind of pricing is still down, but steel conduit up. I think you said import competition in PVC kind of remains. But sort of what are you seeing in the 2 major markets there, particularly from the foreign competition? William Waltz: Yes. So specifically for foreign competition, and I'll start with PVC and go to steal. PVC continues -- the imports continue to come in. So maybe not surprised because, again, there's very few tariffs. It's the 10%. And as we walked through, it all depends. This is not new news on the -- what somebody claims is the value. So I don't think anything has dramatically changed there, but it's not like it's necessarily improved. But it's still probably -- again, we don't have precise numbers on the market size, but it's still probably less than 10% of the whole market. So -- but it's growing like our PVC business is also growing. Steel, I think there is moving more in our favor where, again, we had strong growth. And give or take, for the last 3 months, I want to say from a year-over-year perspective, it was down low to mid-single digits for imports. So while they're stepping back slightly, we're continuing to grow. And then I think in the prepared remarks, but if not, both our quarter-over-quarter -- excuse me, sequential quarters are up in price and also sequentially go up in margins and so forth. So moving definitely in the right direction with metal conduit. Operator: Your next question comes from David Tarantino with KeyBanc Capital Markets. David Tarantino: I appreciate there's an update specifically on the strategic review, but maybe could you give us some more color and an update on the cost saving effort, what you expect productivity to contribute following the nice start to this quarter and particularly around the exit of those 3 facilities that it's expected to be completed here soon. William Waltz: Yes. So I'll walk through it and again color from the team here. But -- so for strategic alternatives, we're still being worked. So -- but again, as we've always said, the Board doesn't have a time frame. So I don't want to sit here and give any more handicap on things or time frame or so forth. But we're continuing to progress through different things. Obviously, we mentioned small things like the divestiture of Tectron. We're still moving forward with HDP probably at a faster pace than you imagine in the overall examination if we do consider Atkore as a whole corporation and so forth. So from that standpoint, moving forward, a phenomenal quarter with productivity. I expect this to be our best year probably for productivity. On the same hand, realistically, we're not going to have $30 million every quarter. But we started a good January, and it should be -- last year was a strong productivity, and this should be a good year of productivity. And then finally, to the 3 plant closures, I'll let John Pregenzer or John Deitzer add a little bit more color. But I think to what John Deitzer has mentioned in the past, it's $10 million, $12 million, and we think potentially more as we get things running. And I would say they're running the closures at a smooth and ready to on schedule complement to John Pregenzer or if he wants to add anything to that? John Pregenzer: No, Dave, I think everything is going as planned, seeing favorable transfer of the manufacturing equipment and start-up, hiring of the people in the plants that are getting the additional capacity is going well. The training is going well. So we don't see any issues with executing all 3 of those actually on plan and on schedule. John Deitzer: Great. And then just to add, David, just a little bit of color on the productivity dynamic throughout the year. We are very pleased, as Bill mentioned, around the first quarter's performance. And as John mentioned, we're really pleased with where we're going. We have a little bit of dynamics quarter-to-quarter this year, just meaning the second quarter, in particular, last year in Q2 was a pretty strong -- was the high watermark for us from an EBITDA perspective. And so the comp will have a little bit of a dynamic this year, Q2 year-over-year. That being said, though, we're really pleased with the overall plan for annual productivity this year and then think some of these initiatives will continue to benefit us as we move into '27. But in the second quarter, we're not likely to see the strength here that we saw in the first quarter largely due to the year-over-year comparison item. Hopefully, that helps in frame it a little bit the dynamics. David Tarantino: Yes. That's helpful. And then nice to see the price declines on the top line narrow, but maybe to put a finer point on price cost, could you give us an update on what you have here embedded in the guide? It looks like much of the year-over-year headwind that was previously expected has kind of already occurred. So how should we be thinking about that previous unmitigated $50 million headwind now and the offsets to it? John Deitzer: Got it, David. Yes, it's a good question. And the price versus cost headwind that we have this year is largely loaded here in the first half. You see the impact in the first quarter. We, again, think the second quarter year-over-year, we're going to have a price versus cost unfavorable. I don't want to start guiding price versus cost quarter-to-quarter, but we do anticipate the totality of the back half to be price versus cost positive here, might be very slightly, but that's potentially here as we're ramping. So it is very much loaded here in the first half. So we'll see how the dynamics play out throughout the year. But right now, to your point, very much a first half issue here that we're working through. Operator: Your next question comes from Chris Moore with CJS Securities. Christopher Moore: Yes. So terrific margins on S&I. Is that 16.2% is that sustainable moving forward? Or just kind of any thoughts there? John Deitzer: Thanks, Chris. I mean, I feel like a little bit of a broken record. I've said this a few times. We anticipate that business to be more in the, let's call it, 12% to 14% adjusted EBITDA margin level. It does have some mix dynamics when we think about the growth in solar, et cetera. that might have a little bit of margin dynamic with it. But that team has done a very nice job of performing from a productivity perspective and has driven those margins higher. So I do anticipate some of the mix dynamics probably will level out a little bit. And I don't know if we're going to be able to continue exactly at the positive productivity level we had. We did have some items that were more discrete benefits here in the first quarter that helped push that elevated a little bit. So we'll probably see margin regression in the S&I segment here as we move throughout the year. Christopher Moore: Got it. And from a cash flow perspective, you talked about Q1 timing, some of the issues there. Just maybe from a fiscal '26 perspective, can you talk a little bit further in terms of kind of overall thoughts and how we should be thinking about it? John Deitzer: Yes, it's a great question. So as we move through the year, we do anticipate cash from ops to improve. The first quarter was a bit of a headwind, as we mentioned. But you have to go back and remember how strong of a cash flow quarter we had in the fourth quarter of fiscal '25. And so we had received multiple AR payments both back in July and then in September. And the way this quarter ended on December 26, we -- several large receivables we have fell into our fiscal January, but really occurred December 28 or 30 type of dynamic. As we look forward, we expect to be modestly here price cash from ops positive in the second quarter and then continue to ramp here in the third and fourth quarter from a cash flow perspective. You have seen -- we have modestly reduced our expectation on capital expenditures here this year. We're just really ensuring we're investing in the right projects and really dialing that in as well as we move through the year. Christopher Moore: Got it. And maybe just last one for me. Obviously, backlog is not historically an important metric for you guys. But with some of the focus here on data center, et cetera, is it potentially becoming a little bit more important? And is that something that's building a little bit at this point in time? William Waltz: Yes. I think, Chris, there are a couple of thoughts there. For the core business, it's shipping 5 days, 10 days and little backlog. For the data center business itself, global construction business, the question I answered for Andy, we are seeing backlogs grow in a couple of facets. One, the amount of orders we have in and then also things if it's not an order, kind of like an LOI and so forth. So I don't know at this stage or for this year, if we want to dimensionalize that publicly, but there is the potential as it continues to grow. It is a business that I think we're all very optimistic at the pace that, that business has in front of us. Operator: Your next question comes from Deane Dray with RBC. Deane Dray: How I'd like to circle back on some of the competitive dynamics and how it impacted price in the quarter. Just when steel being up year-over-year, that's really encouraging. Is that more a reflection of stronger volume? Any competitive changes there? And for PVC down, I know there's new capacity coming on. How much of that weighed on the ongoing PVC pressure? And this all kind of frames the question of when do you think you get a normalized year-over-year price? Is that -- it's going to be kind of hard to pinpoint which quarter, but is it still your expectation that it will happen this year? William Waltz: Yes, Deane, I'll start and then for John or John if they, want to jump in there. So -- and with the multifaceted question, I think starting with steel, I think overall demands were strong. So I don't know, but I assume my competitors are also up there and also with imports going back, you did have a good market for us to grow and for us to get price and us to get margin. So market demand is strong and so forth. For imports and so forth there, I don't know -- again, I can't say specifically. I don't think it's necessarily more supply coming into the market as much as I would say, in general, us hitting our numbers and so forth there. It's probably what we perceived with price dynamics, both top line and spread and so forth. So in my mind, I'm pretty pleased that we're back -- I can't commit to the future, but we're back pegging pretty well how we think the markets are going to react. And I think to earlier comments from John Deitzer, we're still expecting spread compression within PVC. As to looking out and go, when does that stop, I may turn over to my peers, but at least for me, to try to peg one quarter with any precision is a little tougher there. Deane Dray: That's really helpful. And then just as you talk about shifting some of the manufacturing resources to your core electrical, have you been able to size what you think your capacity increase is going to be, let's say, on a percent basis in conduit? Or will it be in other non-conduit electrolyte cable? William Waltz: I think especially, Deane, think of more conduit and here's why to go -- if you think of what mechanical makes, it's our S&I, it is metal products. So therefore, Harvey, for example, one of our largest facilities, it is using the 80/20 rule effectively, which has actually, I think, helped the S&I margins to earlier questions of let's get with our key customers with key products, and we don't have to have 1,000 C items. So it's actually helping in our intention in the future to actually help the margins there. And then it is freeing up capacity for our electrical products to earlier conduits -- metal conduit specifically and to questions there that we just answered is where we are seeing volume growth. And with data centers and overall markets, it's a place that we would expect long-term growth. So it's working well to say what percent, but I think it's enough that we can keep up with the markets as we go forward. So it's kind of a win-win-win there and complement John Pregenzer and the rest of the team for really driving that effectively here. John Deitzer: Just one thing to circle back on your earlier question and David's earlier question as well. It is a little bit difficult to predict the dynamics associated with price versus cost because there are so many different factors. One item that I think we're watching here in the near term a little bit is the volatility and fluctuation that we've seen in copper. If we just rewind like 6 months ago, it's up roughly 40%, give or take, from where we gave our outlook back in November, we're probably up around 25%. There's just been a lot of volatility there. And that would be one variable and also trying to make some of these assessments as we move forward. I mean these markets move quickly. And so that's one of the dynamics here that we're trying to watch and understand as we move throughout the year is that volatility a little bit. But I think the team has done a nice job because one of the facility closures is in the area where we use copper, and I think it's -- the team is working to improve the cost structure and try to be reactive to some of that volatility as well. So there's just a lot of moving parts and dynamics versus trying to pinpoint a singular, hey, this is when things change in one way or another. Operator: Your next question comes from Justin Clare with ROTH Capital Partners. Justin Clare: So just wanted to follow up on steel conduit pricing here. So I think it's the fourth quarter in a row that pricing has improved. So wondering if you could just speak a little bit to the trend you expect ahead? Do you anticipate continued price improvement in fiscal Q2? And then does the guidance for the year embed a continued upward trend in steel pricing? How are you thinking about that? And then just lastly, is the higher pricing supporting margin improvement for steel conduit, -- if you could speak to potential magnitude or how that's being affected? William Waltz: Yes. So Justin, I'll start here and the team can add as always. So you are correct that steel conduit prices it's been 4 quarters so continue to go up with price. And also in most of those quarters, it's been up sequentially. And for example, our last quarter, probably our best quarter for spreads in a long time. So those things are moving. At this stage in our forecast, I don't think we're expecting meaningful spread increases. So -- but I also won't bake anything in to go for what we're guiding for us and say, oh, there's going to be so much more. Steel prices are expected, and I'm just going from different people's professional forecast that we use to continue to go up slightly over the next 6, 9 months here. So I think we can keep up with pricing, but I wouldn't expect a lot of extra spread or at least that's not baked into our numbers here. Justin Clare: Got it. Okay. And then just one on the tariffs. I believe aluminum tariffs were potentially expected to have an impact on the cost structure. Wondering how that's evolving if you've secured domestic sources of supply and what the potential impact on the margins could be? William Waltz: Yes. Again, without getting too specific on future steps, but you are correct, Justin, that for us, the tariffs because where we did get our products, our aluminum from offshore, at least offshore Canada, I'll be specific. So they are being impacted by the tariffs. We are looking at domestic sources, but I don't want to give out even if nothing else for our competitors. The probability of that because even simple things like that, getting to it through specs. And then also, I do think the domestic manufacturers back to they know that people like us and so forth are looking for domestic supply, they're raising the price. So how much of an arbitrage we have compared to our competitors or how much we can save compared to the tariffs is hard to quantify. But I will tell you, it has been an impact that I don't think we've passed along the impact of the 50% aluminum tariffs. That kind of ties back to John Deitzer's question or answer, excuse me, even though things like copper are so volatile right now that us predicting that our cable business is a little bit more challenging in the short term here. Operator: Your next question comes from Chris Dankert with Loop Capital. Christopher Dankert: I guess just to kind of circle back on solar, I think you touched on it in your prepared remarks, but I missed it. Can you just kind of give us a sense for what the solar activity is now, kind of how we're shifting capacity in that market? And then just kind of an update there. William Waltz: Yes. So what we said, and then it's a great -- I'm glad you can say a setup question for us, is solar from the quarter, just with timing of projects was down from a year-over-year perspective. That said, we do have a good backlog there, almost to other people's questions on global mega projects of orders coming in, commitments from OEMs. And then the other thing that's helping us that we mentioned last year, but our facility Hobart that we make a lot of the solar torque tubes and is performing really well. So that does a couple of things. It helps drive some of the productivity we talked about for the first quarter. It helps with our overall estimates for productivity for the year and the increase in throughput is helping as this demand does come up here. So I think solar, like global mega projects should be a good thing for this quarter and quite frankly, the second half of the year. To earlier questions, you look at the step-up between what we're estimating for profits in Q1 and Q2 compared to what we need to deliver in Q3 and Q4 to hit the average of our numbers of $350 million EBITDA. Christopher Dankert: As a point of clarification, I just -- I assume that the solar torque tubes were generally for domestic projects. Is any of that for export outside of North America right now? William Waltz: Some. So I don't know long term how much will be, but it does -- one of our customers has ordered a meaningful amount here for projects overseas. But I don't know if that's a long-term trend or not versus the short term. So I think I would leave it at majority of our focus and our customers are North America-based with coincidentally short term, some projects going overseas. Christopher Dankert: Got it. Got it. That's helpful. And then I guess just finally, on Hobart, any update as far as factory loading there, operational metrics, anything worth calling out either in terms of just being on track or any kind of wins or headaches there? William Waltz: Yes, John? John Pregenzer: Yes. No, Hobart is going well. obviously, bringing in the additional solar volume, but their operational rates are continuing to improve. A lot of the productivity that we delivered was contributed by Hobart. So I think everything is progressing as we need it to be. Operator: This concludes the question-and-answer session. I would now like to turn the call back over to Bill Waltz for closing remarks. William Waltz: Thank you. Let me take a moment to summarize my 3 key takeaways from today's discussion. First, Atkore's fiscal 2026 is off to a good start. Our results reflect a combination of healthy end markets and self-help productivity gains. We will continue to operate with a proactive mindset as we progress throughout the year. Second, we anticipate favorable market demand for the balance of the year as we reaffirm our full year outlook. Finally, as we execute previously announced strategic actions and evaluate additional opportunities, we are laser-focused on creating long-term value for our shareholders. With that, thank you for your support and interest in our company. We look forward to speaking with you during our next quarterly call. This concludes the call for today. Operator: This concludes today's conference. You may now disconnect.
Tom Erixon: Good morning, and welcome to Alfa Laval's Fourth Quarter and Full Year Earnings Call for 2025. So Fredrik and I, we will give you a rundown presentation, a summary of the quarter and the year, and then we will go to the Q&A as always. So let me start with some introductory comments to the quarter and the year. In all, we felt it was a strong year in 2025, resulting in record invoicing and record earnings with earnings per share for the first time climbing to SEK 20 per share. So the supply chain was strong, especially in the quarter, and we delivered a record invoicing of SEK 19 billion in the fourth quarter. With that said, we still need capacity additions that are required to support our customer base in the data center applications. And yesterday, the Board of Directors approved a targeted CapEx program of SEK 1 billion for this purpose specifically. Then finally, during 2025, Alfa Laval has prepared for further growth by simplifying the operating model and consolidating the business unit structure. It is a substantial reorganization of the company. And as of January 1, the new organization is operational after considerable efforts on many hands. And with that, let's move on to key figures. Orders held up well with a 2% organic decline in Q4. We had good support from -- and strong demand from the U.S. and several important Asian markets. The margin was okay and as always, a bit affected by the seasonal high share of project invoicing. In addition, we carried approximately SEK 150 million of one-off costs, partly related to the ongoing reorganization program. On a divisional level, first to the Energy division. Orders reached an all-time high in the quarter at SEK 6.1 billion with firm demand in both HVAC and CleanTech applications. Data center orders were increasing as anticipated and was accounting for approximately 15% of the divisional orders. Service has been slow during 2025 for the Energy division, partly due to internal constraints. In Q4, the service was again showing double-digit growth and the growth trend may well continue into 2026. As indicated earlier, a new CapEx program of SEK 1 billion is launched to maintain a leading market share for the heat transfer applications in the data center business. The program is spread over our existing footprint in the U.S., in China and in Europe. We are with the existing infrastructure in a very good position to scale our volumes and capacities in this area specifically. Then to the Food & Water division. Orders remained flattish organically, both sequentially and year-on-year. We continue to see considerable growth opportunities in many end markets going forward, and the new growth strategy launched in 2025 is supported by targeted investments into application specialists and the global sales force to cover areas like pharma and protein. The margin in Q4 was impacted by some one-offs, both in weak project execution and the reorganization as discussed earlier, and it amounted to approximately SEK 80 million in the division. In 2026, we will take some cost for driving the growth strategy forward in the areas described with some margin impact in 2026 and possibly into 2027. Then on to the Marine division. Orders were stable sequentially and the lower cargo pumping orders were as before, partly offset by growth in the other application areas. In all, the market is and is expected to remain stable to positive for ship contracting. Invoicing continues on a good level based on a solid order book with a positive mix. The order book mix remains unchanged in 2026. Then on to Service. After many years of growth, the Service business now accounts for about SEK 20 billion of invoicing. The growth trend slowed a bit in 2025 compared to before, but the structural demand trends remain positive and the troubleshooting in the Energy division specifically is now completed and resolved. As a consequence, in the quarter, we had unusually large mix differences between the divisions, with the Marine division at almost 40% share of service orders, partly related to lower project order intake on the Marine division. And the Energy on the other side, with just above 20% of service order intake after a very strong capital sales quarter in Q4. The spread between the divisions is expected to decrease going forward. All right. And then a couple of regional comments to round up. In many aspects, it was a positive quarter with good progress in important growth markets like Southeast Asia and India. China was positive in Energy and Food & Water, but not fully compensating for the slower cargo pumping volumes that we expected in the quarter. U.S. grew in many end markets with special focus, obviously, on the data center market, and we had an all-time high in the quarter for the U.S. market as such. And with that, let me hand over to Fredrik for some further financial details. Fredrik Ekstrom: Right. So let us dive straight into it and take the order intake in quarter 4 amounted to SEK 17.1 billion with a negative currency impact of 8.7%, a structural growth of 3.3% and an organic contraction of 2.2%. What's notable in the quarter is the continued slow conversion of large project business from project pipelines that are both extensive and with quality projects. The Energy division reflected demand strength in HVAC with a 7% growth, and on data centers, more than doubled. On a whole year basis, order intake accumulated to SEK 66.7 billion with a negative currency impact of 6.1%, growth from acquisitions of 1.6% and an organic contraction of 6%. Of the negative organic growth, the majority of the contraction is slow conversion of large projects, which lagged behind with some 20%, of which the majority stems from the normalization of our marine pumping systems and large project orders in Food & Water. Transactional business, on the other hand, increased with 2% during the year to compensate. The order book stood at SEK 48.3 billion at the end of the year, of which some SEK 7.5 billion is invoicing for 2027. During the year, SEK 1.9 billion of negative revaluation due primarily to currency impacted the backlog and order intake. Quarter 4 book-to-bill was 0.89 with a good invoicing and project execution in Q4. Now moving on to sales. Revenues in quarter 4 reached an all-time high of SEK 19.1 billion with a growth compared to last year of 4.6%, of which 10.9% was organic, 3.1% coming from acquisitions and the negative impact of currency with a whole 9.4%. The higher revenue stems from good project execution in the quarter and a good mix of growing transactional sales. Revenue in all 3 divisions grew in the quarter, Energy division with 12%, Food & Water with 1%, and Marine division with 3%. On a year basis, revenues grew with 4.1%, driven by 7.9% growth of organic business, 1.8% structural and a negative currency impact of 5.6%. Revenues from the Marine Pumping Systems increased with 23% on an annual basis and project execution in the Food & Water division contributed with 10%. The large order book we carry into 2026 supports a continued good development in revenues. Now to some key figures. The adjusted gross profit (sic) [ adjusted gross margin ] of 34.7% was in line with quarter 4 in 2024, but sequentially lower than quarter 3 at 37.8%, reflecting the heavier project execution mix in quarter 4. The adjusted gross profit margin as in previous quarters, continues to be supported by strong manufacturing results. S&A grew with 2%, while R&D grew with 11.6% as expected in the quarter. Operating income grew with 8.3%, yielding an adjusted EBITA margin of 16.9%. To be noted further is that the adjusted margin is affected by the last tranche of the acquisition costs incurred in the cryogenics transaction, lower yield from a project execution in Food & Water division and costs arising from the new organizational structure with some SEK 150 million in the quarter. The increase of financial costs in quarter 4 is driven by higher interest costs and more substantially by the net of exchange rate differences. Profit before tax is on a similar level as last year and finally, an EPS of SEK 4.79 for the quarter. On an annual basis, adjusted gross profit margin increases to 37%, reflecting the revenue mix, a strong factory and engineering result and positive purchasing price variances. S&A grew with 4.5% and R&D with 4.9%. However, both remained stable in relation to revenues at 15% and 2.5%, respectively. Operating income increases with 12.6% to yield SEK 11.7 billion and EPS for the year just above SEK 20, an increase of 12%. Now on to some profitability comments. The adjusted EBITA margin for the quarter ended at 16.9%, an increase of 1% compared to quarter 4 2024. In absolute terms, the adjusted EBITA in quarter 4 increases with SEK 437 million despite the negative currency impact and the additional burdening of the result with SEK 150 million in the quarter as previously detailed. On an annual level, the adjusted EBITA margin was 17.7%, an increase of 1% compared to 2024. Adjusted EBITA increases with 12% to yield SEK 12.3 billion. Now some comments on debt position. Debt has increased with SEK 7 billion, reflecting the financing of acquisitions during the year of SEK 9.4 billion, with a resulting leverage to EBITDA of 1.21. Net debt after subtracting a healthy liquidity position of SEK 7.8 billion is SEK 9.4 billion, which corresponds to 0.66 in relation to EBITDA. Finally, net debt, including lease liabilities, lands at 0.92 in relation to EBITDA. Cash flow from operating activities in the quarter was on a good level given the increase in revenues. Release of working capital was positive, but on a lower level than quarter 4 last year. CapEx in the quarter was in line with guidance, bringing the free cash flow for the quarter to SEK 2.6 billion. On an annual level, cash flow from operating activities was SEK 9.2 billion, capital expenditures in line with yearly guidance at SEK 2.7 billion. 3 acquisitions during the year totaled SEK 9.4 billion. And after financing activities, the final cash flow for the year was positive with SEK 168 million. And finally, for some guidance on Q1 2026 and whole year 2026. CapEx in quarter 1 is expected around SEK 0.7 billion and a whole year guidance of SEK 2.5 billion to SEK 3 billion. Amortizations at SEK 175 million in quarter 1 and SEK 670 million for the year, and that includes all recent acquisitions. Tax rate guidance remains in the range of 24% to 26%. With that, I conclude my financial overview, and I hand it back to Tom for some closing remarks. Tom Erixon: Thank you, Fredrik. So let me give you our forward-looking comments before we go to the Q&A. As we're all aware, the synchronized global business cycles are not so synchronized anymore. So in reality, geographies and different end markets tend to move in different directions. So all in all, we remain in a situation where we don't have extremely clear trend lines. With that said, the general feeling we have in the market is that it is overall, everything said and done, somewhat positive momentum in the market. And we also perceive that the slowdown we've been having in large CapEx projects from customers is maybe easing somewhat as we move into 2026. So with that said, we expect after a strong Q4, sequential demand in the first quarter to be on about the same level as we had in Q4 with the Energy division being somewhat lower compared to an all-time high record level, as you remember in Q4. The Food & water, we expect to be somewhat higher and the Marine division somewhat lower. And all in all, it takes us to market conditions that are relatively unchanged in Q1 compared to Q4. And so with that, we round off the presentation, and we are open for questions. Thank you. Operator: [Operator Instructions] Our first question comes from Magnus Kruber with Nordea. Magnus Kruber: Magnus here from Nordea. A couple of questions. First, light industry and tech obviously posted very solid growth in the quarter and a distinct step-up from prior levels. How should we think about sort of the trends going forward here? I think it's been perceived that it's been a little bit underwhelming here in the prior quarters, and now we see a very big step-up. So just some comments on how to look at the outlook here would be helpful. Tom Erixon: Well, we don't really guide more than the quarter, and the quarter is somewhat lower. So I think that's all we really have to say on the matter. But it is true that we've been a little bit low for a number of quarters previously. We were not surprised exactly by the amount of orders that came in, in Q4. It was partly to be expected. And as we've guided you before, when it comes to the data center question specifically, we are a little bit on a shorter cycle than many of the project orders that you otherwise see in the market. So the pickup of that played a reasonable role in the development. But on top of that, I would like to add that despite concerns on the energy transition and what's going on, we did have a good quarter on CleanTech applications. And we see both in the Food & Water division when it comes to biofuel applications and in the Energy division when it comes to carbon capture, hydrogen and other related issues, that there is still some momentum in the market on that level. So we are sticking to our energy transition strategy. I think it's going to be a bit slower, obviously, than people thought 3, 4, 5 years ago. And it may gradually become more market-driven and policy driven, but there is still a growing momentum in those areas. Magnus Kruber: Excellent detail. Super helpful. You also talked a little bit about SEK 150 million headwinds here in the quarter from various one-off effects and alluded to that could continue somewhat into the first half. Is the SEK 150 million run rate a reasonable level? Or should it be more sort of benign than that? Tom Erixon: Well, it's going to depend a little bit. The SEK 150 million, you can kind of split 50-50 between reorganization aspects and project execution write-offs. So I hope the project execution issues are not repeating itself. The question on what running cost we will have on the reorganization part, which is now -- so we are sort of on the top level, all managers are appointed on a high level and the financial reporting is going in the new organization, but there's still a fair amount of implementation work to be done, both in sales regions and in business unit structures. And so if we see a higher reorg cost than in Q4, it's because we have so far non-communicated savings opportunities on it. So it's going to be on a business case basis, let's put it at that way. But at this point in time, we would estimate that the one-off cost level will decrease in Q1, Q2, unless we identify substantial opportunities going forward. Magnus Kruber: Perfect. And just one final one. The investments you make in data center additional capacity now, how does that compare with your current capacity? Some way of framing that would be helpful. Tom Erixon: Well, I think we are in a unique position to scale. We can work off our existing footprint. As you know, we have done considerable investment that earlier was related to heat pump and part of the supply chain and part of the infrastructure needs and equipment needs do overlap between the 2 applications. So we get a lot of leverage in the brazed heat exchanger technology specifically. So what I would say to put some framework around it is that we are delivering substantial volumes of both gasketed heat exchangers and brazed heat exchangers into this application and a few other things, by the way. And on the gasket side, we are still very well set with the ongoing investment program that we already have committed and partly executed. So there is nothing that of the SEK 1 billion that goes there. So it's going to be entirely related to expanding the press and to some degree, furnace capacity on the brazed side. And so we get a substantial leverage for the applications on that. We expect with all the production plans from integrated into our production planning, we're going to -- this will take us a couple of years forward. That's as much as I feel I can say. Operator: Our next question comes from Meihan Yang with Goldman Sachs. Meihan Yang: I have one question relating to the China Marine. So was the weakness in the Marine side in China more related to the underlying end market weakness? Or are you seeing any signs of market share erosion to domestic players? And if this continues, do you plan to do any capacity adjustments there? Tom Erixon: No, I think the -- in all, we feel the market is -- so as we speak, our main challenge in China is the amount of commissioning and invoicing that we need to do in 2026. We have a substantial order book and a substantial overhang. And we are expanding our technical capacities in China substantially is to cope with it. So if we have any capacity issues, it is that we need to scale up, not scale down. The market conditions in China, they were stable and normalized in 2025, and we believe they will remain stable and normalized on the order intake side in 2026 as well. The somewhat elevated invoicing levels that we have right now in end last year and partly through 2026 may come down a bit depending on where the market goes. But in general, we feel that the contracting level currently at the running rate that we are at is supporting perfectly well the infrastructure we have. So we're happy with that. On market share, Marine is the only market where we know on the decimal what our market share is for every single product category because we know every hull that is registered and we know every hull where we are in and where we're not. And so we are monitoring this extremely carefully. And we are making sure that there is no market share slips in this market, and it hasn't happened for the last 5 years. Operator: Our next question comes from Akash Gupta with JPMorgan. Akash Gupta: I got 2 questions. My first question is for you, Tom. In your comments in the report, you say that the group functions are adjusting to meet new regulatory demand and alignment with the business unit. I was wondering if you can elaborate about what do you mean by these new regulatory demand? That's the first one. Tom Erixon: You can say what we've been going through in order to adjust the group in terms of speed of decision-making and flexibility to manage towards the SEK 100 billion goals that we have in 2030 and to cope with the doubling of the business volume that we've been having over the last 6 years or so. We needed to take some actions to adjust to that. And you can say, well, first part is, to a degree, a consolidated business unit structure. So we will move with fewer global larger business units than we did in the previous structure. The second part is that we will go from cluster organizations in our sales companies to more regional setups with a slightly more operational twist to how the regions will operate compared to the previous clusters. And the third part is that the supporting group functions need to be adjusted in various ways. In some areas, we need to increase our resources somewhat to cope with the compliance demands and the regulatory demands and the reporting demands we have related to sustainability, but also related to ensuring that the ever more complicated sanctions environment between EU and U.S. is being adequately implemented and with an adequate control. So there are certain areas where we certainly will continue to build professionalism and capacities. In other areas, we are trying to make sure that we don't end up too centralized in part of our group support functions. So we also decentralizing out in a clear way to our sales regions and to our business units so that we have a responsibility for a number of these staff areas that is being carried by our operating units, and we are not too centralized in how we operate those functions. So it's a gradual -- you will not see any impact of it. But for us, it's a very important part of how we operate the company. Akash Gupta: And my second question is on capital allocation. So I mean when we look at your leverage, you have gone below 1x at the end of the year. So can you talk about prospects of M&A, particularly in 2026, given you will be quite busy with implementing the new operating model. So would it be reasonable to think something might happen? Or is it now probably a lower priority with internal heavy lifting? Fredrik Ekstrom: No. We believe we can do both things in parallel. We believe that the M&A strategy that we presented in the Capital Markets Day remains quite relevant and remains a priority. We continue to look at acquisition targets that fit the criteria that we defined at that point in time. We have a pretty good list of prospects that we're looking at. But as always, it's a long process when it's M&A, and we set very high standards. But we have in our capital structure created the firepower to continue to do acquisitions and presented with the right opportunity and the right price level, we will do so. So we don't see that the reorganization in any way compromises our ambition when it comes to acquisitions. Tom, would you like to add anything? Tom Erixon: Yes. We might add that we already closed the first one, a small but still meaningful acquisition in China in the energy sector. So we will -- as the beginning of this year. So we will give some further comments to that in the Q1 report. Operator: Our next question comes from Sebastian Kuenne with RBC. Sebastian Kuenne: I have 2. The first relates to the Energy business and specifically data center products, the brazed heat exchangers. I was wondering if you can tell us a little bit about the margin profile. I mean this is a product business. It's not a service business. it will probably change the blend, the mix and that might have implications on margin. Can you give us a little bit of an idea of where you see the profitability of these products going forward? That would be my first. Tom Erixon: It is obviously difficult for me to comment on application product profitability levels. I think you are -- listen, the -- if you divide it into the brazed heat exchangers and the gasket heat exchangers, the brazed is a non-service product. It's brazed together, so you can't take it apart. What happens is that when lifetime is over, it will be scrapped. And that is the cycle of that business. It may grow a bit compared to the entire product area may grow its share somewhat in -- as a share of the Energy division. But I don't think it's going to be a huge mix change on that because we're also growing the gasketed. And as for the gasketed, the data center applications are not extremely service demanding. It's kind of similar to a HVAC application, where we're dealing with clean water applications. So -- but that will have its normal HVAC-related service program. So I don't see a lot of challenges when it comes to -- I think overall, your observation is probably correct that it may dilute the share of service invoicing a little bit as a whole. But I'm not -- I don't see any meaningful -- there are other things that are -- I'm thinking a lot more about when it comes to the margin development than this one. Sebastian Kuenne: Okay. I will try to interpret this information. My second question is actually also data center again. Can you tell us a little bit again about who the clients are? Because it would help the investors now that the business becomes so big, would help investors to track a little bit the CapEx or the client's revenue. Is it the nVent and Vetiv of this world? Are there other major clients that we should be aware of when it comes to especially the brazed heat exchanger business? Tom Erixon: Well, listen, I think when you're looking at a market leader in this area, it is not possible to be there unless you are pretty much covering the market. And so the customers that are out there are, by and large, our customers. There are -- in terms of the procurement process, and that's why I've been saying that we are probably lagging a little bit in terms of bringing the orders into our order book because we are supplying components and not systems, we are coming a little bit later than many others into the process because we are selling to the system builders. And they are the companies we're invoicing. With that said, there are a number of frame agreements with the final owners who may want to specify suppliers and standardize the way they build their data centers in various areas. So this is business, which is not just a clear, straightforward answer. There are frame agreements in place. There are frame agreements negotiated as we speak. And there are supplier relationships with system builders. And you can safely assume that most of them that you are well aware of are most likely on our customer list. Sebastian Kuenne: Understood. Last question, just for clarification. You talked about project costs affecting Energy. Just for me to understand, does this relate to pricing of longer projects where you book at cost or you invoice at cost early on and then you invoice for the profit at completion? Or are we just talking about projects overrunning? Tom Erixon: No. The specific project execution problem was in the Food & Water Division. So that was weighing on that margin. What happens in the Energy division is that we are invoicing and we do in all companies doing a percentage of completion, invoicing process for our projects. But normally, sort of it adds up towards the Q4 and it did also in Energy division, so on Welded. But the project pipeline and the execution side on the Energy division has been spotless on the Q4. So we are good with it, but it does sort of as a mix effect, weigh down a little bit. I may add that we had a very good integration of Fives Cryo, which is also a project business. They are right in line with our expectations. They are well on track with Energy average margin. And the only thing that is weighing on that side is that we are taking a number of million euros as integration costs, and that has more or less now been finalized. So it's been a very short, concise and excellent integration process of getting the Fives Cryo team into the group. It's been a good process. Operator: Our next question comes from Max Yates with Morgan Stanley. Max Yates: I just had 2 questions. The first one was just around the Pumping Systems business and order intake. I guess when I look at the kind of Pumping Systems orders, it looks like maybe up SEK 100 million quarter-on-quarter. And I guess when we look at some of the tanker ordering data in Clarksons, it was very strong, up 60% in Q4. I think we've had a good start to January. So I was just wondering kind of what are we missing? Because I'm fairly used to kind of this business. When we see the tanker orders pick up, it filters through within kind of 1 or 2 months to your business relatively quickly, yet that doesn't seem to be happening when I look at Q4 orders or when I look at your kind of outlook for Marine for Q1. So is there anything kind of we're missing or we should understand that's happening in the market? I'm just trying to better understand that dynamic. Tom Erixon: No, I don't think so. And I think in our books after -- and so I remind you that in 2024, the Pumping System business, including offshore and aquaculture and another of other applications, we were at about SEK 15 billion in order intake for an operating unit, which historically has been on around SEK 5 billion. So we guided carefully that, a, we are not a SEK 15 billion unit in Bergen. So that's not the running rate that is possible in any case; b, we built the order book for 2 years going forward. And essentially, yards and ourselves are fully booked and running at 110% capacity anyway, so we didn't want to see and didn't expect a repeat. And in 2025, we didn't see a repeat. We ended up approximately at SEK 6 billion, which is SEK 9 billion down from the year before, a good number. SEK 6 billion was a normalized plus level compared to where we have historically has been and well in line with expectations. That -- right now in the statistics, that converts to about -- if you look at the cargo pumping specifically, it converts to about 250 contracted product and chemical tankers that we've seen in 2025, which is on about a normalized level. So the worry that after high contracting levels, we will go flat down on that market. It did not materialize, and we didn't think so. We think the age of the current fleet on the product chemical tanker side is still not all that young. So we think a normalized contracting level is to be expected. And that's what we've seen all in all for 2025. I think we ended the year a little bit higher than we started on it. So the trend curve was positive. And so let's see where we go in Q1. But putting everything together, 2025 was not a weak year for order intake all in all. And so we are not overstating our expectations into 2026. Max Yates: Okay. And maybe just a quick follow-up on currency. So you've had -- in the quarter, it looks like about -- you have had a SEK 271 million impact on your EBIT on a kind of revenue number that's about SEK 520 million headwind. So I was wondering, would you be able to help us at all with kind of any views for 2026? Because I know historically, you've always hedged. So I wonder whether there is any kind of lagging impact from last year? And just any kind of view on -- is that sort of drop-through from sales to EBIT impact for FX, the kind of 50% plus. Should we expect that going forward? Were there some currency revaluations? So just any framing of how to think about the FX impact on EBIT as we go into 2026 would be helpful. Fredrik Ekstrom: Right. And so let me try to take that. There's several components to this. You're quite correct. We have a hedging strategy for committed orders. And what we mean with those is usually the large orders, those get hedged as they come in. And then we have, of course, the uncommitted volume or rather the transactional volume that comes in sequentially over the year and that we hedge as separate volumes. So we do have a hedging that covers a substantial part of our revenues and turnover. The differences that you are seeing trickling down to the EBIT is, of course, the net of all of those effects. It's the net of the movement of invoicing. It's a net of the hedging contracts that we take. It is also the impact that we see from a translational point of view between 2 quarters in 2 different years. When it comes to forward-looking, when it comes to FX right now, your crystal ball is as good as mine, but I would assume that the strengthening of the Swedish krona that we have seen over the last quarter is probably going to stabilize or to some degree, return to a weakening, maybe not a strong weakening, but it's speculation at this point. What we can do is that we secure as much of our turnover as possible through hedging contracts. Then to refer to another part, which you had in your question embedded there is a revaluation of backlog. And the revaluation of backlog in relation to currency only happens when we take in an order in a foreign currency into our backlog, and that's primarily in the Pumping Systems where everything is booked into U.S. dollars. And there is, of course, the movement of the NOK to the U.S. dollar. And there, we also have seen a strengthening of the NOK, and we don't see that there is too much more headroom for the NOK to continue to strengthen. But again, it is a volatile FX market out there right now. And any quick movements that we see that happen over a quarter like we've seen in Q4 will create, of course, a currency impact on the results. Operator: The next question comes from Sven Weier with UBS. Sven Weier: The first one is on Marine. And just reminding us of the packing order on content per vessel. Is it not true that your content per crude tankers is actually much lower than product tankers? And that's why maybe the crude tanker orders we had in Clarksons were quite strong, were not really affecting you disproportionately? Or am I getting the packing order wrong here on content? That's the first one. Tom Erixon: You're getting it right. Sven Weier: Crude is more like an average. Is that fair to say in terms of content? Tom Erixon: Well, yes, to the degree that there is a meaningful average in this, crude tankers, they are large. They are energy consuming, efficiency matters. And so it is a meaningful part of the fleet for us, but it is -- compared to a product tanker, it doesn't provide quite the same mix. It's absolutely true. And so you need to shave off -- maybe I shouldn't speculate too much, but shave off EUR 1 million or so and then you are there. Sven Weier: Okay. Understood. And then to follow up on Marine because in the report, you mentioned the impact of sanctioned vessels on Services, right, and that it has a negative impact. Can you drill a little bit deeper into that comment, how it impacts you specifically? Tom Erixon: Well, there's been lots of dialogues about how big is the shallow fleet, which is sanctioned and which we do everything we can to definitely not serve and not ship spare parts. And so probably that the number of ships, including that fleet is in the order of magnitude of at least 400. And so 400 large vessels is -- does impact. With that said, I think Q4 service volume for Marine was not primarily the numbers that you're looking at there was more impacted by a very large service order, non-repeat service order in Q4 2024. So we had a bit of a challenging -- reach for us. It's not a favorable situation. Sven Weier: When the U.S. now enforces these sanctions more forcefully, for you, it doesn't make a difference because the shadow fleet was a shadow fleet before and you didn't service it anyhow. So that doesn't make an incremental difference. Tom Erixon: Absolutely not. No. It's -- on the contrary, we find it helpful that there is a strong action taken because with all the efforts we are doing to make sure that not a single spare parts one way or another reach a sanctioned ship is a big challenge. So we're working exceptionally hard in protecting that we are doing everything we can to follow the sanctions, but it's helpful for us if the ships are removed. It makes our life easier, and it has no impact on our financials at all. Sven Weier: Final question is on the new Food & Pharma division because I was wondering on those projects where you had cost overruns. I mean, did I understand you correctly that this is now done at the end of Q4, and this should no longer have an effect? Is that fair? Tom Erixon: I'm always careful in prognosticating a future where there are no problems. But we have been dealing with specifically in the quarter where one specific project, and I think we're taking all the measures needed now financially to make sure that, that is completed. It is financially not a good project for us, but we are extremely committed to our customers that we are delivering a well-functioning process at the end of the day. And so we should be clear of that now. So -- and I remind you that during -- when we started the journey 10 years ago, we continuously had a number of project execution problems. We cleaned that up very well. So we've been going on a good level for many years now in the project execution. And in the acquisition of Desmet, it's been the same, and it remains the same with Desmet. So this was the first time for a period of time where we actually got into executional challenges. And I think we've been handling it now. So in terms of what we know in our books now, we don't have a recurring item on this coming back. Sven Weier: And if I may, what was -- I mean at the end of '25, what was the share of biofuels within the division in terms of orders or sales? Tom Erixon: Good question. I don't have that number in my head. Maybe you can check a little bit as we speak. But it's been 5%. And so it's been very little. It's been depressed. We see a more interesting market in biofuels coming into 2026. They are typically large orders, so they are a little bit -- either they come or they don't. But when I'm commenting on the sentiment in the market when it comes to larger projects, that includes the biofuel segment where we may see some movements in 2026. We are hopeful. Sven Weier: And that 5% was of the order intake, right? Fredrik Ekstrom: Correct. Operator: The next question comes from Uma Samlin with Bank of America. Uma Samlin: So first one is a follow-up on Marine. So I guess you're guiding somewhat lower in Q1. How should we think about the mix of Pumping Systems orders versus other marine categories in Q1? So from your answer to the questions previously, it seems to me that you're thinking like a relatively -- still relatively strong Pumping Systems orders. Do I understand you correctly that it's the other Marine categories that drives your somewhat lower guide? Some clarification would be really helpful. Tom Erixon: We are hesitant. Here is the thing without the crystal ball, the more granular we are in our forecasting, the more off we're going to be. So on a group level, we feel fairly confident. And as you will notice, if you compare backwards on divisional levels, we have a slightly larger variation of outcome versus forecasting. And it gets even worse if we break it down into business units and individual product categories. So I'm a little bit hesitant to meet your question. But in terms of our earlier discussion on this call, the activity level and contracting level as forecasted and as what we've seen in Q4 looks relatively stable. So it may not be a bad guess that we are reasonably close in Q1 to Q4. Uma Samlin: That's very helpful. My second one is on Food & Water. If I heard you correctly, it seems like you expect some sort of margin impact from your growth strategy in '26. Can you perhaps elaborate a bit more? And what do you think is the long-term margin good for Food & Water? Because I remember this division used to be at 17%, 18%. And after the acquisition of Desmet, it was lower to like 14%, 15%. What is your long-term sort of ambition for the margin profile of Food & Water? Tom Erixon: Well, we typically don't want to run businesses below 15%. So our change in our corporate profitability target to 17% anticipated that part of our business most likely is going to be above the 17% and part of the business may be somewhat below. So we are not running a business strategy in Food & Water aiming to go below 15%. What we have done, and I remind you of this, we are building this company for the future. We are running at compared to historically exceptionally high CapEx volume, which in part is complemented with higher OpEx cost running in parallel to that CapEx program. And we are building both product technologies and capacities in the market additionally. So we have been doing that for a long period of time. And I don't see -- I guess what we are indicating with the increased investment program in the data center applications and the increased focus on growth strategy in certain newer areas in Food & Pharma should give you sort of the feel that what we've been doing historically is what we will continue to do. So if we stop doing that, I said it before, any monkey could get the margins up with 1% or 2% on the Alfa Laval margin. But we think building us towards the SEK 100 billion is the primary target, and we're going to do so with acceptable margins and healthy business conditions. And for Food & Water, that means that we are definitely aiming in the short to medium term to be somewhat north of the 15% target. Operator: The next question comes from Carl Deijenberg with DNB. Carl Deijenberg: So 2 questions from my side. First of all, I wanted to come back on the Energy division and maybe specifically on the HVAC side. Obviously, that was a drag for you on the order side in '25, but with some improvement here towards the latter part of the year. But I do want to understand a little bit. Is that -- do you see that more as a result of this inventory drawdowns on the OEM side being behind you and production rates being more sort of indicative of end consumer demand? Or do you still see some elevated inventories there among your customers? Tom Erixon: I think the -- maybe you want to take that, Fredrik. You used to run that business. Fredrik Ekstrom: Well, I think in relation to inventories, I would say that the inventory at our customers' distributor network is depleted. That I think we can reasonably see in the call-off for the frame agreements that we have with the larger OEMs. So that would confirm that we are past the destocking and that we start to return to growth or we start to return to normal production. When it comes to heat pumps specifically, I think we see the beginning of a resumption of a normal business and a normal trajectory of business growth in relation to defossilizing heating, particularly then in Europe. And I think that's a strong indication. There is a shift in players in the market. There is going to be consolidation in the market most likely. But we see definitely that also on the air conditioning side that we are starting to have larger call-offs on frame agreements. So I would assume that, that confirms the case that destocking is complete. Carl Deijenberg: Okay. Very well. Then secondly, I wanted to ask also on sort of recent raw material movements. I mean we've obviously seen some quite dramatic price movements on certain raw materials. I guess, one quite important component for you is, for example, copper on the brazed side or on the heat exchanger side. And I just wanted to hear a little bit if you expect any sort of tangible price impact on that entering '26 now given where prices are. Fredrik Ekstrom: Right. And so without getting too much into detail here, we set the standard cost during the year that is based on the frame agreements that we have with our metal suppliers, and we have more than one metal supplier, and they have a little bit of different sort of timing and phasing of when we renew those frame agreements with our metal suppliers. So we have a little bit of stability, and we have a little bit of visibility going forward to what our material prices will be. We also have some metal hedgings that are in place. So all in all, we don't have -- you can say in the short term, it doesn't impact us. But in the long term, it means we need to consider how we plan our productions and how we plan our pricing structure, but we allow ourselves a little bit of breathing space to make those decisions in a foundational way in line with our strategy. Tom, would you add anything? I could add one thing on the copper, by the way. I would say that if you look at the other metals, we probably have a little bit of speculation creeping into the pricing. When it comes to copper, there is actually a foundational demand or supply problem that needs to be sorted out. So there is probably a more sustained higher price level for copper going forward. Operator: Our last question comes from Klas Bergelind with Citi. Klas Bergelind: Klas from Citi. So I just had a -- sorry, a follow-up question on Marine again, a lot of questions on Marine. But I want to zoom in on product tankers. Obviously, crude is strong, but product is still pretty volatile where your value is higher. We saw a pretty strong first read in December at 19 contracts, but slowed down again in January as we could see yesterday. The product tanker market is still pretty soft with mid-single-digit supply growth against around 1% demand growth and scrapping doesn't seem to increase that much at the moment. I'm just trying to understand, Tom, how you look at demand here in the product tanker category in 2026. If you share this view or if your discussions out there are showing a more positive picture because it seems like product tanker, given the short-cycle nature of that business, is something that maybe can surprise positively, but I just want to hear your view there. Tom Erixon: It's a good question. The difficulty on what's going to happen on the contracting side. So I remind you that in terms of deliveries from our side, commissioning from our side and delivering from the yards to the shipowners, the 2026 pipeline is very strong. So what we're discussing is not affecting invoicing in 2026. And to a degree, we also cover 2027 already, although not fully. So if you're going to see any meaningful impact in a 2-year perspective on this, it means that existing slots need to be converted, that containers are being swapped into product tankers. And that type of switches is happening in the market. People are selling options and production slots. So I don't know. I would refer to Clarksons as the most solid foundation for this forecast. We don't have, I think, a better view on the market than they do. But as I said, we came out 2025 on a pretty normalized level. I remind you that the monthly numbers and the yearly numbers are updated afterwards. So all of the bookings are not registered at Clarksons at this point in time, not for 2025 and certainly not for January. So we will see some movement there. And we don't expect tremendous volatility short term. But you've seen the volatility down over a period of time when we were a bit unpleasantly surprised. And then you saw the enormous spike in -- starting in 2023 and into 2024. So we haven't exactly nailed the prognosis historically. I'm afraid we're not be able to do it now either. But we're good for a period of time. Klas Bergelind: We typically do the 6 months revisions to the date as well, but it doesn't look very strong. So that is why I asked the question, but I appreciate your comments. Tom Erixon: All right. So thank you very much. Thanks for the call. And if we don't run into each other before at some of the investor conferences that are happening in London, Miami and a couple of other places where we will be, then we will meet up at the earnings call for the first quarter in April. So thanks a lot.
Jaime Marcos: [Interpreted] Good morning, everyone, and thank you very much for attending Unicaja's Q4 2025 Earnings Presentation. First of all, as we usually do, let me confirm that this morning, before the market opened, we published this presentation along with the rest of the usual financial information at the CNMV website and at our corporate website. Today, we are joined by our CEO, Isidro Rubiales; and our Chief Financial Officer, Pablo González. We have divided the presentation into 3 sections. Isidro will begin with the introduction, which includes a summary of the financial year, and a brief review of the first strategic -- first year of the strategic plan. Pablo will explain the financial earnings. And after which Isidro will return to the stage 2, conclude with some final remarks before opening the floor to your questions. We expect the presentation to last just over half an hour. After the presentation, we will take questions from analysts and investors who are following us by telephone on the original Spanish line. And then we will move on to the English [ channel ] line. So without further ado, I give the floor to Isidro. Isidro Gil: [Interpreted] Thank you very much, and good morning, everyone. It's a pleasure for me to be here again, sharing with all of you the main -- the key highlights of the 2025 earnings, which, as Jaime mentioned, is the first year of the strategic plan. And as you will see, we are making good progress, which is also a beginning to be reflected in the entity's financial performance. The strategic plan is designed for the long term. And many of the results and returns we expect to obtain will take time to be reflected. But it's true that some of these measures implemented are already allowing us to move in the right direction with some clear results in the first year of the plan. On Page 3, we show our usual summary of the highlights of the financial year. The first item that we would like to highlight is the significant recovery in business activity that we have achieved throughout 2025. Two years ago in the fiscal year 2023, performing loans fell by 9%, the following year. In fiscal year 2024, the decline was 4%. In 2025, despite not growing in the mortgage segment, which is Unicaja's largest book, we managed to reverse that trend and achieved 2% lending growth. This turning point, as we will see later, is partly as a result of the diversification strategy outlined in the strategic plan that we presented to you a year ago and which is gradually beginning to take shape. Proof of this is that loan approvals have grown by 40% compared to the previous year. Another aspect that reflects the greater commercial momentum is the evolution of mutual funds, which, as you will recall, was one of the strategic levers of the plan with balances rising by 23% during the year and a net subscription market share of 9%, which is higher than our structural share. This positive performance has also been reflected in profitability, with net profit for 2025, improving by 10% to EUR 632 million, thanks to the growth in gross margin and lower provisioning requirements. The increase in income boost the ROTE adjusted for excess capital of 12% and maintains efficiency slightly above 45%, below our target of 50%. I would also like to highlight the continuing improvement of the bank's asset quality, an aspect to which the market may be paying less and less attention, but which we have been managing exceptionally well internally. And as a result, their balances have become immaterial, but continued to improve quarter after quarter. NPAs fell by an additional 25% in 2025. And additionally, leaving the net nonperforming asset ratio at a symbolic 0.8%. Stock fell by 20% during the year, reducing NPLs ratio to 2.1% below the 2.8% reached by the sector in November 2025, the latest data available. NPL coverage also improved during the year, increasing from 68% to 77%. This positive development is also reflected in the P&L with a cost of risk below 26 basis points below initial guidance. Finally, I would also like to draw your attention to value generation. One of the most important aspects as it's the consequence of all the above. The CET1 ratio driven by earnings ended the year at 16%, 90 basis points higher above last year, which allows us to increase the percentage of the 2025 earnings, which -- that will be allocated to dividends from the initial 60% to 70%. This is a significant increase that will improve the dividend up to EUR 443 million, 29% higher than the previous year. And this is the highest dividend paid in Unicaja's history. On the following page, we show you how the year ended compared to the initial guidance we shared with you a year ago, we believe it summarizes the year's performance very well. We expected net interest income to be above EUR 1.4 billion, and it finally reached EUR 1,495 million, which is 7% above our initial guidance due to the implementation of loyalty plans with linked customers, we expected fees to remain flat, but they ultimately increased by 3%, driven by growth in investment, in mutual funds and insurance, two of the commercial pillars of our plan. Costs remain in line with expectations, rising 5% due to investments, hiring and the projects we are implementing to execute the strategic plan. The cost of risk was below our initial forecast as our provisions. Business volume also grew as expected. As a result of all the above, net income increased by 10% to EUR 632 million, no less than 26% higher than the initial target, which was EUR 500 million, which, as you know, we already exceeded in the previous quarter leaving the ROTE adjusted for excess capital at 12%, which is 200 basis points higher than the 10 initial -- 10% initially expected. As you can see, these pages summarizes very well the positive performance of the entity in the first year of the strategic plan, which we -- where we met all the guidelines we provided a year ago. And in some cases, we significantly improve on them. On the next page, as I mentioned earlier, we show how the positive evolution of the entity's financial position and results allow us to present a very important milestone. The Board of Directors has decided to update the dividend policy and increase the percentage of profits we want to distribute in the way of dividends going from 60% to 70%. This is a significant increase in the distribution of earnings to our shareholders, which together with the best earnings will mean the payment of dividends for 2025 of more than EUR 0.17 per share, well above the EUR 0.134 paid for 2024 and compared to around EUR 0.05 that we paid in 2022 or 2023. The total dividend will amount to EUR 443 million, 29% higher than the previous year. This is a significant increase, which as I said before, has been made possible by the positive performance of the results and the bank's comfortable solvency position. Now if we turn to Page 6, you will see some of the progress made on the strategic plan in the first year. Although we are in early days, we have gone -- begun to notice a significant change in the dynamics, thanks to the entire team's focus on the plan's initiatives. And we wanted to share some ones with -- that we are particularly excited about with you. In consumer lending, we aim to double arrangements by 2027. This year, we have already increased by 40%, maintaining our focus on working with existing customers and direct deposit income. With regard to new insurance premiums, we wanted to increase by 25% in 2027. In this first year, we have already increased by 17% and we continue to see room for improvement to achieve our goals. Another noteworthy aspect is the off-balance sheet weight on total customer resources, where we have increased to 27% in the year with a final target of 30%. We have launched products such as Unicaja Store and reached very important agreements with the management company that will help us to continue increasing and diversifying our income. In the corporate sector, we are very pleased with the improved performance of the business in the first year of the plan. We have turn around a business that was in decline in the book after falling 9% in 2024, has grown by almost 4% in 2025. To achieve this, we have attracted 70% more new customers with lending increased our own customer financing share by 5 percent points and increased the weight of the current assets from 11% to 14%. All of this driven by our focus on improving customer satisfaction with an NPS indicator, improving by 10 points in the corporate business since we launched the plan. Across the board, as you will see later, we are working hard to improve our commercial and operational tools using artificial intelligence. We are rolling out tools across the entire organization and loading use cases in different areas, such as sales, customer service, operations, et cetera with efficiency improvements in many cases, exceeding 50%. Finally, a very important part of our plan is to hire specialized and significant profiles for the bank in order to achieve our targets. In this first year, we have already achieved 65% of the talent acquisition that we have planned. In short, it has been an intense first year of the plan, where we're gradually beginning to reap the rewards of this implementation. As a result of these advances, on Page 8, we update our earnings expectations for the 3 years of the strategic plan a year ago, along with the annual earnings for 2024. We presented the main details of the plan in which we showed our intention to exceed EUR 500 million in net profit in each of the 3 financial years and an accumulated net profit of more than EUR 1.6 billion, which was 40% more than the [ EUR 1.17 billion ] achieved in the previous 3 financial years from 2022 to 2024. Today, following the positive performance in the first years of the plan's implementation, we're increasing this accumulated net profit earnings expectations by EUR 1 billion taken to EUR 1.9 billion, which is 70% higher than the accumulated net profit achieved during the previous 3 years. The interest margin, which we initially expected to exceed EUR 1.4 billion each year, is now expected to exceed EUR 1.5 billion. And net income, which I mentioned earlier, we initially expected to exceed EUR 500 million each year, is now expected to exceed the net income for 2025. This is EUR 632 million achieved last year. All of this will be accompanied by a cost-to-income levels that will remain below 50%. On Page 8, we provide an update on shareholder remuneration target of the plan. As you will recall, the objective is to allocate more than 85% of the earnings for the 3 financial years to shareholder remuneration. Initially, the idea was to allocate 60% through the ordinary dividend and the remaining 25% through what we call additional remuneration which could be in cash dividends or share buybacks with the intention of concentrating this additional remuneration in fiscal year 2026 and 2027. Following the updates of the dividend policy from 2025 onwards, we are increasing the structural remuneration from 60% to 70%. This reduces the percentage of additional remuneration for the period to 15% of accumulated earnings. As can be seen on the right in order to achieve the aforementioned objective, the additional remuneration will represent around 25% of the earnings for fiscal years 2026 and 2027. In other words, for the 3 years of the strategic plan, we will pay 70% of the net profit in dividends, and for 2026 and 2027, in addition to that 70%, will include an additional remuneration of 25% of the profit for those 2 years, which will be either paid in cash dividends or through share buybacks, something we will decide based on circumstances. Therefore, for 2026 financial year, if we pay part or all of the additional remuneration in dividends, we will make an additional payment in December, to which we will have to add the 2 usual dividends for 70% of the result, the first in September and the second in April of the following year once approved in the General Shareholders Meeting. As you can see, this would be the plan over the 3 years as a whole. Shareholder remuneration represents more than 85% of the accumulated net profit. Finally, and given its importance, I would like to take a moment to mention some areas in which we are making progress in the field of AI, which we show on Page 9. We are convinced that this technology will change the way we do business and banking, not in the future, but right now, that's why we consider it's an absolute priority. We are making progress in the use cases across all areas, including commercial operations, IT development with very encouraging results that drive commercial activity, improve efficiency and reduce the time required for many tasks. This is facilitated by a hybrid of modular architecture. This is adapted to both cloud on-premise environments with independent components that accelerate system and construction are ready to work with different types of models. We believe that innovation is essential to get the most of it, which is -- that's why we have created an AI hub with more than 50 multidisciplinary professionals. And we've launched joint chair with University of Granada to promote research and attract talent. In short, we are promoting the adoption of artificial intelligence throughout the organization, which is leading us to achieve efficiency improvements of over 50% in some areas. In short, as you have -- you will have seen in the 2025 financial year has been very positive. Progress in the implementation of the strategic plan has led to an improvement in commercial dynamics which, in turn, has boosted results by 26% above initial forecast, which together with our comfortable solvency position allows us, on the one hand, to increase the percentage of earnings that we'll allocate to dividends from initially 60% to 70% increasing the dividend by 29%, to EUR 443 million, the highest in our history. And on the other hand, it allows us to improve our future earnings expectations. So with that, I'll hand over to Pablo, who as usual, who will give you more details on the financial performance for 2025. Pablo, whenever you're ready. Pablo Gonzalez Martin: [Interpreted] Thank you, Isidro. Let us now continue with the business activity on Slide 10. As you can see, total customer funds rose by 3.5% in 2025. Private sector deposits increased by EUR 662 million or 1% with a continued shift in the product mix from term to demand deposits that rose to EUR 55 billion, up 3% year-on-year, which explains the lower cost of deposits that we shall discuss later. Our balance sheet performance remains very positive, posting an annual growth of 13.8% driven by mutual funds, which after reaching the market share of 9% of net subscriptions grew by 22.6%. That is in the north of EUR 3 billion. On the following slide, we disclosed the details of assets under management and insurance. On the left-hand side, you can see that assets under management rose by 14% over the last year. Funds in turn climbed by 23%. Note worthy is the significant increase in net fund subscriptions, as shown at the bottom, these subscriptions rose from 1 point EUR 1,767 million to just over EUR 2.8 billion, accounting for a 9% market share of net subscriptions according to Inverco. On the revenue side, as you can see on the right-hand side, these 2 lines of business rose by 9% in 2025, accounting for 18% of total revenue for the year. With regard to lending, during the 2025 financial year, total performing loan book rose by 1.9%, which is a very positive trend compared with the declines reported in recent years, as Isidro mentioned earlier. Broken down by business segment, corporates posted a very positive uptick and after rising 1.7% in the quarter, they reported annual increase of 3.7%. This is one of the most positive business aspects of the year. In fact, thanks to the implementation of certain measures under our strategic plan, we have reversed the negative trend that this segment has been experiencing in recent years. In the case of individuals, growth for the year was 0.6%. Because albeit, we barely reduced the mortgage book by 0.2%. We were able to offset this with a strong increase of more than 8% in consumer lending. Again, driven by the measures set out in the strategic plan, which aims to diversify revenue streams. In short, this trend points to progressive improvement over recent quarters which can be explained by greater diversification and better sales dynamics, together with a major increase in new production as shown on the following slide. All new lending book segments grew markedly by 40% over the year as a whole from just over EUR 7 billion to almost EUR 10 billion in 2025. Growth in corporate banking is particularly noteworthy with formalized balances rising by 46% over EUR 6 billion. Mortgages rose by 30% to over EUR 3 billion. This amount leaving the book flat for the year given the pace of repayments. It should be noted that this more conservative growth in the mortgage book is mainly due to the high level of competition in this segment, where prices are very tight. Finally, although in related times, their balances are less representative, I would like to highlight the increase in new consumer lending production, which rose by 40% to EUR 822 million. In short, this positive growth is in line with the business priorities set out in our plan. On the following slide, you can see how we continue to make progress on our strategic plans, sustainability commitments. This effort is being recognized by ESG rating agencies with 6 improvements having been granted in the latest reviews. Regarding environmental matters, noteworthy is an increase in the weight of Article 8 and 9 funds, which now account for 72%. We maintain and reinforce our strategy of financing ourselves through green bonds with high eligible collateral, while also advancing in the decarbonization of the portfolio, now targeted at 6 sectors representing 81% of our lending to the private sector already. We also like to highlight, Unicaja's social commitment, one of our identity hallmarks, which can be summarized in aspects such as customer proximity, commitment to financial education and support for vulnerable groups. A portion of proceeds is returned to society through more than EUR 175 million distributed in dividends to foundations in addition to EUR 371 million in taxes paid in 2025. We're also committed to our customers by accompanying them in their own transition to this. And we are promoting new functionalities and agreements with third parties as reflected in the growth of the sustainable business where both the portfolio and new production are growing significantly. Finally, we would like to highlight our commitment to our employees with a focus on creating an environment that prioritizes people, good governance, equality and professional development. We shall now continue with a review of the income statement in the next section. Starting with the quarter, net interest income grew by 0.8% and as the effect of loan repricing was offset by lower funding costs, both in retail and wholesale. Fee income improved by 4.1% over the quarter, bringing us to gross income of 1.3% higher than last quarter. Costs are rising due to the seasonality of the quarter. Overall, the quarterly margin before provisions rose by nearly 1%. Provisions as a whole rose sharply over the period, mainly because we have included a provision for restructuring costs in the amount of EUR 27 million. Our aim is to implement a new workforce renewable plan similar to the one we announced last year. For the year as a whole, profit rose 2.6%, reaching EUR 2.095 billion. Total operating costs increased 5.4%, in line with the previous year and the guidance. Overhead costs rose as a result of ongoing investments, while personnel expenses increased by 4.2% in excess of the percentage agreed in the collective agreement due to new hires and variable remuneration. The operating margin improved by 0.5%. Provisions fell by 25% during the year, mainly due to lower provisions for legal risks. All of the above, led to a pretax profit of EUR 902 million, which after taxes and minority interests, including EUR 26 million in sector-specific tax amounted to EUR 632 million, up 10.3% compared to the 2024 financial year. Let us now take a closer look at the income statement. Starting with net interest income on Slide 18, we show the evolution of customer net interest income. As you can see, it fell by 4 basis points over the quarter as the decline in credit yields was partially offset by lower deposit costs. This is the same trend as reported in previous quarters, but increasingly moderated as the downward trend in lending is becoming more limited, albeit we expect it to continue somewhat due to the annual evolution of the 12-month Euribor, which is still slightly below what it was a year ago. We also increasingly see less room for declining the cost of deposits, which continues to improve due to the mix effect rather than the price effect. In any case, as we always say for an institution such as Unicaja with far more deposits than loans, business performance is better reflected by the net interest margin on profitable assets. And this remains stable during the quarter, as you can see. The following slide shows details of the margins performance during the quarter, which improved by EUR 3 million or 0.8%. The lower return on loans mentioned above is offset by the lower cost of deposits and wholesale funding as well as by the higher generation of liquidity. This quarterly performance is similar to that reported in other quarters this year. But as mentioned above, it is becoming increasingly moderate. Moving on to fees. We can see that they continue to perform well in the quarter, growing by 4.1%, mainly due to higher income from value-added services such as mutual funds and insurance. Over the year as a whole fees rose by 2.8%. As we have mentioned in the past, fees for collections and payments, known as banking fees fell by 7% as a result of the implementation of customer loyalty programs. Although some of these fees, such as car fees are already showing positive growth in 2025. At any rate, this impact was more than offset by the positive performance of nonbanking fees. These fees, which had greater added value rose by 12% in 2025 driven by mutual funds and insurance, which as shown on the right-hand side, now account for 49% of the total, up from 45% in 2024 and 41% in 2023. Let us move on to the P&L account to show the rest of the income captions, which also show a positive trend in the financial year due to the changes introduced in the sector-specific tax, but also due to the fall in nonperforming assets and the growing contribution of investee companies. On the cost side, as mentioned above, personnel expenses increased during the year due to wage rises agreed with employee representatives, new hires and also as a result of higher variable remuneration in view of the institution's positive performance. As for overheads, the figures are accounted for by the necessary investments we are making largely for the implementation of the strategic plan. In any case, and despite this increase in costs over the year, efficiency remains at 45.5%, below the 50% target we have set in the plan. On the following page, we continue with provisions, which show another positive aspect of the financial year as they continue to improve. Total provisions fell from EUR 319 million to EUR 239 million. That is a decrease of 25%. The quarterly cost of risk was 27 basis points and the annual cost of risk was 26 basis points lower than initially expected. Other provisions include restructuring costs for workforce renewal in both 2024 and 2025, amounting to EUR 38 million in 2024 and EUR 27 million in 2025. Excluding this effect, they are in line with expectations, showing a downward trend. On the following slide, we show a summary from a profitability standpoint. On the left-hand side, you can see different profitability metrics, all of which demonstrate the positive evolution of Unicaja's results. The reported return on tangible equity without any adjustments increased to 10%. If adjusted for excess capital above a CET1 of 12.5%, which is a level similar to that of other listed Spanish institutions, shows an improvement of 12%. At the bottom, we show the same metric calculated on regulatory capital, which shows an improvement of 70% in 2025. On the right-hand side, you can also see the evolution of the tangible book value, which when adjusted for dividends, increased by 9% during the financial year. We now turn to credit quality. Another positive of recent quarters. The balance of nonperforming loans continued to decline. The quarterly decline was 4.3% and the annual decline was 20%, bringing the nonperforming loan ratio to a new low of 2.1%. At the same time, coverage of nonperforming loans continued to rise from 68% a year ago to 77% at present. If we now consider total nonperforming assets, or NPAs, we see that in net terms, they account for 0.8% due -- both to the significant 25% drop in their balances during the year and to the increase in coverage, which rose from 71% in 2024 to 77% at the end of 2025. Finally, I would like to review the bank's solvency and liquidity position with you. On Slide 28, we show both the quarterly and annual trends. In the quarter, the ratio fell to 16% due to 2 different factors. On the one hand, we have the impact of the dividend adjustment, which is slightly higher than the quarterly result. Since until September, we accrued a dividend of 60% of the result, which now becomes 70% for the financial year. Secondly, we have the impact of the growth in risk-weighted assets, which is mainly explained by operational risk and credit growth. Even so the CET1 ratio closed the financial year 2025 at 16%. Over the year as a whole, we generated 90 basis points of CET1. On the positive side, we have the generation of earnings, which net of dividends and AT1 coupons amounted to 55 basis points despite allocating 70% of earnings to dividends. In turn, we have another 77 basis points mainly from lower deductions and market valuation, including the impact of EDP, which amounts to 21 basis points for the year. On the negative side, we have the growth in risk-weighted assets, which, as we mentioned, are rising due to the impact of the update of operational risk and credit growth. On the following slide, we show the institution's position in relation to different requirements. The minimum required eligible liabilities or MREL ratio stands at 27%, growing slightly over the year with a greater weighting of subordinated instruments. On the right, you can see the buffers we have in relation to the main requirements, which, as you can see, remain quite comfortable. And at the bottom, we show the liquidity ratios, which continue to be among the highest in Europe with the LCR standing out and in 2025, about 300%. And finally, we show you the details of the debt portfolio, as you all know, in our case, this is relatively important because the low loan-to-deposit ratio translates into a high retail liquidity position, which we invest in this structural portfolio, mainly in the amortized cost portfolio. As you can see, the portfolio has hardly changed during the quarter with the balance duration and rate remaining fairly stable. That's all from me, Isidro, whenever you're ready, I give you the floor. Isidro Gil: [Interpreted] Thank you, Pablo. Continue on Page 32 with some information about what we expect to see in 2026, which you can imagine it will be fairly consistent with progressive improvements that we hope to see it materialize as a result of the implementation of the strategic plan. Starting off with the net interest income, we expect some growth and therefore, to end this financial year about the level reaching 2025, fees should continue to grow at a low single-digit rate, driven by value-added fees, mainly from funds and insurance costs. And we hope that the fees from the banking will contribute -- costs will continue to grow at around 5%, reflecting the investments we want to make to continue successfully executing our strategic plan. We expect the cost of risk to remain below 30 basis points. The business volume will be maintained its current pace with growth of around 3%. And finally, as a result of the above, we believe that the net income will continue to grow in 2026, exceeding the result achieved in 2025. And to conclude, allow me to share a few quick conclusions with you before opening the floor to questions. Today, we have presented excellent results for 2025, reaching a new historic high in both earnings and dividends. But as I also told you last year, we are not satisfied. We want to continue improving something we hope to do by executing our strategic plan, a plan that in its first year is already showing some of the returns we expect. From a business perspective, the 2025 financial year is a turning point as evidenced by the 2% growth in total loans with some strategic segments rising significantly, such as consumer and corporate loans. This change in trend has been supported by an incredible acceleration in the market of balance sheet resources, which grew by 40% driven by 23% growth in mutual funds, another of the strategic and priority products in our plan. All of this has led to a 3% improvement in turnover above the previous year's level. As we have mentioned, this turning point is driving results, which are up 10% to EUR 632 million, 26% above the initial guidance, representing an excellent 17% return on regulatory capital, improving by more than 100 basis points over the year. This positive performance together with our comfortable solvency position has enabled us to increase the percentage of profits allocated to dividend payments from 60% to 70% resulting in dividend for 2025 of EUR 442 million, 29% higher than the previous year. Finally, as we highlighted earlier, this excellent performance means we can improve our earnings expectations for the period 2025, 2027 by 19% from the previous EUR 1.6 billion to more than EUR 1.9 billion, of which 85% will be used to pay out our shareholders, while maintaining a comfortable financial position as we expect to meet these expectations with a CET1 ratio of over 14%. In short, 2025 is once again an excellent year that allows us to lay the foundations for further improvements in the future. Finally, I would like to thank all Unicaja employees for their unquestionable effort and performance in executing the strategic plan. Without their commitment and support as well as the shareholders and directors, these results would not have been possible. This concludes our presentation. And if you agree, we will now move on to the Q&A session. Jaime Marcos: [Interpreted] Thank you very much, Isidro. Thank you very much, Pablo. Let's move on to the Q&A session. Let's start with the telephone line in Spanish. Please introduce yourselves. And please limit it to 2 questions so that we can answer the highest number of investors possible. So operator, thank you. Operator: Ladies and gentlemen, we will start the Q&A session. [Operator Instructions] The first question is from Maks Mishyn from JB Capital. Go ahead. Maksym Mishyn: Two questions. One, it's about the restructuring costs. If you can give further detail on what these costs include. And secondly, if you expect have them in 2026. And the second question is on the guidance, on volumes. Can you give more detail on what you expect in terms of loans and deposits outside balance? That would be very useful. Isidro Gil: [Interpreted] Maks, thank you for your questions. With regards to the first question and referred to the provisions for restructuring, you know that last year, we did this exercise, these voluntary retirement plans or early retirement plans. We're not looking at saving costs, but improving capacities regarding the environments where we are. Right now, the idea is to run it this year, and we don't expect it to happen the following year in 2027. With regards to guidance and volumes apart from the 3% growth in line with what we've done in 2025, we do see a more balanced mix between the asset growth and the resources customer growth around 3% in both segments. Jaime Marcos: [Interpreted] Thank you, Isidro. Operator, please, the next question. Operator: The next question is from Francisco Riquel from Alantra. Francisco Riquel: I would like to ask from NII guidance. Could you talk about the rate scenarios that you have included in the guidance because 1,500 is very flat, and the volumes are growing and interest rates is what it is. And I think it's a very conservative -- if it's conservative, I don't know whether you can talk about the sensitivity in NII in terms of interest rates for year 1 and year 2 and what you have included in the plan vis-a-vis margins. And my second question is about the use -- how you're going to use excess capital. A year ago, you asked for flexibility to consider M&A opportunities in the first part of the year. We haven't seen anything in 2025. And my question is whether you can give us an update on your ambitions for M&A for the next -- for the rest of the plan and how are you going to use the capital excess? Isidro Gil: [Interpreted] Paco, I'm going to answer the first question with regards to the guidance as to whether it's prudent and what hypothesis we have used. With regards to the hypothesis, we've used the curve that we had at the end of November, which will had a Euribor of 2.35% at 12 months is to -- we're around 2.22% at 12 months, and the expectation is to go -- see a rise by the end of the year. The balance sensitivity and the ANI to interest rates at 12 months is quite low. And the volume growth impact is also low. It will be seen more in 2027 than in 2026. In 2023, we started to reduce the balance sensitivity and we have increased this for 2026. But I think that for 2027, the higher interest rates -- potential high interest rates will have a positive impact. And with regards to the volumes at around 3%, the deposit cost is very similar to this year's -- the deal of the credit investment is going down in the first quarter and will be flat in the second, and will start to go up in the third with the new production and with the repricing, which will have no negative impact which will make the margin behavior to follow that line. The first quarter will be a bit lower because you have the days effect and it will catch-up up until we see it above. How much above? Well, it depends on the deposit cost evolution and on the volumes evolution, if we are able to grow more in deposits. As we've seen this year in site deposits, this will improve a bit more, and it will depend on those variables. But it will be as from 2027, where you will see a more significant increase of margin. Pablo Gonzalez Martin: [Interpreted] Good morning, Paco. As for the excess in the use of capital, I believe that today, we have explained to you how we are going to carry out that payment in excess of 85%. We also said that we are going to analyze new opportunities and if capital is required, well, we will have to analyze its efficiency in 2025. Such opportunities did not arise. We didn't see any clear opportunity of an investment with a good return for our investors. But should that happen, well, we might consider using capital more efficiently. And that's all I can say in this respect. Jaime Marcos: [Interpreted] Thank you very much, Pablo, and Isidro. Operator, please next question. Operator: The next question is by Ignacio Ulargui from BNP Paribas. Please go ahead with the question. Ignacio Ulargui: I have 2 questions for you. The first question is concerned with the growth of deposits. How do you envisage this in 2026? You have shown an increase of 3% as for lending and customer funds, you have also reported some growth. Now how do you think deposits are going to behave in 2026 and in line with the excess of capital question, taking into account the increase of payouts, what capital generation do you envisage going forward and how much of that capital will come from DTAs? Isidro Gil: [Interpreted] Thank you for your question. As for the growth in deposits, the first question was already answered. We said that growth is expected to be at around 3%, taking into account the mix between assets and liabilities reaching was striking a balance. In 2025, we draw a distinction between balance sheet items and off balance sheet items. 2025 was an exceptional financial year. And even though we believe that this will continue to grow off the balance sheet. We believe that the mix is going to be more balanced, and we will continue to post growth. And we will continue to do so on the balance sheet. As for capital generation, concerning this question, next year, we are going to distribute 95% of the results. Therefore, the capital growth lever, as I said before, is going to contribute less than this year, where it stood at 70%, but DTA capacity will also be available whereby capital might be expected to grow over the years. So we expect capital to grow. No doubt that capital growth is going to be lower compared to 2025 due to the fact that the results generation will be paid out to our shareholders, almost as a total. Jaime Marcos: [Interpreted] Thank you very much Isidro. Next question please. Operator: The next question is by Carlos Peixoto from CaixaBank BPI. Carlos Peixoto: I have a question as to your forecast concerning fees and the growth of fees. Do you think that it's going to continue growing at rate of 3%, in line with the growth of volumes. I'm asking this in order to understand how these products are expected to before? And do you think that there is any room, what ever for fees to grow further in the next financial year? Pablo Gonzalez Martin: [Interpreted] Carlos, we couldn't really understand your question 100%, especially the last part. We believe that the fee guidance is quite conservative, taking into account the performance of funds that pushed fees up in 2025. Well, as for our expectations concerning fees, this is based on our aim to continue growing both on the balance sheet and off the balance sheet customer funds, as Isidro pointed out before, we believe that mutual funds will continue to grow steadily due to customer demand, but we believe that deposits on the balance sheet will also continue to grow even more than in the current financial year. You should take into account that there's plenty of competition on the liability side, and that's why we have these customer loyalty programs in place. Concerning payments, we already see some positive signs such as growing fees and significant card activity. We continue to grow. We continue to enhance transactionality with customers, and that is going to be offset by the different customer engagement or loyalty plans that we are going to continue to deploy to target more customers. So hence, we believe that we should expect this increase in fees. But in the case of mutual funds, we believe that, that growth is going to be even greater. Jaime Marcos: Thank you very much, Pablo. I believe that there are no further questions. So operator, we can now hand over to questions in English. Operator: [indiscernible] Cecilia from Barclays. Cecilia Romero Reyes: The first one is on the buyback specifically, what would be the likely timing from here and what milestones need to be met before you can execute the next program? Is there a regulatory or any other approvals needed at this point? And then the second one is on competition for both mortgage and deposit. On mortgages, how are you seeing the competitive intensity at the moment, at current pricing levels, what kind of economics are you targeting on new mortgage production? And how important is cross selling to make those returns work? Are you being pushed to accept lower margins to defend volumes? And on deposits, are you seeing any renewed pressure on deposit costs from competitors keeping attractive offers in the market for longer, to what extent are neo banks and only platforms influencing the competitive behavior on deposits? Isidro Gil: [Interpreted] Good morning, Cecilia. I think that in -- with regards to buyback, the buyback from what we've said that the additional remuneration is dependent upon the fact that whether we're going to do it on a cash dividend payout or on a buyback, but what's true is that the decision will be made at the end of December, whether it's cash dividend or within program of payback. We haven't made a decision. But in any case, we're not talking about significant volumes if we get to do it. And it will depend on the -- whether it makes sense to do it on cash or whether to do a buyback program. But in any case, we would be talking about material amounts for those buyback programs. The second question is related to competition in mortgages. The credit growth in -- the lending growth after having seen negative rates in segments like public administration, is the only segment where we haven't grown, and we've been flat. We've been flat in the mortgage segment, which is the most representative segment. And that's why we've been applying a policy based on 2 things: one, on having a good risk profile. And that's been a standard tradition and how we've granted credits and not going above a certain level of price. And so that's -- we've kept that flat over the year. The market that has so much pressure for lack of housing, it's having a big impact on competition, on prices. Our expectation is for this to improve -- key solution to improve the housing situation is somewhat complex because the housing is not covering the social demand for new housing. So we will continue with a similar strategy. We will still have the adequate risk profile. And we will continue to generate -- continue along the lines that we've been doing. The idea is to keep the market rationale with regards to -- reasonable with regards to price. And we will be more positive in prices or we will find a balance between the credit given or the ability to link the customer. I think that in that segment, we could be able to compete with price. But if we find -- if we find ourselves in a no way back, we could end up in a scenario that we went through in 2025. Unknown Executive: Cecilia was asking on the competition on deposits and one of the offers from other institutions. Isidro Gil: [Interpreted] The competition in deposits and how we see the evolution in the deposit cost. As you know, the Spanish market is very competitive with regards to national banks. We've had various specialized banks in attracting liabilities. I think that will be the case even getting higher. And with regards to the strategy and the evolution of fees, we will continue with the loyalty programs. We have developed banks for our customers. We have very competitive digital solutions which are far better than our competitors. In terms of neo banks we have attractive solutions for our customers. And we consider that we keep that level or even going -- will go up in deposits despite the existing competition that we expect. Operator: Next question is from Sofie Peterzens from Goldman Sachs. Sofie Caroline Peterzens: This is Sofie from Goldman Sachs. So my first question would be on capital. Do you expect any regulatory headwinds in 2026 or '27 and what are your thoughts on using SRTs? And then the second question, just going back to mortgage lending, one of your peers is guiding for 6% mortgage loan growth or lending growth in '24 to '27. Why do you only see 3% volume growth? How should we think about the upside risk for volumes to perform better than expected? Pablo Gonzalez Martin: [Interpreted] Thank you, Sofie. With regards to any regulatory impact for this year, we don't have other jurisdictions like the U.S., where they're talking about deregulation and talking about a reduction of the regulation. We don't think that we're not going to have any negative impact in the following years. I think that the period of increase of capital requirements has gone to a reasonable level and the solvency and the quality of financial institutions in Europe is strong enough to withstand the stress test -- stress scenarios that are analyzed, and we don't consider there's going to be any negative impact in that regard. And with regards to competition and the growth expectations in the mortgage world, as Isidro has said, we will continue along our lines in the way that we will conduct the most reasonable analysis possible. We will look for customers with high credit quality with linking ability, and will be adjusted in price so that the performance of the customer. I don't think that the market will grow by 6%. That's why we don't have such a higher growth in the credit. We think that the credit growth, despite that we come from significant deleverage starts to grow, it's still continuing and the nominal growth of the [ bps ] of the GDP. And we -- as Isidro said, we need more production, more new housing, which won't happen in 2026 because it should have happened in the previous years and this evolution will happen in a later stage if it happens. And we don't think that there's going to be mortgage growth -- mortgage sector growth of 6%, but for us, mortgages are fundamental products to link the product to provide global services to our customers, and we will put our stakes on it. And he was mentioning SRTs, that given the solvency position that we have is not something that we have on the desk in the short term in terms of the SRTs. We look at the different options to improve our capital position. And we also look at the SRT. But in the short term, we don't expect the conduct of any, given the capital position that we hold right now. Operator: The next question is by Borja Ramirez from Citi. Borja Ramirez Segura: This is Borja from Citi. I have 2. Firstly, I would like to ask on the deposit growth outlook. You mentioned about the digital channel. I would like to ask what portion of your new customers are from the digital channel? And also what percent of your deposit inflows would come from the digital channel? And then my second question would be, if you could provide any -- an update on your M&A strategy, please. Isidro Gil: [Interpreted] Borja, well, as far as digital channels is concerned, you should know that we are a bank with a territorial footprint, a strong territorial footprint with let's say, on-site banking mainly. I don't have the exact percentages for the digital channel. However, we are starting out from a lower base. But actually, we have observed a growth in terms of deposits as well as consumer loans, most of our production comes through the digital channel. We also have plenty of competition in digital channel. However, there was significant growth in 2025, and we expect that trend to continue to grow going forward. We continue to focus on a multichannel model. All channels are interconnected, whether we talk about branch offices and the digital channels as well as the contact centers, any contact point with customers, including the web page, et cetera, everything is intertwined. So we continue to have greater weight in the our brick-and-mortar network. However, we continue to grow in the digital channel little by little. Pablo Gonzalez Martin: [Interpreted] Let me add that we continue to grow in terms of the number of customers, the higher deposits through the digital channel, there has been a growth of 5% in 2025, and we expect that growth to continue in future years, as Isidro said, this is going to be important. In the case of deposits, again, we expect growth to be reported in the digital channel. The next question is concerned with the consolidation of the financial system. Let me reiterate what we already said in prior years, especially since we have embarked upon this new change and since we have set out a new strategic plan, we are now focused on carrying out our strategic plan. Our shareholders do not want us to lose focus over the strategic plan. And therefore, we believe that we will keep this project unchanged. The achievements over the past years, ratify our strategic vision and the fact that we want this to remain as an independent project. And this is what we have been reiterating again and again over the past years. Operator: The last question is by Hugo Cruz from KW. Please go ahead with your question. Hugo Moniz Marques Da Cruz: I have 2 questions. First, on the usage of excess capital. If you don't have M&A opportunities, could you do a one-off payment above 100% payout or is the 100% a limit where how far you could go with one-off distributions? And second, on loan pricing. I think you said repricing shouldn't have a negative effect on your NII, but I was wondering if you could give a little bit more detail product by product. So how does front-book pricing compared with back-book pricing for your mortgages, SMEs, corporates, consumer, if possible? Isidro Gil: [Interpreted] Thank you for your question. As for the excess of capital related question, as we mentioned during the presentation, we are near 100% for 2026 and 2027. We undertook that commitment back in the day when we presented our strategic plan. And this, of course, means that we have to fulfill our commitment in excess of 85% of the strategic plan. Now that the payout is going to be 70% for 2025, the payout for the next 2 years with stand at around 100%, as you have mentioned. But now we are fulfilling the commitment that we undertook when present in the strategic plan. For the time being, we do not intend to carry out any other payout other than the one that we announced today during the earnings presentation, Pablo. Pablo Gonzalez Martin: [Interpreted] Now as for the pricing impact related question across segments, as for mortgages set at a fixed rate, the value is below what we expect to attain. As for SMEs and corporates, we are already rallying in terms of the front-book compared to the back-book with some differences. However, even though there has already been some repricing, the repricing impact is to be found only in the mortgage book at a variable rate with a moderate impact during the first quarter with some tail effects in the following quarter. However, we believe that the loan yield is going to -- will remain steady as of the second quarter and will remain so also in the third quarter. We still have some long-lasting loans among corporates and the public sector set at low interest rates. As they mature, the loan yield might be expected to grow even though we expect a greater impact as of 2027 when significant improvement in margins is expected to take place. Jaime Marcos: [Interpreted] Thank you very much Isidro and Pablo. Thank you very much for attending this earnings presentation. Should you need additional information, please do not hesitate to contact our Investor Relations team, and we look forward to having you again attending this presentation for the next quarter. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: As it is time to start, we will now begin the conference call for the presentation of financial results for fiscal year 2025 third quarter. Thank you very much for your participation. Today, Mr. Yamauchi, Executive Officer and General Manager of Accounting Department, will give a briefing. And later, we will have a Q&A session. We will conclude the call at around 16:50. Now Mr. Yamauchi, over to you. Toshihiro Yamauchi: Thank you very much. This is Yamauchi speaking. Thank you very much for attending the Sumitomo Chemical conference call despite your busy schedule. I'd like to thank investors and analysts for your deep understanding and support to our management. Thank you very much for that. Now let me start with a briefing of the financial results for fiscal year 2025 third quarter. Before explaining the details of our financial results, I would like to give a brief update on the status of profit and loss for the third quarter. Core operating income and net income attributable to owners of the parent for the third quarter significantly increased compared to the same period of the previous fiscal year. Core operating income was driven by Sumitomo Pharma's strong sales and partial divestiture of the Asian business recorded a gain. Core operating income of Essential & Green Materials increased significantly year-on-year with a gain on the partial sale of shares in Petro Rabigh and better trade terms. Agro & Life Solutions crop protection and chemical business had solid performance. Net income attributable to owners of the parent already exceeded in the third quarter, the forecast announced in November. However, we anticipate that the recording of losses from nonrecurring items will be concentrated in the fourth quarter. Consolidated financial results of the third quarter of FY 2025. Sales revenue was JPY 1.7063 trillion, down JPY 198.5 billion year-on-year. Core operating income expressing recurring earnings power was JPY 186.8 billion, up JPY 126.8 billion year-on-year. Nonrecurring items not included in core operating income was a loss in total of JPY 6.4 billion. In the same period of the previous year, there was the impact of recognizing our interest in Petro Rabigh's debt forgiveness gain of JPY 86 billion as a nonrecurring item, leading to a profit of JPY 85.4 billion. So compared to the previous year, this has worsened by JPY 91.8 billion. As a result, operating income was JPY 180.4 billion, up JPY 35 billion year-on-year. Finance income was a loss of JPY 36 billion, improvement of JPY 69.3 billion compared to the same period of the previous year when loss on debt waiver for Petro Rabigh was recognized. Gain or loss on foreign currency transactions included in finance income or expenses was a loss of JPY 7.7 billion, worsening JPY 22.8 billion year-on-year. Income tax expenses was a loss of JPY 300 million, increase of tax burden of JPY 900 million year-on-year. Net income or loss attributable to noncontrolling interests was a loss of JPY 56.8 billion, worsening by JPY 44.7 billion year-on-year with improvement of Sumitomo Pharma's income. As a result, net income attributable to owners of the parent for the third quarter was a profit of JPY 87.4 billion, up JPY 58.8 billion year-on-year. Exchange rate and naphtha price, which impact our performance average U.S. dollar rate during the term was JPY 148.71 to a dollar and naphtha price was JPY 65,000 per kiloliter. Yen appreciated feedstock price declined compared to the same period of the previous year. Next, sales revenue by reporting segment. Please look at Page 6. Total sales revenue was down JPY 198.5 billion year-on-year. By segment, sales revenue decreased in all segments except Sumitomo Pharma. As for year-on-year changes of sales revenue by sector, sales price decreased by JPY 49.5 billion, volume decreased by JPY 191 billion. Foreign exchange transaction variance of foreign subsidiaries sales revenue decreased by JPY 28 billion. However, the large negative difference in volume is largely due to business restructuring efforts, such as the sale of subsidiaries and business withdrawals and decrease in shipment volume at our sales subsidiary due to a periodic plant maintenance carried out by Petro Rabigh this fiscal year. Next is Page 7. Total core operating income increased by JPY 126.8 billion year-on-year. Analyzing by sector, price was plus JPY 6 billion. Cost, plus JPY 3.5 billion. Volume variance, including changes in equity in earnings of affiliates was plus JPY 117.3 billion. I will explain the details on the following pages. But significant increase in volume of variance gain was largely due to profits from business divestitures. Next is performance by segment. Please turn to Page 8. Agro & Life Solutions. Core operating income was a profit of JPY 28.1 billion, up JPY 8.6 billion year-on-year. Price variance, trade terms improved for overseas crop protection products. Volume variance, there were long -- there were strong shipments in Japan, India and other regions but income declined from exports due to stronger yen and there was a stronger yen effect of sales of subsidiaries outside Japan when converted into yen. Please turn to the next page. ICT & Mobility Solutions. Core operating income was a profit of JPY 46.5 billion, down JPY 13.2 billion year-on-year. Price variance, selling prices of display-related materials declined. Volume variance, though there was a gain on the sale of large LCD polarizing film business, shipments of display-related materials decreased. Shipments of semiconductor process materials such as resist and high priority chemicals increased due to the continued gradual recovery of the semiconductor market. There was lower income from exports due to stronger yen and the stronger yen effect on the sales of subsidiaries outside Japan when converted into yen. Next page. Advanced Medical Solutions segment. Core operating income was a gain of JPY 300 million, down JPY 900 million year-on-year. Sales and affiliated companies decreased. Please turn to the next page. For the Essential & Green Materials segment, core operating income was JPY 19.8 billion, an improvement of JPY 64.1 billion year-on-year. As for the price variance, the profit margin for synthetic resins improved alongside the decline in primary raw material naphtha prices, and the profit margin for alumina also improved. Regarding the volume and other variances, we recorded a gain on the sale of a portion of our equity in Petro Rabigh equity method investee company. In addition, refining margins improved at that company, leading to an improvement in profitability and investments accounted for using the equity method. Please go to the next page. For the Sumitomo Pharma segment, core operating income was JPY 111.2 billion, up by 86.9 billion year-on-year. As for the price difference, due to the impact of NHI drug price revisions within Japan, the selling price fell. Cost differences resulted in a decrease in SG&A due to progress and rationalization and others. Regarding the volume and other variances, in addition to the increased sales of Orgovyx, a treatment for advanced prostate cancer and Gemtesa, a treatment for overactive bladder, gains from the partial transfer of equity in the Asia business are included. This concludes the overview of by segment performance. Next page will be the explanation of the consolidated statement of financial position. Total assets at the end of December 2025 totaled JPY 3.5104 trillion, up by JPY 70.6 billion compared to the previous fiscal year-end. Growth in inventory assets due to periodic plant maintenance at the Chiba plant and increased buildup for sales in the fourth quarter and beyond along with the acquisition of tangible fixed assets for new plant construction and expansions were the primary factors driving the increase. Interest-bearing debt was JPY 1.2215 trillion, down by JPY 64.6 billion compared to the end of the previous fiscal year. As a result, the D/E ratio at the end of December 2025 improved by 0.23x from 1.2x at the end of March 2025, reaching 0.96x. Next, I will explain the cash flows. Please look at Page 14. Operating cash flows from operating activities was positive at JPY 111.6 billion. However, cash inflows decreased by JPY 29.1 billion year-on-year. Quarterly income before taxes improved. However, this was influenced by factors such as the deduction of gains from business divestitures from operating cash flow and the significant improvement in working capital last year end based on immediate term concentrated measures to improve business performance. Cash flow from investing activities was negative JPY 39.8 billion, a decrease of JPY 96.6 billion year-on-year. This period also had the sale of part of Sumitomo Pharma's Asian operations. However, the same quarter last year included significant income from the sales of Sumitomo Pharma shares and Roivant and the sale of Sumitomo Bakelite shares. As a result, free cash flow was positive JPY 71.8 billion, a deterioration of JPY 125.7 billion compared to the positive JPY 197.5 billion recorded last third quarter. Cash flow from financing activities resulted in a negative JPY 100.6 billion due to factors such as loan repayments and dividend payments. This represents a decrease of JPY 41.1 billion in outflows year-on-year. Next, I will explain the outlook for fiscal year 2025. Please go to Page 16. I will explain from the business environment surrounding our company. Regarding the economic conditions, although investments in the field of technology are firmly supporting the global economy, future prospects remain uncertain due to the expansion of protectionism and increased geopolitical risks. In the main business environment, we use weather symbols to indicate our key business areas and our assessment of their respective environments. From the top regarding crop protection chemicals, we expect price competition to continue and inventory congestion in the distribution chain remains uneven across regions. Regarding the methionine market price, although it recovered in the first half of the fiscal year, we anticipate a continued downward trend in the second half. Displays are showing steady growth in mobile-related components. Demand for silicon semiconductors has recovered more than anticipated since our previous forecast and is currently showing steady growth. However, performance continues to vary across different fields. The petrochemical and raw materials market will continue to have low margins. That concludes the business environment overview. Now let me explain the consolidated performance summary. Please turn to Page 17. This is the summary of financial forecast for fiscal year 2025. Core operating income for fiscal year 2025 is forecasted at JPY 200 billion, showing improvement over time with an expected increase of JPY 15 billion compared to the November performance forecast. As shown in the graph in blue, excluding gains on the divestment of business, profit from business activities improved significantly at Sumitomo Pharma and Essential & Green Materials due to the results of fundamental structure reforms, resulting in a significant increase in profits from approximately JPY 80 billion in the previous fiscal year to approximately JPY 120 billion in the current fiscal year. So it has largely increased. Furthermore, and as for the profits attributable to owners of the parent, it has increased by JPY 1.5 billion to JPY 55 billion. Now furthermore, in light of the upward revision due to improved profit and loss, the year-end dividend per share to shareholders will be increased by JPY 1.5 from the JPY 6 announced in the November financial forecast to JPY 7.5 per share. As a result, the annual dividend amount will increase by JPY 4.5 from the previous year's JPY 9 to JPY 13.5. The payout ratio is expected to be approximately 40%. And please go to Page 18. This is showing the details of the business performance forecast. First, sales revenue is forecasted at JPY 2.3 trillion, up by JPY 10 billion from the previous forecast. As for the core operating income, as mentioned before, it is forecasted at JPY 200 billion. Net income attributable to owners of the parent as mentioned before will be JPY 55 billion, an increase of JPY 10 billion year-on-year. The assumptions regarding exchange rates and naphtha price are as stated on this slide. As for the sales revenue, we expect an increase due to higher shipments of semiconductor processing materials within our ICT & Mobility Solutions segment. As for core operating income, I will explain the situation by segment on the next slide. Please go to Page 19. As for the full year business performance by segment, regarding Agro & Life Solutions, Advanced Medical Solutions, Essential & Green Materials and Sumitomo Pharma segments, these 4 segments, as you can see here, the previously announced guidance remains unchanged. As for ICT & Mobility, Semiconductor processing material shipments are expected to increase, leading to a slight increase in profit compared to the previously announced guidance by JPY 2 billion. For others and company-wide expenses, compared to the previous forecast, we are expecting a JPY 13 billion increase. At the time we made an announcement last time, we consider the uncertainties in the business environment, so we have incorporated risks to a certain extent. The business activities are now progressing steadily. Therefore, we are forecasting an increase in profit compared to the previously announced forecast. This concludes the explanation of financial results and forecast. I would now like to take questions from the participants. Operator: [Operator Instructions] Now we would like to receive the first question. From Morgan Stanley MUFG Securities, Mr. Watabe. Takato Watabe: I'm Watanabe from Morgan Stanley. For Agro & Life Solutions, I have a question. In the third quarter, your profits and sales was not that large, but why was the profit in the third quarter and there are differences by region. And what is the situation of inventory adjustment and the movement towards fourth quarter? And by main products, what is the trend in the fourth quarter forecast compared to last year's fourth quarter, you expect a reduction in profit. Could you talk about Agro & Life Solutions? Toshihiro Yamauchi: Thank you for your question. For Agro & Life Solutions sector, first, in the third quarter situation. Compared to last year, it is true that it is better. And by region, India and also in Japan, things were very solid. And Europe as well, the amount is not that large, but Europe was also firm. And in North America, compared to the same period of previous year, it is at a similar level. South America, it is slightly difficult. Last year, there was a drought, which is giving an impact. And credit concerns about the clients exist, so there are difficulties in increasing sales. Customers with high creditworthiness, in this case, competition is becoming strong. And by product, well, in that sense, is the main product [indiscernible], South America is a main market, but growth is a little slow. Takato Watabe: Sales and profit trend still is not increasing that much, but profit is increasing. What is the reason for that? In the same quarter of the previous year, compared to the previous quarter or previous year, the impact of foreign exchange rate is seen in each region, there will be increase in local currency, but when converted into yen, there are cases which is flat or slightly declining. I think that is the impact. What is the progress of inventory adjustment from crop protection products? What is your prospect for the next fiscal year? Toshihiro Yamauchi: For inventory, in general, it is moving to an improvement direction. United States and India, we are seeing improvements. But in South America, there is still some inventory remaining. So towards the next fiscal year, South America is the place where we have to resolve. Thank you. Operator: We would like to take the next question Mizuho Securities, Mr. Yamada. Mikiya Yamada: This is Yamada from Mizuho Securities. I was told to ask you one question. So I'd like to hear about the third quarter situation outlook regarding the ICT & Mobility Solutions. In the same way as the previous question related to Agro & Life Solutions, I would like to know the details. Specifically, 3 months in third quarter, the -- when you are doing analysis of the variances of core operating income, in 3 months, it was minus JPY 5 billion. And in the 9 months, it was minus JPY 3.7 billion. So year-on-year, it's a plus JPY 1.3 billion is what I think. For display-related products the shipment has declined. And thinking about the foreign exchange being negative, that means that the semiconductor was quite performing strongly. And so in semiconductor, was resist a good performer or in others good or is resist the contributor? And if so, the DRAM and NAND, the high prices are maintaining. So I would like to know the future trend of this. Toshihiro Yamauchi: Thank you very much for your question. The ICT & Mobility Solutions situation for the third quarter is what you have asked. Looking at the year-on-year basis -- just a moment, please. Regarding semiconductors, from last year, gradually, it is recovering. And by field, memory-related area, the DRAM utilization is increasing and NAND is recovering. However, depending on the customer, it varies. For DRAM, due to the generation change, the South Korean usage is declining. For logic usage, Taiwan and China, new plants are being -- starting their operation and increasing. So our shipment volume is on the trend of increasing. However, on the other hand, South Korea and United States is flat. Mikiya Yamada: Well, the resist specifically, is there such factors? With memory, it's going to change the generation. However, the U.S. capital part is increasing very well for resist? Toshihiro Yamauchi: For resist, this is the overall situation compared to last year, the sales is increasing. Mikiya Yamada: And this time, you have revised upward so that situation from the third quarter to the fourth quarter, it is a quarter that usually declines, but it's not going to be that way. Is that the correct understanding? Toshihiro Yamauchi: Yes. I have high expectations. Looking forward to it. Thank you. Operator: Now the next question from SMBC Nikko Securities, Mr. Miyamoto. Go Miyamoto: I'm Miyamoto from SMBC Nikko Securities. I also had a question about Agro & Life Solutions. This may be like Mr. Watabe's question. In the third quarter, there was an increase of JPY 11.5 billion year-on-year in terms of profit. And fourth quarter, you expect a decline compared to previous year. Same quarter, methionine is showing a declining trend. But there were shipments carried forward. So could you tell me what is the impact? In particular, in Q3, as Watabe-san mentioned, sales trend is showing a difference. Sales in the segment in Q3 year-on-year is a drop of about JPY 4 billion, but profit has increased. So when I see your analysis by sector, looking at the volume variance in the first half, it's minus JPY 3.9 billion. So for 3 months, volume variance is a factor of JPY 12 billion increase in profit. But on Page 23, analysis of sales differences, volume variance and for first half was minus JPY 4 billion, but now it's minus JPY 8.4 billion. So minus JPY 4.4 billion in 3 months. So the sales volume variance is quite negative but profit is positive. Could you explain a little more about it? I think the foreign exchange rate has not changed that much. Toshihiro Yamauchi: Please give me a minute. Yes. Thank you for waiting. With regards to relationship with sales, methionine volume is declining. So as sales, there's a drop. However, this is not giving a big impact on profit or losses. But for crop protection chemicals, India is doing well, in Japan also. In particular, in Japan, from Q4, sales carried forward. In other words, there's a trend of customers placing orders in advance. So Q3 has improved. That's a factor for the improvement of Q3. Go Miyamoto: I see. On Page 27, the sales that we have indicated on crop protection, it is flat. And for Q3, 8 months, it has increased about JPY 2 billion. But one variance has increased that much. Why is it so? Toshihiro Yamauchi: Page 27. I see. This is indicated in yen. But if you look at these figures in dollars, it may look different. First, United States, JPY 2.6 billion negative. But in local currency, it is nearly flat. And India, it is slightly negative. But in local currency, there is an increase. So these are some of the factors. For sales and profit, there is no particular major factors. Go Miyamoto: I understand. In the fourth quarter, you expect a decline in profit year-on-year. Could you explain that? Toshihiro Yamauchi: Because shipments were carried forward for crop protection products and methionine sales price is showing a declining trend. So that is taken into consideration. Operator: Next from Daiwa Securities, Mr. Umebayashi. Hidemitsu Umebayashi: This is Umebayashi from Daiwa Securities. I would like to ask a question regarding Essential & Green Materials. From the second quarter to the third quarter, the trend, the profit and losses improved by JPY 51 billion, and that is due to the Rabigh share sales. But other than that, if there are any factors I would like to know. First of all, as a confirmation, Rabigh, the profit you made from the equity method is at 37.5% or 15% as of the third quarter, I wanted to confirm that. And also, the third quarters in Essential & Green, the sales revenue has increased as well. So I would like to know the background of that. I think the fact is that the business performance is doing well. Did the margin improve? Or did the petrochemical product sales improve? And also the fourth quarter, I believe that there is going to be a periodic plant maintenance. So was there a buildup of inventory due to that or not is what I would like to know. Toshihiro Yamauchi: Thank you very much for your question. Regarding the third quarter's Essentials & Green Materials, as you have pointed out correctly, over here, the Petro Rabigh equity sales is included. When we made a timely disclosure in this November, it was JPY 50 billion, and the number that's close to that is incorporated in this. And other than that, there are improvements that were made for Petro Rabigh. Well, over here, up to the third quarter, it was 37.5%. Our interest was that and we have applied the equity method. And from the fourth quarter, it is going to become 15%. And regarding the refining margin improvement also occurred. So this area has improved as well. And in Singapore as well, TPC, they were due to the improvement of the profit margin, the profit and loss situations have also improved. Hidemitsu Umebayashi: So for the sales part, it was a Singapore that was doing well in terms of the sales improvement? Toshihiro Yamauchi: Just a moment, please. Well, the products from Rabigh, the sales of those, that compared to the first quarter and the second quarter, the third quarter is showing a larger growth. And from April to June, it has experienced a periodic shutdown for maintenance. And probably to the second quarter, that impact remained. But from the third quarter, it returned to the regular sales and the fourth quarter for the Rabigh manufactured products, we are looking at it the same way, and that is reflected in the changes. And the impact to the profit is minor. So these are the factors is what we think. Operator: Next, I'd like to receive Mr. Okazaki from Nomura Securities. Shigeki Okazaki: I'm Okazaki from Nomura Securities. About the dividend, I'd like to ask a question. As you have mentioned, this time, you are going to increase the dividend. The annual dividend payout ratio is now about 40%. I think you mentioned 30% before. The final profit figures may differ. So is that meaning as a background? And JPY 7.5 billion for the interim period? And next year, depending on the farmers' milestone, there will be other factors where basically you will continue or it will be rather positive. We are gradually becoming confident. Is this understanding correct about the dividend payment. Toshihiro Yamauchi: Thank you for your question. For dividends, as you mentioned, basically, our dividend policy is stable dividend. And with relation to profit, in general, about 30% is the level. At the moment, the profit for this year, we made an upward revision to JPY 55 billion. It is still in the process of recovery. So in terms of dividend payout ratio, a stable minimum dividend payment is going to be made. That is our feeling. So Instead of 30%, it is now 40%. And compared to our initial plan, profit has increased. And about -- we will consider continuing in the future and taking that into consideration, we decided to have this amount of dividend. Shigeki Okazaki: So this is a minimum level, more than 38.7%. You have not yet to determine what will be the performance next year, but depending upon situation, there may be other factors but among those JPY 7.5 at a moment is amount that you want to keep. Is my understanding correct? Toshihiro Yamauchi: Yes, you are right. Operator: Next, from Morgan Stanley MUFG Securities, Mr. Watabe. Takato Watabe: This is my second time. Regarding Essential & Green Materials, at the flash report, it says that the business transfer gain is JPY 55.8 billion and it was consistent by Rabigh and others. But if you exclude that, it is in the red. And the fourth quarter period of the maintenance shutdown, when we talk about the refining margin right now, I think the Petro Rabigh performance is improving as well, and there is a business integration moving forward. But what is the impact of that? And what are you looking at towards the overall essential and green materials? Toshihiro Yamauchi: Thank you very much. For the divestment gain and the last report, it said JPY 55.8 billion. Yes. After the third quarter cumulative figure, Petro Rabigh, other than Petro Rabigh, we have divested several companies. Nippon AL, which is already disclosed, including that in total is JPY 55.8 billion. And towards turning around into black ink, regarding Petro Rabigh, it's difficult to share with you what's going to happen in the future. But for the refining margin and probably all of you can assume what the situation is going to be. And I think you can assume in that way. And how it can turn around to profit making, we're in the midst of setting the budget for next fiscal year. So I would like to refrain from commenting. Takato Watabe: So the fourth quarter non-recorded loss concentrating, it's mainly in Essential & Green Materials. Is that correct, including essential as well. Toshihiro Yamauchi: To a certain extent, there are planned items for -- from restructuring. But there are some items that we are aware of, such as impairment, but we are looking at it to that extent. Takato Watabe: So there is -- do you think that is going to work positive in the next fiscal year, such as the decline in depreciation? Toshihiro Yamauchi: Yes, that's how we are understanding it. However, at this point, it's difficult to give you the full answer. Operator: Well, it is time to conclude. So the next question will be the last question. Yamada-san from Mizuho Securities. Mikiya Yamada: I'm Yamada from Mizuho Securities. This is a detailed point. Under others, this time, though there is an upward revision, for Q4, you expect some level of negative figures. So these are corporate expenses. So it is possible that, that will surface on Q4 and things will become more transparent. So JPY 20 billion to JPY 25 billion corporate costs could be expected from next year onwards. What is the trend of that? Could you tell me that? Toshihiro Yamauchi: Thank you. Under corporate expenses, as you know, the corporate expenses, in particular, R&D expenses are included here. And recently here, regenerative cell research is still under development. So the progress of research expenses is very difficult to make a projection. So these are also included. So we don't expect a large drop next year, but we expect to maintain a certain level in terms of these expenses. Mikiya Yamada: About more than JPY 10 billion R&D will be spent for regenerative cells. And then that is surfaced in a specific quarter like this? Toshihiro Yamauchi: Yes, that is what it is. Operator: Mr. Yamada, thank you very much. With this, I would like to conclude today's conference call. Thank you very much for your participation today. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Marilyn Tan: Good morning, everyone. Welcome to the FY '25 Results Audio Webcast for Keppel Infrastructure Trust, or KIT. I'm Marilyn from the Keppel IR and Sustainability team. Let me introduce the KIT management team. We have with us this morning, CEO, Mr. Kevin Neo; CFO, Mr. Raymond Bay and Director of Portfolio Management, Mr. [indiscernible]. They will be making a presentation that will cover KIT's FY '25 highlights and business strategy, followed by the FY '25 business and financial update. Please leave your questions for the Q&A session at the end of the presentation. For analysts who are joining us on the MS Teams platform, please check now that on mute before we start the presentation. I will now hand the time over to Kevin for the presentation. Kevin, please. Tzu Chao Neo: All right. Thanks, Marilyn. Good morning, everyone, and thank you for joining us today. 2025 marks a 10th year of KIT's trading commencement as an enlarged trust, and we are glad to report a strong KIT unitholder return of 36% in the last 10 years. This compares very well against the 61% achieved by the REIT index over the same period. With more than 18 years of infrastructure investment and management experience, KIT has built a strong track record and continues to grow through acquisitions and value creation. We have accumulated a portfolio of very attractive assets that are essential to our daily lives. We are the sole producer and retailer of piped town gas in Singapore. We supply 13% of commercial power in Singapore. We produce more than 20% of the drinking water in Singapore as well. We are the sole producer and distributor of chlorine gas for water treatment in Australia, and we maintain 31% of global subsea cable length. As at 31st December 2025, KIT's AUM stood at approximately $9.1 billion. This is anchored by essential businesses and assets in developed markets across all segments, namely energy transition, environmental services, distribution and storage and digital infrastructure. The next slide. KIT's portfolio is well positioned to capture tailwinds driven by long-term structural trends of energy transition, digitalization and rapid urbanization. Our strategy is focused on essential infrastructure that provides stable cash flows and has long-term growth potential. Our assets are located in developed markets in Asia Pacific and Europe, where there's strong legal and regulatory frameworks in place. And last but not least, we are in sectors where we have operational expertise either in Keppel or in partnering experienced local teams on the ground. Overall, 2025 was a good year for KIT unitholders. We reported DI of $249.5 million for the year, which is an increase of 24% year-on-year. We achieved total unitholder return of over 17% for the year. We continue to add value to the trust, having unlocked over $300 million in net proceeds from capital recycling and deployed $120 million to acquire GMG, marking our foray into the digital infrastructure segment. We have the financing flexibility to utilize the remaining proceeds of about $180 million and have the debt headroom for further accretive acquisitions. As at end 2025, the gearing levels and ICR for KIT remained strong at 39% and 7.6x, respectively. KIT received industry awards last year, and our appreciation goes out to the Edge Singapore and AustCham Singapore for these accolades. KIT was named the overall sector winner and recognized as a top performer in shareholder returns over the past 3 years at the Edge Singapore Billion Club Awards 2025. This achievement reflects our sustained focus on long-term value creation for our unitholders. At the AustCham Singapore, Australia Business Alliance Award 2025, KIT was recognized as a Singaporean company with a significant contribution towards advancing sustainable infrastructure that supports communities in Australia. We are declaring a DPU of $0.0197 for the second half of 2025, and this will be paid on 20th February 2026. This aggregates to the full year 2025 DPU of $0.0394 which is an implied yield of 8% based on the year-end closing unit price of $0.49 for 2025. Looking back on the track record, KIT's transformation and asset recycling strategy since 2019. The chart on the left shows illustratively the income profile for the DI from initial portfolio without acquisition versus the chart on the right that shows the actual reported DI to unitholders. The green bars above represents the income contribution to KIT's portfolio DI derived from various acquisitions and realizations made since 2019. We have been very successful in investing and replacing the recap of DI when certain concession assets were extended. We have also grown our evergreen businesses within the initial portfolio. For instance, City Energy accounts for 22% of DI in FY 2018 but contributed more than 60% of the initial portfolio DI in FY 2025. Our focus is to deliver resilient cash flows to unitholders through active portfolio management to strengthen portfolio constitutions anchored by essential businesses bearing cash flows that are very defensive against market disruptions. This is how we managed to maintain our DPU through COVID-19, which is one of the most significant market disruptions in the last 10 years. Next slide. KIT's portfolio of essential businesses and assets provide products and solutions, for which demand remains steady because of economic cycles. These are business strategies that we look to drive the next stage of value creation for KIT. First, portfolio cash flow stability remains a key priority, and we will continue with our proven capital recycling approach of invest, divest and reinvest discipline to build a resilient portfolio with strength in underlying cash flows. Second, you want to strengthen the operating cash flows for existing assets and businesses by driving value-creating initiatives and capitalizing on sector-specific growth drivers. Third, we will employ active capital management to support sustainable distributions and continued growth in unitholder returns. With these strategies in mind, we have outlined specific objectives and areas to share with our unitholders. As an active manager, we will continue to evaluate our portfolio on an ongoing basis to recycle capital from divested assets for redeployment into accretive assets or businesses with stable cash flows. The goal is to manage DPU stability and offset the expected decline in income from concession assets. The focus on new acquisition is expected to be on energy transition, digital infrastructure and environmental solutions. This is in line with the recent OCBC report where analysts expect growing adoption of AI to drive demand for fiber connectivity, data centers, power generation and grid infrastructure. Our objective is to build and own an optimal portfolio of stable assets and growth assets to achieve DPU stability and growth. Currently, we have $180 million of divestment proceeds remaining from the sale of Philippine Coastal and Ventura for immediate redeployment. In addition, KIT's net gearing of 39% is healthy. Therefore, we could make use of debt headroom to acquire. Concurrently, we are focused on driving organic and inorganic growth in revenue and achieving operational cost efficiency for existing assets in our portfolio. In tandem, we work with the respective operating teams from the evergreen businesses such as City Energy, Ixom and GMG to execute on the planned growth strategies to grow KIT's operating earnings. As part of active capital management, we have been monitoring the market for opportunities to undertake early refinancing amidst the conducive interest rate environment. We expect to complete and execute on KIT's FY 2026, refinancing needs well ahead of maturity. Raymond, our CFO, will cover this in greater details. Financial flexibility is key as we pursue various options, including utilizing recycled capital, pre-invested cash and KIT's debt headroom with prudence for accretive acquisitions. Our main goal is to achieve DI and DPU continuity into the long run, and we are working to achieve this through the successful execution of our planned accretive acquisitions and value creation initiatives. But with that, let me hand over to [indiscernible] for the FY '25 business updates. Unknown Executive: Thanks, Kevin. Hello, everyone. I'm [indiscernible] joined the team as Director of Portfolio Management since November. I'll take you through the KIT portfolio business updates in the next few slides. Going to Slide 12. FY '25 saw stable operations for our assets and businesses in the energy transition segment. City Energy achieved higher FFO of $62 million for the year, mainly through its core operations. We tracked total gas water heater sales and the increase in market share in the residential market has been meaningful with potential for future growth. Growth opportunities are also present in the commercial and industrial market in new developments and in retrofit projects for existing properties. The FFO for the transition assets was an aggregate $124 million for FY '25, which included a cash surplus from capital management of AGPC 4Q '25. For AGPC, we had higher volumes in FY '25 compared to the prior year, underpinned by stronger demand. The FFO for the wind farms portfolio came in lower year-on-year mainly due to BKR2. However, wind resources in the second half of '25 have recovered compared to the same period last year. The European onshore wind platform saw stable production levels in FY '25 at lower power prices. The FFO for the German solar portfolio was SGD 46 million for FY '25, up 18% year-on-year, underpinned by stable performance. For the Environmental Services segment, the Singapore concession assets contributed an aggregate $52 million for FY '25. We maintained stable operations and met all contractual obligations with the regulators, such as NEA and PUB in the financial year. We continue to pursue potential opportunities for concession extensions following SingSpring's extension to 2028, noting that our land lease is only due in 2033. Moving on to EMK. Pricing in the private landfill business is expected to remain largely sideways. We continue to stay disciplined on pricing and focused on optimizing the NAV of our asset. For the incineration business, starting 1st of Jan this year, the Seoul Metropolitan Area or SMA, implemented a direct landfilling ban for municipal solid waste. With this in place, we see pricing upside for private incineration facilities. Public incineration facilities are running near full utilization, and this ban is expected to drive higher demand for private incineration facilities such as EMK, which are located near the SMA. Therefore, EMK plans to grow its incineration capacity, which is also running at full utilization to capture this tailwind and increase FFO for the Distribution & Storage segment. The FFO for Ixom was $71 million for FY '25, an increase of 42% year-on-year, underpinned by strong operating earnings. The bolt-on acquisition of the Hilditch base oils import and distribution business in 4Q '25 is expected to drive continued revenue and EBITDA growth in 2026. Hilditch earns a stable margin per unit volume and is expected to benefit from near-term tailwinds from Australia's new fuel emission standards supporting demand for refined and cleaner base oils. The FFO for Ventura was $23 million for FY '25 and was higher year-on-year on a 100% basis, underpinned by higher EBITDA. For the year, it achieved 100% service reliability and on-time performance exceeding 90% and secured new charter contracts. Ventura's maintenance CapEx is mainly debt funded. And for FY '25, the maintenance CapEx of $21 million was added back to derive DI. Ventura's business model requires ongoing maintenance CapEx, and the company will debt fund this CapEx in the near term. We completed the acquisition of GMG on 25th of November 2025. Hence the income contribution to KIT of about a month of about SGD 1 million is in line with our due underwriting. Since completion, the team has successfully extended a long-term charter to 2028 and are maintaining zone contract to 2030. Similar to Ventura, GMG is a business which requires ongoing maintenance CapEx for vessel upkeep, such as dry docking and we expect to be debt funding lease in the near future. In the next 2 slides, we will outline the strategic priorities for our evergreen businesses. We continue to work closely with the respective operating teams on the ground to execute these strategies and drive future operating earnings. These essential businesses have established strong local brands and local market positions in markets with high barriers to entry. They are long-term platforms focused on delivering customer-led solutions and creating sustainable value over time. For City Energy, our focus is on driving further market share gains in residential water heaters from the current 20%, increasing commercial and industrial gas usage and raising consumer awareness of the benefits of gas water heaters to support broader adoption. For Ixom, the key priority is to strengthen our market-leading positions across the core manufactured and traded product segments supported by long-standing relationships with key customers in the water utilities, manufacturing and resources segments. Other initiatives include continued growth in the bitumen business supported by disciplined growth CapEx and unlocking revenue and cost synergies from the recently acquired Hilditch business. For Ventura, we aim to maintain our strong track record in service delivery and standards, grow market share in the charter business for both public and private runs and position ourselves in a public bus service contract renewals coming up in 2028. EMK has the potential to further strengthen its position as one of the largest private incinerators in South Korea. The key catalyst ahead is the scaling up of incineration capacity to capture demand tailwinds driven by favorable policy changes. For GMG as one of the leading independent providers of subsea fiber optic maintenance, installation and support vessels, the focus is on maintaining strong operational reliability and a track record of vessels. At the same time, we aim to grow our fleet of specialized cable installation and maintenance vessels, underpinned by strong global demand for subsea cable connectivity. Moving on to the ESG slide, we met our ESG targets for the year across the 3 pillars of our sustainability framework, environmental stewardship, responsible business and people and community. In addition, we achieved a rating of A in MSCI ESG ratings assessment in recognition of the strong management of financial and industry relevant ESG risks and opportunities. I will now hand the presentation to Raymond for the financial and capital management of KIT. Teong Ming Bay: Thank you, [indiscernible]. Hello, everyone. I'll kick off my section with this slide that demonstrates KIT's strong earnings track record in the last 5 years. Moving to the next slide. The DI for FY '25 increased over 24% year-on-year to approximately $250 million. Asset DI before corporate cost was higher at $349.1 million. This is underpinned mainly by higher contribution from City Energy, the German solar portfolio, Ixom and Ventura. This included a cash surplus for AGPC, which was substantially used for debt repayment at KIT trust level. In the Environmental Services segment, lower income from Senoko after concession renewal was partially offset by the full year contribution from MEDP in FY '25. Corporate expenses, excluding the debt repayment, were lower year-on-year, mainly due to no performance fee accrued in FY '25. We recognized a divestment gain of $49 million from the sale of interest in Philippine Coastal and Ventura. Moving to the next slide. This is the second half FY 2025 DI. The DI increased about 21% year-on-year to $130.1 million. Asset DI before corporate cost was higher at $199 million, underpinned by higher DI for City Energy, the wind farm portfolio, AGPC and the German solar portfolio. In the Environmental Services segment, lower income from Senoko after concession renewal was partially offset by the full year contribution from MEDP in the second half of FY '25. Corporate expenses, excluding the debt repayment, were higher year-on-year, mainly due to higher trustee manager base fee. We recognized a divestment gain of $27 million from the sale of interest in Ventura in the second half of FY '25. Moving to the next slide. On to the balance sheet. KIT reported net gearing of approximately 39% with interest coverage ratio at 7.6x. The consolidated debt for KIT aggregated to about $3.2 billion as at end FY '25. Pending capital deployment, about $180 million of the remaining divestment proceeds have been used to pay down existing borrowings at the trust level. The weighted average cost of debt at the group was lower year-on-year at 4.4%, the weighted average cost of debt at the trust level was also lower at 3.4%. KIT has hedged approximately 73% of the trust's foreign income and approximately 72% of the KIT's total borrowings are hedged. Moving to the next slide. We have received firm commitments to refinance Ixom's loan subject to documentation and expect to complete the early refinancing ahead of its expiry in the second half of this year. We are also evaluating refinancing options for the remaining $330 million debt at trust level maturing later in the year. To date, we have approximately $239 million of committed RCF that is undrawn. To conclude, the refinancing needs for FY '26 will be met as we look to complete the refinancing ahead of expiry. With $180 million of remaining divestment proceeds and ample debt headroom, we are well positioned to execute our planned accretive acquisitions and value creation initiatives to achieve DI and DPU continuity into the long term. Thank you. With that, I will now hand over the time back to Marilyn. Marilyn Tan: Thank you, Kevin, [indiscernible] and Raymond. We will now proceed to the Q&A session. [Operator Instructions] Okay. We have the first question from Shekhar. Shekhar Jaiswal: [indiscernible], welcome to KIT. Okay. Good, good set of numbers. Really impressed, but I have a few things to ask about 2026. How should I look at GMG's distributable income in '26? Like the 1-month contribution we should look at annualizing it? Unknown Executive: Correct. Yes. So as you correctly mentioned, GMG contributed SGD 1 million. Going forward, the DI run rate is expected to remain for FY '26. And -- but I think one thing we would like to note is that GMG is a business which requires regular maintenance CapEx from vessel dry docking, right? But most of this maintenance CapEx is expected to be debt funded. So the focus is on DI. Tzu Chao Neo: So maybe I could add to that. When we -- something like what we did with Ventura, when we bought the business, we are aware that there is certain CapEx or maintenance requirements, which could be a bit lumpy, right? So when we enter into the transaction, we kind of size the capital structure such that we could use the debt capacity to debt fund certain expenses. This is to maintain DI's ability. So that's our plan. Shekhar Jaiswal: Okay. That helps. Just continuing on the same topic. You said there's now a long-term charter extended to 2028, maintenance contract to 2030. Can I get a sense on what percentage of your revenue or EBITDA from GMG is now covered with multiyear agreements? Unknown Executive: So to give you a sense, right, we have 6 vessels to our long-term charters. We have already secured 5 of those. We are in the process of renegotiating another one. And all 4 maintenance vessels, which are under the consortium model have been recontracted. So to answer your question, it's 5 out of 6 have charter certainty. Tzu Chao Neo: So I think when we announced the acquisition during our AGM last year, I think certain contracts was coming up -- certain contracts was renewed even before we entered into the transaction. And I think there was one contract that will come soon after the AGM, and that contract was renewed. And I think this basically plays to what we have been saying, right? There is a lot of demand for such vessels given the outlook for CapEx requirements to build new cables, to maintain cables in DCs, right? So this is where I think we want to ride that macro trend. Shekhar Jaiswal: Understand, understand. Okay. I just have two more questions before I jump back in the queue. I see there's a lot of other people waiting to ask. On BKR2, can I get an update on the wind situation? How should we look at 2026. You did mention in the slides that second half is looking better than year-on-year, but on half-on-half and how should we look at the 2026 DI for it? Unknown Executive: Yes. So as a recap, thinking about the factors which drive BKR2 performance, it's number 1 is mainly related to wind, right? Because the pricing is actually locked in by a feed-in contract -- feeding tariff contract backed by the German government. So if you look at the wind speeds in second half of 2025 and compare that against second half of 2024, they are at or already above levels in the previous period. Tzu Chao Neo: So I think last year, I think there was a lot of concerns around BKR2, given the winds, yes, we have said that in the first half of 2025, wind speed was very bad due to pretty rare climate phenomenon. I think we are glad to share that as what [indiscernible] has mentioned, the wind speed for second half has recovered. And the wind speed for second half 2025 is higher than that of the second half of 2024. But we hope that this will continue. And if this continues in 2026, hopefully, the performance from BKR2 is better than that in 2025, if we have a full year of proper winds. Shekhar Jaiswal: Okay. Okay. Fair enough. So we still look at it. We see how the first quarter goes and then reassess, is it? Tzu Chao Neo: Yes. Yes. So unfortunately, wind is not something that we can control. But like I said, when we look at wind, we have to look at it from a long-term perspective. There will be years where it may be below average, there'll be years where it may be above average. But long term wise, over the midterm, it should average out. Shekhar Jaiswal: Okay. Fair enough. Just 1 more question and then I'll jump back in the queue. In terms of pipeline, anything from Keppel's ecosystem where you -- and which verticals where you think most actionable ideas would come through or needs could come through over the next 12 months? Tzu Chao Neo: Sorry, Shekhar, I missed your question. If you don't mind, could you just repeat it? Shekhar Jaiswal: Yes. I'm saying from Keppel's ecosystem, if you have to look at deal flows, which verticals where you think will be the most actionable deal flow would be in the next 12 months? Tzu Chao Neo: Yes. So I think Keppel is across the verticals that we are in at the moment. I think certain assets are being constructed, and I think some of them were probably coming online over the period of time. As and when they come due and if they are appropriate core for KIT, we will definitely put our hands up to kind of -- to express our interest in acquiring them. But this will be done on a so-called very unplanned basis. But we do expect to call it a bit of activity in the energy transition sector, not just from the Keppel's tabled assets. But I think globally, right, we do expect a lot of activities around the energy transition and digital infrastructure segment. Marilyn Tan: Okay. The next would be to Hoo Ezien. Can you identify which house you're from? Ezien Hoo: Sure. It's Ezien from OCBC's credit research team. So my question is on AGPC. I think I may have missed a bit of what management was saying. There was a cash surplus from capital management at AGPC. Was that used to pay debt at the trust level. And if so, can you please explain more what actually happened at AGPC and what was done with the capital? That's all. Teong Ming Bay: Ezien, thanks for the question. I'll take that. So yes, so what happened was there was a refinancing activity in AGPC level. When the refinancing happened, there is a need to relook into the hedge position that led to a certain IRS has been -- we unwind certain IRS, which resulted in a gain. So the gain is approximately $51 million. This is -- I would like to stress that this is a one-off, right? And what happened is we -- this $51 million has been utilized to repay debt. And this debt will basically is an RCF facility. When we pare it down, it would become a war chest for us. We will have extended financial flexibility for acquisitions. Ezien Hoo: So the RCF facility is at the trust level. Teong Ming Bay: That's right. KIT's trust level. Tzu Chao Neo: So just to be clear, right, the total DI is not impacted by this because the proceeds is used to completely pay down debt at a KIT level. So it's a flush trigger. Marilyn Tan: Next question we have from Jialin. Jialin Li: Congrats on strong results. This is Jialin from CGSI. I have 3 questions before I jump back to the queue. So the first one could you walk through the CapEx for FY '26, I think especially for EMK, Ventura and GMG where you see strategic opportunities to grow? So what's the quantum of CapEx we are talking about? Should I finish all my questions before we dive into the answers or ...? Marilyn Tan: Yes. Jialin, it would be good if you give us all 3 questions. Jialin Li: Okay. Yes. So my next question is on GMG. So if we just focus on DI management guided just now, right? So can we think of resemble distributable income as a so-called clean DI meaning without debt repayment, without CapEx? And is it how we should be looking at FY '26 DI? And my third question is looking at distribution for next year, right, what's your thoughts around distribution trajectory for next year? Unknown Executive: Yes. So maybe I'll touch on the CapEx slide, right? So I think going on the CapEx plan for EMK, as we previously alluded to, we are dedicating some CapEx towards incinerator capacity expansion this year. This is to account for the fact that our incinerators today are 100% utilized, coupled with the fact that we are seeing incremental demand from the direct landfilling ban in Seoul which is supportive of pricing. So we are actually expanding capacity in 2 of the 4 incinerators that EMK currently operates. So that's on EMK. For Ventura, we are on the constant lookout to replace and deploy maintenance and growth CapEx towards the bus fleet. Tzu Chao Neo: So maybe I can just shed a bit of light on the CapEx plans for both EMT and Ventura. I think as what [indiscernible] mentioned, I think our incinerator is at maximum utilization. We do expect waste for incineration to increase especially given the policy change in the Seoul metropolitan area. Our landfills -- sorry, our incinerators are located just outside of SMA. So we are well positioned to receive the additional waste, right? And in order to capitalize on that long-term trajectory, we need to expand our capacity, right? And we do not expect this expansion to have an impact on EMK's cash flow because they're funded by cash on the books or by debt facilities that we have sized for this purpose. And I think this will be done over phases, right? And I think what I would like to point out is that this year, the incinerator at EMK is scheduled for some refurbishment. And we are just using that period of time to undertake the expansion. So this is a very efficient way of undertaking expansion. As probably everyone knows, Keppel as a group, my sponsor, has very strong operating and technical expertise in this area. We have obtained support in helping EMK to expand. And this is something that we spoke about last year. And I think we are -- we are seeing all this execution panning out as we speak. All right. And I think there is this question about GMG, the DI for December. Yes, that's clean where you can -- almost for the full year in 2026, you can annualize that to get to a estimates of the DI forecast from GMG. So last year, there's a 1 month or slightly over month of contribution. This year, we received 12 months of contributions. So the DI from 2025 had to be adjusted for that to get a more accurate estimation for 2026. Have we answered your question? Anything that's unanswered? Jialin Li: Yes. I think maybe one follow-up question is on CapEx, whether we could share certain amount like planned for -- planned aside for CapEx just for modeling purposes. And another -- the last question was on distribution trajectory for next year. Teong Ming Bay: Jialin, if you don't mind, could you refer to Slide 34 of our presentation slide. We have disclosed our CapEx guidance and also the debt amortization over there. Tzu Chao Neo: And I think on the distribution guidance, right, I mean, we don't want to give profit guidance. But I would say, I think we are in a good position. Our -- the 2025 DI from certain assets does not reflect the full contributions. For example, you need to annualize the DI from GMG to project what we will get for the full year of 2026. And I think we have -- last year, we realized about $300 million of capital from recycling of Philippine Coastal and a stake in Ventura, we have redeployed about $120 million of debt. There's about another $180 million that we can deploy this year. In addition to that, our balance sheet is very strong at 39%. So there's additional debt headroom that we can leverage on undertaking accretive acquisitions there. Marilyn Tan: Next in the queue would be questions from Suvro. Suvro Sarkar: Kevin and team, I just -- the first question from me is on the divestment gains part of it. So I'm a bit confused by the classification of divestment gains as part of our DI. So I mean, I always thought that divestment gains or losses, whatever it means is an accounting item and not a cash item, the whole cash sale proceeds should be a cash item. So how does it fit in with the DI, which is the cash flow basically? And if you're using divestment gains to the distributions, then how come we are still saying that we have $180 million remaining from the $300 million sales proceeds for -- so there must be some cash that has been used for the distributions from this side. Teong Ming Bay: Yes. Suvro, thanks for the question. So in fact, the divestment gain is an actual gain. What we have done with the divestment gain is you could think of it as a real gain at a principal level, right? What we have done is we have taken debt meanwhile to repay the debt at trust level as a cash management basis. Tzu Chao Neo: Yes. So maybe So the way I would explain is that we sold PCSPC last year. We saw a 25% stake in Ventura, right, at a very good gains. I think the gains over there is about over 30% in a year, right? So we make profit on the sale of a 25% stake in on GMG, that's on the real cash gain, right? So we recognize that a part of that real cash gain into a DI and the vast majority of that proceeds is not recognized in our DI. We only recognized a gain in our DI. The principal is still left in our balance sheet, which we have used part of it to reinvest in GMG. So of the $300 million, $120 million is used to take like a very significant stake in GMG. And we have about $180 million left, right? And part of this $180 million, we have used to reduce the pay down debt. The reduced interest expense across KIT, right? And that basically lowers our gearing down to 39%, which is very healthy, right? So we have those divestment proceeds as well as the additional debt headroom that we can do that can utilize to make further accretive acquisitions. Hopefully, that clarifies. Suvro Sarkar: Yes. So you're talking about the debt headroom not actual. So -- because you have to pay distributions of $240 million this year if you're distributing $0.0395. And your DI is $250 million. So at least of the $50 million divestment gains have to pay out at least 40 million to -- from that to the unitholders. So how do you classify it as a increased debt headroom? Tzu Chao Neo: Okay. Sure. So maybe let me just take a step back and explain it. We have certain proceeds from the sale, right? And we did not recognize the full sale proceeds into the DI, we only recognize the gain that we make right on Ventura, et cetera, into the DI, right? So yes, we have about $250 million, $40 million is about -- or $40 million is from the sale of Ventura. So that still reflects well against the delivery performance because it's still higher DI. But more importantly is I do not -- I think we want to kind of make it clear that recurring DI that you're trying to back so for 2025 results, does not reflect the full DI generation potential of KIT. Because that operating or recurring DI only includes 1 month of contribution from GMG, right? So if you annualize that, then you'll get to a better amount. And there's also a certain growth that we are trying to achieve in our portfolio that also had to give additional DI vis-a-vis 2025. And what we would also like to say is that the deficit proceeds, right, have not been fully redeployed as some of it has been used to pay down debt. Some of it has cash on balance sheet. And these are the amount, right, that we can use to reinvest that will create additional DI -- surplus for our -- KIT's uniholders. Suvro Sarkar: Got it. One other question on the CapEx front. In terms of growth CapEx versus maintenance CapEx breakdown -- so I see the 2026 numbers on Slide 34. So we are projecting around $100 million growth CapEx in total for next year. How does that compare with the growth CapEx in 2025? Is it higher and how do we finance this growth CapEx? Teong Ming Bay: Yes. Suvro, maybe I can take this. So the growth CapEx is largely stable. I wouldn't say there's a huge increase on this. In terms of growth CapEx, I think it's largely going to be funded through internal cash of the respective business or debt facilities. Suvro Sarkar: Okay. So shouldn't affect DI to a lot extent. Teong Ming Bay: No, no. Tzu Chao Neo: So Suvro, maybe just 1 point that I'd like to just add because I think what we're trying to do is we are trying to solve for the KIT's recurring DI, if -- and I think your question is about that gain in our DI. The way I'd probably look at it is that if we did not sell a 25% stake in Ventura, our DI will also be higher than what you are projecting here. Marilyn Tan: Thanks,Suvro, for the questions. We have another question from Jialin. Jialin Li: Yes. Sorry, it's me again. Yes, I have a follow-up question on Ixom. So just wondering whether you could share details on the acquisition of one its subsidiary happened this year? And also because I saw the CapEx breakdown for next year, there is quite some amount spent on Ixom. So just wondering whether you have plans for another acquisition of -- one of its, I don't know, maybe like subsidiary under Ixom or whether this is just expanding its current project line? Unknown Executive: Yes. So thanks, Jialin, for the question. So I think sharing more details around the Hilditch acquisition. So this is a base oil importer and distributor. So these are actually like engine oils and lubes used for vehicles typically for long-distance transport. So these are like logistics vehicles. And the business is expected to benefit generally from a tightening of fuel emission standards towards higher spec type of base oils. So the acquisition is expected to contribute roughly about a single-digit percentage EBITDA to Ixom's pre-acquisition levels. Tzu Chao Neo: Maybe again, just a bit more. Ixom, as we always say, there is two key businesses in Ixom. One is the chlorine business, the other is the chemical distribution business where [indiscernible] Australia. And it owns these fleets of very specialized chemical -- hazardous chemicals distribution fleets, right? So this acquisition is done by -- it's a bolt-on for this chemical distribution business. So the thinking behind that is to use the same infrastructure to distribute that product to retain customers. So it basically increases revenue to us. I think this acquisition was done pretty late last year. So our DI for last year does not reflect the full contribution from these acquisitions. So come 2026, you should see the full year contribution over that. So we expect an uplift over there as well. And more importantly, it's because we are using the same infrastructure to distribute more products to the same customers. There's also some operational efficiency that we can realize over there. Jialin Li: Okay. could you remind me of your -- because just now you mentioned the financial implication is on the EBITDA level, right? So could you maybe remind us of the EV EBITDA before this acquisition or maybe at the acquisition of Ixom itself? Unknown Executive: So I believe we had disclosed in one of our previous slides that Ixom's EBITDA is roughly AUD 200 million. In the current slide, we also have the EBITDA levels for Ixom, if you refer to our business updates. Jialin Li: Okay. Got it. And sorry, just to clarify. So the financial implication of this new acquisition is -- should we look at it via EV EBITDA? Or should we look at a certain percentage increase in EBITDA? Unknown Executive: Yes. So as I previously mentioned, it's going to be a single -- mid-single-digit EBITDA contribution to Ixom's pre-acquisition EBITDA. Tzu Chao Neo: So let me put a little bit more. So Ixom's last year, full year ending 2025, I think it's doing over $200 million -- slightly over $200-plus million EBITDA. This acquisition is done late last year. So it's not fully reflected into the number. As what [indiscernible] has mentioned, this acquisition on a full year basis could result in a mid-single-digit increase to Ixom's EBITDA. So this is then flows down to our DI. Marilyn Tan: Do we have any other questions from the analyst community? Okay. If not, then let me just quickly raise -- first and foremost, thank you to our public audience for your questions posed. I believe most of the questions have been addressed earlier through the common questions raised by the analysts. I just have 1 or 2 other additional questions that I will pose to our management team now. The first question is on Ixom's debt. The question is whether -- is there an expected refinancing cost for the Ixom's debt that we should be considering? And whether or not it is significant? Teong Ming Bay: I can take that. So we do not foresee an increase in refinancing costs. In fact, we do see a loan margin compression for Ixom. But do take note that the current markets situation in Australia. There are talks about RBA may increase the base rate. So I think at the end of the day, it would be netted off position. So to answer your question, there will not be an increase in refinancing cost for Ixom. Marilyn Tan: Okay. Thank you, Raymond, for the response. The second question is on the query on the projected CapEx for GMG, can management please advise on the CapEx? Tzu Chao Neo: Yes. So I think when we sought unitholder's approval for these acquisitions, I think we have disclosed that there is a lot of growth potential in this business. Our vessels are fully utilized. We want to grow the business, and we want to either buy new vessels -- construct new vessels or buy existing vessels and compare them into cable laying vessels. I think I'll say we are making good projections over there. I think we have acquired a vessel that's being repurposed into cable laying vessels, which we hope once it's been completed, can be deployed and we should then add to revenue, right. The -- and when we look at these acquisitions, right, we are aware of certain -- growth CapEx that will be coming up. And our plan, right, is to actually -- and we have also sized debt facility that we plan to use the debt fund all this CapEx. And so as a result, which is a result of this funding method, the impacts to our DI -- of the growth CapEx on a DI is not going to be material. But of course, we have also set aside as disclosed certain equity commitments that we have prepared to put in to buy even more vessels, right? At this stage, we have not utilized -- or we have not planned to put in that equity yet. But as and when we are able to see on new vessels, we will inform the market accordingly. Marilyn Tan: Thanks, Kevin, for response. Let me just quickly check to see if there are any additional questions that have come through. Okay. I think we just have one more question to -- from the public. So the question here is how big is our onshore wind farm capacity? And then the second part of the question is whether we intend to buy more of assets? Tzu Chao Neo: Yes. I would say we have about 1.3 gigawatts of renewable capacity, right, of which, I would say, 450 megawatts or 470 megawatts is for the German BKR2, the offshore wind farm. Then a big chunk of the remaining actually goes to our -- comes from our solar asset, the German solar portfolio, where it is doing very well. I think it has received or registered a good increase in DI from the German solar portfolio. And our wind farm basically -- our onshore wind farm is basically distributed across Norway and Sweden. From an investment quantum perspective, it's a relatively small part of our portfolio. Do we have more plans to buy more wind farms? I think as and when we find good assets in this sector, we will do it. But if there isn't any attractive assets, I think we're happy to kind of consider other sectors as well. Marilyn Tan: Thanks, Kevin. I think with that, we have completed all the questions that have been posed to us by analysts and the public. Thank you so much, everyone, for making time to attend our call. If there are no further questions, we will now close this morning's call, and have a good day ahead. Thank you.
Cenk Gur: Dear friends, this is Kaan speaking. Thank you for joining us. I hope you are all well. Today, we will first walk you through our financial performance, underpinned by disciplined balance sheet management, strong fee momentum, resilient capital metrics and continued progress across our strategic priorities. Our earnings reflect not only the current operating environment, but also the structural strength of our business model. Building on this performance, we will share our guidance for the years ahead, shaped by a prudent assessment of the operating environment. Our focus remains on risk-adjusted returns, reflecting our commitment to sustainable profitability and prudent risk management. At the same time, we will frame these near-term priorities within our 3-year outlook, where we see clear opportunities to reinforce earnings durability, enhance efficiency and deepen customer penetration. Our direction remains centered on executing today while positioning the bank for consistent and profitable growth over the coming years. Dear friends, before moving on to our bank, I would like to briefly touch upon the operating environment. Global financial conditions and risk appetite are expected to remain favorable for emerging markets, supported by continued Fed rate cuts along with a tight spread and subdued commodity price environment. World growth remains resilient despite trade policy uncertainties driven by AI and technology investments and more supportive financial conditions. In Türkiye, domestic demand and economic activity continues to grow, albeit at a more moderate pace. Consumer inflation is on a gradual downward trend. Central Bank is expected to be attentive to inflation risk with cautious and measured rate cuts while macro prudential regulations are set to remain in place and fiscal consultation is underway. Against this backdrop, we expect the banking sector's profitability to continue in a gradually improving trend while asset quality deterioration is likely to proceed in a contained and orderly manner. Let's move on to our bank. On this slide, you can see how our core strengths have translated into tangible financial outcomes. Our strong capital position with 16.8% total capital and 13.6% Tier 1 actively enabled growth, providing the flexibility to manage the balance sheet with agility and dynamically allocated assets and liabilities across cycles. This disciplined approach is supported by prudent provisioning with further increase in our gross coverage to 3.7%. While growing, effective risk management has kept Stage 2 plus Stage 3 loans limited, below 11% of total loans, preserving earnings stability as we grow. At the same time, operational discipline is reflected in our leading 16% fee to OpEx performance. As a result, we continue to deliver strong market share gains in our priority segments, such as business banking loans, where we added 100 basis points in the second half of the year while maintaining our dominant positioning in general purpose loans with over 19% market share. Supported by our continued focus on our customer acquisition and deepening relationships, we have sustained strong momentum in fee income market share, reaching 17.8% by the end of 2025. All of this positions us to further scale a resilient earnings platform and unlock sustained long-term growth potential in the period ahead. Dear friends, Akbank has made solid progress against the 3-year targets we have shared with you on a regular basis. The achievements delivered to date are clear proof of what we are capable of executing going forward. This progress provides a strong and credible foundation for the next 3 years as we continue to build sustainable customer-driven revenue streams. Importantly, this 3-year period is not a destination, but a stepping stone, positioning us for an even stronger, more ambitious journey ahead. On this slide, we have summarized our road map. Dear friends, we are committed to further strengthen our innovation capabilities by developing differentiated offerings across the group that enhance our value proposition and support scalable AI-enabled operating models. Innovation will be accelerated by rapidly testing and scaling AI, blockchain and hyperpersonalization. We will leverage generative AI to provide proactive self-service recommendations across our channels and equip our frontline teams with tools to provide seamless services to our customers. We aim to expand integrated solutions together with our subsidiaries and broader ecosystem that will further deepen customer engagement and unlock new scalable growth opportunities in targeted areas. In parallel, we will continue to invest in future-ready talent to reinforce execution and sustain innovation momentum. Ongoing efficiency gains alongside deeper customer penetration reinforced by value chain network will remain key priorities across our franchise. Collectively, these factors will enable the consistent delivery of return on equity above inflation on a sustainable basis starting this year. Here, we outline our financial KPIs for the next 3 years, translating our strategic plan into measurable targets. The strong dynamism and motivation felt across the bank at every level continues to support execution and momentum. First, over the next 3 years in total business banking loans, we aim to increase our market share by another 300 basis points. We target to grow in cash as well as noncash loans in both Turkish lira and foreign currency. We already started to build the foundation last year by gaining 100 basis points market share in the segment during the second half of the year. Second, our ambition in consumer loans also continues. On top of last 3 years' market share gains of 440 basis points in consumer loans, we aim to gain further 100 basis points until 2028. Customer deposits will remain the primary source of funding for our growth, while demand deposits will continue to reinforce balance sheet strength. Accordingly, moving on to our third ambition, we aim to gain 200 basis points market share in Turkish lira demand deposits, building on top of the 240 basis points gained over the last 3 years. Fourth, after achieving over 100% of fee to OpEx ratio, our homework is to maintain full coverage of OpEx going forward. This will support us -- this will support us to reach our fifth ambition, which is a cost-income ratio below 35%. These targets will feed into our leadership positioning in capital while driving solid growth at the same time, delivering a return on equity above inflation starting this year. Having navigated multiple cycles, I have full confidence in our people's capabilities and execution. I would like to sincerely thank our teams for their outstanding dedication as well as our stakeholders for their continued trust and confidence. I will now pass it over to Ebru to walk you through our results and guidance. Following that, to Chair, and I will be happy to answer any questions you may have. Thank you. Ebru, over to Kamile Ebru GÜVENIR: Thank you, Kaan Bey. Moving further into the details. Our net income was up by 35% year-on-year to TRY 57.224 billion, resulting in an ROE of 21.5% and an ROA of 1.9% for the full year. During the same period, we achieved a solid revenue growth, up by 50% year-on-year to TRY 222.33 billion, thanks to robust fee income generation and NII building momentum in the second half of the year. Our quarterly net income was up by 30% to TRY 18.317 billion, leading for our quarterly ROE to show a sequential improvement to 24.9%, up from 21% in the third quarter. The quarterly ROE improvement was underpinned by our focus on deepening client relationships and strong cross-sell execution, which continued to fuel fee income while agile ALM and margin accretive growth has been reflected in our solid NII evolution. As we move ahead, our sustainable growth mindset, sound balance sheet and analytical capabilities will drive further NII enhancement and anticipated rate cut cycle, leading to an ROE above inflation starting this year. Moving on to the balance sheet. Last year, our TL loan growth reached 42%, surpassing our full year guidance of over 30% Foreign currency loan growth of 10% also came in well above our mid- to single-digit full year guidance. We strategically accelerated our loan growth in the second half, delivering strong market share gains in both foreign currency and TL business loans while supporting NII evolution. To put in numbers, we captured 80 basis point market share in foreign currency loans and 110 bps market share in TL business loans during this period among private banks. At the same time, we maintained our already solid position in consumer lending. This performance for sure, illustrates the effectiveness of our targeted growth strategy, laying a strong foundation for our 2028 targets while preserving risk return discipline. Moving on to securities. The share of securities in total assets remained stable around 23%, while the composition reflects our balanced approach, maximizing yields. We selectively increased foreign currency security exposure supported by timely buildup of NIM accretive Eurobond investments. Foreign currency securities grew by 35% year-on-year in dollar terms, lifting their share in total by 7 percentage points year-on-year to 34%. On the TL side, we are well positioned in long duration and higher-yielding fixed rate securities complemented by TLREF indexed bond portfolio with decent spread, providing potential for further book value growth through mark-to-market gains. As highlighted before, share of our CPI linkers has been strategically reduced by 31 percentage points since 2022, reflecting a deliberate shift in portfolio composition. Active yield-focused portfolio management has enabled timely repositioning of our securities and reinforces margin resilience going forward. On the funding side, our low TL LDR and strong deposit franchise have allowed us to optimize funding costs while selectively advancing growth. Our demand deposit share in total deposits increased by 5 percentage points year-on-year to 33%, supporting further margin improvement. Sticky and low-cost TL time deposit share in TL time deposit remains solid at 58%. Looking ahead, our well-structured balance sheet, combined with sound deposit mix provides a solid foundation for continued NIM enhancement. Let's move on to the P&L. As you know, our NIM had started to recover during the third quarter, thanks to improved funding dynamics. This trend was sustained during the fourth quarter, backed by disciplined balance sheet management. Our swap adjusted NIM expanded by 40 basis points quarter-on-quarter. On a CPI normalized basis, quarterly NIM performance was even stronger at 60 basis points. This is adjusted for the one-off valuation impact in the third quarter of the CPI. Looking forward, our unwavering focus on profitable growth and effective funding strategies will remain key drivers supporting the anticipated gradual NIM expansion throughout this year. Accordingly, the quarterly evolution will remain sensitive to both the pace of disinflation and also the magnitude of the rate cuts. Last year, our net fees recorded a robust growth of 64%, ending the year above our guidance of around 60%. The growth was broad-based across all business lines, reflecting strong customer engagement, continued innovation and diversified product portfolio. Sector-wide fees have benefited from the high interest rate environment. However, our diversified fee structure and growth in customer base positions us well to mitigate the cyclicality of the payment system fees in the lower interest rate environment. Cost increase remained well below -- actually well below our guidance and also was contained last year, while it was up on a year-on-year basis at 33%, while our guidance is at 40%. Having stabilized cost increase around inflation levels, we had the lowest OpEx base among all of our peers as of third quarter last year. And as you know, we're the first one to announce, so we will be keeping a close eye on this particular parameter. This is a reflection of our disciplined cost management and operational efficiency. However, our full year cost-to-income ratio remained around 50%, reflecting continued pressure on NII. As for this year, improving NII dynamics, along with resilient fee income base are expected to drive a gradual improvement in cost-income ratio toward low 40s. As Kaan Bey just shared, our mid- to long-term ambition remains unchanged with cost-income ratio targeted below 35% by 2028. Cost discipline embedded across our workforce and branch network alongside a targeted application of AI to enhance efficiency and scalability will all be instrumental in achieving our targets. On that note, let's now move on to our superior fee coverage of OpEx. Starting from an already high level, our broader operating footprint and deeper customer penetration alongside disciplined cost management translated into a stronger fee coverage. Our strong momentum in fees across all business lines led for our market share gain among private banks to advance by 1.4 percentage points to 17.8% last year. More importantly, the total market share gain in fees among private banks since end of 2022 has reached 3.9 percentage points. And at the same time, the fee to OpEx ratio has increased by 20 percentage points to 106% in just 1 year. With full coverage of OpEx now firmly in place, our aim is to sustain this level through this year and beyond. Let's move on to asset quality. Retail-led NPL inflows continue to be the persistent trend across the sector as a reflection of the macro environment. Despite this backdrop, our NPL market share among private banks has continued to decline, extending the trend observed since early 2025 with a further 150 basis point improvement in the last quarter. The share of Stage 2 plus Stage 3 loans remains contained at 10.8% of gross loans, underscoring the sound quality of our portfolio. Please also note that the restructured loans represents only 3.4% of the total loan portfolio. Meanwhile, our share in bankruptcy applications stands at less than 4%, which is well below our natural market share, mirroring disciplined underwriting and proactive risk management. Supported by prudent provisioning, our total provisions increased to nearly TRY 71 billion, reflecting the continued buildup of our reserve buffers. As a result, our coverage ratios remained solid with gross coverage at 3.7% and Stage 2 plus Stage 3 coverage at 28.1%, reinforcing balance sheet resilience. Excluding currency impact, net cost of credit ended the year at 214 basis points, slightly above our guidance, while NPL ratio was fully in line at 3.4%. So looking ahead, as we continue to grow, our disciplined risk framework supported by advanced analytics, AI-driven credit decisions in retail, together with the diligent tracking of our corporate and commercial loan portfolio, all position us well to preserve asset quality and contain potential cost of risk pressure for this year. Moving on to capital. Our total capital, Tier 1 and core equity Tier 1 ratios remain robust at 16.8%, 13.6% and 12.5%, excluding the regulatory forbearances. This reflects prudent capital allocation while driving profitable growth. As for sensitivity, 10% depreciation in TL results in around 30 basis point decrease in our capital ratios, while the impact diminishes for larger FX moves. Similarly, 10 basis point increase in TL interest rates would lead to an impact of approximately 10 basis points on our solvency ratios, demonstrating limited sensitivity and the strength of our capital. Overall, our strong capital buffers continue to anchor balance sheet resilience and support long-term profitable growth. Before moving on to Q&A, I'd like to share a few highlights regarding our nonfinancial performance. As highlighted in our ESG video at the beginning of this call, we continue to advance in our sustainable action plan with measurable results. As a result of our knowledge of dedication, we are happy to be among one of the few institutions globally to receive CDP's highest A rating in climate change, water security and forests, reinforcing our leadership in sustainability. And in this context, we are very excited and proud that COP 31 will be taking place in Türkiye this year. It reflects Türkiye's growing commitment to climate action and highlights the increasing importance of sustainable finance and climate risk management for our region. We will continue to support the transition to a low-carbon and inclusive economy in line with our long-term objectives. This slide highlights a snapshot of our 2025 financial performance, and we have shared throughout the whole presentation. But the last note, as we have shared, the main deviation was related to the pressure on net interest margin, and this was due to the tighter-than-expected monetary policy and the divergence between deposit costs and policy rate. And last but not least, our 2026 guidance. Looking forward, as said at the beginning of our presentation, we are committed to strengthen further our already robust positioning in consumer loans while accelerating market share gains in Turkish lira and foreign currency business loans, including noncash loans. Our focused growth and funding adaptability will sustain further NIM improvement this year. And accordingly, our net interest income will be supported by both volume growth and further improvement in margins through ongoing disinflation, obviously. And our resilient fee engine, combined with the cost discipline will continue to contribute to the full coverage of OpEx. Improving net interest margin or NII dynamics and resilient fee income base is expected to translate into a gradual improvement in cost-to-income ratio towards the low 40s. Asset quality will continue to be a priority area in the sector, while our disciplined risk framework will limit cost pressure, leading flattish cost of credit trend for this year. To sum up, our well-structured balance sheet, along with risk return focused growth is to support further NII enhancement in the anticipated rate cut cycle, leading to an ROA above inflation starting this year. Kamile Ebru GÜVENIR: This concludes our presentation, and we can now move on to the Q&A session. Please as always raise your hand or type your question in the Q&A box. And for those of us calling us by telephone please send your questions by email to investor.relations@akbank.com. The first question comes from David Taranto from Bank of America. David Taranto: The first one is about the growth. Historically, Akbank's market share was significantly higher. I remember back in 2007, 2008, it was close to 12%, but the bank deliberately gave away market share until 2020, at some point falling towards 7%. And in the last few years, you have reaccelerated the growth and regained market share across multiple segments. And that strategy is continuing according to the presentation. So my question is, what do you consider to be the natural market share for Akbank in the medium term? And b, assuming a normalized regulatory environment, i.e., relaxation of growth caps, when should we realistically expect Akbank to converge towards that natural market share? And second question is about the margins. Historical NIM averaged around 4% and your '26 outlook points to return towards these normalized levels. However, as rate cycle -- rate cut cycle progresses, one would expect NIM to temporarily exceed the cycle averages, even so macro prudential measures limit how far this can go. So what do you see as the main upside and downside risk to your NIM guidance for this year? And how do you expect deposit rates to move relative to the post rate given the constraints by the macro prudential framework? And finally, on costs, Akbank kept the cost growth relatively controlled versus sector in the past few years, but high inflation and the regulatory pressure still pushed the nominal cost base meaningfully higher. You point to medium-term cost income target of mid-30% levels. And I was wondering what are the key operational levers and time line to move towards that cost of risk levels. The reason why I'm asking is in a declining inflation environment, at some point, revenue growth is going to decelerate, not maybe for this year or perhaps next year, but eventually. So reducing cost income ratio could become a bit more challenging in this environment. So I would appreciate to hear your plans to limit the cost growth. And maybe one more thing, what are your macro expectations for '26, please? David, this is Turker. Thank you very much. Türker Tunali: I'll try to answer your questions. Please. But at the end of my answer, if I missed anything, please ask again. To start with the market share evolution, you're right, like in the past, like maybe like 15 years ago, we used to have like above 10% market share in the sector in some of the products. But as you may know, like in the last 10 years, there have been some periods where actually the state banks actually have acquired some market share from the private sector. So actually, that's why actually now we are seeing ourselves below 10% threshold. But definitely, as Ebru and Kaan Bey have shared, like we have like the ambition of growing the bank in the upcoming years as well. So therefore, like if we can achieve these market share gains as we have like put on to the table on the -- especially on the business lending side as well as further increasing our market positioning on the consumer side, I would assume that everything evolves as we're expecting, we should again see 10% levels, maybe not for all of the products because maybe we will deliberately grow the bank in some areas and maybe we will be more slower in some areas. It will -- the time will show this based on our macro expectations. But definitely, the aim of the bank is leveraging our superior capital and growing the bank and again, seeing that type of market share levels within the sector. With regards to our NIM trajectory, actually, -- for full year, as Ebru has shared, we are expecting like 4% of net interest margin, but we will be observing a gradual improvement in every quarter. So probably so we will be -- it's very likely that we will see the highest NIM towards the end of the year. That would, therefore, actually also support our NIM evolution for upcoming year. Maybe in long term, maybe, maybe, it's too early to talk about it. But in a normalized world, maybe with an inflation level of plus/minus 10%, let's say, that 4% is the normalized level, but definitely going into '26, we may expect a higher net interest margin. And as I just repeat, a gradual improvement in net interest margin. What may be the upside to this NIM trajectory, as we have shared at the very beginning of our presentation, our base case scenario for the macro outlook is like 22% to 25% year-end inflation with a policy rate of 28% to 31%, so with a really sizable real rate. And when we prepared our guidance, we were more on the more -- maybe on the conservative end, i.e., like maybe 24%, 25% year-end inflation with a policy rate of roughly maybe 31%. If this inflation trend evolves like better than this, like bringing the year-end inflation to the level of maybe low 20s or close to 20% and enabling a rate -- policy rate coming down to less than 28%, something like that, that will definitely bring an upside. But having said that, maybe also another thing, which will be also important to monitor, that was also one of your questions, like the deposit rates versus policy rates. As we've seen in the last probably 3, 4 months after the phasing out of the KKM scheme, because up until that time, when we had the KKM in the system, FX protected deposit scheme, the sector was -- it was easier for the sector to meet this TL deposit ratio requirement of the Central Bank. But once this KKM scheme has phased out, it became more challenging, and that's why actually, especially starting from fourth quarter, middle of fourth quarter or fourth quarter onwards, we've seen a divergence between the deposit rates and the policy rate. Maybe just to give you an example, at the beginning -- towards the end of the year and beginning of this year, like we've seen maximum deposit rates going up to 41% versus policy rate of 38%. That's why Central Bank has made a recalibration like a few weeks ago, like extending the reporting period for TL deposit ratio requirement and also like giving some buffers to manage the deposit rates. But frank -- to be frank with you, so far, there is still some gap, maybe not like 41%, but still we are observing rates like close to 40%. So still this divergence is to be observed in the market. So we'll see actually how it's going to evolve, whether we may see further calibration from Central Bank. This will be important factors to observe in the coming period. Maybe final remark with regard to your question on the OpEx. I think as Akbank, we've done a quite good job this year actually. When you look at '24 or '23, like OpEx growth was way above the inflation. So there was a divergence there were different factors to that. So inflation inertia, supply-demand issues globally, which was also creating USD inflation. But this year, actually, there was a normalization. So like low 30s of OpEx growth versus, again, 31% of inflation is I think it's really -- we delivered a strong performance that actually we were able to convert OpEx growth to the inflation. So it's -- again, our guidance for '26 is considering like an average inflation of like maybe high 20s for this year. So we will be again maintaining our cost discipline. And in the upcoming years, like with inflation going down, as you are -- as you have like -- I understand what you are -- how we are like assessing it. but the increase of revenues, revenues may go down, but not forget, currently, we are operating with growth caps. So there is really a huge growth potential. I would assume this volume growth will be absorbed maybe the high interest rates, et cetera, et cetera, or high spreads maybe for some time. Therefore, at least for Akbank, I can say the aim of the bank will be to fully cover its operation expenses with its fee income generation. And not forget it's really journey. We are always looking for efficiency areas in every aspect. So this will be -- we expect them also to be supportive in this low 30s of cost-income ratio ambition. Cenk Gur: Maybe, David, I would like to add something, maybe enhance the importance of the growth for Akbank, especially for 2026. You know that our strong capital base will continue to provide us strategic flexibility. And of course, we are going to in search of sustainable growth across the segments. But as you know, there are some segments and line of business that we would like to grow more, such as business loans, SMEs. So in the same time, when we look into our maybe quarter-on-quarter, the growth performances such as FX loan, Turkish lira loans, actually, we have the capacity to flexibly grow in a very smart way. So we are still on the -- finding new avenues to build up new platform and market share for FX loans. And we are going to be more on the infrastructure projects, multinationals, blue-chip companies. So -- but in the same time, of course, this is going to reflect our prudence and quality focus approach. So I would like to enhance what told before. Yes, we're going to grow. Kamile Ebru GÜVENIR: Thank you, David. Next question comes from Ashwath PT from Goldman Sachs. Ashwath PT: I have a few questions. The first being your guidance for FX loan growth of greater than 10%. Does that also reflect the recent updates to the macro prudential framework where I think the growth limit for the 8-week growth limit for foreign currencies has been reduced from 1% to 0.5%. The second question I have was around the ROE. You mentioned you expect 2026 to be high 20s. Would that be a natural expansion of NIM through the year, like you said earlier, to peak in probably in the second half of 2026. And would it be fair to say that's when you actually expect that the real ROE would actually turn positive towards the second half of the year? And more generally -- my third question would be more generally over a longer term where perhaps inflation does come down to the mid- to low 20s, perhaps next year or the year after. Where do you see the normalized level of NIMs and the normalized level of ROEs for the bank? Türker Tunali: Ash, this is Turker. This latest change of -- like on the FX loan growth cap side actually that was announced after we have actually prepared our guidance. But having said that, when we look at our fourth quarter performance only in the fourth quarter, we grew our FX loan book by 5%. it shows like the flexibility of the bank in tapping areas which are exempt from growth cap. Again, we will be looking at this picture in a similar manner. So therefore, actually, as of today, we don't see any downside risk to our guidance. With regard to NIM and ROE relationship, as actually, your thinking is right. We expect NIM to gradually improve, bringing us to a 4% NIM for full year. So that will definitely support our ROE evolution throughout the year as well. Like if we say what is real ROE, ROE above inflation, you're right, probably maybe not in the first quarter and second quarter, let's wait and see how also inflation evolves. But definitely, in the second half of the year, we should see that the ROE moves above CPI in the second half of the year. With regard to normalized level of net interest margin and ROE, like maybe it's not a short-term topic, but assuming like inflation goes down to plus/minus 10% levels in medium to long term, maybe as of today, we can use like roughly 4% of net interest margin as starting point to get a bit like plus/minus 20% ROE, meaning like maybe, let's say, real ROE, if you define ROE minus inflation as real ROE, then probably like 10% real ROE will be the ambition of the bank in the medium to long term. I hope that was clear. Kamile Ebru GÜVENIR: The next question comes from Simon. Simon. Simon Nellis: My question is around your fee growth guidance for this year of above 30%. So I guess that's nicely above your inflation expectations. I mean, given that inflation is falling, that there's some regulatory tightening on fees, I mean, how comfortable are you with that? And can you just unpack a bit how you expect to get to 30% plus growth on fees? Türker Tunali: Simon, actually, this is why we have guided this above 30%. This is already taking into consideration the expected tightening on the interchange commissions by Central Bank. By the way, they didn't do it in January. So 1 month is maybe -- actually 2 months are like now unchanged. So let's wait and see actually how it goes. Maybe a small item and very recently one of the regulatory changes was also like the fee cap on FX lending have been removed by the authority in the last week. That will be, to some extent, also supportive as well. That was also integrated into our guidance. But we feel comfortable. Simon Nellis: You feel comfortable still despite those headwinds. Kamile Ebru GÜVENIR: I think it's a result, obviously, of our significant market share gains over the last few years on customer acquisition. I mean that's probably going to be a supportive factor of the fee growth above the inflation expectation as well. We have some written questions. So maybe the first question I can ask from Mariana from William Blair. Could you please explain the increase in Stage 2 loans on a quarter-on-quarter basis regarding NPL inflows? Are you seeing inflows from other segments in additional to SME, retail, like addition to retail, SME, commercial? This is our first question. Türker Tunali: Mariana, First of all, maybe to start with like NPL inflows. Actually, when we say retail, actually, we mean actually consumer plus also SME. So that was also the case in the fourth quarter, mainly led by consumer, also some coming from SME. These were the areas where we have seen the majority of NPL inflows. So in the fourth quarter, no change compared to third quarter. With regard to this increase in Stage 2 loans, as we had also time to time also shared with the investor committee in the last quarter of the year, we are always revisiting our IFRS 9 model. And based on that calibration, like inflows because of the model, so rating deterioration in other words. So after our calibration, there has been some increase in Stage 2 loans -- but whereas our restructured loan book has stayed the same, like 3.4%, almost same like in the third quarter. So that was the main driver of this Stage 1 to Stage 2 composition change of roughly 2%. Kamile Ebru GÜVENIR: And regarding NPLs? Türker Tunali: Actually, as I said, this is mainly retail driven. Kamile Ebru GÜVENIR: So moving on to the next question. Capital levels and Basel IV impact, will you see A Tier 1s or Tier 2s to shore up capital [indiscernible]. Türker Tunali: Basel IV will be effective if no change, start in the second half of the year. And as of today, the impact for Akbank is quite limited, roughly like 20 basis points in Basel -- 20 basis points. With regard to our like wholesale funding strategy, you know our practice, we are always like looking for opportunities in the market. And as you know, again, this year, we have really evenly distributed redemption schedule. One of them is also the Tier 2, where we are, again, stick to our benchmark, the call option of our Tier 2. We will look actually at all products based on maturity profile and like cost. And based on that, we will decide which path to go. Kamile Ebru GÜVENIR: Yes. Maybe just to put these in numbers. As you probably know, this month in February, we have a $500 million Eurobond redemption. And then in July, we have a $500 million Tier 2 as sub debt. As Turker mentioned, we always try to go by market practice depending on obviously on BRSA approval. The more important issue for us is that we like to obviously diversify the products and also diversify the maturities and extend the maturities actually. And you probably have seen this in our latest also syndication loan where we have 3 different tranches, 1 year, 2 year and 3 years. So we will be doing the same for this year for also our syndicated loans as well and as well as for, obviously, our maturities on the other product side. And I don't see any other question here that hasn't been answered. So maybe we can move on to -- I mean I don't see anyone raising their hand as well. So maybe I can leave the floor to Kaan Bey for closing remarks. Cenk Gur: Thank you. Thank you, Ebru. Dear friends, thanks a lot again, especially for your continued interest and engagement. We are very happy with that. To conclude, we entered the period ahead with confidence in our strategy and our ability to deliver. Our guidance reflects a balanced outlook grounded in prudent assumptions, disciplined execution and a strong focus on sustainable profitability. With our solid capital position, as I mentioned earlier, our resilient balance sheet structure and diversified business model, we are well positioned to navigate the evolving macro environment while continuing to create long-term value for all stakeholders. Technology remains a key enabler of our strategy, supporting deeper customer engagement, operational efficiency and scalable growth. We will continue to invest selectively in digital capabilities and process transformation and of course, as well as our people at bankers. While maintaining a disciplined approach to risk and capital allocation. Dear friends, we look forward to meeting many of you in the coming period and continuing our dialogue in more detail. Thank you for joining us today. We appreciate your trust and continued engagement. Bye for now. Kamile Ebru GÜVENIR: And for those of you who have additional questions, please do feel free to reach out to Investor Relations team. We are always at your disposal and look forward to seeing all of you throughout the year. Bye-bye.
Tom Erixon: Good morning, and welcome to Alfa Laval's Fourth Quarter and Full Year Earnings Call for 2025. So Fredrik and I, we will give you a rundown presentation, a summary of the quarter and the year, and then we will go to the Q&A as always. So let me start with some introductory comments to the quarter and the year. In all, we felt it was a strong year in 2025, resulting in record invoicing and record earnings with earnings per share for the first time climbing to SEK 20 per share. So the supply chain was strong, especially in the quarter, and we delivered a record invoicing of SEK 19 billion in the fourth quarter. With that said, we still need capacity additions that are required to support our customer base in the data center applications. And yesterday, the Board of Directors approved a targeted CapEx program of SEK 1 billion for this purpose specifically. Then finally, during 2025, Alfa Laval has prepared for further growth by simplifying the operating model and consolidating the business unit structure. It is a substantial reorganization of the company. And as of January 1, the new organization is operational after considerable efforts on many hands. And with that, let's move on to key figures. Orders held up well with a 2% organic decline in Q4. We had good support from -- and strong demand from the U.S. and several important Asian markets. The margin was okay and as always, a bit affected by the seasonal high share of project invoicing. In addition, we carried approximately SEK 150 million of one-off costs, partly related to the ongoing reorganization program. On a divisional level, first to the Energy division. Orders reached an all-time high in the quarter at SEK 6.1 billion with firm demand in both HVAC and CleanTech applications. Data center orders were increasing as anticipated and was accounting for approximately 15% of the divisional orders. Service has been slow during 2025 for the Energy division, partly due to internal constraints. In Q4, the service was again showing double-digit growth and the growth trend may well continue into 2026. As indicated earlier, a new CapEx program of SEK 1 billion is launched to maintain a leading market share for the heat transfer applications in the data center business. The program is spread over our existing footprint in the U.S., in China and in Europe. We are with the existing infrastructure in a very good position to scale our volumes and capacities in this area specifically. Then to the Food & Water division. Orders remained flattish organically, both sequentially and year-on-year. We continue to see considerable growth opportunities in many end markets going forward, and the new growth strategy launched in 2025 is supported by targeted investments into application specialists and the global sales force to cover areas like pharma and protein. The margin in Q4 was impacted by some one-offs, both in weak project execution and the reorganization as discussed earlier, and it amounted to approximately SEK 80 million in the division. In 2026, we will take some cost for driving the growth strategy forward in the areas described with some margin impact in 2026 and possibly into 2027. Then on to the Marine division. Orders were stable sequentially and the lower cargo pumping orders were as before, partly offset by growth in the other application areas. In all, the market is and is expected to remain stable to positive for ship contracting. Invoicing continues on a good level based on a solid order book with a positive mix. The order book mix remains unchanged in 2026. Then on to Service. After many years of growth, the Service business now accounts for about SEK 20 billion of invoicing. The growth trend slowed a bit in 2025 compared to before, but the structural demand trends remain positive and the troubleshooting in the Energy division specifically is now completed and resolved. As a consequence, in the quarter, we had unusually large mix differences between the divisions, with the Marine division at almost 40% share of service orders, partly related to lower project order intake on the Marine division. And the Energy on the other side, with just above 20% of service order intake after a very strong capital sales quarter in Q4. The spread between the divisions is expected to decrease going forward. All right. And then a couple of regional comments to round up. In many aspects, it was a positive quarter with good progress in important growth markets like Southeast Asia and India. China was positive in Energy and Food & Water, but not fully compensating for the slower cargo pumping volumes that we expected in the quarter. U.S. grew in many end markets with special focus, obviously, on the data center market, and we had an all-time high in the quarter for the U.S. market as such. And with that, let me hand over to Fredrik for some further financial details. Fredrik Ekstrom: Right. So let us dive straight into it and take the order intake in quarter 4 amounted to SEK 17.1 billion with a negative currency impact of 8.7%, a structural growth of 3.3% and an organic contraction of 2.2%. What's notable in the quarter is the continued slow conversion of large project business from project pipelines that are both extensive and with quality projects. The Energy division reflected demand strength in HVAC with a 7% growth, and on data centers, more than doubled. On a whole year basis, order intake accumulated to SEK 66.7 billion with a negative currency impact of 6.1%, growth from acquisitions of 1.6% and an organic contraction of 6%. Of the negative organic growth, the majority of the contraction is slow conversion of large projects, which lagged behind with some 20%, of which the majority stems from the normalization of our marine pumping systems and large project orders in Food & Water. Transactional business, on the other hand, increased with 2% during the year to compensate. The order book stood at SEK 48.3 billion at the end of the year, of which some SEK 7.5 billion is invoicing for 2027. During the year, SEK 1.9 billion of negative revaluation due primarily to currency impacted the backlog and order intake. Quarter 4 book-to-bill was 0.89 with a good invoicing and project execution in Q4. Now moving on to sales. Revenues in quarter 4 reached an all-time high of SEK 19.1 billion with a growth compared to last year of 4.6%, of which 10.9% was organic, 3.1% coming from acquisitions and the negative impact of currency with a whole 9.4%. The higher revenue stems from good project execution in the quarter and a good mix of growing transactional sales. Revenue in all 3 divisions grew in the quarter, Energy division with 12%, Food & Water with 1%, and Marine division with 3%. On a year basis, revenues grew with 4.1%, driven by 7.9% growth of organic business, 1.8% structural and a negative currency impact of 5.6%. Revenues from the Marine Pumping Systems increased with 23% on an annual basis and project execution in the Food & Water division contributed with 10%. The large order book we carry into 2026 supports a continued good development in revenues. Now to some key figures. The adjusted gross profit (sic) [ adjusted gross margin ] of 34.7% was in line with quarter 4 in 2024, but sequentially lower than quarter 3 at 37.8%, reflecting the heavier project execution mix in quarter 4. The adjusted gross profit margin as in previous quarters, continues to be supported by strong manufacturing results. S&A grew with 2%, while R&D grew with 11.6% as expected in the quarter. Operating income grew with 8.3%, yielding an adjusted EBITA margin of 16.9%. To be noted further is that the adjusted margin is affected by the last tranche of the acquisition costs incurred in the cryogenics transaction, lower yield from a project execution in Food & Water division and costs arising from the new organizational structure with some SEK 150 million in the quarter. The increase of financial costs in quarter 4 is driven by higher interest costs and more substantially by the net of exchange rate differences. Profit before tax is on a similar level as last year and finally, an EPS of SEK 4.79 for the quarter. On an annual basis, adjusted gross profit margin increases to 37%, reflecting the revenue mix, a strong factory and engineering result and positive purchasing price variances. S&A grew with 4.5% and R&D with 4.9%. However, both remained stable in relation to revenues at 15% and 2.5%, respectively. Operating income increases with 12.6% to yield SEK 11.7 billion and EPS for the year just above SEK 20, an increase of 12%. Now on to some profitability comments. The adjusted EBITA margin for the quarter ended at 16.9%, an increase of 1% compared to quarter 4 2024. In absolute terms, the adjusted EBITA in quarter 4 increases with SEK 437 million despite the negative currency impact and the additional burdening of the result with SEK 150 million in the quarter as previously detailed. On an annual level, the adjusted EBITA margin was 17.7%, an increase of 1% compared to 2024. Adjusted EBITA increases with 12% to yield SEK 12.3 billion. Now some comments on debt position. Debt has increased with SEK 7 billion, reflecting the financing of acquisitions during the year of SEK 9.4 billion, with a resulting leverage to EBITDA of 1.21. Net debt after subtracting a healthy liquidity position of SEK 7.8 billion is SEK 9.4 billion, which corresponds to 0.66 in relation to EBITDA. Finally, net debt, including lease liabilities, lands at 0.92 in relation to EBITDA. Cash flow from operating activities in the quarter was on a good level given the increase in revenues. Release of working capital was positive, but on a lower level than quarter 4 last year. CapEx in the quarter was in line with guidance, bringing the free cash flow for the quarter to SEK 2.6 billion. On an annual level, cash flow from operating activities was SEK 9.2 billion, capital expenditures in line with yearly guidance at SEK 2.7 billion. 3 acquisitions during the year totaled SEK 9.4 billion. And after financing activities, the final cash flow for the year was positive with SEK 168 million. And finally, for some guidance on Q1 2026 and whole year 2026. CapEx in quarter 1 is expected around SEK 0.7 billion and a whole year guidance of SEK 2.5 billion to SEK 3 billion. Amortizations at SEK 175 million in quarter 1 and SEK 670 million for the year, and that includes all recent acquisitions. Tax rate guidance remains in the range of 24% to 26%. With that, I conclude my financial overview, and I hand it back to Tom for some closing remarks. Tom Erixon: Thank you, Fredrik. So let me give you our forward-looking comments before we go to the Q&A. As we're all aware, the synchronized global business cycles are not so synchronized anymore. So in reality, geographies and different end markets tend to move in different directions. So all in all, we remain in a situation where we don't have extremely clear trend lines. With that said, the general feeling we have in the market is that it is overall, everything said and done, somewhat positive momentum in the market. And we also perceive that the slowdown we've been having in large CapEx projects from customers is maybe easing somewhat as we move into 2026. So with that said, we expect after a strong Q4, sequential demand in the first quarter to be on about the same level as we had in Q4 with the Energy division being somewhat lower compared to an all-time high record level, as you remember in Q4. The Food & water, we expect to be somewhat higher and the Marine division somewhat lower. And all in all, it takes us to market conditions that are relatively unchanged in Q1 compared to Q4. And so with that, we round off the presentation, and we are open for questions. Thank you. Operator: [Operator Instructions] Our first question comes from Magnus Kruber with Nordea. Magnus Kruber: Magnus here from Nordea. A couple of questions. First, light industry and tech obviously posted very solid growth in the quarter and a distinct step-up from prior levels. How should we think about sort of the trends going forward here? I think it's been perceived that it's been a little bit underwhelming here in the prior quarters, and now we see a very big step-up. So just some comments on how to look at the outlook here would be helpful. Tom Erixon: Well, we don't really guide more than the quarter, and the quarter is somewhat lower. So I think that's all we really have to say on the matter. But it is true that we've been a little bit low for a number of quarters previously. We were not surprised exactly by the amount of orders that came in, in Q4. It was partly to be expected. And as we've guided you before, when it comes to the data center question specifically, we are a little bit on a shorter cycle than many of the project orders that you otherwise see in the market. So the pickup of that played a reasonable role in the development. But on top of that, I would like to add that despite concerns on the energy transition and what's going on, we did have a good quarter on CleanTech applications. And we see both in the Food & Water division when it comes to biofuel applications and in the Energy division when it comes to carbon capture, hydrogen and other related issues, that there is still some momentum in the market on that level. So we are sticking to our energy transition strategy. I think it's going to be a bit slower, obviously, than people thought 3, 4, 5 years ago. And it may gradually become more market-driven and policy driven, but there is still a growing momentum in those areas. Magnus Kruber: Excellent detail. Super helpful. You also talked a little bit about SEK 150 million headwinds here in the quarter from various one-off effects and alluded to that could continue somewhat into the first half. Is the SEK 150 million run rate a reasonable level? Or should it be more sort of benign than that? Tom Erixon: Well, it's going to depend a little bit. The SEK 150 million, you can kind of split 50-50 between reorganization aspects and project execution write-offs. So I hope the project execution issues are not repeating itself. The question on what running cost we will have on the reorganization part, which is now -- so we are sort of on the top level, all managers are appointed on a high level and the financial reporting is going in the new organization, but there's still a fair amount of implementation work to be done, both in sales regions and in business unit structures. And so if we see a higher reorg cost than in Q4, it's because we have so far non-communicated savings opportunities on it. So it's going to be on a business case basis, let's put it at that way. But at this point in time, we would estimate that the one-off cost level will decrease in Q1, Q2, unless we identify substantial opportunities going forward. Magnus Kruber: Perfect. And just one final one. The investments you make in data center additional capacity now, how does that compare with your current capacity? Some way of framing that would be helpful. Tom Erixon: Well, I think we are in a unique position to scale. We can work off our existing footprint. As you know, we have done considerable investment that earlier was related to heat pump and part of the supply chain and part of the infrastructure needs and equipment needs do overlap between the 2 applications. So we get a lot of leverage in the brazed heat exchanger technology specifically. So what I would say to put some framework around it is that we are delivering substantial volumes of both gasketed heat exchangers and brazed heat exchangers into this application and a few other things, by the way. And on the gasket side, we are still very well set with the ongoing investment program that we already have committed and partly executed. So there is nothing that of the SEK 1 billion that goes there. So it's going to be entirely related to expanding the press and to some degree, furnace capacity on the brazed side. And so we get a substantial leverage for the applications on that. We expect with all the production plans from integrated into our production planning, we're going to -- this will take us a couple of years forward. That's as much as I feel I can say. Operator: Our next question comes from Meihan Yang with Goldman Sachs. Meihan Yang: I have one question relating to the China Marine. So was the weakness in the Marine side in China more related to the underlying end market weakness? Or are you seeing any signs of market share erosion to domestic players? And if this continues, do you plan to do any capacity adjustments there? Tom Erixon: No, I think the -- in all, we feel the market is -- so as we speak, our main challenge in China is the amount of commissioning and invoicing that we need to do in 2026. We have a substantial order book and a substantial overhang. And we are expanding our technical capacities in China substantially is to cope with it. So if we have any capacity issues, it is that we need to scale up, not scale down. The market conditions in China, they were stable and normalized in 2025, and we believe they will remain stable and normalized on the order intake side in 2026 as well. The somewhat elevated invoicing levels that we have right now in end last year and partly through 2026 may come down a bit depending on where the market goes. But in general, we feel that the contracting level currently at the running rate that we are at is supporting perfectly well the infrastructure we have. So we're happy with that. On market share, Marine is the only market where we know on the decimal what our market share is for every single product category because we know every hull that is registered and we know every hull where we are in and where we're not. And so we are monitoring this extremely carefully. And we are making sure that there is no market share slips in this market, and it hasn't happened for the last 5 years. Operator: Our next question comes from Akash Gupta with JPMorgan. Akash Gupta: I got 2 questions. My first question is for you, Tom. In your comments in the report, you say that the group functions are adjusting to meet new regulatory demand and alignment with the business unit. I was wondering if you can elaborate about what do you mean by these new regulatory demand? That's the first one. Tom Erixon: You can say what we've been going through in order to adjust the group in terms of speed of decision-making and flexibility to manage towards the SEK 100 billion goals that we have in 2030 and to cope with the doubling of the business volume that we've been having over the last 6 years or so. We needed to take some actions to adjust to that. And you can say, well, first part is, to a degree, a consolidated business unit structure. So we will move with fewer global larger business units than we did in the previous structure. The second part is that we will go from cluster organizations in our sales companies to more regional setups with a slightly more operational twist to how the regions will operate compared to the previous clusters. And the third part is that the supporting group functions need to be adjusted in various ways. In some areas, we need to increase our resources somewhat to cope with the compliance demands and the regulatory demands and the reporting demands we have related to sustainability, but also related to ensuring that the ever more complicated sanctions environment between EU and U.S. is being adequately implemented and with an adequate control. So there are certain areas where we certainly will continue to build professionalism and capacities. In other areas, we are trying to make sure that we don't end up too centralized in part of our group support functions. So we also decentralizing out in a clear way to our sales regions and to our business units so that we have a responsibility for a number of these staff areas that is being carried by our operating units, and we are not too centralized in how we operate those functions. So it's a gradual -- you will not see any impact of it. But for us, it's a very important part of how we operate the company. Akash Gupta: And my second question is on capital allocation. So I mean when we look at your leverage, you have gone below 1x at the end of the year. So can you talk about prospects of M&A, particularly in 2026, given you will be quite busy with implementing the new operating model. So would it be reasonable to think something might happen? Or is it now probably a lower priority with internal heavy lifting? Fredrik Ekstrom: No. We believe we can do both things in parallel. We believe that the M&A strategy that we presented in the Capital Markets Day remains quite relevant and remains a priority. We continue to look at acquisition targets that fit the criteria that we defined at that point in time. We have a pretty good list of prospects that we're looking at. But as always, it's a long process when it's M&A, and we set very high standards. But we have in our capital structure created the firepower to continue to do acquisitions and presented with the right opportunity and the right price level, we will do so. So we don't see that the reorganization in any way compromises our ambition when it comes to acquisitions. Tom, would you like to add anything? Tom Erixon: Yes. We might add that we already closed the first one, a small but still meaningful acquisition in China in the energy sector. So we will -- as the beginning of this year. So we will give some further comments to that in the Q1 report. Operator: Our next question comes from Sebastian Kuenne with RBC. Sebastian Kuenne: I have 2. The first relates to the Energy business and specifically data center products, the brazed heat exchangers. I was wondering if you can tell us a little bit about the margin profile. I mean this is a product business. It's not a service business. it will probably change the blend, the mix and that might have implications on margin. Can you give us a little bit of an idea of where you see the profitability of these products going forward? That would be my first. Tom Erixon: It is obviously difficult for me to comment on application product profitability levels. I think you are -- listen, the -- if you divide it into the brazed heat exchangers and the gasket heat exchangers, the brazed is a non-service product. It's brazed together, so you can't take it apart. What happens is that when lifetime is over, it will be scrapped. And that is the cycle of that business. It may grow a bit compared to the entire product area may grow its share somewhat in -- as a share of the Energy division. But I don't think it's going to be a huge mix change on that because we're also growing the gasketed. And as for the gasketed, the data center applications are not extremely service demanding. It's kind of similar to a HVAC application, where we're dealing with clean water applications. So -- but that will have its normal HVAC-related service program. So I don't see a lot of challenges when it comes to -- I think overall, your observation is probably correct that it may dilute the share of service invoicing a little bit as a whole. But I'm not -- I don't see any meaningful -- there are other things that are -- I'm thinking a lot more about when it comes to the margin development than this one. Sebastian Kuenne: Okay. I will try to interpret this information. My second question is actually also data center again. Can you tell us a little bit again about who the clients are? Because it would help the investors now that the business becomes so big, would help investors to track a little bit the CapEx or the client's revenue. Is it the nVent and Vetiv of this world? Are there other major clients that we should be aware of when it comes to especially the brazed heat exchanger business? Tom Erixon: Well, listen, I think when you're looking at a market leader in this area, it is not possible to be there unless you are pretty much covering the market. And so the customers that are out there are, by and large, our customers. There are -- in terms of the procurement process, and that's why I've been saying that we are probably lagging a little bit in terms of bringing the orders into our order book because we are supplying components and not systems, we are coming a little bit later than many others into the process because we are selling to the system builders. And they are the companies we're invoicing. With that said, there are a number of frame agreements with the final owners who may want to specify suppliers and standardize the way they build their data centers in various areas. So this is business, which is not just a clear, straightforward answer. There are frame agreements in place. There are frame agreements negotiated as we speak. And there are supplier relationships with system builders. And you can safely assume that most of them that you are well aware of are most likely on our customer list. Sebastian Kuenne: Understood. Last question, just for clarification. You talked about project costs affecting Energy. Just for me to understand, does this relate to pricing of longer projects where you book at cost or you invoice at cost early on and then you invoice for the profit at completion? Or are we just talking about projects overrunning? Tom Erixon: No. The specific project execution problem was in the Food & Water Division. So that was weighing on that margin. What happens in the Energy division is that we are invoicing and we do in all companies doing a percentage of completion, invoicing process for our projects. But normally, sort of it adds up towards the Q4 and it did also in Energy division, so on Welded. But the project pipeline and the execution side on the Energy division has been spotless on the Q4. So we are good with it, but it does sort of as a mix effect, weigh down a little bit. I may add that we had a very good integration of Fives Cryo, which is also a project business. They are right in line with our expectations. They are well on track with Energy average margin. And the only thing that is weighing on that side is that we are taking a number of million euros as integration costs, and that has more or less now been finalized. So it's been a very short, concise and excellent integration process of getting the Fives Cryo team into the group. It's been a good process. Operator: Our next question comes from Max Yates with Morgan Stanley. Max Yates: I just had 2 questions. The first one was just around the Pumping Systems business and order intake. I guess when I look at the kind of Pumping Systems orders, it looks like maybe up SEK 100 million quarter-on-quarter. And I guess when we look at some of the tanker ordering data in Clarksons, it was very strong, up 60% in Q4. I think we've had a good start to January. So I was just wondering kind of what are we missing? Because I'm fairly used to kind of this business. When we see the tanker orders pick up, it filters through within kind of 1 or 2 months to your business relatively quickly, yet that doesn't seem to be happening when I look at Q4 orders or when I look at your kind of outlook for Marine for Q1. So is there anything kind of we're missing or we should understand that's happening in the market? I'm just trying to better understand that dynamic. Tom Erixon: No, I don't think so. And I think in our books after -- and so I remind you that in 2024, the Pumping System business, including offshore and aquaculture and another of other applications, we were at about SEK 15 billion in order intake for an operating unit, which historically has been on around SEK 5 billion. So we guided carefully that, a, we are not a SEK 15 billion unit in Bergen. So that's not the running rate that is possible in any case; b, we built the order book for 2 years going forward. And essentially, yards and ourselves are fully booked and running at 110% capacity anyway, so we didn't want to see and didn't expect a repeat. And in 2025, we didn't see a repeat. We ended up approximately at SEK 6 billion, which is SEK 9 billion down from the year before, a good number. SEK 6 billion was a normalized plus level compared to where we have historically has been and well in line with expectations. That -- right now in the statistics, that converts to about -- if you look at the cargo pumping specifically, it converts to about 250 contracted product and chemical tankers that we've seen in 2025, which is on about a normalized level. So the worry that after high contracting levels, we will go flat down on that market. It did not materialize, and we didn't think so. We think the age of the current fleet on the product chemical tanker side is still not all that young. So we think a normalized contracting level is to be expected. And that's what we've seen all in all for 2025. I think we ended the year a little bit higher than we started on it. So the trend curve was positive. And so let's see where we go in Q1. But putting everything together, 2025 was not a weak year for order intake all in all. And so we are not overstating our expectations into 2026. Max Yates: Okay. And maybe just a quick follow-up on currency. So you've had -- in the quarter, it looks like about -- you have had a SEK 271 million impact on your EBIT on a kind of revenue number that's about SEK 520 million headwind. So I was wondering, would you be able to help us at all with kind of any views for 2026? Because I know historically, you've always hedged. So I wonder whether there is any kind of lagging impact from last year? And just any kind of view on -- is that sort of drop-through from sales to EBIT impact for FX, the kind of 50% plus. Should we expect that going forward? Were there some currency revaluations? So just any framing of how to think about the FX impact on EBIT as we go into 2026 would be helpful. Fredrik Ekstrom: Right. And so let me try to take that. There's several components to this. You're quite correct. We have a hedging strategy for committed orders. And what we mean with those is usually the large orders, those get hedged as they come in. And then we have, of course, the uncommitted volume or rather the transactional volume that comes in sequentially over the year and that we hedge as separate volumes. So we do have a hedging that covers a substantial part of our revenues and turnover. The differences that you are seeing trickling down to the EBIT is, of course, the net of all of those effects. It's the net of the movement of invoicing. It's a net of the hedging contracts that we take. It is also the impact that we see from a translational point of view between 2 quarters in 2 different years. When it comes to forward-looking, when it comes to FX right now, your crystal ball is as good as mine, but I would assume that the strengthening of the Swedish krona that we have seen over the last quarter is probably going to stabilize or to some degree, return to a weakening, maybe not a strong weakening, but it's speculation at this point. What we can do is that we secure as much of our turnover as possible through hedging contracts. Then to refer to another part, which you had in your question embedded there is a revaluation of backlog. And the revaluation of backlog in relation to currency only happens when we take in an order in a foreign currency into our backlog, and that's primarily in the Pumping Systems where everything is booked into U.S. dollars. And there is, of course, the movement of the NOK to the U.S. dollar. And there, we also have seen a strengthening of the NOK, and we don't see that there is too much more headroom for the NOK to continue to strengthen. But again, it is a volatile FX market out there right now. And any quick movements that we see that happen over a quarter like we've seen in Q4 will create, of course, a currency impact on the results. Operator: The next question comes from Sven Weier with UBS. Sven Weier: The first one is on Marine. And just reminding us of the packing order on content per vessel. Is it not true that your content per crude tankers is actually much lower than product tankers? And that's why maybe the crude tanker orders we had in Clarksons were quite strong, were not really affecting you disproportionately? Or am I getting the packing order wrong here on content? That's the first one. Tom Erixon: You're getting it right. Sven Weier: Crude is more like an average. Is that fair to say in terms of content? Tom Erixon: Well, yes, to the degree that there is a meaningful average in this, crude tankers, they are large. They are energy consuming, efficiency matters. And so it is a meaningful part of the fleet for us, but it is -- compared to a product tanker, it doesn't provide quite the same mix. It's absolutely true. And so you need to shave off -- maybe I shouldn't speculate too much, but shave off EUR 1 million or so and then you are there. Sven Weier: Okay. Understood. And then to follow up on Marine because in the report, you mentioned the impact of sanctioned vessels on Services, right, and that it has a negative impact. Can you drill a little bit deeper into that comment, how it impacts you specifically? Tom Erixon: Well, there's been lots of dialogues about how big is the shallow fleet, which is sanctioned and which we do everything we can to definitely not serve and not ship spare parts. And so probably that the number of ships, including that fleet is in the order of magnitude of at least 400. And so 400 large vessels is -- does impact. With that said, I think Q4 service volume for Marine was not primarily the numbers that you're looking at there was more impacted by a very large service order, non-repeat service order in Q4 2024. So we had a bit of a challenging -- reach for us. It's not a favorable situation. Sven Weier: When the U.S. now enforces these sanctions more forcefully, for you, it doesn't make a difference because the shadow fleet was a shadow fleet before and you didn't service it anyhow. So that doesn't make an incremental difference. Tom Erixon: Absolutely not. No. It's -- on the contrary, we find it helpful that there is a strong action taken because with all the efforts we are doing to make sure that not a single spare parts one way or another reach a sanctioned ship is a big challenge. So we're working exceptionally hard in protecting that we are doing everything we can to follow the sanctions, but it's helpful for us if the ships are removed. It makes our life easier, and it has no impact on our financials at all. Sven Weier: Final question is on the new Food & Pharma division because I was wondering on those projects where you had cost overruns. I mean, did I understand you correctly that this is now done at the end of Q4, and this should no longer have an effect? Is that fair? Tom Erixon: I'm always careful in prognosticating a future where there are no problems. But we have been dealing with specifically in the quarter where one specific project, and I think we're taking all the measures needed now financially to make sure that, that is completed. It is financially not a good project for us, but we are extremely committed to our customers that we are delivering a well-functioning process at the end of the day. And so we should be clear of that now. So -- and I remind you that during -- when we started the journey 10 years ago, we continuously had a number of project execution problems. We cleaned that up very well. So we've been going on a good level for many years now in the project execution. And in the acquisition of Desmet, it's been the same, and it remains the same with Desmet. So this was the first time for a period of time where we actually got into executional challenges. And I think we've been handling it now. So in terms of what we know in our books now, we don't have a recurring item on this coming back. Sven Weier: And if I may, what was -- I mean at the end of '25, what was the share of biofuels within the division in terms of orders or sales? Tom Erixon: Good question. I don't have that number in my head. Maybe you can check a little bit as we speak. But it's been 5%. And so it's been very little. It's been depressed. We see a more interesting market in biofuels coming into 2026. They are typically large orders, so they are a little bit -- either they come or they don't. But when I'm commenting on the sentiment in the market when it comes to larger projects, that includes the biofuel segment where we may see some movements in 2026. We are hopeful. Sven Weier: And that 5% was of the order intake, right? Fredrik Ekstrom: Correct. Operator: The next question comes from Uma Samlin with Bank of America. Uma Samlin: So first one is a follow-up on Marine. So I guess you're guiding somewhat lower in Q1. How should we think about the mix of Pumping Systems orders versus other marine categories in Q1? So from your answer to the questions previously, it seems to me that you're thinking like a relatively -- still relatively strong Pumping Systems orders. Do I understand you correctly that it's the other Marine categories that drives your somewhat lower guide? Some clarification would be really helpful. Tom Erixon: We are hesitant. Here is the thing without the crystal ball, the more granular we are in our forecasting, the more off we're going to be. So on a group level, we feel fairly confident. And as you will notice, if you compare backwards on divisional levels, we have a slightly larger variation of outcome versus forecasting. And it gets even worse if we break it down into business units and individual product categories. So I'm a little bit hesitant to meet your question. But in terms of our earlier discussion on this call, the activity level and contracting level as forecasted and as what we've seen in Q4 looks relatively stable. So it may not be a bad guess that we are reasonably close in Q1 to Q4. Uma Samlin: That's very helpful. My second one is on Food & Water. If I heard you correctly, it seems like you expect some sort of margin impact from your growth strategy in '26. Can you perhaps elaborate a bit more? And what do you think is the long-term margin good for Food & Water? Because I remember this division used to be at 17%, 18%. And after the acquisition of Desmet, it was lower to like 14%, 15%. What is your long-term sort of ambition for the margin profile of Food & Water? Tom Erixon: Well, we typically don't want to run businesses below 15%. So our change in our corporate profitability target to 17% anticipated that part of our business most likely is going to be above the 17% and part of the business may be somewhat below. So we are not running a business strategy in Food & Water aiming to go below 15%. What we have done, and I remind you of this, we are building this company for the future. We are running at compared to historically exceptionally high CapEx volume, which in part is complemented with higher OpEx cost running in parallel to that CapEx program. And we are building both product technologies and capacities in the market additionally. So we have been doing that for a long period of time. And I don't see -- I guess what we are indicating with the increased investment program in the data center applications and the increased focus on growth strategy in certain newer areas in Food & Pharma should give you sort of the feel that what we've been doing historically is what we will continue to do. So if we stop doing that, I said it before, any monkey could get the margins up with 1% or 2% on the Alfa Laval margin. But we think building us towards the SEK 100 billion is the primary target, and we're going to do so with acceptable margins and healthy business conditions. And for Food & Water, that means that we are definitely aiming in the short to medium term to be somewhat north of the 15% target. Operator: The next question comes from Carl Deijenberg with DNB. Carl Deijenberg: So 2 questions from my side. First of all, I wanted to come back on the Energy division and maybe specifically on the HVAC side. Obviously, that was a drag for you on the order side in '25, but with some improvement here towards the latter part of the year. But I do want to understand a little bit. Is that -- do you see that more as a result of this inventory drawdowns on the OEM side being behind you and production rates being more sort of indicative of end consumer demand? Or do you still see some elevated inventories there among your customers? Tom Erixon: I think the -- maybe you want to take that, Fredrik. You used to run that business. Fredrik Ekstrom: Well, I think in relation to inventories, I would say that the inventory at our customers' distributor network is depleted. That I think we can reasonably see in the call-off for the frame agreements that we have with the larger OEMs. So that would confirm that we are past the destocking and that we start to return to growth or we start to return to normal production. When it comes to heat pumps specifically, I think we see the beginning of a resumption of a normal business and a normal trajectory of business growth in relation to defossilizing heating, particularly then in Europe. And I think that's a strong indication. There is a shift in players in the market. There is going to be consolidation in the market most likely. But we see definitely that also on the air conditioning side that we are starting to have larger call-offs on frame agreements. So I would assume that, that confirms the case that destocking is complete. Carl Deijenberg: Okay. Very well. Then secondly, I wanted to ask also on sort of recent raw material movements. I mean we've obviously seen some quite dramatic price movements on certain raw materials. I guess, one quite important component for you is, for example, copper on the brazed side or on the heat exchanger side. And I just wanted to hear a little bit if you expect any sort of tangible price impact on that entering '26 now given where prices are. Fredrik Ekstrom: Right. And so without getting too much into detail here, we set the standard cost during the year that is based on the frame agreements that we have with our metal suppliers, and we have more than one metal supplier, and they have a little bit of different sort of timing and phasing of when we renew those frame agreements with our metal suppliers. So we have a little bit of stability, and we have a little bit of visibility going forward to what our material prices will be. We also have some metal hedgings that are in place. So all in all, we don't have -- you can say in the short term, it doesn't impact us. But in the long term, it means we need to consider how we plan our productions and how we plan our pricing structure, but we allow ourselves a little bit of breathing space to make those decisions in a foundational way in line with our strategy. Tom, would you add anything? I could add one thing on the copper, by the way. I would say that if you look at the other metals, we probably have a little bit of speculation creeping into the pricing. When it comes to copper, there is actually a foundational demand or supply problem that needs to be sorted out. So there is probably a more sustained higher price level for copper going forward. Operator: Our last question comes from Klas Bergelind with Citi. Klas Bergelind: Klas from Citi. So I just had a -- sorry, a follow-up question on Marine again, a lot of questions on Marine. But I want to zoom in on product tankers. Obviously, crude is strong, but product is still pretty volatile where your value is higher. We saw a pretty strong first read in December at 19 contracts, but slowed down again in January as we could see yesterday. The product tanker market is still pretty soft with mid-single-digit supply growth against around 1% demand growth and scrapping doesn't seem to increase that much at the moment. I'm just trying to understand, Tom, how you look at demand here in the product tanker category in 2026. If you share this view or if your discussions out there are showing a more positive picture because it seems like product tanker, given the short-cycle nature of that business, is something that maybe can surprise positively, but I just want to hear your view there. Tom Erixon: It's a good question. The difficulty on what's going to happen on the contracting side. So I remind you that in terms of deliveries from our side, commissioning from our side and delivering from the yards to the shipowners, the 2026 pipeline is very strong. So what we're discussing is not affecting invoicing in 2026. And to a degree, we also cover 2027 already, although not fully. So if you're going to see any meaningful impact in a 2-year perspective on this, it means that existing slots need to be converted, that containers are being swapped into product tankers. And that type of switches is happening in the market. People are selling options and production slots. So I don't know. I would refer to Clarksons as the most solid foundation for this forecast. We don't have, I think, a better view on the market than they do. But as I said, we came out 2025 on a pretty normalized level. I remind you that the monthly numbers and the yearly numbers are updated afterwards. So all of the bookings are not registered at Clarksons at this point in time, not for 2025 and certainly not for January. So we will see some movement there. And we don't expect tremendous volatility short term. But you've seen the volatility down over a period of time when we were a bit unpleasantly surprised. And then you saw the enormous spike in -- starting in 2023 and into 2024. So we haven't exactly nailed the prognosis historically. I'm afraid we're not be able to do it now either. But we're good for a period of time. Klas Bergelind: We typically do the 6 months revisions to the date as well, but it doesn't look very strong. So that is why I asked the question, but I appreciate your comments. Tom Erixon: All right. So thank you very much. Thanks for the call. And if we don't run into each other before at some of the investor conferences that are happening in London, Miami and a couple of other places where we will be, then we will meet up at the earnings call for the first quarter in April. So thanks a lot.
Operator: Good afternoon, ladies and gentlemen. Welcome to Chunghwa Telecom Fourth Quarter 2025 Operating Results. [Operator Instructions] And for your information, this conference call is now being broadcasted live over the Internet. A webcast replay will be available within an hour after the conference is finished. Please visit CHT IR website at www.cht.com.tw/ir under the IR Calendar section. And now I would like to turn it over to Ms. Angela Tsai, Vice President of Financial Department. Thank you. Ms. Tsai, please begin. Angela Tsai: Thank you. I'm Angela Tsai, Vice President of Finance at Chunghwa Telecom. Welcome to our fourth quarter 2025 Earnings Conference call. Joining me on the call today are Chunghwa's President Rong-Shy Lin; and our Chief Financial Officer, Audrey Hsu. During today's call, management will begin by sharing our recent strategic achievements and providing an overview of our fourth quarter business results. This will be followed by a discussion of our segment performance and financial highlights. We will then open the floor for questions and answers. Please turn to Slide 2 to review our disclaimers and forward-looking statement disclosures. Now without further delay, I will turn the call over to our President. President Lin, please go ahead. Rong-Shy Lin: Thank you, Angela, and hello, everyone. Welcome to our fourth quarter 2025 results conference call. To begin, I am pleased to report our exceptional financial performance for 2025, driven by our dedicated efforts. Chunghwa Telecom's revenue, operating income, income before tax and EPS for 2025 all exceeded the upper end of our guidance, reflecting our strong execution and market-leading position. On the revenue front, our full year revenue reached an all-time high, demonstrating our continued focus on strengthening our core businesses and active expansion in the ICT sector. Notably, our full year EPS of TWD 4.99 marked an 8-year high, extending our annual growth momentum for the sixth consecutive year. This milestone underscore our commitment to driving innovation and enhancing long-term shareholders' value. Based on the strong outperformance in 2025, we are entering 2026 with confidence for our telecom businesses. We see Taiwan's mobile market remaining stable and favorable to us as the market leader. We are also pleased with our fixed broadband performance and will extend the successful existing strategy for further ARPU enhancement. In terms of ICT business, our technology capability will continue to remain cutting edge to support future growth. A particular highlight is our satellite opportunities as we believe demand of satellite services as the communication backup solution will increase with our satellites of OneWeb and SES commencing operation in 2025. The Astranis satellite will join in second half of 2026 to enhance our multilayer satellite capability. Furthermore, we will also focus on extending pre-6G-related opportunities in AIoT, satellite and big data services and expect their combined revenue to surpass the TWD 10 billion in 2026. We particularly expect to convert our AI capabilities into our service offering. We expect to assist our customers to integrate AI into their operational processes, legal compliance and infrastructure management. In addition, as a leader in AI drive connectivity, we are introducing AI edge computing into our AIDC to create a new revenue stream alongside our continued construction of AIDC in 2026. Ultimately, in the fourth quarter, we were honored with multiple awards recognizing both our ESG accomplishments and the technical acknowledgment. We won The Asset's Jade Award for corporate sustainability leadership for the fifth time, received the several AI Innovation Award at the World Communication Awards for our smart customer services solution and was recognized as the only Taiwanese telecom company on Newsweek's World's Most Trustworthy Companies 2025 list. More importantly, we have secured 4.6 billion kilowatt hour of renewable energy through a 20-year Corporate Power Purchase Agreement, CPPA, to support our 2045 net zero commitment. Now let's turn to our fourth quarter 2025 results. Please flip to Page 4 for the business overview. Please turn to Page 5 to review our success in Taiwan mobile market. In the fourth quarter, we solidified our leadership position in Taiwan's mobile market for 2025 with record highs across all dimensions. According to data from our telecom regulator, our mobile revenue market share climbed to unprecedented 41%, while our subscriber market share rose to 39.7%, mainly driven by continued growth in the postpaid subscriber. We are pleased with this strong result. Our 5G performance was equally impressive. Based on regulators' data, our 5G subscriber market share increased to 39.2%, further solidify our industry-leading position. The 5G penetration rate among our smartphone users climbed to 46.4% by the end of 2025, while the average monthly fee uplift from 5G migration remained robust at 41%. Given this solid momentum, we were especially encouraged by our strong mobile service revenue growth in the fourth quarter, which achieved a recent record high of 4.7% year-over-year. Postpaid ARPU also grew 3.6% year-over-year. We expect this positive trajectory to continue, supported by Taiwan's favorable mobile market landscape. Let's move on to Slide 6 for our fixed broadband business update. In the fourth quarter, our fixed broadband ARPU continued its upward trajectory, reaching a new high of TWD 819 per month. This represents a 3.8% increase in revenue and a 0.5% increase in subscribers year-over-year. This strong result were driven by our high-speed upgrade promotion and MOD bundle packages, which successfully boosted customer adoption of higher tier plans. Subscribers choosing speed of 300 megabits per second and above grew by 13% year-over-year, while those opting for 500 megabits per second and above recorded a double-digit growth and the subscription for 1 gigabits per second and above doubled in the fourth quarter. Slide 7 provides a detailed overview of the highlights from our consumer application services. In the fourth quarter, our multiple-play packages, which integrate mobile, fixed broadband and WiFi services increased by 17% year-over-year, marking the 16th consecutive quarter of expansion and representing the collective growth momentum of our customer business group. In 2025, despite the absence of major global sporting event broadcasting, resulting in overall subscription loss, our Hami video service demonstrated a solid resilience as its ARPU increased by more than 25% year-over-year in the fourth quarter. Looking ahead, with the launch of Disney+ bundle this January and our ongoing partnership with Netflix, coupled with the exciting pipeline of popular sporting events such as the FIFA World Cup, Asia Games and et cetera, we expect to drive further revenue growth throughout 2026. Meanwhile, our consumer cybersecurity subscription recorded 11% year-over-year growth with revenue also achieving double-digit gains, contributing to the steady growth for our consumer business group illustrated the key development in our enterprise ICT business. In the fourth quarter, our group's ICT revenue declined by 6% year-over-year due to a higher comparison base in the same period last year, though our full year ICT revenue still recorded robust year-over-year growth. Meanwhile, our recurring ICT revenue grew 15% year-over-year, continuing to show strong momentum, supported by increases across all major service lines, particularly contributions of AIoT, IDC and international public cloud services. Looking at the specific service categories, revenue from IDC, Big Data and 5G private network grew by 19%, 3% and 88% year-over-year, respectively. IDC performance benefited primarily from project completion in Mexico, while big data service revenue increased driven by its recurring revenue growth. Revenue from 5G private network surged, supported by the project revenue recognition from both public and private sector customers. However, revenue from cloud and AIDC business declined by 16% and 27% year-over-year, respectively, due to a high base last year. Our cybersecurity service revenue also decreased by 16% year-over-year as the majority of our cybersecurity revenue for 2025 had already been recognized in 3 quarters. Notably, despite the quarterly fluctuation, both cloud service and cybersecurity business still delivered full year revenue growth. We are also proud to share that we secured an AI customer service solution to build the first integrated AI customer services system for a leading financial institution in Taiwan. Furthermore, we secured a flagship government system integration project to upgrade the labor insurance platform to next-generation infrastructure with a contract value exceeding TWD 3 billion. In addition to further leverage our sea, land and sky network deployment and expand our satellite business scale, we successfully incorporated our satellite services as part of the government's joint procurement contract framework, paving the way for more long-term service contracts from government agencies. Lastly, our deployment of remote surveillance platform for correctional institution nationwide brought us 5 additional new projects in the fourth quarter with a total contract value of TWD 150 million. We expect to further replicate and scale this success in the coming year. Slide 9 illustrates the performance of our international subsidiaries. In the fourth quarter, our international subsidiaries revenue decreased 7% year-over-year, mainly due to softened demand for voice services as well as higher comparison base in the United States and the Japan ICT market last year. However, we were glad to see a 12% year-over-year revenue increase in Southeast Asia market as we completed multiple planned construction projects in Singapore and Thailand, a trend that we expect to continue through 2026. Notably, our Malaysia subsidiary commenced operations in December 2025, aiming to provide more timely, high-efficient ICT integration services for Taiwanese and multinational enterprise in the growing Southeast Asia market. Look ahead of 2026, we maintain a relatively optimistic outlook for our global market development as we have secured several AI supply chain projects in the United States in our pipeline, including key projects in Texas and California, which is expected to significantly boost our U.S. market performance in 2026. Now let's move on to Page 10 for the financial performance of our 3 business groups. In the fourth quarter, our CBG delivered a robust 6% year-over-year revenue growth, supported in both mobile and fixed broadband services, plus higher sales driven by the iPhone demand. However, its income before tax slightly decreased, mainly dragged by the final phase of 3G telecom equipment impairment, which has fully recognized in the fourth quarter and a higher comparison base from government subsidies recorded in the same period last year. Our EBG revenue decreased by 7.9% year-over-year as most of our major ICT project has already been recognized in previous quarters, resulting in a 7% year-over-year drop in the EBG ICT revenue. Income before tax was also impacted by the onetime impairment mentioned earlier. Encouragingly, EBG mobile and fixed broadband services as well as its satellite services still delivered solid growth momentum this quarter. As for our IBG business, revenue grew by 2.5% and income before tax increased by 1.8% year-over-year, driven by rising demand for the international IDC services and stronger roaming revenue. Furthermore, we are pleased to report that our submarine cables, SJC2 and the first phase of Apricot were completed this quarter and further boosted IBG's fixed line services revenue by 2.2% year-over-year. Now I would like to hand the call over to Audrey for financial updates. Wen-Hsin Hsu: Thank you, President. Good afternoon, everyone, and thank you for joining us today. I'm pleased to walk you through our financial performance for the fourth quarter and full year of 2025 and share our financial guidance for 2026. So now please turn to Slide 12 for our income statement highlights. Let's start with our fourth quarter results shown in the first 3 columns on the slide. Revenue and operations. We reported consolidated revenue of TWD 65.65 billion. This represents a steady 0.5% year-over-year increase and makes our highest fourth quarter revenue in nearly a decade. This growth was fueled by strong mobile device sales alongside the sustained momentum of our core telecom service. Income from operations decreased by 2.2%. This was primarily due to one-off impairment losses from the 3G network sunset this quarter, coupled with a high comparative base from last year's investment property valuation gains. Income before tax increased by 2.1% year-over-year. This growth was driven by investment disposal gains reflected in our nonoperating income. As a result of this performance, EPS increased from TWD 1.16 to TWD 1.20. This reflects our consistent profitability and marks the highest fourth quarter EPS in 10 years. Finally, EBITDA for the quarter remained stable at TWD 21.55 billion. The EBITDA margin stood at 32.82%. So now let's expand our view to the full year of 2025, shown in the last 3 columns. The annual view reflects a strong growth trajectory. So for the full year, total revenue reached TWD 236.11 billion, a solid increase of 2.7% compared to 2024. The growth was broad-based and driven by 3 pillars. First, we saw strong momentum in our sales revenue. This was fueled by higher mobile handset volumes and the robust performance of our subsidiary, Chunghwa Precision Test in the semiconductor testing sector. Second, our ICT portfolio continued to deliver with significant contribution from high-growth areas such as IDC, cloud and cybersecurity. Third, we maintained steady growth across our foundational mobile service and fixed broadband business. So this top line strength translated directly into profitability. Income from operations grew by 3.6% and net income rose by 4% year-over-year. Consequently, full year EPS reached TWD 4.99, up from TWD 4.8 last year. EBITDA also grew 2.6% year-over-year to a strong TWD 88.77 billion. Our EBITDA margin remained stable at 37.6%, broadly consistent with the prior year. So in summary, these results reflect high-quality earnings growth. This profit expansion was driven by sustained positive momentum in our core telecom business, complemented by the continued scaling of our IDC, cloud service and other ICT business operations. So now let's turn to Slide 13, balance sheet highlights. So total assets increased by 0.4% year-over-year. The growth reflects strategic allocation into long-term investments and prepayments for satellite infrastructure reported in other assets. The increase was partially offset by a net decrease in property, plant and equipment as depreciation charge existed new capital additions, along with a net decrease in intangible assets due to the 4G and 5G spectrum amortization. On the liability side, total obligation decreased by 0.7%. We repaid older loans while successfully issuing our first-ever sustainability bonds focused on biodiversity. The strategy not only strengthened our capital structure and reinforce our leadership in ESG-driven financing. Our financial health is best illustrated by our key ratios. Our debt ratio improved further to 25.25%. Our current ratio remained healthy, well above 100%. Most notably, our net debt-to-EBITDA ratio stood at 0. Moving to Slide 14 for our cash flow summary. We will review our performance for the full year 2025. Cash flow from operating activities decreased slightly by 2.2%. The variation was primarily driven by working capital dynamics, specifically a decrease in accounts payable between '25 and '24. On the investment front, CapEx declined by 3.7% to TWD 27.7 billion. First, regarding mobile CapEx, spending decreased by TWD 1.4 billion. The reduction aligns with our road map to lower mobile capital intensity now that we have passed the peak of the 5G deployment cycle. Second, regarding nonmobile CapEx, spending increased by 2%. The increase was mainly driven by strategic investment in submarine cables. Consequently, free cash flow stood at TWD 49.8 billion, a marginal decrease of 1.4% year-over-year. Despite this slight variation, we continue to maintain a strong cash position. Our stable cash flow inflows remain fully capable of supporting both our business growth initiatives and our commitment to shareholder returns. So now let's turn to Slide 15 to review our performance highlights against guidance. So in the fourth quarter of 2025, revenue exceeds the target, showing stronger-than-expected demand. Key performance measures such as net income and EPS were all in line with our forecast. For the full year 2025, the cumulative results validate our strategy. We are very proud to report that all major metrics, revenue, income from operations, net income, EPS and EBITDA either met or exceed our full year guidance. Again, this broad-based success was powered by our telecom business, driven by successful 5G migration and mobile service revenue growth alongside our ICT business, which capitals on expanding demand for IDC and cloud big data overseas markets. So now moving on to Slide 16. Please see our guidance for 2026. Looking ahead, total revenue for 2026 is expected to increase between 2.5% to 3.2% year-over-year, primarily driven by growth momentum in our core business. Well-received 5G service and speed upgrade promotion packages for fixed broadband are expected to continuously enhance our subscriber numbers and ARPU. ICT business is also expected to contribute to revenue growth as we continue to see digital transformation opportunities in the market. Operating costs and expenses are expected to increase between 3.5% to 3.7% year-over-year as a result of the investment in talent and infrastructure that support future business development in both core and emerging business. So given these projections, we expect our EPS to be in the range of TWD 4.82 and TWD 5.02. As for capital budgeting, we have budgeted TWD 31.91 billion for 2026. Looking ahead, our strategy remains consistent with our long-term road map, balancing disciplined efficiency with strategic expansion into resilient and sustainable infrastructure. Our mobile-related CapEx is expected to decrease by 6.3% year-over-year. This marks the fifth consecutive year of this decline since our peak in 2021. This demonstrates our ability to maintain our mobile leadership through capital efficiency as we move past the heavy 5G construction phase. Non-mobile related CapEx is expected to increase by 24%. The investment is strictly aligned with our sea, land, sky strategy to capture emerging business opportunities while fortifying our network. Key investments include expanding submarine cables to boost connectability alongside building our IDC data center. We also strengthened infrastructure resilience by upgrading power, cooling and cybersecurity systems. We are turning digital resilience into a unique competitive advantage. So this concludes our financial results highlights. Thank you for your attention. At this time, we would like to open the conference call for questions. Operator: [Operator Instructions] Now the first one want to ask questions, correct me if I pronounce wrongly, okay? Rajesh Panjwani from JP Morgan. Rajesh Panjwani: A quick question on the CapEx. If you can give some more detail about the big increase in the nonmobile CapEx, which is almost 24% for 2026? And also, can you provide some more details about -- you're looking at like almost 3.5% to 4% increase in the operating costs, which is higher than the revenue growth as well. So can you talk a bit about that as well? Wen-Hsin Hsu: Okay. Thank you very much, Raj. So the first question is about CapEx, about more detail on mobile CapEx, about 24% increase in 2026. So there are a couple of categories, as I just mentioned, this includes the fixed line maintenance, which consists of quite the big proportion of the fixed line maintenance. And the second is about the satellite and also the cables. And the third one is the IDC. I should say that mainly that the increase mainly coming from the IDC and also the satellite portion. And so this is for the first part. And the second part about the increase about 3.5% of operating cost. I think that one of the main -- there are 2 main portions. One, a couple of the reasons is that one is the human resource, the talent. I think that, as you know, that we are in emerging -- in a growing -- we have a lot of the sectors in IDC. We need a lot of the AI-related talent. So investment in the human resource is one important area. And the second is that electricity. I think that we are not so sure about the electricity policy in Taiwan. So we are a bit cautious. Also, this is also a second big area that takes the cost. The third one is about depreciation. That in the early stage, we have -- although that we try to trend down a lot of the CapEx, in recent years, as I mentioned, that discipline management is a key philosophy in our CapEx policy. But in the early stage that we still have some CapEx. So you will see -- as you see in our cash flow statements, you will see that the depreciation and also the amortization, these 2 portions is a bit much higher than the net increase of the PPE. So is that clear? Or do you want me to clarify any others? Rajesh Panjwani: Yes, if you can share like of the total increase in nonmobile CapEx, how much is from IDC? Wen-Hsin Hsu: Actually, we didn't separately disclose the exact number of the CapEx budget for each nonmobile items. But I can share with you that I think the CapEx for IDC and cloud it remain, I mean, like the second largest part of the nonmobile CapEx for 2026, okay? And then I want to add one more point for the mobile CapEx. As we know that the 5G CapEx investments, we had just passed the peak, right, but for 2026, actually, we will invest in as a stand-alone related applications like the network slicing for your reference. But the total mobile CapEx for 2026 actually still less than that of the 2025. Rajesh Panjwani: I got it. This is helpful. It would really be helpful if going forward, you can provide greater breakup of nonmobile CapEx because it's almost like more than 3/4 of your CapEx is now nonmobile CapEx. So it would be really helpful to get more details about that in the future. Wen-Hsin Hsu: Okay. Thank you for your opinion. Operator: [Operator Instructions] There seems to be no further questions at this moment. I will turn it over to President Lin. Please go ahead, Lin. Rong-Shy Lin: Okay. Thank you very much for your participation. Happy New Year. Operator: Yes. Thank you, President Lin. And ladies and gentlemen, we thank you for your participation in Chunghwa Telecom's conference. There will be a webcast replay within an hour. Please visit CHT IR website at www.tw/ir under the IR Calendar section. You may now disconnect. Thank you again, and goodbye.
Operator: As it is time to start, we will now begin the conference call for the presentation of financial results for fiscal year 2025 third quarter. Thank you very much for your participation. Today, Mr. Yamauchi, Executive Officer and General Manager of Accounting Department, will give a briefing. And later, we will have a Q&A session. We will conclude the call at around 16:50. Now Mr. Yamauchi, over to you. Toshihiro Yamauchi: Thank you very much. This is Yamauchi speaking. Thank you very much for attending the Sumitomo Chemical conference call despite your busy schedule. I'd like to thank investors and analysts for your deep understanding and support to our management. Thank you very much for that. Now let me start with a briefing of the financial results for fiscal year 2025 third quarter. Before explaining the details of our financial results, I would like to give a brief update on the status of profit and loss for the third quarter. Core operating income and net income attributable to owners of the parent for the third quarter significantly increased compared to the same period of the previous fiscal year. Core operating income was driven by Sumitomo Pharma's strong sales and partial divestiture of the Asian business recorded a gain. Core operating income of Essential & Green Materials increased significantly year-on-year with a gain on the partial sale of shares in Petro Rabigh and better trade terms. Agro & Life Solutions crop protection and chemical business had solid performance. Net income attributable to owners of the parent already exceeded in the third quarter, the forecast announced in November. However, we anticipate that the recording of losses from nonrecurring items will be concentrated in the fourth quarter. Consolidated financial results of the third quarter of FY 2025. Sales revenue was JPY 1.7063 trillion, down JPY 198.5 billion year-on-year. Core operating income expressing recurring earnings power was JPY 186.8 billion, up JPY 126.8 billion year-on-year. Nonrecurring items not included in core operating income was a loss in total of JPY 6.4 billion. In the same period of the previous year, there was the impact of recognizing our interest in Petro Rabigh's debt forgiveness gain of JPY 86 billion as a nonrecurring item, leading to a profit of JPY 85.4 billion. So compared to the previous year, this has worsened by JPY 91.8 billion. As a result, operating income was JPY 180.4 billion, up JPY 35 billion year-on-year. Finance income was a loss of JPY 36 billion, improvement of JPY 69.3 billion compared to the same period of the previous year when loss on debt waiver for Petro Rabigh was recognized. Gain or loss on foreign currency transactions included in finance income or expenses was a loss of JPY 7.7 billion, worsening JPY 22.8 billion year-on-year. Income tax expenses was a loss of JPY 300 million, increase of tax burden of JPY 900 million year-on-year. Net income or loss attributable to noncontrolling interests was a loss of JPY 56.8 billion, worsening by JPY 44.7 billion year-on-year with improvement of Sumitomo Pharma's income. As a result, net income attributable to owners of the parent for the third quarter was a profit of JPY 87.4 billion, up JPY 58.8 billion year-on-year. Exchange rate and naphtha price, which impact our performance average U.S. dollar rate during the term was JPY 148.71 to a dollar and naphtha price was JPY 65,000 per kiloliter. Yen appreciated feedstock price declined compared to the same period of the previous year. Next, sales revenue by reporting segment. Please look at Page 6. Total sales revenue was down JPY 198.5 billion year-on-year. By segment, sales revenue decreased in all segments except Sumitomo Pharma. As for year-on-year changes of sales revenue by sector, sales price decreased by JPY 49.5 billion, volume decreased by JPY 191 billion. Foreign exchange transaction variance of foreign subsidiaries sales revenue decreased by JPY 28 billion. However, the large negative difference in volume is largely due to business restructuring efforts, such as the sale of subsidiaries and business withdrawals and decrease in shipment volume at our sales subsidiary due to a periodic plant maintenance carried out by Petro Rabigh this fiscal year. Next is Page 7. Total core operating income increased by JPY 126.8 billion year-on-year. Analyzing by sector, price was plus JPY 6 billion. Cost, plus JPY 3.5 billion. Volume variance, including changes in equity in earnings of affiliates was plus JPY 117.3 billion. I will explain the details on the following pages. But significant increase in volume of variance gain was largely due to profits from business divestitures. Next is performance by segment. Please turn to Page 8. Agro & Life Solutions. Core operating income was a profit of JPY 28.1 billion, up JPY 8.6 billion year-on-year. Price variance, trade terms improved for overseas crop protection products. Volume variance, there were long -- there were strong shipments in Japan, India and other regions but income declined from exports due to stronger yen and there was a stronger yen effect of sales of subsidiaries outside Japan when converted into yen. Please turn to the next page. ICT & Mobility Solutions. Core operating income was a profit of JPY 46.5 billion, down JPY 13.2 billion year-on-year. Price variance, selling prices of display-related materials declined. Volume variance, though there was a gain on the sale of large LCD polarizing film business, shipments of display-related materials decreased. Shipments of semiconductor process materials such as resist and high priority chemicals increased due to the continued gradual recovery of the semiconductor market. There was lower income from exports due to stronger yen and the stronger yen effect on the sales of subsidiaries outside Japan when converted into yen. Next page. Advanced Medical Solutions segment. Core operating income was a gain of JPY 300 million, down JPY 900 million year-on-year. Sales and affiliated companies decreased. Please turn to the next page. For the Essential & Green Materials segment, core operating income was JPY 19.8 billion, an improvement of JPY 64.1 billion year-on-year. As for the price variance, the profit margin for synthetic resins improved alongside the decline in primary raw material naphtha prices, and the profit margin for alumina also improved. Regarding the volume and other variances, we recorded a gain on the sale of a portion of our equity in Petro Rabigh equity method investee company. In addition, refining margins improved at that company, leading to an improvement in profitability and investments accounted for using the equity method. Please go to the next page. For the Sumitomo Pharma segment, core operating income was JPY 111.2 billion, up by 86.9 billion year-on-year. As for the price difference, due to the impact of NHI drug price revisions within Japan, the selling price fell. Cost differences resulted in a decrease in SG&A due to progress and rationalization and others. Regarding the volume and other variances, in addition to the increased sales of Orgovyx, a treatment for advanced prostate cancer and Gemtesa, a treatment for overactive bladder, gains from the partial transfer of equity in the Asia business are included. This concludes the overview of by segment performance. Next page will be the explanation of the consolidated statement of financial position. Total assets at the end of December 2025 totaled JPY 3.5104 trillion, up by JPY 70.6 billion compared to the previous fiscal year-end. Growth in inventory assets due to periodic plant maintenance at the Chiba plant and increased buildup for sales in the fourth quarter and beyond along with the acquisition of tangible fixed assets for new plant construction and expansions were the primary factors driving the increase. Interest-bearing debt was JPY 1.2215 trillion, down by JPY 64.6 billion compared to the end of the previous fiscal year. As a result, the D/E ratio at the end of December 2025 improved by 0.23x from 1.2x at the end of March 2025, reaching 0.96x. Next, I will explain the cash flows. Please look at Page 14. Operating cash flows from operating activities was positive at JPY 111.6 billion. However, cash inflows decreased by JPY 29.1 billion year-on-year. Quarterly income before taxes improved. However, this was influenced by factors such as the deduction of gains from business divestitures from operating cash flow and the significant improvement in working capital last year end based on immediate term concentrated measures to improve business performance. Cash flow from investing activities was negative JPY 39.8 billion, a decrease of JPY 96.6 billion year-on-year. This period also had the sale of part of Sumitomo Pharma's Asian operations. However, the same quarter last year included significant income from the sales of Sumitomo Pharma shares and Roivant and the sale of Sumitomo Bakelite shares. As a result, free cash flow was positive JPY 71.8 billion, a deterioration of JPY 125.7 billion compared to the positive JPY 197.5 billion recorded last third quarter. Cash flow from financing activities resulted in a negative JPY 100.6 billion due to factors such as loan repayments and dividend payments. This represents a decrease of JPY 41.1 billion in outflows year-on-year. Next, I will explain the outlook for fiscal year 2025. Please go to Page 16. I will explain from the business environment surrounding our company. Regarding the economic conditions, although investments in the field of technology are firmly supporting the global economy, future prospects remain uncertain due to the expansion of protectionism and increased geopolitical risks. In the main business environment, we use weather symbols to indicate our key business areas and our assessment of their respective environments. From the top regarding crop protection chemicals, we expect price competition to continue and inventory congestion in the distribution chain remains uneven across regions. Regarding the methionine market price, although it recovered in the first half of the fiscal year, we anticipate a continued downward trend in the second half. Displays are showing steady growth in mobile-related components. Demand for silicon semiconductors has recovered more than anticipated since our previous forecast and is currently showing steady growth. However, performance continues to vary across different fields. The petrochemical and raw materials market will continue to have low margins. That concludes the business environment overview. Now let me explain the consolidated performance summary. Please turn to Page 17. This is the summary of financial forecast for fiscal year 2025. Core operating income for fiscal year 2025 is forecasted at JPY 200 billion, showing improvement over time with an expected increase of JPY 15 billion compared to the November performance forecast. As shown in the graph in blue, excluding gains on the divestment of business, profit from business activities improved significantly at Sumitomo Pharma and Essential & Green Materials due to the results of fundamental structure reforms, resulting in a significant increase in profits from approximately JPY 80 billion in the previous fiscal year to approximately JPY 120 billion in the current fiscal year. So it has largely increased. Furthermore, and as for the profits attributable to owners of the parent, it has increased by JPY 1.5 billion to JPY 55 billion. Now furthermore, in light of the upward revision due to improved profit and loss, the year-end dividend per share to shareholders will be increased by JPY 1.5 from the JPY 6 announced in the November financial forecast to JPY 7.5 per share. As a result, the annual dividend amount will increase by JPY 4.5 from the previous year's JPY 9 to JPY 13.5. The payout ratio is expected to be approximately 40%. And please go to Page 18. This is showing the details of the business performance forecast. First, sales revenue is forecasted at JPY 2.3 trillion, up by JPY 10 billion from the previous forecast. As for the core operating income, as mentioned before, it is forecasted at JPY 200 billion. Net income attributable to owners of the parent as mentioned before will be JPY 55 billion, an increase of JPY 10 billion year-on-year. The assumptions regarding exchange rates and naphtha price are as stated on this slide. As for the sales revenue, we expect an increase due to higher shipments of semiconductor processing materials within our ICT & Mobility Solutions segment. As for core operating income, I will explain the situation by segment on the next slide. Please go to Page 19. As for the full year business performance by segment, regarding Agro & Life Solutions, Advanced Medical Solutions, Essential & Green Materials and Sumitomo Pharma segments, these 4 segments, as you can see here, the previously announced guidance remains unchanged. As for ICT & Mobility, Semiconductor processing material shipments are expected to increase, leading to a slight increase in profit compared to the previously announced guidance by JPY 2 billion. For others and company-wide expenses, compared to the previous forecast, we are expecting a JPY 13 billion increase. At the time we made an announcement last time, we consider the uncertainties in the business environment, so we have incorporated risks to a certain extent. The business activities are now progressing steadily. Therefore, we are forecasting an increase in profit compared to the previously announced forecast. This concludes the explanation of financial results and forecast. I would now like to take questions from the participants. Operator: [Operator Instructions] Now we would like to receive the first question. From Morgan Stanley MUFG Securities, Mr. Watabe. Takato Watabe: I'm Watanabe from Morgan Stanley. For Agro & Life Solutions, I have a question. In the third quarter, your profits and sales was not that large, but why was the profit in the third quarter and there are differences by region. And what is the situation of inventory adjustment and the movement towards fourth quarter? And by main products, what is the trend in the fourth quarter forecast compared to last year's fourth quarter, you expect a reduction in profit. Could you talk about Agro & Life Solutions? Toshihiro Yamauchi: Thank you for your question. For Agro & Life Solutions sector, first, in the third quarter situation. Compared to last year, it is true that it is better. And by region, India and also in Japan, things were very solid. And Europe as well, the amount is not that large, but Europe was also firm. And in North America, compared to the same period of previous year, it is at a similar level. South America, it is slightly difficult. Last year, there was a drought, which is giving an impact. And credit concerns about the clients exist, so there are difficulties in increasing sales. Customers with high creditworthiness, in this case, competition is becoming strong. And by product, well, in that sense, is the main product [indiscernible], South America is a main market, but growth is a little slow. Takato Watabe: Sales and profit trend still is not increasing that much, but profit is increasing. What is the reason for that? In the same quarter of the previous year, compared to the previous quarter or previous year, the impact of foreign exchange rate is seen in each region, there will be increase in local currency, but when converted into yen, there are cases which is flat or slightly declining. I think that is the impact. What is the progress of inventory adjustment from crop protection products? What is your prospect for the next fiscal year? Toshihiro Yamauchi: For inventory, in general, it is moving to an improvement direction. United States and India, we are seeing improvements. But in South America, there is still some inventory remaining. So towards the next fiscal year, South America is the place where we have to resolve. Thank you. Operator: We would like to take the next question Mizuho Securities, Mr. Yamada. Mikiya Yamada: This is Yamada from Mizuho Securities. I was told to ask you one question. So I'd like to hear about the third quarter situation outlook regarding the ICT & Mobility Solutions. In the same way as the previous question related to Agro & Life Solutions, I would like to know the details. Specifically, 3 months in third quarter, the -- when you are doing analysis of the variances of core operating income, in 3 months, it was minus JPY 5 billion. And in the 9 months, it was minus JPY 3.7 billion. So year-on-year, it's a plus JPY 1.3 billion is what I think. For display-related products the shipment has declined. And thinking about the foreign exchange being negative, that means that the semiconductor was quite performing strongly. And so in semiconductor, was resist a good performer or in others good or is resist the contributor? And if so, the DRAM and NAND, the high prices are maintaining. So I would like to know the future trend of this. Toshihiro Yamauchi: Thank you very much for your question. The ICT & Mobility Solutions situation for the third quarter is what you have asked. Looking at the year-on-year basis -- just a moment, please. Regarding semiconductors, from last year, gradually, it is recovering. And by field, memory-related area, the DRAM utilization is increasing and NAND is recovering. However, depending on the customer, it varies. For DRAM, due to the generation change, the South Korean usage is declining. For logic usage, Taiwan and China, new plants are being -- starting their operation and increasing. So our shipment volume is on the trend of increasing. However, on the other hand, South Korea and United States is flat. Mikiya Yamada: Well, the resist specifically, is there such factors? With memory, it's going to change the generation. However, the U.S. capital part is increasing very well for resist? Toshihiro Yamauchi: For resist, this is the overall situation compared to last year, the sales is increasing. Mikiya Yamada: And this time, you have revised upward so that situation from the third quarter to the fourth quarter, it is a quarter that usually declines, but it's not going to be that way. Is that the correct understanding? Toshihiro Yamauchi: Yes. I have high expectations. Looking forward to it. Thank you. Operator: Now the next question from SMBC Nikko Securities, Mr. Miyamoto. Go Miyamoto: I'm Miyamoto from SMBC Nikko Securities. I also had a question about Agro & Life Solutions. This may be like Mr. Watabe's question. In the third quarter, there was an increase of JPY 11.5 billion year-on-year in terms of profit. And fourth quarter, you expect a decline compared to previous year. Same quarter, methionine is showing a declining trend. But there were shipments carried forward. So could you tell me what is the impact? In particular, in Q3, as Watabe-san mentioned, sales trend is showing a difference. Sales in the segment in Q3 year-on-year is a drop of about JPY 4 billion, but profit has increased. So when I see your analysis by sector, looking at the volume variance in the first half, it's minus JPY 3.9 billion. So for 3 months, volume variance is a factor of JPY 12 billion increase in profit. But on Page 23, analysis of sales differences, volume variance and for first half was minus JPY 4 billion, but now it's minus JPY 8.4 billion. So minus JPY 4.4 billion in 3 months. So the sales volume variance is quite negative but profit is positive. Could you explain a little more about it? I think the foreign exchange rate has not changed that much. Toshihiro Yamauchi: Please give me a minute. Yes. Thank you for waiting. With regards to relationship with sales, methionine volume is declining. So as sales, there's a drop. However, this is not giving a big impact on profit or losses. But for crop protection chemicals, India is doing well, in Japan also. In particular, in Japan, from Q4, sales carried forward. In other words, there's a trend of customers placing orders in advance. So Q3 has improved. That's a factor for the improvement of Q3. Go Miyamoto: I see. On Page 27, the sales that we have indicated on crop protection, it is flat. And for Q3, 8 months, it has increased about JPY 2 billion. But one variance has increased that much. Why is it so? Toshihiro Yamauchi: Page 27. I see. This is indicated in yen. But if you look at these figures in dollars, it may look different. First, United States, JPY 2.6 billion negative. But in local currency, it is nearly flat. And India, it is slightly negative. But in local currency, there is an increase. So these are some of the factors. For sales and profit, there is no particular major factors. Go Miyamoto: I understand. In the fourth quarter, you expect a decline in profit year-on-year. Could you explain that? Toshihiro Yamauchi: Because shipments were carried forward for crop protection products and methionine sales price is showing a declining trend. So that is taken into consideration. Operator: Next from Daiwa Securities, Mr. Umebayashi. Hidemitsu Umebayashi: This is Umebayashi from Daiwa Securities. I would like to ask a question regarding Essential & Green Materials. From the second quarter to the third quarter, the trend, the profit and losses improved by JPY 51 billion, and that is due to the Rabigh share sales. But other than that, if there are any factors I would like to know. First of all, as a confirmation, Rabigh, the profit you made from the equity method is at 37.5% or 15% as of the third quarter, I wanted to confirm that. And also, the third quarters in Essential & Green, the sales revenue has increased as well. So I would like to know the background of that. I think the fact is that the business performance is doing well. Did the margin improve? Or did the petrochemical product sales improve? And also the fourth quarter, I believe that there is going to be a periodic plant maintenance. So was there a buildup of inventory due to that or not is what I would like to know. Toshihiro Yamauchi: Thank you very much for your question. Regarding the third quarter's Essentials & Green Materials, as you have pointed out correctly, over here, the Petro Rabigh equity sales is included. When we made a timely disclosure in this November, it was JPY 50 billion, and the number that's close to that is incorporated in this. And other than that, there are improvements that were made for Petro Rabigh. Well, over here, up to the third quarter, it was 37.5%. Our interest was that and we have applied the equity method. And from the fourth quarter, it is going to become 15%. And regarding the refining margin improvement also occurred. So this area has improved as well. And in Singapore as well, TPC, they were due to the improvement of the profit margin, the profit and loss situations have also improved. Hidemitsu Umebayashi: So for the sales part, it was a Singapore that was doing well in terms of the sales improvement? Toshihiro Yamauchi: Just a moment, please. Well, the products from Rabigh, the sales of those, that compared to the first quarter and the second quarter, the third quarter is showing a larger growth. And from April to June, it has experienced a periodic shutdown for maintenance. And probably to the second quarter, that impact remained. But from the third quarter, it returned to the regular sales and the fourth quarter for the Rabigh manufactured products, we are looking at it the same way, and that is reflected in the changes. And the impact to the profit is minor. So these are the factors is what we think. Operator: Next, I'd like to receive Mr. Okazaki from Nomura Securities. Shigeki Okazaki: I'm Okazaki from Nomura Securities. About the dividend, I'd like to ask a question. As you have mentioned, this time, you are going to increase the dividend. The annual dividend payout ratio is now about 40%. I think you mentioned 30% before. The final profit figures may differ. So is that meaning as a background? And JPY 7.5 billion for the interim period? And next year, depending on the farmers' milestone, there will be other factors where basically you will continue or it will be rather positive. We are gradually becoming confident. Is this understanding correct about the dividend payment. Toshihiro Yamauchi: Thank you for your question. For dividends, as you mentioned, basically, our dividend policy is stable dividend. And with relation to profit, in general, about 30% is the level. At the moment, the profit for this year, we made an upward revision to JPY 55 billion. It is still in the process of recovery. So in terms of dividend payout ratio, a stable minimum dividend payment is going to be made. That is our feeling. So Instead of 30%, it is now 40%. And compared to our initial plan, profit has increased. And about -- we will consider continuing in the future and taking that into consideration, we decided to have this amount of dividend. Shigeki Okazaki: So this is a minimum level, more than 38.7%. You have not yet to determine what will be the performance next year, but depending upon situation, there may be other factors but among those JPY 7.5 at a moment is amount that you want to keep. Is my understanding correct? Toshihiro Yamauchi: Yes, you are right. Operator: Next, from Morgan Stanley MUFG Securities, Mr. Watabe. Takato Watabe: This is my second time. Regarding Essential & Green Materials, at the flash report, it says that the business transfer gain is JPY 55.8 billion and it was consistent by Rabigh and others. But if you exclude that, it is in the red. And the fourth quarter period of the maintenance shutdown, when we talk about the refining margin right now, I think the Petro Rabigh performance is improving as well, and there is a business integration moving forward. But what is the impact of that? And what are you looking at towards the overall essential and green materials? Toshihiro Yamauchi: Thank you very much. For the divestment gain and the last report, it said JPY 55.8 billion. Yes. After the third quarter cumulative figure, Petro Rabigh, other than Petro Rabigh, we have divested several companies. Nippon AL, which is already disclosed, including that in total is JPY 55.8 billion. And towards turning around into black ink, regarding Petro Rabigh, it's difficult to share with you what's going to happen in the future. But for the refining margin and probably all of you can assume what the situation is going to be. And I think you can assume in that way. And how it can turn around to profit making, we're in the midst of setting the budget for next fiscal year. So I would like to refrain from commenting. Takato Watabe: So the fourth quarter non-recorded loss concentrating, it's mainly in Essential & Green Materials. Is that correct, including essential as well. Toshihiro Yamauchi: To a certain extent, there are planned items for -- from restructuring. But there are some items that we are aware of, such as impairment, but we are looking at it to that extent. Takato Watabe: So there is -- do you think that is going to work positive in the next fiscal year, such as the decline in depreciation? Toshihiro Yamauchi: Yes, that's how we are understanding it. However, at this point, it's difficult to give you the full answer. Operator: Well, it is time to conclude. So the next question will be the last question. Yamada-san from Mizuho Securities. Mikiya Yamada: I'm Yamada from Mizuho Securities. This is a detailed point. Under others, this time, though there is an upward revision, for Q4, you expect some level of negative figures. So these are corporate expenses. So it is possible that, that will surface on Q4 and things will become more transparent. So JPY 20 billion to JPY 25 billion corporate costs could be expected from next year onwards. What is the trend of that? Could you tell me that? Toshihiro Yamauchi: Thank you. Under corporate expenses, as you know, the corporate expenses, in particular, R&D expenses are included here. And recently here, regenerative cell research is still under development. So the progress of research expenses is very difficult to make a projection. So these are also included. So we don't expect a large drop next year, but we expect to maintain a certain level in terms of these expenses. Mikiya Yamada: About more than JPY 10 billion R&D will be spent for regenerative cells. And then that is surfaced in a specific quarter like this? Toshihiro Yamauchi: Yes, that is what it is. Operator: Mr. Yamada, thank you very much. With this, I would like to conclude today's conference call. Thank you very much for your participation today. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Jaime Marcos: [Interpreted] Good morning, everyone, and thank you very much for attending Unicaja's Q4 2025 Earnings Presentation. First of all, as we usually do, let me confirm that this morning, before the market opened, we published this presentation along with the rest of the usual financial information at the CNMV website and at our corporate website. Today, we are joined by our CEO, Isidro Rubiales; and our Chief Financial Officer, Pablo González. We have divided the presentation into 3 sections. Isidro will begin with the introduction, which includes a summary of the financial year, and a brief review of the first strategic -- first year of the strategic plan. Pablo will explain the financial earnings. And after which Isidro will return to the stage 2, conclude with some final remarks before opening the floor to your questions. We expect the presentation to last just over half an hour. After the presentation, we will take questions from analysts and investors who are following us by telephone on the original Spanish line. And then we will move on to the English [ channel ] line. So without further ado, I give the floor to Isidro. Isidro Gil: [Interpreted] Thank you very much, and good morning, everyone. It's a pleasure for me to be here again, sharing with all of you the main -- the key highlights of the 2025 earnings, which, as Jaime mentioned, is the first year of the strategic plan. And as you will see, we are making good progress, which is also a beginning to be reflected in the entity's financial performance. The strategic plan is designed for the long term. And many of the results and returns we expect to obtain will take time to be reflected. But it's true that some of these measures implemented are already allowing us to move in the right direction with some clear results in the first year of the plan. On Page 3, we show our usual summary of the highlights of the financial year. The first item that we would like to highlight is the significant recovery in business activity that we have achieved throughout 2025. Two years ago in the fiscal year 2023, performing loans fell by 9%, the following year. In fiscal year 2024, the decline was 4%. In 2025, despite not growing in the mortgage segment, which is Unicaja's largest book, we managed to reverse that trend and achieved 2% lending growth. This turning point, as we will see later, is partly as a result of the diversification strategy outlined in the strategic plan that we presented to you a year ago and which is gradually beginning to take shape. Proof of this is that loan approvals have grown by 40% compared to the previous year. Another aspect that reflects the greater commercial momentum is the evolution of mutual funds, which, as you will recall, was one of the strategic levers of the plan with balances rising by 23% during the year and a net subscription market share of 9%, which is higher than our structural share. This positive performance has also been reflected in profitability, with net profit for 2025, improving by 10% to EUR 632 million, thanks to the growth in gross margin and lower provisioning requirements. The increase in income boost the ROTE adjusted for excess capital of 12% and maintains efficiency slightly above 45%, below our target of 50%. I would also like to highlight the continuing improvement of the bank's asset quality, an aspect to which the market may be paying less and less attention, but which we have been managing exceptionally well internally. And as a result, their balances have become immaterial, but continued to improve quarter after quarter. NPAs fell by an additional 25% in 2025. And additionally, leaving the net nonperforming asset ratio at a symbolic 0.8%. Stock fell by 20% during the year, reducing NPLs ratio to 2.1% below the 2.8% reached by the sector in November 2025, the latest data available. NPL coverage also improved during the year, increasing from 68% to 77%. This positive development is also reflected in the P&L with a cost of risk below 26 basis points below initial guidance. Finally, I would also like to draw your attention to value generation. One of the most important aspects as it's the consequence of all the above. The CET1 ratio driven by earnings ended the year at 16%, 90 basis points higher above last year, which allows us to increase the percentage of the 2025 earnings, which -- that will be allocated to dividends from the initial 60% to 70%. This is a significant increase that will improve the dividend up to EUR 443 million, 29% higher than the previous year. And this is the highest dividend paid in Unicaja's history. On the following page, we show you how the year ended compared to the initial guidance we shared with you a year ago, we believe it summarizes the year's performance very well. We expected net interest income to be above EUR 1.4 billion, and it finally reached EUR 1,495 million, which is 7% above our initial guidance due to the implementation of loyalty plans with linked customers, we expected fees to remain flat, but they ultimately increased by 3%, driven by growth in investment, in mutual funds and insurance, two of the commercial pillars of our plan. Costs remain in line with expectations, rising 5% due to investments, hiring and the projects we are implementing to execute the strategic plan. The cost of risk was below our initial forecast as our provisions. Business volume also grew as expected. As a result of all the above, net income increased by 10% to EUR 632 million, no less than 26% higher than the initial target, which was EUR 500 million, which, as you know, we already exceeded in the previous quarter leaving the ROTE adjusted for excess capital at 12%, which is 200 basis points higher than the 10 initial -- 10% initially expected. As you can see, these pages summarizes very well the positive performance of the entity in the first year of the strategic plan, which we -- where we met all the guidelines we provided a year ago. And in some cases, we significantly improve on them. On the next page, as I mentioned earlier, we show how the positive evolution of the entity's financial position and results allow us to present a very important milestone. The Board of Directors has decided to update the dividend policy and increase the percentage of profits we want to distribute in the way of dividends going from 60% to 70%. This is a significant increase in the distribution of earnings to our shareholders, which together with the best earnings will mean the payment of dividends for 2025 of more than EUR 0.17 per share, well above the EUR 0.134 paid for 2024 and compared to around EUR 0.05 that we paid in 2022 or 2023. The total dividend will amount to EUR 443 million, 29% higher than the previous year. This is a significant increase, which as I said before, has been made possible by the positive performance of the results and the bank's comfortable solvency position. Now if we turn to Page 6, you will see some of the progress made on the strategic plan in the first year. Although we are in early days, we have gone -- begun to notice a significant change in the dynamics, thanks to the entire team's focus on the plan's initiatives. And we wanted to share some ones with -- that we are particularly excited about with you. In consumer lending, we aim to double arrangements by 2027. This year, we have already increased by 40%, maintaining our focus on working with existing customers and direct deposit income. With regard to new insurance premiums, we wanted to increase by 25% in 2027. In this first year, we have already increased by 17% and we continue to see room for improvement to achieve our goals. Another noteworthy aspect is the off-balance sheet weight on total customer resources, where we have increased to 27% in the year with a final target of 30%. We have launched products such as Unicaja Store and reached very important agreements with the management company that will help us to continue increasing and diversifying our income. In the corporate sector, we are very pleased with the improved performance of the business in the first year of the plan. We have turn around a business that was in decline in the book after falling 9% in 2024, has grown by almost 4% in 2025. To achieve this, we have attracted 70% more new customers with lending increased our own customer financing share by 5 percent points and increased the weight of the current assets from 11% to 14%. All of this driven by our focus on improving customer satisfaction with an NPS indicator, improving by 10 points in the corporate business since we launched the plan. Across the board, as you will see later, we are working hard to improve our commercial and operational tools using artificial intelligence. We are rolling out tools across the entire organization and loading use cases in different areas, such as sales, customer service, operations, et cetera with efficiency improvements in many cases, exceeding 50%. Finally, a very important part of our plan is to hire specialized and significant profiles for the bank in order to achieve our targets. In this first year, we have already achieved 65% of the talent acquisition that we have planned. In short, it has been an intense first year of the plan, where we're gradually beginning to reap the rewards of this implementation. As a result of these advances, on Page 8, we update our earnings expectations for the 3 years of the strategic plan a year ago, along with the annual earnings for 2024. We presented the main details of the plan in which we showed our intention to exceed EUR 500 million in net profit in each of the 3 financial years and an accumulated net profit of more than EUR 1.6 billion, which was 40% more than the [ EUR 1.17 billion ] achieved in the previous 3 financial years from 2022 to 2024. Today, following the positive performance in the first years of the plan's implementation, we're increasing this accumulated net profit earnings expectations by EUR 1 billion taken to EUR 1.9 billion, which is 70% higher than the accumulated net profit achieved during the previous 3 years. The interest margin, which we initially expected to exceed EUR 1.4 billion each year, is now expected to exceed EUR 1.5 billion. And net income, which I mentioned earlier, we initially expected to exceed EUR 500 million each year, is now expected to exceed the net income for 2025. This is EUR 632 million achieved last year. All of this will be accompanied by a cost-to-income levels that will remain below 50%. On Page 8, we provide an update on shareholder remuneration target of the plan. As you will recall, the objective is to allocate more than 85% of the earnings for the 3 financial years to shareholder remuneration. Initially, the idea was to allocate 60% through the ordinary dividend and the remaining 25% through what we call additional remuneration which could be in cash dividends or share buybacks with the intention of concentrating this additional remuneration in fiscal year 2026 and 2027. Following the updates of the dividend policy from 2025 onwards, we are increasing the structural remuneration from 60% to 70%. This reduces the percentage of additional remuneration for the period to 15% of accumulated earnings. As can be seen on the right in order to achieve the aforementioned objective, the additional remuneration will represent around 25% of the earnings for fiscal years 2026 and 2027. In other words, for the 3 years of the strategic plan, we will pay 70% of the net profit in dividends, and for 2026 and 2027, in addition to that 70%, will include an additional remuneration of 25% of the profit for those 2 years, which will be either paid in cash dividends or through share buybacks, something we will decide based on circumstances. Therefore, for 2026 financial year, if we pay part or all of the additional remuneration in dividends, we will make an additional payment in December, to which we will have to add the 2 usual dividends for 70% of the result, the first in September and the second in April of the following year once approved in the General Shareholders Meeting. As you can see, this would be the plan over the 3 years as a whole. Shareholder remuneration represents more than 85% of the accumulated net profit. Finally, and given its importance, I would like to take a moment to mention some areas in which we are making progress in the field of AI, which we show on Page 9. We are convinced that this technology will change the way we do business and banking, not in the future, but right now, that's why we consider it's an absolute priority. We are making progress in the use cases across all areas, including commercial operations, IT development with very encouraging results that drive commercial activity, improve efficiency and reduce the time required for many tasks. This is facilitated by a hybrid of modular architecture. This is adapted to both cloud on-premise environments with independent components that accelerate system and construction are ready to work with different types of models. We believe that innovation is essential to get the most of it, which is -- that's why we have created an AI hub with more than 50 multidisciplinary professionals. And we've launched joint chair with University of Granada to promote research and attract talent. In short, we are promoting the adoption of artificial intelligence throughout the organization, which is leading us to achieve efficiency improvements of over 50% in some areas. In short, as you have -- you will have seen in the 2025 financial year has been very positive. Progress in the implementation of the strategic plan has led to an improvement in commercial dynamics which, in turn, has boosted results by 26% above initial forecast, which together with our comfortable solvency position allows us, on the one hand, to increase the percentage of earnings that we'll allocate to dividends from initially 60% to 70% increasing the dividend by 29%, to EUR 443 million, the highest in our history. And on the other hand, it allows us to improve our future earnings expectations. So with that, I'll hand over to Pablo, who as usual, who will give you more details on the financial performance for 2025. Pablo, whenever you're ready. Pablo Gonzalez Martin: [Interpreted] Thank you, Isidro. Let us now continue with the business activity on Slide 10. As you can see, total customer funds rose by 3.5% in 2025. Private sector deposits increased by EUR 662 million or 1% with a continued shift in the product mix from term to demand deposits that rose to EUR 55 billion, up 3% year-on-year, which explains the lower cost of deposits that we shall discuss later. Our balance sheet performance remains very positive, posting an annual growth of 13.8% driven by mutual funds, which after reaching the market share of 9% of net subscriptions grew by 22.6%. That is in the north of EUR 3 billion. On the following slide, we disclosed the details of assets under management and insurance. On the left-hand side, you can see that assets under management rose by 14% over the last year. Funds in turn climbed by 23%. Note worthy is the significant increase in net fund subscriptions, as shown at the bottom, these subscriptions rose from 1 point EUR 1,767 million to just over EUR 2.8 billion, accounting for a 9% market share of net subscriptions according to Inverco. On the revenue side, as you can see on the right-hand side, these 2 lines of business rose by 9% in 2025, accounting for 18% of total revenue for the year. With regard to lending, during the 2025 financial year, total performing loan book rose by 1.9%, which is a very positive trend compared with the declines reported in recent years, as Isidro mentioned earlier. Broken down by business segment, corporates posted a very positive uptick and after rising 1.7% in the quarter, they reported annual increase of 3.7%. This is one of the most positive business aspects of the year. In fact, thanks to the implementation of certain measures under our strategic plan, we have reversed the negative trend that this segment has been experiencing in recent years. In the case of individuals, growth for the year was 0.6%. Because albeit, we barely reduced the mortgage book by 0.2%. We were able to offset this with a strong increase of more than 8% in consumer lending. Again, driven by the measures set out in the strategic plan, which aims to diversify revenue streams. In short, this trend points to progressive improvement over recent quarters which can be explained by greater diversification and better sales dynamics, together with a major increase in new production as shown on the following slide. All new lending book segments grew markedly by 40% over the year as a whole from just over EUR 7 billion to almost EUR 10 billion in 2025. Growth in corporate banking is particularly noteworthy with formalized balances rising by 46% over EUR 6 billion. Mortgages rose by 30% to over EUR 3 billion. This amount leaving the book flat for the year given the pace of repayments. It should be noted that this more conservative growth in the mortgage book is mainly due to the high level of competition in this segment, where prices are very tight. Finally, although in related times, their balances are less representative, I would like to highlight the increase in new consumer lending production, which rose by 40% to EUR 822 million. In short, this positive growth is in line with the business priorities set out in our plan. On the following slide, you can see how we continue to make progress on our strategic plans, sustainability commitments. This effort is being recognized by ESG rating agencies with 6 improvements having been granted in the latest reviews. Regarding environmental matters, noteworthy is an increase in the weight of Article 8 and 9 funds, which now account for 72%. We maintain and reinforce our strategy of financing ourselves through green bonds with high eligible collateral, while also advancing in the decarbonization of the portfolio, now targeted at 6 sectors representing 81% of our lending to the private sector already. We also like to highlight, Unicaja's social commitment, one of our identity hallmarks, which can be summarized in aspects such as customer proximity, commitment to financial education and support for vulnerable groups. A portion of proceeds is returned to society through more than EUR 175 million distributed in dividends to foundations in addition to EUR 371 million in taxes paid in 2025. We're also committed to our customers by accompanying them in their own transition to this. And we are promoting new functionalities and agreements with third parties as reflected in the growth of the sustainable business where both the portfolio and new production are growing significantly. Finally, we would like to highlight our commitment to our employees with a focus on creating an environment that prioritizes people, good governance, equality and professional development. We shall now continue with a review of the income statement in the next section. Starting with the quarter, net interest income grew by 0.8% and as the effect of loan repricing was offset by lower funding costs, both in retail and wholesale. Fee income improved by 4.1% over the quarter, bringing us to gross income of 1.3% higher than last quarter. Costs are rising due to the seasonality of the quarter. Overall, the quarterly margin before provisions rose by nearly 1%. Provisions as a whole rose sharply over the period, mainly because we have included a provision for restructuring costs in the amount of EUR 27 million. Our aim is to implement a new workforce renewable plan similar to the one we announced last year. For the year as a whole, profit rose 2.6%, reaching EUR 2.095 billion. Total operating costs increased 5.4%, in line with the previous year and the guidance. Overhead costs rose as a result of ongoing investments, while personnel expenses increased by 4.2% in excess of the percentage agreed in the collective agreement due to new hires and variable remuneration. The operating margin improved by 0.5%. Provisions fell by 25% during the year, mainly due to lower provisions for legal risks. All of the above, led to a pretax profit of EUR 902 million, which after taxes and minority interests, including EUR 26 million in sector-specific tax amounted to EUR 632 million, up 10.3% compared to the 2024 financial year. Let us now take a closer look at the income statement. Starting with net interest income on Slide 18, we show the evolution of customer net interest income. As you can see, it fell by 4 basis points over the quarter as the decline in credit yields was partially offset by lower deposit costs. This is the same trend as reported in previous quarters, but increasingly moderated as the downward trend in lending is becoming more limited, albeit we expect it to continue somewhat due to the annual evolution of the 12-month Euribor, which is still slightly below what it was a year ago. We also increasingly see less room for declining the cost of deposits, which continues to improve due to the mix effect rather than the price effect. In any case, as we always say for an institution such as Unicaja with far more deposits than loans, business performance is better reflected by the net interest margin on profitable assets. And this remains stable during the quarter, as you can see. The following slide shows details of the margins performance during the quarter, which improved by EUR 3 million or 0.8%. The lower return on loans mentioned above is offset by the lower cost of deposits and wholesale funding as well as by the higher generation of liquidity. This quarterly performance is similar to that reported in other quarters this year. But as mentioned above, it is becoming increasingly moderate. Moving on to fees. We can see that they continue to perform well in the quarter, growing by 4.1%, mainly due to higher income from value-added services such as mutual funds and insurance. Over the year as a whole fees rose by 2.8%. As we have mentioned in the past, fees for collections and payments, known as banking fees fell by 7% as a result of the implementation of customer loyalty programs. Although some of these fees, such as car fees are already showing positive growth in 2025. At any rate, this impact was more than offset by the positive performance of nonbanking fees. These fees, which had greater added value rose by 12% in 2025 driven by mutual funds and insurance, which as shown on the right-hand side, now account for 49% of the total, up from 45% in 2024 and 41% in 2023. Let us move on to the P&L account to show the rest of the income captions, which also show a positive trend in the financial year due to the changes introduced in the sector-specific tax, but also due to the fall in nonperforming assets and the growing contribution of investee companies. On the cost side, as mentioned above, personnel expenses increased during the year due to wage rises agreed with employee representatives, new hires and also as a result of higher variable remuneration in view of the institution's positive performance. As for overheads, the figures are accounted for by the necessary investments we are making largely for the implementation of the strategic plan. In any case, and despite this increase in costs over the year, efficiency remains at 45.5%, below the 50% target we have set in the plan. On the following page, we continue with provisions, which show another positive aspect of the financial year as they continue to improve. Total provisions fell from EUR 319 million to EUR 239 million. That is a decrease of 25%. The quarterly cost of risk was 27 basis points and the annual cost of risk was 26 basis points lower than initially expected. Other provisions include restructuring costs for workforce renewal in both 2024 and 2025, amounting to EUR 38 million in 2024 and EUR 27 million in 2025. Excluding this effect, they are in line with expectations, showing a downward trend. On the following slide, we show a summary from a profitability standpoint. On the left-hand side, you can see different profitability metrics, all of which demonstrate the positive evolution of Unicaja's results. The reported return on tangible equity without any adjustments increased to 10%. If adjusted for excess capital above a CET1 of 12.5%, which is a level similar to that of other listed Spanish institutions, shows an improvement of 12%. At the bottom, we show the same metric calculated on regulatory capital, which shows an improvement of 70% in 2025. On the right-hand side, you can also see the evolution of the tangible book value, which when adjusted for dividends, increased by 9% during the financial year. We now turn to credit quality. Another positive of recent quarters. The balance of nonperforming loans continued to decline. The quarterly decline was 4.3% and the annual decline was 20%, bringing the nonperforming loan ratio to a new low of 2.1%. At the same time, coverage of nonperforming loans continued to rise from 68% a year ago to 77% at present. If we now consider total nonperforming assets, or NPAs, we see that in net terms, they account for 0.8% due -- both to the significant 25% drop in their balances during the year and to the increase in coverage, which rose from 71% in 2024 to 77% at the end of 2025. Finally, I would like to review the bank's solvency and liquidity position with you. On Slide 28, we show both the quarterly and annual trends. In the quarter, the ratio fell to 16% due to 2 different factors. On the one hand, we have the impact of the dividend adjustment, which is slightly higher than the quarterly result. Since until September, we accrued a dividend of 60% of the result, which now becomes 70% for the financial year. Secondly, we have the impact of the growth in risk-weighted assets, which is mainly explained by operational risk and credit growth. Even so the CET1 ratio closed the financial year 2025 at 16%. Over the year as a whole, we generated 90 basis points of CET1. On the positive side, we have the generation of earnings, which net of dividends and AT1 coupons amounted to 55 basis points despite allocating 70% of earnings to dividends. In turn, we have another 77 basis points mainly from lower deductions and market valuation, including the impact of EDP, which amounts to 21 basis points for the year. On the negative side, we have the growth in risk-weighted assets, which, as we mentioned, are rising due to the impact of the update of operational risk and credit growth. On the following slide, we show the institution's position in relation to different requirements. The minimum required eligible liabilities or MREL ratio stands at 27%, growing slightly over the year with a greater weighting of subordinated instruments. On the right, you can see the buffers we have in relation to the main requirements, which, as you can see, remain quite comfortable. And at the bottom, we show the liquidity ratios, which continue to be among the highest in Europe with the LCR standing out and in 2025, about 300%. And finally, we show you the details of the debt portfolio, as you all know, in our case, this is relatively important because the low loan-to-deposit ratio translates into a high retail liquidity position, which we invest in this structural portfolio, mainly in the amortized cost portfolio. As you can see, the portfolio has hardly changed during the quarter with the balance duration and rate remaining fairly stable. That's all from me, Isidro, whenever you're ready, I give you the floor. Isidro Gil: [Interpreted] Thank you, Pablo. Continue on Page 32 with some information about what we expect to see in 2026, which you can imagine it will be fairly consistent with progressive improvements that we hope to see it materialize as a result of the implementation of the strategic plan. Starting off with the net interest income, we expect some growth and therefore, to end this financial year about the level reaching 2025, fees should continue to grow at a low single-digit rate, driven by value-added fees, mainly from funds and insurance costs. And we hope that the fees from the banking will contribute -- costs will continue to grow at around 5%, reflecting the investments we want to make to continue successfully executing our strategic plan. We expect the cost of risk to remain below 30 basis points. The business volume will be maintained its current pace with growth of around 3%. And finally, as a result of the above, we believe that the net income will continue to grow in 2026, exceeding the result achieved in 2025. And to conclude, allow me to share a few quick conclusions with you before opening the floor to questions. Today, we have presented excellent results for 2025, reaching a new historic high in both earnings and dividends. But as I also told you last year, we are not satisfied. We want to continue improving something we hope to do by executing our strategic plan, a plan that in its first year is already showing some of the returns we expect. From a business perspective, the 2025 financial year is a turning point as evidenced by the 2% growth in total loans with some strategic segments rising significantly, such as consumer and corporate loans. This change in trend has been supported by an incredible acceleration in the market of balance sheet resources, which grew by 40% driven by 23% growth in mutual funds, another of the strategic and priority products in our plan. All of this has led to a 3% improvement in turnover above the previous year's level. As we have mentioned, this turning point is driving results, which are up 10% to EUR 632 million, 26% above the initial guidance, representing an excellent 17% return on regulatory capital, improving by more than 100 basis points over the year. This positive performance together with our comfortable solvency position has enabled us to increase the percentage of profits allocated to dividend payments from 60% to 70% resulting in dividend for 2025 of EUR 442 million, 29% higher than the previous year. Finally, as we highlighted earlier, this excellent performance means we can improve our earnings expectations for the period 2025, 2027 by 19% from the previous EUR 1.6 billion to more than EUR 1.9 billion, of which 85% will be used to pay out our shareholders, while maintaining a comfortable financial position as we expect to meet these expectations with a CET1 ratio of over 14%. In short, 2025 is once again an excellent year that allows us to lay the foundations for further improvements in the future. Finally, I would like to thank all Unicaja employees for their unquestionable effort and performance in executing the strategic plan. Without their commitment and support as well as the shareholders and directors, these results would not have been possible. This concludes our presentation. And if you agree, we will now move on to the Q&A session. Jaime Marcos: [Interpreted] Thank you very much, Isidro. Thank you very much, Pablo. Let's move on to the Q&A session. Let's start with the telephone line in Spanish. Please introduce yourselves. And please limit it to 2 questions so that we can answer the highest number of investors possible. So operator, thank you. Operator: Ladies and gentlemen, we will start the Q&A session. [Operator Instructions] The first question is from Maks Mishyn from JB Capital. Go ahead. Maksym Mishyn: Two questions. One, it's about the restructuring costs. If you can give further detail on what these costs include. And secondly, if you expect have them in 2026. And the second question is on the guidance, on volumes. Can you give more detail on what you expect in terms of loans and deposits outside balance? That would be very useful. Isidro Gil: [Interpreted] Maks, thank you for your questions. With regards to the first question and referred to the provisions for restructuring, you know that last year, we did this exercise, these voluntary retirement plans or early retirement plans. We're not looking at saving costs, but improving capacities regarding the environments where we are. Right now, the idea is to run it this year, and we don't expect it to happen the following year in 2027. With regards to guidance and volumes apart from the 3% growth in line with what we've done in 2025, we do see a more balanced mix between the asset growth and the resources customer growth around 3% in both segments. Jaime Marcos: [Interpreted] Thank you, Isidro. Operator, please, the next question. Operator: The next question is from Francisco Riquel from Alantra. Francisco Riquel: I would like to ask from NII guidance. Could you talk about the rate scenarios that you have included in the guidance because 1,500 is very flat, and the volumes are growing and interest rates is what it is. And I think it's a very conservative -- if it's conservative, I don't know whether you can talk about the sensitivity in NII in terms of interest rates for year 1 and year 2 and what you have included in the plan vis-a-vis margins. And my second question is about the use -- how you're going to use excess capital. A year ago, you asked for flexibility to consider M&A opportunities in the first part of the year. We haven't seen anything in 2025. And my question is whether you can give us an update on your ambitions for M&A for the next -- for the rest of the plan and how are you going to use the capital excess? Isidro Gil: [Interpreted] Paco, I'm going to answer the first question with regards to the guidance as to whether it's prudent and what hypothesis we have used. With regards to the hypothesis, we've used the curve that we had at the end of November, which will had a Euribor of 2.35% at 12 months is to -- we're around 2.22% at 12 months, and the expectation is to go -- see a rise by the end of the year. The balance sensitivity and the ANI to interest rates at 12 months is quite low. And the volume growth impact is also low. It will be seen more in 2027 than in 2026. In 2023, we started to reduce the balance sensitivity and we have increased this for 2026. But I think that for 2027, the higher interest rates -- potential high interest rates will have a positive impact. And with regards to the volumes at around 3%, the deposit cost is very similar to this year's -- the deal of the credit investment is going down in the first quarter and will be flat in the second, and will start to go up in the third with the new production and with the repricing, which will have no negative impact which will make the margin behavior to follow that line. The first quarter will be a bit lower because you have the days effect and it will catch-up up until we see it above. How much above? Well, it depends on the deposit cost evolution and on the volumes evolution, if we are able to grow more in deposits. As we've seen this year in site deposits, this will improve a bit more, and it will depend on those variables. But it will be as from 2027, where you will see a more significant increase of margin. Pablo Gonzalez Martin: [Interpreted] Good morning, Paco. As for the excess in the use of capital, I believe that today, we have explained to you how we are going to carry out that payment in excess of 85%. We also said that we are going to analyze new opportunities and if capital is required, well, we will have to analyze its efficiency in 2025. Such opportunities did not arise. We didn't see any clear opportunity of an investment with a good return for our investors. But should that happen, well, we might consider using capital more efficiently. And that's all I can say in this respect. Jaime Marcos: [Interpreted] Thank you very much, Pablo, and Isidro. Operator, please next question. Operator: The next question is by Ignacio Ulargui from BNP Paribas. Please go ahead with the question. Ignacio Ulargui: I have 2 questions for you. The first question is concerned with the growth of deposits. How do you envisage this in 2026? You have shown an increase of 3% as for lending and customer funds, you have also reported some growth. Now how do you think deposits are going to behave in 2026 and in line with the excess of capital question, taking into account the increase of payouts, what capital generation do you envisage going forward and how much of that capital will come from DTAs? Isidro Gil: [Interpreted] Thank you for your question. As for the growth in deposits, the first question was already answered. We said that growth is expected to be at around 3%, taking into account the mix between assets and liabilities reaching was striking a balance. In 2025, we draw a distinction between balance sheet items and off balance sheet items. 2025 was an exceptional financial year. And even though we believe that this will continue to grow off the balance sheet. We believe that the mix is going to be more balanced, and we will continue to post growth. And we will continue to do so on the balance sheet. As for capital generation, concerning this question, next year, we are going to distribute 95% of the results. Therefore, the capital growth lever, as I said before, is going to contribute less than this year, where it stood at 70%, but DTA capacity will also be available whereby capital might be expected to grow over the years. So we expect capital to grow. No doubt that capital growth is going to be lower compared to 2025 due to the fact that the results generation will be paid out to our shareholders, almost as a total. Jaime Marcos: [Interpreted] Thank you very much Isidro. Next question please. Operator: The next question is by Carlos Peixoto from CaixaBank BPI. Carlos Peixoto: I have a question as to your forecast concerning fees and the growth of fees. Do you think that it's going to continue growing at rate of 3%, in line with the growth of volumes. I'm asking this in order to understand how these products are expected to before? And do you think that there is any room, what ever for fees to grow further in the next financial year? Pablo Gonzalez Martin: [Interpreted] Carlos, we couldn't really understand your question 100%, especially the last part. We believe that the fee guidance is quite conservative, taking into account the performance of funds that pushed fees up in 2025. Well, as for our expectations concerning fees, this is based on our aim to continue growing both on the balance sheet and off the balance sheet customer funds, as Isidro pointed out before, we believe that mutual funds will continue to grow steadily due to customer demand, but we believe that deposits on the balance sheet will also continue to grow even more than in the current financial year. You should take into account that there's plenty of competition on the liability side, and that's why we have these customer loyalty programs in place. Concerning payments, we already see some positive signs such as growing fees and significant card activity. We continue to grow. We continue to enhance transactionality with customers, and that is going to be offset by the different customer engagement or loyalty plans that we are going to continue to deploy to target more customers. So hence, we believe that we should expect this increase in fees. But in the case of mutual funds, we believe that, that growth is going to be even greater. Jaime Marcos: Thank you very much, Pablo. I believe that there are no further questions. So operator, we can now hand over to questions in English. Operator: [indiscernible] Cecilia from Barclays. Cecilia Romero Reyes: The first one is on the buyback specifically, what would be the likely timing from here and what milestones need to be met before you can execute the next program? Is there a regulatory or any other approvals needed at this point? And then the second one is on competition for both mortgage and deposit. On mortgages, how are you seeing the competitive intensity at the moment, at current pricing levels, what kind of economics are you targeting on new mortgage production? And how important is cross selling to make those returns work? Are you being pushed to accept lower margins to defend volumes? And on deposits, are you seeing any renewed pressure on deposit costs from competitors keeping attractive offers in the market for longer, to what extent are neo banks and only platforms influencing the competitive behavior on deposits? Isidro Gil: [Interpreted] Good morning, Cecilia. I think that in -- with regards to buyback, the buyback from what we've said that the additional remuneration is dependent upon the fact that whether we're going to do it on a cash dividend payout or on a buyback, but what's true is that the decision will be made at the end of December, whether it's cash dividend or within program of payback. We haven't made a decision. But in any case, we're not talking about significant volumes if we get to do it. And it will depend on the -- whether it makes sense to do it on cash or whether to do a buyback program. But in any case, we would be talking about material amounts for those buyback programs. The second question is related to competition in mortgages. The credit growth in -- the lending growth after having seen negative rates in segments like public administration, is the only segment where we haven't grown, and we've been flat. We've been flat in the mortgage segment, which is the most representative segment. And that's why we've been applying a policy based on 2 things: one, on having a good risk profile. And that's been a standard tradition and how we've granted credits and not going above a certain level of price. And so that's -- we've kept that flat over the year. The market that has so much pressure for lack of housing, it's having a big impact on competition, on prices. Our expectation is for this to improve -- key solution to improve the housing situation is somewhat complex because the housing is not covering the social demand for new housing. So we will continue with a similar strategy. We will still have the adequate risk profile. And we will continue to generate -- continue along the lines that we've been doing. The idea is to keep the market rationale with regards to -- reasonable with regards to price. And we will be more positive in prices or we will find a balance between the credit given or the ability to link the customer. I think that in that segment, we could be able to compete with price. But if we find -- if we find ourselves in a no way back, we could end up in a scenario that we went through in 2025. Unknown Executive: Cecilia was asking on the competition on deposits and one of the offers from other institutions. Isidro Gil: [Interpreted] The competition in deposits and how we see the evolution in the deposit cost. As you know, the Spanish market is very competitive with regards to national banks. We've had various specialized banks in attracting liabilities. I think that will be the case even getting higher. And with regards to the strategy and the evolution of fees, we will continue with the loyalty programs. We have developed banks for our customers. We have very competitive digital solutions which are far better than our competitors. In terms of neo banks we have attractive solutions for our customers. And we consider that we keep that level or even going -- will go up in deposits despite the existing competition that we expect. Operator: Next question is from Sofie Peterzens from Goldman Sachs. Sofie Caroline Peterzens: This is Sofie from Goldman Sachs. So my first question would be on capital. Do you expect any regulatory headwinds in 2026 or '27 and what are your thoughts on using SRTs? And then the second question, just going back to mortgage lending, one of your peers is guiding for 6% mortgage loan growth or lending growth in '24 to '27. Why do you only see 3% volume growth? How should we think about the upside risk for volumes to perform better than expected? Pablo Gonzalez Martin: [Interpreted] Thank you, Sofie. With regards to any regulatory impact for this year, we don't have other jurisdictions like the U.S., where they're talking about deregulation and talking about a reduction of the regulation. We don't think that we're not going to have any negative impact in the following years. I think that the period of increase of capital requirements has gone to a reasonable level and the solvency and the quality of financial institutions in Europe is strong enough to withstand the stress test -- stress scenarios that are analyzed, and we don't consider there's going to be any negative impact in that regard. And with regards to competition and the growth expectations in the mortgage world, as Isidro has said, we will continue along our lines in the way that we will conduct the most reasonable analysis possible. We will look for customers with high credit quality with linking ability, and will be adjusted in price so that the performance of the customer. I don't think that the market will grow by 6%. That's why we don't have such a higher growth in the credit. We think that the credit growth, despite that we come from significant deleverage starts to grow, it's still continuing and the nominal growth of the [ bps ] of the GDP. And we -- as Isidro said, we need more production, more new housing, which won't happen in 2026 because it should have happened in the previous years and this evolution will happen in a later stage if it happens. And we don't think that there's going to be mortgage growth -- mortgage sector growth of 6%, but for us, mortgages are fundamental products to link the product to provide global services to our customers, and we will put our stakes on it. And he was mentioning SRTs, that given the solvency position that we have is not something that we have on the desk in the short term in terms of the SRTs. We look at the different options to improve our capital position. And we also look at the SRT. But in the short term, we don't expect the conduct of any, given the capital position that we hold right now. Operator: The next question is by Borja Ramirez from Citi. Borja Ramirez Segura: This is Borja from Citi. I have 2. Firstly, I would like to ask on the deposit growth outlook. You mentioned about the digital channel. I would like to ask what portion of your new customers are from the digital channel? And also what percent of your deposit inflows would come from the digital channel? And then my second question would be, if you could provide any -- an update on your M&A strategy, please. Isidro Gil: [Interpreted] Borja, well, as far as digital channels is concerned, you should know that we are a bank with a territorial footprint, a strong territorial footprint with let's say, on-site banking mainly. I don't have the exact percentages for the digital channel. However, we are starting out from a lower base. But actually, we have observed a growth in terms of deposits as well as consumer loans, most of our production comes through the digital channel. We also have plenty of competition in digital channel. However, there was significant growth in 2025, and we expect that trend to continue to grow going forward. We continue to focus on a multichannel model. All channels are interconnected, whether we talk about branch offices and the digital channels as well as the contact centers, any contact point with customers, including the web page, et cetera, everything is intertwined. So we continue to have greater weight in the our brick-and-mortar network. However, we continue to grow in the digital channel little by little. Pablo Gonzalez Martin: [Interpreted] Let me add that we continue to grow in terms of the number of customers, the higher deposits through the digital channel, there has been a growth of 5% in 2025, and we expect that growth to continue in future years, as Isidro said, this is going to be important. In the case of deposits, again, we expect growth to be reported in the digital channel. The next question is concerned with the consolidation of the financial system. Let me reiterate what we already said in prior years, especially since we have embarked upon this new change and since we have set out a new strategic plan, we are now focused on carrying out our strategic plan. Our shareholders do not want us to lose focus over the strategic plan. And therefore, we believe that we will keep this project unchanged. The achievements over the past years, ratify our strategic vision and the fact that we want this to remain as an independent project. And this is what we have been reiterating again and again over the past years. Operator: The last question is by Hugo Cruz from KW. Please go ahead with your question. Hugo Moniz Marques Da Cruz: I have 2 questions. First, on the usage of excess capital. If you don't have M&A opportunities, could you do a one-off payment above 100% payout or is the 100% a limit where how far you could go with one-off distributions? And second, on loan pricing. I think you said repricing shouldn't have a negative effect on your NII, but I was wondering if you could give a little bit more detail product by product. So how does front-book pricing compared with back-book pricing for your mortgages, SMEs, corporates, consumer, if possible? Isidro Gil: [Interpreted] Thank you for your question. As for the excess of capital related question, as we mentioned during the presentation, we are near 100% for 2026 and 2027. We undertook that commitment back in the day when we presented our strategic plan. And this, of course, means that we have to fulfill our commitment in excess of 85% of the strategic plan. Now that the payout is going to be 70% for 2025, the payout for the next 2 years with stand at around 100%, as you have mentioned. But now we are fulfilling the commitment that we undertook when present in the strategic plan. For the time being, we do not intend to carry out any other payout other than the one that we announced today during the earnings presentation, Pablo. Pablo Gonzalez Martin: [Interpreted] Now as for the pricing impact related question across segments, as for mortgages set at a fixed rate, the value is below what we expect to attain. As for SMEs and corporates, we are already rallying in terms of the front-book compared to the back-book with some differences. However, even though there has already been some repricing, the repricing impact is to be found only in the mortgage book at a variable rate with a moderate impact during the first quarter with some tail effects in the following quarter. However, we believe that the loan yield is going to -- will remain steady as of the second quarter and will remain so also in the third quarter. We still have some long-lasting loans among corporates and the public sector set at low interest rates. As they mature, the loan yield might be expected to grow even though we expect a greater impact as of 2027 when significant improvement in margins is expected to take place. Jaime Marcos: [Interpreted] Thank you very much Isidro and Pablo. Thank you very much for attending this earnings presentation. Should you need additional information, please do not hesitate to contact our Investor Relations team, and we look forward to having you again attending this presentation for the next quarter. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Cenk Gur: Dear friends, this is Kaan speaking. Thank you for joining us. I hope you are all well. Today, we will first walk you through our financial performance, underpinned by disciplined balance sheet management, strong fee momentum, resilient capital metrics and continued progress across our strategic priorities. Our earnings reflect not only the current operating environment, but also the structural strength of our business model. Building on this performance, we will share our guidance for the years ahead, shaped by a prudent assessment of the operating environment. Our focus remains on risk-adjusted returns, reflecting our commitment to sustainable profitability and prudent risk management. At the same time, we will frame these near-term priorities within our 3-year outlook, where we see clear opportunities to reinforce earnings durability, enhance efficiency and deepen customer penetration. Our direction remains centered on executing today while positioning the bank for consistent and profitable growth over the coming years. Dear friends, before moving on to our bank, I would like to briefly touch upon the operating environment. Global financial conditions and risk appetite are expected to remain favorable for emerging markets, supported by continued Fed rate cuts along with a tight spread and subdued commodity price environment. World growth remains resilient despite trade policy uncertainties driven by AI and technology investments and more supportive financial conditions. In Türkiye, domestic demand and economic activity continues to grow, albeit at a more moderate pace. Consumer inflation is on a gradual downward trend. Central Bank is expected to be attentive to inflation risk with cautious and measured rate cuts while macro prudential regulations are set to remain in place and fiscal consultation is underway. Against this backdrop, we expect the banking sector's profitability to continue in a gradually improving trend while asset quality deterioration is likely to proceed in a contained and orderly manner. Let's move on to our bank. On this slide, you can see how our core strengths have translated into tangible financial outcomes. Our strong capital position with 16.8% total capital and 13.6% Tier 1 actively enabled growth, providing the flexibility to manage the balance sheet with agility and dynamically allocated assets and liabilities across cycles. This disciplined approach is supported by prudent provisioning with further increase in our gross coverage to 3.7%. While growing, effective risk management has kept Stage 2 plus Stage 3 loans limited, below 11% of total loans, preserving earnings stability as we grow. At the same time, operational discipline is reflected in our leading 16% fee to OpEx performance. As a result, we continue to deliver strong market share gains in our priority segments, such as business banking loans, where we added 100 basis points in the second half of the year while maintaining our dominant positioning in general purpose loans with over 19% market share. Supported by our continued focus on our customer acquisition and deepening relationships, we have sustained strong momentum in fee income market share, reaching 17.8% by the end of 2025. All of this positions us to further scale a resilient earnings platform and unlock sustained long-term growth potential in the period ahead. Dear friends, Akbank has made solid progress against the 3-year targets we have shared with you on a regular basis. The achievements delivered to date are clear proof of what we are capable of executing going forward. This progress provides a strong and credible foundation for the next 3 years as we continue to build sustainable customer-driven revenue streams. Importantly, this 3-year period is not a destination, but a stepping stone, positioning us for an even stronger, more ambitious journey ahead. On this slide, we have summarized our road map. Dear friends, we are committed to further strengthen our innovation capabilities by developing differentiated offerings across the group that enhance our value proposition and support scalable AI-enabled operating models. Innovation will be accelerated by rapidly testing and scaling AI, blockchain and hyperpersonalization. We will leverage generative AI to provide proactive self-service recommendations across our channels and equip our frontline teams with tools to provide seamless services to our customers. We aim to expand integrated solutions together with our subsidiaries and broader ecosystem that will further deepen customer engagement and unlock new scalable growth opportunities in targeted areas. In parallel, we will continue to invest in future-ready talent to reinforce execution and sustain innovation momentum. Ongoing efficiency gains alongside deeper customer penetration reinforced by value chain network will remain key priorities across our franchise. Collectively, these factors will enable the consistent delivery of return on equity above inflation on a sustainable basis starting this year. Here, we outline our financial KPIs for the next 3 years, translating our strategic plan into measurable targets. The strong dynamism and motivation felt across the bank at every level continues to support execution and momentum. First, over the next 3 years in total business banking loans, we aim to increase our market share by another 300 basis points. We target to grow in cash as well as noncash loans in both Turkish lira and foreign currency. We already started to build the foundation last year by gaining 100 basis points market share in the segment during the second half of the year. Second, our ambition in consumer loans also continues. On top of last 3 years' market share gains of 440 basis points in consumer loans, we aim to gain further 100 basis points until 2028. Customer deposits will remain the primary source of funding for our growth, while demand deposits will continue to reinforce balance sheet strength. Accordingly, moving on to our third ambition, we aim to gain 200 basis points market share in Turkish lira demand deposits, building on top of the 240 basis points gained over the last 3 years. Fourth, after achieving over 100% of fee to OpEx ratio, our homework is to maintain full coverage of OpEx going forward. This will support us -- this will support us to reach our fifth ambition, which is a cost-income ratio below 35%. These targets will feed into our leadership positioning in capital while driving solid growth at the same time, delivering a return on equity above inflation starting this year. Having navigated multiple cycles, I have full confidence in our people's capabilities and execution. I would like to sincerely thank our teams for their outstanding dedication as well as our stakeholders for their continued trust and confidence. I will now pass it over to Ebru to walk you through our results and guidance. Following that, to Chair, and I will be happy to answer any questions you may have. Thank you. Ebru, over to Kamile Ebru GÜVENIR: Thank you, Kaan Bey. Moving further into the details. Our net income was up by 35% year-on-year to TRY 57.224 billion, resulting in an ROE of 21.5% and an ROA of 1.9% for the full year. During the same period, we achieved a solid revenue growth, up by 50% year-on-year to TRY 222.33 billion, thanks to robust fee income generation and NII building momentum in the second half of the year. Our quarterly net income was up by 30% to TRY 18.317 billion, leading for our quarterly ROE to show a sequential improvement to 24.9%, up from 21% in the third quarter. The quarterly ROE improvement was underpinned by our focus on deepening client relationships and strong cross-sell execution, which continued to fuel fee income while agile ALM and margin accretive growth has been reflected in our solid NII evolution. As we move ahead, our sustainable growth mindset, sound balance sheet and analytical capabilities will drive further NII enhancement and anticipated rate cut cycle, leading to an ROE above inflation starting this year. Moving on to the balance sheet. Last year, our TL loan growth reached 42%, surpassing our full year guidance of over 30% Foreign currency loan growth of 10% also came in well above our mid- to single-digit full year guidance. We strategically accelerated our loan growth in the second half, delivering strong market share gains in both foreign currency and TL business loans while supporting NII evolution. To put in numbers, we captured 80 basis point market share in foreign currency loans and 110 bps market share in TL business loans during this period among private banks. At the same time, we maintained our already solid position in consumer lending. This performance for sure, illustrates the effectiveness of our targeted growth strategy, laying a strong foundation for our 2028 targets while preserving risk return discipline. Moving on to securities. The share of securities in total assets remained stable around 23%, while the composition reflects our balanced approach, maximizing yields. We selectively increased foreign currency security exposure supported by timely buildup of NIM accretive Eurobond investments. Foreign currency securities grew by 35% year-on-year in dollar terms, lifting their share in total by 7 percentage points year-on-year to 34%. On the TL side, we are well positioned in long duration and higher-yielding fixed rate securities complemented by TLREF indexed bond portfolio with decent spread, providing potential for further book value growth through mark-to-market gains. As highlighted before, share of our CPI linkers has been strategically reduced by 31 percentage points since 2022, reflecting a deliberate shift in portfolio composition. Active yield-focused portfolio management has enabled timely repositioning of our securities and reinforces margin resilience going forward. On the funding side, our low TL LDR and strong deposit franchise have allowed us to optimize funding costs while selectively advancing growth. Our demand deposit share in total deposits increased by 5 percentage points year-on-year to 33%, supporting further margin improvement. Sticky and low-cost TL time deposit share in TL time deposit remains solid at 58%. Looking ahead, our well-structured balance sheet, combined with sound deposit mix provides a solid foundation for continued NIM enhancement. Let's move on to the P&L. As you know, our NIM had started to recover during the third quarter, thanks to improved funding dynamics. This trend was sustained during the fourth quarter, backed by disciplined balance sheet management. Our swap adjusted NIM expanded by 40 basis points quarter-on-quarter. On a CPI normalized basis, quarterly NIM performance was even stronger at 60 basis points. This is adjusted for the one-off valuation impact in the third quarter of the CPI. Looking forward, our unwavering focus on profitable growth and effective funding strategies will remain key drivers supporting the anticipated gradual NIM expansion throughout this year. Accordingly, the quarterly evolution will remain sensitive to both the pace of disinflation and also the magnitude of the rate cuts. Last year, our net fees recorded a robust growth of 64%, ending the year above our guidance of around 60%. The growth was broad-based across all business lines, reflecting strong customer engagement, continued innovation and diversified product portfolio. Sector-wide fees have benefited from the high interest rate environment. However, our diversified fee structure and growth in customer base positions us well to mitigate the cyclicality of the payment system fees in the lower interest rate environment. Cost increase remained well below -- actually well below our guidance and also was contained last year, while it was up on a year-on-year basis at 33%, while our guidance is at 40%. Having stabilized cost increase around inflation levels, we had the lowest OpEx base among all of our peers as of third quarter last year. And as you know, we're the first one to announce, so we will be keeping a close eye on this particular parameter. This is a reflection of our disciplined cost management and operational efficiency. However, our full year cost-to-income ratio remained around 50%, reflecting continued pressure on NII. As for this year, improving NII dynamics, along with resilient fee income base are expected to drive a gradual improvement in cost-income ratio toward low 40s. As Kaan Bey just shared, our mid- to long-term ambition remains unchanged with cost-income ratio targeted below 35% by 2028. Cost discipline embedded across our workforce and branch network alongside a targeted application of AI to enhance efficiency and scalability will all be instrumental in achieving our targets. On that note, let's now move on to our superior fee coverage of OpEx. Starting from an already high level, our broader operating footprint and deeper customer penetration alongside disciplined cost management translated into a stronger fee coverage. Our strong momentum in fees across all business lines led for our market share gain among private banks to advance by 1.4 percentage points to 17.8% last year. More importantly, the total market share gain in fees among private banks since end of 2022 has reached 3.9 percentage points. And at the same time, the fee to OpEx ratio has increased by 20 percentage points to 106% in just 1 year. With full coverage of OpEx now firmly in place, our aim is to sustain this level through this year and beyond. Let's move on to asset quality. Retail-led NPL inflows continue to be the persistent trend across the sector as a reflection of the macro environment. Despite this backdrop, our NPL market share among private banks has continued to decline, extending the trend observed since early 2025 with a further 150 basis point improvement in the last quarter. The share of Stage 2 plus Stage 3 loans remains contained at 10.8% of gross loans, underscoring the sound quality of our portfolio. Please also note that the restructured loans represents only 3.4% of the total loan portfolio. Meanwhile, our share in bankruptcy applications stands at less than 4%, which is well below our natural market share, mirroring disciplined underwriting and proactive risk management. Supported by prudent provisioning, our total provisions increased to nearly TRY 71 billion, reflecting the continued buildup of our reserve buffers. As a result, our coverage ratios remained solid with gross coverage at 3.7% and Stage 2 plus Stage 3 coverage at 28.1%, reinforcing balance sheet resilience. Excluding currency impact, net cost of credit ended the year at 214 basis points, slightly above our guidance, while NPL ratio was fully in line at 3.4%. So looking ahead, as we continue to grow, our disciplined risk framework supported by advanced analytics, AI-driven credit decisions in retail, together with the diligent tracking of our corporate and commercial loan portfolio, all position us well to preserve asset quality and contain potential cost of risk pressure for this year. Moving on to capital. Our total capital, Tier 1 and core equity Tier 1 ratios remain robust at 16.8%, 13.6% and 12.5%, excluding the regulatory forbearances. This reflects prudent capital allocation while driving profitable growth. As for sensitivity, 10% depreciation in TL results in around 30 basis point decrease in our capital ratios, while the impact diminishes for larger FX moves. Similarly, 10 basis point increase in TL interest rates would lead to an impact of approximately 10 basis points on our solvency ratios, demonstrating limited sensitivity and the strength of our capital. Overall, our strong capital buffers continue to anchor balance sheet resilience and support long-term profitable growth. Before moving on to Q&A, I'd like to share a few highlights regarding our nonfinancial performance. As highlighted in our ESG video at the beginning of this call, we continue to advance in our sustainable action plan with measurable results. As a result of our knowledge of dedication, we are happy to be among one of the few institutions globally to receive CDP's highest A rating in climate change, water security and forests, reinforcing our leadership in sustainability. And in this context, we are very excited and proud that COP 31 will be taking place in Türkiye this year. It reflects Türkiye's growing commitment to climate action and highlights the increasing importance of sustainable finance and climate risk management for our region. We will continue to support the transition to a low-carbon and inclusive economy in line with our long-term objectives. This slide highlights a snapshot of our 2025 financial performance, and we have shared throughout the whole presentation. But the last note, as we have shared, the main deviation was related to the pressure on net interest margin, and this was due to the tighter-than-expected monetary policy and the divergence between deposit costs and policy rate. And last but not least, our 2026 guidance. Looking forward, as said at the beginning of our presentation, we are committed to strengthen further our already robust positioning in consumer loans while accelerating market share gains in Turkish lira and foreign currency business loans, including noncash loans. Our focused growth and funding adaptability will sustain further NIM improvement this year. And accordingly, our net interest income will be supported by both volume growth and further improvement in margins through ongoing disinflation, obviously. And our resilient fee engine, combined with the cost discipline will continue to contribute to the full coverage of OpEx. Improving net interest margin or NII dynamics and resilient fee income base is expected to translate into a gradual improvement in cost-to-income ratio towards the low 40s. Asset quality will continue to be a priority area in the sector, while our disciplined risk framework will limit cost pressure, leading flattish cost of credit trend for this year. To sum up, our well-structured balance sheet, along with risk return focused growth is to support further NII enhancement in the anticipated rate cut cycle, leading to an ROA above inflation starting this year. Kamile Ebru GÜVENIR: This concludes our presentation, and we can now move on to the Q&A session. Please as always raise your hand or type your question in the Q&A box. And for those of us calling us by telephone please send your questions by email to investor.relations@akbank.com. The first question comes from David Taranto from Bank of America. David Taranto: The first one is about the growth. Historically, Akbank's market share was significantly higher. I remember back in 2007, 2008, it was close to 12%, but the bank deliberately gave away market share until 2020, at some point falling towards 7%. And in the last few years, you have reaccelerated the growth and regained market share across multiple segments. And that strategy is continuing according to the presentation. So my question is, what do you consider to be the natural market share for Akbank in the medium term? And b, assuming a normalized regulatory environment, i.e., relaxation of growth caps, when should we realistically expect Akbank to converge towards that natural market share? And second question is about the margins. Historical NIM averaged around 4% and your '26 outlook points to return towards these normalized levels. However, as rate cycle -- rate cut cycle progresses, one would expect NIM to temporarily exceed the cycle averages, even so macro prudential measures limit how far this can go. So what do you see as the main upside and downside risk to your NIM guidance for this year? And how do you expect deposit rates to move relative to the post rate given the constraints by the macro prudential framework? And finally, on costs, Akbank kept the cost growth relatively controlled versus sector in the past few years, but high inflation and the regulatory pressure still pushed the nominal cost base meaningfully higher. You point to medium-term cost income target of mid-30% levels. And I was wondering what are the key operational levers and time line to move towards that cost of risk levels. The reason why I'm asking is in a declining inflation environment, at some point, revenue growth is going to decelerate, not maybe for this year or perhaps next year, but eventually. So reducing cost income ratio could become a bit more challenging in this environment. So I would appreciate to hear your plans to limit the cost growth. And maybe one more thing, what are your macro expectations for '26, please? David, this is Turker. Thank you very much. Türker Tunali: I'll try to answer your questions. Please. But at the end of my answer, if I missed anything, please ask again. To start with the market share evolution, you're right, like in the past, like maybe like 15 years ago, we used to have like above 10% market share in the sector in some of the products. But as you may know, like in the last 10 years, there have been some periods where actually the state banks actually have acquired some market share from the private sector. So actually, that's why actually now we are seeing ourselves below 10% threshold. But definitely, as Ebru and Kaan Bey have shared, like we have like the ambition of growing the bank in the upcoming years as well. So therefore, like if we can achieve these market share gains as we have like put on to the table on the -- especially on the business lending side as well as further increasing our market positioning on the consumer side, I would assume that everything evolves as we're expecting, we should again see 10% levels, maybe not for all of the products because maybe we will deliberately grow the bank in some areas and maybe we will be more slower in some areas. It will -- the time will show this based on our macro expectations. But definitely, the aim of the bank is leveraging our superior capital and growing the bank and again, seeing that type of market share levels within the sector. With regards to our NIM trajectory, actually, -- for full year, as Ebru has shared, we are expecting like 4% of net interest margin, but we will be observing a gradual improvement in every quarter. So probably so we will be -- it's very likely that we will see the highest NIM towards the end of the year. That would, therefore, actually also support our NIM evolution for upcoming year. Maybe in long term, maybe, maybe, it's too early to talk about it. But in a normalized world, maybe with an inflation level of plus/minus 10%, let's say, that 4% is the normalized level, but definitely going into '26, we may expect a higher net interest margin. And as I just repeat, a gradual improvement in net interest margin. What may be the upside to this NIM trajectory, as we have shared at the very beginning of our presentation, our base case scenario for the macro outlook is like 22% to 25% year-end inflation with a policy rate of 28% to 31%, so with a really sizable real rate. And when we prepared our guidance, we were more on the more -- maybe on the conservative end, i.e., like maybe 24%, 25% year-end inflation with a policy rate of roughly maybe 31%. If this inflation trend evolves like better than this, like bringing the year-end inflation to the level of maybe low 20s or close to 20% and enabling a rate -- policy rate coming down to less than 28%, something like that, that will definitely bring an upside. But having said that, maybe also another thing, which will be also important to monitor, that was also one of your questions, like the deposit rates versus policy rates. As we've seen in the last probably 3, 4 months after the phasing out of the KKM scheme, because up until that time, when we had the KKM in the system, FX protected deposit scheme, the sector was -- it was easier for the sector to meet this TL deposit ratio requirement of the Central Bank. But once this KKM scheme has phased out, it became more challenging, and that's why actually, especially starting from fourth quarter, middle of fourth quarter or fourth quarter onwards, we've seen a divergence between the deposit rates and the policy rate. Maybe just to give you an example, at the beginning -- towards the end of the year and beginning of this year, like we've seen maximum deposit rates going up to 41% versus policy rate of 38%. That's why Central Bank has made a recalibration like a few weeks ago, like extending the reporting period for TL deposit ratio requirement and also like giving some buffers to manage the deposit rates. But frank -- to be frank with you, so far, there is still some gap, maybe not like 41%, but still we are observing rates like close to 40%. So still this divergence is to be observed in the market. So we'll see actually how it's going to evolve, whether we may see further calibration from Central Bank. This will be important factors to observe in the coming period. Maybe final remark with regard to your question on the OpEx. I think as Akbank, we've done a quite good job this year actually. When you look at '24 or '23, like OpEx growth was way above the inflation. So there was a divergence there were different factors to that. So inflation inertia, supply-demand issues globally, which was also creating USD inflation. But this year, actually, there was a normalization. So like low 30s of OpEx growth versus, again, 31% of inflation is I think it's really -- we delivered a strong performance that actually we were able to convert OpEx growth to the inflation. So it's -- again, our guidance for '26 is considering like an average inflation of like maybe high 20s for this year. So we will be again maintaining our cost discipline. And in the upcoming years, like with inflation going down, as you are -- as you have like -- I understand what you are -- how we are like assessing it. but the increase of revenues, revenues may go down, but not forget, currently, we are operating with growth caps. So there is really a huge growth potential. I would assume this volume growth will be absorbed maybe the high interest rates, et cetera, et cetera, or high spreads maybe for some time. Therefore, at least for Akbank, I can say the aim of the bank will be to fully cover its operation expenses with its fee income generation. And not forget it's really journey. We are always looking for efficiency areas in every aspect. So this will be -- we expect them also to be supportive in this low 30s of cost-income ratio ambition. Cenk Gur: Maybe, David, I would like to add something, maybe enhance the importance of the growth for Akbank, especially for 2026. You know that our strong capital base will continue to provide us strategic flexibility. And of course, we are going to in search of sustainable growth across the segments. But as you know, there are some segments and line of business that we would like to grow more, such as business loans, SMEs. So in the same time, when we look into our maybe quarter-on-quarter, the growth performances such as FX loan, Turkish lira loans, actually, we have the capacity to flexibly grow in a very smart way. So we are still on the -- finding new avenues to build up new platform and market share for FX loans. And we are going to be more on the infrastructure projects, multinationals, blue-chip companies. So -- but in the same time, of course, this is going to reflect our prudence and quality focus approach. So I would like to enhance what told before. Yes, we're going to grow. Kamile Ebru GÜVENIR: Thank you, David. Next question comes from Ashwath PT from Goldman Sachs. Ashwath PT: I have a few questions. The first being your guidance for FX loan growth of greater than 10%. Does that also reflect the recent updates to the macro prudential framework where I think the growth limit for the 8-week growth limit for foreign currencies has been reduced from 1% to 0.5%. The second question I have was around the ROE. You mentioned you expect 2026 to be high 20s. Would that be a natural expansion of NIM through the year, like you said earlier, to peak in probably in the second half of 2026. And would it be fair to say that's when you actually expect that the real ROE would actually turn positive towards the second half of the year? And more generally -- my third question would be more generally over a longer term where perhaps inflation does come down to the mid- to low 20s, perhaps next year or the year after. Where do you see the normalized level of NIMs and the normalized level of ROEs for the bank? Türker Tunali: Ash, this is Turker. This latest change of -- like on the FX loan growth cap side actually that was announced after we have actually prepared our guidance. But having said that, when we look at our fourth quarter performance only in the fourth quarter, we grew our FX loan book by 5%. it shows like the flexibility of the bank in tapping areas which are exempt from growth cap. Again, we will be looking at this picture in a similar manner. So therefore, actually, as of today, we don't see any downside risk to our guidance. With regard to NIM and ROE relationship, as actually, your thinking is right. We expect NIM to gradually improve, bringing us to a 4% NIM for full year. So that will definitely support our ROE evolution throughout the year as well. Like if we say what is real ROE, ROE above inflation, you're right, probably maybe not in the first quarter and second quarter, let's wait and see how also inflation evolves. But definitely, in the second half of the year, we should see that the ROE moves above CPI in the second half of the year. With regard to normalized level of net interest margin and ROE, like maybe it's not a short-term topic, but assuming like inflation goes down to plus/minus 10% levels in medium to long term, maybe as of today, we can use like roughly 4% of net interest margin as starting point to get a bit like plus/minus 20% ROE, meaning like maybe, let's say, real ROE, if you define ROE minus inflation as real ROE, then probably like 10% real ROE will be the ambition of the bank in the medium to long term. I hope that was clear. Kamile Ebru GÜVENIR: The next question comes from Simon. Simon. Simon Nellis: My question is around your fee growth guidance for this year of above 30%. So I guess that's nicely above your inflation expectations. I mean, given that inflation is falling, that there's some regulatory tightening on fees, I mean, how comfortable are you with that? And can you just unpack a bit how you expect to get to 30% plus growth on fees? Türker Tunali: Simon, actually, this is why we have guided this above 30%. This is already taking into consideration the expected tightening on the interchange commissions by Central Bank. By the way, they didn't do it in January. So 1 month is maybe -- actually 2 months are like now unchanged. So let's wait and see actually how it goes. Maybe a small item and very recently one of the regulatory changes was also like the fee cap on FX lending have been removed by the authority in the last week. That will be, to some extent, also supportive as well. That was also integrated into our guidance. But we feel comfortable. Simon Nellis: You feel comfortable still despite those headwinds. Kamile Ebru GÜVENIR: I think it's a result, obviously, of our significant market share gains over the last few years on customer acquisition. I mean that's probably going to be a supportive factor of the fee growth above the inflation expectation as well. We have some written questions. So maybe the first question I can ask from Mariana from William Blair. Could you please explain the increase in Stage 2 loans on a quarter-on-quarter basis regarding NPL inflows? Are you seeing inflows from other segments in additional to SME, retail, like addition to retail, SME, commercial? This is our first question. Türker Tunali: Mariana, First of all, maybe to start with like NPL inflows. Actually, when we say retail, actually, we mean actually consumer plus also SME. So that was also the case in the fourth quarter, mainly led by consumer, also some coming from SME. These were the areas where we have seen the majority of NPL inflows. So in the fourth quarter, no change compared to third quarter. With regard to this increase in Stage 2 loans, as we had also time to time also shared with the investor committee in the last quarter of the year, we are always revisiting our IFRS 9 model. And based on that calibration, like inflows because of the model, so rating deterioration in other words. So after our calibration, there has been some increase in Stage 2 loans -- but whereas our restructured loan book has stayed the same, like 3.4%, almost same like in the third quarter. So that was the main driver of this Stage 1 to Stage 2 composition change of roughly 2%. Kamile Ebru GÜVENIR: And regarding NPLs? Türker Tunali: Actually, as I said, this is mainly retail driven. Kamile Ebru GÜVENIR: So moving on to the next question. Capital levels and Basel IV impact, will you see A Tier 1s or Tier 2s to shore up capital [indiscernible]. Türker Tunali: Basel IV will be effective if no change, start in the second half of the year. And as of today, the impact for Akbank is quite limited, roughly like 20 basis points in Basel -- 20 basis points. With regard to our like wholesale funding strategy, you know our practice, we are always like looking for opportunities in the market. And as you know, again, this year, we have really evenly distributed redemption schedule. One of them is also the Tier 2, where we are, again, stick to our benchmark, the call option of our Tier 2. We will look actually at all products based on maturity profile and like cost. And based on that, we will decide which path to go. Kamile Ebru GÜVENIR: Yes. Maybe just to put these in numbers. As you probably know, this month in February, we have a $500 million Eurobond redemption. And then in July, we have a $500 million Tier 2 as sub debt. As Turker mentioned, we always try to go by market practice depending on obviously on BRSA approval. The more important issue for us is that we like to obviously diversify the products and also diversify the maturities and extend the maturities actually. And you probably have seen this in our latest also syndication loan where we have 3 different tranches, 1 year, 2 year and 3 years. So we will be doing the same for this year for also our syndicated loans as well and as well as for, obviously, our maturities on the other product side. And I don't see any other question here that hasn't been answered. So maybe we can move on to -- I mean I don't see anyone raising their hand as well. So maybe I can leave the floor to Kaan Bey for closing remarks. Cenk Gur: Thank you. Thank you, Ebru. Dear friends, thanks a lot again, especially for your continued interest and engagement. We are very happy with that. To conclude, we entered the period ahead with confidence in our strategy and our ability to deliver. Our guidance reflects a balanced outlook grounded in prudent assumptions, disciplined execution and a strong focus on sustainable profitability. With our solid capital position, as I mentioned earlier, our resilient balance sheet structure and diversified business model, we are well positioned to navigate the evolving macro environment while continuing to create long-term value for all stakeholders. Technology remains a key enabler of our strategy, supporting deeper customer engagement, operational efficiency and scalable growth. We will continue to invest selectively in digital capabilities and process transformation and of course, as well as our people at bankers. While maintaining a disciplined approach to risk and capital allocation. Dear friends, we look forward to meeting many of you in the coming period and continuing our dialogue in more detail. Thank you for joining us today. We appreciate your trust and continued engagement. Bye for now. Kamile Ebru GÜVENIR: And for those of you who have additional questions, please do feel free to reach out to Investor Relations team. We are always at your disposal and look forward to seeing all of you throughout the year. Bye-bye.
Marilyn Tan: Good morning, everyone. Welcome to the FY '25 Results Audio Webcast for Keppel Infrastructure Trust, or KIT. I'm Marilyn from the Keppel IR and Sustainability team. Let me introduce the KIT management team. We have with us this morning, CEO, Mr. Kevin Neo; CFO, Mr. Raymond Bay and Director of Portfolio Management, Mr. [indiscernible]. They will be making a presentation that will cover KIT's FY '25 highlights and business strategy, followed by the FY '25 business and financial update. Please leave your questions for the Q&A session at the end of the presentation. For analysts who are joining us on the MS Teams platform, please check now that on mute before we start the presentation. I will now hand the time over to Kevin for the presentation. Kevin, please. Tzu Chao Neo: All right. Thanks, Marilyn. Good morning, everyone, and thank you for joining us today. 2025 marks a 10th year of KIT's trading commencement as an enlarged trust, and we are glad to report a strong KIT unitholder return of 36% in the last 10 years. This compares very well against the 61% achieved by the REIT index over the same period. With more than 18 years of infrastructure investment and management experience, KIT has built a strong track record and continues to grow through acquisitions and value creation. We have accumulated a portfolio of very attractive assets that are essential to our daily lives. We are the sole producer and retailer of piped town gas in Singapore. We supply 13% of commercial power in Singapore. We produce more than 20% of the drinking water in Singapore as well. We are the sole producer and distributor of chlorine gas for water treatment in Australia, and we maintain 31% of global subsea cable length. As at 31st December 2025, KIT's AUM stood at approximately $9.1 billion. This is anchored by essential businesses and assets in developed markets across all segments, namely energy transition, environmental services, distribution and storage and digital infrastructure. The next slide. KIT's portfolio is well positioned to capture tailwinds driven by long-term structural trends of energy transition, digitalization and rapid urbanization. Our strategy is focused on essential infrastructure that provides stable cash flows and has long-term growth potential. Our assets are located in developed markets in Asia Pacific and Europe, where there's strong legal and regulatory frameworks in place. And last but not least, we are in sectors where we have operational expertise either in Keppel or in partnering experienced local teams on the ground. Overall, 2025 was a good year for KIT unitholders. We reported DI of $249.5 million for the year, which is an increase of 24% year-on-year. We achieved total unitholder return of over 17% for the year. We continue to add value to the trust, having unlocked over $300 million in net proceeds from capital recycling and deployed $120 million to acquire GMG, marking our foray into the digital infrastructure segment. We have the financing flexibility to utilize the remaining proceeds of about $180 million and have the debt headroom for further accretive acquisitions. As at end 2025, the gearing levels and ICR for KIT remained strong at 39% and 7.6x, respectively. KIT received industry awards last year, and our appreciation goes out to the Edge Singapore and AustCham Singapore for these accolades. KIT was named the overall sector winner and recognized as a top performer in shareholder returns over the past 3 years at the Edge Singapore Billion Club Awards 2025. This achievement reflects our sustained focus on long-term value creation for our unitholders. At the AustCham Singapore, Australia Business Alliance Award 2025, KIT was recognized as a Singaporean company with a significant contribution towards advancing sustainable infrastructure that supports communities in Australia. We are declaring a DPU of $0.0197 for the second half of 2025, and this will be paid on 20th February 2026. This aggregates to the full year 2025 DPU of $0.0394 which is an implied yield of 8% based on the year-end closing unit price of $0.49 for 2025. Looking back on the track record, KIT's transformation and asset recycling strategy since 2019. The chart on the left shows illustratively the income profile for the DI from initial portfolio without acquisition versus the chart on the right that shows the actual reported DI to unitholders. The green bars above represents the income contribution to KIT's portfolio DI derived from various acquisitions and realizations made since 2019. We have been very successful in investing and replacing the recap of DI when certain concession assets were extended. We have also grown our evergreen businesses within the initial portfolio. For instance, City Energy accounts for 22% of DI in FY 2018 but contributed more than 60% of the initial portfolio DI in FY 2025. Our focus is to deliver resilient cash flows to unitholders through active portfolio management to strengthen portfolio constitutions anchored by essential businesses bearing cash flows that are very defensive against market disruptions. This is how we managed to maintain our DPU through COVID-19, which is one of the most significant market disruptions in the last 10 years. Next slide. KIT's portfolio of essential businesses and assets provide products and solutions, for which demand remains steady because of economic cycles. These are business strategies that we look to drive the next stage of value creation for KIT. First, portfolio cash flow stability remains a key priority, and we will continue with our proven capital recycling approach of invest, divest and reinvest discipline to build a resilient portfolio with strength in underlying cash flows. Second, you want to strengthen the operating cash flows for existing assets and businesses by driving value-creating initiatives and capitalizing on sector-specific growth drivers. Third, we will employ active capital management to support sustainable distributions and continued growth in unitholder returns. With these strategies in mind, we have outlined specific objectives and areas to share with our unitholders. As an active manager, we will continue to evaluate our portfolio on an ongoing basis to recycle capital from divested assets for redeployment into accretive assets or businesses with stable cash flows. The goal is to manage DPU stability and offset the expected decline in income from concession assets. The focus on new acquisition is expected to be on energy transition, digital infrastructure and environmental solutions. This is in line with the recent OCBC report where analysts expect growing adoption of AI to drive demand for fiber connectivity, data centers, power generation and grid infrastructure. Our objective is to build and own an optimal portfolio of stable assets and growth assets to achieve DPU stability and growth. Currently, we have $180 million of divestment proceeds remaining from the sale of Philippine Coastal and Ventura for immediate redeployment. In addition, KIT's net gearing of 39% is healthy. Therefore, we could make use of debt headroom to acquire. Concurrently, we are focused on driving organic and inorganic growth in revenue and achieving operational cost efficiency for existing assets in our portfolio. In tandem, we work with the respective operating teams from the evergreen businesses such as City Energy, Ixom and GMG to execute on the planned growth strategies to grow KIT's operating earnings. As part of active capital management, we have been monitoring the market for opportunities to undertake early refinancing amidst the conducive interest rate environment. We expect to complete and execute on KIT's FY 2026, refinancing needs well ahead of maturity. Raymond, our CFO, will cover this in greater details. Financial flexibility is key as we pursue various options, including utilizing recycled capital, pre-invested cash and KIT's debt headroom with prudence for accretive acquisitions. Our main goal is to achieve DI and DPU continuity into the long run, and we are working to achieve this through the successful execution of our planned accretive acquisitions and value creation initiatives. But with that, let me hand over to [indiscernible] for the FY '25 business updates. Unknown Executive: Thanks, Kevin. Hello, everyone. I'm [indiscernible] joined the team as Director of Portfolio Management since November. I'll take you through the KIT portfolio business updates in the next few slides. Going to Slide 12. FY '25 saw stable operations for our assets and businesses in the energy transition segment. City Energy achieved higher FFO of $62 million for the year, mainly through its core operations. We tracked total gas water heater sales and the increase in market share in the residential market has been meaningful with potential for future growth. Growth opportunities are also present in the commercial and industrial market in new developments and in retrofit projects for existing properties. The FFO for the transition assets was an aggregate $124 million for FY '25, which included a cash surplus from capital management of AGPC 4Q '25. For AGPC, we had higher volumes in FY '25 compared to the prior year, underpinned by stronger demand. The FFO for the wind farms portfolio came in lower year-on-year mainly due to BKR2. However, wind resources in the second half of '25 have recovered compared to the same period last year. The European onshore wind platform saw stable production levels in FY '25 at lower power prices. The FFO for the German solar portfolio was SGD 46 million for FY '25, up 18% year-on-year, underpinned by stable performance. For the Environmental Services segment, the Singapore concession assets contributed an aggregate $52 million for FY '25. We maintained stable operations and met all contractual obligations with the regulators, such as NEA and PUB in the financial year. We continue to pursue potential opportunities for concession extensions following SingSpring's extension to 2028, noting that our land lease is only due in 2033. Moving on to EMK. Pricing in the private landfill business is expected to remain largely sideways. We continue to stay disciplined on pricing and focused on optimizing the NAV of our asset. For the incineration business, starting 1st of Jan this year, the Seoul Metropolitan Area or SMA, implemented a direct landfilling ban for municipal solid waste. With this in place, we see pricing upside for private incineration facilities. Public incineration facilities are running near full utilization, and this ban is expected to drive higher demand for private incineration facilities such as EMK, which are located near the SMA. Therefore, EMK plans to grow its incineration capacity, which is also running at full utilization to capture this tailwind and increase FFO for the Distribution & Storage segment. The FFO for Ixom was $71 million for FY '25, an increase of 42% year-on-year, underpinned by strong operating earnings. The bolt-on acquisition of the Hilditch base oils import and distribution business in 4Q '25 is expected to drive continued revenue and EBITDA growth in 2026. Hilditch earns a stable margin per unit volume and is expected to benefit from near-term tailwinds from Australia's new fuel emission standards supporting demand for refined and cleaner base oils. The FFO for Ventura was $23 million for FY '25 and was higher year-on-year on a 100% basis, underpinned by higher EBITDA. For the year, it achieved 100% service reliability and on-time performance exceeding 90% and secured new charter contracts. Ventura's maintenance CapEx is mainly debt funded. And for FY '25, the maintenance CapEx of $21 million was added back to derive DI. Ventura's business model requires ongoing maintenance CapEx, and the company will debt fund this CapEx in the near term. We completed the acquisition of GMG on 25th of November 2025. Hence the income contribution to KIT of about a month of about SGD 1 million is in line with our due underwriting. Since completion, the team has successfully extended a long-term charter to 2028 and are maintaining zone contract to 2030. Similar to Ventura, GMG is a business which requires ongoing maintenance CapEx for vessel upkeep, such as dry docking and we expect to be debt funding lease in the near future. In the next 2 slides, we will outline the strategic priorities for our evergreen businesses. We continue to work closely with the respective operating teams on the ground to execute these strategies and drive future operating earnings. These essential businesses have established strong local brands and local market positions in markets with high barriers to entry. They are long-term platforms focused on delivering customer-led solutions and creating sustainable value over time. For City Energy, our focus is on driving further market share gains in residential water heaters from the current 20%, increasing commercial and industrial gas usage and raising consumer awareness of the benefits of gas water heaters to support broader adoption. For Ixom, the key priority is to strengthen our market-leading positions across the core manufactured and traded product segments supported by long-standing relationships with key customers in the water utilities, manufacturing and resources segments. Other initiatives include continued growth in the bitumen business supported by disciplined growth CapEx and unlocking revenue and cost synergies from the recently acquired Hilditch business. For Ventura, we aim to maintain our strong track record in service delivery and standards, grow market share in the charter business for both public and private runs and position ourselves in a public bus service contract renewals coming up in 2028. EMK has the potential to further strengthen its position as one of the largest private incinerators in South Korea. The key catalyst ahead is the scaling up of incineration capacity to capture demand tailwinds driven by favorable policy changes. For GMG as one of the leading independent providers of subsea fiber optic maintenance, installation and support vessels, the focus is on maintaining strong operational reliability and a track record of vessels. At the same time, we aim to grow our fleet of specialized cable installation and maintenance vessels, underpinned by strong global demand for subsea cable connectivity. Moving on to the ESG slide, we met our ESG targets for the year across the 3 pillars of our sustainability framework, environmental stewardship, responsible business and people and community. In addition, we achieved a rating of A in MSCI ESG ratings assessment in recognition of the strong management of financial and industry relevant ESG risks and opportunities. I will now hand the presentation to Raymond for the financial and capital management of KIT. Teong Ming Bay: Thank you, [indiscernible]. Hello, everyone. I'll kick off my section with this slide that demonstrates KIT's strong earnings track record in the last 5 years. Moving to the next slide. The DI for FY '25 increased over 24% year-on-year to approximately $250 million. Asset DI before corporate cost was higher at $349.1 million. This is underpinned mainly by higher contribution from City Energy, the German solar portfolio, Ixom and Ventura. This included a cash surplus for AGPC, which was substantially used for debt repayment at KIT trust level. In the Environmental Services segment, lower income from Senoko after concession renewal was partially offset by the full year contribution from MEDP in FY '25. Corporate expenses, excluding the debt repayment, were lower year-on-year, mainly due to no performance fee accrued in FY '25. We recognized a divestment gain of $49 million from the sale of interest in Philippine Coastal and Ventura. Moving to the next slide. This is the second half FY 2025 DI. The DI increased about 21% year-on-year to $130.1 million. Asset DI before corporate cost was higher at $199 million, underpinned by higher DI for City Energy, the wind farm portfolio, AGPC and the German solar portfolio. In the Environmental Services segment, lower income from Senoko after concession renewal was partially offset by the full year contribution from MEDP in the second half of FY '25. Corporate expenses, excluding the debt repayment, were higher year-on-year, mainly due to higher trustee manager base fee. We recognized a divestment gain of $27 million from the sale of interest in Ventura in the second half of FY '25. Moving to the next slide. On to the balance sheet. KIT reported net gearing of approximately 39% with interest coverage ratio at 7.6x. The consolidated debt for KIT aggregated to about $3.2 billion as at end FY '25. Pending capital deployment, about $180 million of the remaining divestment proceeds have been used to pay down existing borrowings at the trust level. The weighted average cost of debt at the group was lower year-on-year at 4.4%, the weighted average cost of debt at the trust level was also lower at 3.4%. KIT has hedged approximately 73% of the trust's foreign income and approximately 72% of the KIT's total borrowings are hedged. Moving to the next slide. We have received firm commitments to refinance Ixom's loan subject to documentation and expect to complete the early refinancing ahead of its expiry in the second half of this year. We are also evaluating refinancing options for the remaining $330 million debt at trust level maturing later in the year. To date, we have approximately $239 million of committed RCF that is undrawn. To conclude, the refinancing needs for FY '26 will be met as we look to complete the refinancing ahead of expiry. With $180 million of remaining divestment proceeds and ample debt headroom, we are well positioned to execute our planned accretive acquisitions and value creation initiatives to achieve DI and DPU continuity into the long term. Thank you. With that, I will now hand over the time back to Marilyn. Marilyn Tan: Thank you, Kevin, [indiscernible] and Raymond. We will now proceed to the Q&A session. [Operator Instructions] Okay. We have the first question from Shekhar. Shekhar Jaiswal: [indiscernible], welcome to KIT. Okay. Good, good set of numbers. Really impressed, but I have a few things to ask about 2026. How should I look at GMG's distributable income in '26? Like the 1-month contribution we should look at annualizing it? Unknown Executive: Correct. Yes. So as you correctly mentioned, GMG contributed SGD 1 million. Going forward, the DI run rate is expected to remain for FY '26. And -- but I think one thing we would like to note is that GMG is a business which requires regular maintenance CapEx from vessel dry docking, right? But most of this maintenance CapEx is expected to be debt funded. So the focus is on DI. Tzu Chao Neo: So maybe I could add to that. When we -- something like what we did with Ventura, when we bought the business, we are aware that there is certain CapEx or maintenance requirements, which could be a bit lumpy, right? So when we enter into the transaction, we kind of size the capital structure such that we could use the debt capacity to debt fund certain expenses. This is to maintain DI's ability. So that's our plan. Shekhar Jaiswal: Okay. That helps. Just continuing on the same topic. You said there's now a long-term charter extended to 2028, maintenance contract to 2030. Can I get a sense on what percentage of your revenue or EBITDA from GMG is now covered with multiyear agreements? Unknown Executive: So to give you a sense, right, we have 6 vessels to our long-term charters. We have already secured 5 of those. We are in the process of renegotiating another one. And all 4 maintenance vessels, which are under the consortium model have been recontracted. So to answer your question, it's 5 out of 6 have charter certainty. Tzu Chao Neo: So I think when we announced the acquisition during our AGM last year, I think certain contracts was coming up -- certain contracts was renewed even before we entered into the transaction. And I think there was one contract that will come soon after the AGM, and that contract was renewed. And I think this basically plays to what we have been saying, right? There is a lot of demand for such vessels given the outlook for CapEx requirements to build new cables, to maintain cables in DCs, right? So this is where I think we want to ride that macro trend. Shekhar Jaiswal: Understand, understand. Okay. I just have two more questions before I jump back in the queue. I see there's a lot of other people waiting to ask. On BKR2, can I get an update on the wind situation? How should we look at 2026. You did mention in the slides that second half is looking better than year-on-year, but on half-on-half and how should we look at the 2026 DI for it? Unknown Executive: Yes. So as a recap, thinking about the factors which drive BKR2 performance, it's number 1 is mainly related to wind, right? Because the pricing is actually locked in by a feed-in contract -- feeding tariff contract backed by the German government. So if you look at the wind speeds in second half of 2025 and compare that against second half of 2024, they are at or already above levels in the previous period. Tzu Chao Neo: So I think last year, I think there was a lot of concerns around BKR2, given the winds, yes, we have said that in the first half of 2025, wind speed was very bad due to pretty rare climate phenomenon. I think we are glad to share that as what [indiscernible] has mentioned, the wind speed for second half has recovered. And the wind speed for second half 2025 is higher than that of the second half of 2024. But we hope that this will continue. And if this continues in 2026, hopefully, the performance from BKR2 is better than that in 2025, if we have a full year of proper winds. Shekhar Jaiswal: Okay. Okay. Fair enough. So we still look at it. We see how the first quarter goes and then reassess, is it? Tzu Chao Neo: Yes. Yes. So unfortunately, wind is not something that we can control. But like I said, when we look at wind, we have to look at it from a long-term perspective. There will be years where it may be below average, there'll be years where it may be above average. But long term wise, over the midterm, it should average out. Shekhar Jaiswal: Okay. Fair enough. Just 1 more question and then I'll jump back in the queue. In terms of pipeline, anything from Keppel's ecosystem where you -- and which verticals where you think most actionable ideas would come through or needs could come through over the next 12 months? Tzu Chao Neo: Sorry, Shekhar, I missed your question. If you don't mind, could you just repeat it? Shekhar Jaiswal: Yes. I'm saying from Keppel's ecosystem, if you have to look at deal flows, which verticals where you think will be the most actionable deal flow would be in the next 12 months? Tzu Chao Neo: Yes. So I think Keppel is across the verticals that we are in at the moment. I think certain assets are being constructed, and I think some of them were probably coming online over the period of time. As and when they come due and if they are appropriate core for KIT, we will definitely put our hands up to kind of -- to express our interest in acquiring them. But this will be done on a so-called very unplanned basis. But we do expect to call it a bit of activity in the energy transition sector, not just from the Keppel's tabled assets. But I think globally, right, we do expect a lot of activities around the energy transition and digital infrastructure segment. Marilyn Tan: Okay. The next would be to Hoo Ezien. Can you identify which house you're from? Ezien Hoo: Sure. It's Ezien from OCBC's credit research team. So my question is on AGPC. I think I may have missed a bit of what management was saying. There was a cash surplus from capital management at AGPC. Was that used to pay debt at the trust level. And if so, can you please explain more what actually happened at AGPC and what was done with the capital? That's all. Teong Ming Bay: Ezien, thanks for the question. I'll take that. So yes, so what happened was there was a refinancing activity in AGPC level. When the refinancing happened, there is a need to relook into the hedge position that led to a certain IRS has been -- we unwind certain IRS, which resulted in a gain. So the gain is approximately $51 million. This is -- I would like to stress that this is a one-off, right? And what happened is we -- this $51 million has been utilized to repay debt. And this debt will basically is an RCF facility. When we pare it down, it would become a war chest for us. We will have extended financial flexibility for acquisitions. Ezien Hoo: So the RCF facility is at the trust level. Teong Ming Bay: That's right. KIT's trust level. Tzu Chao Neo: So just to be clear, right, the total DI is not impacted by this because the proceeds is used to completely pay down debt at a KIT level. So it's a flush trigger. Marilyn Tan: Next question we have from Jialin. Jialin Li: Congrats on strong results. This is Jialin from CGSI. I have 3 questions before I jump back to the queue. So the first one could you walk through the CapEx for FY '26, I think especially for EMK, Ventura and GMG where you see strategic opportunities to grow? So what's the quantum of CapEx we are talking about? Should I finish all my questions before we dive into the answers or ...? Marilyn Tan: Yes. Jialin, it would be good if you give us all 3 questions. Jialin Li: Okay. Yes. So my next question is on GMG. So if we just focus on DI management guided just now, right? So can we think of resemble distributable income as a so-called clean DI meaning without debt repayment, without CapEx? And is it how we should be looking at FY '26 DI? And my third question is looking at distribution for next year, right, what's your thoughts around distribution trajectory for next year? Unknown Executive: Yes. So maybe I'll touch on the CapEx slide, right? So I think going on the CapEx plan for EMK, as we previously alluded to, we are dedicating some CapEx towards incinerator capacity expansion this year. This is to account for the fact that our incinerators today are 100% utilized, coupled with the fact that we are seeing incremental demand from the direct landfilling ban in Seoul which is supportive of pricing. So we are actually expanding capacity in 2 of the 4 incinerators that EMK currently operates. So that's on EMK. For Ventura, we are on the constant lookout to replace and deploy maintenance and growth CapEx towards the bus fleet. Tzu Chao Neo: So maybe I can just shed a bit of light on the CapEx plans for both EMT and Ventura. I think as what [indiscernible] mentioned, I think our incinerator is at maximum utilization. We do expect waste for incineration to increase especially given the policy change in the Seoul metropolitan area. Our landfills -- sorry, our incinerators are located just outside of SMA. So we are well positioned to receive the additional waste, right? And in order to capitalize on that long-term trajectory, we need to expand our capacity, right? And we do not expect this expansion to have an impact on EMK's cash flow because they're funded by cash on the books or by debt facilities that we have sized for this purpose. And I think this will be done over phases, right? And I think what I would like to point out is that this year, the incinerator at EMK is scheduled for some refurbishment. And we are just using that period of time to undertake the expansion. So this is a very efficient way of undertaking expansion. As probably everyone knows, Keppel as a group, my sponsor, has very strong operating and technical expertise in this area. We have obtained support in helping EMK to expand. And this is something that we spoke about last year. And I think we are -- we are seeing all this execution panning out as we speak. All right. And I think there is this question about GMG, the DI for December. Yes, that's clean where you can -- almost for the full year in 2026, you can annualize that to get to a estimates of the DI forecast from GMG. So last year, there's a 1 month or slightly over month of contribution. This year, we received 12 months of contributions. So the DI from 2025 had to be adjusted for that to get a more accurate estimation for 2026. Have we answered your question? Anything that's unanswered? Jialin Li: Yes. I think maybe one follow-up question is on CapEx, whether we could share certain amount like planned for -- planned aside for CapEx just for modeling purposes. And another -- the last question was on distribution trajectory for next year. Teong Ming Bay: Jialin, if you don't mind, could you refer to Slide 34 of our presentation slide. We have disclosed our CapEx guidance and also the debt amortization over there. Tzu Chao Neo: And I think on the distribution guidance, right, I mean, we don't want to give profit guidance. But I would say, I think we are in a good position. Our -- the 2025 DI from certain assets does not reflect the full contributions. For example, you need to annualize the DI from GMG to project what we will get for the full year of 2026. And I think we have -- last year, we realized about $300 million of capital from recycling of Philippine Coastal and a stake in Ventura, we have redeployed about $120 million of debt. There's about another $180 million that we can deploy this year. In addition to that, our balance sheet is very strong at 39%. So there's additional debt headroom that we can leverage on undertaking accretive acquisitions there. Marilyn Tan: Next in the queue would be questions from Suvro. Suvro Sarkar: Kevin and team, I just -- the first question from me is on the divestment gains part of it. So I'm a bit confused by the classification of divestment gains as part of our DI. So I mean, I always thought that divestment gains or losses, whatever it means is an accounting item and not a cash item, the whole cash sale proceeds should be a cash item. So how does it fit in with the DI, which is the cash flow basically? And if you're using divestment gains to the distributions, then how come we are still saying that we have $180 million remaining from the $300 million sales proceeds for -- so there must be some cash that has been used for the distributions from this side. Teong Ming Bay: Yes. Suvro, thanks for the question. So in fact, the divestment gain is an actual gain. What we have done with the divestment gain is you could think of it as a real gain at a principal level, right? What we have done is we have taken debt meanwhile to repay the debt at trust level as a cash management basis. Tzu Chao Neo: Yes. So maybe So the way I would explain is that we sold PCSPC last year. We saw a 25% stake in Ventura, right, at a very good gains. I think the gains over there is about over 30% in a year, right? So we make profit on the sale of a 25% stake in on GMG, that's on the real cash gain, right? So we recognize that a part of that real cash gain into a DI and the vast majority of that proceeds is not recognized in our DI. We only recognized a gain in our DI. The principal is still left in our balance sheet, which we have used part of it to reinvest in GMG. So of the $300 million, $120 million is used to take like a very significant stake in GMG. And we have about $180 million left, right? And part of this $180 million, we have used to reduce the pay down debt. The reduced interest expense across KIT, right? And that basically lowers our gearing down to 39%, which is very healthy, right? So we have those divestment proceeds as well as the additional debt headroom that we can do that can utilize to make further accretive acquisitions. Hopefully, that clarifies. Suvro Sarkar: Yes. So you're talking about the debt headroom not actual. So -- because you have to pay distributions of $240 million this year if you're distributing $0.0395. And your DI is $250 million. So at least of the $50 million divestment gains have to pay out at least 40 million to -- from that to the unitholders. So how do you classify it as a increased debt headroom? Tzu Chao Neo: Okay. Sure. So maybe let me just take a step back and explain it. We have certain proceeds from the sale, right? And we did not recognize the full sale proceeds into the DI, we only recognize the gain that we make right on Ventura, et cetera, into the DI, right? So yes, we have about $250 million, $40 million is about -- or $40 million is from the sale of Ventura. So that still reflects well against the delivery performance because it's still higher DI. But more importantly is I do not -- I think we want to kind of make it clear that recurring DI that you're trying to back so for 2025 results, does not reflect the full DI generation potential of KIT. Because that operating or recurring DI only includes 1 month of contribution from GMG, right? So if you annualize that, then you'll get to a better amount. And there's also a certain growth that we are trying to achieve in our portfolio that also had to give additional DI vis-a-vis 2025. And what we would also like to say is that the deficit proceeds, right, have not been fully redeployed as some of it has been used to pay down debt. Some of it has cash on balance sheet. And these are the amount, right, that we can use to reinvest that will create additional DI -- surplus for our -- KIT's uniholders. Suvro Sarkar: Got it. One other question on the CapEx front. In terms of growth CapEx versus maintenance CapEx breakdown -- so I see the 2026 numbers on Slide 34. So we are projecting around $100 million growth CapEx in total for next year. How does that compare with the growth CapEx in 2025? Is it higher and how do we finance this growth CapEx? Teong Ming Bay: Yes. Suvro, maybe I can take this. So the growth CapEx is largely stable. I wouldn't say there's a huge increase on this. In terms of growth CapEx, I think it's largely going to be funded through internal cash of the respective business or debt facilities. Suvro Sarkar: Okay. So shouldn't affect DI to a lot extent. Teong Ming Bay: No, no. Tzu Chao Neo: So Suvro, maybe just 1 point that I'd like to just add because I think what we're trying to do is we are trying to solve for the KIT's recurring DI, if -- and I think your question is about that gain in our DI. The way I'd probably look at it is that if we did not sell a 25% stake in Ventura, our DI will also be higher than what you are projecting here. Marilyn Tan: Thanks,Suvro, for the questions. We have another question from Jialin. Jialin Li: Yes. Sorry, it's me again. Yes, I have a follow-up question on Ixom. So just wondering whether you could share details on the acquisition of one its subsidiary happened this year? And also because I saw the CapEx breakdown for next year, there is quite some amount spent on Ixom. So just wondering whether you have plans for another acquisition of -- one of its, I don't know, maybe like subsidiary under Ixom or whether this is just expanding its current project line? Unknown Executive: Yes. So thanks, Jialin, for the question. So I think sharing more details around the Hilditch acquisition. So this is a base oil importer and distributor. So these are actually like engine oils and lubes used for vehicles typically for long-distance transport. So these are like logistics vehicles. And the business is expected to benefit generally from a tightening of fuel emission standards towards higher spec type of base oils. So the acquisition is expected to contribute roughly about a single-digit percentage EBITDA to Ixom's pre-acquisition levels. Tzu Chao Neo: Maybe again, just a bit more. Ixom, as we always say, there is two key businesses in Ixom. One is the chlorine business, the other is the chemical distribution business where [indiscernible] Australia. And it owns these fleets of very specialized chemical -- hazardous chemicals distribution fleets, right? So this acquisition is done by -- it's a bolt-on for this chemical distribution business. So the thinking behind that is to use the same infrastructure to distribute that product to retain customers. So it basically increases revenue to us. I think this acquisition was done pretty late last year. So our DI for last year does not reflect the full contribution from these acquisitions. So come 2026, you should see the full year contribution over that. So we expect an uplift over there as well. And more importantly, it's because we are using the same infrastructure to distribute more products to the same customers. There's also some operational efficiency that we can realize over there. Jialin Li: Okay. could you remind me of your -- because just now you mentioned the financial implication is on the EBITDA level, right? So could you maybe remind us of the EV EBITDA before this acquisition or maybe at the acquisition of Ixom itself? Unknown Executive: So I believe we had disclosed in one of our previous slides that Ixom's EBITDA is roughly AUD 200 million. In the current slide, we also have the EBITDA levels for Ixom, if you refer to our business updates. Jialin Li: Okay. Got it. And sorry, just to clarify. So the financial implication of this new acquisition is -- should we look at it via EV EBITDA? Or should we look at a certain percentage increase in EBITDA? Unknown Executive: Yes. So as I previously mentioned, it's going to be a single -- mid-single-digit EBITDA contribution to Ixom's pre-acquisition EBITDA. Tzu Chao Neo: So let me put a little bit more. So Ixom's last year, full year ending 2025, I think it's doing over $200 million -- slightly over $200-plus million EBITDA. This acquisition is done late last year. So it's not fully reflected into the number. As what [indiscernible] has mentioned, this acquisition on a full year basis could result in a mid-single-digit increase to Ixom's EBITDA. So this is then flows down to our DI. Marilyn Tan: Do we have any other questions from the analyst community? Okay. If not, then let me just quickly raise -- first and foremost, thank you to our public audience for your questions posed. I believe most of the questions have been addressed earlier through the common questions raised by the analysts. I just have 1 or 2 other additional questions that I will pose to our management team now. The first question is on Ixom's debt. The question is whether -- is there an expected refinancing cost for the Ixom's debt that we should be considering? And whether or not it is significant? Teong Ming Bay: I can take that. So we do not foresee an increase in refinancing costs. In fact, we do see a loan margin compression for Ixom. But do take note that the current markets situation in Australia. There are talks about RBA may increase the base rate. So I think at the end of the day, it would be netted off position. So to answer your question, there will not be an increase in refinancing cost for Ixom. Marilyn Tan: Okay. Thank you, Raymond, for the response. The second question is on the query on the projected CapEx for GMG, can management please advise on the CapEx? Tzu Chao Neo: Yes. So I think when we sought unitholder's approval for these acquisitions, I think we have disclosed that there is a lot of growth potential in this business. Our vessels are fully utilized. We want to grow the business, and we want to either buy new vessels -- construct new vessels or buy existing vessels and compare them into cable laying vessels. I think I'll say we are making good projections over there. I think we have acquired a vessel that's being repurposed into cable laying vessels, which we hope once it's been completed, can be deployed and we should then add to revenue, right. The -- and when we look at these acquisitions, right, we are aware of certain -- growth CapEx that will be coming up. And our plan, right, is to actually -- and we have also sized debt facility that we plan to use the debt fund all this CapEx. And so as a result, which is a result of this funding method, the impacts to our DI -- of the growth CapEx on a DI is not going to be material. But of course, we have also set aside as disclosed certain equity commitments that we have prepared to put in to buy even more vessels, right? At this stage, we have not utilized -- or we have not planned to put in that equity yet. But as and when we are able to see on new vessels, we will inform the market accordingly. Marilyn Tan: Thanks, Kevin, for response. Let me just quickly check to see if there are any additional questions that have come through. Okay. I think we just have one more question to -- from the public. So the question here is how big is our onshore wind farm capacity? And then the second part of the question is whether we intend to buy more of assets? Tzu Chao Neo: Yes. I would say we have about 1.3 gigawatts of renewable capacity, right, of which, I would say, 450 megawatts or 470 megawatts is for the German BKR2, the offshore wind farm. Then a big chunk of the remaining actually goes to our -- comes from our solar asset, the German solar portfolio, where it is doing very well. I think it has received or registered a good increase in DI from the German solar portfolio. And our wind farm basically -- our onshore wind farm is basically distributed across Norway and Sweden. From an investment quantum perspective, it's a relatively small part of our portfolio. Do we have more plans to buy more wind farms? I think as and when we find good assets in this sector, we will do it. But if there isn't any attractive assets, I think we're happy to kind of consider other sectors as well. Marilyn Tan: Thanks, Kevin. I think with that, we have completed all the questions that have been posed to us by analysts and the public. Thank you so much, everyone, for making time to attend our call. If there are no further questions, we will now close this morning's call, and have a good day ahead. Thank you.
Operator: Good afternoon, ladies and gentlemen. Welcome to Chunghwa Telecom Fourth Quarter 2025 Operating Results. [Operator Instructions] And for your information, this conference call is now being broadcasted live over the Internet. A webcast replay will be available within an hour after the conference is finished. Please visit CHT IR website at www.cht.com.tw/ir under the IR Calendar section. And now I would like to turn it over to Ms. Angela Tsai, Vice President of Financial Department. Thank you. Ms. Tsai, please begin. Angela Tsai: Thank you. I'm Angela Tsai, Vice President of Finance at Chunghwa Telecom. Welcome to our fourth quarter 2025 Earnings Conference call. Joining me on the call today are Chunghwa's President Rong-Shy Lin; and our Chief Financial Officer, Audrey Hsu. During today's call, management will begin by sharing our recent strategic achievements and providing an overview of our fourth quarter business results. This will be followed by a discussion of our segment performance and financial highlights. We will then open the floor for questions and answers. Please turn to Slide 2 to review our disclaimers and forward-looking statement disclosures. Now without further delay, I will turn the call over to our President. President Lin, please go ahead. Rong-Shy Lin: Thank you, Angela, and hello, everyone. Welcome to our fourth quarter 2025 results conference call. To begin, I am pleased to report our exceptional financial performance for 2025, driven by our dedicated efforts. Chunghwa Telecom's revenue, operating income, income before tax and EPS for 2025 all exceeded the upper end of our guidance, reflecting our strong execution and market-leading position. On the revenue front, our full year revenue reached an all-time high, demonstrating our continued focus on strengthening our core businesses and active expansion in the ICT sector. Notably, our full year EPS of TWD 4.99 marked an 8-year high, extending our annual growth momentum for the sixth consecutive year. This milestone underscore our commitment to driving innovation and enhancing long-term shareholders' value. Based on the strong outperformance in 2025, we are entering 2026 with confidence for our telecom businesses. We see Taiwan's mobile market remaining stable and favorable to us as the market leader. We are also pleased with our fixed broadband performance and will extend the successful existing strategy for further ARPU enhancement. In terms of ICT business, our technology capability will continue to remain cutting edge to support future growth. A particular highlight is our satellite opportunities as we believe demand of satellite services as the communication backup solution will increase with our satellites of OneWeb and SES commencing operation in 2025. The Astranis satellite will join in second half of 2026 to enhance our multilayer satellite capability. Furthermore, we will also focus on extending pre-6G-related opportunities in AIoT, satellite and big data services and expect their combined revenue to surpass the TWD 10 billion in 2026. We particularly expect to convert our AI capabilities into our service offering. We expect to assist our customers to integrate AI into their operational processes, legal compliance and infrastructure management. In addition, as a leader in AI drive connectivity, we are introducing AI edge computing into our AIDC to create a new revenue stream alongside our continued construction of AIDC in 2026. Ultimately, in the fourth quarter, we were honored with multiple awards recognizing both our ESG accomplishments and the technical acknowledgment. We won The Asset's Jade Award for corporate sustainability leadership for the fifth time, received the several AI Innovation Award at the World Communication Awards for our smart customer services solution and was recognized as the only Taiwanese telecom company on Newsweek's World's Most Trustworthy Companies 2025 list. More importantly, we have secured 4.6 billion kilowatt hour of renewable energy through a 20-year Corporate Power Purchase Agreement, CPPA, to support our 2045 net zero commitment. Now let's turn to our fourth quarter 2025 results. Please flip to Page 4 for the business overview. Please turn to Page 5 to review our success in Taiwan mobile market. In the fourth quarter, we solidified our leadership position in Taiwan's mobile market for 2025 with record highs across all dimensions. According to data from our telecom regulator, our mobile revenue market share climbed to unprecedented 41%, while our subscriber market share rose to 39.7%, mainly driven by continued growth in the postpaid subscriber. We are pleased with this strong result. Our 5G performance was equally impressive. Based on regulators' data, our 5G subscriber market share increased to 39.2%, further solidify our industry-leading position. The 5G penetration rate among our smartphone users climbed to 46.4% by the end of 2025, while the average monthly fee uplift from 5G migration remained robust at 41%. Given this solid momentum, we were especially encouraged by our strong mobile service revenue growth in the fourth quarter, which achieved a recent record high of 4.7% year-over-year. Postpaid ARPU also grew 3.6% year-over-year. We expect this positive trajectory to continue, supported by Taiwan's favorable mobile market landscape. Let's move on to Slide 6 for our fixed broadband business update. In the fourth quarter, our fixed broadband ARPU continued its upward trajectory, reaching a new high of TWD 819 per month. This represents a 3.8% increase in revenue and a 0.5% increase in subscribers year-over-year. This strong result were driven by our high-speed upgrade promotion and MOD bundle packages, which successfully boosted customer adoption of higher tier plans. Subscribers choosing speed of 300 megabits per second and above grew by 13% year-over-year, while those opting for 500 megabits per second and above recorded a double-digit growth and the subscription for 1 gigabits per second and above doubled in the fourth quarter. Slide 7 provides a detailed overview of the highlights from our consumer application services. In the fourth quarter, our multiple-play packages, which integrate mobile, fixed broadband and WiFi services increased by 17% year-over-year, marking the 16th consecutive quarter of expansion and representing the collective growth momentum of our customer business group. In 2025, despite the absence of major global sporting event broadcasting, resulting in overall subscription loss, our Hami video service demonstrated a solid resilience as its ARPU increased by more than 25% year-over-year in the fourth quarter. Looking ahead, with the launch of Disney+ bundle this January and our ongoing partnership with Netflix, coupled with the exciting pipeline of popular sporting events such as the FIFA World Cup, Asia Games and et cetera, we expect to drive further revenue growth throughout 2026. Meanwhile, our consumer cybersecurity subscription recorded 11% year-over-year growth with revenue also achieving double-digit gains, contributing to the steady growth for our consumer business group illustrated the key development in our enterprise ICT business. In the fourth quarter, our group's ICT revenue declined by 6% year-over-year due to a higher comparison base in the same period last year, though our full year ICT revenue still recorded robust year-over-year growth. Meanwhile, our recurring ICT revenue grew 15% year-over-year, continuing to show strong momentum, supported by increases across all major service lines, particularly contributions of AIoT, IDC and international public cloud services. Looking at the specific service categories, revenue from IDC, Big Data and 5G private network grew by 19%, 3% and 88% year-over-year, respectively. IDC performance benefited primarily from project completion in Mexico, while big data service revenue increased driven by its recurring revenue growth. Revenue from 5G private network surged, supported by the project revenue recognition from both public and private sector customers. However, revenue from cloud and AIDC business declined by 16% and 27% year-over-year, respectively, due to a high base last year. Our cybersecurity service revenue also decreased by 16% year-over-year as the majority of our cybersecurity revenue for 2025 had already been recognized in 3 quarters. Notably, despite the quarterly fluctuation, both cloud service and cybersecurity business still delivered full year revenue growth. We are also proud to share that we secured an AI customer service solution to build the first integrated AI customer services system for a leading financial institution in Taiwan. Furthermore, we secured a flagship government system integration project to upgrade the labor insurance platform to next-generation infrastructure with a contract value exceeding TWD 3 billion. In addition to further leverage our sea, land and sky network deployment and expand our satellite business scale, we successfully incorporated our satellite services as part of the government's joint procurement contract framework, paving the way for more long-term service contracts from government agencies. Lastly, our deployment of remote surveillance platform for correctional institution nationwide brought us 5 additional new projects in the fourth quarter with a total contract value of TWD 150 million. We expect to further replicate and scale this success in the coming year. Slide 9 illustrates the performance of our international subsidiaries. In the fourth quarter, our international subsidiaries revenue decreased 7% year-over-year, mainly due to softened demand for voice services as well as higher comparison base in the United States and the Japan ICT market last year. However, we were glad to see a 12% year-over-year revenue increase in Southeast Asia market as we completed multiple planned construction projects in Singapore and Thailand, a trend that we expect to continue through 2026. Notably, our Malaysia subsidiary commenced operations in December 2025, aiming to provide more timely, high-efficient ICT integration services for Taiwanese and multinational enterprise in the growing Southeast Asia market. Look ahead of 2026, we maintain a relatively optimistic outlook for our global market development as we have secured several AI supply chain projects in the United States in our pipeline, including key projects in Texas and California, which is expected to significantly boost our U.S. market performance in 2026. Now let's move on to Page 10 for the financial performance of our 3 business groups. In the fourth quarter, our CBG delivered a robust 6% year-over-year revenue growth, supported in both mobile and fixed broadband services, plus higher sales driven by the iPhone demand. However, its income before tax slightly decreased, mainly dragged by the final phase of 3G telecom equipment impairment, which has fully recognized in the fourth quarter and a higher comparison base from government subsidies recorded in the same period last year. Our EBG revenue decreased by 7.9% year-over-year as most of our major ICT project has already been recognized in previous quarters, resulting in a 7% year-over-year drop in the EBG ICT revenue. Income before tax was also impacted by the onetime impairment mentioned earlier. Encouragingly, EBG mobile and fixed broadband services as well as its satellite services still delivered solid growth momentum this quarter. As for our IBG business, revenue grew by 2.5% and income before tax increased by 1.8% year-over-year, driven by rising demand for the international IDC services and stronger roaming revenue. Furthermore, we are pleased to report that our submarine cables, SJC2 and the first phase of Apricot were completed this quarter and further boosted IBG's fixed line services revenue by 2.2% year-over-year. Now I would like to hand the call over to Audrey for financial updates. Wen-Hsin Hsu: Thank you, President. Good afternoon, everyone, and thank you for joining us today. I'm pleased to walk you through our financial performance for the fourth quarter and full year of 2025 and share our financial guidance for 2026. So now please turn to Slide 12 for our income statement highlights. Let's start with our fourth quarter results shown in the first 3 columns on the slide. Revenue and operations. We reported consolidated revenue of TWD 65.65 billion. This represents a steady 0.5% year-over-year increase and makes our highest fourth quarter revenue in nearly a decade. This growth was fueled by strong mobile device sales alongside the sustained momentum of our core telecom service. Income from operations decreased by 2.2%. This was primarily due to one-off impairment losses from the 3G network sunset this quarter, coupled with a high comparative base from last year's investment property valuation gains. Income before tax increased by 2.1% year-over-year. This growth was driven by investment disposal gains reflected in our nonoperating income. As a result of this performance, EPS increased from TWD 1.16 to TWD 1.20. This reflects our consistent profitability and marks the highest fourth quarter EPS in 10 years. Finally, EBITDA for the quarter remained stable at TWD 21.55 billion. The EBITDA margin stood at 32.82%. So now let's expand our view to the full year of 2025, shown in the last 3 columns. The annual view reflects a strong growth trajectory. So for the full year, total revenue reached TWD 236.11 billion, a solid increase of 2.7% compared to 2024. The growth was broad-based and driven by 3 pillars. First, we saw strong momentum in our sales revenue. This was fueled by higher mobile handset volumes and the robust performance of our subsidiary, Chunghwa Precision Test in the semiconductor testing sector. Second, our ICT portfolio continued to deliver with significant contribution from high-growth areas such as IDC, cloud and cybersecurity. Third, we maintained steady growth across our foundational mobile service and fixed broadband business. So this top line strength translated directly into profitability. Income from operations grew by 3.6% and net income rose by 4% year-over-year. Consequently, full year EPS reached TWD 4.99, up from TWD 4.8 last year. EBITDA also grew 2.6% year-over-year to a strong TWD 88.77 billion. Our EBITDA margin remained stable at 37.6%, broadly consistent with the prior year. So in summary, these results reflect high-quality earnings growth. This profit expansion was driven by sustained positive momentum in our core telecom business, complemented by the continued scaling of our IDC, cloud service and other ICT business operations. So now let's turn to Slide 13, balance sheet highlights. So total assets increased by 0.4% year-over-year. The growth reflects strategic allocation into long-term investments and prepayments for satellite infrastructure reported in other assets. The increase was partially offset by a net decrease in property, plant and equipment as depreciation charge existed new capital additions, along with a net decrease in intangible assets due to the 4G and 5G spectrum amortization. On the liability side, total obligation decreased by 0.7%. We repaid older loans while successfully issuing our first-ever sustainability bonds focused on biodiversity. The strategy not only strengthened our capital structure and reinforce our leadership in ESG-driven financing. Our financial health is best illustrated by our key ratios. Our debt ratio improved further to 25.25%. Our current ratio remained healthy, well above 100%. Most notably, our net debt-to-EBITDA ratio stood at 0. Moving to Slide 14 for our cash flow summary. We will review our performance for the full year 2025. Cash flow from operating activities decreased slightly by 2.2%. The variation was primarily driven by working capital dynamics, specifically a decrease in accounts payable between '25 and '24. On the investment front, CapEx declined by 3.7% to TWD 27.7 billion. First, regarding mobile CapEx, spending decreased by TWD 1.4 billion. The reduction aligns with our road map to lower mobile capital intensity now that we have passed the peak of the 5G deployment cycle. Second, regarding nonmobile CapEx, spending increased by 2%. The increase was mainly driven by strategic investment in submarine cables. Consequently, free cash flow stood at TWD 49.8 billion, a marginal decrease of 1.4% year-over-year. Despite this slight variation, we continue to maintain a strong cash position. Our stable cash flow inflows remain fully capable of supporting both our business growth initiatives and our commitment to shareholder returns. So now let's turn to Slide 15 to review our performance highlights against guidance. So in the fourth quarter of 2025, revenue exceeds the target, showing stronger-than-expected demand. Key performance measures such as net income and EPS were all in line with our forecast. For the full year 2025, the cumulative results validate our strategy. We are very proud to report that all major metrics, revenue, income from operations, net income, EPS and EBITDA either met or exceed our full year guidance. Again, this broad-based success was powered by our telecom business, driven by successful 5G migration and mobile service revenue growth alongside our ICT business, which capitals on expanding demand for IDC and cloud big data overseas markets. So now moving on to Slide 16. Please see our guidance for 2026. Looking ahead, total revenue for 2026 is expected to increase between 2.5% to 3.2% year-over-year, primarily driven by growth momentum in our core business. Well-received 5G service and speed upgrade promotion packages for fixed broadband are expected to continuously enhance our subscriber numbers and ARPU. ICT business is also expected to contribute to revenue growth as we continue to see digital transformation opportunities in the market. Operating costs and expenses are expected to increase between 3.5% to 3.7% year-over-year as a result of the investment in talent and infrastructure that support future business development in both core and emerging business. So given these projections, we expect our EPS to be in the range of TWD 4.82 and TWD 5.02. As for capital budgeting, we have budgeted TWD 31.91 billion for 2026. Looking ahead, our strategy remains consistent with our long-term road map, balancing disciplined efficiency with strategic expansion into resilient and sustainable infrastructure. Our mobile-related CapEx is expected to decrease by 6.3% year-over-year. This marks the fifth consecutive year of this decline since our peak in 2021. This demonstrates our ability to maintain our mobile leadership through capital efficiency as we move past the heavy 5G construction phase. Non-mobile related CapEx is expected to increase by 24%. The investment is strictly aligned with our sea, land, sky strategy to capture emerging business opportunities while fortifying our network. Key investments include expanding submarine cables to boost connectability alongside building our IDC data center. We also strengthened infrastructure resilience by upgrading power, cooling and cybersecurity systems. We are turning digital resilience into a unique competitive advantage. So this concludes our financial results highlights. Thank you for your attention. At this time, we would like to open the conference call for questions. Operator: [Operator Instructions] Now the first one want to ask questions, correct me if I pronounce wrongly, okay? Rajesh Panjwani from JP Morgan. Rajesh Panjwani: A quick question on the CapEx. If you can give some more detail about the big increase in the nonmobile CapEx, which is almost 24% for 2026? And also, can you provide some more details about -- you're looking at like almost 3.5% to 4% increase in the operating costs, which is higher than the revenue growth as well. So can you talk a bit about that as well? Wen-Hsin Hsu: Okay. Thank you very much, Raj. So the first question is about CapEx, about more detail on mobile CapEx, about 24% increase in 2026. So there are a couple of categories, as I just mentioned, this includes the fixed line maintenance, which consists of quite the big proportion of the fixed line maintenance. And the second is about the satellite and also the cables. And the third one is the IDC. I should say that mainly that the increase mainly coming from the IDC and also the satellite portion. And so this is for the first part. And the second part about the increase about 3.5% of operating cost. I think that one of the main -- there are 2 main portions. One, a couple of the reasons is that one is the human resource, the talent. I think that, as you know, that we are in emerging -- in a growing -- we have a lot of the sectors in IDC. We need a lot of the AI-related talent. So investment in the human resource is one important area. And the second is that electricity. I think that we are not so sure about the electricity policy in Taiwan. So we are a bit cautious. Also, this is also a second big area that takes the cost. The third one is about depreciation. That in the early stage, we have -- although that we try to trend down a lot of the CapEx, in recent years, as I mentioned, that discipline management is a key philosophy in our CapEx policy. But in the early stage that we still have some CapEx. So you will see -- as you see in our cash flow statements, you will see that the depreciation and also the amortization, these 2 portions is a bit much higher than the net increase of the PPE. So is that clear? Or do you want me to clarify any others? Rajesh Panjwani: Yes, if you can share like of the total increase in nonmobile CapEx, how much is from IDC? Wen-Hsin Hsu: Actually, we didn't separately disclose the exact number of the CapEx budget for each nonmobile items. But I can share with you that I think the CapEx for IDC and cloud it remain, I mean, like the second largest part of the nonmobile CapEx for 2026, okay? And then I want to add one more point for the mobile CapEx. As we know that the 5G CapEx investments, we had just passed the peak, right, but for 2026, actually, we will invest in as a stand-alone related applications like the network slicing for your reference. But the total mobile CapEx for 2026 actually still less than that of the 2025. Rajesh Panjwani: I got it. This is helpful. It would really be helpful if going forward, you can provide greater breakup of nonmobile CapEx because it's almost like more than 3/4 of your CapEx is now nonmobile CapEx. So it would be really helpful to get more details about that in the future. Wen-Hsin Hsu: Okay. Thank you for your opinion. Operator: [Operator Instructions] There seems to be no further questions at this moment. I will turn it over to President Lin. Please go ahead, Lin. Rong-Shy Lin: Okay. Thank you very much for your participation. Happy New Year. Operator: Yes. Thank you, President Lin. And ladies and gentlemen, we thank you for your participation in Chunghwa Telecom's conference. There will be a webcast replay within an hour. Please visit CHT IR website at www.tw/ir under the IR Calendar section. You may now disconnect. Thank you again, and goodbye.