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Ann-Sofi Jönsson: Welcome to the presentation of our fourth quarter results. I'm Ann-Sofi Jönsson, Head of Investor Relations and Sustainability Reporting here at the Electrolux Group. With me today, I have our CEO, Yannick Fierling; and our CFO, Therese Friberg. We will go through the presentation. And after that, we will open up for a Q&A session, both for those on the conference call as well as for you on the webcast. [Operator Instructions]. With that, I hand over to you, Yannick. Yannick Fierling: Thank you very much, Ann-Sofi, and good day to all of you. Very glad to be with you for the Q4 report. I will start, if you allow me, with some highlights about 2025. We are happy to report that the organic sales has been at the level of SEK 131 billion, which represents an organic sales growth of 3.9%, very close to the 4% we have been communicating about in the capital market update, I mean, midterm. The improvement in the operating income was at the level of SEK 3.7 billion, which represents 2.8% on net sales, which is again an improvement of 0.8 points versus last year. This SEK 3.7 billion were supported by a high cost reduction level of about SEK 4 billion, driven mainly by procurement and value engineering. We had one of the strongest quarter ever in Electrolux in the fourth quarter in terms of cash flow, delivering SEK 5.2 billion, bringing the entire year at the level of SEK 2 billion, which is taking our financial position in terms of leverage at the level of 3.0. With that, I would like to go into the fourth quarter. I'm sorry, the slide is not changing. Technical issue, which was working, of course, nicely, this morning. It's always like that. Okay, very good. Now it's working. Apologies for this technical issue. Very good. Let me deep dive into the fourth quarter here. First, we're glad to report out that, I mean, we have been gaining market share once again in Europe, Asia Pacific, Middle East and Africa and Brazil. We have been delivering a flat market share in North America, very high level of price pressure in the 3 regions. The operating income has been positively impacted by cost reduction at the level of SEK 1.2 billion. But we have been delivering on efficiency in engineering, in procurement and on the conversion side of the equation. On the headwind side of the equation, unfortunately, we had to face a high level of cost due to U.S. tariffs and the currency with dollar depreciation. Let's move now to Europe, Asia Pacific and Middle East and Africa. First, as I said, I mean, we are happy to say that once again, we have been growing market share with Electrolux and AEG. We have been gaining more market share with Electrolux and AEG than we have been losing by ramping down with Zanussi. Very high level of pressure in this region as well. I mean we have been going into Black Friday. We have more and more pressure from the Asian competitors, but we have been managing to grow organically by 3.6% in the quarter, which is pretty remarkable, especially when you think that the market has been going down by 1%. We had a positive mix effect, helped by significant volume increase here. And the region has been benefiting by a high level of cost efficiency as well. We have been introducing major innovations in Europe here, and we thought it was wise to fuel this innovation with a higher level of marketing spending. The negative news is certainly on the volume side of the equation. Can we change to the next slide, please? I mean, the negative news is, of course, about the market level. The market has been losing, once again, 1%. We have been down 1% in Western Europe, and we have been up 2% in Eastern Europe. With Western Europe representing more than 80% of the volume overall, the market has been once again down. We are now at the level of 2016. We're 10% below the fourth quarter of 2019. It is a 10 years low in terms of volume. And the market remains subdued. Of course, we have positive signals from interest rate and the construction side of the equation, but it will take time to have these positive signals materializing in additional volume for home appliances. Moving to North America. Now I mean, the quarter has been very challenging. Of course, we knew Black Friday was highly promotional. But certainly, I mean, we did not expect the level of competitive pressure we have seen in the market. And I think entering into the promotional season here, we had no choice but to reduce the price increases we had implemented throughout the year 2025. And that's explaining why we are delivering a negative EBIT in the fourth quarter. So a very high level of price pressure in North America, which has been forcing us to step down for the price increase we had implemented throughout the year. The good news is that after the promotional pressure here, prices have been bouncing back to last year level. But still significant negative external factors are driving our results down. And these factors are simply the U.S. tariff as well as the depreciation of the U.S. dollar. Tariffs are what they are, 15% to 20% for imported goods out of Southeast Asia, 55% to 60% out of China. So if the industry is reacting rationally here, and we will see price increase in the coming weeks, in the coming months, we should be benefiting from that being a North American producer. The market has been pretty resilient when you look at this picture here. The market has been going up in the fourth quarter by 1%, mainly driven by laundry. But still consumer sentiment is pretty low and price increase could have an impact moving forward on the demand. Moving now to Latin America, and I'm glad to say that, I mean, we had another strong quarter in Latin America, gaining value market share in Brazil. The entire region in terms of volume has been growing. We saw Brazil slightly slowing down in terms of increase, but still a good quarter in the region. We had a very strong Black Friday, which is a promotional pressure, but the team has been doing pretty well. And we were helped finally at the end of the quarter by a heat wave, which has been present in the region. Our position remains very strong in the region. I just want to underline one point, which is explaining part of the 11.5% in terms of EBIT. We were helped and supported by a onetime high level of supplier rebates at the end of the quarter in this region. This rebate has not been material for the group, but certainly has been relevant for LatAm. Let me show you a short video on how we have been communicating during Black Friday in the region. [Presentation] Yannick Fierling: So very strong results in LatAm during Black Friday. We're also glad to report that, I mean, we have been reaching SEK 4 billion in terms of cost reduction. And just as a reminder, SEK 4 billion was on the upper level of the fork we have been communicating about in the last months. We have been reaching this SEK 4 billion through value engineering, better sourcing and higher efficiency in our factories. So we have a very strong process in place internally to deliver these type of results. With that, I have the pleasure to hand it out to Therese, hoping that the pointer will be working, Therese, in your fingers. Therese Friberg: Thank you, Yannick. And then looking at the sales and the EBIT bridge. We had a 2% growth in the quarter, which was driven by volume growth and also positive mix in Europe, Middle East and Asia Pacific. And we also had a positive volume growth in Latin America. Unfortunately, if we look at then organic contribution to earnings, it was slightly negative. And this is a result of that the positive volume was then offset by negative pricing pressure, especially in Europe, Middle East -- in Europe, Asia Pacific, Middle East and Africa. And as Yannick mentioned, we also had to back off from the previously introduced price increases in North America in the quarter. This volume growth and positive mix was supported by increased investments in innovation and marketing. And we also had a quite strong quarter in the fourth quarter in terms of cost efficiency. And we can also mention here that group common cost was below the last year level, and this is a result of cost containment during the year, but also due to part of a timing effect where the cost in group common cost last year was at a high level in the quarter. When looking at external factors, we had another quarter with significant headwinds. Of course, the introduced tariffs in U.S. continues to be at a high level and a high impact in the fourth quarter. But also, we had a negative currency impact, both from a devaluation -- both from a strengthening of the Swedish krona, which is then contributing to a negative translation effect for the group, but also for North America, where the weakening of the U.S. dollar versus many or several of the important production currencies like the Mexican peso and the Thai baht and the Chinese renminbi is then giving a negative result on the group. And the negative effect in acquisitions and divestments is related to the divestment we did last year of the water heater business in South Africa in the fourth quarter. And then taking a look at the full year, we had a sales growth of 3.9%, where we had volume growth in all our business areas, and we also had a positive mix for the group. This also contributed to a positive organic contribution to earnings despite that during the year, we did see a price pressure, mainly in the European market that also was negative for the full year. We were boosting and supporting the volume growth and our strong product portfolio by increases in investments and marketing in the year. And as Yannick mentioned, we managed to hit the SEK 4 billion in cost efficiency. We had for the full year, heavy headwinds in external factors. Of course, the tariffs we have talked about a lot. And on top of the negative currency that we saw in the fourth quarter, also for the full year, we have negative currency mainly in the Latin American markets in Argentina and Brazil and also in the Australian dollar. And then looking at cash flow. As Yannick mentioned, we had a strong end to the year. So we had SEK 5.2 billion operating cash flow in the quarter, which took the full year then to SEK 2 billion, which was almost in line with the last year cash flow. The strong operating cash flow in the quarter was driven by positive working capital and mainly by a large reduction in inventory. As you know, our seasonality is like this that we always have a positive contribution from reduced inventory in the fourth quarter. But also as we have talked about during the year, we came from a position where we, specifically in certain categories and in certain business areas, were at a high level going into the fourth quarter. And specifically then mentioning air conditioners in Brazil, where we, at the end of the year, had the heat wave in Brazil, which also helped us to reduce inventory further. We're also keeping high containment of CapEx, and this has also been helping and CapEx is below the last year level. And then looking at the balance sheet and liquidity, we have a solid liquidity and a well-balanced maturity profile. In the fourth quarter, we were amortizing a long-term borrowing of around SEK 2 billion, and we also draw down on the previously announced loan with EIB of USD 230 million. If we look into 2026, we have a maturity upcoming in October of SEK 5.5 billion. And as at the end of December, we have a liquidity, including revolving credit facilities of SEK 32.7 billion. We have no financial covenants, and our target is to maintain a solid investment-grade rating and our leverage improved during the quarter and the year. So we ended the net debt to EBITDA by the end of the year at 3x. And with that, I hand back over to Yannick. Yannick Fierling: Thank you very much, Therese. See, it worked fine in your hands. So let's hope it will be like that as well for me. So moving now to sustainability. And as you all know, I mean, sustainability is in our DNA, and we are very proud to be one of the sustainability leaders in the industry. We do have very ambitious targets moving forward. We are planning to reduce, between 2021 and 2030, Scope 1 and 2 by 85%, Scope 3 by 42%. We're planning to have 35% of recycled material in our product. And in terms of incident rate, we have a very ambitious target to be at 0.3, which is best-in-class in the industry here. We made tremendous progress in 2025. And we're proud to say today that, I mean, we have been reaching, out of the 85% already in 2025, year-to-date, 45%, 33% for Scope 3, and we have 23% today of recycled material in our products. In terms of incident rate, we have been reaching the target of 0.33. Let me just come back. I mean, it's a little bit more than 1 year that I'm in this position today, and we have been defining very clearly these 5 strategic pillars when I started. First, it was about improving North America. And yes, we had a difficult quarter in Q4 in North America. However, let's take into consideration that we have been growing organically in this market by more than 6% in 2025. We have been gaining shop floor spaces. We have been entering into channels like the contract channels in a very significant manner. We have been ramping up Springfield in Q1 to cruising altitude today. Yes, this market is extremely difficult because of tariff, but producing in North America the vast majority of our products, we are well placed moving forward. In terms of profitable growth, we have been declaring the target of growing by about 4% mid- to long term during the capital market update. We have been growing in 2025 by 3.9% after a strong growth as well in 2024. So we are restarting to grow in Electrolux after having lost quite a lot of scale in the past years. We have been strengthening our market position. We have been launching a lot of great innovations in 2025. I would just mention some of them. I mean, we have been presenting the pizza features. I mean, we have been launching this feature in North America very successfully, in Europe. We had new kitchen lines in Europe as well under AEG and Electrolux. We have been launching our new dishwasher in 2025 as well. Lots of innovation here, innovations we have been fueling once again with marketing spending. Cost reduction, we're proud to say that, I mean, we have been reaching the SEK 4 billion. It was a challenging target we put in front of ourselves here. We communicated a fork between SEK 3.5 billion and SEK 4 billion in the last months. We have been reaching the upper spectrum here. But more importantly, we have a very solid [indiscernible] in place in the company to keep on delivering cost saving moving forward. Last but not least, it is about culture, it is about leadership. And I always said, my objective is to combine 120 years of history of Electrolux with all the changes we see in the market right now in order to drive more speed and agility. And that's the perfect bridge to the next slide. We have 4 very clearly defined strategical drivers, which are, first, our bread and butter customer preferences. The second one is about life value creation, sitting next to our customers along the consumer journey from the purchase to the disposal of the appliances. It is about cost leadership and certainly about cash. But all of that will only be possible if we have the key enablers on the right-hand side. And one of them is about culture. And that's why we're happy to announce today a second wave of organizational changes. And the aim of these organizational changes is to get us closer to the end consumers, in order to be able to listen to them and innovate more and more and bring progress in their homes. This new wave of organizational changes will clarify a role, reducing duplication of responsibilities moving forward. We will be faster, we will be more agile, having end-to-end clear accountability in the organization. I'm moving now to the market and business outlook. During the fourth quarter, market demand in Europe decreased with geopolitical and macroeconomic uncertainty weighing on consumer sentiment. Consumers continued postponing discretionary purchases, and demand for building kitchen products remained subdued. In a longer perspective, it is important to remember that the European market is on a 10-year low. Again, we have been losing 1% in the fourth quarter 2025. Looking at 2026, we expect market demand to be neutral. There are signs of recovery as a consequence of a low inflation and interest rates. However, market demand is expected to remain subdued due to continued geopolitical uncertainty. Now moving to North America. In North America, market demand remains resilient in the fourth quarter with a plus 1%. The industry market price adjustments did not reflect the implemented U.S. tariff structure, and competitive pressure and promotional activity remained high, and we decreased prices in the quarter. In 2026, we expect market demand to be neutral to neutral negative. Geoeconomic uncertainty is foreseen to remain in North America, and under the current tariff structure, general market pricing should adjust to reflect associated tariff costs. This may adversely impact consumer demand and market growth. Consumer demand is estimated to have increased in Latin America in the fourth quarter. Competitive pressure increased in the region, most notably in Argentina, where the strong growth was driven mainly by imported goods. Consumer demand grew in Brazil, although at a slower pace than in the fourth quarter 2024, mainly due to inflationary pressure and high interest rates affecting consumer spending. Brazil will have elections in 2026, which might elevate uncertainties, and we expect market demand to be neutral with a stabilizing consumer demand following growth in 2024 and in 2025. Let me turn to the business outlook 2026. Volume, price and mix is expected to be positive in 2026, driven by volume growth and growth in the focus categories. This is expected to be partly offset by a negative price development. We anticipate that the high degree of demand will continue to be driven by replacement purchases. We expect investments in innovation and marketing to increase in 2026, again, to fuel our new products. New product launches provide us with a great platform to continue driving growth in our focus categories. Our focus on cost savings and improved efficiency throughout the group is critical for our competitiveness, and we anticipate, again, SEK 3.5 billion to SEK 4 billion earning contributions from cost efficiency in 2026. External factors are expected to be significantly negative for the year, driven mainly by increased tariff costs. The impact from currency and raw material is expected to be relatively neutral. The full year capital expenditure is expected to increase to approximately SEK 4 billion. With that, I close, and I hand that to you, Ann-Sofi. Ann-Sofi Jönsson: Thank you. So we will open up for Q&A, and we will start by opening up for questions on the telephone conference. Operator: [Operator Instructions] We will now take our first question from the line of Fredrik Ivarsson from ABG Sundal Collier. Fredrik Ivarsson: First, on North America, if you could help us out a little bit with the bridge in Q4 as the losses increased by almost SEK 200 million in the quarter. I presume tariffs and FX played a significant role, as you alluded to. But if you could help us out with that, that would be helpful. And also, if you have any view on the inventory situation in the U.S. market today with some focus on the nondomestic players. Yannick Fierling: I can start with that, Fredrik. Thanks for your question. I think the main impact, as we said previously here is the fact that we have been reducing our prices. In all fairness, as we said, we were able to compensate for the vast majority of the tariff impact in Q2 and Q3. That was due to the competitive pressure we have been observing in Q4, unfortunately, not possible. And we had during the quarter, we had to take the difficult decision to reduce our prices. That's the first aspect. The second one, as you said, is certainly tariff, tariff and the devaluation of the U.S. dollar, which has been weighing pretty significantly in the negative external factors we had to face in the fourth quarter. So that's it. I mean, as I said previously, I mean, prices have been bouncing back pretty quickly post Black Friday in North America to last year level. Our last year level is not enough to compensate for tariff. Now I mean, it's very important to just repeat and remind everybody about the basics. Imported duty goods out of Southeast Asia are taxed today between 15% and 20%. Out of China, it's between 55% and 60%. We have competitors which are massively importing out of these regions here. So if the industry is reacting rationally, what we should be seeing, what we should be expecting in the coming quarters is certainly a price increase. Now to your last question about inventory. I mean, we have been mentioning it very clearly as well in the last report. I mean, we expect the last goods to be arrived without the full tariff impact to have arrived in North America beginning of October. I think it is wise to see or think that most of these goods have been consumed during the promotional season on Black Friday. So I think most probably what will be remaining today in the North American market are goods which are fully impacted by the tariff level I mentioned previously. Therese Friberg: And maybe we can just add that the vast majority of the headwinds we had for the group in external factors is related to North America. So let's say, that's the magnitude of the headwinds we saw that we were then again not able to offset with price increases. But the underlying performance then from the business was positive. Fredrik Ivarsson: Yes. That's very clear. I think I lost you a little bit in the end, but that's a super clear answer. And then second one on LatAm, quick, if you could just talk about that onetime high level of supplier rebates in the quarter. How much did that sort of add to the margin, which was obviously very high? Yannick Fierling: First of all, we are very proud about the earnings we do have in LatAm. I think, again, I mean, LatAm is delivering very strong results in 2025. And believe me, it is thanks to our strategy, and it's not a short-term strategy, a long-term strategy we have been putting in place in the region here in terms of product leadership, I mean, go-to-market. So that's the first point, and we should be underlining that. Certainly, we are stressing the fact that, I mean, we had a one-time supplier rebate at the end of the quarter. I mean, this supplier rebate is not material for the group. It is relevant for the region, and that's why we have been mentioning it, but I want to underline that it's not material for the group. Fredrik Ivarsson: Okay. And then just one last housekeeping before I jump back into the queue. If you have any guidance on the group costs for '26 since they were fairly low last year. I guess you mentioned a timing impact there, Therese. But if you could help us out with some expectations for '26, that would be helpful. Therese Friberg: Yes, I would say for the full year, I could say that it is a little bit on the low side. Of course, we will try to really keep a very high cost containment in the group common cost. But also for the full year, I would say it is a little bit on the low side, as an indication. Fredrik Ivarsson: You mean 2025 was on the low side? Therese Friberg: Yes, exactly, yes. Fredrik Ivarsson: High in '26. Okay, good. Operator: We will now take our next question from the line of Johan Eliason from SB1 Markets. Johan Eliason: Also sort of relating to the pricing component. You also mentioned pricing negative in Europe and rest of Asia. I guess, it's mainly Europe. Is that sort of -- you talked about the trade down, but I think it sounded like you have a lot of new products coming in, in AEG and the Electrolux brand. Is it so that you also sort of discounted out some of the older products still remaining, and then the pricing should somehow then be a little bit of a temporary issue? Or is that wrong of me to think like that? Yannick Fierling: Johan, thanks for the question. It's an important question here. First of all, I mean, mix and volume have been positive in Europe in the fourth quarter. And I think I don't know how familiar you are with the concept of price index, but price index being basically at 100 would be the average of the prices here. What is very important for us, and we have been fighting for that, is to keep the price index we had throughout the year for both Electrolux and AEG. So we absolutely have been very directive on keeping the brand positioning in the regions. And actually, our price index has been even going slightly up. So the decision we took now a couple of years ago to exit the entry price point and really focus on the core plus and premium segment has been the right decision. And we are occupying today and growing into these 2 segments, which are core plus and premium segments. Where the big price war is going on even in a more fierce manner is certainly in the entry price point segments, where we have more new entrants putting pressure on the price level. And that's taking a little bit down the entire European market. I think what is very important for us is, again, to leverage our brand, to leverage the strength of our brand, leverage the innovation we are putting here in the market and actually occupy and grow where we belong, which are the core plus and premium segment in the market. Johan Eliason: Good. Then just on your pricing outlook again. You say price/mix and volume to be positive in '26 and then you focus on volume and the mix, sounding like prices could be negative for full year on a group level. Then your comments on U.S. prices have to adapt to the tariff level leaves me with the thinking that pricing should then be negative in sort of Europe, Asia and Brazil. Apart from Europe, where we discussed the tough in the entry level, what about Brazil? It seems like you were more comfortable with the Q4 development than Whirlpool were in their outlook statement. Yannick Fierling: No, I think you're absolutely right, first of all, to divide this question per region, because the answer will be slightly different region by region. First, I think if you look at Europe and Asia, we're absolutely expecting the price pressure to continue moving forward. I mean, we will have more and more pressure, as I said, especially on the low-end segment and entry price point segment, and we need to defend basically the value on the core plus and premium segment. In Latin America as well, you're absolutely right. I mean, to mention Brazil and Latin America, we have price pressures in Latin America as well with new entrants coming out of Asia as well in Latin America and as well in Brazil. However, once again, I mean, our position is pretty clear. We are playing in Latin America as well in core plus and premium. And the new entrants are mainly playing in the low-end segments. And that's why we are gaining and we keep on gaining value market share in this region. And in all fairness, I mean, the biggest battle getting played is in the entry price points here. So we're redefining our go-to-market, we're redefining our innovation in Latin America, the strength of our brand. The brand is very strong in Latin America, and we're executing here. The last one is, of course, North America here. North America would very much depend if the industry would be reacting rationally now to the tariff structure. As we said many, many times, but I think it's worth repeating, the current tariff structure is benefiting the local producers, and we are only 3 major local producers in North America under the condition, of course, that, I mean, prices would be moving up. Otherwise, you just need to absorb the tariff structure in the negative external factors. So I think it will be very interesting to observe moving forward what the price evolution would be in North America. I would just finish by one point, which is extremely critical here is that, I mean, we certainly are expecting higher pressure moving forward on prices. And it's making cost reduction and cost efficiency even more important moving forward. And that's why we are putting as well so much emphasis on getting more efficient, preserving, of course, the quality of our products, preserving consumer preference for our products here, but getting more efficient as a company such that we can mitigate the price pressure we'll be encountering in the 3 markets. Operator: We will now take our next question from the line of Uma Samlin from Bank of America. Uma Samlin: My question is on the raw material front. I mean, given a lot of the raw mat that you use, steel, for example, the prices increased quite a lot over the past few months. I was wondering that how do you think about that going forward? It seems like you think it will be neutral when it comes to raw material impact in 2026 in your slides. Just wondering how does that work? And how should we think about that? That's my first question. Yannick Fierling: Absolutely. What we said, just to be very precise, is that, I mean, the impact from currency and raw material is expected to be relatively neutral. But let me put a little bit of flavor on that. As you know very well, we are hedging. We're hedging our plastic material, and we're hedging even on a longer time period, I mean, steel. So I think we have been hedging part of plastic, and we have been hedging part of steel. What we see right now, of course, is a potential increase in steel in North America because of tariff. So that's what we're expecting here. So I think we see pressure on the steel side of the equation on North America. However, if you balance, I mean, currency together with raw material, we see that to be relatively neutral moving forward. Therese, do you want to add anything on that? No? Very good. Uma Samlin: Okay. And just a follow-up on North America. I was wondering like what are the dynamics you're currently seeing in Q1 post the Black Friday period? I mean, obviously, I guess you understand that a lot of the inventory has been perhaps still there for the Black Friday promotion period. But after that, I guess, previously, you've said that you expect pricing to normalize, stabilize going forward, because it wouldn't make sense for especially the Asian competitors not to compensate for the tariffs. So just wondering, what are you seeing today on the market? Are you seeing similar dynamics so far in January as in Q4? Or are you seeing any improvement there? Yannick Fierling: I think -- of course, I mean, we will not be discussing in detail about Q1. What I can tell you is that, as I said, I mean, prices have been bouncing back in December to last year level post Black Friday, and they have been bouncing back quicker, I would say, compared to 2024 post Black Friday. I think I'm stating the obvious to all of you here, but I mean, there has been quite a lot of discussions around tariff as well with the Supreme Court. And I think this discussion probably has been inducing doubts on how sustainable tariff would be moving forward or if there will be changes. So I think now it's pretty clear that, I mean, the decision will not be -- has not been happening in the first weeks. So again, with the level of tariff we're having out of Southeast Asia and China, rationally, I mean, we should see movements at least in the market. Therese Friberg: Sequentially, we have seen prices then improving post Black Friday, but we're not really seeing price increases to offset the current tariff structure. Ann-Sofi Jönsson: We have a few questions from the web as well. And here is one that is a little bit repetitive to what we have been speaking about. But are 2026 savings enough to offset external headwinds? And any color on where external headwinds will have the main impact? Yannick Fierling: I think, again, it's very difficult to say. I mean, we don't know exactly how currency will be moving on. Very difficult to predict here on the matter. What we say is that, I mean, we're setting again very ambitious targets in terms of cost reduction, which is between SEK 3.5 billion and SEK 4 billion in 2026 here. And I think it will be of prime importance to deliver on this target to face any type of headwinds we will see in terms of price pressure, tariff and others moving forward. But again, as Therese said, I mean, tariff, we were not able to compensate, at least in Q4, the full tariff impact through our pricing strategy. Therese Friberg: And on external factors, of course, as we've talked about, we expect currency and raw material, with the current levels and the, let's say, current hedging, to be essentially flat right now. And then, of course, we have significant headwinds still year-over-year in tariffs. And then we are still having some inflation. So we're still having, of course, some high inflation countries that will also be a negative impact a little bit then, yes, broader across the regions. Ann-Sofi Jönsson: Now we go back to the conference call again. Operator: We will now take our next phone question from the line of Akash Gupta from JPMorgan. Akash Gupta: I have a couple of questions as well. The first one is on external factors. I think you said you're expecting significant, but I was wondering if you can help us quantify a bit. So if you look at, in second half last year, on average, you had SEK 700 million-ish external factor with SEK 1.5 billion in second half primarily coming from tariffs. So is it fair to say that when we look at 2026, probably we should expect similar SEK 1.5 billion external headwind in first half before it might go down a bit in second half, because you have the same base as year before. And therefore, overall external factors based on how it looks today could be somewhere below SEK 2 billion. Would that be a good estimate? Therese Friberg: Yes, of course, we are not that specific, but your overall rationale seems like a reasonable logic. Yannick Fierling: I would just remind everybody that in the fourth quarter, at least, I mean, the external factors were split between tariff and currency and the depreciation of the dollar. Akash Gupta: And my second question is on your cost efficiency. Again, the number you guided for 2026 coming in ahead of what people were expecting. But maybe can you tell us about where is it coming from, which geographies, which product lines? And will there be any cost to get this cost efficiency that might lead to some one-off below the line? And also, when we look at the phasing of this cost efficiency, I mean, can you give an indication? Last year, we had a very big Q4. How should we think about the spread between first half, second half this year? Yannick Fierling: Thanks a lot for the question. I think it's an important question. I mean, as mentioned previously, we have been putting in place -- end of 2023, actually, we started to put in place a cost excellence program in the company, which is a very well-structured program, a cross-functional program heavily focused on engineering for design changes, procurement in terms of sourcing and of course, conversion in our factory. I mean, we took some time to ramp up in 2024. And in 2025, I mean, this program has been delivering to the level we have been describing here on the SEK 4 billion. It is, again, very much process oriented. The program is the same across product categories. So I think there is no significant differences in terms of product categories here. And it is as well, I mean, very well distributed across the different regions. So no major differences from product line to product line or from region to region. I think the important matter is really the systematic approach we have to address cost reduction and efficiency. And I think, of course, we'll be leveraging that moving forward. Operator: We will now take our next question from the line of Timothy Lee from Barclays. Timothy Lee: So the first question, I would like to follow up a little bit on the Latin America, the supply rebate. What's the nature of this given it is onetime, why it is not recurring? And if you think about the margin going forward, what level of margin should we expect for the Latin American market if we are not considering this supplier rebate to continue? Yannick Fierling: I want to repeat what I said previously. First of all, I mean, it's not exceptional. I mean, we have year-end rebates on the supplier side of the equation. And Michelle, our procurement lead, with the entire team, I mean, globally and in Latin America, have been doing an outstanding job in 2025 here, which have been driving to a one-timer significant rebate at year-end. But I want to repeat, I mean, and I think it's very important in terms of verbiages. I mean, this one-timer is not material for the group. It's only relevant for LatAm, and that's why I think it was very fair to mention it. On the other hand, I mean, if you look at, I mean, the 3 first quarters, and the last quarter is always the strongest one in the year from a seasonality perspective, we have been delivering very well in Latin America for the 3 first quarters. And I think we had a great Black Friday, again, based on an outstanding work from the team, especially in Brazil, but as well in Latin America, which have been driving to these results. That's what I would be saying. For sure, I think it was worth mentioning this one-timer. I mean that's very fair here. But I mean, that should not be undermining really good ongoing results for Latin America. Therese Friberg: And while we wanted to mention it, it's not a one-timer, if you look at it in the full year perspective. It is a one-timer in the sense that the full effect is happening in the fourth quarter. So that is what is then boosting a bit additionally, let's say, the results, specifically in the fourth quarter for Latin America. Timothy Lee: It's fair to say that -- obviously, we have the seasonal factor, we have the seasonal stronger quarter in the fourth quarter, but this year is definitely much stronger. So can I assume, if we are not seeing this higher rebates than normal, it is probably the margin in the quarter is somewhat similar to what we had in the past quarters or in the previous year in terms of seasonality? Yannick Fierling: Again, I want to repeat. I mean, there is always a seasonal effect. I mean, in our industry here, fourth quarter being the strongest quarter here. I mean, we cannot go much more into detail here regarding that, but I think the explanation we gave is the one. It is a strong quarter in Latin America. I mean, these are onetime rebates not undermining the performance level in Latin America right now. And again, it is something which is not material for the group, but relevant for Latin America. Therese Friberg: And what we want to say is that Latin America has not reached a completely different profitability level. So I guess your conclusion of that, it is continuing to perform at a high underlying level, boosted by additional seasonality in the fourth quarter and by this additional supplier rebate. Timothy Lee: Okay. Understood. And my second question is on Europe. I think you also mentioned there was some positive effect on earnings due to the phasing of the innovation and marketing expenses between quarters. Can you elaborate a bit more on that? Does that mean there was some marketing expenses, which probably deferred from Q4 to, let's say, Q1? Therese Friberg: No, not related to Q1, I would say. But it's more the phasing as well during the year where, specifically for Europe, we have had some additional marketing earlier in the year compared to last year. So it's only a phasing, I would say, within the year of 2025. Timothy Lee: Understood. And my final question would be on your cash flow statement. I think there was a provision that you released in Q4 of SEK 476 million. Can you explain what's the item for this release? Therese Friberg: No, that we don't recognize a large provision that was released. The main impact that we mentioned is the reduction of inventory of SEK 3 billion in working capital. Yannick Fierling: Yes. And that's what we said. I mean, there was a very significant effort in the fourth quarter to reduce our inventory in the 3 regions, and that's what we have been delivering. Ann-Sofi Jönsson: Okay. Thank you. And we have more questions from the web. So the next question is, the leverage improved in the fourth quarter, but still the net debt remained rather high. So could you -- or do you have concerns about the net debt level? Could you elaborate around that? Yannick Fierling: Yes. Listen, I mean, we have been delivering SEK 3.7 billion in EBIT in 2025 here, 2.8%, which is 0.8% better than last year. We have been getting our leverage to 3.0. But I mean, it's a fact, I mean, our debt level is pretty high. And I would say that like any other companies in the same situation, we are constantly evaluating the capital structure we do have today in order to deliver the strategy, the profit and the growth we have in front of us. Ann-Sofi Jönsson: Okay. Great. Now we turn over to the telephone conference. Operator: We will now take our next question from James Moore from Rothschild & Co Redburn. James Moore: It's James from Rothschild. I've got a few. I'll go one at a time, if I could. Just on cost efficiency, great to see the SEK 3.5 billion, SEK 4 billion again in '26. And I know you're doing an ongoing best cost country procurement sourcing action, and you're trying to be more sustainable in the ability of savings to get every year. I'm just wondering, is this level for '26 indicative of the sustainable potential in the outer years of, say, 2027 to 2030? Or is the run rate this year still elevated? Is there any sort of way you can quantify what your new procurement savings machine looks like in the outer years? Yannick Fierling: I think, first of all, thank you very much for pointing that out. And good day to you. I mean, because, yes, best cost country sourcing is absolutely something we are focusing on in the procurement organization. Big focus in 2025 with the arrival of Michelle. Michelle is located in Asia today. And I think we have been focusing throughout the year to understand what best cost country sourcing was for the different regions, because as you can understand, maybe, I mean, China is not a best cost country sourcing region any longer for North America, at least for all the components we do have today. So we have been really doing, I think, a good job on the procurement side of the equation to expand the supply base. We have to be fast as well in releasing these components here without endangering the quality we do have. And that has been a source of the saving you see right now. But I mean, whatever we have been implementing in 2025, of course, will remain in our products in 2026 moving forward. And we have this clear process in taking additional actions in procurement in order to investigate what are the other components we may be going and source from better suppliers. James Moore: But you can't say whether the rate in '26 is elevated versus the outer years? Yannick Fierling: I think -- and again, in all fairness, I mean, we -- I don't want to -- I'm never somebody who is pleased to start with. So it's difficult to be fully satisfied about that. But in all fairness, I mean, the delivery we had in 2025 was a strong delivery. And that's why I think we were able -- I mean, procurement has been a major contributor in delivering part of the cost savings here. So I'm expecting them not to slow down in 2026. James Moore: Okay. And just on price, I hear everything you say net negative U.S. -- sorry, Europe, Asia more than offsetting positive U.S. I would have hoped for a sort of like a mid-single-digit price hike all in net after promotion in '25. And obviously, it depends on the behavior of rational or not rational agents. But is it fair to assume that you're assuming materially less than 5% behind your comment? And I'm trying to gauge your degree of conservatism. Do you think that it is possible to achieve that in the situation that the Chinese and Korean manufacturers hike their prices? And talking of that, tied to that, have you seen the Chinese or Korean manufacturers hike their prices in the first month of the year? I can't see any channel indications that they have yet. Yannick Fierling: First of all, I mean, I think we should not be forgetting about what has been achieved in the first quarters of 2025 in terms of price increase. And I need to recognize my North American team for the agility they have been showing, because the picture has been changing several times, I mean, throughout the months in 2025. And we have been taking and grabbing any opportunity we had to increase prices, and we have been leading price increase in Q2, Q3, and we have been compensating the vast majority of the tariff impact in Q2, Q3. I mean, this situation was simply not sustainable any longer in Q4, especially in the light of the promotional period we had. And we had to face reality, especially looking at, I mean, potential volume impact that we had to step down on prices. And let me tell you that promotional level in 2025 was at least at the same level as in 2024, which is pretty incredible when you think about the tariff level imported finished goods are facing today, 15% to 20%, 55% to 60%. So I cannot -- I mean, as Therese said, we have not seen -- we have seen basically prices bouncing back in December quicker than last year. But in all fairness, I mean, we have not seen tariff being reflected in the price level in North America. Now the big question is -- I mean, we are benefiting from producing in North America. The big question is, is this situation sustainable with 15% to 20%, 55% to 60% tariff for people and for competitors which are sourcing most of their products today for the North American market. James Moore: Great. I've got a couple of more technical ones, if I could. Just in terms of your external factors, I think, Therese, you mentioned the majority of the SEK 739 million group impact was in North America. There's obviously some dollar impact and there might be some stuff in Asia and Europe. But would it be fair to say roughly SEK 0.5 billion was the impact of pure tariff in the quarter? And would it be possible to say whether your FY '26 tariff assumption is closer to SEK 1 billion or SEK 2 billion, to gauge the tariff? Therese Friberg: Yes, we don't give that specifics. But yes, I would say a relevant portion of the external factors was related to currency in the fourth quarter and the rest was tariffs. So there was a significant impact of tariffs. Yannick Fierling: The majority was tariffs. Therese Friberg: Yes. And this is, of course, the level that we are expecting to continue for the first half. And then to your point, it will then -- for the second half with the current tariff structure still being in place, it will sort of even out from a year-over-year perspective. James Moore: Okay. So we comp out easier in the second half? Could you remind us, was the third quarter a similar magnitude to the fourth? Or was that sort of like half? Therese Friberg: It was similar, I would say. James Moore: Okay. So it's really a first half outstanding impact that we have yet to address? Therese Friberg: When it comes to the tariff impact, yes, the majority in the first half. James Moore: That's great. And just the final one, just going back to that other point. Has there been any indication of Asians rising price in the U.S. market in the last 30 days? Therese Friberg: No, not apart from what we mentioned, that sequentially, the heavy promotions from Black Friday has been, of course, lifted, so to say. So sequentially, we have seen pricing coming up, but we're not really seeing price increases to offset the tariff structure that is in place on top of that. Ann-Sofi Jönsson: Thank you very much. We are now running out of time. I know we have more questions. We will make sure that we will get back to you from the IR team. And I would like to thank everyone who has listened in, but I would also like to hand over to Yannick for a few closing words before we end this session. Yannick Fierling: Again, we have been making progress in 2025, and we have been delivering according to the strategic drivers we defined early on. I mean, we're very much looking to do the same in 2026 and delivering basically in the coming quarters. Thank you very much for attending today. Therese Friberg: Thank you very much.
Ann-Sofi Jönsson: Welcome to the presentation of our fourth quarter results. I'm Ann-Sofi Jönsson, Head of Investor Relations and Sustainability Reporting here at the Electrolux Group. With me today, I have our CEO, Yannick Fierling; and our CFO, Therese Friberg. We will go through the presentation. And after that, we will open up for a Q&A session, both for those on the conference call as well as for you on the webcast. [Operator Instructions]. With that, I hand over to you, Yannick. Yannick Fierling: Thank you very much, Ann-Sofi, and good day to all of you. Very glad to be with you for the Q4 report. I will start, if you allow me, with some highlights about 2025. We are happy to report that the organic sales has been at the level of SEK 131 billion, which represents an organic sales growth of 3.9%, very close to the 4% we have been communicating about in the capital market update, I mean, midterm. The improvement in the operating income was at the level of SEK 3.7 billion, which represents 2.8% on net sales, which is again an improvement of 0.8 points versus last year. This SEK 3.7 billion were supported by a high cost reduction level of about SEK 4 billion, driven mainly by procurement and value engineering. We had one of the strongest quarter ever in Electrolux in the fourth quarter in terms of cash flow, delivering SEK 5.2 billion, bringing the entire year at the level of SEK 2 billion, which is taking our financial position in terms of leverage at the level of 3.0. With that, I would like to go into the fourth quarter. I'm sorry, the slide is not changing. Technical issue, which was working, of course, nicely, this morning. It's always like that. Okay, very good. Now it's working. Apologies for this technical issue. Very good. Let me deep dive into the fourth quarter here. First, we're glad to report out that, I mean, we have been gaining market share once again in Europe, Asia Pacific, Middle East and Africa and Brazil. We have been delivering a flat market share in North America, very high level of price pressure in the 3 regions. The operating income has been positively impacted by cost reduction at the level of SEK 1.2 billion. But we have been delivering on efficiency in engineering, in procurement and on the conversion side of the equation. On the headwind side of the equation, unfortunately, we had to face a high level of cost due to U.S. tariffs and the currency with dollar depreciation. Let's move now to Europe, Asia Pacific and Middle East and Africa. First, as I said, I mean, we are happy to say that once again, we have been growing market share with Electrolux and AEG. We have been gaining more market share with Electrolux and AEG than we have been losing by ramping down with Zanussi. Very high level of pressure in this region as well. I mean we have been going into Black Friday. We have more and more pressure from the Asian competitors, but we have been managing to grow organically by 3.6% in the quarter, which is pretty remarkable, especially when you think that the market has been going down by 1%. We had a positive mix effect, helped by significant volume increase here. And the region has been benefiting by a high level of cost efficiency as well. We have been introducing major innovations in Europe here, and we thought it was wise to fuel this innovation with a higher level of marketing spending. The negative news is certainly on the volume side of the equation. Can we change to the next slide, please? I mean, the negative news is, of course, about the market level. The market has been losing, once again, 1%. We have been down 1% in Western Europe, and we have been up 2% in Eastern Europe. With Western Europe representing more than 80% of the volume overall, the market has been once again down. We are now at the level of 2016. We're 10% below the fourth quarter of 2019. It is a 10 years low in terms of volume. And the market remains subdued. Of course, we have positive signals from interest rate and the construction side of the equation, but it will take time to have these positive signals materializing in additional volume for home appliances. Moving to North America. Now I mean, the quarter has been very challenging. Of course, we knew Black Friday was highly promotional. But certainly, I mean, we did not expect the level of competitive pressure we have seen in the market. And I think entering into the promotional season here, we had no choice but to reduce the price increases we had implemented throughout the year 2025. And that's explaining why we are delivering a negative EBIT in the fourth quarter. So a very high level of price pressure in North America, which has been forcing us to step down for the price increase we had implemented throughout the year. The good news is that after the promotional pressure here, prices have been bouncing back to last year level. But still significant negative external factors are driving our results down. And these factors are simply the U.S. tariff as well as the depreciation of the U.S. dollar. Tariffs are what they are, 15% to 20% for imported goods out of Southeast Asia, 55% to 60% out of China. So if the industry is reacting rationally here, and we will see price increase in the coming weeks, in the coming months, we should be benefiting from that being a North American producer. The market has been pretty resilient when you look at this picture here. The market has been going up in the fourth quarter by 1%, mainly driven by laundry. But still consumer sentiment is pretty low and price increase could have an impact moving forward on the demand. Moving now to Latin America, and I'm glad to say that, I mean, we had another strong quarter in Latin America, gaining value market share in Brazil. The entire region in terms of volume has been growing. We saw Brazil slightly slowing down in terms of increase, but still a good quarter in the region. We had a very strong Black Friday, which is a promotional pressure, but the team has been doing pretty well. And we were helped finally at the end of the quarter by a heat wave, which has been present in the region. Our position remains very strong in the region. I just want to underline one point, which is explaining part of the 11.5% in terms of EBIT. We were helped and supported by a onetime high level of supplier rebates at the end of the quarter in this region. This rebate has not been material for the group, but certainly has been relevant for LatAm. Let me show you a short video on how we have been communicating during Black Friday in the region. [Presentation] Yannick Fierling: So very strong results in LatAm during Black Friday. We're also glad to report that, I mean, we have been reaching SEK 4 billion in terms of cost reduction. And just as a reminder, SEK 4 billion was on the upper level of the fork we have been communicating about in the last months. We have been reaching this SEK 4 billion through value engineering, better sourcing and higher efficiency in our factories. So we have a very strong process in place internally to deliver these type of results. With that, I have the pleasure to hand it out to Therese, hoping that the pointer will be working, Therese, in your fingers. Therese Friberg: Thank you, Yannick. And then looking at the sales and the EBIT bridge. We had a 2% growth in the quarter, which was driven by volume growth and also positive mix in Europe, Middle East and Asia Pacific. And we also had a positive volume growth in Latin America. Unfortunately, if we look at then organic contribution to earnings, it was slightly negative. And this is a result of that the positive volume was then offset by negative pricing pressure, especially in Europe, Middle East -- in Europe, Asia Pacific, Middle East and Africa. And as Yannick mentioned, we also had to back off from the previously introduced price increases in North America in the quarter. This volume growth and positive mix was supported by increased investments in innovation and marketing. And we also had a quite strong quarter in the fourth quarter in terms of cost efficiency. And we can also mention here that group common cost was below the last year level, and this is a result of cost containment during the year, but also due to part of a timing effect where the cost in group common cost last year was at a high level in the quarter. When looking at external factors, we had another quarter with significant headwinds. Of course, the introduced tariffs in U.S. continues to be at a high level and a high impact in the fourth quarter. But also, we had a negative currency impact, both from a devaluation -- both from a strengthening of the Swedish krona, which is then contributing to a negative translation effect for the group, but also for North America, where the weakening of the U.S. dollar versus many or several of the important production currencies like the Mexican peso and the Thai baht and the Chinese renminbi is then giving a negative result on the group. And the negative effect in acquisitions and divestments is related to the divestment we did last year of the water heater business in South Africa in the fourth quarter. And then taking a look at the full year, we had a sales growth of 3.9%, where we had volume growth in all our business areas, and we also had a positive mix for the group. This also contributed to a positive organic contribution to earnings despite that during the year, we did see a price pressure, mainly in the European market that also was negative for the full year. We were boosting and supporting the volume growth and our strong product portfolio by increases in investments and marketing in the year. And as Yannick mentioned, we managed to hit the SEK 4 billion in cost efficiency. We had for the full year, heavy headwinds in external factors. Of course, the tariffs we have talked about a lot. And on top of the negative currency that we saw in the fourth quarter, also for the full year, we have negative currency mainly in the Latin American markets in Argentina and Brazil and also in the Australian dollar. And then looking at cash flow. As Yannick mentioned, we had a strong end to the year. So we had SEK 5.2 billion operating cash flow in the quarter, which took the full year then to SEK 2 billion, which was almost in line with the last year cash flow. The strong operating cash flow in the quarter was driven by positive working capital and mainly by a large reduction in inventory. As you know, our seasonality is like this that we always have a positive contribution from reduced inventory in the fourth quarter. But also as we have talked about during the year, we came from a position where we, specifically in certain categories and in certain business areas, were at a high level going into the fourth quarter. And specifically then mentioning air conditioners in Brazil, where we, at the end of the year, had the heat wave in Brazil, which also helped us to reduce inventory further. We're also keeping high containment of CapEx, and this has also been helping and CapEx is below the last year level. And then looking at the balance sheet and liquidity, we have a solid liquidity and a well-balanced maturity profile. In the fourth quarter, we were amortizing a long-term borrowing of around SEK 2 billion, and we also draw down on the previously announced loan with EIB of USD 230 million. If we look into 2026, we have a maturity upcoming in October of SEK 5.5 billion. And as at the end of December, we have a liquidity, including revolving credit facilities of SEK 32.7 billion. We have no financial covenants, and our target is to maintain a solid investment-grade rating and our leverage improved during the quarter and the year. So we ended the net debt to EBITDA by the end of the year at 3x. And with that, I hand back over to Yannick. Yannick Fierling: Thank you very much, Therese. See, it worked fine in your hands. So let's hope it will be like that as well for me. So moving now to sustainability. And as you all know, I mean, sustainability is in our DNA, and we are very proud to be one of the sustainability leaders in the industry. We do have very ambitious targets moving forward. We are planning to reduce, between 2021 and 2030, Scope 1 and 2 by 85%, Scope 3 by 42%. We're planning to have 35% of recycled material in our product. And in terms of incident rate, we have a very ambitious target to be at 0.3, which is best-in-class in the industry here. We made tremendous progress in 2025. And we're proud to say today that, I mean, we have been reaching, out of the 85% already in 2025, year-to-date, 45%, 33% for Scope 3, and we have 23% today of recycled material in our products. In terms of incident rate, we have been reaching the target of 0.33. Let me just come back. I mean, it's a little bit more than 1 year that I'm in this position today, and we have been defining very clearly these 5 strategic pillars when I started. First, it was about improving North America. And yes, we had a difficult quarter in Q4 in North America. However, let's take into consideration that we have been growing organically in this market by more than 6% in 2025. We have been gaining shop floor spaces. We have been entering into channels like the contract channels in a very significant manner. We have been ramping up Springfield in Q1 to cruising altitude today. Yes, this market is extremely difficult because of tariff, but producing in North America the vast majority of our products, we are well placed moving forward. In terms of profitable growth, we have been declaring the target of growing by about 4% mid- to long term during the capital market update. We have been growing in 2025 by 3.9% after a strong growth as well in 2024. So we are restarting to grow in Electrolux after having lost quite a lot of scale in the past years. We have been strengthening our market position. We have been launching a lot of great innovations in 2025. I would just mention some of them. I mean, we have been presenting the pizza features. I mean, we have been launching this feature in North America very successfully, in Europe. We had new kitchen lines in Europe as well under AEG and Electrolux. We have been launching our new dishwasher in 2025 as well. Lots of innovation here, innovations we have been fueling once again with marketing spending. Cost reduction, we're proud to say that, I mean, we have been reaching the SEK 4 billion. It was a challenging target we put in front of ourselves here. We communicated a fork between SEK 3.5 billion and SEK 4 billion in the last months. We have been reaching the upper spectrum here. But more importantly, we have a very solid [indiscernible] in place in the company to keep on delivering cost saving moving forward. Last but not least, it is about culture, it is about leadership. And I always said, my objective is to combine 120 years of history of Electrolux with all the changes we see in the market right now in order to drive more speed and agility. And that's the perfect bridge to the next slide. We have 4 very clearly defined strategical drivers, which are, first, our bread and butter customer preferences. The second one is about life value creation, sitting next to our customers along the consumer journey from the purchase to the disposal of the appliances. It is about cost leadership and certainly about cash. But all of that will only be possible if we have the key enablers on the right-hand side. And one of them is about culture. And that's why we're happy to announce today a second wave of organizational changes. And the aim of these organizational changes is to get us closer to the end consumers, in order to be able to listen to them and innovate more and more and bring progress in their homes. This new wave of organizational changes will clarify a role, reducing duplication of responsibilities moving forward. We will be faster, we will be more agile, having end-to-end clear accountability in the organization. I'm moving now to the market and business outlook. During the fourth quarter, market demand in Europe decreased with geopolitical and macroeconomic uncertainty weighing on consumer sentiment. Consumers continued postponing discretionary purchases, and demand for building kitchen products remained subdued. In a longer perspective, it is important to remember that the European market is on a 10-year low. Again, we have been losing 1% in the fourth quarter 2025. Looking at 2026, we expect market demand to be neutral. There are signs of recovery as a consequence of a low inflation and interest rates. However, market demand is expected to remain subdued due to continued geopolitical uncertainty. Now moving to North America. In North America, market demand remains resilient in the fourth quarter with a plus 1%. The industry market price adjustments did not reflect the implemented U.S. tariff structure, and competitive pressure and promotional activity remained high, and we decreased prices in the quarter. In 2026, we expect market demand to be neutral to neutral negative. Geoeconomic uncertainty is foreseen to remain in North America, and under the current tariff structure, general market pricing should adjust to reflect associated tariff costs. This may adversely impact consumer demand and market growth. Consumer demand is estimated to have increased in Latin America in the fourth quarter. Competitive pressure increased in the region, most notably in Argentina, where the strong growth was driven mainly by imported goods. Consumer demand grew in Brazil, although at a slower pace than in the fourth quarter 2024, mainly due to inflationary pressure and high interest rates affecting consumer spending. Brazil will have elections in 2026, which might elevate uncertainties, and we expect market demand to be neutral with a stabilizing consumer demand following growth in 2024 and in 2025. Let me turn to the business outlook 2026. Volume, price and mix is expected to be positive in 2026, driven by volume growth and growth in the focus categories. This is expected to be partly offset by a negative price development. We anticipate that the high degree of demand will continue to be driven by replacement purchases. We expect investments in innovation and marketing to increase in 2026, again, to fuel our new products. New product launches provide us with a great platform to continue driving growth in our focus categories. Our focus on cost savings and improved efficiency throughout the group is critical for our competitiveness, and we anticipate, again, SEK 3.5 billion to SEK 4 billion earning contributions from cost efficiency in 2026. External factors are expected to be significantly negative for the year, driven mainly by increased tariff costs. The impact from currency and raw material is expected to be relatively neutral. The full year capital expenditure is expected to increase to approximately SEK 4 billion. With that, I close, and I hand that to you, Ann-Sofi. Ann-Sofi Jönsson: Thank you. So we will open up for Q&A, and we will start by opening up for questions on the telephone conference. Operator: [Operator Instructions] We will now take our first question from the line of Fredrik Ivarsson from ABG Sundal Collier. Fredrik Ivarsson: First, on North America, if you could help us out a little bit with the bridge in Q4 as the losses increased by almost SEK 200 million in the quarter. I presume tariffs and FX played a significant role, as you alluded to. But if you could help us out with that, that would be helpful. And also, if you have any view on the inventory situation in the U.S. market today with some focus on the nondomestic players. Yannick Fierling: I can start with that, Fredrik. Thanks for your question. I think the main impact, as we said previously here is the fact that we have been reducing our prices. In all fairness, as we said, we were able to compensate for the vast majority of the tariff impact in Q2 and Q3. That was due to the competitive pressure we have been observing in Q4, unfortunately, not possible. And we had during the quarter, we had to take the difficult decision to reduce our prices. That's the first aspect. The second one, as you said, is certainly tariff, tariff and the devaluation of the U.S. dollar, which has been weighing pretty significantly in the negative external factors we had to face in the fourth quarter. So that's it. I mean, as I said previously, I mean, prices have been bouncing back pretty quickly post Black Friday in North America to last year level. Our last year level is not enough to compensate for tariff. Now I mean, it's very important to just repeat and remind everybody about the basics. Imported duty goods out of Southeast Asia are taxed today between 15% and 20%. Out of China, it's between 55% and 60%. We have competitors which are massively importing out of these regions here. So if the industry is reacting rationally, what we should be seeing, what we should be expecting in the coming quarters is certainly a price increase. Now to your last question about inventory. I mean, we have been mentioning it very clearly as well in the last report. I mean, we expect the last goods to be arrived without the full tariff impact to have arrived in North America beginning of October. I think it is wise to see or think that most of these goods have been consumed during the promotional season on Black Friday. So I think most probably what will be remaining today in the North American market are goods which are fully impacted by the tariff level I mentioned previously. Therese Friberg: And maybe we can just add that the vast majority of the headwinds we had for the group in external factors is related to North America. So let's say, that's the magnitude of the headwinds we saw that we were then again not able to offset with price increases. But the underlying performance then from the business was positive. Fredrik Ivarsson: Yes. That's very clear. I think I lost you a little bit in the end, but that's a super clear answer. And then second one on LatAm, quick, if you could just talk about that onetime high level of supplier rebates in the quarter. How much did that sort of add to the margin, which was obviously very high? Yannick Fierling: First of all, we are very proud about the earnings we do have in LatAm. I think, again, I mean, LatAm is delivering very strong results in 2025. And believe me, it is thanks to our strategy, and it's not a short-term strategy, a long-term strategy we have been putting in place in the region here in terms of product leadership, I mean, go-to-market. So that's the first point, and we should be underlining that. Certainly, we are stressing the fact that, I mean, we had a one-time supplier rebate at the end of the quarter. I mean, this supplier rebate is not material for the group. It is relevant for the region, and that's why we have been mentioning it, but I want to underline that it's not material for the group. Fredrik Ivarsson: Okay. And then just one last housekeeping before I jump back into the queue. If you have any guidance on the group costs for '26 since they were fairly low last year. I guess you mentioned a timing impact there, Therese. But if you could help us out with some expectations for '26, that would be helpful. Therese Friberg: Yes, I would say for the full year, I could say that it is a little bit on the low side. Of course, we will try to really keep a very high cost containment in the group common cost. But also for the full year, I would say it is a little bit on the low side, as an indication. Fredrik Ivarsson: You mean 2025 was on the low side? Therese Friberg: Yes, exactly, yes. Fredrik Ivarsson: High in '26. Okay, good. Operator: We will now take our next question from the line of Johan Eliason from SB1 Markets. Johan Eliason: Also sort of relating to the pricing component. You also mentioned pricing negative in Europe and rest of Asia. I guess, it's mainly Europe. Is that sort of -- you talked about the trade down, but I think it sounded like you have a lot of new products coming in, in AEG and the Electrolux brand. Is it so that you also sort of discounted out some of the older products still remaining, and then the pricing should somehow then be a little bit of a temporary issue? Or is that wrong of me to think like that? Yannick Fierling: Johan, thanks for the question. It's an important question here. First of all, I mean, mix and volume have been positive in Europe in the fourth quarter. And I think I don't know how familiar you are with the concept of price index, but price index being basically at 100 would be the average of the prices here. What is very important for us, and we have been fighting for that, is to keep the price index we had throughout the year for both Electrolux and AEG. So we absolutely have been very directive on keeping the brand positioning in the regions. And actually, our price index has been even going slightly up. So the decision we took now a couple of years ago to exit the entry price point and really focus on the core plus and premium segment has been the right decision. And we are occupying today and growing into these 2 segments, which are core plus and premium segments. Where the big price war is going on even in a more fierce manner is certainly in the entry price point segments, where we have more new entrants putting pressure on the price level. And that's taking a little bit down the entire European market. I think what is very important for us is, again, to leverage our brand, to leverage the strength of our brand, leverage the innovation we are putting here in the market and actually occupy and grow where we belong, which are the core plus and premium segment in the market. Johan Eliason: Good. Then just on your pricing outlook again. You say price/mix and volume to be positive in '26 and then you focus on volume and the mix, sounding like prices could be negative for full year on a group level. Then your comments on U.S. prices have to adapt to the tariff level leaves me with the thinking that pricing should then be negative in sort of Europe, Asia and Brazil. Apart from Europe, where we discussed the tough in the entry level, what about Brazil? It seems like you were more comfortable with the Q4 development than Whirlpool were in their outlook statement. Yannick Fierling: No, I think you're absolutely right, first of all, to divide this question per region, because the answer will be slightly different region by region. First, I think if you look at Europe and Asia, we're absolutely expecting the price pressure to continue moving forward. I mean, we will have more and more pressure, as I said, especially on the low-end segment and entry price point segment, and we need to defend basically the value on the core plus and premium segment. In Latin America as well, you're absolutely right. I mean, to mention Brazil and Latin America, we have price pressures in Latin America as well with new entrants coming out of Asia as well in Latin America and as well in Brazil. However, once again, I mean, our position is pretty clear. We are playing in Latin America as well in core plus and premium. And the new entrants are mainly playing in the low-end segments. And that's why we are gaining and we keep on gaining value market share in this region. And in all fairness, I mean, the biggest battle getting played is in the entry price points here. So we're redefining our go-to-market, we're redefining our innovation in Latin America, the strength of our brand. The brand is very strong in Latin America, and we're executing here. The last one is, of course, North America here. North America would very much depend if the industry would be reacting rationally now to the tariff structure. As we said many, many times, but I think it's worth repeating, the current tariff structure is benefiting the local producers, and we are only 3 major local producers in North America under the condition, of course, that, I mean, prices would be moving up. Otherwise, you just need to absorb the tariff structure in the negative external factors. So I think it will be very interesting to observe moving forward what the price evolution would be in North America. I would just finish by one point, which is extremely critical here is that, I mean, we certainly are expecting higher pressure moving forward on prices. And it's making cost reduction and cost efficiency even more important moving forward. And that's why we are putting as well so much emphasis on getting more efficient, preserving, of course, the quality of our products, preserving consumer preference for our products here, but getting more efficient as a company such that we can mitigate the price pressure we'll be encountering in the 3 markets. Operator: We will now take our next question from the line of Uma Samlin from Bank of America. Uma Samlin: My question is on the raw material front. I mean, given a lot of the raw mat that you use, steel, for example, the prices increased quite a lot over the past few months. I was wondering that how do you think about that going forward? It seems like you think it will be neutral when it comes to raw material impact in 2026 in your slides. Just wondering how does that work? And how should we think about that? That's my first question. Yannick Fierling: Absolutely. What we said, just to be very precise, is that, I mean, the impact from currency and raw material is expected to be relatively neutral. But let me put a little bit of flavor on that. As you know very well, we are hedging. We're hedging our plastic material, and we're hedging even on a longer time period, I mean, steel. So I think we have been hedging part of plastic, and we have been hedging part of steel. What we see right now, of course, is a potential increase in steel in North America because of tariff. So that's what we're expecting here. So I think we see pressure on the steel side of the equation on North America. However, if you balance, I mean, currency together with raw material, we see that to be relatively neutral moving forward. Therese, do you want to add anything on that? No? Very good. Uma Samlin: Okay. And just a follow-up on North America. I was wondering like what are the dynamics you're currently seeing in Q1 post the Black Friday period? I mean, obviously, I guess you understand that a lot of the inventory has been perhaps still there for the Black Friday promotion period. But after that, I guess, previously, you've said that you expect pricing to normalize, stabilize going forward, because it wouldn't make sense for especially the Asian competitors not to compensate for the tariffs. So just wondering, what are you seeing today on the market? Are you seeing similar dynamics so far in January as in Q4? Or are you seeing any improvement there? Yannick Fierling: I think -- of course, I mean, we will not be discussing in detail about Q1. What I can tell you is that, as I said, I mean, prices have been bouncing back in December to last year level post Black Friday, and they have been bouncing back quicker, I would say, compared to 2024 post Black Friday. I think I'm stating the obvious to all of you here, but I mean, there has been quite a lot of discussions around tariff as well with the Supreme Court. And I think this discussion probably has been inducing doubts on how sustainable tariff would be moving forward or if there will be changes. So I think now it's pretty clear that, I mean, the decision will not be -- has not been happening in the first weeks. So again, with the level of tariff we're having out of Southeast Asia and China, rationally, I mean, we should see movements at least in the market. Therese Friberg: Sequentially, we have seen prices then improving post Black Friday, but we're not really seeing price increases to offset the current tariff structure. Ann-Sofi Jönsson: We have a few questions from the web as well. And here is one that is a little bit repetitive to what we have been speaking about. But are 2026 savings enough to offset external headwinds? And any color on where external headwinds will have the main impact? Yannick Fierling: I think, again, it's very difficult to say. I mean, we don't know exactly how currency will be moving on. Very difficult to predict here on the matter. What we say is that, I mean, we're setting again very ambitious targets in terms of cost reduction, which is between SEK 3.5 billion and SEK 4 billion in 2026 here. And I think it will be of prime importance to deliver on this target to face any type of headwinds we will see in terms of price pressure, tariff and others moving forward. But again, as Therese said, I mean, tariff, we were not able to compensate, at least in Q4, the full tariff impact through our pricing strategy. Therese Friberg: And on external factors, of course, as we've talked about, we expect currency and raw material, with the current levels and the, let's say, current hedging, to be essentially flat right now. And then, of course, we have significant headwinds still year-over-year in tariffs. And then we are still having some inflation. So we're still having, of course, some high inflation countries that will also be a negative impact a little bit then, yes, broader across the regions. Ann-Sofi Jönsson: Now we go back to the conference call again. Operator: We will now take our next phone question from the line of Akash Gupta from JPMorgan. Akash Gupta: I have a couple of questions as well. The first one is on external factors. I think you said you're expecting significant, but I was wondering if you can help us quantify a bit. So if you look at, in second half last year, on average, you had SEK 700 million-ish external factor with SEK 1.5 billion in second half primarily coming from tariffs. So is it fair to say that when we look at 2026, probably we should expect similar SEK 1.5 billion external headwind in first half before it might go down a bit in second half, because you have the same base as year before. And therefore, overall external factors based on how it looks today could be somewhere below SEK 2 billion. Would that be a good estimate? Therese Friberg: Yes, of course, we are not that specific, but your overall rationale seems like a reasonable logic. Yannick Fierling: I would just remind everybody that in the fourth quarter, at least, I mean, the external factors were split between tariff and currency and the depreciation of the dollar. Akash Gupta: And my second question is on your cost efficiency. Again, the number you guided for 2026 coming in ahead of what people were expecting. But maybe can you tell us about where is it coming from, which geographies, which product lines? And will there be any cost to get this cost efficiency that might lead to some one-off below the line? And also, when we look at the phasing of this cost efficiency, I mean, can you give an indication? Last year, we had a very big Q4. How should we think about the spread between first half, second half this year? Yannick Fierling: Thanks a lot for the question. I think it's an important question. I mean, as mentioned previously, we have been putting in place -- end of 2023, actually, we started to put in place a cost excellence program in the company, which is a very well-structured program, a cross-functional program heavily focused on engineering for design changes, procurement in terms of sourcing and of course, conversion in our factory. I mean, we took some time to ramp up in 2024. And in 2025, I mean, this program has been delivering to the level we have been describing here on the SEK 4 billion. It is, again, very much process oriented. The program is the same across product categories. So I think there is no significant differences in terms of product categories here. And it is as well, I mean, very well distributed across the different regions. So no major differences from product line to product line or from region to region. I think the important matter is really the systematic approach we have to address cost reduction and efficiency. And I think, of course, we'll be leveraging that moving forward. Operator: We will now take our next question from the line of Timothy Lee from Barclays. Timothy Lee: So the first question, I would like to follow up a little bit on the Latin America, the supply rebate. What's the nature of this given it is onetime, why it is not recurring? And if you think about the margin going forward, what level of margin should we expect for the Latin American market if we are not considering this supplier rebate to continue? Yannick Fierling: I want to repeat what I said previously. First of all, I mean, it's not exceptional. I mean, we have year-end rebates on the supplier side of the equation. And Michelle, our procurement lead, with the entire team, I mean, globally and in Latin America, have been doing an outstanding job in 2025 here, which have been driving to a one-timer significant rebate at year-end. But I want to repeat, I mean, and I think it's very important in terms of verbiages. I mean, this one-timer is not material for the group. It's only relevant for LatAm, and that's why I think it was very fair to mention it. On the other hand, I mean, if you look at, I mean, the 3 first quarters, and the last quarter is always the strongest one in the year from a seasonality perspective, we have been delivering very well in Latin America for the 3 first quarters. And I think we had a great Black Friday, again, based on an outstanding work from the team, especially in Brazil, but as well in Latin America, which have been driving to these results. That's what I would be saying. For sure, I think it was worth mentioning this one-timer. I mean that's very fair here. But I mean, that should not be undermining really good ongoing results for Latin America. Therese Friberg: And while we wanted to mention it, it's not a one-timer, if you look at it in the full year perspective. It is a one-timer in the sense that the full effect is happening in the fourth quarter. So that is what is then boosting a bit additionally, let's say, the results, specifically in the fourth quarter for Latin America. Timothy Lee: It's fair to say that -- obviously, we have the seasonal factor, we have the seasonal stronger quarter in the fourth quarter, but this year is definitely much stronger. So can I assume, if we are not seeing this higher rebates than normal, it is probably the margin in the quarter is somewhat similar to what we had in the past quarters or in the previous year in terms of seasonality? Yannick Fierling: Again, I want to repeat. I mean, there is always a seasonal effect. I mean, in our industry here, fourth quarter being the strongest quarter here. I mean, we cannot go much more into detail here regarding that, but I think the explanation we gave is the one. It is a strong quarter in Latin America. I mean, these are onetime rebates not undermining the performance level in Latin America right now. And again, it is something which is not material for the group, but relevant for Latin America. Therese Friberg: And what we want to say is that Latin America has not reached a completely different profitability level. So I guess your conclusion of that, it is continuing to perform at a high underlying level, boosted by additional seasonality in the fourth quarter and by this additional supplier rebate. Timothy Lee: Okay. Understood. And my second question is on Europe. I think you also mentioned there was some positive effect on earnings due to the phasing of the innovation and marketing expenses between quarters. Can you elaborate a bit more on that? Does that mean there was some marketing expenses, which probably deferred from Q4 to, let's say, Q1? Therese Friberg: No, not related to Q1, I would say. But it's more the phasing as well during the year where, specifically for Europe, we have had some additional marketing earlier in the year compared to last year. So it's only a phasing, I would say, within the year of 2025. Timothy Lee: Understood. And my final question would be on your cash flow statement. I think there was a provision that you released in Q4 of SEK 476 million. Can you explain what's the item for this release? Therese Friberg: No, that we don't recognize a large provision that was released. The main impact that we mentioned is the reduction of inventory of SEK 3 billion in working capital. Yannick Fierling: Yes. And that's what we said. I mean, there was a very significant effort in the fourth quarter to reduce our inventory in the 3 regions, and that's what we have been delivering. Ann-Sofi Jönsson: Okay. Thank you. And we have more questions from the web. So the next question is, the leverage improved in the fourth quarter, but still the net debt remained rather high. So could you -- or do you have concerns about the net debt level? Could you elaborate around that? Yannick Fierling: Yes. Listen, I mean, we have been delivering SEK 3.7 billion in EBIT in 2025 here, 2.8%, which is 0.8% better than last year. We have been getting our leverage to 3.0. But I mean, it's a fact, I mean, our debt level is pretty high. And I would say that like any other companies in the same situation, we are constantly evaluating the capital structure we do have today in order to deliver the strategy, the profit and the growth we have in front of us. Ann-Sofi Jönsson: Okay. Great. Now we turn over to the telephone conference. Operator: We will now take our next question from James Moore from Rothschild & Co Redburn. James Moore: It's James from Rothschild. I've got a few. I'll go one at a time, if I could. Just on cost efficiency, great to see the SEK 3.5 billion, SEK 4 billion again in '26. And I know you're doing an ongoing best cost country procurement sourcing action, and you're trying to be more sustainable in the ability of savings to get every year. I'm just wondering, is this level for '26 indicative of the sustainable potential in the outer years of, say, 2027 to 2030? Or is the run rate this year still elevated? Is there any sort of way you can quantify what your new procurement savings machine looks like in the outer years? Yannick Fierling: I think, first of all, thank you very much for pointing that out. And good day to you. I mean, because, yes, best cost country sourcing is absolutely something we are focusing on in the procurement organization. Big focus in 2025 with the arrival of Michelle. Michelle is located in Asia today. And I think we have been focusing throughout the year to understand what best cost country sourcing was for the different regions, because as you can understand, maybe, I mean, China is not a best cost country sourcing region any longer for North America, at least for all the components we do have today. So we have been really doing, I think, a good job on the procurement side of the equation to expand the supply base. We have to be fast as well in releasing these components here without endangering the quality we do have. And that has been a source of the saving you see right now. But I mean, whatever we have been implementing in 2025, of course, will remain in our products in 2026 moving forward. And we have this clear process in taking additional actions in procurement in order to investigate what are the other components we may be going and source from better suppliers. James Moore: But you can't say whether the rate in '26 is elevated versus the outer years? Yannick Fierling: I think -- and again, in all fairness, I mean, we -- I don't want to -- I'm never somebody who is pleased to start with. So it's difficult to be fully satisfied about that. But in all fairness, I mean, the delivery we had in 2025 was a strong delivery. And that's why I think we were able -- I mean, procurement has been a major contributor in delivering part of the cost savings here. So I'm expecting them not to slow down in 2026. James Moore: Okay. And just on price, I hear everything you say net negative U.S. -- sorry, Europe, Asia more than offsetting positive U.S. I would have hoped for a sort of like a mid-single-digit price hike all in net after promotion in '25. And obviously, it depends on the behavior of rational or not rational agents. But is it fair to assume that you're assuming materially less than 5% behind your comment? And I'm trying to gauge your degree of conservatism. Do you think that it is possible to achieve that in the situation that the Chinese and Korean manufacturers hike their prices? And talking of that, tied to that, have you seen the Chinese or Korean manufacturers hike their prices in the first month of the year? I can't see any channel indications that they have yet. Yannick Fierling: First of all, I mean, I think we should not be forgetting about what has been achieved in the first quarters of 2025 in terms of price increase. And I need to recognize my North American team for the agility they have been showing, because the picture has been changing several times, I mean, throughout the months in 2025. And we have been taking and grabbing any opportunity we had to increase prices, and we have been leading price increase in Q2, Q3, and we have been compensating the vast majority of the tariff impact in Q2, Q3. I mean, this situation was simply not sustainable any longer in Q4, especially in the light of the promotional period we had. And we had to face reality, especially looking at, I mean, potential volume impact that we had to step down on prices. And let me tell you that promotional level in 2025 was at least at the same level as in 2024, which is pretty incredible when you think about the tariff level imported finished goods are facing today, 15% to 20%, 55% to 60%. So I cannot -- I mean, as Therese said, we have not seen -- we have seen basically prices bouncing back in December quicker than last year. But in all fairness, I mean, we have not seen tariff being reflected in the price level in North America. Now the big question is -- I mean, we are benefiting from producing in North America. The big question is, is this situation sustainable with 15% to 20%, 55% to 60% tariff for people and for competitors which are sourcing most of their products today for the North American market. James Moore: Great. I've got a couple of more technical ones, if I could. Just in terms of your external factors, I think, Therese, you mentioned the majority of the SEK 739 million group impact was in North America. There's obviously some dollar impact and there might be some stuff in Asia and Europe. But would it be fair to say roughly SEK 0.5 billion was the impact of pure tariff in the quarter? And would it be possible to say whether your FY '26 tariff assumption is closer to SEK 1 billion or SEK 2 billion, to gauge the tariff? Therese Friberg: Yes, we don't give that specifics. But yes, I would say a relevant portion of the external factors was related to currency in the fourth quarter and the rest was tariffs. So there was a significant impact of tariffs. Yannick Fierling: The majority was tariffs. Therese Friberg: Yes. And this is, of course, the level that we are expecting to continue for the first half. And then to your point, it will then -- for the second half with the current tariff structure still being in place, it will sort of even out from a year-over-year perspective. James Moore: Okay. So we comp out easier in the second half? Could you remind us, was the third quarter a similar magnitude to the fourth? Or was that sort of like half? Therese Friberg: It was similar, I would say. James Moore: Okay. So it's really a first half outstanding impact that we have yet to address? Therese Friberg: When it comes to the tariff impact, yes, the majority in the first half. James Moore: That's great. And just the final one, just going back to that other point. Has there been any indication of Asians rising price in the U.S. market in the last 30 days? Therese Friberg: No, not apart from what we mentioned, that sequentially, the heavy promotions from Black Friday has been, of course, lifted, so to say. So sequentially, we have seen pricing coming up, but we're not really seeing price increases to offset the tariff structure that is in place on top of that. Ann-Sofi Jönsson: Thank you very much. We are now running out of time. I know we have more questions. We will make sure that we will get back to you from the IR team. And I would like to thank everyone who has listened in, but I would also like to hand over to Yannick for a few closing words before we end this session. Yannick Fierling: Again, we have been making progress in 2025, and we have been delivering according to the strategic drivers we defined early on. I mean, we're very much looking to do the same in 2026 and delivering basically in the coming quarters. Thank you very much for attending today. Therese Friberg: Thank you very much.
Operator: Welcome to the Arjo Q4 Presentation for 2025. [Operator Instructions] Now I will hand the conference over to President and CEO, Andreas Elgaard; and CFO, Christofer Carlsson. Please go ahead. Andreas Elgaard: Thank you very much, everybody that have called into this Q4 year-end report 2025. My name is Andreas Elgaard, and with me today, I have Christofer Carlsson. And then I will start the meeting, and then I will hand over to Christofer, when we come into the financial figures, and we will do this together. So before we begin, I mean, I am -- I've started now in Arjo since 3-plus weeks back. So I'm still new at work, and I'm super excited to lead this first call and also to share a little bit with you guys what I'm experiencing as a new person discovering Arjo. And I thought also that maybe it's a good idea that there could be some newcomers to this call who are interested in getting to know Arjo a little bit. So just very, very briefly, we are experts in improving mobility in acute care and long-term care settings. And our products truly make a difference when people are at their most vulnerable. They provide safety, dignity and integrity to patients, and they also provide good working conditions for the caregivers. And of course, they deliver value to the clinics and to the institutions where they are in use. Arjo is founded in the South of Sweden, in Eslöv by Arne Johansson. That's also where the name comes from. It has a long tradition, leading up to where we are today, an SEK 11 billion company with almost 7,000 coworkers and with active sales in 100-plus countries. I think we can take the next slide. And you know when you're new, of course, you discover the company, and I discover Arjo through all the products and our business, but mainly I discover it through the lens of all of our people. And we have a very, I would say, a rich company in terms of diversity. We have many businesses. We are active across many countries, and we have many versions of Arjo out there. And it's really the people that represent these different versions. So a lot of diversity across Arjo. We are not always using that to our benefit to drive maybe best practice or learn from successes or failures, but there is one thing that we have in common across Arjo and was a big reason for why I wanted to join as well, and that's we are all connected and really, I would say, passionate about the purpose, and it is the purpose of doing good, to be there when patients are at their most vulnerable situations and provide products that truly help the care situation. I already said it, but integrity, dignity are super important when you are in this position and also to provide that in a safe way. So it is something that is truly a superpower in Arjo and something we will build on for the future. So let's talk about Q4. So first of all, I would say that we had stable demand throughout the quarter. And then towards the end of the quarter, we saw maybe not the development that we would have wished. We have been challenged by, of course, currency and tariffs, and we have also been challenged a little bit on price pressure in parts of our markets and in the mix where we are selling, where we have slightly higher growth in markets with lower margin versus markets with a little bit higher margin. But overall, healthy organic growth, very strong cash flow in the quarter. So we almost hit our yearly cash conversion targets, but really, really strong in the quarter. And of course, we had hoped for more when it comes to the gross margin and maybe some of our cost control. We can look a little bit into the full year. So when we zoom out and look at the full year, we see a growth figure that is within the range that we have promised. And we can see that we deliver this despite being challenged, I would say, mainly in U.K. where we all know that the market in the U.K. and the political situation, the struggles in the health care system in the U.K. is also something that hits Arjo and has been a red thread throughout the year. That is impacting our performance, I would say. And then the headwinds in terms of tariffs and currency together with price pressure in parts of our range, and then the mix is challenging our profitability and our margin. All in all, our EBITDA is -- we would have -- we expect a little bit more from the quarter. But if you look at the full year, given the adjustments that have been throughout the year, some of the write-offs, this is the level that we landed on. As I mentioned previously in the -- thanks to the strong performance in Q4, we managed to almost come up in line with our target of 80% cash conversion. We are just south of that. And then very important to highlight is that we propose to stick to the same level of dividend that we had last year. And we -- the Board is recommending to the AGM a dividend of SEK 0.95. Just very briefly on North America and Global Sales, the 2 segments that we have. You can see that the quarter in North America was slowed down a little bit. But looking at the full year, it was quite strong growth. And looking then at Global Sales, we had a reverse trend where we had a stronger finish and a full year that was more, I would say, stable. And important to notice is that some of the more emerging markets in what we call Rest of the World have high growth, and that's also areas where we have a slightly different profitability, gross profit level. And that hits the overall gross profit of approximately 1%, and then tariffs, currency, et cetera, by approximately another 1% when you look at us from the outside and compare with last year. And by that, I think it's time to hand over to Christofer. Christofer Carlsson: Thank you, Andreas. Yes, my name is Christofer Carlsson. I'm the CFO of Arjo. As Andreas mentioned, profitability was a challenge in the quarter. Our gross margin came in at 42.1% compared to last year's 44.7%. We continue to have headwinds from currency and U.S. tariffs, representing around 1 percentage point of the drop. In addition, 1 percentage point can be explained by the unfavorable geo and product mix due to higher sales in Global Sales with higher volumes of medical beds. On top of this, the delayed flu season in U.S. pressured our rental volumes, and we also saw impact from continued price pressure in the DVT business in the U.S. in the quarter. Meanwhile, we had a good momentum and margin development in the rental business in Continental Europe, especially in France, Germany and Italy in the quarter. However, the market condition in U.K. continued to be a challenge, and an 11 percentage point drop in U.K. sales consequently had a negative impact on the gross profit, and offsetting the positive effect from Continental Europe. All in all, a disappointing finish to the year from a gross margin perspective, where we did not have a seasonal uptick that we usually see due to a number of headwinds. Next slide, please. Adjusted EBIT in Q4 came in at SEK 249 million versus SEK 375 million. The main driver is the drop in gross profit and an OpEx increase of SEK 23 million. We had a negative effect from revaluation of accounts receivable and accounts payable of SEK 3 million in the quarter, booked under other operating expenses. And this was plus SEK 19 million in the same quarter last year, resulting in a delta of SEK 22 million year-over-year. Total FX impact on adjusted EBIT amounted to SEK 73 million in the quarter. The EBIT margin decreased to 8.9% versus 12.5% last year. On the OpEx side, the increase during the quarter is mainly driven by higher sales of capital sales in U.S., resulting in high GPO fees and sales commission. The organic OpEx increase was 1.9% in the quarter, which means that adjusted for the variable cost, we see a good traction from the cost efficiency initiatives implemented early in this year. Adjusted EBITDA for the quarter was SEK 526 million versus SEK 653 million in Q4 last year. The adjusted EBIT margin decreased with 3.2 percentage points versus last year. Restructuring costs came in at SEK 68 million in the quarter, where SEK 35 million is a write-down of capitalized IT costs related to an ongoing IT harmonization project. This initiative is expected to lead to annual savings of at least SEK 30 million from 2028 and onwards. Another SEK 33 million related to ongoing improvements in our Global Sales structure to improve the cost and situation for the future. Next slide, please. Operating cash flow continued to improve in the quarter amounting to SEK 600 million. This was SEK 121 million higher year-over-year, primarily due to inventory reduction and good receivable collection. The decrease in inventory is significant in the quarter, and it turns also to the full year number into a positive number. Our increased capital sales together with the supply chain inventory reduction program is now starting to show results. Working capital days decreased to 76, down from 82 in Q3, and it's good to see a continued positive trend here. The working capital improvement is also the driver for the improved operating cash flow of SEK 600 million in the quarter. Consequently, cash conversion in the quarter was almost 120% compared to 82% last year. For the full year, we came in at 79%, which is in line with our target of 80%, and an increase versus 2024. For reference, cash flow from investing activities was SEK 172 million compared to SEK 191 million in Q4 '24. The decrease is mainly due to SEK 23 million lower investment in tangible assets. This quarter includes SEK 90 million in investment in the Dutch entity, SlingCare, which was announced in the Q3 report. Please, next slide. The decrease in net debt in this quarter is mainly due to the improved operating cash flow. Our financial net came in at minus SEK 77 million, which include a noncash flow impact of SEK 35 million, negative revaluation of our holdings in Atlas, Infonomy and Veplas. Adjusted for this revaluation of our financial assets, the financial net was minus SEK 42 million and on par with last year. Our cash position remains strong. Net debt to adjusted EBITDA stayed flat versus Q3 this year and came in at 2.2. Our equity ratio stood at 49.8%, up from 49.5% in Q3, mainly due to the improved cash flow. With that, I will hand it back to you, Andreas. Andreas Elgaard: Thanks, Christofer. So let's look ahead. How will we define our future direction. And I would like to say that, I mean, there is always ongoing positive work in preparing for the future. During '25, we launched the Maxi Move 5 that many customers think is really a game changer. We have just recently also launched the new hygiene solution, Symbliss that has received a lot of positive acclaim so far. And we are going to continue to rejuvenate our offer and how we go to market going forward. But maybe just a few words on what it means to work on this. So we have a solid foundation to build on. We have a macro economics, I would say, or trends that are incredibly positive for us, which is people live longer, more people come out of poverty. The need for care is growing faster than the population is growing and the GDP is growing. So from a macro perspective, all things are positive. At the same time, we know also that many political systems and many health care systems are set under pressure because it is difficult to keep up with the growing need of care. So there are changes in how care is being administered and given to patients. All of these things will create a more dynamic market in the future, and it's very important for Arjo to set our point of view on that. Part of our foundation is also that we have a very passionate team dedicated and committed to the purpose of doing good for our patients and caregivers. So that said, there is also a lot of things that Arjo can do that is not about the macro, that is not about the patients, but that is about our own performance and there is significant opportunity across Arjo to share best practice and learn by that and implement going forward and use -- decide on the future in order to be able to take out maybe cost and drive efficiency. So we can look at the next slide. So how do we realize our potential? Part of that is to know where we're going and setting a strategy, setting a direction. And we intend to present this back to the market in the second half of this year. The work has already started, and we will bring together leaders from all parts of Arjo. We are going to workshop with them and decide on where we want to go for the future, how we will get there, what to prioritize, what we want to do, which markets to have focus on, which parts of our product portfolio to put emphasis on. And if needed, acquire additional capability, additional market position, or maybe additional portfolio offering. And those things are all easier when you have clarity in your strategic direction. And I think that for Arjo, the last time we set the strategy was back in end of 2019. So we are due to create that clarity for ourselves and for all our shareholders. The only outlook that we give right now is, of course, the usual one, about 3% to 5%, and we are really looking forward to presenting our future direction and with that also, update the financial targets in the second half of 2026. So that's what you can expect from us during this year. And by that, I think we are at the Q&A. Operator: [Operator Instructions] The next question comes from Sten Gustafsson from ABG Sundal Collier. Sten Gustafsson: A question on the quarter. You talked about a strong start, but then it slowed down. I was just wondering if you could clarify exactly what happened there, and also if that change in the market has continued into now, the beginning of 2026? Andreas Elgaard: Thank you for your question. I would say, no, that's not how to interpret it. I would say that we -- it's more how we see the result developing across the quarter. So we don't see any trend shifts that we bring with us. We more see that we expected more from the quarter. And I would say that you all know that when you close the books, there are some decisions that you need to take. And as you have seen, we have had a couple of write-offs and write-downs during the quarter that, of course, impacts the situation. So I would say that there is no -- nothing to interpret when it comes to bring forward into 2026. Would you like to add something to that, maybe? Christofer Carlsson: No. I mean it's always an uncertainty about the flu season, that is impossible to predict exactly, of course, how that will develop. And that can go in both directions. Sten Gustafsson: All right. And then specifically, the U.K., when do you expect that to improve? Or do you expect it to improve near term? Or is it too difficult to say today? Andreas Elgaard: Yes, I would say that, I mean, there are two things here. I mean one is, of course, what is going on in U.K. within NHS and the U.K. health care system. That's one part of it. And of course, we can try to contribute with as much value as we can and to be a good partner to our customers and NHS in particular. So that's one part. Then it's also about our own performance and what are we doing in this situation. And we have had a lot of actions throughout 2025 to improve our efficiency and productivity. So we have done several things throughout the year that we expect will have effect. If it's enough or not or what will happen in the bigger picture around NHS, that's another topic. And I think most of you guys that follow this sector, you know that U.K. is really troubled. The pressure on the health care system is very high, and there has been some fundamental challenges and still are going forward. At the same time, this is a top priority for all political parties. So we also believe that there is a lot of interest in solving this for the benefit of the people across U.K. Operator: The next question comes from Mattias Vadsten from SEB. Mattias Vadsten: First one is just a follow-up on the U.K. Did you say it was down 11% year-on-year in local currency in Q4? Christofer Carlsson: Yes, that's correct. In the quarter, it's down 11%. Mattias Vadsten: In local currency? Christofer Carlsson: Yes. So organic, delta is 11% down. Mattias Vadsten: Then you talked about the gross margin development. It's quite clear description. And you talked about the mix effect, both from a region perspective and product perspective. So I'm just asking, this mix effect that you saw in Q4, is that likely to sort of sustain here into the coming quarters? Or are you seeing anything to reverse that trend near term, so to speak? Andreas Elgaard: Okay. Maybe if I try to start, and then Christofer can correct my mistakes or add on flavor. No, I think it's -- I don't think that you can draw any major conclusions like that, that is now a sustained level. I think it's, as always, it's a product mix question. It's a market mix question. Then also parts of our business is project driven and tender driven. And depending on how these project or programs land, you get different mixes that will vary naturally between different quarters. So that's -- I mean, that's the natural flow. So we don't have that kind of super stable underlying trend. So that's one thing to bring with you. And then also, I mean, of course, we expect -- we said this earlier that we expected maybe a different pattern from the flu season in U.S. And when you look at statistics and data, if you just look at the high level, you can see that the flu season looks to be more severe when we dig down in the areas where we have strong representation, especially Western U.S., the hospitalization is not as high as last year. And also, in general, the flu seemed to not cause as much hospitalization as previous years. But it's very early and all data is not accessible. But we have seen that trend in our data. So I don't know if you want to add some flavor in terms of this mix or this trend moving forward, Christofer? Christofer Carlsson: No, as we said, medical beds has a strong development in this quarter, but that is also very much a business depending on tenders and bigger shipments, it's not a continuous business in that sense. So it could be a different mix in the next quarter for us. Andreas Elgaard: Yes. When you equip a hospital, you do that once, then it takes a number of years before you get the chance to come with a big order again. Mattias Vadsten: Okay. Then I had a question on the ERP systems that will be replaced by Global System. And you said you will find savings of, I think it was SEK 30 million 2028 onwards. I'm looking to understand what this will cost you. So yes, can you comment on the cost for this in 2026 and '27? And also how you aim to report it if it's sort of nonrecurring item or if it will be a drag on adjusted earnings metrics? Christofer Carlsson: The vast majority of the cost for this implementation is actually capitalized because it's -- we are having a system where we actually own the product. So it's not a cloud solution. Andreas Elgaard: And maybe to add some flavor. This has been ongoing for a couple of years in Arjo already. So we only have a few markets left to do this change. So it's not something that is new to us. It's something that have been ongoing for a couple of years. So we are -- yes, we had a couple of go-lives during '25 already. And yes. Christofer Carlsson: We went live with Australia and New Zealand this year. And that's, of course, kind of the key point where we actually -- with the successful implementation in Australia and New Zealand, we decided to also go ahead for the rest of the countries. Otherwise, with a less positive outcome in Australia, we would probably have put on a brake and reverse this project somehow. So this was kind of a key decision point for taking this costs as well. Mattias Vadsten: Okay. Is it possible to say how much it has costed you already or with this? Andreas Elgaard: No. We have not shared that. But I think -- I mean, the write-down is for the old system. This is important, too because we discontinue it before end of life. So it's not connected to the new. Operator: The next question comes from Kristofer Liljeberg from Carnegie. Kristofer Liljeberg-Svensson: I have three questions. I'll take them one by one. First, what do you say about the flu hospitalization? I agree it started slowly, but if looking at the public statistics, it seems it picked up a lot in the last weeks 3 weeks of the fourth quarter, but you didn't see that in your rental business then, correct? Andreas Elgaard: Like we said before, we have seen that the flu season has been stronger or I mean, more severe than last year, but it is also distributed differently across U.S. So in the states where we are strong, we have not had the same pattern of hospitalizations. And also, we have seen a pattern that fewer patients are being hospitalized or they quickly get out of hospital versus before. So we don't see a one-to-one pattern as before. Kristofer Liljeberg-Svensson: Okay. That makes sense. Then I wanted you to clarify then what still seems like a pretty poor visibility for sales in North America, the message after the third quarter was that you have delayed deliveries that was expected to pick up in Q4. So did you see this happen, i.e., was the disappointing sales for you in Q4, was all of that flu related, i.e., that capital equipment sales were according to plan? Christofer Carlsson: That majority is, of course, the flu season. But we also have seen a less improvement in Canada, which had a very strong comparison numbers. So they actually have a lower growth in the quarter versus U.S. And to some extent, I mean, it didn't pick up at the end. Normally, there are quite a lot of transactional sales, what you say that hospital calls the last week or last 2 weeks when they know that they have x dollar remaining of the budget and they just need to purchase something before the year end. And that volume did not repeat from last year's all-time record actually in Canada. Kristofer Liljeberg-Svensson: Do you know why that was the case? Christofer Carlsson: I think there are general budget constraints in the Canadian market. We do see some of the states being more and more restricted in the budgets. But that's the main reason, I think. Kristofer Liljeberg-Svensson: Okay. And then my final question, you talked about the mix effect that could, of course, vary a lot between quarters. But otherwise, is there anything you could do here short term to turn this negative margin trend? Andreas Elgaard: Yes. I mean from my point of view, being new now into the company, if I answer first, and then Christofer can add on. I would say that Arjo has a lot of potential to drive efficiency. I would say, both in cost and capital out. That's clear. So we are going to work on that to do our own homework, so to say. Then also, I think that we need to look into parts of our business where market conditions have maybe changed a little bit or market dynamics have changed a little bit. We also need to update our commercial models and make sure that we share best practice in a more rapid way so we can be quicker to react. So there are always things that you can do on your own. Sometimes there is a lag in that, of course, because you don't know what is changing before it's happened and then it takes some time to adjust. But there are always things that we can do on our own, and we intend to do that. And in the strategy work, there will be parts of things that we want to do for the future that is long term to build capability, build -- expand our offering or our market position, but we also need to fund that journey. And to large parts, we're going to do that through also, I would say, efficiency initiatives across the group. Kristofer Liljeberg-Svensson: I mean, if you start the strategy -- yes. But if you start the strategy work now, then you're going to present this in the second half of the year. It sounds that 2026 will be yet another lost year when it comes to margins for Arjo, or am I missing something here? Andreas Elgaard: Yes. I mean there are always parts that require direction and maybe long term and that you come together as an organization, and that will take some time. But there is plenty of also quick wins that you can activate around procurement, IT and your own efficiency. So there is not -- I am -- I've worked a lot with change in the past, and I'm a firm believer in that you have to transform yourself, you have to change, but you also have to perform while you do that. And you need to fund the journey of when you need to invest in capability or in products or in M&A. Somehow, you need to fund that journey and you do that by driving efficiency in both capital and cost out of the company. So I think that you cannot say that you need to wait another year, and I think we're going to have -- we will be very, very focused on these also short-term actions. Operator: The next question comes from Ludwig Germunder from Handelsbanken. Ludwig Germunder: Ludwig Germunder from Handelsbanken. I have two, please. The first one is a follow-up on the last one around the strategy work that you will initiate during the spring. I understand that you will do work in the meantime as well. But what should we expect regarding margins for the beginning of 2026? Andreas Elgaard: I mean, we usually don't give any forecasts, and we will continue not to do that. I mean the only outlook we give is what we believe how sales will develop on top line, the 3% to 5% interval. So beyond that, we will not share any outlook until we maybe have a reason to do that. So that's -- and as I said before, we expect to come back and explain our view on the future and also at that point, also potentially revise our financial targets. So we need to work this through before we communicate it. But we are going to be super focused on trying to drive efficiency before we present our future direction. Ludwig Germunder: Okay. Got it. And the second one is also kind of a follow-up on the discussion around the flu season. So I got you that the hospitalization levels are lower in the parts of the U.S. that you are most active. Could you say something about the sequential development or demand you're seeing from the flu season? Is it at the same levels so far in Q1 as you saw in Q4? Or has it moved in any direction from the Q4 levels? Andreas Elgaard: We're not reporting Q1 today. So we stay on Q4. So I think that what we said is what we have seen that the flu this year seem to end up in fewer hospitalizations. That's what we've seen in Q4. Operator: The next question comes from Erik Cassel from Danske Bank. Erik Cassel: First question on North America. If my modeling is decent, it looks like the rental business now is in organic decline over there. Could you potentially comment anything if that only has to do with the ICU rental part or if you're also seeing that for, say, the more long-term contracts as well? Christofer Carlsson: No, it's more on a short-term perspective and the flu season, I would say. Erik Cassel: All right. And then on DVT, that business has been under pressure for several years now, I think, I mean, Cardinal started cutting back in '21. So how much additional pressure can you face there now? And can you talk a bit about the sort of current levels of sales and profits to some extent that you're seeing and sort of we should expect that pressure to continue now throughout '26 as well, if there were any, say, pricing cuts now in Q4 that will sort of feed over into at least H1 of '26. Andreas Elgaard: I mean -- so we will not talk about '26. But what we can say is that, I mean, there's a fierce competition on, I would say, the consumables in DVT part of our business. And I think that -- and that Cardinal and others have -- I would say, they have pushed the prices down. We also believe that we've come -- we are either at the bottom or close to the bottom of how far down you can go. And then you can say also that triggers the need for us to counter by looking at our business model, if it is set up for this level or if we need to do any adjustments. But we don't expect the decline to continue in the same pace that it has in the last couple of years. Is that correct, Christofer? Christofer Carlsson: Yes. So the vast majority of our business is on the new price level. Erik Cassel: Okay. Good. And then in the U.K., are you seeing continued rental pressures for more and more contracts being lost? Or is this still an effect of those initial -- or was it 5 or 7 contracts that you lost earlier in '25 that, in a way, should be out of comps soon? And also in U.K., if I could do a follow-up to the follow-up. How much of the negative 11% organic growth that you saw in U.K. was from the rental part of the business versus the product side? Christofer Carlsson: So when it comes to the rental business in general in the U.K., I mean, we have not lost any new contracts in the quarter. So it's more an effect of the early ones that we communicated in 2025. And then I have to come back to you on the rental margins for the U.K. Andreas Elgaard: And how do we usually communicate them. So I think that if we don't communicate them, we will probably not come back. But if we do that, then we'll come back to you, just to be clear. Erik Cassel: Okay. I'll wait to see them. And then just a final question. There's been a hiring freeze now outside of sales for quite some time, I believe. So I'm just wondering, in terms of those pruning additional costs, et cetera, how much are you actually able to slim the organization from this point? It seems like this sort of pruning has been done for years now. So are you nearing a point where you can't really cut any more fast? Andreas Elgaard: I don't think I would express myself in that way about the organization, but we can see that we have, as any organization, we have room to improve, and we are going to focus on that. And part of that will, of course, be released to improve our profitability, and part of that might be part of also funding the journey of investing and creating a strong future Arjo. But I mean, Christofer can add some flavor, but I have now 3.5 weeks in the company. I've spent some time during my onboarding as well. But the only thing I can share is that I see opportunity across Arjo. It's a really mature business, but we also have some inefficiencies. We don't always use our best practice. We don't always share our failures or successes across the company. And there's a lot of commercial excellence in that. And if we can release that, that has a really positive effect. I have first-hand experience of doing that in other contexts. And then also, we need to take a good look in the mirror and put question marks to ourselves when it comes to our administrative costs because we are high, and we need to be able to do things more efficiently by leveraging our IT systems and by also delivering the administration that is necessary and not something beyond that. So there are clear opportunities for us to address, then it is too early to say when the effect will come and so on. But we will focus on this together as an organization. Operator: The next question comes from Ludvig Lundgren from Nordea. Ludvig Lundgren: Yes, I only have one. So you've highlighted quite a strong order intake in the last few quarters, in particular, in patient handling products in the U.S. So can you say anything about how this has developed here in Q4 and whether you're still way above 1 in book-to-bill? Christofer Carlsson: Yes. The order intake has come in a little bit weaker in the quarter. But from an order book perspective, we are almost at the same level as last year. But also please remind yourself that 80% of our transaction is in and out in the same period. So it's an indicator, but it's not the actual true of the sales in the coming quarters. Operator: [Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Andreas Elgaard: So by that, we close this call, the year-end report for 2025. I thank you for listening. I also thank you for bearing with me as being new. And I am really looking forward to coming back and presenting Q1 to you guys, and in the second half, presenting our future strategy. By that, we say thank you. Christofer Carlsson: Yes. Thank you all.
Operator: Greetings. Raymond Hanley: Welcome to the FHI Q4 2025 Analyst Call and Webcast. 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, Raymond J. Hanley, President of Federated Investors Management Company. You may begin. Raymond J. Hanley: Good morning. Thanks for joining us. We will have brief remarks followed by Q&A. Leading today's call will be John Christopher Donahue, CEO and President of Federated Hermes, Inc., and Thomas Robert Donahue, Chief Financial Officer. Joining us for the Q&A are Saker Nusseibeh, the CEO of Federated Hermes Limited, and Deborah Ann Cunningham, Chief Investment Officer for Money Markets. During today's call, we will make forward-looking statements, and we want to note that Federated Hermes, Inc.'s actual results may be materially different than the results implied by such statements. Please review the risk disclosures in our SEC filings. No assurance can be given as to future results, and Federated Hermes, Inc. assumes no duty to update any of these forward-looking statements. Chris? John Christopher Donahue: Good morning. I will review Federated Hermes, Inc.'s business performance, and Thomas Robert Donahue will comment on the financial results. We ended the year with a record assets under management of $903 billion, led by gains in money market and equity strategies. During Q4, equity assets increased by $3.2 billion or 3% from the prior quarter, with about half of that increase coming from net sales. 2025 saw record gross equity sales of $31 billion, including $9 billion in the fourth quarter. Fourth quarter net equity sales were $1.5 billion. Our full-year 2025 net equity sales of $4.6 billion showed substantial improvement from net redemptions of $10.7 billion in 2024. Equity sales results were driven by MDT fundamental strategies. MDT equity and market-neutral strategies had a record $4 billion of gross sales and over $2 billion in net sales in the fourth quarter. For 2025, MBE gross sales of $19.1 billion and net sales of $13 billion were both record highs. For Q1 through January 23, these strategies had net sales in combined funds and SMAs of just under $700 million. Looking at MDT fund performance rankings, as of December 31, six of nine MDT strategies are in the top performance quartile of their Morningstar categories for the trailing three years. Four strategies are in the top decile of their Morningstar category for the trailing three years. We had 24 equity and SMA strategies during the fourth quarter, including a variety of the MDT offerings, the Asia ex-Japan Fund, and September 2025 has seen strong demand from clients outside the US, with over $500 million in net sales from inception through year-end. Looking at our equity fund performance, at the end of the year and using Morningstar data for the trailing three years, 49% of our equity funds were beating peers, and 27% were in the top quartile of their category. For Q1 through January 23, combined equity funds and SMAs had net sales of $432 million. Turning now to fixed income, assets ended the year at $100 billion, down $1.7 billion from the prior quarter. Fixed income had Q4 net redemptions of $2.8 billion, including about $1.7 billion from two large public entities that have regular sizable inflows and outflows. These fixed income net redemptions included the $1 billion high yield fund net redemption included in Q3's pipeline numbers. We had 28 fixed income funds and SMAs with net sales in Q4, led by the ultra-short funds of $624 million, total return bond of about $200 million, short-term income of over $100 million, and core plus SMA of almost $100 million. Regarding performance at the end of 2025, and using Morningstar data for trailing three years, 42% of our fixed income funds were beating peers, and 18% were in the top quartile of their category. For Q1 through January 23, combined fixed income and SMAs had net sales of $139 million. Turning to the alternative and private markets category, assets increased slightly, and net sales were positive. The MDT market-neutral fund and recently launched ETF combined for $149 million of net sales. Positive net sales were also achieved in our European direct lending funds, private equity funds, and the project and trade finance tender fund, partially offset by net redemptions in real estate strategies. We held the final close of our European direct lending III, the third vintage of our European direct lending fund this month. We raised $780 million. EDL One raised $330 million, and EDL Two raised about $700 million. We are currently in the market with a global private equity co-invest fund, the sixth vintage of the PEC series. To date, we have closed on approximately $300 million. The PEC series, PEC One to Five, raised approximately $400 to $600 million in each fund, and PEC Five raised about $500 million. We are also in the market with a European real estate debt fund, a new pooled European debt fund. We are progressing towards the FCP acquisition to closing the FCP acquisition during 2026. The acquisition will add standing UK-based US multifamily housing expertise to our long real estate capabilities. The UK real estate team was recently selected as the exclusive developer on a significant mixed-use development opportunity in Manchester in the UK. This week, at the Asia Financial Forum, we announced plans to open a Hong Kong office to capitalize on the region's rapidly growing wealth market. Subject to regulatory and other necessary approvals, the planned Hong Kong office represents a strategic expansion as we deepen relationships across the Asia Pacific region. The planned office will complement our existing regional offices in Singapore, Tokyo, and Sydney. Across our long-term investment platform, we began 2026 with about $2.7 billion in net institutional mandates yet to fund into both funds and separate accounts. Approximately $1.2 billion on a net basis is expected to come into private market strategies, including direct lending, private equity, and trade finance. Equities expected additions totaled $1.4 billion, with about $1.3 billion into MDT strategies and $100 million into international and global equity strategies. Fixed income is expected to have net sales of about $100 million into a low-duration strategy. Moving on to money markets, we reached another record high at the end of 2025 for total money market assets, which increased by $30 billion to reach $683 billion. Money market fund assets increased by $6 billion or 3% in Q4 to reach a record high of $508 billion. Money market separate accounts increased by $14 billion in the fourth quarter, reflecting seasonal patterns. Market conditions remain favorable for cash as an asset class. In addition to the appeal of relative safety in periods of volatility, money market strategies present opportunities to earn attractive yields compared to alternatives such as bank deposits and direct investments in T-bills and commercial paper. Our estimate of money market fund market share, including sub-advised funds, was about 7% at the end of 2025, down from 7.1% at the end of Q3. Regarding digital asset efforts, we are advancing a series of strategic initiatives that bring together the strength of money market investment and operational expertise with the efficiency and transparency of blockchain technology. Our partnership with Archax, the first FCA-regulated digital securities exchange to offer tokenized usage money market funds, marks its first major non-US digital asset initiative. The platform enables professional investors to hold beneficial ownership tokens across multiple blockchains and access money market liquidity directly on-chain. The Archax relationship complements our US digital efforts, where we are a sub-adviser for the Superstate Short Duration US Government Securities Fund, a private tokenized fund. We are also participating in the launch of a collaborative initiative between BNY and Goldman Sachs that will utilize mirrored tokenization of money market fund shares to improve transferability, collateral utility, and real-time ownership tracking of money market fund shares. We have a robust pipeline of tokenization projects in the US and abroad, including the development of efforts for a Genius-compliant money market fund and ongoing integration discussions with several leading firms developing digital technology for fully on-chain trading and settlement of tokenized share classes. We believe these efforts position the firm well for the digital transition as we work collaboratively with service providers and stakeholders on developing new standards for combining liquidity, investor protections, and blockchain-enabled capabilities for modern financial markets. Looking now at recent asset totals as of a few days ago, managed assets were approximately $909 billion, including $684 billion in money markets, $101 billion in equities, $101 billion in fixed income, $19.5 billion in alternative private markets, and $3 billion in multi-asset. Money market mutual fund assets were at $500 billion. Tom? Thomas Robert Donahue: Thanks, Chris. For Q4 compared to the prior quarter, total revenue increased $13.4 million or 3%. Revenue from higher money market assets provided $8 million of this increase, while higher equity assets added $5.5 million. Q4 revenue included $8.2 million of real estate development fees for projects that did not advance into construction and is recorded in the other service fee line item. Total Q4 carried interest and performance fees were $1.6 million compared to $3.6 million in the prior quarter. Approximately $570,000 of the Q4 fees were offset by nearly the same amount of compensation expense. Q4 operating expenses increased by $7.3 million or 2% from the prior quarter due mainly to higher distribution expense of $8.8 million from higher fund assets. Transaction costs from the FCP acquisition were about $1.3 million in Q4, nearly all in professional service fees. Additional transaction costs in 2026 are estimated to be approximately $9.2 million. The timing of most of these costs is based on the transaction closing date, which is expected to be in Q2 of this year. Most of these costs will be lending consent fees in the professional service fee line item. In the other expense line item, FX and related expense decreased by $3.1 million in Q4 compared to the prior quarter. The effective tax rate was 24.4%. We estimate the tax rate to be in the 25 to 28% range for 2026. At the end of 2025, cash and investments were $724 million. Cash and investments, excluding the portion attributable to non-controlling interest, were $680 million. We expect to use $215.8 million in cash and $23.2 million in FHI Class B stock for the initial purchase price of the FCP controlling interest acquisition. Looking ahead to Q1, certain seasonal factors will impact results. Based on Q4 average asset levels, the impact of fewer days is expected to result in about $10.2 million in lower revenues and about $2.6 million in lower distribution expenses. In addition, based on an early assessment, compensation and related expenses are expected to be higher than Q4, primarily due to about $8 million of seasonally higher expenses for stock compensation and payroll taxes. Of course, these line items and others, including incentive comp, will vary based on multiple factors. Operator: 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 lift your handset before pressing the star keys. One moment, please, while we poll for questions. Your first question for today is from Kenneth Brooks Worthington with JPMorgan. Kenneth Brooks Worthington: Hi, good morning. Thanks for taking the question. First on distribution costs, if we look at distribution costs in the fourth quarter of this year compared to the fourth quarter of last year, they have jumped almost 25%, and essentially, all of that is coming from money market funds. But if we look at money market funds, the assets grew just 10%. So what is going on, and to what extent is there any sort of offset to these higher costs on the revenue side? Thanks. Raymond J. Hanley: Hey, Kenneth. It's Ray. We had, last quarter, a significant amount of assets came into a share class where there are higher than average distribution expenses, and so that jumped by about $10 million last quarter in terms of both the distribution revenue and the related distribution expense. I think that's the majority of the attribution for the delta that you are speaking about. As you know, we have a lot of different share classes with different distribution fee arrangements, and so those kinds of changes in mix can impact that. As far as offsets, we do not really think of it that way. That is essentially the distribution expense that comes with distributing through the intermediaries, and we manage that the best we can. But there is no real direct way to offset that. Kenneth Brooks Worthington: Got it. Thank you. And then this year, I believe there are five higher-profile PMs that are scheduled to retire. Can you talk about the transition of those PMs to the new leadership of those funds? And any impact you think it will have with your clients? John Christopher Donahue: Yes, Ken. This is Chris. The succession planning that is going on here has gone on for many, many years. And in every one of those cases, on average, it is like you take someone who has been here thirty-five to forty years and replace them with someone who has been here from twenty-five to thirty years. And so we do not look for any disruption in the investment management techniques or performance, and we look for some great enthusiasm and opportunities by the new people coming in who get to call the shots now, whereas for a quarter of a century, they have been learning how it is done. And this is part of the methodology that we have used. We bring in people at the lower levels, train them, and it is part of the guts of our franchise for all seasons for keeping this ship estate moving along through the stalking waters. Kenneth Brooks Worthington: Great. Thank you. Operator: Your next question is from William Raymond Katz with TD Cowen. William Raymond Katz: Great. Thanks very much. Just want to refocus on the tokenization opportunity. Sort of wondering if you could talk a little about what you are hearing from end demand from clients, if you can maybe break down your commentary between more of the institutional kind of investor versus the retail? And what milestones would you anticipate either regulatory or legislative that we need to see to sort of see a faster uptake in the opportunity set? John Christopher Donahue: So I will comment a little bit, Bill, and then Deborah will comment. So on the end demand from clients, it is not as robust as what you might suspect from all the press media and, in fact, all the work we are doing on it. It is getting ready for tomorrow. And we expect this will be the way things go down the road. But the end clients are perfectly sanguine about using the current products in the current way. And when you ask about milestones, you have got to get lots of money moving into these things in addition to lots of work being done on how they are structured. Almost every week, there is another new structure and a new idea that is very intriguing. And this is what we are keeping our eyes on, and basically, we are working on all of them. And a milestone would be when you start to see real money moving into them. There could also be some regulatory things, and that is really hard to predict because you do not know what structures you are going to obtain. And this is true both in the US and globally. Maybe Deborah can talk to this, but when I was in Singapore and Hong Kong last year for the same event Deborah was, both of those and government entities, Singapore and Hong Kong, were most anxious to be the tokenized headquarters for trading money funds, and they were well down the road of organizing their government entities. But how much is in it and how much money is actually flowing there is another question. Deborah Ann Cunningham: Thanks, Chris. So what we have identified in the US so far from a case perspective is generally on a distribution basis, diversification, and on a use case basis, for collateral purposes and for margining purposes. Both of which, the instantaneous settlement that is provided from a tokenized product impacts ultimately the ability to flow pretty quickly on a real-time settlement basis. In the context of the geographic diversification that Chris was talking about, certainly, when we look at what is more institutional use case that we have seen so far in the US, when we are in other parts of the world from our Archax partnership to the work that we have been doing from an Asian perspective, there is much more interest from what I would call sort of the multifamily offices. And so that is where the retail side of it comes in. Our product outlook has many additional use cases, many additional benefits that accrue to the end user. We feel like this is just the tip of the iceberg and that it will serve more purposes and more ultimate end user clients. It is just, as Chris said, a lot of work and dissection of markets and underlying strengths and everything that needs to be put into place to keep these high-quality products that we have in money market funds liquid and serving the purpose of all the end users. William Raymond Katz: Alright. Thank you. And just as a follow-up, MDT has done very well for you for quite a while now. And it seems like it is off to a good start into the New Year as well. Maybe just a two-part question. What is the underlying driver of the demand? And then secondly, are there any capacity constraints as you look across that portfolio? John Christopher Donahue: Well, let us deal with the second one first. Capacity implies a number, and we do not look at it exactly like that. It is a very complex question as to how to look at what you have raised. And as we have done in other cases, this is rigorously analyzed by PM CIOs and everybody on the basis that how can we continue to offer the product with the kind of alpha that it is being offered in the environment. We do not see any so-called capacity constraints at this time or in the foreseeable future. Now on the other question about the demand, the demand is across the board. So far, our enlivened Salesforce has been able to consult with a lot of people showing how the MDT various offerings and their pure style box discipline has caught on very well in the intermediary space. And as you have heard in my comments about big institutions also coming into this, it is also on the big separate accounts as well. And so the demand in short terms is both retail and institutional. Thomas Robert Donahue: Yeah. Both, if you look at the Q4 net sales into MDT strategies, about two-thirds of it would be into the mutual funds and the newer ETFs. And the rest of it is institutional and separately managed smaller SMAs, separately managed accounts. So weighted toward retail. But even within that fund mix, there would be institutional applications. William Raymond Katz: Great. Thank you for taking the questions. Operator: Your next question for today is from Patrick Davitt with Autonomous Research. Patrick Davitt: Hey. Good morning, everyone. First, maybe one for Deborah. We are much further along in the Fed cutting cycle now. So curious to get your updated thoughts on what you are seeing in terms of the potential rotation from institutions into money funds and to what extent you think there is still a lot of room to run on that theme with the curve potentially steepening here this year? Thank you. Deborah Ann Cunningham: Sure. No problem, Patrick. You know, our outlook from an official perspective, from a firm standpoint, for 2026 is one rate cut by 25 basis points taking the rate three and a quarter to three and a half from a Fed funds target range. You know, we feel like if we are wrong, we are wrong by having maybe two cuts instead of zero, so wrong on that side of the equation. But in either case, you are looking at an end terminal rate that is north of 3%. With a positively sloped curve that probably allows you to generate something in the order of 20 to 30 basis points on a government product basis above where the bottom of that range is. So, you know, middle 3% type of numbers for money market funds. And you know, when you look at the low-risk products, the high quality, the instantaneous settlement that you get, especially if you are looking at the tokenized product aspect of it, you find that it is still very compelling from a use case perspective by both institutions whose general other comparison outside of the fund industry is direct market securities, so repo, treasury bills, commercial paper, where the positively charged yield curve should give the fund the advantage. And then on the retail side of the equation, if you have got a Fed cutting cycle or even a pause cycle, generally speaking, there are other common types of products to use for liquidity purposes, such as bank deposits, and those are well below where a fund can generate a yield, especially in a three-plus percent environment. So, you know, we saw a lot of retail growth driving the 2024 double-digit gains in the market from an AUM standpoint. The institutional side kicked in in 2025 to help generate those double-digit gains again. Maybe we only get single-digit gains from an AUM standpoint in 2026, but our expectation is it is still pretty positive from an environment standpoint. Patrick Davitt: Thank you. Helpful. And then on the expense side, it looks like you are seeing a lot of positive operating leverage on the compensation ratio in particular, which I assume is a function of the large scale of money fund inflows. To kind of frame how you think that contracts in '26, do you think that operating leverage can continue? Assuming flat markets? Thank you. Thomas Robert Donahue: Yeah, Patrick. It's Tom. Yeah. We had the comp numbers. As I mentioned in my remarks, because of the seasonally high stuff that happens in Q1, we certainly will have an increase in the expected increase in the comp number. And if we get the same kind of flows that we had in '25, we get that in '26 as we are trending in the MDT. Operator: Your next question is from Dan Fannon with Jefferies. Dan Fannon: Your next question is from Dan into this year and beyond. As you see on the footprint of what we have done on MDT, the first thing really is to expand the buckets or the wrappers that it is used for. They began as an SMA shop overwhelmingly and had a few hundred million back in the acquisition of funds. So it grew from just SMAs, and now it has a lot of funds. So then you saw us go into this the ETF then the CIT format, and then we brought out the market neutral which is as a fund and now as an ETF. So you will continue to see us seeing if there are more buckets or wrappers that we can use for MDT. And I k. And oh, one I did mention in the remarks is offering it where? format. And a usage is basically overseas through a usage format. And, of Irish registered for available for sale UK, Europe, and other places. And that is one where, you know, we raised $500 million over a short year last year. So it is new wrappers, it is new markets. And it is repeat the sounding joy of their investment expertise. Understood. And then Tom, just as a follow-up in terms of what you mentioned for the first quarter. So we have got from a fewer days, 10.2 lower management fees. And then given the real estate fees in the fourth quarter, and other in other revenues, we should assume that is also not recurring kind of going into '26? Thomas Robert Donahue: Yeah. I call those unusual items. And because they really cover, we may get another couple million in Q1. It is, you know, we are still working on that. But, you know, to that level, I do not see that happening. Dan Fannon: Understood. Okay. Thank you. Operator: Your next question is from Brian Bertram Bedell with Deutsche Bank. Brian Bertram Bedell: Great. Good morning, folks. Thanks for taking the question. Maybe two questions, both on money markets. Maybe just a first, Deborah, could you remind us just the seasonality trends that we might see for flows in money market funds in the first half? I think started with outflows early, a little bit of outflows early in January, if I am not mistaken. And then, of course, we have got, like, tax season coming up. So, maybe if you can just remind us of what you are expecting for the cadence of money fund flows for the first half of this year or just on a seasonal basis? Deborah Ann Cunningham: Sure. On a seasonal basis, we generally January is usually our worst month of the year from an inflow basis. It is usually actually an outflow. First quarter said similarly, the corporate tax date, in March and then individual tax date flowing into the second quarter in April. Are generally big hits from a money fund AUM standpoint. And then the second half of the year is generally where the growth really picks up with December, you know, generally, again, being the highest quarter from a year-end, a year-end, you know, window dressing to some degree that is then reversed in January. What is interesting from a fund standpoint versus another type of product standpoint, so you know, generally, our separate accounts are state pools are in fact gathering money starting in the first quarter and going strong into the third core or the second the beginning of the third quarter and then they have large outflows that occur later in the third quarter and at the end of the fourth quarter. So the two kind of nicely offset each other from our own AUM standpoint, you know, which is a good thing. But from a strictly money market fund standpoint, it gets better as the year goes on. Brian Bertram Bedell: Yep. Perfect. Thanks for that. And then the second one, a follow-up on the tokenization of money market funds. And thanks for all the comments on that. A bit of a multipart question here, but can you just describe in a little more detail the collaboration with Bank of New York and Goldman in terms of that mirroring process of tokenized money funds, how that is different from how you are talking with your other potential clients on tokenization opportunities. And then also on this on, you know, on being a stable coin reserve manager as opposed to a tokenized money fund manager, how do you see the opportunity for that role versus tokenized funds? And I guess over the long term, do you see the tokenization opportunity as incrementally additive to your money fund franchise? Or you know, might or might you know, for the industry that that cannibalize existing money market funds? John Christopher Donahue: That sounded like three questions and a comment at the end. We will do our best to try and catalog them. For the comment at the end, you look at our charts, if you get them on page 14, you will see that we have over decades upon decades upon decades had higher highs and higher lows. And we would look at this effort along with other efforts like zero interest rates, and like all of the competition that has come in over the decades, we will continue to have higher highs and higher lows. Because the fundamental business is people have cash, or have money that they want daily liquidity at par. And so that is the engine. Now on the first of your questions, which was BNY and Goldman, I am reluctant to get too close into the details of it, but I will say this. The way that is structured creates tokens and they treat the money fund just like a good old-fashioned regular money market fund. So from our point of view, it is tokenizing the process. The client sees a tokenized vehicle, but from the point of view of the fund, it is almost like business as usual. And I will let Deborah comment on some of the others because maybe she remembers them. Deborah Ann Cunningham: Well, what I would say in addition to what Chris just mentioned with the BNY Goldman collaboration is BNY is not only keeping its traditional books and letters on its books and records on a standardized ledger, but they are dual processing on the digital ledger. So it is a way of tiptoeing in the market and having, you know, both belts and suspenders attached to give underlying clients comfort that this process is, in fact, airtight and working what it should be. So that is kind of the unique aspect of the BNY Goldman collaboration at this point. At some point, there will be, you know, the belt or the suspender will go away, and it would just be the digital ledger where the books and records are maintained. But for this particular product, it is being doubly addressed. The part that you asked about stablecoins versus a tokenized money market fund, because of the Genius Act and some of the other regulatory changes that occurred or elaborations that occurred in 2025, we have learned that stablecoins have to be backed 100% by some form of what is a defined type of collateral. That is where our Genius Act funds come into play. And what stablecoins are not allowed to do from a competition standpoint with those funds is pay an interest rate or pay a dividend. And so the stablecoins for us represent an additional client base for which the tokenized money market funds that are managed under the rules and regs of the Genius Act can be the collateral that backs those stable coins to get the 100%. Brian Bertram Bedell: Mhmm. Right. Right. Without that, can get better. Without being. Yep. Yep. Okay. Any just any sense of the number of entities that you are talking with now on the tokenization effort? I do not know if you can disclose that or not. Is it, you know, in the dozen? John Christopher Donahue: I can pass on that one. Brian Bertram Bedell: Okay. Yep. No worries at all. Thank you so much for the color. Operator: Next question for today is a follow-up question from Patrick Davitt. Your line is live. Patrick Davitt: Hey. Thanks for the follow-up. I just wanted to clarify the AUM numbers you gave are all as of January 23. Is that correct? Thomas Robert Donahue: The AUM numbers are actually as of the 28th. The net sales numbers that we gave were as of the 23rd. Patrick Davitt: Okay. And then so I guess that would suggest then that the money funds have net inflows through the 28th, but against the fund data showing like, $9 billion of outflow. So I guess fair to assume that there is a big amount of separate account inflow? Thomas Robert Donahue: Yes. Yes. That is correct. Yep. And it really is bucking the trend. It did it last year. It did it this year. Yeah. And I think a lot of that has been influenced because of where the Fed has been and where we think they will be in 2026. Patrick Davitt: Great. Thanks. And then one quick one. The $10.2 million fee decline, that is just management fees, not including the real estate? Thomas Robert Donahue: That yeah. That is management fees, advisory fees, and distribution fees. Essentially, fees that are daily based. So it Patrick Davitt: Got it. Okay. And there was and you and go ahead. Thomas Robert Donahue: Yeah. I was gonna say, Patrick, it may be worthwhile for Saker to comment further on the, you know, $8.2 million where we got the development fees. And Chris made a comment in his remarks about we won, you know, a new project over there. And, you know, it may be worthwhile for Saker to make a comment on that. Saker Nusseibeh: Thank you. So the fees are by our development company, MEPC, in the UK. MEPC in our view is the leader in the things we call place development. We basically develop for clients who invest with us, estates, manage the buildings, rent them out, and when the time is right, sell them for them. And we have got a successful long-term track record of that throughout the United Kingdom. The two estates that we are talking about are in the North Of England. One is called NoMa, and the other one is called Wellington Place. One is in Manchester. The other one is in Leeds. One is 500,000 square feet. The other is 1,400,000. Now the skill of MEPC comes in two sides. The first one is the preparation for the development, and that is with close cooperation with the local government and the community. That is partly why we have such strong development potential and why we managed to let it. And the second one is the way we develop them in a way that makes them attractive spaces. So far, these have been office-based spaces, and they have seen great success, particularly with the move of companies who moved their offices, including some major US companies from London up north. And the government actually, which has done the same. Participants in it because it is ready to go, which is an important phase that is half the difficulty of developing. At the same time, as Chris mentioned, we won a very major bid to do a development project also in the North Of England, this one with much more mixed, but towards living, in fact. It is not offices say it is much more mixed, but towards living. And that is very exciting because that is part of the pivot towards living and developing living space. And, again, there is a huge demand in that part of the world. And the same skills apply. The ability of every PCR developer to work with the local government, the ability to get the permits, and then the ability to develop something which is actually attractive to the market both for people to come into it, and, of course, for the investors to get very strong returns out of it. Patrick Davitt: Thank you. Yeah. Thank you. I just want to go back to the $10 million. I just want to make sure I heard what you said exactly correctly. It is based on average AUM in the fourth quarter, Thomas Robert Donahue: Yes. So if end of period is 3% higher, it is something lower than that. If we use end of period. Patrick Davitt: Yeah. I think that is correct. Okay. Okay. Cool. Thank you. Operator: Your next question is from John Dunn with Evercore. John Dunn: Thank you. Wanted to ask just given where we are in the cycle, kind of your appetite and also the potential and outlook for money market roll-ups. John Christopher Donahue: The potential for money market roll-ups is almost entirely a function of the owner-operator of those other money funds. Over time, with increased regulation and increased oligopolization of this business, we have shaken out a lot of those money fund rollouts. Where they occur is when people are deciding to move a family of funds they happen to have some money markets in them. Then those are opportunities. But as we have said before, if you are running an even a smaller-sized money fund operation and you control the right to redeem, then you are not as worried about what you need to do for the future even if they are not as economic as they may otherwise be. We have also seen it occur where in some of our bank trust clients, where over the years maybe a family of funds or a family of money funds in the trust world does not make a lot of sense even though they do control the right to redeem. Then they have new leadership and then all of a sudden, we are back being looked at as a warm and loving home. And many of these deals we started in the eighties and nineties and sometimes it takes them that long to mature. But there is no direct pipeline. You cannot just put chapter and verse on it. But periodically, they show up. John Dunn: Got it. And then just maybe on the outlook for the strategic value dividend fund. Where do you think it goes from here? From a flow perspective? John Christopher Donahue: Well, the flows in all, if you add the whole thing of strategic value dividend, they are positive flows even though the fund is down. And notice that the ETF is up. And what you ought to learn from that is that people are actually understanding exactly what that fund is. It is a dividend-oriented fund. With a four and four approach. You have 4% dividend growth and 4% dividend. And they have been doing it for twenty-five years. And this is a good situation. So even though its Morningstar category rating is one side or the other, it is a very good steady long-term product. And we have I think we are up to $36 billion in it overall. And we expect it to continue to grow. Thomas Robert Donahue: And it is off to a very solid start so far in January through yes. It is up about 5.3%. John Dunn: Great. Thank you very much. Operator: We have reached the end of the question and answer session, and I will now turn the call over to Ray for closing remarks. Raymond J. Hanley: Well, that concludes our call, and we thank you for joining us today. Operator: This concludes today's conference. And you may disconnect your phone lines at this time. Thank you for your participation.
Operator: Welcome to the Arjo Q4 Presentation for 2025. [Operator Instructions] Now I will hand the conference over to President and CEO, Andreas Elgaard; and CFO, Christofer Carlsson. Please go ahead. Andreas Elgaard: Thank you very much, everybody that have called into this Q4 year-end report 2025. My name is Andreas Elgaard, and with me today, I have Christofer Carlsson. And then I will start the meeting, and then I will hand over to Christofer, when we come into the financial figures, and we will do this together. So before we begin, I mean, I am -- I've started now in Arjo since 3-plus weeks back. So I'm still new at work, and I'm super excited to lead this first call and also to share a little bit with you guys what I'm experiencing as a new person discovering Arjo. And I thought also that maybe it's a good idea that there could be some newcomers to this call who are interested in getting to know Arjo a little bit. So just very, very briefly, we are experts in improving mobility in acute care and long-term care settings. And our products truly make a difference when people are at their most vulnerable. They provide safety, dignity and integrity to patients, and they also provide good working conditions for the caregivers. And of course, they deliver value to the clinics and to the institutions where they are in use. Arjo is founded in the South of Sweden, in Eslöv by Arne Johansson. That's also where the name comes from. It has a long tradition, leading up to where we are today, an SEK 11 billion company with almost 7,000 coworkers and with active sales in 100-plus countries. I think we can take the next slide. And you know when you're new, of course, you discover the company, and I discover Arjo through all the products and our business, but mainly I discover it through the lens of all of our people. And we have a very, I would say, a rich company in terms of diversity. We have many businesses. We are active across many countries, and we have many versions of Arjo out there. And it's really the people that represent these different versions. So a lot of diversity across Arjo. We are not always using that to our benefit to drive maybe best practice or learn from successes or failures, but there is one thing that we have in common across Arjo and was a big reason for why I wanted to join as well, and that's we are all connected and really, I would say, passionate about the purpose, and it is the purpose of doing good, to be there when patients are at their most vulnerable situations and provide products that truly help the care situation. I already said it, but integrity, dignity are super important when you are in this position and also to provide that in a safe way. So it is something that is truly a superpower in Arjo and something we will build on for the future. So let's talk about Q4. So first of all, I would say that we had stable demand throughout the quarter. And then towards the end of the quarter, we saw maybe not the development that we would have wished. We have been challenged by, of course, currency and tariffs, and we have also been challenged a little bit on price pressure in parts of our markets and in the mix where we are selling, where we have slightly higher growth in markets with lower margin versus markets with a little bit higher margin. But overall, healthy organic growth, very strong cash flow in the quarter. So we almost hit our yearly cash conversion targets, but really, really strong in the quarter. And of course, we had hoped for more when it comes to the gross margin and maybe some of our cost control. We can look a little bit into the full year. So when we zoom out and look at the full year, we see a growth figure that is within the range that we have promised. And we can see that we deliver this despite being challenged, I would say, mainly in U.K. where we all know that the market in the U.K. and the political situation, the struggles in the health care system in the U.K. is also something that hits Arjo and has been a red thread throughout the year. That is impacting our performance, I would say. And then the headwinds in terms of tariffs and currency together with price pressure in parts of our range, and then the mix is challenging our profitability and our margin. All in all, our EBITDA is -- we would have -- we expect a little bit more from the quarter. But if you look at the full year, given the adjustments that have been throughout the year, some of the write-offs, this is the level that we landed on. As I mentioned previously in the -- thanks to the strong performance in Q4, we managed to almost come up in line with our target of 80% cash conversion. We are just south of that. And then very important to highlight is that we propose to stick to the same level of dividend that we had last year. And we -- the Board is recommending to the AGM a dividend of SEK 0.95. Just very briefly on North America and Global Sales, the 2 segments that we have. You can see that the quarter in North America was slowed down a little bit. But looking at the full year, it was quite strong growth. And looking then at Global Sales, we had a reverse trend where we had a stronger finish and a full year that was more, I would say, stable. And important to notice is that some of the more emerging markets in what we call Rest of the World have high growth, and that's also areas where we have a slightly different profitability, gross profit level. And that hits the overall gross profit of approximately 1%, and then tariffs, currency, et cetera, by approximately another 1% when you look at us from the outside and compare with last year. And by that, I think it's time to hand over to Christofer. Christofer Carlsson: Thank you, Andreas. Yes, my name is Christofer Carlsson. I'm the CFO of Arjo. As Andreas mentioned, profitability was a challenge in the quarter. Our gross margin came in at 42.1% compared to last year's 44.7%. We continue to have headwinds from currency and U.S. tariffs, representing around 1 percentage point of the drop. In addition, 1 percentage point can be explained by the unfavorable geo and product mix due to higher sales in Global Sales with higher volumes of medical beds. On top of this, the delayed flu season in U.S. pressured our rental volumes, and we also saw impact from continued price pressure in the DVT business in the U.S. in the quarter. Meanwhile, we had a good momentum and margin development in the rental business in Continental Europe, especially in France, Germany and Italy in the quarter. However, the market condition in U.K. continued to be a challenge, and an 11 percentage point drop in U.K. sales consequently had a negative impact on the gross profit, and offsetting the positive effect from Continental Europe. All in all, a disappointing finish to the year from a gross margin perspective, where we did not have a seasonal uptick that we usually see due to a number of headwinds. Next slide, please. Adjusted EBIT in Q4 came in at SEK 249 million versus SEK 375 million. The main driver is the drop in gross profit and an OpEx increase of SEK 23 million. We had a negative effect from revaluation of accounts receivable and accounts payable of SEK 3 million in the quarter, booked under other operating expenses. And this was plus SEK 19 million in the same quarter last year, resulting in a delta of SEK 22 million year-over-year. Total FX impact on adjusted EBIT amounted to SEK 73 million in the quarter. The EBIT margin decreased to 8.9% versus 12.5% last year. On the OpEx side, the increase during the quarter is mainly driven by higher sales of capital sales in U.S., resulting in high GPO fees and sales commission. The organic OpEx increase was 1.9% in the quarter, which means that adjusted for the variable cost, we see a good traction from the cost efficiency initiatives implemented early in this year. Adjusted EBITDA for the quarter was SEK 526 million versus SEK 653 million in Q4 last year. The adjusted EBIT margin decreased with 3.2 percentage points versus last year. Restructuring costs came in at SEK 68 million in the quarter, where SEK 35 million is a write-down of capitalized IT costs related to an ongoing IT harmonization project. This initiative is expected to lead to annual savings of at least SEK 30 million from 2028 and onwards. Another SEK 33 million related to ongoing improvements in our Global Sales structure to improve the cost and situation for the future. Next slide, please. Operating cash flow continued to improve in the quarter amounting to SEK 600 million. This was SEK 121 million higher year-over-year, primarily due to inventory reduction and good receivable collection. The decrease in inventory is significant in the quarter, and it turns also to the full year number into a positive number. Our increased capital sales together with the supply chain inventory reduction program is now starting to show results. Working capital days decreased to 76, down from 82 in Q3, and it's good to see a continued positive trend here. The working capital improvement is also the driver for the improved operating cash flow of SEK 600 million in the quarter. Consequently, cash conversion in the quarter was almost 120% compared to 82% last year. For the full year, we came in at 79%, which is in line with our target of 80%, and an increase versus 2024. For reference, cash flow from investing activities was SEK 172 million compared to SEK 191 million in Q4 '24. The decrease is mainly due to SEK 23 million lower investment in tangible assets. This quarter includes SEK 90 million in investment in the Dutch entity, SlingCare, which was announced in the Q3 report. Please, next slide. The decrease in net debt in this quarter is mainly due to the improved operating cash flow. Our financial net came in at minus SEK 77 million, which include a noncash flow impact of SEK 35 million, negative revaluation of our holdings in Atlas, Infonomy and Veplas. Adjusted for this revaluation of our financial assets, the financial net was minus SEK 42 million and on par with last year. Our cash position remains strong. Net debt to adjusted EBITDA stayed flat versus Q3 this year and came in at 2.2. Our equity ratio stood at 49.8%, up from 49.5% in Q3, mainly due to the improved cash flow. With that, I will hand it back to you, Andreas. Andreas Elgaard: Thanks, Christofer. So let's look ahead. How will we define our future direction. And I would like to say that, I mean, there is always ongoing positive work in preparing for the future. During '25, we launched the Maxi Move 5 that many customers think is really a game changer. We have just recently also launched the new hygiene solution, Symbliss that has received a lot of positive acclaim so far. And we are going to continue to rejuvenate our offer and how we go to market going forward. But maybe just a few words on what it means to work on this. So we have a solid foundation to build on. We have a macro economics, I would say, or trends that are incredibly positive for us, which is people live longer, more people come out of poverty. The need for care is growing faster than the population is growing and the GDP is growing. So from a macro perspective, all things are positive. At the same time, we know also that many political systems and many health care systems are set under pressure because it is difficult to keep up with the growing need of care. So there are changes in how care is being administered and given to patients. All of these things will create a more dynamic market in the future, and it's very important for Arjo to set our point of view on that. Part of our foundation is also that we have a very passionate team dedicated and committed to the purpose of doing good for our patients and caregivers. So that said, there is also a lot of things that Arjo can do that is not about the macro, that is not about the patients, but that is about our own performance and there is significant opportunity across Arjo to share best practice and learn by that and implement going forward and use -- decide on the future in order to be able to take out maybe cost and drive efficiency. So we can look at the next slide. So how do we realize our potential? Part of that is to know where we're going and setting a strategy, setting a direction. And we intend to present this back to the market in the second half of this year. The work has already started, and we will bring together leaders from all parts of Arjo. We are going to workshop with them and decide on where we want to go for the future, how we will get there, what to prioritize, what we want to do, which markets to have focus on, which parts of our product portfolio to put emphasis on. And if needed, acquire additional capability, additional market position, or maybe additional portfolio offering. And those things are all easier when you have clarity in your strategic direction. And I think that for Arjo, the last time we set the strategy was back in end of 2019. So we are due to create that clarity for ourselves and for all our shareholders. The only outlook that we give right now is, of course, the usual one, about 3% to 5%, and we are really looking forward to presenting our future direction and with that also, update the financial targets in the second half of 2026. So that's what you can expect from us during this year. And by that, I think we are at the Q&A. Operator: [Operator Instructions] The next question comes from Sten Gustafsson from ABG Sundal Collier. Sten Gustafsson: A question on the quarter. You talked about a strong start, but then it slowed down. I was just wondering if you could clarify exactly what happened there, and also if that change in the market has continued into now, the beginning of 2026? Andreas Elgaard: Thank you for your question. I would say, no, that's not how to interpret it. I would say that we -- it's more how we see the result developing across the quarter. So we don't see any trend shifts that we bring with us. We more see that we expected more from the quarter. And I would say that you all know that when you close the books, there are some decisions that you need to take. And as you have seen, we have had a couple of write-offs and write-downs during the quarter that, of course, impacts the situation. So I would say that there is no -- nothing to interpret when it comes to bring forward into 2026. Would you like to add something to that, maybe? Christofer Carlsson: No. I mean it's always an uncertainty about the flu season, that is impossible to predict exactly, of course, how that will develop. And that can go in both directions. Sten Gustafsson: All right. And then specifically, the U.K., when do you expect that to improve? Or do you expect it to improve near term? Or is it too difficult to say today? Andreas Elgaard: Yes, I would say that, I mean, there are two things here. I mean one is, of course, what is going on in U.K. within NHS and the U.K. health care system. That's one part of it. And of course, we can try to contribute with as much value as we can and to be a good partner to our customers and NHS in particular. So that's one part. Then it's also about our own performance and what are we doing in this situation. And we have had a lot of actions throughout 2025 to improve our efficiency and productivity. So we have done several things throughout the year that we expect will have effect. If it's enough or not or what will happen in the bigger picture around NHS, that's another topic. And I think most of you guys that follow this sector, you know that U.K. is really troubled. The pressure on the health care system is very high, and there has been some fundamental challenges and still are going forward. At the same time, this is a top priority for all political parties. So we also believe that there is a lot of interest in solving this for the benefit of the people across U.K. Operator: The next question comes from Mattias Vadsten from SEB. Mattias Vadsten: First one is just a follow-up on the U.K. Did you say it was down 11% year-on-year in local currency in Q4? Christofer Carlsson: Yes, that's correct. In the quarter, it's down 11%. Mattias Vadsten: In local currency? Christofer Carlsson: Yes. So organic, delta is 11% down. Mattias Vadsten: Then you talked about the gross margin development. It's quite clear description. And you talked about the mix effect, both from a region perspective and product perspective. So I'm just asking, this mix effect that you saw in Q4, is that likely to sort of sustain here into the coming quarters? Or are you seeing anything to reverse that trend near term, so to speak? Andreas Elgaard: Okay. Maybe if I try to start, and then Christofer can correct my mistakes or add on flavor. No, I think it's -- I don't think that you can draw any major conclusions like that, that is now a sustained level. I think it's, as always, it's a product mix question. It's a market mix question. Then also parts of our business is project driven and tender driven. And depending on how these project or programs land, you get different mixes that will vary naturally between different quarters. So that's -- I mean, that's the natural flow. So we don't have that kind of super stable underlying trend. So that's one thing to bring with you. And then also, I mean, of course, we expect -- we said this earlier that we expected maybe a different pattern from the flu season in U.S. And when you look at statistics and data, if you just look at the high level, you can see that the flu season looks to be more severe when we dig down in the areas where we have strong representation, especially Western U.S., the hospitalization is not as high as last year. And also, in general, the flu seemed to not cause as much hospitalization as previous years. But it's very early and all data is not accessible. But we have seen that trend in our data. So I don't know if you want to add some flavor in terms of this mix or this trend moving forward, Christofer? Christofer Carlsson: No, as we said, medical beds has a strong development in this quarter, but that is also very much a business depending on tenders and bigger shipments, it's not a continuous business in that sense. So it could be a different mix in the next quarter for us. Andreas Elgaard: Yes. When you equip a hospital, you do that once, then it takes a number of years before you get the chance to come with a big order again. Mattias Vadsten: Okay. Then I had a question on the ERP systems that will be replaced by Global System. And you said you will find savings of, I think it was SEK 30 million 2028 onwards. I'm looking to understand what this will cost you. So yes, can you comment on the cost for this in 2026 and '27? And also how you aim to report it if it's sort of nonrecurring item or if it will be a drag on adjusted earnings metrics? Christofer Carlsson: The vast majority of the cost for this implementation is actually capitalized because it's -- we are having a system where we actually own the product. So it's not a cloud solution. Andreas Elgaard: And maybe to add some flavor. This has been ongoing for a couple of years in Arjo already. So we only have a few markets left to do this change. So it's not something that is new to us. It's something that have been ongoing for a couple of years. So we are -- yes, we had a couple of go-lives during '25 already. And yes. Christofer Carlsson: We went live with Australia and New Zealand this year. And that's, of course, kind of the key point where we actually -- with the successful implementation in Australia and New Zealand, we decided to also go ahead for the rest of the countries. Otherwise, with a less positive outcome in Australia, we would probably have put on a brake and reverse this project somehow. So this was kind of a key decision point for taking this costs as well. Mattias Vadsten: Okay. Is it possible to say how much it has costed you already or with this? Andreas Elgaard: No. We have not shared that. But I think -- I mean, the write-down is for the old system. This is important, too because we discontinue it before end of life. So it's not connected to the new. Operator: The next question comes from Kristofer Liljeberg from Carnegie. Kristofer Liljeberg-Svensson: I have three questions. I'll take them one by one. First, what do you say about the flu hospitalization? I agree it started slowly, but if looking at the public statistics, it seems it picked up a lot in the last weeks 3 weeks of the fourth quarter, but you didn't see that in your rental business then, correct? Andreas Elgaard: Like we said before, we have seen that the flu season has been stronger or I mean, more severe than last year, but it is also distributed differently across U.S. So in the states where we are strong, we have not had the same pattern of hospitalizations. And also, we have seen a pattern that fewer patients are being hospitalized or they quickly get out of hospital versus before. So we don't see a one-to-one pattern as before. Kristofer Liljeberg-Svensson: Okay. That makes sense. Then I wanted you to clarify then what still seems like a pretty poor visibility for sales in North America, the message after the third quarter was that you have delayed deliveries that was expected to pick up in Q4. So did you see this happen, i.e., was the disappointing sales for you in Q4, was all of that flu related, i.e., that capital equipment sales were according to plan? Christofer Carlsson: That majority is, of course, the flu season. But we also have seen a less improvement in Canada, which had a very strong comparison numbers. So they actually have a lower growth in the quarter versus U.S. And to some extent, I mean, it didn't pick up at the end. Normally, there are quite a lot of transactional sales, what you say that hospital calls the last week or last 2 weeks when they know that they have x dollar remaining of the budget and they just need to purchase something before the year end. And that volume did not repeat from last year's all-time record actually in Canada. Kristofer Liljeberg-Svensson: Do you know why that was the case? Christofer Carlsson: I think there are general budget constraints in the Canadian market. We do see some of the states being more and more restricted in the budgets. But that's the main reason, I think. Kristofer Liljeberg-Svensson: Okay. And then my final question, you talked about the mix effect that could, of course, vary a lot between quarters. But otherwise, is there anything you could do here short term to turn this negative margin trend? Andreas Elgaard: Yes. I mean from my point of view, being new now into the company, if I answer first, and then Christofer can add on. I would say that Arjo has a lot of potential to drive efficiency. I would say, both in cost and capital out. That's clear. So we are going to work on that to do our own homework, so to say. Then also, I think that we need to look into parts of our business where market conditions have maybe changed a little bit or market dynamics have changed a little bit. We also need to update our commercial models and make sure that we share best practice in a more rapid way so we can be quicker to react. So there are always things that you can do on your own. Sometimes there is a lag in that, of course, because you don't know what is changing before it's happened and then it takes some time to adjust. But there are always things that we can do on our own, and we intend to do that. And in the strategy work, there will be parts of things that we want to do for the future that is long term to build capability, build -- expand our offering or our market position, but we also need to fund that journey. And to large parts, we're going to do that through also, I would say, efficiency initiatives across the group. Kristofer Liljeberg-Svensson: I mean, if you start the strategy -- yes. But if you start the strategy work now, then you're going to present this in the second half of the year. It sounds that 2026 will be yet another lost year when it comes to margins for Arjo, or am I missing something here? Andreas Elgaard: Yes. I mean there are always parts that require direction and maybe long term and that you come together as an organization, and that will take some time. But there is plenty of also quick wins that you can activate around procurement, IT and your own efficiency. So there is not -- I am -- I've worked a lot with change in the past, and I'm a firm believer in that you have to transform yourself, you have to change, but you also have to perform while you do that. And you need to fund the journey of when you need to invest in capability or in products or in M&A. Somehow, you need to fund that journey and you do that by driving efficiency in both capital and cost out of the company. So I think that you cannot say that you need to wait another year, and I think we're going to have -- we will be very, very focused on these also short-term actions. Operator: The next question comes from Ludwig Germunder from Handelsbanken. Ludwig Germunder: Ludwig Germunder from Handelsbanken. I have two, please. The first one is a follow-up on the last one around the strategy work that you will initiate during the spring. I understand that you will do work in the meantime as well. But what should we expect regarding margins for the beginning of 2026? Andreas Elgaard: I mean, we usually don't give any forecasts, and we will continue not to do that. I mean the only outlook we give is what we believe how sales will develop on top line, the 3% to 5% interval. So beyond that, we will not share any outlook until we maybe have a reason to do that. So that's -- and as I said before, we expect to come back and explain our view on the future and also at that point, also potentially revise our financial targets. So we need to work this through before we communicate it. But we are going to be super focused on trying to drive efficiency before we present our future direction. Ludwig Germunder: Okay. Got it. And the second one is also kind of a follow-up on the discussion around the flu season. So I got you that the hospitalization levels are lower in the parts of the U.S. that you are most active. Could you say something about the sequential development or demand you're seeing from the flu season? Is it at the same levels so far in Q1 as you saw in Q4? Or has it moved in any direction from the Q4 levels? Andreas Elgaard: We're not reporting Q1 today. So we stay on Q4. So I think that what we said is what we have seen that the flu this year seem to end up in fewer hospitalizations. That's what we've seen in Q4. Operator: The next question comes from Erik Cassel from Danske Bank. Erik Cassel: First question on North America. If my modeling is decent, it looks like the rental business now is in organic decline over there. Could you potentially comment anything if that only has to do with the ICU rental part or if you're also seeing that for, say, the more long-term contracts as well? Christofer Carlsson: No, it's more on a short-term perspective and the flu season, I would say. Erik Cassel: All right. And then on DVT, that business has been under pressure for several years now, I think, I mean, Cardinal started cutting back in '21. So how much additional pressure can you face there now? And can you talk a bit about the sort of current levels of sales and profits to some extent that you're seeing and sort of we should expect that pressure to continue now throughout '26 as well, if there were any, say, pricing cuts now in Q4 that will sort of feed over into at least H1 of '26. Andreas Elgaard: I mean -- so we will not talk about '26. But what we can say is that, I mean, there's a fierce competition on, I would say, the consumables in DVT part of our business. And I think that -- and that Cardinal and others have -- I would say, they have pushed the prices down. We also believe that we've come -- we are either at the bottom or close to the bottom of how far down you can go. And then you can say also that triggers the need for us to counter by looking at our business model, if it is set up for this level or if we need to do any adjustments. But we don't expect the decline to continue in the same pace that it has in the last couple of years. Is that correct, Christofer? Christofer Carlsson: Yes. So the vast majority of our business is on the new price level. Erik Cassel: Okay. Good. And then in the U.K., are you seeing continued rental pressures for more and more contracts being lost? Or is this still an effect of those initial -- or was it 5 or 7 contracts that you lost earlier in '25 that, in a way, should be out of comps soon? And also in U.K., if I could do a follow-up to the follow-up. How much of the negative 11% organic growth that you saw in U.K. was from the rental part of the business versus the product side? Christofer Carlsson: So when it comes to the rental business in general in the U.K., I mean, we have not lost any new contracts in the quarter. So it's more an effect of the early ones that we communicated in 2025. And then I have to come back to you on the rental margins for the U.K. Andreas Elgaard: And how do we usually communicate them. So I think that if we don't communicate them, we will probably not come back. But if we do that, then we'll come back to you, just to be clear. Erik Cassel: Okay. I'll wait to see them. And then just a final question. There's been a hiring freeze now outside of sales for quite some time, I believe. So I'm just wondering, in terms of those pruning additional costs, et cetera, how much are you actually able to slim the organization from this point? It seems like this sort of pruning has been done for years now. So are you nearing a point where you can't really cut any more fast? Andreas Elgaard: I don't think I would express myself in that way about the organization, but we can see that we have, as any organization, we have room to improve, and we are going to focus on that. And part of that will, of course, be released to improve our profitability, and part of that might be part of also funding the journey of investing and creating a strong future Arjo. But I mean, Christofer can add some flavor, but I have now 3.5 weeks in the company. I've spent some time during my onboarding as well. But the only thing I can share is that I see opportunity across Arjo. It's a really mature business, but we also have some inefficiencies. We don't always use our best practice. We don't always share our failures or successes across the company. And there's a lot of commercial excellence in that. And if we can release that, that has a really positive effect. I have first-hand experience of doing that in other contexts. And then also, we need to take a good look in the mirror and put question marks to ourselves when it comes to our administrative costs because we are high, and we need to be able to do things more efficiently by leveraging our IT systems and by also delivering the administration that is necessary and not something beyond that. So there are clear opportunities for us to address, then it is too early to say when the effect will come and so on. But we will focus on this together as an organization. Operator: The next question comes from Ludvig Lundgren from Nordea. Ludvig Lundgren: Yes, I only have one. So you've highlighted quite a strong order intake in the last few quarters, in particular, in patient handling products in the U.S. So can you say anything about how this has developed here in Q4 and whether you're still way above 1 in book-to-bill? Christofer Carlsson: Yes. The order intake has come in a little bit weaker in the quarter. But from an order book perspective, we are almost at the same level as last year. But also please remind yourself that 80% of our transaction is in and out in the same period. So it's an indicator, but it's not the actual true of the sales in the coming quarters. Operator: [Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Andreas Elgaard: So by that, we close this call, the year-end report for 2025. I thank you for listening. I also thank you for bearing with me as being new. And I am really looking forward to coming back and presenting Q1 to you guys, and in the second half, presenting our future strategy. By that, we say thank you. Christofer Carlsson: Yes. Thank you all.
Anders Edholm: Good morning, and welcome to this presentation of SCA's 2025 Year-End Report. With me here today, I have President and CEO, Ulf Larsson; and CFO, Andreas Ewertz, to go through the results and take your questions. Over to you, Ulf. Ulf Larsson: Thank you, Anders, and also from my side, good morning, and a very warm welcome to the presentation of SCA's results for the full year and the fourth quarter 2025. During 2025, SCA showed resilience. Despite increasing wood raw material costs, a challenging market environment and a currency headwind, we reached SEK 6.6 billion on an EBITDA level and by that an EBITDA margin of 32% for the year. Our high degree of self-sufficiency in strategic areas continued to be an important factor to mitigate higher costs. Harvesting from our own forest increased and reached 5.4 million cubic meters during '25, partly offsetting the higher cost of wood raw materials. SCA continued to gradually increase production in the sites where strategic investments have been made, and this has resulted in higher delivery volumes in comparison to last year, driven by the new paper machine in Obbola, the grading mill in Bollsta Sawmill, the biorefinery in Gothenburg and so on. These investments will contribute to increased productivity and cash flow generation during the upcoming years. The book value of SCA forest assets decreased slightly compared to last year and amounted to SEK 104 billion at the end of 2025. As you already know, SCA bases the valuation of the forest on complete transactions in the region where SCA owns land. Turning over to some financial KPIs related to the full year '25. As already said, our EBITDA reached SEK 6.6 billion for '25, which corresponds to a 32% EBITDA margin. Our industrial return on capital employed came out to 4% for the full year '25 and the leverage was at 1.7 after having finalized our big strategic investments. The proposed dividend for the AGM to decide on is SEK 3 per share, and this is in line with our aspiration to provide a long-term stable and over time increasing dividend to our shareholders. We handed out SEK 3 per share also last year. And finally, earnings per share was SEK 4.56. This slide will give you an overview of KPIs for the fourth quarter of '25, and our EBITDA reached SEK 1.2 billion during the fourth quarter, which gave us an EBITDA margin of 25%, driven by a negative currency effect and lower selling prices. Our net debt to equity remains on a solid level of 11%. I will now give some comments for each segment, starting with Forest. Stable harvesting levels from our own forest have contributed to balanced supply of wood raw materials to our industries during the period. We have seen a continuous long-term trend of increasing prices for both pulpwood and sawlogs and as can be seen in the graph in the bottom left. Regarding pulpwood, we have now passed the peak and prices have continued to come down during the quarter. Demand for sawlogs continued to be high, especially for spruce logs. When one compares Q4 '25 with Q4 '24, sales were up 10%, while EBITDA was up 3%, mainly due to higher prices for Wood raw materials. The storm in mid-Sweden during the end of the year had a limited impact on SCA land. We estimate that approximately 100,000 cubic meters has fallen. When we widen the scope to Sweden, we estimate that around 10 million cubic meters has fallen and the majority in Gävleborg and East Dalarna County. I guess we have also another 3 million to 4 million cubic meters in Finland. SCA will prioritize harvesting windfall volumes to support private forest owners, and this might have a minor impact on the total level of harvesting from our own forest during 2026. Harvesting activities in windfall areas will primarily be carried out from Q2 and forward. Windfall volumes will contribute to an increased availability of wood raw materials in this region. Over to Wood. And in general, we still have a slow underlying market for solid wood products. We continue to note signs of improvement in the repair and remodeling segment as well as a decreased production level in Germany, generating better supply and demand balance, especially for spruce. Stock levels remain on the high side among producers for pine, but are on normal levels for spruce. Stock levels at customers continue to be on the high -- on the -- sorry, on the low side. SCA had strong deliveries in the fourth quarter, resulting in a seasonally low stock level of sawn goods for us at the end of 2025. The price for solid wood products decreased by 5% in the fourth quarter of '25 in comparison with the third quarter same year. And this development is in line with what I said when I presented the report for the third quarter. As expected, the cost for sawlogs has increased from the third to the fourth quarter, and we will also -- we also expect them to continue to increase going into the first quarter '26. Sales were up 5% lower in comparison with the same quarter last year. EBITDA margin decreased from 17% to 6% due to higher raw material costs and the negative currency effect. Today's stock level of solid wood products in Sweden and Finland is described at the top left on this slide and is shown in relation to the average for the last 5 years. As mentioned earlier, we note that the inventory level is on the high side, especially for pine, while the SCA level is seasonally low. As can be seen in the diagram to the bottom left, the Swedish and Finnish sawmill production has been on a normal level during '25. In the diagram to the top right, we can note that the price decreased during the fourth quarter. The decrease in pine has been higher in comparison with spruce. Coming into the next quarter, I estimate the price on average will be unchanged in comparison with the fourth quarter with a stronger tendency for spruce related to a better balance. Going forward, we will closely monitor the market development in Continental Europe that is impacted by lower production, not the least in Germany. So coming over to Pulp. When comparing Q4 '25 with Q4 '24, sales were down 14%, mainly due to lower prices and a negative currency effect. The negative EBITDA development was also driven by lower prices and a negative currency effect. The cost for the planned maintenance stop in Q4 '25 was SEK 198 million compared to SEK 250 million in Q4 '24. Global demand for pulp was at a healthy level during the first quarter of '25. During the second quarter, the market changed with reduced demand and prices came under pressure much due to uncertainty related to U.S. tariffs. During the third and fourth quarter, prices on NBSK pulp was stable at low levels. On the demand side, we saw an increased activity in China. The weakening of the U.S. dollar in relation to the Swedish krona, which started already in Q1 continued to have a negative impact on the price in SEK also in Q4. Tariffs on NBSK pulp from the European Union to the U.S. were removed during the third quarter. This allows us to maintain a competitive offering to the U.S. Market rebates are expected to increase by low single digits in the U.S. and mid-single digits in Europe. PIX prices are expected to start to increase to compensate for the rebate. Looking at CTMP, prices were mostly unchanged in Europe and Asia at low levels during the fourth quarter. Inventories of softwood pulp were on the highest level during the fourth quarter. Hardwood inventories on the contrary were on average. CTMP inventories came down during the quarter to a more normal level. Moving over to Containerboard. Sales were up 8% in Q4 in comparison with the same period last year, driven by higher delivery volumes somewhat mitigated by lower prices and the negative currency effect. EBITDA was down by 6%, driven by lower prices and a negative currency effect. We have seen box demand moving sideways in Q4, but still with a positive development on a year-to-date basis of around 1.5%. The retail business remains a positive driver. On the other side, we continue to see a weak European manufacturing industry, which, for the moment, has a negative impact on the demand. European demand of Containerboard has developed like the box demand and has moved sideways in the last quarter compared to Q4 '24, but with slight growth for the full year. During Q4, we saw some closures of capacity in testliner, although not yet enough to balance the capacity started up in previous quarters. As can be seen in the graph, Kraftliner inventories remain above average level in Q4. Prices for brown kraftliner in Central Europe decreased during Q4 with EUR 20 per tonne, while white kraftliner has remained stable. We can see another negative price adjustment of EUR 20 per tonne in January. On the other hand, we now hear announcements of around EUR 100 per tonne price increase for testliner. And if that succeeds, I guess, we will have a price push also in kraftliner at the later stage. So finally, I will say some words about Renewable Energy. And in Renewable Energy, we have had a strong quarter compared to the same period last year, mainly due to higher production and stronger margins in our -- with St1 jointly owned by refinery in Gothenburg. In addition, we have had higher production and stronger deliveries in solid biofuels. Electricity prices continued to be low during the fourth quarter, but slightly higher than same period last year. Low electricity prices in the market impact on our wind business negatively, but is positive for SCA as a net buyer of electricity. SCA land lease business increased to 10.6 terawatt hours according to plan. This is equal to 20% of installed capacity of wind power in Sweden. The Fasikan wind farm was taken over by SCA by the end of 2025 and is now ramping up production. And with the Fasikan adding to our current power production within the group, we increased our self-sufficiency rate to approximately 100%. The market for solid biofuels in Northern Sweden continues to be weak but stable, and this fact increases our European export share and by that, a somewhat reduced margin. For liquid biofuels, we have seen continuous higher margins compared to previous quarters. And the main reasons for our European countries implementing RED III and better control mechanism within EU regarding imported products and feedstocks. And we expect market volatility in renewable fuels to remain high as Europe ramps up the blending mandates both in HVO and SAF. And by that, Andreas I hand over to you. Andreas Ewertz: Thank you, Ulf, and good morning, everybody. I'll start off with the forest valuation and the 3-year average price, which we used in the forest valuation to get enough transactions decreased by 4% to SEK 372 per cubic meter. The 1-year average increased slightly and the market activity during the year was on the normal level. The valuation of SCA's forest assets decreased to SEK 104 billion in 2025. The decrease in the 3-year average price was partly offset by continued increase in standing volume to SEK 277 million cubic meters. Biological asset increased by just below SEK 1.8 billion, driven by increasing long-term prices for raw materials and higher standing volume due to the net growth, while the value of the land decreased due to lower prices for forest land. Prices for wood materials continue to increase. The slide shows the index price development for sawlogs and pulpwood paid by SCAs industries delivered to site. Prices are at a record high level with a continued tight market for sawlogs, especially on spruce, while the balance of pulpwood has improved. If we move on to the income statement and focus on the full year to the right. Net sales were stable at around SEK 20 billion. Higher delivery volumes and higher prices were offset by negative currency effect. EBITDA increased 8% to just below of SEK 6.6 billion, driven by negative currency effects and higher raw material costs, which were partly offset by higher delivery volumes and somewhat higher prices. The EBITDA margin was 32%. EBIT decreased to SEK 4.4 billion and financial items totaled minus SEK 433 million. With an effective tax rate of just below 20%, bringing net profit to SEK 3.2 billion or SEK 4.56 per share. If we look at the fourth quarter to left, EBITDA totaled SEK 1.2 billion and was affected by a planned maintenance stop in Ostrand by SEK 198 million. Net profit for the quarter totaled SEK 485 million or SEK 0.69 per share. Looking at the dividend. The Board has proposed a dividend of SEK 3 per share, which is unchanged from the previous year. On the next slide, we have the financial development by segment for the full year. Starting with the Forest segment to the left. Net sales increased to just below SEK 10 billion and EBITDA increased to SEK 3.8 billion, driven by higher prices for pulpwood and sawlog and increased harvesting from SCA's own forest. In Wood, net sales increased to SEK 6.1 billion driven by higher delivery volumes and higher prices, which was offset by negative currency effect. EBITDA increased to SEK 856 million, corresponding to margin of 14% and was negatively impacted by higher cost for sawlogs. In Pulp, net sales decreased to SEK 7.1 billion due to lower prices and negative currency effects. EBITDA decreased to SEK 752 million corresponding to a margin of 11%. The decrease was mainly related to lower prices, negative currency effects and higher cost for pulpwood. In Containerboard, net sales increased to SEK 7 billion, driven by higher volumes from Obbola and higher prices. EBITDA increased to SEK 1.1 billion, corresponding to a margin of 16%. In Renewable Energy, EBITDA was stable and totaled SEK 442 million, corresponding to a margin of 22%. The market for liquid biofuels improved during the later part of the year, while electricity prices continue to be low. Moving on to the quarter. And on the next slide, we have the sales bridge between Q4 last year and Q4 this year. Prices decreased 6% with lower prices in Pulp and Containerboard. Volumes increased by 7% due to higher volumes in mainly Containerboard but also Pulp. And lastly, currency had a negative impact of 6%, bringing net sales to SEK 4.9 billion. Moving on to EBITDA bridge. Starting to the left, price mix, a negative impact of SEK 370 million, and higher volumes had a positive impact of SEK 77 million. High cost for raw materials had a negative impact of SEK 37 million, which was mitigated by high degrees of self-sufficiency in wood raw materials. We had a positive impact from energy of SEK 41 million and a negative impact from currency of SEK 269 million. Others was impacted by lower costs from planned maintenance stops. In total, EBITDA decreased to SEK 1.2 billion, corresponding to a margin of 25%. Looking at the cash flow. We had an operating cash flow of SEK 3.1 billion for the year and SEK 529 million in the quarter. And as you know, other operating cash flow relates mostly to working capital currency hedges and should be seen together with changes in working capital. Moving on to the balance sheet. The value of the forest assets decreased to SEK 104 billion, working capital decreased compared to the previous quarter but increased year-on-year to SEK 5.3 billion. In the quarter, we have increased our harvesting rights of especially spruce, sawlogs for 2026 from private forest owners, which increased both inventories and payables, but no impact on the quarter's cash flow. Capital employed decreased to SEK 112 billion and net debt totaled SEK 10.9 billion, and we have now almost finalized our large ongoing investment projects. Equity totaled SEK 102 billion and net debt-to-equity was 11%. Thank you. With that, I'll hand back to you, Ulf. Ulf Larsson: Yes. I mean, I'll try to summarize 2025. I think we have delivered a solid result given the current market situation. When we compare 2025 with 2024, I mean, we are negatively impacted by almost SEK 1 billion related to currency and also to raw material costs. On the positive side, now I can see that our strategic investments, they have started to deliver, and it's -- it will be interesting to see when we have a turning point in the market, what kind of leverage we will get from those investments. So by that, I think that we open up for questions. Operator: [Operator Instructions] We will now take our first question from Ioannis Masvoulas of Morgan Stanley. Ioannis Masvoulas: Just two questions on storm Johannes where you've given us some very useful color. But just to get your perspective on how things develop from here, assuming we do have the additional wood supply coming into the market, shall we expect to see an acceleration in the decline in pulpwood prices? And what would it mean for solar prices that have remained stubbornly high? And then second and related to the storm. Your costs, harvest costs were likely a bit higher in Q4 going into Q2 where you expect to focus on harvesting windfall volumes. How should we expect your harvesting costs to develop in Q2 and Q3 this year? And would that have a meaningful impact on your P&L? Ulf Larsson: Okay. If we start with the cost, I mean, as I said, not more than 100,000 cubic meters has fallen on SCA land. And of course, when you take care of that part, that will increase the cost, but that's a minor part of the harvesting we do on our own land. But for private forest owners, okay, we will have increase in costs. And typically, I mean, the forest owner has to pay for the increase in cost level. So that will be no major impact on SCA in that perspective. When it comes to prices, I mean, as you say, for pulpwood prices, they have already start to decline, and that will step-by-step come into the accounts of companies as we have. I mean, we have a lagging effect, of course. But that will continue and maybe it will also -- yes, I mean it will not be -- pulpwood cost will not be -- that will be positively helped by the storm, that's for sure. When it comes to sawlogs, I guess the main part of what has fallen is pine. And maybe we start to see decreasing prices for pine and that will also, I think, after a while, come also for spruce. But during the first quarter, at least for SCA, I mean we have to take care of what we bought already in the fourth and third quarter. And that means, increasing sawlog costs in the first quarter. But then I guess, we start to see some decreases also for sawlogs. But as it is just now, I guess it's an oversupply. It will be at least in the second quarter an oversupply of pulpwood while it will be a little bit more stabilized situation for sawlogs. Ioannis Masvoulas: Okay. And sorry, just -- sorry, go on. Ulf Larsson: No, that's my view, more or less. Ioannis Masvoulas: Very useful. And so, just one follow-up on pulpwood. What sort of cost development into your industries shall we expect for Q1 versus Q4? Andreas Ewertz: Yes. On pulpwood, it's a low single-digit decline, around 2%. Ulf Larsson: But on the other hand, for sawlogs, I guess, we will have almost an 10%... Andreas Ewertz: Yes, 7%, 8%. Ulf Larsson: 7%, 8% price increase. And then step-by-step, we will see reducing prices. Operator: And we'll now take our next question from Charlie Muir-Sands of BNP Paribas. Charlie Muir-Sands: Just firstly, on currency, I know you gave the -- in the statement, you gave the average hedging rates. It looks like those are still meaningfully ahead of latest spot market rates. So as things stand, should we continue to expect, sort of, a sequential currency headwind over the next couple of quarters, I guess, particularly on the pulp segment given the movement of the dollar? And then secondly, I'm sorry if I missed it, but have you given or can you share your thoughts on CapEx for 2026? And any early thoughts on where that might go to in 2027 as you complete wrapping up any final expansionary projects? Andreas Ewertz: Yes. So, I'll start with the currency. You're absolutely right. We have -- I mean, for next year, on average, we hedge about 50% of our net currency exposure. So once those hedges goes out, of course, if the dollar stay at the same level, that will be a headwind. And if you look at our dollar exposure, if you include the indirect FX, meaning that we might sell in SEK or euro in pulp, but the price also depends on the fixed prices in dollar. If we include that indirect effect, our dollar exposure is around USD 700 million per year. And then on the CapEx side, our early estimate is around -- on current CapEx is around SEK 1.5 billion for next year and strategic CapEx, we have some spillover from this year to next year, suspecting that to be around SEK 400 million, maybe SEK 500 million. But after that, I mean, we have finished basically all of our strategic CapEx that we've currently decided on. Charlie Muir-Sands: And then just briefly on pulpwood, as you've acknowledged, it's coming down. I just wondered, are you seeing at all any of your customers start to pressure you to pass those costs on in terms of lowering your prices in any of the industrial output grades? Andreas Ewertz: I mean, prices are already very, very, I mean, low at the moment for our finished products. I think this lower cost will, of course, help our margins. Operator: And we will now take our next question from Robin Santavirta of DNB Carnegie. Robin Santavirta: First question I have is related to harvesting volumes. You have nicely increased those in line with your guidance a few years ago and land at 5. 4% now in 2025. What is the best guess for 2026 and 2027? Is it roughly harvesting volumes in line with what you achieved in 2025? Or is it higher or lower? What are the key, sort of, reasons for that? Ulf Larsson: So, if we start with that one. I mean, we will -- I guess, we might see a minor decrease from our own forest as we now have to support private forest owners in our region, and we have some also agreements in place already, which is long-term good for us. I mean, we will place some of our resources in South from Sundsvall in Gävleborg and even further south to help it. I mean, 10 million cubic meter in a rather limited area, that's quite a lot and that will, of course, need some extra resources to take care of it. And we also have -- we have to fight against the time because now we had more or less 1 meter snow, which -- I mean, it's not too easy to go in there and start to do the harvesting operations. So, I guess, we will have a peak in the second quarter and as fast as possible to avoid getting the wood destroyed, blue stain and things like that. So that might have a minor impact on the harvesting volume from our own forest -- on our own forest. Robin Santavirta: So for the full year, roughly the same or slightly lower, perhaps? Ulf Larsson: Yes. I mean, it is around this level. Robin Santavirta: All right. In terms of the European softwood pulp sales, can you shed some light on the discounts you have agreed for 2026, helping out with modeling here. And also in terms of the lease prices, where are they now at the end of January? And what's the outlook for the next month or 2 months? Just so we understand how the net price of the outlook is? Ulf Larsson: Sorry, I didn't get it. Was it pulp or was it solidwood products? Robin Santavirta: Yes, on pulp. I guess the discounts, the annual discounts for the year gone up a bit. Ulf Larsson: Yes. You're right. I mean fixed prices, they were on 1,500, and now they have started to increase. And I guess we will end up in 1,550, maybe at the end of January, and we start to -- by that start to compensate for increasing rebates. But we will, as you can calculate, we will not do it in one quarter. I guess, we will see another price increase in February. And I guess also, we will see a third price increase in March. And at that time, I guess, we have at least compensated for increasing rebates. But that's the case. So, if you compare sequentially, if you compare Q1 with Q4, I guess we will have a lower price. We will have a lower price in Q1 in comparison with Q4. And in addition, you also have a stronger SEK against dollar, which have an impact also. That's harder to predict, but that's the case as it is just now. Andreas Ewertz: And then Ulf guided previously on that the rebates in the U.S. is -- increases low single digits, while in Europe, it's mid-single digits. And that's the general market rebates. Operator: And we'll now take our next question from Johannes of SB1 Markets. Johannes Grunselius: Yes. It's Johannes. So I have two questions. The first one is on Containerboard. You did pretty well on volumes there or shipments, at least compared to my expectations. Could you share some color on that, sort of, ramp-up of volumes? And were you able to sell the new incremental volumes at market terms? Or were you -- did you have to, sort of, give hefty discounts there? If you could give some color there, please. Ulf Larsson: Yes. I mean, we are happy with the ramp-up in Obbola. And as I said also before, we are close to 600,000 tonnes in 2025, which is according to plan. So, we are -- we will continue that work also going in now to 2026. And I mean, it's more a question about mix. I mean, as it is just now with the current market situation in Europe, it's not possible to deliver the extra volume, so to say, in Europe, so that we have to find places overseas. And by that, of course, we have as it is just now substantially lower margin. But again, our main focus just now is the ramp-up. And then I guess, we are looking forward to the point when the market turns because then we will have a good leverage also from those volumes. But as it is just now, we are impacted price-wise due to the mix, geographical mix. Johannes Grunselius: Okay. That's clear. My second question is more on capital allocation. And of course, this is more of a question for the Board, but I try to ask it to you, Ulf, anyway. But the sort of SCA's way of distributing cash to shareholders has always been traditional dividends. But in the light that strategic CapEx is now coming to an end and in light of the share price valuation, are you increase -- do you have, sort of, more intense discussions about share buybacks going forward? If you can elaborate on that question, please? Ulf Larsson: I mean, as you say, that's a question for our owners and the Board. And I think it was a sign of stability to keep the dividend at the level we had last year. And I mean, that's a sign of -- we believe -- I believe that we are now at the bottom of this business cycle. It's volatile, and now we are at the bottom. And also, I mean, we know that we are well prepared when the market turns. We have done big investments now, and we have ramped up them in a rather good way. And we are looking forward now to see increasing prices and then leverage from those investments. And as Andreas said, I mean, we have no big investments in plan now coming years. So I mean then, then let's see what kind of discussion we will have at that time. But for now, I mean, we are happy to deliver the same dividend as we did last year. Operator: And we'll now take our next question from Oskar Lindstrom of Danske Bank. Oskar Lindström: Three questions from me. The first one is actually carrying on from Johannes' question a little bit here about capital allocation, but I'm not going to ask you about the share buybacks. I mean, given kind of weak markets, structural challenges and that the Energy segment, at least my book presumably is attractive as it did a few years back. Where do you see your potential to sort of structurally grow earnings in the coming years? I mean, where could you invest to drive your growth? That's my first question. Do you want me to ask the other ones as well? Ulf Larsson: No, if -- we can take the first one first, I'm happy. I mean, again, as we said, I mean, just now, we are in a challenging market environment. As you know, we have done a lot of big investments. We will grow our volumes. We have been growing our volumes also in both '24 and '25. And I mean, just now, we are 100% focused on delivering on those investments. I mean, of course, we will come back when this is fully ramped up and when we have started to see a slightly better market and by that also a strong cash flow, then I think it's the time to come back to the development. But just now, we are so focused on, do what we have started, to finalize what we have started. Oskar Lindström: Yes, right. My second question is maybe for Andreas. Is there any impact from loss of emission rights on earnings in Q1 or for full year 2026? And if so, how much? And where have they been reported so far? Andreas Ewertz: Look, we will have an impact if you look at '25 compared to '26 as now the new emission rules, ETS, is in place. That means that, if you look at our four big mills, Obbola and Ortviken will still be part of the ETS system, while Ostrand and Munksund, they are too good in their emissions. And therefore, they will strangely be removed from the system. On Ostrand, we don't have a surplus. That doesn't matter. But on Munksund mill, we will lose our emission surplus, which is about 100,000 tonnes of emission rights each year. And then if you look historically back, publication paper, Ortviken was the biggest receiver of emission rights. But that, we divested in -- or closed down in 2020. So that had the biggest impact, but now Munksund will be removed for next year. Oskar Lindström: And if I may just ask a follow-up on the Munksund. Have you been selling those, the full sort of all the emission rights that you've been given each year? Have you sold them each year? Or have you built up a backlog? Or how should we calculate that? Andreas Ewertz: We've usually -- some we sell internally to our logistics department, especially with 2025 when you have to have -- also buy emission rights for -- in the transportation sector, and the rest we have sold. So we will sell, we will lose 100,000 tonnes going forward. Oskar Lindström: So we should assume, sort of, loss of 25,000 tonnes per quarter times whatever the average price was for emission rights? Andreas Ewertz: Yes. That's correct. Oskar Lindström: All right. Just a final question, if I may, on, I guess, the Wood segment. You mentioned this sort of dramatic or lower harvesting levels in the Central U.S. I presume it's as a consequence of the bark beetle infestations there. So two questions there. How dramatic is this decline in harvesting levels in Central Europe? And is there any sense that this is impacting or will impact the sort of the long-term timber and sawn timber supply for that region? Is it's the competitor that's disappearing? Ulf Larsson: Yes. I guess, I mean, we see also as it is just now, the spruce market is substantially stronger than the pine market, and that's due to the balance, I would say. And the production level in Germany has been also lower for a while now. And I guess, one part of it is that it is trickier to get access to sawlogs and, of course, when you have a tighter balance, you have to pay more. And then as it is a marginal business, I mean, then they have in some areas taking curtailment. So the long-term effect, I mean, I don't -- typically, I guess, it will be tougher to get access to raw material in that area, especially in the Eastern part, where they were heavily hit by the spruce beetle and that is also -- I mean, long term, the estimation we've done is that we will have a strong balance for -- as a producer, we will have a strong balance for solid wood products going forward. But then, of course, it's also a volatile business. It will be impacted by the current business cycle. But we believe that solid wood products will be rather strong going forward as the material is needed, not the least. If we shall have a chance to mitigate the climate change and so on, I mean, we have to use non-fossil products, and that will be -- that will be good, I think, for that business going forward. Operator: And we will now take our next question from Andrew Jones of UBS. Andrew Jones: A couple of questions. First of all, on Containerboard. Obviously, we've seen some price hikes announced by some of recycled players. I'm curious what you make of the potential for price increases in the current market given the demand situation and oversupply? I mean, is there more potential in kraftliner, maybe given the market is a bit more balanced there? And my second question is on forest valuations. I mean, given, obviously, wood prices potentially coming down and obviously, rates going up as well. I mean, what are you seeing, hearing in your regions in Sweden in general on the sort of trends for valuations? Are you concerned about sort of more negative valuations as we go into 2026? Ulf Larsson: I'll take the Containerboard market first. I mean, as I said, I mean, we have seen now some announcements. I don't know if testliner producers, if they have come through with price increases, but they have asked for EUR 100 per tonne, and they certainly need it as I think that many testliner producers, they are bleeding just now. Short term, we have seen gas prices coming up 35%. OCC prices still on the same level, but typically, they -- I guess they will also start to ask for more if testliner producers will come through with their attempts to reach higher prices. And when that happens, then, of course, that will give price push also for kraftliner in a later stage. And I mean that is now needed in the market. But I guess we have a chicken race out there. There's a lot of capacity is coming on stream for testliner. And so, I don't know when it will happen, but it will happen, and we are at the bottom just now. That's my estimation. Andreas Ewertz: Yes. And if you look at the forest valuation, I don't want to speculate going forward. But if you look at 2025, activity was a normal basis and the 1-year average increased slightly during the year. And for next year, we see, in general, that the Swedish economy is improving. Wood raw material prices are coming down a bit. But usually, I mean, when you buy a forest asset, you have 100-year view on the forest prices or the wood raw material prices. So it's not -- I mean, it's the general long-term view that's the most important. But we'll have to see. But this year was slightly up on the 1 year average, but the 3-year average declined. Andrew Jones: Yes. Okay. That makes sense. And actually, just a follow-up on the wood prices. I mean, you're talking about relatively modest declines, obviously, prices being pretty flat so far for pulpwood. Given the decreases we've seen in Finland. I mean is there any -- I mean, I would assume that Sweden would have followed to a greater extent already. Is there anything stopping prices sort of gapping down lower given the potential for arbitrage across the border? I mean, what's the -- what's are the thoughts there? Ulf Larsson: Sorry, what was it wood raw materials? Was that pulpwood? Andrew Jones: Yes. Ulf Larsson: Pulpwood, yes, but I mean, we have seen pulpwood prices fallen also in our region. And as Andreas said, I mean, we will see some of it also in Q1, I guess, for pulpwood. Andreas Ewertz: But it's this lag effect because, I mean, you buy on stumpage what -- I mean, what we harvest in Q1, we bought in Q2 and Q3 and Q4, you had this delay effect because you buy stumpage to write the harvest from the private forest owner. Ulf Larsson: And also, you cannot just follow-up public announcements as you also, on top of that, have different premiums and things like that, which is individual for each buyer and for each market and so on. So, I mean, what you see announced will not be the -- exactly the same effect that you will have in the account, I guess. But you always have this lagging effect. But we are -- we have the same journey. And of course, now boosted by the windfalls we've seen in our region that will come -- that will also have definitely an impact on pulpwood prices. Andrew Jones: And actually, just final one, just on context. I mean, what is the total size of the market in Sweden in terms of pulpwood consumption per year? I mean, how significant is that in the broader market? Andreas Ewertz: I'm not sure. We have around 10% of the forest assets in Sweden, and we harvest around 5 million cubic meters from our own forest each year, just to have some kind of ballpark. Ulf Larsson: But was it the total harvesting volume in Sweden, was that the question? Andrew Jones: Yes, exactly. Ulf Larsson: Yes. It's -- okay, sorry, it's around 85 million cubic meters per year. Andrew Jones: Okay. So it's roughly 10% additional supply? Ulf Larsson: Exactly 10%, 15% -- 10% between -- I guess, it will be 15%. And then also in addition, you have 3 million to 4 million cubic meters on the Finnish side. Operator: [Operator Instructions] And we'll now move on to our next question from Cole Hathorn of Jefferies. Cole Hathorn: I'd just like to follow up on sawn wood business. I just missed your commentary on what your expectation is of price declines quarter-on-quarter into Q1? And just on your sawlogs, I know you said they were -- they're going to be up around 7%. But just to clarify, that is Northern Sweden, I imagine the rest of Sweden sawlog prices are lower, just a clarification there. Ulf Larsson: Yes. I mean, starting with the price development for Finnish products. As I said, from Q3 to Q4, we had -- the average price was down 5%. From Q4 over to Q1 2026, I guess we will have a flat price development. But what we didn't expect really was the -- we have had another impact from -- negative currency effect impact, of course. But I guess it will be close to zero. On the other hand, for us, as I said, we will have close to -- yes, 7%, 8%, you said, increasing log prices. And I mean, we cannot comment what will happen in other parts of Sweden, I guess. The reason for that for us is that we thought it would be a very tight situation coming into the first quarter, not the least for spruce log. So we bought rather big volumes in the fourth quarter. And I mean, we couldn't know or expect that we should have a big windfall in our region between Christmas and New Year. And if we would have knew that, then, of course, we should have acted differently. But now we have to take care of what we bought. Cole Hathorn: Also, and just a longer-term question on wood products. I mean, we've seen CBAM boosting the cost of cement, the cost of steel, import restrictions, increasing prices of these construction raw materials. Do we see wood as kind of an underappreciated beneficiary? When do people look at the construction costs of sawn wood and say, we should start using more of this product? Or is that just too far away into the future? And then following up on Containerboard, we've seen some of the U.S. players talk about slightly better order books, slightly better demand. I'm just wondering, are you seeing any more positive trends in the containerboard and bauxite at this stage or not yet? Ulf Larsson: I mean, starting with solid wood products. I guess, we are pretty positive to the future market for solid wood products. Then again, it's always a balance between what you have to pay for the raw material and what can you get out from the market. As you know, more than 70% of the cost for the sawmill is related to the raw material, of course. But I mean, we feel that the demand for solid wood products is -- I guess it's okay as it is just now, and we see an improving trend also for coming quarters now. And let's see where we will end up. But... Andreas Ewertz: I think, Q2 is usually typically a stronger quarter. Ulf Larsson: Structurally, I think that, I mean, in many cases, people have tried to turn from -- also from fossils over to non-fossil materials. And I mean, that will also benefit the solid wood business going forward. So I think we are positive long term in this field. And then about Containerboard. I guess, we had -- if we look into last year, I mean, the consumption was up 1.5% during last year. And also when you look at the box demand, as you saw maybe on the slide I did show, I mean, you have a positive -- the trend is positive. Then again, I think what is harming the balance just now is that we have seen a lot of new capacity coming on stream, not for testliner. I mean, the only capacity in kraftliner is what we are providing the market ourselves in -- from Obbola. But otherwise, in testliner, we've seen a lot of capacity coming on stream. Some has been closed, and I guess some more capacity will be closed. And I guess we have, for that reason, a little bit of chicken race just now out there, and let's see where and when that will -- how and when that will end up. So I guess, but then you asked about consumption. Honestly, I don't think -- I think we are -- it is a rather slow market out there, at least for us being in Europe and might be a little bit better in U.S. and also in other regions, we have a slightly better demand. But again, the price is, of course, lower when we have to go overseas with our volumes. So that is -- and that has also impacted the result for us as we are now ramping up Obbola. That was not a very clear answer, but it was a trial at least. Operator: And we will now take our next question from Pallav Mittal of Barclays. Pallav Mittal: I have two of them. So firstly, can you talk a bit about the adverse mix impact that you highlighted for your pulp and the containerboard business, especially over the last couple of quarters? And do you expect that to continue in 2026 given the weakest demand that we are seeing in Europe? And just to follow up, what are your expectations on CTMP pricing in the near term? Ulf Larsson: Did you get the first one? Andreas Ewertz: Can you repeat the first question, please? Pallav Mittal: Just asking about the adverse mix impact on your pulp and containerboard business? Andreas Ewertz: Okay, yes. Okay. Yes. So, what we saw in -- especially in Q4, as Ulf mentioned, we had lower delivery volumes in Europe due to a weaker market, which means that we sold a larger part in Q4 in overseas market. And I think that was partly because -- I mean the weak market, but also because that customers knew that the rebates were going to increase at the beginning of the year. So they ordered as little as possible, of course, during the quarter. As you know, the rebates were kicking in the 1st of January. So I think you might have some positive effect there, but the weak market. I mean, we still expect that in Q1. Ulf Larsson: And the second one was around CTMP. I don't know if I get you right. But I mean, the demand is still slow on CTMP. And I think we and also other producers are -- we are taking curtailments now when we have a high energy price. And so, I mean, we do a marginal calculation. And by that, we have reduced capacity as it is just now from Ortviken. Price-wise, we have not seen any increase in rebates in '26 in comparison with '25. So the price is more or less sideways. And the business we have in Europe is, it's okay. But then again, it's tough for us to come from Europe over to Asia not the least and make some money on it. So, we monitor this carefully, and we do this marginal calculation where we have to calculate on the marginal wood cost and also marginal energy cost for CTMP. Pallav Mittal: Sure. If I can just squeeze one more in, and this is regarding the first quarter of '26. I appreciate there are a number of moving parts. But can you help us understand, I mean, sequentially, how we should think about the first quarter, especially given the declining prices, negative effect but some support from the pulpwood cost side of things. So is it fair to assume a very similar EBITDA in Q1 despite having a zero maintenance? Andreas Ewertz: Yes. So we won't -- we don't give direct guidance. But if you just look at the moving parts, we had a maintenance stop in the fourth quarter, and we won't have any maintenance stops in Q1. On the pulp side, we see no maintenance stop, but the increase in rebates and negative currency effect as a negative and as a positive slightly lower pulpwood costs in containerboard. It's, as Ulf mentioned this in the beginning of the quarter, this minus EUR 20 per tonne in prices. And then we'll have to see if this testliner prices goes through, that might have a positive impact if you go through that at the end of the quarter or Q2. And then in solid wood products, we see fairly stable prices, a bit better on spruce, but increasing sawlog prices. And then in Forest, we harvest seasonally a bit lower in Q1 compared to Q4. And then other costs, OCC is slightly cheaper. Also transportation cost has go down slightly. Operator: And we'll now take our next question from Alexander of Pareto Securities. Alexander Vilval: Just a quick question regarding harvesting. If you could elaborate a little bit on expected -- the harvesting volumes sort of in the next few years? And also with regard to biological assets, what kind of long, sort of, term growth rate you see regarding harvesting specifically? Ulf Larsson: I mean, as I said, I mean, this year, we reached 5.4 million cubic meters. And I guess, next year, we will -- yes, if not do that as we have to support some forest owners in windfall areas, we will do that, of course. But I mean, we will remain on around 5 million cubic meters. So that's it. Andreas Ewertz: And on biological assets, we -- it will -- we expect it to be slightly lower, the revaluation, next year compared to this year. But we still have -- I mean, we look at the long-term average trend price of wood raw material prices, and that will still increase even if the prices go down next year, the long-term average will still go up. But impact will be a bit lower next year compared to this year. Alexander Vilval: And on volumes in that calculation? Ulf Larsson: In the volume term. Andreas Ewertz: No, the prices will go up and the volumes is based on our latest harvesting calculation, that would be unchanged. Operator: That was our last question, and I will now hand it back to the host for any closing remarks. Anders Edholm: And that concludes our presentation of the year-end report. Welcome back in April for our first quarter report. Thank you, ladies and gentlemen.
Christopher David O'Reilly: [Interpreted] Thank you very much for taking time out of your busy schedule to join us for the earnings announcement for the third quarter FY '25 of Takeda. I'm the MC, O'Reilly from IR. [Operator Instructions] Before starting I would like to remind everyone that we'll be discussing forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those discussed today. The factors that could cause our actual results to differ materially are discussed in our most recent Form 20-F and in our other SEC filings. Please also refer to the important notice on Page 2 of the presentation regarding forward-looking statements and our non-IFRS financial measures, which will also be discussed during this call. Definitions of our non-IFRS measures and reconciliations with comparable IFRS financial measures are included in the appendix to the presentation. Now we would like to start with the today's presentation. Today, we have Christophe Weber, President and CEO; Milano Furuta, Chief Financial Officer; Andy Plump, President of R&D; and Julie Kim, CEO-elect. They will present, and this will be followed by Q&A. We'll get started right away. Christophe Weber: Thank you, Chris, and thank you, everyone, for joining us today. Our fiscal year 2025 third quarter results are confirming the strength of Takeda fundamentals and our ability to maintain disciplined cost management and operational efficiency while continuing to focus on innovation and long-term sustainable growth. Milano will explain our financial results in detail in his presentation shortly. Fiscal year '25 remains truly a pivotal year for Takeda. We are in a phase of preparing for significant new product launch, making major step forward in our new growth trajectory. In particular, I would like to focus on oveporexton, rusfertide and zasocitinib, which are key assets in our late-stage pipeline that we expect to launch over the next 18 months. Oveporexton is the first orexin agonist to be submitted to the FDA and has a considerable first-mover advantage. Phase III results were statistically significant across all primary and secondary endpoints, demonstrating clinically meaningful improvement on daytime and nighttime symptoms. This reinforce our belief that this medicine can truly transform the life of patient with narcolepsy type 1. Rusfertide is an hepcidin mimetic that has demonstrated durable and sustained hematocrit control in patients with polycythemia vera or PV. Nearly half of PV patients remain untreated in the U.S. today, and those that are treated still have significant challenge in managing their disease. The Phase III data underscore the potential for rusfertide to transform the standard of care for these patients. We have filed a new drug application with the FDA for oveporexton and rusfertide and are awaiting formal acceptance. Finally, at the end of last year, we announced positive Phase III psoriasis data for zasocitinib, our highly selective TYK2 inhibitors. Full detail will be disclosed at the upcoming congress, but this once-daily oral therapy offers a compelling profile to help shift the psoriasis advanced therapy market towards oral treatment. Regulatory filing preparations are underway, and we expect to launch zasocitinib in the first half of calendar year 2027. The positive data for all the three programs met or exceeded our expectation. Now we are focused on preparing for launch. We will update the peak revenue potential for these three programs in the future. Combined, we believe this product could more than offset the anticipated impact of ENTYVIO biosimilar entry from the early 2030s onwards. And in addition to these three, our transformative late-stage pipeline includes five other innovative programs, two of which we have recently added through our strategic partnership with Innovent Biologics. Each of our eight late-stage program has the potential to transform the current standard of care, providing strong and sustainable growth drivers for Takeda well into the future. Andy will share more details about our pipeline advancement later in this call. Now I will hand it over to Milano, who will discuss our financial results and the outlook for the rest of the fiscal year. Milano, over to you. Milano Furuta: Thank you, Christophe, and hello, everyone. This is Milano Furuta speaking. Slide 6 summarizes our Q3 year-to-date results. As you know, this year, we are managing the significant impact of VYVANSE generic erosion. However, if you look at the performance quarter-by-quarter, the headwind from VYVANSE is steadily tapering off as the year goes by, and we are maintaining strong cost discipline to limit this impact to profit. Revenue for the 9 months period was just over JPY 3.4 trillion, a decrease of 3.3% or minus 2.8% at constant exchange rate or CER. Core operating profit, core OP was JPY 971.6 billion, a year-on-year decrease of 3.4% at both actual FX and CER. This is a meaningful improvement from our first half results. Reported operating profit was JPY 422.4 billion, an increase of 1.2%. Core EPS was JPY 428, and reported EPS was JPY 137. Cash flow has been very strong this period with adjusted free cash flow of JPY 625.9 billion, even after the upfront payment of USD 1.2 billion to Innovent Biologics in December. Slide 7 shows our growth and launch products, which represents over 50% of total revenue and grew 6.7% at constant exchange rate. This is a steady improvement on the 5% growth rate we saw in Q1 and Q2. In GI, ENTYVIO grew 7.4% at CER. Growth in the third quarter was particularly strong as expected, partially due to a onetime gross to net true-up in the period prior year. ENTYVIO Pen continues to be the main driver, helping us maintain leadership share in a competitive IBD market. We are also pleased to report that as of this month, ENTYVIO Pen is now on formulary with all three large pharmacy benefit managers with commercial coverage of more than 80%, in line with competing products. With this progress, we are on track to achieve our full year projection of 6% growth. In rare diseases, TAKHZYRO has slowed to 2.4% growth at CER. Although we continue to see strong uptake in international markets, this is being offset by the impact of new competing products in the U.S. In PDT, Q3 revenue growth marked an improvement on the first half. That said, we acknowledge some headwinds, particularly in albumin. IG growth was 4.3% year-to-date, driven by subcutaneous IG products, which grew double digits. IVIG sales have been impacted by Medicare Part D redesign in the U.S., which we expect to normalize in Q4. Albumin has returned to growth of 1.3%, but this is slower than expected due to softening demand in China, which is also putting pressure on other markets where supply is reallocated. While we anticipate additional tenders in Q4 to support an uptick in growth, there's a possibility we'd finish the year below our full year forecast. In oncology, FRUZAQLA continues to expand as well as we roll out global launches. Finally, in vaccines, QDENGA growth has accelerated to 22.1%, driven primarily by Brazil. On Slide 8, you can see how incremental revenue of growth and launch products and the impact of the VYVANSE loss of exclusivity contributed to total revenue performance. With each quarter, the gap is becoming smaller as the VYVANSE decline was heavily weighted to the first half of the year and the growth and launch products are performing better in the second half. Slide 9 shows year-on-year core OP performance. Here, you can see that the LOE of high-margin VYVANSE was the main reason for the year-on-year decline of 3.4% at CER. However, we have been able to limit the VYVANSE impact through operational efficiencies with R&D and SG&A expenses, both lower than the prior year. As we explained at the Q2 earnings call, we continue to tighten the belt on expenses, building on the progress of the cost efficiency program we started in 2024. This will be critical as we ramp up investment behind the three new product launches. We will not compromise on the necessary investments for long-term growth. We also have multiple programs in the late-stage pipeline that will require additional R&D investments in the coming years. At the same time, we will continue to pursue opportunities to offset these investments where possible to minimize the near-term impact on profit. Next, reported operating profit on Slide 10. This was flat versus prior year, with the lower restructuring expenses more than offsetting an increasing impairment of intangible assets. The main impairment item was booked in Q2 related to the cell therapy, and there were no major new items in Q3. Slide 11 shows our updated full year outlook. Starting with management guidance, we are revising only revenue guidance to low single-digit decline at CER, primarily due to stronger-than-anticipated VYVANSE generic erosion in the U.S. However, our commitment to OpEx discipline allows us to offset the gross profit impact from VYVANSE, and we maintain full year guidance for core OP and core EPS. For our reported and core forecast, we have revised our FX assumptions. As a result, our revenue forecast is now JPY 4.53 trillion, core OP forecast is JPY 1.15 trillion and core EPS forecast is JPY 486. We have also upgraded our adjusted free cash flow forecast. On Slide 12, we show more detail about the updated revenue and core OP forecast. For revenue, we are reflecting latest momentum of VYVANSE and other products, which includes plasma-derived therapies under TAKHZYRO. However, this is more than offset by FX upside, resulting in a net increase of our forecast of JPY 30 billion. For core OP, continued OpEx discipline fully offset the impact of VYVANSE. We also have FX benefit for a net increase to our forecast of JPY 20 billion. Thank you, and I will now pass over to Andy. Andrew Plump: Thank you, Milano, and hello to everyone on today's call. Takeda is entering an exciting new period of growth powered by our late-stage pipeline. As Christophe mentioned, in 2025, we were 3 for 3, delivering positive Phase III data readouts for oveporexton, rusfertide and zasocitinib. These exciting results are at the high end of our expectations, further strengthening our belief that these new medicines have the potential to fundamentally reshape their respective therapeutic landscapes, bringing transformative benefits to patients in the next 18 months. Let me begin with oveporexton, our expected first-in-class orexin 2 receptor agonist, which can transform the treatment paradigm for narcolepsy type 1. Approximately 85% of patients in the Phase III oveporexto trials saw measurable improvement, which brought them into the normative range on the Epworth Sleepiness Scale, or ESS, the gold standard measure of excessive daytime sleepiness. That means the majority of patients have the possibility of a normal day. In both Phase III studies, oveporexton achieved clinically and statistically significant improvements across all 14 primary and secondary endpoints with most participants reaching normative ranges. This normalization across such a broad range of NT1 symptoms, including daytime sleepiness, nighttime symptoms, cataplexy and cognitive function is unprecedented. Oveporexton doesn't just manage symptoms, it addresses the underlying orexin deficiency in NT1, offering patients a single, well-tolerated oral therapy that could restore how a majority of NT1 patients feel and function. We have submitted a new drug application to the FDA and are working to launch oveporexton this calendar year. Next is rusfertide, our hepcidin mimetic for polycythemia vera. One key data point from the Phase III study is the ability to maintain hematocrit control below 45% through 52 weeks. Real-world data shows that 78% of PV patients experience uncontrolled fluctuating hematocrit, leading to a fourfold increase in the risk of thrombotic events, including stroke, deep vein thrombosis, pulmonary embolism and acute coronary syndrome. Rusfertide targets the biology upstream, offering more stable and durable hematocrit control and fewer variable swings in hematocrit. Durable hematocrit control with impressive safety and tolerability also led to clinically meaningful and statistically significant benefits to patients' quality of life as measured by the PROMIS Fatigue Scale and myelofibrosis symptom assessment form. By reducing fatigue and other key disease-related symptoms as well as the need for phlebotomy, rusfertide enables patients to spend less time managing their disease and more time engaging in everyday activities. We have submitted an NDA to the FDA and are working to launch rusfertide in PV this calendar year. And finally, we have zasocitinib, our next-generation TYK2 inhibitor for immune-mediated diseases. In our Phase III psoriasis studies, zasocitinib worked fast with significant improvement in PASI 75 within 4 weeks. Patients, of course, want clear skin. At week 16, more than half of patients on zasocitinib achieved PASI 90 or almost clear skin, and approximately 30% achieved PASI 100 or completely clear skin. PASI scores continue to improve through week 24. These results are at the very high end of reported results for all therapies in development. Zasocitinib is a once-daily, well-tolerated pill that does not have any food interactions. We are looking forward to sharing the complete data at a medical conference in the near future and expect to launch zasocitinib in psoriasis during calendar year 2027. In addition, we remain confident in future indication expansion opportunities for zasocitinib, including psoriatic arthritis and inflammatory bowel disease. Together, oveporexton, rusfertide and zasocitinib represent three transformative medicines we plan to bring to patients over the next 18 months. They demonstrate the strength of our R&D engine, the speed and quality of our clinical execution and our commitment to delivering therapies that meaningfully change how patients live. Next slide, please. These first three approvals are just the beginning. I want to highlight some additional bright spots within our late-stage pipeline. Building on our success, a head-to-head study of zasocitinib versus deucravacitinib is fully enrolled and on track to read out in 2026. These data are not required for filing, but will be insightful to further differentiate zasocitinib from other oral psoriasis medicines. Last November, at the American Society of Nephrology Kidney Week, we presented new IgA nephropathy data from a proof-of-concept study for mezagitamab, our anti-CD38 monoclonal antibody. IgAN is a progressive autoimmune disease that causes irreversible damage to kidney function. Patients receiving mezagitamab demonstrated durable kidney function for about 2 years. This is an incredible 18 months after the initial 5-month treatment period, suggesting a disease-modifying effect sustained long after dosing that could allow for extended treatment holidays, very important for patients with this lifelong disease where many progress to kidney failure within 10 years. In addition to oveporexton, we are excited about the potential of our second orexin 2 receptor agonist, TAK-360, which is initially focused on patients with normal orexin levels like those with narcolepsy type 2 and idiopathic hypersomnia. Phase II studies in NT2 and IH are enrolling well, and we expect to have data this year to inform Phase III development. Next slide, please. Turning our attention to oncology. Late-stage highlights include elritercept, our activin A/B ligand trap that showed compelling data in myelofibrosis as presented at this past ASH meeting. Phase II myelofibrosis data showed clinically meaningful improvements in anemia and thrombocytopenia alongside favorable trends in spleen volume and symptoms when added to ruxolitinib. Elritercept remains a late-stage, potentially best-in-class approach across MDS and myelofibrosis. And lastly, we recently licensed two new innovative oncology drugs from Innovent Biologics, now called TAK-928 and TAK-921. TAK-928 is a potential first-in-class alpha biased IL-2 PD-1 bispecific antibody designed to selectively activate tumor-specific cytotoxic T cells through activation of the IL-2 alpha CD25 receptor while reducing the risk of exhaustion through immune checkpoint inhibition. In early-stage clinical studies, TAK-928 has demonstrated encouraging activity in heavily pretreated immunotherapy and chemotherapy refractory lung cancer as well as in immunologically cold tumors such as microsatellite stable colorectal cancer. We have seen compelling high-quality data in well over 1,200 Chinese patients and consistent early signals from ex-China populations. We have completed the rapid transfer of data and materials and are now executing with speed to generate global data sets that will supplement the China data shared last year at ASCO. This will allow us to advance TAK-928 to treat a broad range of solid tumors, including non-small cell lung cancer and microsatellite stable colorectal cancer. These go to Phase III decisions will start as soon as 2026 and into 2027. The shared investment in TAK-928 has a 60-40 split with Innovent and is stage gated by these go decisions. TAK-921 is a Claudin 18.2 targeted antibody drug conjugate that couples a selective antibody with a silenced Fc region to a topoisomerase payload. This approach is designed for potent, tumor-specific delivery of this preferred payload to patients with pancreatic and gastric cancers where unmet need remains high. The engineered Fc silencing reduces off-target toxicity in the GI tract and lung, potentially allowing for more robust dosing and the ability to combine with first-line regimens. Clinical data shows lower rates of GI adverse events relative to other Claudin 18.2 targeted antibodies in development. We plan to develop TAK-921 in first-line gastric cancer and first-line pancreatic cancer. And now I'd like to turn it back to Christophe and Julie for a few closing remarks. Christophe Weber: Thank you, Andy and Milano. Before we start the Q&A, I would like to share that this is my last earnings call as a main presenter. I will be on the full year earnings call, but in a supportive role as Julie Kim, our CEO-elect, take the lead and sets guidance for fiscal year '26 ahead of our formal handover in June. This is part of our intentional and coordinated transition. Starting this month, Julie began taking on more operational responsibilities to ensure that we remain focused on our upcoming launches without interruption. I would like to thank all of you for the important dialogue we had over the years about our business. I am proud of the work we have done to position Takeda among the global R&D-driven pharma leaders and poised for growth in the years ahead. It has been a wonderful journey, and I am excited about Takeda's future and confident in Julie's leadership in its next era. Julie, over to you. Julie Kim: Thank you, Christophe, and thank you for your leadership and guidance over the last 12 years. Hello, everyone, and thank you for your trust that you're putting in me to lead Takeda's next era of growth. As Christophe shared, our transition has been incredibly collaborative. And one of the benefits of being an internal successor is that we don't have to slow down, we can keep the momentum going and continue to move the organization forward. To that end, you may have seen our post today about changes to our organizational structure and executive leadership we are making effective April 1. These changes are designed to position us for competitiveness, growth and speed in the years ahead, particularly as we plan for multiple launches. As we implement these changes, we expect the teams will identify opportunities to simplify their work further as we continue to redesign our processes to adopt AI and other advanced technologies. Next quarter, I look forward to taking the lead on the earnings announcement and providing guidance for fiscal year 2026. I value our ongoing dialogue and will stay closely engaged with all of you in the months and years ahead. Thank you. And with that, I will turn it back to Chris for Q&A. Christopher David O'Reilly: [Interpreted] [Operator Instructions] Morgan Stanley, Muraoka-san. Shinichiro Muraoka: [Interpreted] This is Muraoka, Morgan Stanley. I hope you can hear me. Christopher David O'Reilly: Yes, we can hear you. Shinichiro Muraoka: Maybe it's too early to ask, but Milano-san, what are your thoughts about the next fiscal year? Contribution from the new product is probably small, and you'll be spending a lot of marketing expenses for those new launches, I understand that. But live situation is coming down, it's getting better, and profit will be maybe flat or slight decrease. And I'm thinking that you can continue to increase dividend. But can you give us some suggestions about what will happen in the next fiscal year? Christopher David O'Reilly: Milano, please go ahead. Milano Furuta: [Interpreted] Thank you, Muraoka-san. Yes, it's a little bit too early, you're right. Our guidance will be provided as usual in May. And the next fiscal year's budget is being finalized as we speak. So please give us some more time. With regard to the current momentum, I believe that we can give you some more information. Top line. Well, growth of growth and launch products versus the LOE impact, I think it's a balance between the two. We expect the growth products and launch products to continue to grow. But as you saw in the numbers in this fiscal year, they are beginning to mature. This cannot be denied. But the gap between LOE and growth and launch products is shrinking every quarter. So we need to see how this balance will work out for the next fiscal year. We are trying to figure that out now. So please give us some more time. As far as expenses are concerned, this fiscal year, the whole company endeavored on saving the costs, and we will continue to make this effort. But Muraoka-san, like you said, launch costs, three products we launched within 1 year. This means that there will be some load burden. But this uptick is very important for the future growth as well. This is a very important timing for us. So we will be discerning in terms of which investments are necessary, and we will not compromise in investing these launches. As far as R&D is concerned, this fiscal year, we have been trying to save the costs and also at the same time, continue to drive various projects through the Innovent partnership. We have introduced new assets for Japan and full-scale development is expected to start. Considering that impact, R&D expenses are likely to go up. I think that would be the correct way of reading it. But again, I would like to emphasize that we will continue to tighten the cost wherever we can, and I hope that you can evaluate that as well. Shinichiro Muraoka: [Interpreted] Do you have any comments about the shareholder return? Milano Furuta: [Interpreted] Well, dividend, yes. Progressive dividend is something that we have been talking about for a long time. So this is the basic policy. So either keep it flat or try to increase the dividend. This is the basis. Whether or not the dividend will increase and by how much? Well, in order to decide that we have to look at the core EPS and also reported EPS as well as cash flow generating power and the speed of a reduction of debt-bearing -- interest-bearing debt. So we'll pay attention to those and decide. Shinichiro Muraoka: [Interpreted] Understand. I have great expectations. I have another question about zasocitinib. UC CD Phase II outcome, when can we expect it? And also what about dosing? Phase II for UC was 50 milligram or 30 milligram? And what about the psoriasis safety data based on that safety data? Can you perhaps comment on this? Christopher David O'Reilly: So the question on timing for the UC and CD readouts for zasocitinib and which doses we are using. Andy, if you could comment on that, please? Andrew Plump: Thanks, Chris. Thanks, Muraoka-san. So we'll have data from both the UC and Crohn's disease Phase IIb studies this year. Both are dose-ranging studies. As we've mentioned -- we haven't disclosed the precise doses, but as we've mentioned, the 30-milligram dose that we've studied in psoriasis and that we'll be registering for psoriasis is the low end of the dose range in IBD. We have reason to believe that higher exposures will be necessary for efficacy in UC and Crohn's disease, and we have significant upwards headroom in dose to study. So those studies are ongoing. And then your last question was with respect to safety profile for psoriasis. So we've just commented at the top line in December when the Phase III studies read out. We'll be presenting at a medical conference in the near future. You could probably guess which conference we're targeting. And overall, the safety profile that we've seen in both Phase III studies is very consistent with the profile that we had seen previously in our Phase II study. Christopher David O'Reilly: [Interpreted] The next question is Yamaguchi-san, Citi. Hidemaru Yamaguchi: [Interpreted] Can you hear me? Christopher David O'Reilly: [Interpreted] Yes, we can. Hidemaru Yamaguchi: This is Yamaguchi from Citi, I have two questions. First of all, the first one is more of a broad question because MFN situation or medical policy in the United States seems to be are coming down because the major companies are now settled with the U.S. comment on MFN. But a Japanese company, including your company, are still excluded from this discussion. But what do you think about this sort of activity, which you need to do regarding MFN or U.S. policy in the near future? That's the first question. My second question is regarding the organization change, which you announced today, especially on the strategic portfolio development, which it sounds like you're trying to speed up on the some of marketing activity in those areas. Especially in the U.S., U.S. marketing is a key for next few years. And it depends on the products, but your marketing activity in the past are not necessarily executing better than expected, to be honest. But how are you going to change, especially in the U.S. marketing organizations or activities in the near future through the Kim-san's roles or our CEOs roles in the near future? Thank you. Two questions. Christopher David O'Reilly: Thank you, Yamaguchi-san. So the first question on MFN and latest U.S. policy updates. The second question regarding the organizational updates that we announced today. So I'd like to call on Julie to address both of those questions, please. Julie? Julie Kim: Yes. Thank you, Yamaguchi-san for the questions. First, in regard to MFN, as you've noted, the number of companies, 17 companies that had originally received the letters from the White House, they have all gone in for negotiated agreements in regards to how they will approach MFN, how they're going to be managing tariffs with the relief that they received and further investments in the U.S. So since those agreements have been made, there were also releases from the government in terms of the generous model, which details how these agreements can be actually implemented through Medicaid. And there have been a release of GLOBE and GUARD CMMI demonstration projects for commentary by the public. So at this point, we have assessed both the impact of generous and looking at the potential design of the two CMMI products on Takeda and Takeda portfolio. So we are evaluating those impacts and taking necessary steps to address that within our approach to MFN. But let me end by saying that in general, MFN is not an approach that we support. Having price controls and importing one component of health care systems that have very, very different structures does not make sense for the U.S. and can impact future innovation. So we are not in favor of MFN, but we will continue to address the challenges that may face Takeda going forward. In regard to the organization changes that were announced today, you will see that from a commercial standpoint, there are basically two key structures that we are trying to focus on. One is a therapeutic one. And so you will see that the oncology business unit is still a separate business unit. Both Andy and Christophe have talked about the assets that we have brought in, particularly the Innovent ones will be a key part of our oncology portfolio, and we are very much looking forward to launching rusfertide later this year. So maintaining our focus on oncology to drive that growth and the potential that we have in our pipeline now is absolutely critical. And then for the upcoming launches, creating two primarily geographic focus, one in the U.S., maintaining the U.S. focus given the size of the market and the dynamics that exist that we have to manage, that is part of being able to set ourselves up for success going forward in terms of the commercial approach to the U.S. as well as the international markets. So what may not be as visible through the org changes that are announced is the work that we're doing in terms of our marketing excellence and sales excellence and commercial operations. So we are working on all those aspects, again, to ensure that we are ready and can deliver successful launches going forward. Thank you. Christopher David O'Reilly: For the next question, I would like to call on Stephen Barker from Jefferies. Stephen Barker: Steve Barker from Jefferies. I have two questions, both about ENTYVIO. The third quarter sales were very robust. The global third quarter sales expanded 17% year-on-year on a reported basis, much better than the 3% growth reported in the second quarter. You said that you are now confident that you can achieve your 6% guidance for the full year, but that would imply a 2% decline year-on-year in fourth quarter sales. So would you agree that your -- that there's a decent chance at least that you can beat the current guidance for full year, 6% growth. And if you could just talk a little bit more about what's driving the good performance in the third quarter and if it is something that can be sustained into next year? That's the first question. And then second question. A couple of days ago, CMS announced that ENTYVIO has been chosen as one of the drugs for the third cycle of IRA price negotiations, meaning that it's likely to get a substantial Medicare price cut from the start of 2028. Any comments on how big that price cut might be? And if you can still achieve your peak sales guidance of $7.5 billion to $9 billion even with the price cut? Christopher David O'Reilly: Okay. Thank you, Steve. So the question on ENTYVIO sales trend, impact of IRA inclusion and the implications on peak sales. So I'd like to ask Christophe to start with this one and then perhaps Julie can add some comments as well. Christophe? Sorry, Christophe, I think you might be muted. Christophe Weber: Thank you, Steve. Obviously, ENTYVIO is operating now in a very competitive market. We know that, but we are pleased by the Q3 performance. One important point is that we have improved our coverage situation in the U.S. All the big 3, now PBM, are reimbursing and covering ENTYVIO Pen. Took a while, but we have now a coverage at the level of our competitors around 80% since January. So it's quite recent. So we are hopeful that the Pen will continue to progress in the U.S. as it has progressed in other countries. And long term, we still aim to have a 50-50 split between the IV and the Pen. So overall, a good performance in Q3. Long term, we project ENTYVIO not to gain market share, but to remain stable and to grow at market pace basically. While the Pen is developing, that's our current estimation, but the market is changing quite a bit, but good performance for sure in Q3. Julie Kim: And then Steve, in regards to the IRA selection of ENTYVIO. As we've shared in the past, this was anticipated. And so we've been preparing for this eventuality. As you know, from a timing perspective, we have a period of time in which we have to confirm engagement in the negotiation. And then towards the end of the year, we will actually find out what price will be set. I think you are also aware, it's not really a negotiation, but we will be submitting our best evidence package to support ENTYVIO. If you look at what's been happening over the previous two cohorts, the second cohort had higher price cuts than the first cohort. So it is too early to say whether that trend will continue into the third cohort or whether it will be similar to the second cohort. So it really depends on where we'd land with the final pricing on ENTYVIO in terms of when that peak sale could -- sorry, peak revenue could be and also if we end up in the 7.5% to 9% or not. So we will update later once we understand what our pricing situation will be for ENTYVIO. Christopher David O'Reilly: [Interpreted] Next question is from Matsubara-san, Nomura Securities. Matsubara: [Interpreted] This is Matsubara, Nomura Securities. First question is about TAKHZYRO. On a CER basis from the second quarter, the growth rate seems to be slowing down. And is it affected by the competitor DAWNZERA? And the transition from TAKHZYRO to DAWNZERA and HAE template showing some 65% decrease. So what about the prescription rate in existing patients or new patients? Could you comment on those? Second is, as Milano-san mentioned, oveporexton and zasocitinib will be launched and also R&D spending -- more spending will be necessary. And in the midterm viewpoint, as you try to increase the operating profit, how are you going to take measures? Christopher David O'Reilly: Thank you, Matsubara-san for your questions. So the first around recent TAKHZYRO trends -- prescription trends in the U.S., I'd like to ask Julie to comment on that. And then the second question, looking at our outlook for profit over the medium term. I'd like to ask Milano to comment on that, please. First, Julie? Julie Kim: Yes. Thank you for the question, Matsubara-san. When it comes to TAKHZYRO, I will share a few comments. First, in terms of the overall market, this is a market that has been maturing. The diagnosis rate is high and the penetration of prophylaxis treatment has been high as well. So TAKHZYRO continues to be the gold standard for HAE patients. And you are correct that we have seen an impact of the launches of the two competitive -- recent competitive entrants. And so we are seeing an impact in terms of new starts from these new competitive entrants. But I also want to point out that part of the lower growth is also due from the impact of Medicare Part D redesign that we are experiencing a bit higher impact from that in the U.S. than anticipated. Now when it comes to long-term efficacy, if you look at the real-world evidence that we have for TAKHZYRO, no other product is able to demonstrate the level of efficacy that we have when you look at the data from an attack perspective. We have patients that are attack-free for over a year at any given point in time. And so from an efficacy standpoint, our real-world data for TAKHZYRO, it can't be beat. So that is something that I would like to highlight, and it's something that we continue to defend and support from a TAKHZYRO standpoint. Milano Furuta: [Interpreted] Thank you very much, Matsubara-san. And I'd like to answer to your second question. At the beginning as Muraoka-san also asked, and I mentioned about the pressure of overall expenditure increase. And therefore, I'd like to touch upon the potential contribution of new products to the profit. And this is a general comment that whenever new products come out, then in the second year or the third year since its launch, we will see a contribution to the profit. It depends on the timing of the launches. Therefore, it is difficult for us to say anything concrete whether it's going to be next year or the year after the next and how much. But amongst the three products, oveporexton's uptake after the launch is expected to be fast. Whereas zasocitinib will have to play in a very highly competitive market. Therefore, I think for zasocitinib, I think we need to take time to monitor. And rusfertide is in between. It is a highly innovative product. But at the same time, the market access may not necessarily be so easy. Therefore, how that will demonstrate the uptake, we would like to monitor. But the speed of uptake will be impacting on to the timing that we start to see the product contribution to the profit. And also not just these three products, but five new pipeline assets, readouts are coming. And in forthcoming 5 or 6 years, they will continue to be launched. And as a result, overall, I think that the overall profit level should be able to be enhanced. At the same time, not just the core OP, but the reported operating profit is also monitored. For instance, VYVANSE, the intangible asset, the amortization will be complete. And as a result, there will be also a positive contribution in that sense. Thank you. Christopher David O'Reilly: Moving on to the next question, I would like to call on from TD Cowen, Mike Nedelcovych. Michael Nedelcovych: I have two. My first is also related to the IRA impact on ENTYVIO. I believe it is Takeda's base case that ENTYVIO Pen will be included in the IRA price negotiation. But I'm curious if that is a completely settled matter or not. Is there any chance that ENTYVIO Pen is ultimately excluded from the IRA price negotiation? That's my first question. And then my second question relates to the partnered AC Immune asset in Alzheimer's. It looks like data may be anticipated in mid this year. Should we expect that to be the time when Takeda decides if it wants to opt in or not? And Andy, I'm curious to hear your thoughts more broadly on prospects for Alzheimer's disease prevention or delay based on early amyloid plaque clearance? What are your general thoughts on this approach? Christopher David O'Reilly: Mike, so I think the first question, Julie, can comment on IRA ENTYVIO impact on -- potential impact on Pen. And then the second question to Andy on the AC Immune partnership and AD in general. Julie? Julie Kim: Thanks for the question, Mike. And in terms of the negotiation with the IRA, we do expect that Pen will be included. Andrew Plump: And Mike, on the AC Immune program, so we won't have data this year to drive a decision that will come in subsequent years. And thanks for asking more generally. Of course, I've been working in this industry for almost 3 decades now. And the first project I worked on was a project of a gamma secretase inhibitor designed to reduce A-beta production. It's been one of -- to me, one of the most exciting and promising, but also one of the most challenging areas in our industry. I'm a big believer that if we could clear a beta plaque early in the longitudinal course of Alzheimer's disease that we could drive even greater benefits than what we see from the passive antibodies that have been used in demonstrated efficacy. So we're quite excited about the vaccine program. Of course, the challenge with the -- historically with the vaccines has been threading the needle of safety and efficacy. We think we have a shot with the -- with our AC Immune partners and still working towards that. Christopher David O'Reilly: [Interpreted] The next question is Wakao-san, JPMorgan. Seiji Wakao: [Interpreted] This is Wakao, JPMorgan. I have two questions. Firstly, regarding PDT, how do you assess the third quarter progress on PDT? Compared with your guidance, PDT progress seems to have been somewhat slower. And could you share your outlook for PDT in fourth quarter and next fiscal year? This is the first question. And second question is about zasocitinib. Should we expect zasocitinib Phase III data to be presented at AAD in March? If so, what key aspects should we focus on? As Icotrokinra and [indiscernible] programs have shown favorable data or so, where do you see zasocitinib's key point of differentiation? Christopher David O'Reilly: Thank you, Wakao-san. So the first question on the PDT business performance and outlook, I'd like to ask Julie to comment on that. And the second question on zaso data, where will it be presented and what should we focus on in that data, I'd like to ask Andy to comment on that, please. Julie Kim: Thank you for the question, Wakao-san. In regards to PDT, as Milano was sharing in his part of the presentation earlier, we do see some slowdown in demand, particularly in regards to albumin in China. As you may be aware, the Chinese government has put in place utilization guidelines that are impacting demand for albumin in China. And it will -- it has slowed down the growth, and it will take time for growth to return in China. When you look at the overall outlook for PDT overall, there, we still believe we will have mid-single-digit growth for this year as previously shared and longer-term outlook is still strong. The quarter-to-quarter, as you know, because there are lots of variabilities in regard to tender timing, et cetera, we do -- as Milano mentioned, we do believe that there is a possibility we will have a shortfall, particularly in regards to albumin. But overall, we will be meeting the forecast for PDT. Seiji Wakao: So could you also comment on the immunoglobulin? Julie Kim: Sure. Yes. From an immunoglobulin perspective, again, long-term growth, we believe will remain steady. And from a short-term perspective, we are expecting to be on forecast for immunoglobulin. Andrew Plump: Wakao-san, this is Andy. So thank you for your question on zasocitinib. So we haven't disclosed yet the conference that we'll be presenting at, but AAD certainly is like is a possibility. I just suggest that you watch out for the abstract when they're released in mid-February for AAD. And then in terms of what to look for, it's pretty straightforward. It's fast onset of action. It's clear skin and it's ease of administration. We have a once-daily oral pill that's well tolerated with a strong safety profile. And then when you double click, you'll see that in the two Phase III studies, we hit on every single primary and secondary endpoint, and that's 44 total endpoints. So there'll be a lot of data that will be shared, and we're quite excited to get it out there. Seiji Wakao: So what is our competitive advantage? Andrew Plump: Well, it's has -- as we mentioned over the last hour, it has an efficacy profile that at 16 weeks is at the very high end of what's been seen for oral agents. It's ease of administration without having any food effects and it's the overall profile, and it's the rapidity with which we generate clear skin in an oral agent. We believe and we think the data will demonstrate that it's as good or better than any other oral option in the moderate to severe plaque psoriasis space. Seiji Wakao: Okay. I'm looking forward to see the data. Christopher David O'Reilly: Okay. Thank you very much, Wakao-san. I think we have just time for one final questioner. So I'd like to call on Tony Ren from Macquarie. Tony Ren: Yes. Thanks for the chance to ask the last question. My first one, and I'll go back to the -- again, for Andy, the zasocitinib regulatory pathway. So assuming that you will present the data at AAD in March, the standard FDA review takes about 10 months. So do you think you can actually launch it earlier than the 18 months of a time line guided? Are you being a little bit too conservative in estimating the time line? So that's my first question. The second one is probably to Julie about the ENTYVIO biosimilar. Have you -- as you're thinking about the biosimilar entry changed because of the subcutaneous Pen, I noticed that a recent conference in San Francisco, you guys are now saying 2030 and beyond. So just want to confirm whether the launch of the Pen and the wide adoption of the Pen has anything to do with the biosimilar entry. Yes. So that's my second question. Christopher David O'Reilly: Okay. Thank you, Tony, for your questions. So the first on zasocitinib regulatory pathway and potential launch timing, Andy can comment on that. And then the second question on the ENTYVIO biosimilar entry timing, I think Julie can comment on that, please. Andy? Andrew Plump: Thanks, Chris. Thanks, Tony. So just to put perspective on the filing time line. So there are three elements that define the time line for filing. There's the Phase III studies, which we've completed. Those are ready to go. There's the overall patient safety database. So we have to accrue safety in about 1,000 patients on active drug for a full year, and then the third is the CMC package. So when you put all three of those together, Tony, we're looking at a submission that's likely to occur sometime in this summer. And then, of course, the time line for the review will be something that will be in dialogue with the FDA and once we've made that submission. Julie Kim: Thanks, Tony, for the question on the ENTYVIO biosimilar timing. So we have not really changed our timing expectations here. As we've shared previously, we do have patents that cover various different aspects of ENTYVIO that go out to 2032. But as you are also well aware, there are biosimilars in development, and they could file with legal challenges -- I'm sorry, they could file and we would then pursue legal challenges. So that's why the timing could be 2030, 2032, and that's why you hear us saying that. Also from an overall market attractiveness perspective for ENTYVIO, as now ENTYVIO has been selected for IRA negotiation. The pricing expectations for biosimilars will also be impacted by that. Thank you. Christopher David O'Reilly: Thank you, Tony, for your questions. With that, we'd like to bring this call to a close. Thank you all very much for participating in the call today. This concludes our Q3 earnings call. Thank you. Good night. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Good day, and welcome to Selective Insurance Group Fourth Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to Brad Wilson, Senior Vice President, Investor Relations and Treasurer. Please go ahead. Brad Wilson: Good morning. Thank you for joining Selective's Fourth Quarter and Full Year 2025 Earnings Conference Call. Yesterday, we posted our earnings press release, financial supplement and investor presentation on selective.com's Investors section. A replay of the webcast will be available there shortly after this call. John Marchioni, our Chairman of the Board, President and Chief Executive Officer; and Patrick Brennan, Executive Vice President and Chief Financial Officer, will discuss results and take your questions. We will reference non-GAAP measures that insurance and investment professionals use to evaluate operational and financial performance. These non-GAAP measures include operating income, operating return on common equity and adjusted book value per common share. The financial supplements on our website include GAAP reconciliations to any referenced non-GAAP financial measures. We will also make statements and projections about our future performance. These are forward-looking statements under the Private Securities Litigation Reform Act of 1995, not guarantees of future performance. These statements are subject to risks and uncertainties that we disclose in our annual, quarterly and current reports filed with the SEC. We undertake no obligation to update or revise any forward-looking statements. Now I'll turn the call over to John. John J. Marchioni: Thanks, Brad, and good morning. We are well positioned to build on recent momentum. In 2025, we delivered an ROE of 14.4% and an operating ROE of 14.2%. This exceeds our 10-year average operating ROE of 12.1% and our 5-year average of 12.5%. We are proud of our long-term track record and are taking clear steps to drive future margin improvement. In 2025, we grew book value per share by 18% and returned $182 million to shareholders through our common dividends and share repurchases at attractive valuations. With our strong capital position, we can deploy capital in several ways that are accretive to long-term value, including continued investments to grow and diversify our business, along with opportunistic share repurchases. We have a strong foundation with opportunities to drive improvement across our organization. We delivered a 93.8% combined ratio in the quarter, reducing our full year combined ratio to 97.2%, just outside the 96% to 97% guidance we provided at the beginning of the year and at the low end of the 97% to 98% guidance provided last quarter. Net premiums written growth was 5% for the year as we executed deliberate actions to improve underwriting profitability. This remains our primary focus. However, we are also executing strategies to support future growth opportunities, including expanding our geographic footprint and broadening E&S distribution capabilities with retail access. We believe we have the capabilities and strategy to further diversify our premium and outpace industry growth in coming years. In the fourth quarter, favorable workers' compensation development offset unfavorable prior year emergence in the commercial and personal auto lines and E&S casualty. There are also several smaller adjustments across multiple lines of business, including umbrella, which was driven by auto. In 2024 and 2025, we took meaningful actions to strengthen reserves. Our picks for older accident years have held up well, and our actions have been increasingly weighted to more recent accident years. We are comfortable with our overall carried reserve position. We firmly believe our disciplined approach responds promptly and appropriately to emerging trends and ensures pricing targets keep pace with an evolving external environment, even though it can create short-term volatility. We will stick to our process, continuing to assess emerging information, considering risk factors and booking our best reserve estimates each quarter. We expected 2025 accident year margins to improve for commercial automobile as we have earned double-digit rate increases over multiple years that exceeded our assumed loss trend of roughly 8%. As 2025 progressed, we ultimately increased commercial auto casualty loss cost by nearly 6 points. We also increased our expected severity trend for commercial auto liability to approximately 10%. This assumption is reflected in our book results and incorporated into our 2026 guidance. In total, we strengthened commercial auto reserves by approximately $190 million in 2025. The majority is attributable to the 2024 and 2025 accident years with 2025 representing the largest share. We are addressing commercial auto with both underwriting and claims actions. For example, we have implemented tighter underwriting guidelines for fleet exposures, supported by state-specific tactics and focused our commercial auto telematics rollout in specific segments and states. In general liability, we've discussed our actions to manage limits in challenging jurisdictions and trim underperforming classes. We are also prioritizing new business in better performing segments and have strengthened new business pricing. Standard Commercial Lines is our largest segment and our earnings engine. We have the sophisticated pricing and risk selection tools in the hands of our talented underwriters that are necessary for taking granular action across the portfolio. We are improving mix by achieving stronger rate and retention differentiation based on expected profitability while continuing to focus on overall rate adequacy. This is not new, but we expect the amount of differentiation to increase. We are leveraging our tools, granular insights and differentiated operating model to drive higher renewal retention on our best-performing business and meaningfully lower retention on our poorer performing business through appropriate rating actions. While overall rate increases could moderate in the short term, we expect these mix improvement actions will deliver improved profitability. Our guidance reflects the benefits we expect in 2026 from the various actions we have taken and our multiyear plan points to continued margin improvement in 2027. Now I'll turn the call over to Patrick. Patrick Brennan: Thanks, John, and good morning, everyone. For the quarter, fully diluted EPS was $2.52, up 66% from a year ago. Non-GAAP operating EPS was $2.57, up 59%. Our return on equity was 18.3%, and our non-GAAP operating return on equity was 18.7%, reflecting continued strong investment performance. The GAAP combined ratio was 93.8%, a 4.7 point improvement from fourth quarter 2024, mainly because this quarter had no net prior year reserve development. For the quarter, the overall underlying combined ratio was 92.1%, 1.5 points higher than the 90.6% a year ago. The increase is attributable to the reserving actions we took to address the 2025 accident year, primarily in commercial auto. This quarter's Standard Commercial Lines combined ratio was 92.9%, which included 1.6 points of favorable prior year casualty development and 3.2 points of higher current year casualty loss costs. As John noted, the current environment demands strong underwriting and pricing discipline. Standard Commercial Lines premium growth in the quarter was 5%, driven by renewal pure price increase of 7.5% or 8.5% excluding workers' compensation. General liability pricing increased by 9.8% and commercial auto pricing increased by 8.6%. While there was some deceleration in commercial auto pricing for physical damage, liability price increases continue to exceed 10%. For property, renewal premium change was 12.2%, including 4 points of exposure growth. Retention for the quarter was 82%, stable with recent periods, but down 3 points from a year ago. Excess and surplus lines premium grew 4% this quarter with average renewal pure price increases of 7.8%. We continue to push higher rate levels in E&S casualty based on our view of general liability loss trends. The E&S combined ratio for the quarter was 93.1% and a very strong 87.8% for the year. Turning to Personal Lines. The combined ratio for the quarter was 103%, up 91.7% in the fourth quarter 2024. There were 2 reasons for the deterioration. Catastrophe losses, which were 6.2 points higher this quarter and current year casualty loss costs, which increased by 8.1 points. Current year adjustments were driven by New Jersey Personal Auto. For the year, the Personal Lines combined ratio was 100.6%, improved from 109.3% in 2024. Results are even more favorable for the portfolio outside of New Jersey, and we are positioned for profitable growth in those states. For the quarter, personal lines net premiums written declined 8%, with target business up 5%. Nearly all our new business was in our target mass affluent market. Renewal pure price for the quarter was 15.1%. Across all our segments, the combined ratio was 97.2% in 2025, a significant improvement from 2024's 103%, primarily because of lower prior year casualty reserve development and catastrophe losses. Last quarter, we discussed our third-party claims review, which was ongoing at that time. The review is now complete, and the findings were consistent with what we had previously discussed. Turning to investments. Fourth quarter after-tax net investment income was $114 million, up 17% from a year ago and generated 13.6 points of return on equity. Our investment portfolio remains conservatively positioned, and our investment strategy is consistent with average credit quality of A+ and a duration of 4.1 years. We expect the portfolio's strong embedded book yield to continue to provide a durable source of future investment income even if interest rates decline. We successfully renewed our property catastrophe reinsurance program effective January 1. Our retention remains $100 million, and we increased our coverage exhaustion point to $1.5 billion from $1.4 billion. Property market conditions are attractive, and we completed the renewal with meaningful risk-adjusted pricing decreases and improved terms and conditions. We continue to supplement our main tower with a personal lines-only buydown layer. Our peak peril U.S. hurricane is well within our risk tolerance at 5% of GAAP equity for a 1-in-250-year net probable maximum loss. Our capital management strategies continue to prioritize profitable growth within our insurance business and aim to return 20% to 25% of our earnings to shareholders through dividends. We also expect to opportunistically repurchase shares. These actions reflect our commitment to delivering long-term value to shareholders. During the quarter, we repurchased $30 million of common stock, bringing our total repurchases for the year to $86 million. We believe these repurchases are completed at attractive valuations. At year-end, $170 million remained on our authorization. Book value per share increased 18%, and we reported $3.6 billion of both GAAP equity and statutory surplus. We ended the year with a strong capital position, and we are proud that A.M. Best recently affirmed our A+ financial strength rating. For 2026, we expect a GAAP combined ratio between 96.5% and 97.5%. Our guidance assumes 6 points of catastrophe losses. We do not make assumptions about future reserve development as we book our best estimate each quarter. We expect after-tax net investment income to be $465 million. This is up 10% from 2025, reflecting growth in our invested assets. Our guidance includes an overall effective tax rate of approximately 21.5%. Weighted average shares are estimated to be approximately 61 million on a fully diluted basis without assumptions about share repurchases under our existing authorization. As a reminder, our first quarter underlying combined ratios tend to be higher than the rest of the year due to normal seasonality. For financial modeling purposes, this has historically been most relevant to non-catastrophe property losses. Corporate expenses also tend to be higher in the first quarter due to holding company expenses related to stock compensation. Now I'll turn the call back to John. John J. Marchioni: Thanks, Patrick. Our 2026 guidance implies an underlying combined ratio in the 90.5% to 91.5% range compared to the 91.8% we reported in 2025. Our guidance does not provide segment level combined ratios. However, directionally, we expect underlying combined ratio improvement in Personal Lines and Commercial Lines and continuing strong performance in E&S. Our 2026 guidance considers reserving actions for recent accident years and embeds an overall expected loss trend of approximately 7.5%, up from the 7% we assumed a year ago. Our loss trend assumptions are 3.5% for property and 9% for casualty. The casualty trend would be closer to 10%, excluding workers' compensation. We expect our 2026 expense ratio to increase by about 0.5 point as we make strategic technology investments to support scale, enhance decision-making and improve operational efficiency. With expected strong investment income, our 2026 guidance implies an operating ROE in the 14% range. Before turning to your questions, I want to remind everyone that Selective is celebrating its 100th anniversary in 2026. We are proud of our history, the work of our employees and the value we deliver to our policyholders, distribution partners and shareholders. We are excited to build on our legacy of success. To drive this, we remain focused on a set of key priorities across the company, including relentlessly improving on the fundamentals across risk selection, individual policy pricing and claim outcomes, diversifying revenue and income within and across our 3 insurance segments and further leveraging our use of data, analytics and technology, including artificial intelligence to drive operational efficiency and improved underwriting and claim outcomes. I'll now ask the operator to begin our question-and-answer session. Operator: [Operator Instructions] Our first question comes from Michael Phillips with Oppenheimer. Michael Phillips: John, my first question is around your last comments around the guidance. As you said, the core underlying combined, it kind of implies a bit of improvement from last year in 2025. And you said you kind of expect commercial to improve personal to improve and some strong from E&S. I guess if we focus on commercial for a second, there you're seeing price deceleration, it seems like in line with peers, elevated casualty loss picks that kind of start to pick up in 3Q and 4Q. And then you still got some noise on PYD and commercial auto and GL. I guess given all that, can you just talk about the confidence you have in maintaining or maybe even improving the commercial line margins from here? John J. Marchioni: Yes. Thanks, Mike. And again, as I mentioned, we provide very detailed guidance, but we stop short of providing individual combined ratio guidance by segment. But as you indicated, we did provide some directional guidance, and I think that's the focus of your question. I think without question, we have continued to take rate on the casualty lines of business and where you've seen the most significant deceleration, albeit not as substantial as maybe reported for larger accounts is on the property side. So we expect to see continued strong pricing on the casualty side within auto, casualty, auto liability -- commercial auto liability and in general liability. The other thing I'll point to is, and this has been ongoing for the last couple of years, and this was referenced in my prepared comments is -- we see meaningful opportunity by further leveraging the tools we have from a pricing and a risk selection perspective to drive meaningful mix of business improvement on both the renewal portfolio and the new business selection process. And that will also result in some of the benefit we're talking about here. So with regard to your overall question around confidence, as we are -- based on the confidence in our process, we're confident in the guidance we're providing you. And to your point, on an overall basis, that underlying combined ratio improvement of 80 basis points, if you just focus on the midpoint of our underlying combined ratio, we think, is reasonable. And don't forget, there's about a 50 basis point increase in the expense ratio. So the underlying loss ratio improvement is a little bit more than that. Michael Phillips: Yes. Okay. Good. I appreciate that. That's helpful. I guess second question, we've talked about this before briefly, but maybe just to refresh here. A lot of your comments on reserves have been from higher paid severities in the recent accident years for your casualty business. And I guess I wonder what that means for GL and commercial auto, specifically case reserves for those same recent accident years. What I mean is, I think some companies, there's a disconnect between paid activity and how they set the initial case reserves because a lot of that's done automatically, and there's often a big disconnect there when they see higher paids. I don't think that's the case for you. But I guess, what about yours? We're clearly going to be looking at that pretty detailed in your case reserves for those 2 lines in a couple of months with that data. But can you talk about how -- any changes that might be taking place in your initial setting of case reserves given the higher paid activity? John J. Marchioni: Yes. I would say -- and I know we pointed to paid. I would say that we've seen movement from an incurred basis similar to what we've seen on the paid side. And I think that's reflective of your point relative to case reserves and movement in case reserves. I'll also go back to the point we made last quarter where we talked about the outside studies we had done on both the actuarial reserving and planning process as well as the claims process. And that was our way of doing an assessment with regard to any -- understanding any change in underlying case reserve adequacy, either favorable or unfavorable. And I think as we mentioned, we're pleased with the results of those surveys on both sides. And I think indicated that while there's opportunities for us to continue to drive some improvements in our claims organization, very strong performance there. So -- but we look at both. We look at several methods. We're looking at paid and incurred methods. We're projecting that to ultimate. That continues to be our process, and we think it gives us the best insight into where more recent prior accident years are and more importantly, where run rate profitability is. Operator: Our next question comes from Paul Newsome with Piper Sandler. Jon Paul Newsome: Hoping you could give us just a little bit more detail on the reserve development of the personalized business and how it might sort of fundamentally differ from what you've had in the commercial lines business, size, geography, anything that would suggest other than just sort of differences -- similarity and a delay in the overall liability claim trend? John J. Marchioni: Yes. I guess, Paul, thank you for the question. And we've mentioned this both in prior quarter and this quarter. In personal auto, the prior year development is driven entirely by the state of New Jersey. And in personal auto, New Jersey represents about 30% of our portfolio. So all of that is New Jersey and all of it -- pretty much all of it is the 2024 accident year. And -- that was the case in the Q4 and also the prior quarter. So for the full year number, when you look at that and the impact on Personal Lines overall combined ratio, that prior development was about 3.7 points in total. All of that is New Jersey. And I think that's important, and I know Patrick referenced this in his prepared comments as well. I think when you look at the improvement that we see in personal lines and look at that 100.6% combined ratio, recognize that, that almost 4-point impact of PYD is entirely New Jersey, and it really masks the improvement we've seen and the strong run rate performance we're seeing in that personal lines book outside of New Jersey. And we're also taking pretty significant actions to continue to manage that New Jersey portfolio, so it becomes less of an impact going forward. So that's what I would point to. I think that's an important point to make, and it's a very different environment there. Now we have made comments in prior calls, and I'll kind of reinforce them here. Some of the New Jersey dynamics that we see in personal lines also apply to commercial lines. And New Jersey has always been a higher litigation rate state for both personal and commercial. And we've seen over the last few years through legislative change, a number of what I'll call sort of pro plaintiffs bar legislative enactments that I think have made it more fertile ground for litigation abuse and social inflation. So legal changes that require presuit disclosure of policy limits, increasing private passenger auto minimum limits, increasing mandatory commercial auto limits, to 1.5 million for autos over 26,000 pounds which is a small portion of our book, but I think it's one of those areas that attracts more attorney involvement and then a couple of years ago, a lowering of the bad faith standard for uninsured motorists and underinsured motorist claims. I think all of those things have driven up the interest of the plaintiffs bar in that state and have driven up a more aggressive litigation environment. And I think loss trends have reflected that. And unfortunately, on the personal lines side, the regulatory environment hasn't been as conducive to rate adjustments to make up for those costs. So that's an ongoing challenge. I think you see it in fast track data on an industry basis for personal lines. And I think a lot of those same dynamics impact the commercial auto line for that state as well. Jon Paul Newsome: Okay. Yes, it sounds like all the lawyers are moving back to New Jersey from Florida. My second question is, I want to ask about sort of operating leverage from a capital perspective. Historically, because of your -- the firm's underwriting consistency, it has been able to run with a little bit higher premiums to surplus ratios than some of its peers. And I wanted to know if there was anything that we should think about in terms of that change given capital buybacks and such today and where the stock is. I think that was the question. But if you could talk to that, that would be interesting to you. John J. Marchioni: Yes, sure. So there's no change in how we think about our target operating leverage. You've heard us talk about operating in a range of 1.35x to 1.55x. And over the last several years, we've been in that range where a couple of years we're at the upper end of the range, a couple of years at the bottom range. If you look back historically, that operating leverage did tend to be a little bit higher than the peer group. But I would say if you look over the last decade or so, the peer group has generally moved a lot closer to where we operate from an operating leverage perspective. So I just -- it's not that much of a differentiating factor at this point. But in terms of how we think about target operating leverage, that range continues to serve us well. Patrick Brennan: Yes. And I think I would just add that operating leverage is one of many capital metrics that we use to evaluate where we are relative to what we think we need to run the business, and we continue to on a regular basis, look at our own internal models and calibrate those versus external models as well to ensure that we have sufficient capital to absorb any unforeseen consequences, but still operate with an efficient balance sheet. Operator: Our next question comes from Jing Li with KBW. Jing Li: I'll stay on reserves for a second. Just curious about E&S casualty reserves. Can you kind of unpack some drivers behind the reserve charge? Is it concentrated in specific accident year geography coverage types similar to the commercial lines that's mostly from commercial auto? And how does this impact your appetite for growing the E&S platform going forward? John J. Marchioni: Yes. Thank you for the question. Just let me make sure we're talking about this in the proper context, which is our full year E&S combined ratio was an 87.8%, -- so strong profitability. The reserve action we took in E&S in the quarter, and we hadn't taken any on a year-to-date basis was $10 million, so de minimis in total, but spread across the 2020 through 2023 accident years. So 4 accident years and $10 million are very de minimis movements on an annual basis for each of those accident years. So there's nothing noteworthy there. We disclose a great deal of detail with regard to reserve adjustments. We true up lines at the end of the year, and there's nothing there that's noteworthy from an accident year or a geography or a segment perspective. And again, this is all in the context of extremely strong operating margins in E&S over the last few years, and we expect that to continue going forward. Jing Li: Got it. That's very helpful. My second question is on kind of your geographic expansion. You've been investing a lot on geographic expansion, new state build-outs for several years. Are these newer territories as them mature, what contribution are they making to the top line growth versus the margin profile? John J. Marchioni: Yes. The top line growth, if you just look at it on average over the last several years. And remember, we started geo expansion again in earnest in the 2017 to 2018 kind of time frame. And I would say over that time, as states have come on and some of those states have matured while new states are coming on, it's contributed between 1 and 2 points of growth overall on average over that time period. I would expect that to continue to temper going forward. But that's what the contribution has been to this point. With regard to profitability, as we've talked about in the past, for the first few years in a new state, we plan and incorporate into our planning guidance and expected loss ratios that newer states run at worse profitability than our legacy book runs. But I would say our experience over the last 8 or so years has been that those states have consistently performed within our expectations and have improved as they've matured. So there's nothing we're seeing there that is a different profitability profile than what we talk about in terms of the overall portfolio we have. Operator: And our next question comes from Rowland Mayor with RBC Capital Markets. Rowland Mayor: I guess congrats on 100 years, even though I know you all weren't there the whole time. I wanted to ask just on the workers' comp releases and what accident years those pertain to? John J. Marchioni: Yes, sure. So there are 2 big drivers and I want to hit -- I think it's an important question. First thing is, as you know, we do our annual tail study in the fourth quarter every year for workers' comp. And just without getting too far into the tail study, that's effectively an evaluation of the development to ultimate for accident years and maturities that fall outside of your traditional reserving triangles, which cover 20 years. And you're really going through that analysis to get an accurate reserving picture for those long-term chronic and permanent injuries that may remain open for decades. And then you apply that development assumption to all accident years as your long-term view of medical inflation. That drove about half of the favorable emergence we recognized in the quarter. And I think you want to put that in context, which is because we're talking about decades of accident years, the individual impact by any given accident year for that is de minimis. It's in the, call it, roughly 0.5 point per year over that extended period of time. So that represented half of it. The balance of the favorable booking action in the quarter was from accident years 2022 and prior. So I think that's the other driver. So accident years 2022 and prior. As we talked about throughout the year, we continue to see better-than-expected frequency emergence in the workers' comp line. That held up through the full year. But as has been our practice, we won't react that quickly to a long-term line from a frequency perspective. So the actions were '22 and prior and the workers' comp tail study. Rowland Mayor: That's helpful. And then I wanted to ask on the GL charge. I know this year, I think it's all been umbrella, but in '24, I think a lot of it was primary GL. Was there any movement on the 2024 charges this year? John J. Marchioni: On the 2024 charge -- no. So just to reinforce the point you started with, which is for the quarter and the full year, the GL adjustments we made and booked were predominantly umbrella, and that umbrella is predominantly driven by the auto lines of business. The core GL lines and our booked levels for the core GL lines in the priors have held up well throughout the year. Rowland Mayor: That's great. And then I wanted to see if I could sneak one more in. You talked about the 14% ROE for next year in the guidance. And I think this year, the NII was about 13%. Given all the movement, like do you have an idea of what the long-term target should be at this interest rate level in your portfolio? John J. Marchioni: With regard to investments in particular? Rowland Mayor: No, just for the overall consolidated ROE, is there -- there's a lot of movement in the underwriting margins right now. And I just wondered in a few years from now, is there a goal you're aiming for? John J. Marchioni: Yes. So I would say that we set our ROE target to be something that we expect to achieve on a consistent basis over time. And we set that target on the basis of what we believe to be sort of long-term rates of return on the investment portfolio. To your point, we're generally returning -- think about a 4% after-tax book yield on the portfolio currently is kind of above where you'd expect it to be on a long-term basis. And if you look over time, I think something closer to 3% after tax is a more reasonable long-term assumption. And with our invested asset leverage at just over 3x, I think something in the neighborhood of a 9% to 9.5% after-tax or ROE impact for investments. And that's why we maintain our 95% combined ratio target because that, over time, will position us to meet or exceed that 12% ROE target. That's how we think about it. That's why we keep that target where it is because we recognize that these returns, while there is durability here, and I do want to stress that point, and you heard it in the guidance that Patrick outlined, there is durability in these book yields, if you look at our duration, and we feel good about that over the next few years. But we also know that over the long term, you can expect that to be the case. Patrick Brennan: And I would say the 12% target is intended to provide a spread over what we estimate to be our cost of capital. We want to make sure that we're earning our economic freight. So that's how we ground ourselves in that bogey. Operator: Our next question comes from Michael Zaremski with BMO Capital Markets. Michael Zaremski: Thanks for the color on workers' comp. It clearly a great result this quarter, too. And in the past, you -- maybe it was a bit of a headsake, but there was some indication that loss trend might have been getting a bit worse. But just curious on the underlying loss ratio and comp, I think it still appears elevated. How are you -- how does that line rolling up into the combined ratio guide for next year? That's my first question. John J. Marchioni: Yes. I guess we don't provide individual line guidance. You'll see our reported results, and we give you a lot of detail on the reported results by line. So you'll see that in Q1. But as we talked about in prior years, generally speaking, we've maintained our severity assumptions, our medical severity assumptions and have seen a little bit of upward pressure that we've talked about with regard to utilization and maybe seeing your average medical severities come in a little bit higher than they had been running over the last few years. But we've also continued to see improving frequency trends, and that's held up through 2025. So you have to put those pieces together alongside of the rate level that continues to be slightly negative, and that will all come through in how we set our planned loss ratios for that line of business. And I think you'll see something similar to what you saw in 2025. Michael Zaremski: Okay. That is helpful. My follow-up is back on the expense ratio commentary and initiatives there. It's been interesting, I guess, over the last couple of quarters, there's been a few companies that have come out with very large expense ratio improvement guides based on implementing technology and AI, et cetera. And then on the other hand, there's other companies in your camp that are kind of guiding to upwards expense ratio movement to make further investments. So I guess I'm just curious, would you say that this is like the -- is this kind of a onetime step-up to kind of broaden Selective's capabilities having to do with like newer technologies? Or is this more of kind of all the work you've been doing on improving the reserving and claims processes, et cetera? John J. Marchioni: Yes. No, it's a great question. And I think we've seen and heard a lot of the same commentary. And clearly, we're in the camp that the investment in technology and our investment in technology has continued to ramp up as a percentage of premium over the last several years, and we expect that to continue. And I think when you look at it at the highest level, we expect the investment in technology to continue to rise as a percentage of premium and the cost of labor, the percentage of premium that goes to labor will be coming down over time as a result of gaining the benefit of these technology investments. We're not setting aggressive targets, but we think there are real opportunities here, not just to drive operational efficiency, but to improve decision-making and improve outcomes across underwriting, pricing, decision-making and claims outcomes. And that's what we're pointing to in terms of the increase in our strategic investment dollars. So if you look over the last 3 years, our split of strategic investment dollars in technology relative to running our technology infrastructure, "keeping the lights on," it's about a 50-50 split, which is a pretty significant improvement. So there's more money going into the strategic investments. And we've more than doubled that over the last 3 years and have been able to manage the overall impact on the combined ratio or the expense ratio, and that will be our focus going forward. So it's not a step-up per se, but I think we expect technology investment as a percentage of premium to continue to go higher, and then there will be offsetting benefits in other cost aspects and loss ratio benefit as well to be realized. Michael Zaremski: Understood. That's helpful. And maybe sneak one last one in, and you might have touched on some of this in prepared remarks, but should we be thinking about the retention ratio is staying around current levels based on kind of the indications of kind of making sure that continue to turn out the less profitable business in a decelerating rate environment? Or is this -- or anything you can tease out on the retention ratio would be helpful. John J. Marchioni: Yes, sure. And again, that's not an area we guide to. We don't do growth or retention. But I think generally speaking, to your point, our focus is on the granularity of our execution of our pricing strategy. And we believe that by doing that, we should be able to deliver relatively stable retentions, but there's an assumption around market behavior that I think is a little bit tougher to forecast. And I think depending on market behavior with regard to pricing discipline in the casualty lines, that will ultimately influence what that -- where that retention settles. But our focus, to your point, is on that granularity of execution, which we think does allow us to maintain more stable retentions. Operator: Our next question comes from Daniel Lee with Morgan Stanley. Daniel Lee: I kind of want to switch gears and kind of ask about -- my first question would be on the E&S segment. I know the growth has been strong for E&S in the past prior years, but I'm starting -- it kind of seems like it's slowing down. Kind of wanted to get your thoughts on how -- what you're expecting for E&S overall and your growth aspirations for the E&S segment. John J. Marchioni: Sure. That's a business we really like. It's a business that we would expect to continue to become a bigger part of our overall premium in the coming years, but it's also a business where it's important that you maintain consistent discipline from a pricing and underwriting perspective over time. I think there's been a fair amount of industry commentary around some more aggressive pricing behavior there, not just on the property side, but I think leading into the casualty side as well. And we're going to maintain our discipline there. And that might create some downward pressure on growth in the near term. But in the longer term, I would put that segment in the category of business that we like and we expect to be able to continue to grow as a percentage of our overall premium. We've got meaningful potential to expand our capabilities there from a product and an underwriting perspective, but also having recently opened up retail access channel for our strong retail partnerships on the standard line side, we think that's also a real growth avenue for us in the coming years. Daniel Lee: Awesome. Yes. So my follow-up, I guess, I wanted to also ask about -- so E&S Casualty, just loss cost trends overall. I kind of wanted to maybe ask just the differences between commercial -- standard commercial loss cost trends versus E&S casualty? And what are some nuances there that we should be thinking about for E&S Casualty in terms of loss cost trends? John J. Marchioni: Yes. I would say probably the biggest difference is the E&S and you see it in lower retention ratios, it does tend to be a more transient business, which allows you to turn over the portfolio more quickly and make more significant mix improvements. As we pointed to over the last couple of years, as a result of those actions, we've seen a much more meaningful frequency decline in E&S than we have in standard GL. We've seen frequency benefits in our standard lines, but I think it's been a bigger frequency benefit that we've been able to realize in E&S. But with regard to severity trends, and social inflation, I would say the general dynamics are consistent, and we see them consistent across both admitted and non-admitted business. I would say the bigger difference that we've seen has been more so on the frequency side. And we had also been -- and we pointed to this in prior comments, we had been embedding higher severity increase assumptions into our expected loss ratios in part because of the more transient nature of E&S casualty portfolios. Operator: There are no further questions at this time. I'd like to turn the call back over to John for closing remarks. John J. Marchioni: Great. Well, thank you all for joining us. We always appreciate the engagement. And if you have any additional questions, please feel free to follow up with Brad. Operator: Thank you for your participation. You may now disconnect. Everyone, have a great day.
Operator: Good day, everyone, and welcome to today's Nomura Holdings Third Quarter Operating Results for Fiscal Year ending March 2026 Conference Call. Please be reminded that today's conference call is being recorded at the request of the hosting company. Should you have any objections, you may disconnect at this point in time. [Operator Instructions]. Please note that this telephone conference contains certain forward-looking statements, and other projected results, which involve known and unknown risks, delays, uncertainties, and other factors not under the company's control, which may cause actual results, performance or achievements of the company to be materially different from the results, performance or other expectations implied by these projections. Such factors include economic and market conditions, political events and investor sentiments, liquidity of secondary markets, level and volatility of interest rates, currency exchange rates, security valuations, competitive conditions and size, number and timing of transactions. With that, we'd like to begin the conference. Mr. Hiroyuki Moriuchi, Chief Financial Officer. Please go ahead. Hiroyuki Moriuchi: This is Moriuchi, CFO. Thank you for joining us. I will now give you an overview of our financial results for the third quarter of the fiscal year ending March 2026. Please turn to Page 2. Return on equity was 10.3%, reaching the quantitative target for 2030 of 8% to 10% or more for the seventh consecutive quarter. Group-wide net revenue came in at JPY 551.8 billion, up 7% over the last quarter. Income before income taxes fell 1% to JPY 135.2 billion, while net income fell 1% to JPY 91.6 billion. EPS for the quarter were JPY 30.19. The 4 main divisions performed solidly, but the segment -- other incurred losses because of the downturn in market conditions for the digital asset-related businesses. For all 4 divisions in total, pretax income rose 8% to JPY 142.9 billion. This is the highest level in 18.5 years since the first quarter of the fiscal year ended March 2008. Wealth Management achieved growth of around 30% versus the previous quarter, which was itself a strong quarter. Investment Management saw business revenue rise to an all-time high since the establishment of the division, thanks to the consolidation of the public asset management business of the Macquarie Group, which we acquired in December 1, 2025, but profits fell because of weaker investment gains and onetime expenses associated with this acquisition. In wholesale, both Equities and Investment Banking performed solidly generating record revenues. Banking also generated solid revenues from lending activities as well as trust and agent services. In view of our strong momentum, we resolved to set up a share buyback program in order to enhance shareholder return and capital efficiency. The program will run from February 17 to September 30 of this year with an upper limit of 100 million shares and JPY 60 billion in amount. Before we go into details for each business, let us first take a look at earnings in the first 9 months of the fiscal year. Please turn to Page 3. As shown on the bottom left, income before income taxes rose 15% year-on-year to JPY 432.1 billion, net income rose 7% to JPY 288.2 billion. Earnings per share came in at JPY 94.67, and return on equity came in at 10.8%. Please see the bottom right for breakdown of income before income taxes. Pretax income at 4 main divisions rose 10% to JPY 381.3 billion. On a 9-month basis, income before income taxes is running slightly ahead of the target of over JPY 500 billion in our 2030 management vision. Looking at individual divisions, Wealth Management continue to generate stock strong profits and year-on-year recurring revenue cost coverage ratio rose sharply, improving revenue stability. Profits fell in Investment Management because of onetime expenses associated with the Macquarie acquisition, but existing operations continued to generate organic growth, thereby steadily broadening the division's business foundations with a view to future growth. Moreover, at all wholesale businesses -- business lines, they performed well, thereby actively driving group-wide earnings. Banking saw costs rise ahead of the introduction of the new deposit sweep service in the next fiscal year, but loans outstanding and investment trust balances rose smoothly. We will take a look at the third quarter results. Please turn to Page 7. All percentages discussed from now on are based on a quarter-on-quarter comparison. On the top left, you can see that Wealth Management net revenue increased 14% to JPY 132.5 billion, while income before income taxes of JPY 58.5 billion represents a growth of 29% versus the previous quarter, which was itself a strong quarter. The margin of over 40% on income before income taxes was not only high in absolute terms, but was ahead of the street, too. On the bottom left, you can see that recurring revenue rose to an all-time high of JPY 52.7 billion. The first and third quarters tend to be flat quarters for recurring revenue because investment advisory fees are only booked in the second and fourth quarters, but this was completely offset this quarter, thanks to net inflows of recurring revenue assets in excess of JPY 500 billion. Floor revenue also increased sharply to JPY 79.8 billion. Accurate assessment of market movements and client needs, along with supply of new products, helped to ensure strong revenue. Recurring revenue cost coverage ratio also rose 1 percentage point to 71% amid ongoing cost control initiatives. Please turn to Page 8, where you can see an update on total sales by product. Total sales rose around JPY 300 billion to JPY 6.6 trillion, thanks to growth across a wide range of products. Equities registered growth of 4%, thanks to increased secondary trading during market correction phases as well as major primary deals. Bonds registered a decline of 25%, yen-denominated bond sales came in flat as rising interest rates boosted yields and ensured solid demand, but foreign bond sales were hit by the disappearance of primary deals booked in the previous quarter. Investment Trusts and Discretionary Investments, which make up recurring revenue assets saw steady growth in sales and insurance sales remained strong. This demonstrates that the shift from savings to investment has now firmly taken root. Next, we take a look at the KPIs on Page 9. On the top left, you can see that recurring revenue assets saw a net inflow of JPY 503.9 billion, although there were some liquidity needs prompted by record highs in major markets, we secured the largest net increase on record. Our efforts to expand the recurring business are steadily producing results, strengthening our confidence. Meanwhile, as shown on the top right, recurring revenue assets totaled JPY 28.1 trillion at the end of December, which also presents an all-time high. As shown on the bottom left, the number of flow business clients rose by around 270,000 to 1.53 million. Volume market conditions led to an upturn in client activity and primary deals such as the SBI Shinsei Bank IPO, also encouraged trading activity. Next, let's take a look at Investment Management on Page 10. On the top left, you can see that net revenue came in flat at JPY 60.9 billion, and the income before income taxes fell 42% to JPY 17.9 billion, mainly because of onetime expenses associated with the Macquarie acquisition, together with weaker gain associated with American Century Investments, which came under investment gains and losses. On the bottom left, you could see that business revenue, which constitutes stable revenue rose to an all-time high of JPY 57.8 billion, benefiting from revenue from the acquisition that we completed in December last year as well as from solid performance in asset management business in Japan. However, Investment gains fell because of smaller gains related to American Century Investments and the disappearance of gains in the sales of portfolio companies at Nomura Capital Partners. Although profits for the division fell because of weaker investment gain and onetime expenses associated with the acquisition. The impact was offset in consolidated accounts via the reversal of the valuation allowance for deferred taxes, -- deferred tax assets. Let's now turn to Page 11 and examine our Asset Management business, which is a key source of business revenue for the division. The graph on the upper left shows that assets under management reached an all-time high of JPY 134.7 trillion at the end of December as shown on the bottom left, net inflows amounted to JPY 115 billion, representing the 11th consecutive quarter of net inflows. Net inflows to domestic investment trust business totaled JPY 71 billion. Although there were outflows from ETFs for profit taking amid rising equity markets and from Japanese equity investment trusts due to early redemptions, they were offset by inflows into newly established Japanese equity active funds, private assets and balanced funds. Net inflows into domestic investment advisory and International businesses totaled JPY 44 billion, with the outflows from U.S. high-yield bonds and the business we acquired, but influenced mainly into yen-denominated bonds in Japan. As shown at the bottom right, alternative assets under management rose to a new high of JPY 3.3 trillion. This represents growth of about JPY 400 billion versus the end of September, more than half of which stems from net inflows. Next, let's take a look at wholesale on Page 12. On the top left, you can see that wholesale net revenue rose 12% to JPY 313.9 billion, while income before income taxes rose 17% to JPY 62.3 billion. The breakdown on the bottom left shows that global market net revenue rose 9%, while Investment Banking net revenue rose 31%. Please turn to Page 13 for an update on each business line. Page 13, please. Net revenue in the Global Markets business rose 9% to JPY 256.8 billion. Please look at the middle section on the right. Fixed income revenue rose 12% to JPY 136.9 billion. In macro products, rates, revenue growth in Japan and the Americas increased flows, while FX emerging revenues rose in EMEA and also recovered in ASIA from the previous quarter. In Spread products, credit revenues fell in AEJ of investors adopted a cautious approach, but securitized products revenues remained high in the Americas, in particular. Equities revenue rose 5% to a new high of JPY 119.9 billion. Equity Products revenue rose sharply in the Americas on strong performance in derivatives, and execution services revenues rose sharply in Japan, particularly thanks to primary deals. Turn to Page 14, please. As you can see on the bottom left, Investment Banking net revenue rose 31% to JPY 57.1 billion. This represents the strongest performance for the period since the fiscal year ended March 2017, the earliest period for which we can make meaningful comparisons by product in advisory momentum remained strong in Japan with multiple transactions involving moves to take companies private and cross-border deals, and international businesses made the contribution with multiple deals, including deals in closely watched sectors, mainly in EMEA and AEJ. Revenue rose sharply in financing and solutions. Major IPOs and public offerings made strong contributions to growth in ECM, especially in Japan. Elsewhere, solutions revenue and DCM revenue in Japan also remained strong. Now let's look at banking. Please turn to Page 15. As seen on the top right, in banking, net revenue came to JPY 13.7 billion, up 7% from the previous quarter. Income before income taxes rose 31% to JPY 4.2 billion. Income from lending business and trust agent business held firm as the division established in April 2025 increased the outstanding balances that we have set as KPIs, while benefits of marketing and advertising strategies slowly started to emerge. Preparations for the deposit sweep service scheduled for introduction in the next fiscal year are progressing as planned. Next, Page 16, for expenses. Group-wide expenses came to JPY 416.5 billion, a 10% or JPY 37.7 billion increase from previous quarter. As shown on the right, the drivers of the increase include an FX impact of JPY 9 billion as well as JPY 13 billion in one-off costs, such as onetime expenses associated with the acquisition and the temporary costs arising from partial changes to the deferred compensation plan. Other major factors include operating expenses related to the acquired business provisions for performance-linked bonus and commissions and the floor brokerage fees. These are primary strategic investments aimed at strengthening our future earnings base or variable costs that move in line with revenue. Moving forward, we will continue to execute strict cost control and work to secure our profitability. Last, Page 17 for financial position. In the table on the bottom left, we can see that Tier 1 capital at the end of December came to JPY 3.6 trillion, up JPY 60 billion since the end of September, while risk-weighted assets came to JPY 24 trillion, up by JPY 700 billion. The common equity Tier 1 ratio at the end of December came to 12.8%. Our common equity Tier 1 ratio finished the quarter down 13% at the end of September, but this is mainly attributable to the negative effect of 0.5% as a calculation method for regulatory capital ratio changed with the completion of the acquisition of the business from Macquarie Group. This concludes our overview of third quarter results. In closing, in the Q3, strong performance continued across all 4 segments, as stable revenue grew and repeat client flows were monetized against backdrop of U.S. Japanese equities rising to new heights, while absorbing one-off costs associated with acquisition, ROE for the Q3 came to 10.3% and ROE based on performance in the 9 months through the end of Q3, came to 10.8%. Let me touch upon the situation in January. In Wealth Management, net revenue thus far in January is about even with the level in the third quarter. Client sentiment has been favorable despite some selling pressures in the market, and we think household financial assets are steadily shifting into investment in response to concerns about the inflation and heightened long-term diversified investment need. In wholesale, due to seasonal factors, Q4 tends to be somewhat slower than the previous quarter, even though GM, or Global Market, is striking broadly in line with the prior quarter. Meanwhile, Investment banking has gotten off to a slower -- slightly slow start, but overall, the pipeline is solid, and we are not concerned. In Q3, the impact on earnings from fraudulent transactions stemming from phishing and scams was negligible based on recent conditions, we think the impact on earnings will continue to be very minimal. Also, there are 2 items that needs additional explanation regarding Laser and Investment Management division. First, starting with Laser. Let me explain the losses in the segment Other. In this past quarter, we recorded losses in part of our business in EMEA owing to digital asset market movements and the effect of currency hedges. Specifically, earnings at Laser Digital, the unit that runs digital asset business were negatively impacted by market movements observed in October and November of last year. Laser became profitable 2 years after its establishment and its performance was solid in Q2, but the units suffered a temporary negative impact in the third quarter. Earnings in the crypto asset business are volatile by nature, and we are well aware of management of the business over medium to long term, has to take that volatility into account. At the same time, to limit short-term earnings fluctuations, we have further tightened control over positions and risk exposure. Moving forward, we will continue to capture growth in crypto markets while strengthening our services and customer base. Next, regarding Investment Management division's performance, let me add -- let me explain the existing platform and acquired business separately. First, excluding the impact of the acquisition of existing platform's AUM expanded from JPY 101 trillion as of end of September to JPY 110 trillion at the end of December, supported by net inflows and the business revenue reached a record high. I will explain next the acquired business after consolidating December results. We newly recorded approximately JPY 25 trillion in assets under management, business revenue for the period was JPY 7 billion, and operating expenses were JPY 5 billion, in addition, one-off acquisition-related costs and amortization of intangible assets were recorded, bringing total expenses, including operating costs to roughly JPY 11 billion. These one-off acquisition costs reduced the division's pretax profit, but the impact on consolidated net profit after tax was offset by releasing valuation allowances against deferred tax assets associated with the acquisition. As we explained at the investor event in December, we expect total future expenses of $100 million or so for transfer and integration-related costs and other items. These costs will be incurred over the next 2 years, but the majority is expected to be recognized over the 1-year period starting from the fourth quarter, we are now going over the details of what we expect to spend on growth investments and plan to present this information at the Investor Day event in May because the acquisition was only just been completed, have commented in some detail here about the contribution of the acquired business, but as acquired the business, becomes more fully integrated into operational commentary on business performance, we will treat the division as a unified whole while maintaining the disclosure transparency once we are through the initial investment phase of the J-curve, our long-term aim is to grow profits by maximizing synergies between our existing and the newly acquired business. The company celebrated its centennial on December 25 last year. Going forward, we aim to continue striving for growth with the help of our stakeholders and other stakeholders. We are grateful for your continued support. Thank you. Operator: [Operator Instructions] The first question is by SMBC Nikko's Muraki-san. Masao Muraki: Muraki of SMBC Nikko. I have 2 questions. Page 24, JPY 10.6 billion Red Inc. in Europe. Laser Digital, you said that there was a fluctuation of the market between September and November. So JPY 10 billion of losses. At that stage, there was quite a sizable position. What was the status in terms of position management? One year ago, quite a sizable profits had been recorded, but at that stage, what was the state of position management and in order to control volatility, you said that you are taking measures, but what's your forecast regarding the volatility of performance going forward? That's my first question. Second question, Wealth Management, Page 7. There was net increase in investment trust, but amount outstanding, net inflow was quite strong. What's the backdrop? There was not any outflow. Is this sustainable? And margin is more than 40% -- 44%, AI-related investment was cited, but what would be the level of margin? Hiroyuki Moriuchi: Muraki-san, thank you for those questions. The first question -- the first point of question one, Laser's activity, were there any long positions taken? As you know, regarding Laser's activities, institutional investor market making and crypto assets, fund management and Nomura seed investment, venture investment. These are the diverse activities that Laser is engaged in as we offer services to customers. As you pointed out, there had been some long positions, and based upon that situation, going to the second point of your first question, how will we control volatility of performance going forward? This is a new industry of digital assets, and there are growth prospects, and we are currently in the stage of fostering businesses. And we -- our position is unchanged. We will -- we have long-term commitments. And in terms of risk management framework, we already had a robust risk management framework. On the other hand, in the short term, as you have rightly pointed out, how should I put it? There are times when sizable revenues are recorded, but last year, in November and December, there was some market disruption. So there is upside as well as downside, quite significant upside as well as significant downside. So in the short term, already, in order to control volatility, we are reducing the volume of risk in the positions we take. So this kind of precise position management will be continued in order to control upside and downside volatility, and in the long run, we wish to expand this business. So that concludes my response to your first question. Second question, net inflow of investment trust is sizable. Is this sustainable? Now having said so, there is market impact. There is impact from customers' preference. And I would like to, therefore, refrain commenting on whether we think that this trend will continue. On the other hand, 44% is a high margin, and can we further seek higher margin on this matter? Partially there are impacts coming from the market. So it's difficult to make any comments on that dimension. We are impacted by cyclical factors. Market structural change is taking place. And our policies are well aligned to market structural change. The Japanese market, retail investors are making a major shift from savings into investment. This is a sustainable trend, and we are taking measures that are well aligned to that trend. So in comparison to historical trends, we think that the margin level will be high, we will be able to maintain higher margin level. On the other hand, on the cost control side, we are continuing our efforts. But selectively, we are using AI, investing into AI, in order to improve the services we provide to our customers, so that will continue. So that concludes my response to your 2 questions. Masao Muraki: My second question, Morgan Stanley and Merrill Lynch margins are 30%. They've targeted 30% and the actual is slightly over the target, but why does Nomura such advantage? Is it because the asset size is -- would they have larger asset size? What's your advantage? Hiroyuki Moriuchi: Thank you for the question. I was consulting with our people in IR. There are country-to-country differences in terms of market structure, making it difficult to do an apple-to-apple comparison. Nomura's Wealth Management 100% sales are in-house. And because of that, partly because of that, it's easier to control cost. And the revenue market structure, I will have to once again check the market structure to respond regarding revenue. So I will conclude here. Operator: The next question is asked by Watanabe-san of the Daiwa Securities. Kazuki Watanabe: I'm Watanabe from Daiwa. I have 2 questions. First question is about Wealth Management's pricing strategy, other face-to-face securities, overseas equities, and other products they are raising commissions. Do you have a discussion internally about raising pricing? Second question is about the timing and scale of buyback. Why Q3? Why not Q4? What's the background of the JPY 60 billion in size? Hiroyuki Moriuchi: Thank you for your questions. For your first question on Wealth Management's commission rate, whether our peers are raising commission and what is our situation? That's your question. It's related to Wealth Management strategy. So I would like to refrain from answering that question. For us, we are focusing on value provision to customers. So we are considering what is the best solutions for customers. And we would like to continue our deliberation. Regarding your second question about the timing of buyback, why Q3? And also you asked about the value or amount. Regarding the timing, for one thing, Macquarie U.S. Asset Management transaction closing was the 1st of December. And by booking the business, CET1 ratio impact was not clear, but it was clarified and finalized. So our investment capacity was clarified. So in the market, there is expectation for buyback. So with that taken into consideration, we wanted to live up to expectations of investors and decided on buyback. Regarding the size of buyback as mentioned repeatedly, for us, investment strategy and future opportunities and also, at the same time, the importance of shareholder return are all considered. And based upon the balance, we came to the decision on the size. Kazuki Watanabe: Regarding the second answer, CET1 ratio. That's above the target range this time. And on that basis, you came to JPY 60 billion. So if FY 2025, so based upon the total return ratio target. So this completes your actions to meet the target for FY 2025? Hiroyuki Moriuchi: So whether we are at or above 50% in total return ratio that cannot be decided until we see the fourth quarter results. Based upon the fourth quarter results, we will check whether there is shortfall or not. If there is shortfall, then we will consider measures to take at that point in time, but when deciding on the amount, it is possible to add to what we have announced. Operator: The next question will be by JPMorgan Securities, Sato-san. Koki Sato: JPMorgan Securities, Sato. I have 2 questions. First, Global Markets, post-January performance. You touched upon that subject Q3. You said that the trend of Q3 has been maintained since the beginning of the month. Domestic rates, recently, there had been some fiscal concerns that had led to spike in interest rates, which means there was lack of buyers. So some people cited that there was dysfunctioning of the market. And under such circumstances, how should we view your domestic rates business? Secondly, just to confirm the numbers, Macquarie acquisition, 1-month worth revenue expenses, revenues and expenses will be booked, but normal rate contribution, JPY 7 billion revenue, JPY 5 billion cost, so JPY 1 billion per month times 12. Is that the right assumption? So can you confirm whether those numbers are correct? Hiroyuki Moriuchi: Thank you for the question. Then on the first question, the performance is solid in January as was the case of Q3, but what about domestic rates? As you have pointed out, there has been some increase in volatility in the market, super-long bond rates are going up. And therefore, some of the clients are taking a wait-and-see attitude and that is partly reflected in our Japan rates business, which has seen some slowdown. On the other hand, for global markets, in general, we are doing quite well because our business has diversified. In Japan, it's not rates alone. We're doing equity, credit. We're in diverse business areas and our GM business overseas, especially U.S., the business has grown to become quite sizable. So this slowdown has been absorbed, and we are recording sound performance in January. On the second question of Macquarie acquisition, no, in peacetime, 7 minus 5, to minus goodwill, 1 times 12. That's the broad image, but this 1 month is quite difficult because in revenue, seed capital -- we have seed capital to foster the business, and there is fluctuation. For the annual -- in annualized term, the position is neutral, but when we look at a snapshot of 1 month, there could be some fluctuation. So it could become bigger. So I think that's the way to look at it. Operator: The next question comes from Tsujino-san of BofA Securities. Natsumu Tsujino: So this time, personnel cost increased and deferred compensation accounting method was changed and that impact is included, and moving forward in Q4 and after Q4 as well, what is going to be the impact in and after Q4? And also, what is the actual amount, absolute amount in impact? And considering that this time, revenue due to weak yen and personnel costs due to weak yen, both seem to have increased. But the way personnel costs increased, what was the reality of how personnel costs increased. That is my first question. And the impact from next fiscal year. Next question, second question is about Laser Digital. You said you have reduced position, but moving forward, this business is what you would like to grow. And of course, you have traditional securities business, which is growing, but when the size increases, then you have no choice about to increase positions and then hedge is impossible for crypto assets. Then how should we think about the positioning. In the long term, how do you deal with the volatility that needs to be considered. So what is your thinking? Hiroyuki Moriuchi: Thank you for your questions, Tsujino-san. Regarding your first question on deferred compensation, accounting method change, what is the actual impact? And what is the impact expected in the fourth quarter and the next year? In the third quarter, actual impact amount is about JPY 8 billion. In the fourth quarter, about the same amount is expected as impact. And next year onward, JPY 15 billion or JPY 16 billion are expected impact. But next year -- well, that's this year. So next year, 40% or 50% of that is what we expect for next year. And year after next, the impact will be negligible. It's difficult for me to explain here the accounting treatment involving the slide in timing of cost recognition. Deferred compensation systems have varying treatments. So the cost is front-loaded and spending after 12 months, the level normalizes, that's how we should think about it. Regarding your second question about the reduction of Laser positions. In the medium and long term, with the business growing, the position will grow bigger, and the volatility will stay elevated. That's the point, which you pointed out, I believe. And regarding your point, strategy included, we need to have a thorough discussion in any ways. We would like to grow this business in the medium to long term, but there are several activities by holding inventories we do market making and trading for customers, then the unit risk exposure will be reduced. On the other hand, as mentioned, digital asset or crypto asset-related businesses, in addition to market making for institutional investors include other businesses such as crypto asset, management business or venture ecosystem supporting business, also combine custody-related businesses, there are such other businesses. So while ensuring diversity, we would like to grow the ecosystem. That is our direction. So just like you, Tsujino-san, we have the same sense of risk. So while understanding those points, we would like to conduct this business. Natsumu Tsujino: Regarding lending, are you conducting lending right now? And there is no extra risk there, if you are conducting lending business like crypto asset lending. Hiroyuki Moriuchi: Regarding lending business, we do have lending business as part of product lineup, but activity is very small. Operator: The next question is for UBS Securities, Niwa-san. Koichi Niwa: This is Niwa. I hope you can hear my voice. Operator: Yes, we can hear you. Koichi Niwa: Wholesale resource efficiency and private assets. First, revenue and risk-weighted asset ratio Page 12, 7.7%, quite high. And how does the management evaluate this level? And you've been talking about improving efficiency. So is there room for further increase division ROE. Do you think that this could be raised further? That's the point of my question. And secondly, I will deviate, but in Nikkei newspaper, Mr. Okuda was responding to an interview regarding private assets, and he was talking about selling Japanese products in other countries. So if you want to invite assets or investments into Japanese private asset, what is your estimate of the size of the business in terms of AUM or revenue? Or in order to engage in such business, does Nomura need to be equipped with a new function. So those are my questions. Hiroyuki Moriuchi: Then on your first question regarding resource efficiency of resource, Page 12, 7.8%, revenue modified RWA, we think that this is so and so acceptable global markets, Hong Kong, Singapore, IWM is engaged in wealth management business. Resource is not so much needed and taking that growth, all of the activities taken together, this is the level. So for example, if the question is whether the resource efficiency is going up in a certain business, not so. This is a result of the business mix. So that's my first point. And next, this number, is it possible to further increase this number? If we overfocus on that, the statutory capital RWA revenue or profitability in order to increase that, we may end up taking too high substantive risk in light of the economic capital. So it's good that this number goes up, but rather than just focusing on this indicator, we would look at various indicators comprehensively for risk management. And if in the end, this number goes further up, then that's positive. We have the self-funding program. The resource maybe somewhat tight for the business, and they are incentivized to focus on efficiency of resources. So even if there is a potential project, they have to judge whether resource can be used efficiently in light of the revenue that could be gained from that project. So I think that kind of incentive has also delivered some results. So this 7.8% is quite reasonable and appreciated, but we're not just chasing this number. Second question, Japanese private asset in order to invite money into Japan for development of Japanese infrastructure, what kind of mechanism, or what's our estimate of the size of the resource? Regarding those points, it might be a bit premature to share the design we have in mind. And I think we need to engage in more internal discussions. At one point in time, we will probably have more factors that we can speak to you, and then we will explain our strategy. I hope that this would do for today. Operator: [Operator Instructions] As there is no more question, we'd like to conclude question-and-answer session. Now, we'd like to make closing address by Nomura Holdings. Hiroyuki Moriuchi: Thank you very much. I am Moriuchi. Thank you very much for spending your precious time. As mentioned, there are one-off items and the technical accounting-related items, which are difficult to grasp. And they are ending up in increase in revenue and decrease in profit in any ways for divisions delivered a strong performance and we are positively looking at the performance. So medium, long term, we are focused on growing the revenue power of those four divisions. As for Laser Digital, we believe the business is promising in the medium, long term. So we would like to grow the business while suppressing short-term volatility by controlling the risk volume. In any case, thank you very much for your precious time that you spent with us. That is all for me. Thank you. Operator: Thank you for taking your time, and that concludes today's conference call. You may now disconnect your lines. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Welcome to the Invesco Mortgage Capital Fourth Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this call is being recorded. Now I'll turn the call over to Greg Seals, Investor Relations. Mr. Seals, you may begin the call. Greg Seals: Thanks, operator, and to all of you joining us on Invesco Mortgage Capital's quarterly earnings call. In addition to today's press release, we have provided a presentation that covers the topics we plan to address today. The press release and presentation are available on our website, invescomortgagecapital.com. This information can be found by going to the Investor Relations section of the website. Our presentation today will include forward-looking statements and certain non-GAAP financial measures. Please review the disclosures on Slide 2 of the presentation regarding these statements and measures as well as the appendix for appropriate reconciliations to GAAP. Finally, Invesco Mortgage Capital is not responsible for and does not edit nor guarantee the accuracy of our earnings teleconference transcripts provided by third parties. The only authorized webcasts are located on our website. Again, welcome, and thank you for joining us today. I'll now turn the call over to Invesco Mortgage Capital's CEO, John Anzalone. John? John M. Anzalone: Good morning, and welcome to Invesco Mortgage Capital's Fourth Quarter Earnings Call. I will offer brief remarks before turning the call over to our Chief Investment Officer, Brian Norris. Joining us for Q&A are President, Kevin Collins; COO, Dave Lyle; and CFO, Mark Gregson. Financial conditions improved during the quarter, supported by 2 Federal Reserve rate cuts, solid corporate earnings, improved financial conditions and strong economic growth. Equity markets extended their gains, credit spreads remained tight and agency mortgages outperformed treasuries, aided by lower rate volatility in a supportive supply and demand environment. Inflation readings trended modestly lower during the quarter with headline CPI at 2.7% and core CPI at 2.6%. Investors responded by reducing inflation expectations, reflected in lower breakeven rates on inflation-protected treasury bonds. Even with continued economic growth, the U.S. labor market continued to exhibit weakness as the economy lost 67,000 jobs during the quarter. Despite inflation running above target, the FOMC cut the federal funds target rate by 25 basis points at each of its last 3 meetings in 2025, citing labor market weakness. The Federal Reserve also ended its quantitative tightening program after reducing its treasury and agency mortgage holdings by more than $2.2 trillion since mid-2022, specifying that mortgage paydowns will be reinvested into treasury bills going forward. Markets are pricing in an additional 50 basis points of cuts through 2026. Interest rates were generally stable during the quarter and the decline in interest rate volatility that began after the sharp increase in April continued into year-end. With market expectations shifting towards a more accommodative monetary policy stance, agency mortgages delivered its strongest calendar year performance relative to U.S. treasury since 2010. Key drivers included a decline in interest rate volatility, broad inflows into fixed income and increased demand from Fannie Mae and Freddie Mac's investment portfolios. Agency CMBS spreads finished the year slightly tighter as markets gained confidence in the path towards monetary policy easing and improved clarity in U.S. trade policy. Higher issuance levels are readily absorbed given money manager inflows and continued bank demand for assets with stable cash flows. These factors led to a 3.7% increase in our book value per common share to $8.72 and combined with our recently increased dividend of $0.36 resulted in an 8% economic return for the quarter. We modestly increased leverage to 7x, consistent with the constructive investment environment. At year-end, our $6.3 billion portfolio included $5.4 billion in Agency mortgages, $900 million in Agency CMBS and our liquidity position remained robust with $453 million in unrestricted cash and unencumbered assets. We remain positive on agency mortgages following the sharp decline in volatility, though we view near-term risks as balanced given recent strong performance and the announcement of $200 billion in agency mortgage purchases by Fannie Mae and Freddie Mac. Agency CMBS continues to provide attractive risk-adjusted yields and diversification benefits. Longer term, we believe conditions for agency mortgages will remain favorable given lower interest rate volatility and expectations for broadening demand and a steeper yield curve. I'll now turn the call over to Brian for additional detail. Brian Norris: Thanks, John, and good morning to everyone listening to the call. I'll begin on Slide 4, which provides an overview of the interest rate markets over the past year. As depicted in the chart on the upper left, despite 2 25 basis point cuts to the Fed funds rate during the fourth quarter, the 10-year treasury yield was largely unchanged, increasing less than 2 basis points to end the year at 4.17%, 40 basis points lower than where it started the year. Although 10-year yields were relatively stable over the quarter, the yield curve continued to steepen meaningfully with 2-year treasury yields falling 14 basis points, while 30-year yields increased 11 basis points. The difference between 2-year and 30-year treasury yields ended the quarter at 137 basis points. 83 basis points steeper than a year ago. The steeper yield curve benefits longer-term investments such as Agency RMBS and Agency CMBS and is supportive of our strategy. The chart in the upper right reflects changes in short-term funding rates over the past year, with the fourth quarter highlighted in gray. While financing capacity for our assets remained ample and haircuts unchanged, 1-month repo spreads began to indicate broad-based funding pressures in late September and continued into October, widening approximately 5 basis points. Positively, the Fed's decision to end quantitative tightening in December alleviated the pressure and its announcement at the December meeting to initiate purchases of shorter-term treasury securities as needed to maintain an ample supply of reserves led to notable improvement in repo spreads as we head into 2026. Lastly, the bottom right chart on Slide 4 highlights the significant decline in interest rate volatility since April, which provided a tailwind for risk assets, including Agency MBS in the second half of the year. Although we do not anticipate further declines in 2026, the current level of volatility is in line with longer-term averages and remains supportive of the Agency RMBS sector. Slide 5 provides more detail on the agency mortgage market. In the upper left chart, we show 30-year current coupon performance versus U.S. treasuries over the past year, highlighting the fourth quarter in gray. Agency mortgages delivered strong performance both for the quarter and the full year, driven by reduced interest rate volatility that kept money manager and mortgage REIT demand robust, while net supply remained below expectations. Two additional cuts to the Fed funds rate, the end of quantitative tightening and the beginning of monthly T-Bill purchases by the Federal Reserve, all announced during the fourth quarter, provided significant support for risk assets in general and agency mortgages in particular, as funding markets improved notably. Although bank and overseas purchases remain subdued, increased demand from the GSEs provided additional support, resulting in strong returns for the sector. Net GSE purchases began to increase late in the second quarter and accelerated in the second half of the year, providing notable support for agency mortgage valuations. Not only did the unexpected demand provide an immediate lift to valuations, but it also strengthened expectations that the GSE's retained portfolios could serve as a stabilizing backstop for the sector, helping to reduce spread volatility going forward and providing support that the agency mortgage market has lacked since Federal Reserve and bank participation waned in 2022. This supply and demand environment also helped support the TBA dollar roll market, as you can see in the lower right chart. Implied financing improved notably during the quarter, whereas for most of 2025, financing via the dollar roll market was relatively unattractive compared to funding via short-term repo markets. As illustrated, that advantage narrowed late in the quarter and the shift is indicative of strong demand for agency mortgage collateral amid limited net supply. As this environment persists, the sector becomes more attractive, allowing investors to fund purchases at implied levels significantly below short-term funding rates. Lastly, 30-year mortgage rates declined modestly to end the quarter near 6.25% as tighter mortgage spreads offset slight increases in the 10-year treasury yield and primary secondary spread. This decline in mortgage rates continue to weigh on the performance of higher coupons relative to those lower in the coupon stack with discount coupons modestly outperforming premiums as investors were reluctant to increase prepayment risk in their portfolios. In the upper right-hand chart, we show higher coupon specified pool pay-ups, which are the premium investors pay for specified pools over generic collateral and are representative of the bonds that IVR owns. Positively, pay-ups improved during the quarter, offsetting some of the underperformance of higher coupons relative to lower coupons given increased investor demand for additional prepayment protection in premium dollar priced bonds. We continue to believe that owning prepayment protection via carefully selected specified pools, particularly in premium-priced holdings, remains an attractive investment for mortgage investors and helps mitigate convexity risk inherent in agency mortgage portfolios. Slide 6 details our Agency RMBS investments as of year-end. Our Agency RMBS portfolio increased 11% quarter-over-quarter as we invested proceeds from ATM issuance and paydowns and modestly increased leverage as the investment environment for agency mortgages improved. Purchases were primarily focused in 5% and 5.5% coupons with a decline in our 6% and 6.5% allocation, a result of paydowns and the overall growth in the portfolio. Although we continue to focus our specified pool allocation on prepayment characteristics that are expected to perform well in both premium and discount environments, price appreciation in our holdings has resulted in a higher percentage of our pools valued at premium dollar prices. Therefore, we continue to favor specified pools with lower loan balances, particularly in our higher coupon exposures given their superior predictability of future cash flows, while we remain well diversified across collateral stories with limited changes during the quarter. Overall, we remain constructive on Agency RMBS as supply and demand technicals are favorable and lower levels of interest rate volatility should continue to encourage demand for the sector. We believe near-term risks are balanced following recent outperformance with nominal spreads tightening approximately 15 basis points during the fourth quarter and another 10 basis points year-to-date. Despite the decline in risk premiums, levered returns on Agency RMBS hedged with swaps remain attractive with the current coupon spreads to 5- and 10-year SOFR blend ending the year near 140 basis points, equating to levered gross returns in the mid- to upper teens. Slide 7 details our Agency CMBS portfolio. Risk premiums were largely unchanged during the quarter as higher issuance levels were well absorbed via money major inflows and continued bank demand for stable cash flow profiles. Given more attractive relative value in Agency RMBS, we did not add to our Agency CMBS position during the quarter, and our allocation declined modestly due to the growth in the overall portfolio. Despite the lack of new purchases, we continue to believe Agency CMBS offers many benefits, mainly through its inherent prepayment protection and fixed maturities, which reduced our sensitivity to interest rate volatility. Levered gross ROEs are in the low double digits and consistent with ROEs and lower coupon Agency RMBS. We have been disciplined in adding exposure only when the relative value between Agency CMBS and Agency RMBS accurately reflects their unique risk profiles. Financing capacity has been robust as we continue to fund our positions with multiple counterparties at attractive levels. We will continue to monitor the sector for opportunities to increase our allocation to the extent relative value becomes attractive, recognizing the overall benefits to the portfolio as the sector diversifies risks associated with Agency RMBS. Slide 8 details our funding and hedge book at quarter end. Repurchase agreements collateralized by our Agency RMBS and Agency CMBS investments increased from $5.2 billion to $5.6 billion, consistent with the increase in our total assets, while the total notional of our hedges increased from $4.4 billion to $4.9 billion. Our hedge ratio was relatively stable during the quarter, increasing slightly from 85% to 87% as market expectations for monetary policy in 2026 were largely unchanged during the quarter. The table on the right provides further detail on our hedges at year-end. The composition of our hedges remained weighted towards interest rate swaps with 78% of our hedges consisting of interest rate swaps on a notional basis and 57% on a dollar duration basis. Swap spreads widened during the quarter, serving as a tailwind for our performance. Despite the recent widening, we remain comfortable focusing the majority of our hedges in interest rate swaps as we continue to believe swap spreads are historically tight and offer an attractive hedge profile relative to treasury futures. To conclude our prepared remarks, financial market volatility declined notably in the second half of 2025, resulting in strong performance for agency mortgages. IVR's economic return of 8% during the fourth quarter is a result of that positive momentum, which has continued into 2026 with book value up approximately 4.5% since year-end through Wednesday of this week. While agency mortgage valuations have improved significantly over the past year, we believe the current environment is reflective of a more normalized investment landscape that continues to provide investors with attractive levered returns. The January announcement of the MBS purchase program by the GSEs was well received by the market and the reduction in interest rate and spread volatility has broadened the investor base and enabled modestly higher leverage. The conclusion of quantitative tightening in the fourth quarter, along with announced T-Bill purchases by the Fed helped solidify funding markets and tightened repo spreads, serving as another tailwind for our strategy. Lastly, we believe our liquidity position provides substantial cushion for any potential market stress while also allowing sufficient capital to deploy into our target assets as the investment environment evolves. While we view near-term risks as somewhat balanced, we believe the current environment of low volatility in interest rates and spreads, along with further steepening of the yield curve and supportive supply and demand technicals will provide a positive backdrop for agency mortgages over the long term. Thank you for your continued support of Invesco Mortgage Capital, and now we will open the line for Q&A. Operator: [Operator Instructions] Our first question comes from Trevor Cranston with Citizens JMP. Trevor Cranston: I think in the prepared comments, I heard you characterize your view on MBS post the GSE buying announcements as a little more balanced. Can you talk about how you're approaching the leverage level post the tightening that's occurred and kind of where you guys are finding value within the coupon stack with marginal deployments today? Brian Norris: Trevor, it's Brian. Yes, so we did take leverage up a little bit in the fourth quarter, just reflective of that positive environment that we've continued to kind of see in the second half of the year. And so I think we're still relatively comfortable there. I think with the announcement with spreads a little bit tighter, we do kind of let leverage drift a little bit. So as book value increases, leverage could come down just a little bit. But I think we're still pretty comfortable because the environment overall, even though spreads are tighter, it's pretty supportive with limited spread volatility. As far as the coupon stack goes, I think I mentioned that there's been some notable improvement in the TBA dollar roll market. And that's really been across the coupon stack, but primarily in the belly, so call it 3.5 through 5.5s. And so I think we're finding pretty good value in those securities. Trevor Cranston: Got it. Okay. And I was curious within the specified pool portfolio, particularly in higher coupons, if you guys have seen any surprises within prepaid reports or if things have kind of behaved pretty much as you expected them to? Brian Norris: Yes, I wouldn't necessarily say that we've seen any surprises. We certainly saw an increase over the second half of the year in higher coupons in our 6s and 6.5s, prepayment speeds did increase. But because we do own prepaid protection, they certainly were less impacted than what you would see in generic collateral. Loan balance continues to, like I said in the prepared remarks, continues to be superior predictability of cash flows, and we continue to feel that way. I think certain FICO and LTV and even geo stories, a little bit less so, but still relatively in line with expectations heading into it. Operator: Our next question comes from Jason Weaver with JonesTrading. Jason Weaver: Maybe just to tee off of Trevor's first question there. Year-to-date, with new capital invested, have you continued rotating down in coupon? And maybe you can talk a little bit about the trade-off you see between elevated prepay risk and the positioning in some of those 5.5 and 6 pools. Brian Norris: Sure. Yes. Jason, it's Brian. Yes, I think certainly, there is a push by the administration on housing affordability, and they are directly focused on the mortgage rate and bringing that down. So to the extent that, that impacts higher coupons, I think the goal is likely to not necessarily reduce the allocation by selling, but to future purchases come a little bit lower in the coupon stack. So like I said earlier, more belly and lower coupons. Like I said, the TBA dollar roll market is pretty attractive in those coupons right now. So that's providing a nice boost as implied funding levels are significantly below SOFR. Jason Weaver: Got it. And the only other thing is, did you give an updated estimated book value as of today? Brian Norris: I did say we were up about 4.5% through Wednesday. Jason Weaver: Yeah you did, right. I missed that one, but I appreciate the color. Thank you. Operator: Our next question comes from Doug Harter with UBS. Douglas Harter: You continued kind of modest capital actions in the quarter, some small common issuance and some small preferred buyback. Can you talk about how you're thinking about capital structure and kind of the ability to raise capital going forward? John M. Anzalone: Yes. Doug, it's John. Yes, I think in terms of capital structure, we feel like we're in a better place than we've been. It's been improving. So that's -- we're happy about that. As far as the ATM goes, we do selectively access the ATM when the common stock provides clear benefits to shareholders. And we continue to view the ATM as the most efficient mechanism for raising capital. It was a pretty modest issuance during Q4 and conditions were slightly better in -- have been better in Q1. So you'll get an update later this month or actually in February when we report our monthly dividend, we'll provide more color on that. Operator: [Operator Instructions] Our next question comes from Jason Stewart with Compass Point. Jason Stewart: Just following up on the capital raising, just putting it in context with the investment environment. Is the decision on the ATM solely where the stock is? Or is part of this equation, what the pro forma ROEs look like? And on that front, would additional government action like an increase to the limit of the GSEs or removal of the PSPA cap or like a standing repo facility change your view of a spread range for MBS and change your view of capital raising on the second half of that? John M. Anzalone: Yes. I'll start with the first part, and I'll let Brian tackle the harder part, second part. I think it is a combination of things when we make a decision on whether to issue. I mean it obviously price to book is important. I mean that's the first metric. And then after that, it's other accretive investment opportunities. And so we tend to look at it as through the prism of how long is the payback period in terms of, okay, we're making accretive investments. And if we're trading slightly below book, we need accretive investments. If you're trading above book, you'd like to have accretive investments. But. Yes, I mean, that's how we kind of look at it. It's a combination of those 2 things. And then the second part of the question. Brian Norris: Yes. I would just add to that just -- this is Brian, Jason. Yes. I would just add, those are certainly kind of more quantitative aspects of it. There is a qualitative aspect as well, just, I guess, even economies of scale on reducing expenses, improving liquidity in the stock. Those are all things that kind of go into the factor on whether we are using -- utilizing ATM or not. As far as available ROEs, I did mention as of year-end, spreads versus SOFR were still pretty attractive around 140. We've seen about 10 basis points of tightening since then. So knock 1% or 2% off the available ROEs that we're seeing. But I think with the presence of the GSEs being more substantial now and being more prescriptive, that does help reduce volatility, brings greater comfort into potentially higher leverage. So I think there's a lot of positive things that despite slightly lower ROEs that there's a lot of reasons to kind of like the space right now. Jason Stewart: Yes. Okay. That's helpful. But on the government intervention side or the presence of GSEs, is there anything that would sort of get you to the next level where it's less of a backstop view and more of the view that it's a tighter spread range and a lower spread range? Brian Norris: Yes, lower than where we are now? Jason Stewart: Yes. Brian Norris: Yes. Certainly, if there was an announcement that they increased the caps from currently to $450 billion. That would be a signal. And maybe as we move along here throughout the year, if we start to see that the pace of purchases has increased notably. I think in December, the GSEs added a combined $24 billion between loans and mortgages, agency mortgages. So I think if we were to see that pace continue to increase, that would be a pretty clear signal that at some point, the administration or the treasury and the FHFA plan to increase those caps. And so that could potentially take us into another spread regime and take us another 10 to 15 basis points tighter from here. Operator: And our last question comes from Eric Hagen with BTIG. Eric Hagen: All right. So spreads have already tightened a lot. How should we think about the book value sensitivity and just like the overall upside to further spread tightening? Like would you say that the sensitivity or the magnitude is kind of similar as when spreads were relatively wider? Or how should we think about the magnitude because of the fact that spreads are kind of reset tighter? Brian Norris: Eric, it's -- sorry, didn't mean to cut you out there. I would say the magnitude of the change in book value to spread changes is the same, just given that our leverage is relatively in line with where it has been here recently. But our expectation for further spread tightening is significantly reduced. And so we kind of -- we saw a lot of spread tightening in 2025. We certainly would not expect that to occur unless there are, again, like I just mentioned, significant changes in the caps for the GSEs and their use of those retained portfolios. So we're not really expecting significant spread tightening from here. The $200 billion of purchases is largely priced into the market as we sit here today. So unless we start to see banks come in, in greater size and also increased caps. We don't necessarily expect spreads to tighten much. The expectation is that the longer we kind of stay at these spread levels, we'll see kind of money managers start to sell a little bit into it and kind of keep us here as opposed to taking us tighter. Operator: And at this time, I'll turn the call back over to the speakers. John M. Anzalone: Okay. Well, thank you, everybody, for joining us, and we will talk to you next month. Thank you. Operator: Thank you. And this does conclude today's conference. We thank you for your participation. At this time, you may disconnect your lines.
Operator: Good morning, and welcome to the Olin Corporation's Fourth Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the questions. To ask a question, you may press star then 1 on your touch-tone phone. To withdraw the question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Steve Keenan, Olin's Director of Investor Relations. Please go ahead, Steve. Steve Keenan: Thank you, operator. Good morning, everyone. We appreciate you joining us today to review Olin's fourth quarter 2025 results. Please keep in mind that today's discussion together with the associated slides, as well as the question and answer session that follows, will include statements regarding estimates or expectations of future performance. Please note these are forward-looking statements and that Olin's actual results could differ materially from those projected. Some of the factors that could cause actual results to differ from our projections are described without limitations in the risk factors section of our most recent Form 10-K and in yesterday's fourth quarter earnings press release. A copy of today's transcript slides will be available on our website in the Investors section under Past Events. Our earnings press release and related financial data and information are available under Press Releases. With me this morning are Ken Lane, Olin's President and CEO, and Todd Slater, Olin's CFO. We'll start with some prepared remarks, and then we'll look forward to taking your questions. In order to give everyone an opportunity, we will limit participants to one question with no follow-ups. I'll now turn the call over to Olin's President and CEO, Ken Lane. Ken Lane: Thanks, Steve, and thank you to everyone for joining us today. Let's start with Slide three and review our fourth quarter highlights. As we previously announced, our fourth quarter came in significantly below our expectations. In December, we experienced operational issues related to an extended turnaround of our Freeport, Texas chlorinated organics assets and third-party raw material supply constraints, both of which impacted our core alkali assets. At the same time, we also experienced a sharp decline in chlorine pipeline demand in an already seasonally weaker quarter. During the quarter, we were able to preserve our ECU values by staying disciplined with our value-first commercial approach, and we also announced the long-term EDC supply agreement with BroadsChem, which provides a higher value to both parties by integrating the low-cost producer of EDC with the leader in PVC in Brazil. In addition, we've expanded our infrastructure footprint in Brazil, which enables us to grow our caustic sales there in 2026. In our epoxy business, we were able to contract for significant growth in our European business, which we'll begin to benefit from in 2026. This is a result of our commercial team's successful strategy to position Olin as the last integrated supplier of epoxy in Europe, providing reliable, secure supply to local customers in the face of continued headwinds from subsidized Asian producers. In our Winchester business, we took aggressive action to accelerate inventory reductions across our system and began efforts to rightsize our cost structure in response to lower commercial ammunition demand. Cash generation is a high priority for Olin, especially in the trough environment that we're in. I'm very proud of how our team has responded, and through actions that we took, we were able to generate $321 million of operating cash flow and hold net debt flat versus year-end 2024. Let's turn to Slide four for a closer look at our chlor alkali product and vinyls results. Macro conditions remain challenging. Merchant chlorine demand remains under pressure through this extended trough as subsidized Asian chlorine derivatives flood export markets. Since 2019, China exports of titanium dioxide, urethanes, epoxies, crop protection chemicals, and PVC have grown 300 to 600%, placing significant pressure on US chlorine derivative customers. As you would expect in a trough environment, we are already seeing chlor alkali capacity rationalization in Europe, Latin America, and the US, which should accelerate operating rates as demand recovers. Olin has done a great job of preserving our ECU values and remains committed to our value-first approach. We are well-positioned when markets recover from the trough. As we look ahead to the first quarter, we'll continue to face headwinds related to power and raw materials. As a result of winter storm Fern, we proactively shut down several of our Gulf Coast assets, which will increase our first quarter costs. In addition, we'll see higher turnaround costs as we begin our VCM turnaround at our Freeport, Texas site. This is the single largest turnaround that Olin executes and occurs every three years. Global caustic soda demand remains healthy, led by alumina, water treatment, and pulp and paper. Olin ended 2025 with very low inventories, and we're seeing good momentum on our caustic soda price increase. As seasonal demand returns this spring, already low inventories and planned industry turnarounds are expected to further tighten caustic supply. Our full-year 2026 chlor alkali outlook remains challenging. We expect global vinyls pricing will remain under pressure. Rising US natural gas power and feedstock costs will present a headwind in contrast to falling global oil prices serving to erode the US cost advantage. In the near term, Olin faces stranded costs of approximately $70 million resulting from Dow's recent closure of their Freeport propylene oxide plant. This cost burden will be offset by our beyond $250 structural cost reductions, which I'll discuss shortly. Now let's turn to slide five for a look at our epoxy results. Our fourth quarter epoxy results sequentially increased due to improved product mix, allelix, and aromatics margins, partially offset by higher turnaround and seasonally lower demand. As we look ahead to the first quarter, we do expect our epoxy business to return to profitability, although at a low level. This will be realized through actions we have taken by growing our participation in the European market, realizing lower costs at our Stade, Germany site, and lower turnaround costs. As we look out further, structural changes in our cost position, recent European epoxy chain plant closures, and continued growth in our formulated solutions portfolio will support a return to profitability for 2026 as well. Over the past three years, Olin's epoxy business has remained focused on cost reduction. In that time, we've reduced our global cash cost by about 19%. Our most recent action was this month's closure of our Guaruga, Brazil epoxy plants. This shutdown is expected to deliver $10 million of annual structural savings. Also, in 2025, we continue to deliver on our formulated solution sales growth. These solutions enable AI chips to better manage heat and conductivity, allow lightweight wind blades to exceed 500 feet in length, and serve as adhesives in some of the most challenging environments and applications. We will continue to benefit from that growth in 2026. Now please turn to Slide six for an update on our Winchester business. During the fourth quarter, Winchester took aggressive action to adjust its operating model to reflect lower commercial ammunition demand and significantly reduce inventory. As expected, we realized higher military and military project sales, which was offset by these lower commercial sales and higher metals and operating costs. Winchester's first quarter priority will be the implementation of our commercial ammunition price increase. Our new pricing is expected to offset the majority of 2025 cost escalation. As we begin 2026, commercial shipments will continue to be made to order and subject to our increased pricing. As we look back at 2025, we've seen a significant decline in demand for commercial ammunition back to pre-COVID levels. In response, our Winchester team has taken the necessary actions to align our production capacity with today's reduced demand. We've eliminated shifts, reduced headcount, and restricted overtime across all Winchester plants. At the same time, ammunition imports have slowed dramatically in the face of US tariffs as high as 50%. Last year, imported ammunition satisfied approximately 12% of US demand. In the most recent September import data, imports from Brazil, which typically is the largest importer, have disappeared completely. Domestic and international military sales continue to grow as NATO countries expand their defense budgets and the US increases its own defense spending. Our next-generation squad weapon project remains on schedule and will be the most modern and sophisticated small-caliber ammunition plant in the world. Winchester's 2026 outlook still faces significant cost headwinds from higher copper, brass, and propellant costs. Winchester 2026 tailwinds include expected sales growth across domestic military, international military, and military projects. Commercial volumes and pricing are also expected to improve during 2026. Retail sales have begun to show year-over-year improvement, albeit over a low baseline, and retailer inventories have come down significantly. Let's turn to slide seven for a high-level view of our BEYOND $250 structural cost savings program. Olin's Beyond $250 structural cost reduction program focuses on the identification and removal of inefficiencies. During our 2024 Investor Day, each Olin business made a cost savings commitment, and we are focused on delivering these savings as quickly and efficiently as possible while maintaining safe and reliable performance of our assets. In 2025, we delivered $44 million in structural cost savings, and we expect to add an incremental $100 to $120 million of annual Beyond $250 savings during 2026, spread across our three businesses. As I discussed last year, we've enlisted outside expertise to help review our organization and processes against industry best practices. We've begun to improve efficiency at our largest site in Freeport, Texas. By streamlining our work processes, we've already been able to achieve a meaningful reduction in staffing. Through this exercise, we've identified many key performance metrics and gaps to close. For example, our contractor time on tools was well below industry best practice, and our overall reliance on contractors was excessive. With our new organization, work processes, and performance tracking, we have a clear line of sight to deliver these additional cost savings in 2026. Our Freeport plant is the pilot for this improvement program, which we're now rolling out across our other global sites. At the same time, Winchester has been rightsizing their staffing and operations to reflect lower levels of commercial ammunition demand. Both of these efforts combined have resulted in a reduction of more than 300 employee and contractor positions during 2025. We expect to realize a similar level in 2026 as we implement the same efficiency measures at our other sites. In 2026, we'll begin to see the benefits of our new supply agreement at our Stade, Germany site. We expect to realize $40 to $50 million of savings related to that in our epoxy business through the year. As mentioned earlier, Dow's closure of its Freeport propylene oxide plant has created a $70 million stranded cost headwind for Olin. By optimizing our power supply, we've already managed to offset approximately $20 million of that stranded cost. Earlier this month, we announced the closure of our production plant in Brazil. We'll be able to more cost-effectively serve our customers there with supply from either Freeport or Stade, both of which are vertically integrated with better cost structures. As a result of this action, we expect to realize a $10 million annual benefit. With the progress we made in 2025 and visibility of savings in 2026, we're confident we can exceed the $250 million savings commitment we've made during our 2024 investor day. Now I'll turn the call over to Todd for a look at our financial highlights. Todd Slater: Thanks, Ken. Let's review our cash flow, liquidity, and financial foundation. Despite the challenges we encountered that impacted our adjusted EBITDA during the fourth quarter and throughout 2025, I'm pleased to report that we successfully achieved our 2025 cash flow and working capital objectives. In the fourth quarter, we generated approximately $321 million in operating cash flow, which enabled us to keep our year-end net debt at a level comparable to where it stood at the end of 2024. Throughout 2025, our team's proactive working capital reductions contributed $248 million in cash, excluding the timing of tax payments. As we closed out the year, our available liquidity stood at $1 billion. Preserving and enhancing liquidity continues to be a top priority for us, particularly as we navigate this extended period of lower demand in our businesses. We continually review all sources and uses of cash with the goal of cost-effectively maintaining adequate liquidity to support our business. Our debt profile remains managed. Early last year, our team executed a well-timed bond issuance and debt refinancing, which provided a leverage-neutral extension to 2033 of our nearest bond maturities as well as an extension of our senior bank credit agreement from 2027 to 2030. Importantly, we have no bonds maturing until mid-year 2029. Our debt structure consists of manageable tranches with staggered maturities in the years ahead. We remain firmly committed to managing our balance sheet in a way that maximizes our financial flexibility in the future. Now let me take a moment to discuss our outlook for expected sources and uses of cash in 2026. First, regarding cash taxes, we anticipate receiving refunds from prior years related to the clean hydrogen production tax credits under section 45B as part of the Inflation Reduction Act of 2022. Factoring in these refunds, we expect 2026 to essentially be a cash-free tax year, plus or minus $20 million. We are proactively managing our capital spending. As we further strengthen our financial resilience, any remaining excess cash flow after the preceding capital allocation priorities will be used to reduce our outstanding debt. As a reminder, due to our normal seasonality of working capital, we expect net debt to increase during 2026. We remain focused on minimizing our typical seasonal inventory build. Our teams remain dedicated to generating cash, maintaining strict cost discipline, and supporting our Beyond $250 cost savings. We are committed to maintaining a prudent capital structure with a strong balance sheet and robust cash flows. Ken, I'll hand the call back to you. Ken Lane: Thanks, Todd. Let's finish up with slide nine and our outlook for the fourth quarter. We expect to deliver first-quarter earnings lower than the fourth quarter of 2025. The main drivers behind that are continued seasonally weaker demand and higher costs in our CAPV business, as we previously discussed. We're seeing positive momentum with caustic pricing and expect to see more benefit from that as we move through the year. Epoxy results will be sequentially higher, driven by higher volumes and lower costs in Europe from the new Stade contract taking effect, partially offset by a less favorable product mix. Winchester results are expected to modestly improve from the fourth quarter with higher commercial ammunition volume and pricing to offset rising copper and brass costs as well as lower operating costs from our new operating model. While we're not satisfied with our results, everyone at Olin is focused on executing our value-first commercial approach, delivering our Beyond $250 cost reductions, and controlling what we can control to drive better business outcomes going forward. Across our businesses, our team is committed to maintaining leading positions, and I'm confident that we are well-positioned for the future. Operator, we're now ready to take questions. Operator: We will now begin the question and answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Please limit yourself to one question. At this time, we will pause momentarily to assemble our roster. Our first question comes from Aleksey Yefremov from KeyBanc. Please go ahead. Aleksey Yefremov: Thanks. Good morning, everyone. You described a sharp decline in chlorine pipeline demand in Q4 as one of the biggest headwinds, and I'm curious if it remains a large headwind in the first quarter, and if so, when do you expect that chlorine demand to recover? Obviously, consultants are describing a more competitive merchant chlorine market. Is this part of the story here, or is this something idiosyncratic to your customers, and do you still have those customers and have the same market share or not? Ken Lane: Hi. Good morning, Aleksey. Thank you for your question. So, yeah, listen. We saw the decline that we were referring to for the chlorine pipeline demand. That really happened in December, late in December. As you can imagine, it's pretty easy to reduce that off-take when you're on a pipeline. So we saw that happen. We think it was primarily related to destocking. We were already seeing the seasonally lower demand. It just right at the end of the year, it went down even further. Now that was a contributor to the lower earnings, but also the costs were a larger contributor to the earnings decline that we had talked about for the quarter. You know, we are going to still see seasonally low demand in the first quarter of 2026. I don't expect to see what we saw in December happen again in the first quarter, but you know, we're not going to see a large bounce back in demand. You start to see a recovery until we get into the warmer weather months, water treatment demand, and that sort of thing, that won't happen before the second quarter. So we're still going to be very aggressive on maintaining our costs and making sure that we're being disciplined around our operating rates because that's what we can control. And the other thing that I want to mention is just related to caustic. There's no issue with demand on caustic. What we see happening on caustic is we don't have the volume to sell. The market is tighter than what people think, and we actually are going to see a little bit lower volumes in the first quarter on caustic. That's an availability issue, not a demand issue. Operator: Alright. Next question comes from David Begleiter with Deutsche Bank. Please go ahead. David Begleiter: Good morning, Ken. One of your competitors has announced some capacity closures in North America. Can you discuss how you think the impact of those closures will be felt and how beneficial it could be to Olin in 2026? Thank you. Ken Lane: Good morning, Dave. Thanks for joining us. So listen, like I had said in the prepared comments, we have been seeing rationalization of capacity occurring over the last twelve to eighteen months in pretty much all regions of the world. So it's not surprising when you're at the trough that you're seeing less cost-competitive assets being shut down. And our view has been that operating rates will improve, supply-demand balances will improve quicker than what you may be seeing in a lot of the because of that. That's what happens in every trough. And this is just another example of that. So again, while we're in a situation of this longer trough that's been exasperated by the additional capacity that's been added in Asia, you are starting to see those rationalizations occur. Demand has not come back. And when demand does recover, and it will one day, I know sitting here today, it may feel like it won't. But we're ready when it does. We're doing the right things to prepare our assets. We made a step change in our performance in 2025 in terms of safety, and that goes hand in hand with reliability. Those are very big focuses of our organization. And so what we've got to do is be really good at having the most cost-competitive assets, the most reliable, and the safest assets to be able to supply the markets that we serve. Operator: Our next question comes from Kevin McCarthy with Vertical Research. Please go ahead. Kevin McCarthy: Yes. Thank you, and good morning. Ken, can you comment on how military demand trended at Winchester in 2025, how much that might have been up versus the pressure that you discussed on the commercial side? And looking ahead, I think you made a comment that maybe commercial demand is starting to trend positively on a year-over-year basis. So what is your outlook in that regard for 2026, please? Ken Lane: Good morning, Kevin. Yeah. So listen. What we saw in 2025 was significant growth in revenue related to military, both domestic and international. Now a lot of that gets skewed by the project revenue that you see related to the next-generation squad weapon facility at Lake City. That project is going very well. I do expect, you know, we're even sitting here today, we're a little bit ahead of schedule. And so we feel really good about that project being on track to continue to realize growth related to that even in 2026. If you just think about the ammunition sales, yes, we did see growth even in the ammunition sales. The highest growth would have been in the international military space. That's growing off of a small base. So as a percentage of our total military sales, you know, it is a smaller percent of military sales, military than the domestic military. But we expect to see that continue to grow in 2026. All of that gets diluted by that project revenue, though, that you see coming through related to the Lake City project. We are seeing the fruits of some of the actions that we have taken in the second half of last year by being more disciplined in what we're producing and shifting our model to more of a make-to-order. You know, if we don't see the orders, we're not making the rounds. We've got to have visibility to that demand, and so that has helped us pull our inventories down. We've seen in the value chains, you know, at the retailers, their inventories have come down. And now we've got to start the process to be able to rebuild our margins. We've got to start passing through a lot of these cost increases that we saw in 2025 that are continuing into 2026. You know, brass and copper are real headwinds for us. And so that has got to get absorbed in the market. And so we're being, again, we're being very disciplined about the implementation of these price increases. And, you know, where we're not seeing that, then we're not going to be making the rounds. So we're going to continue with that. The green shoot that I'll comment on, though, is that we are seeing since December, and it has been continuing, you know, we are seeing weekly improvements in out-the-door sales at retailers. And so that is a very positive sign. I think that you are starting to see things get more balanced in that market. And with Chester being the leading brand, you know, we're going to be very disciplined because we're going to leverage that brand value. We're the leading brand in the industry, and we've got to make sure that we get the margins that reflect that. Operator: Our next question comes from Patrick Cunningham with Citi. Please go ahead. Patrick Cunningham: Just in terms, you know, last year, you started the PVC tolling arrangement. Now you have the Braskem ADC. Any updated thinking on additional downstream participation in chlorovinyls, whether it be expanded tolling arrangements or, you know, perhaps investing in your own PVC assets? Ken Lane: Good morning, Patrick. Listen. Vinyls, obviously, is a very important market for us. As you know, we've talked a lot about that. You know, we continue to participate in the PVC market at a low level of volume. But it is giving us the ability to see and learn a lot of things around the customers, around the product portfolio, and really educate ourselves on that decision. We haven't taken anything off of the table in terms of our options that we are considering and that we're looking at. We continue to make very good progress on looking at potential expansion into PVC, which would include joint ventures, some sort of a joint investment or partnership. You know, we're looking at technology providers and, you know, potential locations to be able to execute that. That all is underway, and that all is in flight, but we're not taking any option off the table, including continuing the relationship that we have today with our fence line customer at Freeport, Texas. So all of that is still in play. Long term, we are very optimistic around what we see in the PVC market. Yes, today, there's been too much capacity added. The demand has not come back, particularly in China. But that is going to get corrected over time. And so we're talking about a 2030, 2031 sort of timing for doing anything here. Today, there is not anything more definitive that we could say about that. Operator: Our next question comes from Hassan Ahmed with Olympic Global Advisors. Please go ahead. Hassan Ahmed: Morning, Ken and Todd. You know, just wanted to dig a bit deeper into the Q1 guidance you guys have given. Maybe you guys could sort of talk it through in terms of a sequential bridge. What I'm just trying to understand is that back in the day, you guys would talk about $1 a million BTU swing in nat gas prices being around $45 to $55 million worth of an annualized EBITDA swing. And this is, you know, obviously, before you guys down some capacity and the like. So would love to hear where that figure sits. And if, you know, Q1 had relatively normal nat gas prices, you know, what your guidance would have looked like and what your guidance would have looked like in the absence of maybe some of the weather-related capacity shutdowns you guys have done. And, you know, if I could also add on what that guidance would have looked like in a relatively normal sort of copper pricing environment? Ken Lane: Good morning, Hassan. Thank you for joining us. Listen. I know that some of that is what we've done in the past, but I would just tell you that I think when you start giving out those kinds of metrics, there tends to be too much with other data that they don't have. People lean on those too much, and they start trying to reconcile things. It ended up creating more questions and confusion than it's worth. So let me give you a little bit of a bridge on a year-over-year basis because that's probably a cleaner way to think about this than sequentially just because what we had in Q4 is not necessarily the same thing that we see in Q1. But if you think about it year over year, one of the biggest headwinds that we've got in our chlor alkali business is a significant increase in turnaround spend year over year. That's 40-ish million year over year. '24, '25 versus '26. The other thing is we are seeing significantly higher costs for power and natural gas. You can go look at that, and you can see what the numbers are, but both are going to be higher this year. Including now the impact of this winter storm Fern, we did proactively shut down some assets, but at the same time, we were still running some assets. So the power that we were consuming was at a higher price. But there are also costs associated with not running assets during that time when we were shutting those assets down. Now just to give you an idea, we're still completing the restart of those assets. So not everything is back online. But we should be by the weekend is my expectation. The other thing related to that winter storm Fern is our Oxford, Mississippi facility with Winchester is still down. You've probably seen some of the news coverage around Mississippi. They were sort of the direct hit of that ice storm. Employees are still not able to get to work. In some cases, you know, we're not seeing many people being able to get into that facility. So that's going to continue probably into next week, realistically. So, you know, those headwinds, obviously, we did not have year over year. Epoxy is going to be an improvement. Winchester is down. You know, net-net, those are probably about a wash. If you think about the '25 versus '26. So that's how I would, you know, kind of steer you on that without trying to give you numbers that you're going to screw yourself in the ground around because there are just going to be other variables that you're not going to be able to figure out. So hopefully, that helps. Operator: Our next question comes from Frank Mitsch with Fermium Research. Please go ahead. Frank Mitsch: Thank you, and good morning. I may have missed this in the past, but I wanted to ask about this $70 million stranded costs for the PO-related closure. You know, Dow announced this back in May 2023. And so, you know, obviously, you've known about it for a long time. And, you know, could plan for it, etcetera. That $70 million sounds like a very large number. Can you help explain that to us? To me in particular? Ken Lane: Yeah. Good morning, Frank. For your question. Listen. Yeah. We have known about this for a long time, and we've been planning it. And we talked about this at our investor day. You know, we knew that this was coming, but you don't take the costs out until you shut the asset. And so those assets are being closed and wound down as we speak. So as we go through the year, we're going to have to find ways to be able to offset that, and that was the basis for us creating Beyond $250. We've got to find ways to be able to take those costs out. The way that we were talking about this, I think, previously as well is that asset and the sales from that asset didn't generate any margin for us. It was a sort of a net-zero effect for us in terms of the P&L. That doesn't mean that there would not be stranded costs with that. We were aware of that. We've got to get after that. That is a very clear focus for us to be able to do that as we wind those assets down. But that is going to be something that happens over time. It doesn't happen like flipping a switch. Operator: Our next question comes from Josh Spector with UBS. Yeah. Hi. Good morning. Josh Spector: I just wanted to ask, if you look at the fourth quarter and first quarter in chlor alkali, and you just look at the things which are related with extended downtime, third-party outages, your own inventory actions, what was the impact in the fourth quarter? And what's your baked-in impact in the first quarter? Ken Lane: Good morning, Josh. Well, you know, like I said, there are a lot of things. There are a lot of variables that are going into that, including unplanned outages in our system. And present a little bit of a volume issue for us in the first quarter related to being able to meet the demand that we see, and that's why we're so confident in the momentum that we see around caustic pricing. But you're really, it's really difficult to give you any more details than that. I think there's a lot of misconception out there about the marketplace. And what we see in terms of supply and demand. Things are tighter than what people believe. And I think that's one of the things that we are going to continue to realize as we go through the first quarter and into the second quarter, we're going to start to see that movement in pricing that reflects the situation in the market. Operator: Our next question comes from Matthew DeYoe with Bank of America. Please go ahead. Matthew DeYoe: Morning. Like the prior kind of commentary for 2026 epoxies, I think we were expecting something around $80 million in cost savings, of which, you know, over half was supposed to come from just the Dow contract, Lapchada. Clearly, you're talking about modest profitability. Now this wouldn't be the first case. Productivity is lost to the cycle, but I'm just trying to clarify if that's what's happening here or if we should expect those savings to be more ratable in 2027. Yeah. I'll let you expand from there. Ken Lane: Good morning, Matt. Hey. Listen. So what we had said back at Day, that $80 million, remember that that was our cost-out target for 2028. You know? So that you're going to realize a very big chunk of that. You know, $40 to $50 million is going to be realized in 2026. So, you know, you are going to see, you know, epoxy last year, $50-ish million EBITDA negative. We're going to be positive this year. I mean, I do expect that that's going to be the result. And in 2026. So you're going to see a meaningful improvement in our earnings. Most of that are things that we're doing to help ourselves in cost reduction and efficiency improvements. Just to be clear, we're not seeing any significant improvement in the epoxy market. Demand is still subdued. Margins are still weak. You know, that environment has not changed. So all of this improvement that you're seeing is a result of what we've done. And so it's not getting lost anywhere. You're going to see that positive impact coming through in 2026. Operator: Our next question comes from Mike Sison with Wells Fargo. Please go ahead. Mike Sison: Hey, guys. Just curious when you think about improving EBITDA sequentially throughout the year, what do you think needs to happen? Obviously, would be great, but you have a lot of cost savings. Can you maybe just give us a feel of, you know, what could happen heading into 2Q, 3Q that could really maybe improve the EBITDA levels from where we're at now? Thank you. Ken Lane: Good morning, Mike. Well, listen. Like I have said, we are going to be really focused on everything that we can do to ensure that we're becoming a more efficient company, reducing our costs, in the face of a very difficult market that we're in today. I am more bullish on what we expect to see around caustic pricing. The cost reductions, you're going to start to see that come through here in the first quarter, particularly around the epoxy business. We've talked a lot about that. And then, frankly, we've got to execute on this turnaround in Freeport. You know, it's starting here in the first quarter, at the end of the quarter, and it's going to go into the second quarter. So that headwind is going to stay there in Q2 related to the VCM turnaround. So we have to execute that very well. And the team has done a great job preparing for that, planning for that. I've reviewed where they are in terms of being prepared, and, you know, we've got to make that a reality now. So execution, running the assets reliably and safely, and executing this turnaround, those are the things that we can control, and that's what we're going to be really focused on to deliver those cost reductions. And then as we see demand recover in Q2 and pricing improve in Q2, that's going to give us some momentum, but we're not going to quantify that at this point. Operator: Our next question comes from Matthew Blair with TPH. Please go ahead. Matthew Blair: Thank you, and good morning. Could we circle back to this mention of higher energy costs? I think it was on Slide nine. We normally think of Olin as fairly hedged on a quarter-over-quarter basis. So is this just a function of rolling to a new year, or has anything changed on your overall hedging strategy? Ken Lane: Good morning, Matthew. Todd, do you want to take that one? Todd Slater: Yeah. No. Great. Thanks for the question. Yes. You're right. We continue to be a hedger. One quarter out, we're very heavily hedged, generally on a rolling four-quarter basis. And so, you know, without the spike in natural gas that you saw associated with the winter storm and cold weather here in January, we would have expected, you know, based on our hedges, that natural gas and our power costs would have been higher. Candidly, that will be exacerbated by the unhedged component, you know, here in January. Associated with that. And for Todd, for 2026 for the full year, do you have any cash flow or free cash flow or working capital objectives? So listen, won't get specific on the broad chem arrangement. Again, that is one where it's a great partnership that we've created there. Like I said, we brought together us, Olin, as the low-cost producer of EDC, together with the PVC leader in Brazil, and this is going to create value for both of us. So, you know, it's going to allow us to get a higher value for our ADC versus, you know, selling it on the spot market and the export spot market. It's going to allow them to have a better cost position to be able to compete with their PVC in Brazil. The other component of this, though, is around caustic. So we do have a larger footprint now on infrastructure with caustic infrastructure in Brazil. So we've also inherited a lot of that infrastructure in terms of tanks and ports and access to be able to move caustic into the region. And so that's going to help us, probably even more so than the EDC side of this. You know? EDC prices have come down so much through the year. You know, if you just think about if you go back to the first quarter of last year and that bridge that we were building earlier, you know, vinyl's pricing has come down significantly from the first quarter of 2025. And so, you know, as prices recover, that's going to be more of a tailwind. But, you know, we're not projecting any significant improvement in vinyl pricing in the near term. So I would say let's not get over our skis on that at this point. It's probably more of a caustic story, and we will know, we'll see a meaningful increase in our caustic sales into Latin America in 2026. We're not going to quantify what that looks like, but that's going to be a growth market for us. Yeah. And Jeff, you know, talking about cash flow and working capital, as we move to 2026 compared to 2025, you know, we will see a real tailwind associated with cash taxes. I'd say roughly in 2025, we spent $167 million in cash taxes. And so we would expect 2026, I said, to be a relatively cash-free tax year, you know, plus or minus $20 million. So, you know, that's a nice tailwind as we move into 2026. However, you know, we did reduce working capital excluding taxes by, you know, $248 million. We would expect that you will see some normal seasonal build in working capital in 2026. But we will be very disciplined, as you've heard, around inventory and our seasonal inventory build. And we will be very focused on continuing that working capital discipline that you saw, you know, in 2025. And so, you know, that is going to be something that, you know, we think we can maintain the levels of inventory that we have achieved in 2025 and 2026. If not improve upon that. Operator: Our next question comes from Peter Osterland with Truist Securities. Please go ahead. Peter Osterland: Hey, good morning. Thanks for taking the question. I just wanted to follow up on the Winchester discussion. Just given the plans you've laid out on pricing and cost actions and acquisition synergies, how much visibility do you have for margin improvement in the business during 2020? I mean, I guess if you assume commercial demand and raw material prices don't meaningfully improve, can you drive segment margins higher for the full year 2026 just through self-help? Thank you. Ken Lane: Good morning, Peter. Thanks for the questions. There are a couple of ways I want to answer that question. One is we have taken costs out of Winchester, you know. So if you go back to December or the fourth quarter, we did take out shifts. We have reduced staffing levels to be able to reflect that lower demand that we had talked about. Demand has gone back to kind of the pre-COVID levels. So there's a big decline in the earnings of Winchester that is related to volume. The margin side of it is certainly related to a big part of that are cost increases. Yes. There were some concessions around pricing as retailers had high inventories, and there was promotional pricing that was done to move that inventory. So we've got to recover both of those things. The price increases that we have put out there in the first quarter for Winchester really just get us to recover those increased costs that we've seen. So, you know, unfortunately, I don't right now see that there's going to be a lot of improvements in the margin for Winchester. This is really going to be more about getting the costs passed through to hold the margins where they're at, which is not at a satisfactory level. So we, sorry. Candidly, we need more pricing to offset if copper stays at, I don't know, 06:10 this morning. There needs to be more. Right. There's got to be more coming just to hold margins where they are. So even with that kind of green shoot that we're seeing around some improvement in commercial demand, we have got to stay focused on getting prices up to get margins recovered. They're still significantly below where we expect them to be, and our commercial teams are extremely focused on doing that. Operator: Our next question comes from Arun Viswanathan with RBC. Please go ahead. Arun Viswanathan: Great. Thanks for taking my question. I hope you guys are well. I guess, understanding that visibility is somewhat limited, just wanted to understand, you know, kind of the earnings trajectory from here. So, obviously, Q4 and Q1 were impacted by some one-time impacts. You guys have rolled out some more aggressive cost management actions. But you're still seeing some significant headwinds there that you just discussed in Winchester. And epoxy is still in negative EBITDA territory. So if I look at Q1, it looks like that's going to be in the $60 million range or so. You know? And then, you know, obviously, you'll have seasonal uplift in Q2 and Q3, but then Q4 will also be back down. So, you know, I struggle to kind of get above maybe $4.50 or so on the year. Am I kind of being a little bit too punitive there, or what of one-time costs would you call out to, you know, kind of maybe increase from that base? Any kind of comments would be helpful. Thanks. Ken Lane: Good morning, Arun. Thank you for your question. So listen. I think there are obviously a lot of puts and takes. This is a very heavy year for us in terms of turnaround. This is probably the peak year that we've ever seen. You know, we had a high year last year. We've had a higher year this year, and then we'll see some relief in 2027. So, you know, turnarounds are a real headwind for us in 2026. As we go through the year, you know, yes, you will see the seasonal improvement in Q2, Q3, especially around water treatment as those markets come back. That is going to happen. We are going to see momentum around caustic pricing. We don't expect to see any improvement in vinyls. I mean, I've already said that. I think that's just one where we've got to stay focused on being disciplined. But I do want to go back to the cost comments and the question. We are not rolling out anything new or more aggressive on our cost reductions. What we are talking about in terms of our cost reductions, we were talking about at our Investor Day in 2024. We are delivering on what we had talked about back then. And what we see now is we actually have visibility. We believe by 2028, we can exceed that $250 million of savings that we had talked about. So this isn't something new. This is something that our organization is completely committed to. We have changed our performance metrics in terms of how we're rewarding our executives, our site leaders. So now our sites each have part of their stip, their short-term incentive, is driven off of their specific performance around safety, reliability, cost performance, and yields. We are driving that discipline through the organization and that accountability and that ownership. And what I love to see is the organization is responding to that and delivering that. That's not something that's new. That's something that we've been talking about for the last year. And what you're seeing is the fruits of that are going to be borne out here in 2026. Operator: Our next question comes from Vincent Andrews with Morgan Stanley. Please go ahead. Vincent Andrews: Thank you very much, but my questions have been answered, so I'll pass it along. Ken Lane: Thanks, Vincent. Operator: Our next question comes from John Roberts with Mizzou. Please go ahead. John Roberts: Thank you. So slide 16 shows that caustic soda prices declined sequentially in the December quarter. So I assume you ended the quarter lower than you began. And I think slide 15 says the price increases don't really start until the second quarter. So the March caustic price will be down sequentially. I just wanted to confirm that because you were talking earlier about rock-bottom inventories and tightness in the market, but it kind of doesn't seem to be consistent. Ken Lane: Hi. Good morning, John. So listen. Yeah. We've got, you know, some of that is mix in terms of what you're seeing. We are seeing caustic pricing moving higher in the quarter, and, you know, that's in our system. And that's all that I can really comment on. There is a lag that we see, you know, that you've got monthly pricing, you've got quarterly pricing, and some pricing that's on a lag. And so you're going to start to see that really pick up in the second quarter compared to what you saw in the fourth quarter. John Roberts: It was only down 3%. Ken Lane: Sorry, John. What was that? John Roberts: The ECU PCI encompasses both price and power cost. Right? So that's already in that 3% decline in the ECU PCI. So the difference between the 3% decline in the ECU PCI and the percent decline in EBITDA was all volume and the Dow stranded costs. Ken Lane: No. That's more reflective of mix that you see in that PCI. So, I mean, that's frankly, that's noise more than anything. John Roberts: So the ECU PCI doesn't encompass mix effect. It's a constant mix. Todd Slater: John, I think this is Todd. No. I think Ken said mix, you know, it is all chlorine derivatives. Not just the ECU comment. It is all chlorine derivatives, including all the epoxy chlorine derivatives as well as all the chlor alkali chlorine derivatives. And as well as caustic soda. So it is all-encompassing. And so you can see changes in mix. And as you heard in our commentary, we did have some more favorable mix in our epoxy business. Operator: This concludes our question and answer session. I would now like to turn the conference back over to Ken Lane for closing statements. Ken Lane: Thank you, Bailey, and thank you, everyone, for joining us today. We appreciate your interest in Olin, and we look forward to speaking to you at our first quarter 2026 earnings call. Thank you very much. Operator: Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, everyone, and welcome to today's Nomura Holdings Third Quarter Operating Results for Fiscal Year ending March 2026 Conference Call. Please be reminded that today's conference call is being recorded at the request of the hosting company. Should you have any objections, you may disconnect at this point in time. [Operator Instructions]. Please note that this telephone conference contains certain forward-looking statements, and other projected results, which involve known and unknown risks, delays, uncertainties, and other factors not under the company's control, which may cause actual results, performance or achievements of the company to be materially different from the results, performance or other expectations implied by these projections. Such factors include economic and market conditions, political events and investor sentiments, liquidity of secondary markets, level and volatility of interest rates, currency exchange rates, security valuations, competitive conditions and size, number and timing of transactions. With that, we'd like to begin the conference. Mr. Hiroyuki Moriuchi, Chief Financial Officer. Please go ahead. Hiroyuki Moriuchi: This is Moriuchi, CFO. Thank you for joining us. I will now give you an overview of our financial results for the third quarter of the fiscal year ending March 2026. Please turn to Page 2. Return on equity was 10.3%, reaching the quantitative target for 2030 of 8% to 10% or more for the seventh consecutive quarter. Group-wide net revenue came in at JPY 551.8 billion, up 7% over the last quarter. Income before income taxes fell 1% to JPY 135.2 billion, while net income fell 1% to JPY 91.6 billion. EPS for the quarter were JPY 30.19. The 4 main divisions performed solidly, but the segment -- other incurred losses because of the downturn in market conditions for the digital asset-related businesses. For all 4 divisions in total, pretax income rose 8% to JPY 142.9 billion. This is the highest level in 18.5 years since the first quarter of the fiscal year ended March 2008. Wealth Management achieved growth of around 30% versus the previous quarter, which was itself a strong quarter. Investment Management saw business revenue rise to an all-time high since the establishment of the division, thanks to the consolidation of the public asset management business of the Macquarie Group, which we acquired in December 1, 2025, but profits fell because of weaker investment gains and onetime expenses associated with this acquisition. In wholesale, both Equities and Investment Banking performed solidly generating record revenues. Banking also generated solid revenues from lending activities as well as trust and agent services. In view of our strong momentum, we resolved to set up a share buyback program in order to enhance shareholder return and capital efficiency. The program will run from February 17 to September 30 of this year with an upper limit of 100 million shares and JPY 60 billion in amount. Before we go into details for each business, let us first take a look at earnings in the first 9 months of the fiscal year. Please turn to Page 3. As shown on the bottom left, income before income taxes rose 15% year-on-year to JPY 432.1 billion, net income rose 7% to JPY 288.2 billion. Earnings per share came in at JPY 94.67, and return on equity came in at 10.8%. Please see the bottom right for breakdown of income before income taxes. Pretax income at 4 main divisions rose 10% to JPY 381.3 billion. On a 9-month basis, income before income taxes is running slightly ahead of the target of over JPY 500 billion in our 2030 management vision. Looking at individual divisions, Wealth Management continue to generate stock strong profits and year-on-year recurring revenue cost coverage ratio rose sharply, improving revenue stability. Profits fell in Investment Management because of onetime expenses associated with the Macquarie acquisition, but existing operations continued to generate organic growth, thereby steadily broadening the division's business foundations with a view to future growth. Moreover, at all wholesale businesses -- business lines, they performed well, thereby actively driving group-wide earnings. Banking saw costs rise ahead of the introduction of the new deposit sweep service in the next fiscal year, but loans outstanding and investment trust balances rose smoothly. We will take a look at the third quarter results. Please turn to Page 7. All percentages discussed from now on are based on a quarter-on-quarter comparison. On the top left, you can see that Wealth Management net revenue increased 14% to JPY 132.5 billion, while income before income taxes of JPY 58.5 billion represents a growth of 29% versus the previous quarter, which was itself a strong quarter. The margin of over 40% on income before income taxes was not only high in absolute terms, but was ahead of the street, too. On the bottom left, you can see that recurring revenue rose to an all-time high of JPY 52.7 billion. The first and third quarters tend to be flat quarters for recurring revenue because investment advisory fees are only booked in the second and fourth quarters, but this was completely offset this quarter, thanks to net inflows of recurring revenue assets in excess of JPY 500 billion. Floor revenue also increased sharply to JPY 79.8 billion. Accurate assessment of market movements and client needs, along with supply of new products, helped to ensure strong revenue. Recurring revenue cost coverage ratio also rose 1 percentage point to 71% amid ongoing cost control initiatives. Please turn to Page 8, where you can see an update on total sales by product. Total sales rose around JPY 300 billion to JPY 6.6 trillion, thanks to growth across a wide range of products. Equities registered growth of 4%, thanks to increased secondary trading during market correction phases as well as major primary deals. Bonds registered a decline of 25%, yen-denominated bond sales came in flat as rising interest rates boosted yields and ensured solid demand, but foreign bond sales were hit by the disappearance of primary deals booked in the previous quarter. Investment Trusts and Discretionary Investments, which make up recurring revenue assets saw steady growth in sales and insurance sales remained strong. This demonstrates that the shift from savings to investment has now firmly taken root. Next, we take a look at the KPIs on Page 9. On the top left, you can see that recurring revenue assets saw a net inflow of JPY 503.9 billion, although there were some liquidity needs prompted by record highs in major markets, we secured the largest net increase on record. Our efforts to expand the recurring business are steadily producing results, strengthening our confidence. Meanwhile, as shown on the top right, recurring revenue assets totaled JPY 28.1 trillion at the end of December, which also presents an all-time high. As shown on the bottom left, the number of flow business clients rose by around 270,000 to 1.53 million. Volume market conditions led to an upturn in client activity and primary deals such as the SBI Shinsei Bank IPO, also encouraged trading activity. Next, let's take a look at Investment Management on Page 10. On the top left, you can see that net revenue came in flat at JPY 60.9 billion, and the income before income taxes fell 42% to JPY 17.9 billion, mainly because of onetime expenses associated with the Macquarie acquisition, together with weaker gain associated with American Century Investments, which came under investment gains and losses. On the bottom left, you could see that business revenue, which constitutes stable revenue rose to an all-time high of JPY 57.8 billion, benefiting from revenue from the acquisition that we completed in December last year as well as from solid performance in asset management business in Japan. However, Investment gains fell because of smaller gains related to American Century Investments and the disappearance of gains in the sales of portfolio companies at Nomura Capital Partners. Although profits for the division fell because of weaker investment gain and onetime expenses associated with the acquisition. The impact was offset in consolidated accounts via the reversal of the valuation allowance for deferred taxes, -- deferred tax assets. Let's now turn to Page 11 and examine our Asset Management business, which is a key source of business revenue for the division. The graph on the upper left shows that assets under management reached an all-time high of JPY 134.7 trillion at the end of December as shown on the bottom left, net inflows amounted to JPY 115 billion, representing the 11th consecutive quarter of net inflows. Net inflows to domestic investment trust business totaled JPY 71 billion. Although there were outflows from ETFs for profit taking amid rising equity markets and from Japanese equity investment trusts due to early redemptions, they were offset by inflows into newly established Japanese equity active funds, private assets and balanced funds. Net inflows into domestic investment advisory and International businesses totaled JPY 44 billion, with the outflows from U.S. high-yield bonds and the business we acquired, but influenced mainly into yen-denominated bonds in Japan. As shown at the bottom right, alternative assets under management rose to a new high of JPY 3.3 trillion. This represents growth of about JPY 400 billion versus the end of September, more than half of which stems from net inflows. Next, let's take a look at wholesale on Page 12. On the top left, you can see that wholesale net revenue rose 12% to JPY 313.9 billion, while income before income taxes rose 17% to JPY 62.3 billion. The breakdown on the bottom left shows that global market net revenue rose 9%, while Investment Banking net revenue rose 31%. Please turn to Page 13 for an update on each business line. Page 13, please. Net revenue in the Global Markets business rose 9% to JPY 256.8 billion. Please look at the middle section on the right. Fixed income revenue rose 12% to JPY 136.9 billion. In macro products, rates, revenue growth in Japan and the Americas increased flows, while FX emerging revenues rose in EMEA and also recovered in ASIA from the previous quarter. In Spread products, credit revenues fell in AEJ of investors adopted a cautious approach, but securitized products revenues remained high in the Americas, in particular. Equities revenue rose 5% to a new high of JPY 119.9 billion. Equity Products revenue rose sharply in the Americas on strong performance in derivatives, and execution services revenues rose sharply in Japan, particularly thanks to primary deals. Turn to Page 14, please. As you can see on the bottom left, Investment Banking net revenue rose 31% to JPY 57.1 billion. This represents the strongest performance for the period since the fiscal year ended March 2017, the earliest period for which we can make meaningful comparisons by product in advisory momentum remained strong in Japan with multiple transactions involving moves to take companies private and cross-border deals, and international businesses made the contribution with multiple deals, including deals in closely watched sectors, mainly in EMEA and AEJ. Revenue rose sharply in financing and solutions. Major IPOs and public offerings made strong contributions to growth in ECM, especially in Japan. Elsewhere, solutions revenue and DCM revenue in Japan also remained strong. Now let's look at banking. Please turn to Page 15. As seen on the top right, in banking, net revenue came to JPY 13.7 billion, up 7% from the previous quarter. Income before income taxes rose 31% to JPY 4.2 billion. Income from lending business and trust agent business held firm as the division established in April 2025 increased the outstanding balances that we have set as KPIs, while benefits of marketing and advertising strategies slowly started to emerge. Preparations for the deposit sweep service scheduled for introduction in the next fiscal year are progressing as planned. Next, Page 16, for expenses. Group-wide expenses came to JPY 416.5 billion, a 10% or JPY 37.7 billion increase from previous quarter. As shown on the right, the drivers of the increase include an FX impact of JPY 9 billion as well as JPY 13 billion in one-off costs, such as onetime expenses associated with the acquisition and the temporary costs arising from partial changes to the deferred compensation plan. Other major factors include operating expenses related to the acquired business provisions for performance-linked bonus and commissions and the floor brokerage fees. These are primary strategic investments aimed at strengthening our future earnings base or variable costs that move in line with revenue. Moving forward, we will continue to execute strict cost control and work to secure our profitability. Last, Page 17 for financial position. In the table on the bottom left, we can see that Tier 1 capital at the end of December came to JPY 3.6 trillion, up JPY 60 billion since the end of September, while risk-weighted assets came to JPY 24 trillion, up by JPY 700 billion. The common equity Tier 1 ratio at the end of December came to 12.8%. Our common equity Tier 1 ratio finished the quarter down 13% at the end of September, but this is mainly attributable to the negative effect of 0.5% as a calculation method for regulatory capital ratio changed with the completion of the acquisition of the business from Macquarie Group. This concludes our overview of third quarter results. In closing, in the Q3, strong performance continued across all 4 segments, as stable revenue grew and repeat client flows were monetized against backdrop of U.S. Japanese equities rising to new heights, while absorbing one-off costs associated with acquisition, ROE for the Q3 came to 10.3% and ROE based on performance in the 9 months through the end of Q3, came to 10.8%. Let me touch upon the situation in January. In Wealth Management, net revenue thus far in January is about even with the level in the third quarter. Client sentiment has been favorable despite some selling pressures in the market, and we think household financial assets are steadily shifting into investment in response to concerns about the inflation and heightened long-term diversified investment need. In wholesale, due to seasonal factors, Q4 tends to be somewhat slower than the previous quarter, even though GM, or Global Market, is striking broadly in line with the prior quarter. Meanwhile, Investment banking has gotten off to a slower -- slightly slow start, but overall, the pipeline is solid, and we are not concerned. In Q3, the impact on earnings from fraudulent transactions stemming from phishing and scams was negligible based on recent conditions, we think the impact on earnings will continue to be very minimal. Also, there are 2 items that needs additional explanation regarding Laser and Investment Management division. First, starting with Laser. Let me explain the losses in the segment Other. In this past quarter, we recorded losses in part of our business in EMEA owing to digital asset market movements and the effect of currency hedges. Specifically, earnings at Laser Digital, the unit that runs digital asset business were negatively impacted by market movements observed in October and November of last year. Laser became profitable 2 years after its establishment and its performance was solid in Q2, but the units suffered a temporary negative impact in the third quarter. Earnings in the crypto asset business are volatile by nature, and we are well aware of management of the business over medium to long term, has to take that volatility into account. At the same time, to limit short-term earnings fluctuations, we have further tightened control over positions and risk exposure. Moving forward, we will continue to capture growth in crypto markets while strengthening our services and customer base. Next, regarding Investment Management division's performance, let me add -- let me explain the existing platform and acquired business separately. First, excluding the impact of the acquisition of existing platform's AUM expanded from JPY 101 trillion as of end of September to JPY 110 trillion at the end of December, supported by net inflows and the business revenue reached a record high. I will explain next the acquired business after consolidating December results. We newly recorded approximately JPY 25 trillion in assets under management, business revenue for the period was JPY 7 billion, and operating expenses were JPY 5 billion, in addition, one-off acquisition-related costs and amortization of intangible assets were recorded, bringing total expenses, including operating costs to roughly JPY 11 billion. These one-off acquisition costs reduced the division's pretax profit, but the impact on consolidated net profit after tax was offset by releasing valuation allowances against deferred tax assets associated with the acquisition. As we explained at the investor event in December, we expect total future expenses of $100 million or so for transfer and integration-related costs and other items. These costs will be incurred over the next 2 years, but the majority is expected to be recognized over the 1-year period starting from the fourth quarter, we are now going over the details of what we expect to spend on growth investments and plan to present this information at the Investor Day event in May because the acquisition was only just been completed, have commented in some detail here about the contribution of the acquired business, but as acquired the business, becomes more fully integrated into operational commentary on business performance, we will treat the division as a unified whole while maintaining the disclosure transparency once we are through the initial investment phase of the J-curve, our long-term aim is to grow profits by maximizing synergies between our existing and the newly acquired business. The company celebrated its centennial on December 25 last year. Going forward, we aim to continue striving for growth with the help of our stakeholders and other stakeholders. We are grateful for your continued support. Thank you. Operator: [Operator Instructions] The first question is by SMBC Nikko's Muraki-san. Masao Muraki: Muraki of SMBC Nikko. I have 2 questions. Page 24, JPY 10.6 billion Red Inc. in Europe. Laser Digital, you said that there was a fluctuation of the market between September and November. So JPY 10 billion of losses. At that stage, there was quite a sizable position. What was the status in terms of position management? One year ago, quite a sizable profits had been recorded, but at that stage, what was the state of position management and in order to control volatility, you said that you are taking measures, but what's your forecast regarding the volatility of performance going forward? That's my first question. Second question, Wealth Management, Page 7. There was net increase in investment trust, but amount outstanding, net inflow was quite strong. What's the backdrop? There was not any outflow. Is this sustainable? And margin is more than 40% -- 44%, AI-related investment was cited, but what would be the level of margin? Hiroyuki Moriuchi: Muraki-san, thank you for those questions. The first question -- the first point of question one, Laser's activity, were there any long positions taken? As you know, regarding Laser's activities, institutional investor market making and crypto assets, fund management and Nomura seed investment, venture investment. These are the diverse activities that Laser is engaged in as we offer services to customers. As you pointed out, there had been some long positions, and based upon that situation, going to the second point of your first question, how will we control volatility of performance going forward? This is a new industry of digital assets, and there are growth prospects, and we are currently in the stage of fostering businesses. And we -- our position is unchanged. We will -- we have long-term commitments. And in terms of risk management framework, we already had a robust risk management framework. On the other hand, in the short term, as you have rightly pointed out, how should I put it? There are times when sizable revenues are recorded, but last year, in November and December, there was some market disruption. So there is upside as well as downside, quite significant upside as well as significant downside. So in the short term, already, in order to control volatility, we are reducing the volume of risk in the positions we take. So this kind of precise position management will be continued in order to control upside and downside volatility, and in the long run, we wish to expand this business. So that concludes my response to your first question. Second question, net inflow of investment trust is sizable. Is this sustainable? Now having said so, there is market impact. There is impact from customers' preference. And I would like to, therefore, refrain commenting on whether we think that this trend will continue. On the other hand, 44% is a high margin, and can we further seek higher margin on this matter? Partially there are impacts coming from the market. So it's difficult to make any comments on that dimension. We are impacted by cyclical factors. Market structural change is taking place. And our policies are well aligned to market structural change. The Japanese market, retail investors are making a major shift from savings into investment. This is a sustainable trend, and we are taking measures that are well aligned to that trend. So in comparison to historical trends, we think that the margin level will be high, we will be able to maintain higher margin level. On the other hand, on the cost control side, we are continuing our efforts. But selectively, we are using AI, investing into AI, in order to improve the services we provide to our customers, so that will continue. So that concludes my response to your 2 questions. Masao Muraki: My second question, Morgan Stanley and Merrill Lynch margins are 30%. They've targeted 30% and the actual is slightly over the target, but why does Nomura such advantage? Is it because the asset size is -- would they have larger asset size? What's your advantage? Hiroyuki Moriuchi: Thank you for the question. I was consulting with our people in IR. There are country-to-country differences in terms of market structure, making it difficult to do an apple-to-apple comparison. Nomura's Wealth Management 100% sales are in-house. And because of that, partly because of that, it's easier to control cost. And the revenue market structure, I will have to once again check the market structure to respond regarding revenue. So I will conclude here. Operator: The next question is asked by Watanabe-san of the Daiwa Securities. Kazuki Watanabe: I'm Watanabe from Daiwa. I have 2 questions. First question is about Wealth Management's pricing strategy, other face-to-face securities, overseas equities, and other products they are raising commissions. Do you have a discussion internally about raising pricing? Second question is about the timing and scale of buyback. Why Q3? Why not Q4? What's the background of the JPY 60 billion in size? Hiroyuki Moriuchi: Thank you for your questions. For your first question on Wealth Management's commission rate, whether our peers are raising commission and what is our situation? That's your question. It's related to Wealth Management strategy. So I would like to refrain from answering that question. For us, we are focusing on value provision to customers. So we are considering what is the best solutions for customers. And we would like to continue our deliberation. Regarding your second question about the timing of buyback, why Q3? And also you asked about the value or amount. Regarding the timing, for one thing, Macquarie U.S. Asset Management transaction closing was the 1st of December. And by booking the business, CET1 ratio impact was not clear, but it was clarified and finalized. So our investment capacity was clarified. So in the market, there is expectation for buyback. So with that taken into consideration, we wanted to live up to expectations of investors and decided on buyback. Regarding the size of buyback as mentioned repeatedly, for us, investment strategy and future opportunities and also, at the same time, the importance of shareholder return are all considered. And based upon the balance, we came to the decision on the size. Kazuki Watanabe: Regarding the second answer, CET1 ratio. That's above the target range this time. And on that basis, you came to JPY 60 billion. So if FY 2025, so based upon the total return ratio target. So this completes your actions to meet the target for FY 2025? Hiroyuki Moriuchi: So whether we are at or above 50% in total return ratio that cannot be decided until we see the fourth quarter results. Based upon the fourth quarter results, we will check whether there is shortfall or not. If there is shortfall, then we will consider measures to take at that point in time, but when deciding on the amount, it is possible to add to what we have announced. Operator: The next question will be by JPMorgan Securities, Sato-san. Koki Sato: JPMorgan Securities, Sato. I have 2 questions. First, Global Markets, post-January performance. You touched upon that subject Q3. You said that the trend of Q3 has been maintained since the beginning of the month. Domestic rates, recently, there had been some fiscal concerns that had led to spike in interest rates, which means there was lack of buyers. So some people cited that there was dysfunctioning of the market. And under such circumstances, how should we view your domestic rates business? Secondly, just to confirm the numbers, Macquarie acquisition, 1-month worth revenue expenses, revenues and expenses will be booked, but normal rate contribution, JPY 7 billion revenue, JPY 5 billion cost, so JPY 1 billion per month times 12. Is that the right assumption? So can you confirm whether those numbers are correct? Hiroyuki Moriuchi: Thank you for the question. Then on the first question, the performance is solid in January as was the case of Q3, but what about domestic rates? As you have pointed out, there has been some increase in volatility in the market, super-long bond rates are going up. And therefore, some of the clients are taking a wait-and-see attitude and that is partly reflected in our Japan rates business, which has seen some slowdown. On the other hand, for global markets, in general, we are doing quite well because our business has diversified. In Japan, it's not rates alone. We're doing equity, credit. We're in diverse business areas and our GM business overseas, especially U.S., the business has grown to become quite sizable. So this slowdown has been absorbed, and we are recording sound performance in January. On the second question of Macquarie acquisition, no, in peacetime, 7 minus 5, to minus goodwill, 1 times 12. That's the broad image, but this 1 month is quite difficult because in revenue, seed capital -- we have seed capital to foster the business, and there is fluctuation. For the annual -- in annualized term, the position is neutral, but when we look at a snapshot of 1 month, there could be some fluctuation. So it could become bigger. So I think that's the way to look at it. Operator: The next question comes from Tsujino-san of BofA Securities. Natsumu Tsujino: So this time, personnel cost increased and deferred compensation accounting method was changed and that impact is included, and moving forward in Q4 and after Q4 as well, what is going to be the impact in and after Q4? And also, what is the actual amount, absolute amount in impact? And considering that this time, revenue due to weak yen and personnel costs due to weak yen, both seem to have increased. But the way personnel costs increased, what was the reality of how personnel costs increased. That is my first question. And the impact from next fiscal year. Next question, second question is about Laser Digital. You said you have reduced position, but moving forward, this business is what you would like to grow. And of course, you have traditional securities business, which is growing, but when the size increases, then you have no choice about to increase positions and then hedge is impossible for crypto assets. Then how should we think about the positioning. In the long term, how do you deal with the volatility that needs to be considered. So what is your thinking? Hiroyuki Moriuchi: Thank you for your questions, Tsujino-san. Regarding your first question on deferred compensation, accounting method change, what is the actual impact? And what is the impact expected in the fourth quarter and the next year? In the third quarter, actual impact amount is about JPY 8 billion. In the fourth quarter, about the same amount is expected as impact. And next year onward, JPY 15 billion or JPY 16 billion are expected impact. But next year -- well, that's this year. So next year, 40% or 50% of that is what we expect for next year. And year after next, the impact will be negligible. It's difficult for me to explain here the accounting treatment involving the slide in timing of cost recognition. Deferred compensation systems have varying treatments. So the cost is front-loaded and spending after 12 months, the level normalizes, that's how we should think about it. Regarding your second question about the reduction of Laser positions. In the medium and long term, with the business growing, the position will grow bigger, and the volatility will stay elevated. That's the point, which you pointed out, I believe. And regarding your point, strategy included, we need to have a thorough discussion in any ways. We would like to grow this business in the medium to long term, but there are several activities by holding inventories we do market making and trading for customers, then the unit risk exposure will be reduced. On the other hand, as mentioned, digital asset or crypto asset-related businesses, in addition to market making for institutional investors include other businesses such as crypto asset, management business or venture ecosystem supporting business, also combine custody-related businesses, there are such other businesses. So while ensuring diversity, we would like to grow the ecosystem. That is our direction. So just like you, Tsujino-san, we have the same sense of risk. So while understanding those points, we would like to conduct this business. Natsumu Tsujino: Regarding lending, are you conducting lending right now? And there is no extra risk there, if you are conducting lending business like crypto asset lending. Hiroyuki Moriuchi: Regarding lending business, we do have lending business as part of product lineup, but activity is very small. Operator: The next question is for UBS Securities, Niwa-san. Koichi Niwa: This is Niwa. I hope you can hear my voice. Operator: Yes, we can hear you. Koichi Niwa: Wholesale resource efficiency and private assets. First, revenue and risk-weighted asset ratio Page 12, 7.7%, quite high. And how does the management evaluate this level? And you've been talking about improving efficiency. So is there room for further increase division ROE. Do you think that this could be raised further? That's the point of my question. And secondly, I will deviate, but in Nikkei newspaper, Mr. Okuda was responding to an interview regarding private assets, and he was talking about selling Japanese products in other countries. So if you want to invite assets or investments into Japanese private asset, what is your estimate of the size of the business in terms of AUM or revenue? Or in order to engage in such business, does Nomura need to be equipped with a new function. So those are my questions. Hiroyuki Moriuchi: Then on your first question regarding resource efficiency of resource, Page 12, 7.8%, revenue modified RWA, we think that this is so and so acceptable global markets, Hong Kong, Singapore, IWM is engaged in wealth management business. Resource is not so much needed and taking that growth, all of the activities taken together, this is the level. So for example, if the question is whether the resource efficiency is going up in a certain business, not so. This is a result of the business mix. So that's my first point. And next, this number, is it possible to further increase this number? If we overfocus on that, the statutory capital RWA revenue or profitability in order to increase that, we may end up taking too high substantive risk in light of the economic capital. So it's good that this number goes up, but rather than just focusing on this indicator, we would look at various indicators comprehensively for risk management. And if in the end, this number goes further up, then that's positive. We have the self-funding program. The resource maybe somewhat tight for the business, and they are incentivized to focus on efficiency of resources. So even if there is a potential project, they have to judge whether resource can be used efficiently in light of the revenue that could be gained from that project. So I think that kind of incentive has also delivered some results. So this 7.8% is quite reasonable and appreciated, but we're not just chasing this number. Second question, Japanese private asset in order to invite money into Japan for development of Japanese infrastructure, what kind of mechanism, or what's our estimate of the size of the resource? Regarding those points, it might be a bit premature to share the design we have in mind. And I think we need to engage in more internal discussions. At one point in time, we will probably have more factors that we can speak to you, and then we will explain our strategy. I hope that this would do for today. Operator: [Operator Instructions] As there is no more question, we'd like to conclude question-and-answer session. Now, we'd like to make closing address by Nomura Holdings. Hiroyuki Moriuchi: Thank you very much. I am Moriuchi. Thank you very much for spending your precious time. As mentioned, there are one-off items and the technical accounting-related items, which are difficult to grasp. And they are ending up in increase in revenue and decrease in profit in any ways for divisions delivered a strong performance and we are positively looking at the performance. So medium, long term, we are focused on growing the revenue power of those four divisions. As for Laser Digital, we believe the business is promising in the medium, long term. So we would like to grow the business while suppressing short-term volatility by controlling the risk volume. In any case, thank you very much for your precious time that you spent with us. That is all for me. Thank you. Operator: Thank you for taking your time, and that concludes today's conference call. You may now disconnect your lines. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good day, and thank you for standing by. Welcome to the John B. Sanfilippo & Son Second Quarter Fiscal 2026 Operating Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand it over to your first speaker today, Jeffrey Sanfilippo, Chief Executive Officer. Please go ahead. Jeffrey Sanfilippo: Thank you, Victor, and good morning, everyone, and welcome to our 2026 Second Quarter Earnings Conference Call. Thank you for joining us. On the call with me today is Jasper Sanfilippo, our COO; and Frank Pellegrino, our CFO. We may make some forward-looking statements today. These statements are based on our current expectations and they involve certain risks and uncertainties. Factors that could negatively impact results are explained in the various SEC filings that we have made, including Forms 10-K and 10-Q. We encourage you to refer to the filings to learn more about these risks and uncertainties that are inherent in our business. Turning to results. We delivered record-breaking top line growth and achieved an approximately 32% increase in diluted earnings per share for the quarter driven by executing our ongoing strategic initiatives of disciplined cost management, operational efficiencies and strategic pricing actions. While these results are encouraging, we continue to navigate headwinds from shifting consumer behavior, emerging health and wellness trends and elevated retail selling prices, which weighed on overall sales volume. However, we have a strong and diverse set of products that align with these emerging health and wellness trends and priorities. We are further expanding our pipeline with new innovations to capitalize on these trends and growth opportunities. We believe that the recent reduction in trade tariffs on most imported nuts, primarily cashews, should help lower selling prices of certain products over time and support future demand. I'm confident that we have the right team, capabilities and focus to navigate this dynamic environment successfully and capitalize on growth opportunities. We remain committed to driving growth and profitability to deliver long-term value to our shareholders. At the start of the third quarter, we distributed a special dividend of $1 per share, reflecting our strong financial position and disciplined capital allocation strategy. This return of capital to our shareholders occurred concurrently with one of the largest capital expenditure initiatives in our company's history. These strategic investments position us to enhance operational efficiency, expand production capacity and capture emerging market opportunities to support sustained growth and profitability. Our management team has set clear priorities as we finish out the back half of fiscal '26 and start to build our financial plan for fiscal '27. One of those growth priorities, which we have talked about on previous calls, is to accelerate our snack and energy bar business. While the industry is experiencing softness in certain segments of the bar category, including fruit and grain and granola, the protein-forward bar segment is very strong. The investments we've made in new bar manufacturing capabilities align well with this shift in consumer behavior to healthier protein-forward snacks. Approximately 85% of the new equipment we have purchased is now on site or in transit. We are on schedule to begin production in July this year utilizing our new bar equipment. Our R&D and insights teams have done an extraordinary job building out our bar innovation platform. Our sales and marketing teams have started engaging with customers, and we are already receiving positive interest in our offerings. This is a transformational time for our company. I'm excited about the future growth we will build with our customers, and I'm extremely proud of the hard work, dedication and tenacity of the team members across our company who are so committed to our success. Common themes are emerging among CPG leaders as they discuss priorities and performance on earnings calls. One is margin and productivity. Many continue to see pressure from inflation, rising input costs and supply chain complexity. At JBSS, we remain sharply focused on cost optimization while evolving our structure and processes to support sustainable growth. We are driving efficiency improvements across our operations, supply chain, pricing, trade spending and formula development. There are key leaders across the organization working on what we call OFG initiatives, optimize for growth, which impacts how we do business and how we go to market. I'm excited about the margin enhancement projects that these teams are executing. Another key theme is volume stabilization. Volumes have declined or remained flat across many food companies over the last 12 to 24 months, and we have experienced similar softness in our nut and trail mix and bar categories this past fiscal year. Our commercial teams are focused not only on stabilizing the business but on returning to volume growth. We are allocating resources to strengthen programs with existing partners while also diversifying our customer base and product portfolio through innovative programs, products and packaging. Our portfolio is well balanced between everyday snack and higher growth platforms and for those consumers looking for lower cost options in the snack category. I will now turn the call over to Frank Pellegrino, our CFO, to provide additional information on our financial performance for our first (sic) [ second ] quarter. Frank Pellegrino: Thank you, Jeffrey. Starting with the income statement. Net sales for second quarter of fiscal 2026 increased by 4.6% to $314.8 million compared to net sales of $301.1 million for the second quarter of fiscal 2025. The increase in net sales was due to a 15.8% decrease in the weighted average sales price per pound, which was partially offset by a 9.7% decline in sales volume of pounds sold to customers. The increase in the weighted average sales price primarily resulted from higher commodity acquisition costs across all major tree nuts and peanuts. While our core business of walnuts, almonds and pecans achieved volume growth, overall sales volume decreased during the quarter. This decline was primarily from a reduction of opportunistic granola volumes sold in the contract manufacturing channel. Sales volume decreased 8.4% in the consumer distribution channel, primarily driven by a 7.9% decline in private brand sales due to lower volume in private label bars and, to a lesser extent, nuts and trail mix. Nuts and trail mix sales were impacted by higher retail prices, soft demand including customer downsizing and reduced distribution at a major mass merchandiser. These declines were partially offset by new business with an existing customer and improved performance at another mass merchandiser. Bar sales declined in as prior year's volume were elevated by low industry-wide inventory levels and the lingering impact of a national brand recall, which temporarily boosted private label bars demand. A strategic reduction in sales to one grocery retailer also contributed to the baseline. Branded sales were negatively impacted by lost distribution of Orchard Valley Harvest at a major customer in the nonfood sector and the timing of Fisher snack promotions at a major nonfood customer. Sales volume in the commercial ingredients channel remained relatively unchanged with a decline of 1.1%. Sales volume in the contract manufacturing channel decreased 26.5% due to decreased granola volume processed in our Lakeville facility, which was partially offset by increased snack nut sales to a customer added during the second quarter of the prior year. Gross profit increased by $6.9 million or 13.2% to $59.2 million compared to the second quarter of last year, driven by higher net sales during the quarter with selling prices more closely aligned to commodity acquisition costs compared to the second quarter of the prior year. Additionally, reduced manufacturing spending and operational efficiencies contributed to the overall increase in gross profit. Gross profit margin increased to 18.8% of net sales compared to 17.4% for the second quarter of fiscal 2025 due to the reasons previously mentioned. Total operating expenses were essentially flat compared to prior year's second quarter, increasing by $300,000. The slight increase was primarily driven by higher incentive compensation, which was largely offset by lower marketing, freight, third-party warehouse and compensation costs. Total operating expenses as a percentage of net sales for the second quarter of fiscal 2026 decreased to 10.5% from 10.9% in the prior comparable quarter, reflecting the factors noted previously and a higher net sales base. Interest expense was $500,000 for the second quarter of fiscal 2026 compared to $800,000 for the second quarter of fiscal 2025. Net income for the second quarter of fiscal 2026 was $18 million or $1.53 per diluted share compared to $13.6 million or $1.16 per diluted share for the second quarter of fiscal 2025. Now taking a look at inventory. The total value of inventories on hand at the end of the current second quarter increased $29.6 million or 14.4% compared to total value of inventory on hand in the prior year comparable quarter. The increase was due to higher commodity acquisition costs across all major nut types except for peanuts and inshell walnuts as well as greater on-hand quantities of work in process and finished goods inventory to support forecasted demand. The weighted average cost per pound of raw nut and dried fruit increased 11.8% year-over-year mainly due to higher acquisition costs for all major nut types except for inshell walnuts, partially offset by lower acquisition costs of peanuts and lower on-hand quantities of almonds and cashews. Moving on to year-to-date results. Net sales for the first 2 quarters of the current year increased 6.3% to $613.5 million compared to the first 2 quarters of fiscal 2025. The increase in net sales was primarily attributed to a 12.2% increase in the weighted average selling price per pound, which was partially offset by a 5.3% decrease in sales volume. The sales volume decrease was due to lower sales volume in the consumer and contract manufacturing channels, partially offset by year-to-date growth in the commercial ingredients channel. Gross profit margin increased to 18.5% of net sales compared to 17.1% in the prior period. The increase was mainly attributable to the factors noted previously in the quarterly comparison, along with a onetime pricing concession in the prior year first quarter to a bar customer that did not recur in this fiscal year. Total operating expenses for the current year-to-date decreased $2.1 million to $60.3 million compared to $62.4 million for the first 2 quarters of fiscal 2025. The decrease in total operating expenses was mainly driven by lower marketing and insight spending, reduced third-party warehouse costs, decreased freight expenses, lower compensation and lower third-party recruitment expenses. These savings were partially offset by an increase in incentive compensation. Interest expense was $1.5 million for the first 2 quarters of fiscal 2026 compared to $1.3 million for the first 2 quarters of fiscal 2025. Net income for the first 2 quarters of fiscal 2025 was $36.7 million or $3.12 per diluted share compared to net income of $25.3 million or $2.60 per diluted share for the first 2 quarters of fiscal 2025. Please refer to our Form 10-Q, which is filed yesterday, for additional details regarding our financial performance for the second quarter of fiscal 2026. Now I'll turn the call over to Jeffrey to provide additional comments. Jeffrey Sanfilippo: Thanks, Frank, for the financial update. It's important to note how our Long-Range Plan defined our future growth priorities focused on accelerating our private brand business with key customers and high-growth snacking categories with notably private brand bars while expanding branded distribution behind Orchard Valley Harvest and Fisher via insight-driven product and packaging innovation. Execution of this plan is anchored in delivering value-added solutions and high-quality innovative products based on our extensive industry and consumer expertise. Growth in private brand bars will be supported by capacity expansion and a robust innovation pipeline with continued focus on nutrition bars. For our branded nut and trail mix business, we are focused on attracting new consumers through product innovation, broader distribution across traditional and alternative channels and expanded purchasing occasions, including club stores, e-commerce and the noncomp foodservice segment. Promotional and advertising investments are being prioritized to drive volume growth, supported by an omni-channel strategy across recipe nuts, snack nuts and trail mix. Now we'll turn to category updates. I will share some category and brand results with you for our second quarter. All the market information I'll be referring to is Circana panel data, and for today, it is the period ending December 28, 2025. When I refer to Q2, I'm referring to the 13 weeks of the quarter ending December 28, 2025. References to changes in volume are versus the corresponding period 1 year ago. For pricing commentary, we are using Circana's MULO+ scan data and we are referring to average price per pound. We are using the nuts, trail mix and bar syndicated views of the category as defined by Circana. In the second quarter, we continue to see modest growth in the broader snack aisle as defined by Circana. Volume and dollars were up 2% and 4%, respectively. This is consistent with the performance we saw in Q1. In Q2, the snack nut and trail mix category was down 4% in pounds and up 3% in dollars, which is generally consistent with the performance from the last quarter. Snack nuts prices rose 8% with increases across nearly all nut types. Prices rose 6% for trail mixes. Our Southern Style Nuts brand performed better than the category with a 5% increase in pound shipments, driven by an increase in sales in our e-commerce channel. Fisher's snack nut and trail mix performed worse in the category with pound shipments down 15%. This was primarily driven by some lost distribution and less promotional activity. Orchard Valley Harvest brand, which primarily plays in trail mix, was down 42% in pound shipments driven by discontinuation at a national specialty retailer. Commodity increases, including cocoa and some tree nuts, are resulting in higher prices for Orchard Valley Harvest, but we continue to focus on innovation and renovation opportunities to mitigate this commodity pressure. Our private label consumer snack and trail shipments performed generally similar to the category with pound shipments down 5% versus last year. Now let me turn to the recipe nut category. In Q2, the recipe nut category was up 2% in pounds and up 14% in dollars, driven by the seasonality impact of the holiday season paired with higher prices. The recipe category experienced a 13% price increase driven particularly by walnuts, although other nut types experienced price increases. Our Fisher recipe pound shipments were down 3% in Q2 due to some lost distribution, although we performed very well at our current retailers. Now let's look at the bar category. In Q2, the bars category continued to rebound as a major player continued to reenter the market after a major recall in the winter of 2023. The category grew 6% in pounds and dollars driven by branded player growth. Private label was down 1% in pounds and up 2% in dollars. Our private label bar shipments were down 12% versus a year ago due to softness at one major mass merchandiser. In closing, as we look ahead to the second half of fiscal '26, we do so with cautious optimism driven by recent commercial momentum across the organization. Our consumer team has recently secured new and expanded business with several important customers. Our foodservice team is expanding distribution with strategic partners, and our contract manufacturing team continues to build scalable growth platforms for customers. Together, these efforts position us well as we execute our growth strategies and invest in infrastructure to support the next phase of our business transformation. As always, we will continue to respond to challenges, including the current economic and operating environment and the risk of declining demand. But I am confident we have the right team, initiatives and strategies to overcome these challenges to provide differentiated value to our customers and consumers. We are committed to creating long-term shareholder value through these strategic initiatives and continued operational excellence. I want to extend my heartfelt thanks to all our employees for their hard work and dedication, which have been instrumental in achieving these milestones. Our management team and all our associates continue to work hard to expand our business, to build stronger brands, to build more innovative product platforms and to provide higher levels of quality and service. JBSS is positioned well for strong results in the future. We appreciate your participation in the call, and thank you for your interest in our company. We'll now open the call to questions. Operator: [Operator Instructions] Our first question will come from the line of Hamed Khorsand from BWS Financial. Hamed Khorsand: So first question is where do you stand on this equipment? You're saying it's 85% you're going to be on time for this year. Is it going to be calendar this year or fiscal this year? And then how do you know the quality will be there that you've already started engaging with customers? Jasper Sanfilippo: Sure, Hamed. This is Jasper. So we already have equipment being delivered now in the building and at our Huntley warehouse. All the other product or equipment from Europe is either on water or getting crated to go come on the water. We are very familiar with the manufacturers that we selected for our processing equipment so we know that the quality, the build and the efficiency of the equipment is really what we're looking for. It's very similar to equipment we already have in terms of size and layout. And so we're very comfortable with the fact that the equipment will perform well. When we're talking about having it installed, we're talking about installing and running in July of '26. Jeffrey Sanfilippo: And I would add that Jasper and some of our engineers have been to Europe and visiting the equipment manufacturers several times during the course of this past year. And so they viewed the production of the equipment. They've tested it while they've been there. So we're confident once it gets on the water and installed here that it will be working as we expect. Hamed Khorsand: Okay. And then the other question is just about the pricing. How fast are you able to pass through pricing that you're incurring on the higher cost of nuts? Jeffrey Sanfilippo: Sure. So two things. One, typically with most retailers, we have a 6-month price review depending on whether commodities are going up or down. And then once those 6-month price reviews hit, we need to take pricing, for example, on our brands. There's typically a 60- to 90-day timeline to initiate those price changes. Operator: [Operator Instructions] And I'm not showing any further questions in the queue at this time. I would now like to turn it back over to Jeffrey for closing remarks. Jeffrey Sanfilippo: Great. Thanks, Victor. I appreciate your support. Again, thank you all for being on the call today and your interest in JBSS. This concludes the call for our second quarter fiscal 2026 operating results. Have a great day. Operator: Thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone, have a great day.
Lucy: Hello, everyone, and thank you for joining the Financial Institutions, Inc. Fourth Quarter and Year End 2025 Earnings Call. My name is Lucy, and I will be coordinating your call today. During the presentation, you can register a question by It is now my pleasure to hand over to your host, Kate Croft, Director of Investor Relations, to begin. Please go ahead. Kate Croft: Thank you for joining us for today's call. Providing prepared comments will be present in CEO, Marty Birmingham, and CFO, Jack Lance. He will be joined by additional members of the company's leadership team during the question and answer session. Today's prepared comments and Q&A will include forward-looking statements. Actual results may differ materially from forward-looking statements due to a variety of risks, uncertainties, and other factors. We refer you to yesterday's earnings release and investor presentation, as well as historical SEC filings, which are available on our Investor Relations website for our safe harbor description and a detailed discussion of the risk factors relating to forward-looking statements. We will also discuss certain non-GAAP financial measures intended to supplement and not substitute for comparable GAAP measures. Non-GAAP to GAAP reconciliations can be found in the earnings release filed in exhibit to Form 8 or in our latest investor presentation available on IR website, www.fisiinvestors.com. Please note that this call includes information that may only be accurate as of today's date, 01/30/2026. I will now turn the call over to President and CEO, Marty Birmingham. Marty Birmingham: Thank you, Kate. Good morning, everyone, and thank you for joining us today. The fourth quarter rounded out what was a very strong year for our company, marked by consistent execution and profitable organic growth across our enterprise. We delivered net income available to common shareholders of $19.6 million or $0.96 per diluted share for the fourth quarter and $73.4 million or $3.61 per diluted share for the full year. Return on average assets was 120 basis points for the year, while return on average equity was 12.38%. Both measures exceeded our annual guides, supported by growing net interest income of $200 million and durable noninterest income of $45 million. Our efficiency ratio for the year was 58%. We are incredibly proud of these results and excited about the coming year and opportunities ahead. Veggie. Our disciplined approach to long-term value creation. In the fourth quarter, capital actions included the repurchase of 1.7% of outstanding shares, totaling nearly $11 million, and the successful completion of an $80 million sub-debt offering. Sub-debt notes have a five-year fixed rate of 6.5%, which is favorable to the 2015 and 2020 issuances that were subsequently redeemed earlier this month. 2025 notes received a BBB minus rating from Kroll, with a stable outlook reflective of our improved profitability and capital position. The strength of the company's credit rating and favorable coupon on our recent debt issuance are clear testaments to our commitment to achieving higher financial performance. We delivered solid loan growth, with total loans increasing 1.5% in the fourth quarter and 4% year over year to $4.66 billion. This growth was reflective of strong competitive positioning and demand in commercial lending across our Upstate New York markets. Commercial business loans were down modestly on a linked quarter basis and up 11% year over year. Commercial mortgage loans were up about 4% from the end of the linked quarter and 6.5% year over year, led by healthy activity in our Rochester region. We remain highly confident in the durability and growth potential of our Upstate New York markets. This includes Syracuse, where Micron Technology's long-anticipated $100 billion investment officially broke ground earlier this month. We build out an operation of an entire semiconductor supply chain is expected to bring thousands of jobs and drive significant economic expansion. While the results will take years to fully materialize, we were excited to see the shovel in the ground and anticipate more meaningful lending activity beginning this year as infrastructure, housing, and health care expand to support a larger anticipated population. Residential lending grew modestly, up 1% during both the three and twelve months ended 12/31/2025. Originations were led by Buffalo and Rochester, where the housing market remains tight and prices have continued to increase. That said, inventories are starting to loosen in our overall geography. Application volumes were up year over year. We are beginning to see increased refinance activity. New 2025 continue to build their clientele and pipelines, supporting our expectations for stronger residential production in 2026. Consumer indirect loans were down 3.7% during the fourth quarter and 4.5% for the year, to $807 million. We manage this portfolio based on business unit profitability targets, and have been comfortable allowing runoff to outpace originations, given current market conditions. As we maintain a strong focus on profitable spreads and favorable credit mix, we expect consumer indirect loans to drift down modestly in 2026. As a reminder, we are applying indirect lender for individual vehicle purchases through a network of more than 350 new auto dealers across New York State. The portfolio has an average loan size of approximately $20,000 and a weighted average FICO score exceeding 700. Period-end total deposits were $5.21 billion, down 2.8% from September 30, driven by seasonal public deposit outflows and lower broker deposits. Deposits were up 2% year over year despite the ongoing wind down of our banking as a service line of business. As a reminder, we announced plans to exit BaaS in September 2024 and since then, have worked closely with our fintech partners to onboard their customers in $100 million of associated deposit balances. We had approximately $7 million of these deposits on the balance sheet at year-end, and continue to expect they will roll off in the first quarter to a new banking provider. While we did leverage broker deposits throughout the year as planned, to help offset the outflow of the BAS deposits, strong growth in our reciprocal deposit business allowed us to reduce broker in the fourth quarter. Our reciprocal deposit base is a differentiator, one anchored in deep and often long-tenured commercial and municipal relationships. More than 20% of these customers and 30% of the balances have had a relationship with Five Star Bank for more than a decade. The average relationship tenure across the portfolio is five years. Through the reciprocal product offering, we were able to meet the deposit needs of individual, municipal, and commercial customers requiring collateralization above the $250,000 FDIC insurance limit for full insurance coverage. This allows us to keep important customer relationships in-house. Additional details on our performance, and a look at our 2026 guidance. Thank you, and good morning, everyone. As Marty shared, we are very proud of our 2025 results, and we are committed to pushing higher in 2026 as we continue to unlock more potential from our commercial banking, consumer banking, and wealth management offerings. Our full-year 2025 return on assets exceeded initial expectations, reflecting the sustained momentum and our ability to raise the bar on operating results. We anticipate higher performance for the full year 2026 with a targeted return on average assets of at least 122 basis points, return on average equity exceeding 11.9%, and an efficiency ratio of below 58%. We also expect margin expansion in '26 as we continue to shift our earning asset mix and actively manage funding costs. NIM is expected to incrementally build through the year, supporting a full-year target in the mid-three sixties. As a reminder, this is based on a spot rate forecast as of year-end, which does not factor in potential future rate cuts. Looking at our 2025 results, margin was 3.62% for the fourth quarter, and 3.53% for the full year. As expected, quarterly NIM was down three basis points from the linked period, in part to FOMC activity, given the timing of deposit and variable rate loan repricing. However, the primary driver of the compression was the impact of December sub-debt offering coupled with the mid-January call of our preexisting sub-debt issuances contributed about two basis points of declines. Average loan yields decreased nine basis points as compared to the third quarter, primarily reflecting the timing of the October rate cut. As a reminder, approximately 40% of our loan portfolio is tied to variable rates, with a repricing frequency of one month or less. Cost of funds decreased four basis points from the linked quarter. Higher rate CDs matured alongside overall downward deposit repricing. Year over year, our quarterly margin expanded by 71 basis points, reflecting the transformative securities restructuring we completed in 2024. In addition to high-quality loan growth, supporting an improved earning asset mix, and effective management of funding costs. For 2026, we are targeting annual loan growth of about 5%, driven by commercial. Given the number of loans that closed in the fourth quarter, coupled with larger anticipated payoffs and paydowns that we have seen in recent years, we expect commercial growth to be lighter in Q1 and build through the year. Deposits remain a top priority for us, amid a highly competitive landscape. We are guiding to a low single-digit deposit growth year over year, and remain focused on growing lower-cost core deposits, including demand, now, and savings across both our consumer and commercial lines of business. Turning to fee revenues, Noninterest income was $11.9 million for the quarter, $45 million for the year, supported in part by several unique factors. This included higher than typical company-owned life insurance, for quality income in 2025. The year prior, noninterest income reflected the $100 million net loss associated with the investment securities restructuring, and the $13.7 million gain on our insurance subsidiary sale. COLI revenue was $2.8 million in the fourth quarter, a 2.1% decrease from the linked period, and $11.4 million for the year, compared to $5.5 million in 2024. The year-over-year increase was due in part to higher revenue in 2025 following the surrender and redeploy strategy we executed last January, the carrier's late June redemption of the surrender policy proceeds. We originally expected third and fourth quarter income to each be approximately $275,000 less than the level reported in the second quarter. However, results exceeded expectations given the performance of the underlying policies. Accordingly, we expect COLI income to normalize in 2026, to approximately $10.5 million on a full-year basis. Full-year investment advisory income of $11.7 million was an increase of $1 million or over 9% from 2024. Career Capital experienced positive net flows. As new business and market-driven gains offset outflows, pushing AUM to $3.6 billion at year-end, up $500.4 million or 16% from one year prior. Career Capital is one of the largest RIAs in our region, providing customized investment management, retirement planning, and consulting services, for mass affluent and high-net-worth individuals and families, businesses, institutions, and foundations. We look forward to continuing to nurture its growth and are targeting a low to mid-single-digit increase in investment advisory income in 2020, which is partly dependent on market conditions. Commercial back-to-back swap activity was again strong in the quarter, with associated fee income of $1.1 million, up $263,000 more than 31% from the third quarter. Full-year 2025 swap fee income of $2.5 million was up $1.8 million from the prior year. We expect swap fees to moderate to a range between $1 million and $2 million, which is more in line with the 2022 and 2023 levels experienced. We reported quarterly noninterest expense of $36.7 million compared to $35.9 million in the third quarter, reflecting accruals for performance-related incentive compensation in 2025. Owner expense was $142 million compared to $178.9 million in 2024, where results were impacted by the previously disclosed fraud event and auto lending settlements. The year-over-year increase in salaries and benefits expense was driven in part by higher claims activity in our self-funded medical plan. We have discussed throughout much of 2025. We expect the higher claims trend to continue into 2026, and a higher run rate is reflected in our 2026 expense guidance. Higher occupancy and equipment expense also contributed to the variance and primarily reflects the ATM conversion and upgrade project that we completed in 2025. Prudent expense management remains a top priority, reflecting our commitment to maintaining the positive operating leverage we have achieved. We are targeting low single-digit noninterest expense growth in 2026, primarily driven by a mid-single-digit increase in salaries and benefits reflecting the full impact of investments made in talent during the year and annual merit-based increases. The 2026 effective tax rate is expected to be between 16.5% to 17.5%, including the impact of the amortization of tax credit investments placed in service in recent. This was down from the 18% we reported in 2025, primarily due to the taxable COLI surrender and redeploy transaction executed during the year. We were budgeting full-year net charge-offs of 25 to 35 basis points of average loans. While our experience in recent years has been lower than this, including the 24 basis points we reported in 2025, we are being conservative with our outlook at this time. As a reminder, we finished 2025 with an ACL total loans ratio of 102 basis points, a coverage ratio that is aligned with our credit risk framework. That concludes my guidance for 2026. And I will turn the call back to Marty. Thanks, Jack. We are proud of the progress our team has made and confident in our ability to execute on our strategic plan. As we look ahead, we are focused on organic credit discipline growth, centered on deep relationships. Prudent management of expenses, balancing people and technology investments with a firm commitment to positive operating leverage. And continuing to build a strong capital position that supports our efforts to deliver meaningful long-term value to shareholders. As a small-cap financial holding company primarily serving Upstate New York, we believe our size, scale, and market position create distinctive advantages. Both competitively as an investment opportunity. Having simplified our business and strengthened our balance sheet over the last twenty-four months, we are intently focused on driving sustainable growth through our community bank and wealth management firm. With more than $6 billion in assets on our balance sheet and another $3.6 billion under advisement, our size and scale are differentiators. Our deep roots and long history going back more than two hundred years in some of our legacy markets are complemented by exciting growth opportunities in the metros of Buffalo, Rochester, and Syracuse. And supplemented by the high returns of our Mid Atlantic team. We look forward to delivering organic growth in support profitability and high-quality earnings. That we believe support a higher multiple. I would like to thank you for your attention this morning. That concludes our prepared remarks. Operator, please open the call for questions. Thank you. Kate Croft: When preparing to ask your question, please ensure your device is unmuted locally. The first question comes from Damon DelMonte from KBW. Your line is now open. Please go ahead. Damon DelMonte: Hey, good morning, everyone. Hope you are all doing well today. Thanks for taking my questions. First question, just wanted to start off on the margin, Jack. I appreciate the guidance here. Just kind of curious as far as, like, your expected cadence of the margin over the course of the year. I mean, is there a little bit of step down from where we ended 25 before we kind of grind up higher over the course of the year or are there other variables in play? Jack Lance: Thanks, Damon. So when we the year, December margin was at about three fifty-six. And that was impacted partially by the sub-debt raise that we did mid-month. And then the retirement of the $65 million of the two outstanding facilities did not occur until mid-January. So margin was impacted by about six basis points on a monthly basis because of that. You know, after that retirement that occurred in January, we can see margins start to expand incrementally on a monthly basis throughout the year. Damon DelMonte: Got it. Okay. That is helpful. Thank you. And then, I guess, staying on the margin topic, you know, I know your guidance does not contemplate any rate cuts, but if we do have a 25 basis point cut, can you just remind us how you expect the margin to respond in the near term? Jack Lance: Yeah. I think we have demonstrated the ability to reprice deposits pretty aggressively. So as you saw in December, there was a modest amount of margin compression. Absent the sub-debt repricing, margin would have been largely or sorry, the sub-debt issuance margin would have been largely flat in the fourth quarter. So I think that our guidance holds up. We saw 25 basis points of rate adjustment. Damon DelMonte: Got it. Okay. And then with regards to the outlook for loan growth, I think, Marty, in your prepared comments, you indicated that the indirect auto portfolio will likely trend lower this quarter and the growth would be driven on the commercial side. I guess first, what is the, is it intentional runoff on the indirect auto? And then secondly, do you feel better about your C&I prospects or your CRE prospects for the growth? Thanks. Marty Birmingham: So we have been being very intentional with the management of the outstandings of our indirect portfolio, Damon. So yes, that is how we are planning to drive our footings in that portfolio in terms of what Jack talked about and our outlook for it. And relative to commercial, we have had a very strong year in '20. We had a very strong fourth quarter with closings. Our pipeline has consistently been around, as for the company, around $700 billion ish. For the last several years. And we see good opportunity geographically enough state. New York. And we see it kind of being equal weighted relative to C&I and CRE. I think we have seen an increase in small business, CRE, and confidence of in our borrowers of all types and sizes. C&I, starting in the '25 and really continuing this point. So I think it is Jack commented, it is going to be a little bit lumpy and our timing will probably be towards the back half of the year in terms of the materialization of loan production and commercial. Yeah. And just to add a little color on the equal weighting there, that would be on a percentage basis, Damon. So CRE having a larger portfolio, we would anticipate some more balance sheet growth in the CRE portfolio versus C&I, but both are continued drivers of growth. As is the small business lending unit. Damon DelMonte: Got it. Okay. Great. And then if I could just sneak one more in. Nice to see some share buyback during the quarter. Just curious, you know, on your thoughts going forward into '26. Seems like shares are probably still attractive at these levels, but just curious on your thoughts. Jack Lance: So I think we are very pleased with what how we were able to execute in the fourth quarter. I think it is fundamental, as we think about it, one of our constraints is our common equity Tier one at 11%. And we were able to buy back 337,000 shares think the earn back was a year or less. And remains attractive capital allocation option for us. We did, as shared, roll over our sub-debt, we borrowed an incremental $15 million. So that could provide some opportunity for us. But as I say, we want to be judicious relative to our constraint capital. Relative to CET1. Damon DelMonte: Great. Thank you very much for answering my questions. Jack Lance: Thanks, Damon. Kate Croft: Thank you. As a reminder to ask a question, please press star. The next question comes from Manuel Navas from Piper Sandler. Your line is now open. Please go ahead. Manuel Navas: Hey, good morning. Just wanted to I appreciate the ROA improvement target. I just wanted to hear a little bit about potential areas for upside or downside on the ROA. Jack Lance: Yeah. Yeah. You know, this is Jack, I guess. What are the areas that could push on ROA is you know, accelerated pace of asset originations. But I think we are, you know, pretty prudent in our model as far as we are focusing our growth. We have pretty strong pricing constraints out there. While we remain competitive, we do prioritize profitability over growth. Fairly comfortable with the ROI getting ROA guidance that we put out. Manuel Navas: That is great. And and with the going back to the pace of buybacks for a moment, it growth is a little bit more back half a year. Is that mean you can use my have a little bit more buybacks in the first half of the year? Is is that reasonable assumption? How does that work with your progression of growth across the year? Jack Lance: Yeah. As as Marty mentioned, we we raised $15 million of additional liquidity through the December sub-debt offering. And deployed a portion of that throughout December. There is still some liquidity available from that issuance. On the common equity tier one side, the the low mark for us is 11%. That is basically where my my threshold is where I do not want to break below. We ended the year at 11.1%, and we are projected to add another 40 to 50 basis points of CET1. So we have capacity to continue to execute on that additional activity. In greater depth about any of the initiatives that you have to to kind of generate that low sum digits for the year. And and then I will step back into the queue. Yeah. This is Jack. I can take that one again. So as we mentioned in the in the call, we are focused on mainly on core deposit acquisitions. So that is DDA, savings, Now accounts, we are really projecting our money market and time deposits to remain flattish throughout the rest of the year. So that growth in those core deposits is kind of comes along with inflow of loans and spread throughout the year. So I would not expect much volatility outside of the seasonal flows we have from public deposits. And then as far as initiatives are concerned, the past year or so, we have spoken about the success of our treasury management offering on the commercial side and commercial deposit growth. Was a success for 2025. We expect to continue that momentum in 2026. Typically, the deposit relationships follow the extension of credit. I think we put a lot of effort into positioning our sales force commercial, retail, those dealing with our relationship businesses understanding the importance of deposits and and getting incentives reset this year so that we can report strong performance there. So we feel good about our preparation as we turn the calendar to 2026 to really pursue this aspect of what can possibly influence our NIM. Thank you. Thank you for the commentary. Thank you. Kate Croft: We have no further questions at this point, so I would like to hand back to Marty for any final remarks. Marty Birmingham: Thank you very much, operator, for your help this morning. Thanks so much for all who have participated. We look forward to continuing to update you on our performance after the conclusion of the first quarter. Kate Croft: This concludes today's call. Thank you all for joining. You may now disconnect your lines.
Operator: Good morning, and thank you for holding. Welcome to Aon plc's Fourth Quarter 2025 Conference Call. At this time, all parties will be in a listen-only mode. I'd also like to remind all parties that this call is being recorded. If anyone has an objection, you may disconnect your line at this time. It is important to note that some of the comments in today's call may constitute certain statements that are forward-looking in nature, as defined by the Private Securities Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results. For information concerning these risk factors, please refer to our earnings release for this quarter and to our most recent quarterly or annual SEC filings, all of which are available on our website. It's my pleasure to turn the call over to Greg Case, President and CEO of Aon plc. Good morning, and welcome to our fourth quarter and full-year earnings call. Gregory Case: I'm joined by Edmund Reese, our CFO. The financial presentation, which Edmund will reference in his remarks, is posted on our website. 2025 was a year of great strategic progress and performance milestones for Aon. Among the highlights, we advanced the disciplined execution of our three-by-three plan, which continues to accelerate our Aon United strategy by further integrating risk capital and human capital, expanding Aon client leadership, and leveraging Aon business services to drive greater capability, innovation, and efficiency. This work is enhancing our relevance and delivery capability to meet rising client demand amid increasing complexity. We outlined this momentum at our first investor day in two decades, where we demonstrated the strength of Aon United and the central role of the three-by-three plan, including the power of ABS. We believe our performance this year is proof that our strategy is working, producing tangible, sustainable results today, and positioning us for long-term success. We continue to innovate; ABS provides the foundation to deliver innovative solutions and deploy AI where it drives real value across our business. We expanded our risk analyzers, launched Aon Broker Copilot, and more recently, launched Claims Copilot. In addition, we help clients access alternative forms of capital through cap bonds, which may include parametric triggers, where market issuance rose more than 40% in 2025 and Aon's issuance increased more than 50%. Operator: Under a single integrated facility, this solution continues to gain traction. We recently announced a billion-dollar expansion, increasing total capacity to $2.5 billion. We substantially advanced our middle market strategy, including great progress in building upon our independent and connected strategy with NFP. The business is performing well with strong producer retention as we build upon NFP's strong client relationships with the full breadth of Aon's capabilities. We're also accelerating the connection of NFP onto our ABS platform, which we believe will further enhance performance over time, highlighting our even greater conviction in the power of ABS to onboard middle market companies. And we continued our very effective tuck-in M&A strategy, further accessing the large $31 billion North American addressable market. As we close 2025, we ended the final year of our three-by-three plan with strong momentum, fueled by our client-centric strategy and integrated capabilities that enable us to win more opportunities, deepen client relationships, and deliver more value in an increasingly complex macro environment. Turning to our results, we finished the year strong with continued momentum in the fourth quarter and delivered on our full-year objectives, including 6% organic revenue growth for the second straight year, 90 basis points of adjusted operating margin expansion, strong adjusted EPS growth, and double-digit free cash flow growth. These results demonstrate the consistency and durability of our business model and the impact of our Aon United strategy. They also reflect investments in revenue-generating talent and the impact of our To set the context for our results, I will highlight four representative examples that are driving results and fueling momentum into 2026. First, a client story, which shows how our teams are trusted strategic advisers to clients and how we bring the best of Aon to the market. After partnering with a large international construction client for several years, the company needed a dedicated broker to support the full life cycle of a new data center project. We combined our role as a trusted adviser with a united global team, bringing together account leadership with construction, data center, energy, and cyber specialists to deliver an integrated proposal. Our winning response showed the full capabilities of AI, including DCLP, advanced climate analytics, and proprietary risk analyzers, all aligned to the client's long-term growth strategy. We demonstrated a distinctive ability to support both construction and operations, leveraging data and insights to improve capital efficiency and resilience. The client credited our team's expertise and our global connectivity and capabilities as central to the win, reinforcing our strength in leveraging trusted relationships and leading analytics to create high-quality growth opportunities. Second, we continue to innovate and lead in the data center opportunity. In addition to our DCLP capacity increase and the client story I just referenced, our reinsurance team recently designed and placed the first-ever data center-specific treaty, delivering a solution that aligns up to $5 billion of capital through the insurance value chain behind a single leading insurer. And we're actively engaged with several others to help them expand and strengthen their capabilities to provide capacity for clients. Our advisory capabilities around site selection, design, and engineering, as well as tremendous data and advanced analytics, are critical to informing effective capital protection decisions in the face of extreme weather, supply chain, and cyber risk. And while we're still in the very early days of this generational opportunity with data centers, we have some exciting wins under our belt, and our leadership in this space is another factor that supports sustainable organic revenue growth. It's also another impressive example of Aon innovating to solve client problems. Third, talent continues to be a critical driver of our success and ability to achieve sustainable growth. Our client-centric strategy remains focused on attracting, developing, and retaining top performers who see the value they can bring to clients and grow their business with our best-in-class analytics and capabilities. We continue to hire in high-growth priority areas, and revenue-generating talent increased a net 6% this past year. We're also expanding with existing clients through Aon client leadership and seeing higher new business and better retention with ACL-covered clients. Finally, our capital position, which Edmund will detail further, puts us in a position of strength and flexibility. This year, we continue to generate strong free cash flow and further strengthened our capital position through disciplined portfolio management, including the sale of NFP Wealth. Our enhanced capital position is well-positioned to continue our strong execution. The four megatrends we've highlighted—trade, technology, weather, and workforce—are as relevant as ever. We're building momentum with clients as our globally connected team is equipped to deliver data-driven insights and better outcomes for our clients. At the same time, we're committed to delivering strong performance, including sustainable organic revenue growth supported by our investments in ABS and talent. It's inspiring to see all that colleagues have accomplished on behalf of our clients to achieve greater resilience and growth over the last year. Our conviction and level of excitement as we execute our strategic vision have never been greater. Aon United is more than just delivering on objectives in any given year. It's about delivering for our clients, colleagues, and shareholders over the long term. And in an increasingly complex world, Aon is better positioned than ever strategically, operationally, and financially to achieve this mission. Finally, to our over 60,000 colleagues around the world, thank you. Thank you for your relentless commitment to our clients, each other, and our Aon United strategy. Now let me turn the call over to Edmund for his comments and insight. Edmund? Thank you, Greg, and good morning, everyone. Edmund J. Reese: I'm energized to be here discussing Q4 2025, a quarter that delivered results within our guidance expectations and capped off strong full-year performance that continues to reflect our disciplined execution of the three-by-three plan, the power of our financial model, and the momentum we have built across the firm even in this macro environment. Throughout the year, we've been focused on communicating our strategy and the consistency of our delivery. Our team is executing, and it is reflected in our results. Before diving into the quarter's results and our outlook for 2026, I want to take a moment, consistent with how we frame this section each year, to underscore the core growth drivers that are underpinning our momentum. These drivers reflect the intentional choices we've made over the first two years of the three-by-three plan and are not only delivering in the current period but also fortifying our ability to sustain performance through 2026 and beyond. Operator: First, Edmund J. Reese: with two consecutive years of 6% organic revenue growth, we have more conviction than ever in our ability to deliver sustainable top-line growth. This conviction is grounded in the strength of our three-by-three plan, now in its maturity phase, and in the deliberate investments we've made to support long-term growth. We continue to add revenue-generating talent, strengthen Aon client leadership, and accelerate our presence in the middle market, where demand signals remain robust and clients continue to benefit from our broad capabilities. These investments are contributing to top-line growth today, and they have a cumulative and compounding impact that benefits the years ahead. Second, we achieved critical milestones by integrating NFP and delivering double-digit free cash flow growth in 2025. These results are the product of disciplined prioritization and execution. And third, our strong operating cash generation, coupled with our disciplined portfolio management, including the sale of the NFP wealth business, brings our total capital available in 2026 to $7 billion. This means that in addition to our organic revenue growth, we are in an even stronger position from which to execute our balanced capital allocation model, including the pursuit of high-return inorganic investments that amplify our organic growth momentum. Operator: Overall, Edmund J. Reese: our performance this quarter and for the year demonstrates the power of our disciplined execution and the strength of the strategic choices we've made to drive the durable growth reflected in our results. With that context, let's turn to the detailed results. Our full-year performance is right in line with our guidance for mid-single-digit or greater organic revenue growth, adjusted operating margin expansion, strong earnings, and double-digit free cash flow growth. Organic revenue growth was 6%, and total revenue increased 9% year-over-year to $17 billion. Adjusted operating margin expanded by 90 basis points over last year and reached 32.4%. Adjusted EPS was $17.07, up 9% year-over-year. And finally, free cash flow increased 14% over 2024. For the fourth quarter, organic revenue growth was 5%, and total revenue, impacted by the wealth and straw dispositions, increased 4% year-over-year to $4.3 billion. Adjusted operating margin expanded by 220 basis points over last year and reached 35.5%. Adjusted EPS was up 10% to $4.85. And finally, free cash flow increased 16%. Let's get into the details of these results, starting with organic revenue growth on slide six. Organic revenue growth was 5% in the quarter, with both commercial risk and reinsurance delivering 6% or better growth on the back of new business and continued strong retention. This performance reflects the importance of hiring in priority growth areas and the strength of our analytical and advisory capabilities, which are helping clients capitalize on favorable pricing conditions. In commercial risk, 6% growth reflected continued strength in our core P&C business globally, including strong growth in the US, EMEA, and Latin America. Additionally, construction delivered another quarter of double-digit growth driven by ongoing demand for large global infrastructure projects, including data center construction for major technology clients. I'll also note that while the lift from M&A services was modest, we remain well-positioned in this space and expect M&A activities to support our mid-single-digit or greater growth as we enter 2026. Reinsurance delivered 8% growth driven by double-digit growth in both insurance-linked securities and our strategy and technology group, as well as continued strength in facultative placements. Insurance-linked securities benefited from record cap bond issuances, which reached $59 billion outstanding as investors increasingly seek uncorrelated asset classes. STG also saw elevated demand for our analytics, which help clients access alternative forms of capital. Looking ahead, our data indicates softer January 1 property renewals with rate declines of 15 to 20%. Even with this market headwind, we continue to expect full-year 2026 organic revenue growth in line with our mid-single-digit or greater objective, supported by higher limits, ongoing strength in international facultative placements, record activity in insurance-linked securities, and growing demand for STG analytics. We are uniquely positioned at the intersection of insurance and capital markets, helping clients access alternative capital at scale. This positioning becomes even more valuable in a softer rate environment where innovation matters as much as price. Health solutions grew 2% this quarter, and this growth reflects mid-single-digit growth in our core health and benefits offerings across the US and EMEA, partially offset by delayed closed sales moving into Q1 2026 and slower discretionary spend in Talent Solutions. While consulting services in areas like talent may experience short-term deferrals, these needs are structural, and demand typically rebounds as conditions normalize. We continue to expect health to remain an area of strength and well within our mid-single-digit or greater objective. Wealth generated 2% growth, in line with the 1 to 2% we guided to last quarter. Performance for the quarter and the full year was led by strong advisory demand in the UK and EMEA related to ongoing regulatory change. Importantly, for the full year, all four of our solution lines were in line with our mid-single-digit or greater objective. Growth was broad-based, with commercial and reinsurance at 6%, and each of our human capital solutions delivering 5%. Let me walk through the components of our Q4 organic revenue growth on slide seven. We extended our consistent track record of new business, contributing nine points to organic revenue growth, supported by steady new client acquisition and expanded mandates with existing clients. Our investment in revenue-generating talent, particularly in high-growth sectors like construction and energy, has supported the 10 points new business contribution to organic revenue growth for the year. In 2025, despite intense competitive pressure for talent, revenue-generating hires were up 6%, firmly within our 4 to 8% objective. The 2024 and 2025 cohorts are tracking to similar seasoning curves for both incremental revenue and timing and together contributed approximately 50 basis points to 2025 organic revenue growth. Operator: We Edmund J. Reese: expect continued momentum and compounding benefit from the seasoning of the 2024 and 2025 cohorts. We plan to continue investing in growth and to expand this population by an additional 4 to 8% in 2026. And, again, this is because we see specific opportunities in high-growth priority areas. Q4 2025 retention remains strong at a mid-nineties rate, supported by continued improvement in commercial risk and reinsurance. Increased engagement through our enterprise client group and enhanced service delivery from our ABS capabilities are playing a meaningful role in sustaining and strengthening client relationships. Net new business contributed three points to organic revenue growth in the quarter. Net market impact, which captures the impact of rate and exposure, contributed one point to organic revenue growth, consistent with each quarter this year and within our zero to two-point estimated range. Reinsurance was down primarily from rate declines on January 1 renewals, and that impact was offset by limit and coverage increases across cyber and commercial risk, supporting clients managing rising health care costs in health, as well as rate benefits in wealth. And one final point on revenue. Fourth-quarter fiduciary investment income was $63 million, down 17% versus the prior year. Its higher average balances were more than offset by lower interest rates. Our full-year 2025 results underscore why we have high conviction in our durable, mid-single-digit or greater organic revenue growth model. We are executing on each component of the model. First, delivering nine to 11 points of growth from new business. We delivered 10 points with significant contribution from our investment hires and NFP revenue synergies. Second, maintaining a mid-nineties high retention rate, we improved 50 basis points over last year. Finally, achieving a zero to two-point net market contribution in this macro environment. We consistently delivered one point in each quarter this year. Turning now to margins on slide eight. Q4 adjusted operating income increased 11% to $1.5 billion, and adjusted operating margin expanded 220 basis points to 35.5%. For the full year, adjusted operating margin was 32.4%, and we delivered 90 basis points of margin expansion. We continue to expand margins primarily due to ABS-enabled scale improvements, ongoing disciplined expense management, including the NFP OpEx synergies, and the benefits from the restructuring initiative to accelerate our three-by-three plan. We ended the year with $160 million in restructuring savings, $10 million ahead of our plan, supported by $50 million of savings in Q4. Restructuring savings contributed 115 basis points to adjusted operating margin in Q4 and approximately 90 basis points to full-year margin expansion. As we enter the final year of the accelerating Aon United (AAU) restructuring program, we have identified additional opportunities to accelerate the NFP integration into ABS, leveraging our global capability centers, and deepening integration across our technology platforms. We now expect to complete the AAU investment at $1.3 billion, and we are firmly on pace to deliver $450 million in total savings. We have used the AAU program to strengthen our foundation for ongoing margin expansion within our core business operations. And we have clear visibility to growth at higher profit margins, driven by continued operating leverage through ABS. Moving to interest, other income, and taxes on slide nine. Interest income was $14 million in the fourth quarter, up $10 million over last year, driven by interest earned on proceeds from the sale of NFP Wealth. Interest expense came in at $191 million, $16 million lower than last year, primarily due to lower average debt balances. We expect Q1 2026 interest expense to be approximately $185 million. Other expense was $21 million compared to a $2 million benefit last year, driven by gains from balance sheet currency exposure, gains from the divestment of our non-core personal lines business, and our hedging program. We estimate Q1 2026 other expense to range between $20 and $25 million. Finally, the Q4 tax rate was 20%, bringing the full-year tax rate to 19.5%, 60 basis points better than last year, and in line with our estimate of 19.5 to 20.5%. Turning now to free cash flow and capital allocation on slide 10. We generated $1.3 billion of free cash flow in the fourth quarter, bringing our full-year free cash flow to $3.2 billion, an increase of 14% compared to 2024. As we expected, our double-digit free cash flow was driven by strong adjusted operating income, including contributions from NFP as integration costs wound down. Turning to capital on the right-hand side of the page, our strong free cash flow growth enabled us to continue to execute our capital allocation model. We paid down $1.9 billion of debt in 2025, and coupled with strong earnings growth, lowered our leverage ratio to 2.9 times. Both the level and the timing are consistent with the 2.8 to 3 times Q4 2025 objective established when we announced the NFP acquisition, again reflecting our disciplined execution. Additionally, we remained active in M&A, continuing our programmatic tuck-in acquisitions across high-growth priority areas, including middle market acquisitions through NFP, which acquired $42 million of EBITDA for the full year in line with our expectations. And finally, in 2025, we returned $1 billion in capital to shareholders, including $1 billion in share repurchases. Operator: I will conclude my prepared remarks on slide 11 with our 2026 guidance and some forward-looking perspective on our growth objectives. As we enter the final year of our three-by-three plan, the drivers of growth are stable, and we are executing on both our strategy and the financial model with precision. We carry substantial momentum into 2026. And in summary, our full-year '26 guidance includes mid-single-digit or greater organic revenue growth, operating margin expansion, 70 to 80 basis points of adjusted strong adjusted EPS growth, and double-digit free cash flow growth. And let me walk through the key drivers of each guidance point, starting first with organic revenue growth. We expect mid-single-digit or greater organic revenue growth fueled by recurring new business wins with both existing and new clients, the compounding contribution from revenue-generating hires in priority areas and within the enterprise client group, and accretive growth in the middle market, including revenue synergies from NFP. We also expect continued mid-nineties retention and zero to two points from the net market impact, which assumes we continue to offset rate pressure in property and treaty. On adjusted operating margin, we expect 70 to 80 basis points of expansion driven by three key components. First, the impact of lower interest rates on investment income from fiduciary balances is expected to dilute margins by 20 basis points. Second, we expect $180 million in restructuring savings over 2026-2027, including additional savings from accelerating the NFP integration. From 2026, $100 million of savings will contribute approximately 50 basis points of margin expansion. Third and most important, we expect 40 to 50 basis points of margin expansion from the operating leverage in the scalable ABS platform. Our ABS growth engine continues to deliver scale benefits, capacity for growth investments, and margin expansion that drives earnings growth. Our expectations for mid-single-digit or greater organic revenue growth and 70 to 80 basis points of adjusted operating margin expansion support a strong adjusted EPS growth outlook for 2026. Embedded in this earnings guidance is a two-point EPS tailwind from FX based on today's FX rates remaining stable, a two-point headwind from the sale of the 19.5 to 20.5% excluding any extraordinary discrete items, and a non-cash pension expense of $80 million. Our financial model is built on sustainable top-line growth, consistent strong earnings, and reliably converting those earnings into double-digit free cash flow growth. In 2026, we expect $4.3 billion of free cash flow generation from operating income and working capital improvements. The tax impact from the over $2 billion in proceeds generated from the NFP wealth sale will be reflected in operating cash flows and will reduce free cash flow by approximately $300 million prior to any benefit from the usage of those proceeds. Of course, with over $2 billion in proceeds, we have significantly strengthened our capital position with approximately $7 billion of available capital and substantial strategic flexibility. In 2026, we will remain committed to disciplined capital allocation, balancing investment for growth with capital return to shareholders. We plan to return at least $1 billion in share repurchases while continuing to evaluate our inorganic pipeline for high-margin, high-growth areas across risk capital and human capital. In closing, our performance in 2025 demonstrates the resilience of the firm and the precision with which we are managing the business. Executing the three-by-three plan, delivering on our financial model, and allocating capital with a sharp focus on returns. Our disciplined execution is evident in our organic revenue growth, margin expansion, and enhanced earnings power. This consistency gives us confidence that what you're seeing today is not episodic. It is the result of our strategy and financial model producing durable outcomes and gives us even greater conviction in our ability to continue creating long-term value for shareholders. So with that, let's open up the line for questions. Kevin, back to you. Operator: Certainly. We'll be conducting a question and answer session. If you'd like to be placed in the question session, you'd like to remove yourself from the queue, please press star two. Once again, that's star one to the queue, and please ask one question, one follow-up, then return to the queue. Our first question is coming from Bob Huang from Morgan Stanley. Your line is now live. Jian Huang: Good morning, and congratulations on the quarter. Maybe if I can just ask a question to follow-up on talent and retention in today's environment. Obviously, NetHire has been a strength to your growth. But can you give me can you maybe give us a little bit more color in terms of what competition for talent looks like today? Obviously, there are some brokers that are extremely aggressive out there. Does that significantly impact you in terms of talent retention and hires? Especially in key growth areas, like data centers, energy infrastructure, things of that nature. Just curious about attrition and retention, things of that nature. Thanks for that question. Appreciate it. And I'll offer a couple of thoughts and Evan jump on in here. First of all, for us, talent is fundamental. You know this, Bob. We've talked about this pretty much on every call. And what you see us doing is continue to invest not just in additional talent in priority areas. We talked about construction and energy and health and mid-market and data centers, etcetera. But helping that talent be more effective. Literally, the tour de force investment around Aon Business Services is really around content capability, so not only our existing colleagues, but new colleagues who come into the firm have an opportunity to do things clients they've never done before. As such, Bob, we are uniquely positioned to bring talent into the firm. That's why, you know, in the current environment as Edmund described, you know, we're well up on a net basis from a talent standpoint. And we're gonna continue to make investments to support our mission and our efforts here and look forward to it. And the reaction we're getting as colleagues come in is incredibly positive. But it's met and exceeded by the interaction of our existing colleagues who see the opportunity that we bring to their backdoor on behalf of clients really no one else can bring. So for us, it's always been competitive out there. We'll continue to be, and we're gonna Edmund J. Reese: we're gonna enter the fray with a lot of confidence and excited on behalf of our colleagues and clients. But, Evan, what else would you add to that? I'll just emphasize the one point that you have and then talk a little bit about Operator: the contribution on that point. I mean, clearly, it's an aggressive and competitive intense environment right now. And as you just said, Greg, our talent, the attractiveness of it, we're not immune to that. But the point you made about being up 6% net in revenue-generating hires for the year means that not only were we in line with our objectives, but we're on our front foot. And this continues to your point to be a high area of focus for us right now. I mentioned in the prepared remarks that the 24 and the 25 cohorts five, are contributing the strong growth, 50 bps of contribution, and that means that the 24 cohort was right in line with what we guided to earlier. We said 30 to 35 basis points for the full year. They're tracking in line with that, and so is the 25. And that's showing up to your question in the priority areas. I mentioned double-digit growth in construction, strong growth in energy, and in our core health and benefits business. Also showing up in new business where we finished the year with 10 points of contribution. From new business. Those things are being impacted by our hiring in those priority areas. So we expect, again, to Greg's point, we have the capacity through ABS to continue making this investment. Our objective again going into 2026 is another 4 to 8%. We're gonna stay focused on creating this capacity. Building the capabilities that Greg just mentioned to attract them, and retain them. That's part of our strategy for growth moving forward. Got it. Really appreciate that. Sounds like the Jian Huang: talent is strong. Bench is deep in core areas. Maybe the other question is really on acquisition and inorganic growth. You're obviously very optimistic in the middle market environment. Just given the broader market volatility pricing deceleration, Operator: do you foresee Jian Huang: more attractive valuation for M&A, or do you in other words, do you see more opportunities for inorganic growth? Or is it something that just given the current environment, how do you think about is there a way to think about are you stepping on the gas, so to speak, or is it something more of a time to dial back a little bit on that side? Edmund J. Reese: Well, let's first just because it's an important question, and we should just take our time. Make sure that we understand this just to talk about capital allocation first and maybe Greg and I both can make a comment on your question about valuations. But I think the first part is capital allocation. I just first need to reiterate that we are just really pleased first with the free cash flow generation in '25 and then the execution of our capital allocation model over '25, paying down $2 billion of debt and meeting the leverage objective paying a dividend that was 10% higher, over $40 million the question that you're asking of middle market acquired EBITDA, primarily through NFP and a billion in capital return versus share repurchases, that means we continue our track record of disciplined execution on this capital allocation model. As we go into this new environment, into 2026, we're focused on continuing that strong free cash flow generation, and we're in a position of strength with $7 billion in available capital. So what does it look like? How do we allocate that? First, I think now that we've met the leverage objective, focused on paying that again, increasing dividend, but M&A is gonna be a key part of the capital allocation model. As I said in the prepared remarks, it complements the organic revenue growth and we've been a great acquirer. It is important to highlight the point we made at Investor Day that our acquisitions over the last decade have generated 12% revenue growth after we've owned them for a year that the portfolio IRR of acquisitions over the last decade have been above 20%. And we continue to lead the industry in ROIC. So we evaluate opportunities for that strategic fit. For that type of financial profile. When we look at the environment, getting to your point now, getting to your question, the portfolio of pipeline opportunities to unlock growth, we got a robust pipeline. But, again, we're gonna be focused on the high margin, high growth areas across both risk capital and human capital. We're gonna continue to scale in middle market through NFP, particularly in North America commercial risk. And there are some geographic areas of priority for us where we think there's specific opportunities. So that will be a part of it. I think the market is attractive. We have a strong pipeline. But, again, they have to meet the criteria financially and strategically. And finally, I'll just say the share repurchases will continue to be a part of the balanced capital allocation model as well. We hit the commitment that we made for 2025. Sitting here in January, we feel very comfortable about at least a billion in share repurchases, and any changes of that will be dependent on the pipeline opportunities meeting the criteria that I just talked about. So we won't let any excess cash sit on the balance sheet. And all this, I would just say, is a continuation of our capital allocation model that's about balancing investment for growth and capital return to shareholders. That's a discipline that we've had that I think benefits shareholders, and allows us to maintain industry-leading ROIC. On valuations, I'll make my final point. I think there's always a lag. Sellers anchor and trailing EBITDA and prior transaction comp, so you don't necessarily see sort of lower valuations in this market right now. I think debt costs drive the lag here. The quality assets, the type of assets that we're looking at remain resilient. They're high growth, high margin assets. So I think you see strong valuations there. The bid-ask spreads are changing in these markets. But, look, we will continue to have our criteria for assessment and evaluation, and we'll make decisions for high return that allow us to continue to be leading ROIC. That's more of a comprehensive answer than you asked, but I think this is an important topic, and I wanted to hit on all of that. Jian Huang: No. I really appreciate that. Thank you very much. Operator: Thank you. Next question today is from Elyse Greenspan from Wells Fargo. Your line is now live. Hi. Thanks. Good morning. Elyse Greenspan: I guess my first question, I'm gonna follow-up on Bob's question capital. Right? So Edwin, you outlined or you said you have $7 billion of total capital available in 2026. The buyback was set at $1 billion. So I guess from a timing perspective, do you guys have line of sight on a deal potentially deals for the first half of the year that will consume a lot of that $7 billion? And is that why you're only expecting to buy back the $1 billion at least at first, Edmund J. Reese: it's important to add two words before $1 billion. That's at least $1 billion. We want to have the strategic flexibility given the pipeline right now. There's not a specific deal or asset that we're looking at. We, as I just said, have a robust pipeline of opportunities in some of the spaces that we talked about. They have to meet the strategic criteria. They have to meet the financial criteria. And we want to make that decision. We think that we've been very good at balancing the investments for inorganic growth and capital return. In fact, we put up a slide during Investor Day that showed roughly a fifty-five forty-five balance. And, ultimately, and over time, we expect to have a balance like that. So we want to make sure that we have the strategic flexibility to make the right decisions on behalf of the investors here. But, Greg, let me let you comment on that. Gregory Case: Listen, Edmund. I think you've covered it well, Elyse. Listen. Edmund answered the prior question with really a layout of how we think about capital allocation. It's exactly consistent with what we've done historically. And the ethic around that is high. They went through all the different aspects. I would add one to that. We are so dedicated to actually generating capital that gets the maximum possible return to shareholders. We also executed a very our divestiture. NFT Wealth really our NFT teams to come together, our Aon teams to come together. In the context of bringing NFT into the hold, we actually executed a divestiture to additional capital so we could prioritize. What I'm trying to do here for you, Elise, is highlight this is how strongly we feel about the principles that Edmund laid out. So we're essentially applying those in the current environment. The environment's moving around. It'll be what it'll be. But watch us do what we do. And that's another proof point on how focused we are on the highest possible return on capital allocation we can get. Elyse Greenspan: And then my follow-up is on the data center opportunity. Appreciate some of the comments and prepared remarks, but I guess I was hoping you know, just give us a little bit more color. You know, how much of a contributor were data centers to organic in the Q4? And how would you expect, I guess, the tailwind from that opportunity to benefit your organic growth in 2026? Gregory Case: Well, first of all, Elyse, the data center opportunity let me just offer a couple of thoughts. And we can really just talk about the mechanics of how we're thinking about it for '26 and '27. But remember, the data center opportunity it is unique. It is it's never been seen before. It is monumental. It also requires a level of response and complexity that's beyond what the traditional industry has ever accomplished. Just be clear about that. This requires real new, net new innovation. Around alternative forms of capital, how we think about risk, how we how we how we pull risk, all those pieces. All I'm trying to highlight is and while, you know, I think we probably do a third or more with the data centers that are out there now, we're incredibly well positioned, and we're having the dialogues no one else is having. But we're at the beginning of this process. So for you know, if you think about it, there are lots of data centers out there, thousands of them. But as we think about the build that's going on now, you know, last week at Davos, this was one of the primary discussion points and it was really this and AI and how they fit together. This race is just beginning. The opportunity is just beginning. So, you know, I would characterize Edmund, wanna get your input here as well. This is another proof point on both our ability to innovate and drive net new insight into the market. And second, it just reinforces mid-single-digit or greater organic revenue growth. That's really all we're trying to do. And so that's what I would factor in. It's another it's another weight on the scale if you think about sort of what's gonna drive that over time, and we'll see how it plays. But it's a unique opportunity, and we're very well positioned. But, Edmund, what else would you add? Great. You hit that so thoroughly. Operator: The only thing that I'll add is just backing it up. To our commercial risk business where we see this contribution showing up. We've now had 6% for the year in commercial risk and 6% or better for the last three quarters. Again, very much in line with what we've been talking about. And I highlighted earlier global strength in core P&C, the contribution from net new business Jian Huang: retention, Operator: but the priority growth areas construction, which is where we see our data center contribution show up, being at a double-digit growth and contributing to that. I think in addition to the innovation that you just mentioned on data center, we also sort of have the tailwind from potential, a pickup in M&A to support that growth. In commercial risk as well. So to your point, Greg, we just feel very much confident in the mid-single-digit or greater growth for commercial risk that'll be supported by the as leading in this data center space. Elyse Greenspan: Thank you. Operator: Thank you. Next question today is coming from Matthew Harriman from Citi. Your line is now live. Matthew Harriman: Hi, good morning, everybody. I wanted to follow-up on your comment to that last question, Greg. And one of the things I'm trying to understand is Operator: there's a totally different set of constituents really driving a lot of this investment, I'm curious whether or not we should think about market share in this new opportunity correlating at all the historical market share in historical data center builds. Gregory Case: There's an entire consistency that lays out here. And the response is, as we talk about mid-single-digit or greater in Elise's question, is really around it isn't just commercial risk. It's reinsurance. It's why for us, Matthew, risk capital matters so much. As we described, you know, this is we didn't we didn't show up and say, well, we need to coordinate so we can actually meet client demand here. We didn't just coordinate. We changed structure, risk capital. It's connecting reinsurance into the commercial risk environment in a way that's never been connected before. So for us, you know, we don't take anything for granted. Our view is we need net new innovation no matter where we are in our current position, leading or not, this race is just beginning. It is not in mid-game. It's not in end-game. It's profound, but it is in it is beginning. And so for us, our obligation on behalf of clients, all categories I just described, is massively more innovation. This is why you know, we I must say, you go back to 2023. We doubled down on an integrated AI embedded capability and we doubled down on risk capital and human capital. We changed organization, and we applied it through enterprise client. We did that two and a half years ago. In some respects, we're preparing for what we need now in order to deliver against this marketplace. So we're feeling good about that progress. It's one of the reasons we spent a billion dollars to accelerate it. So for us, we like our position. We love the demand profile. We see opportunity that's very, very unique. We see a level of investment players who have, you know, who have capital that no one's ever seen before with an absolute focus to drive. So for us, think this, by the way, is an industry opportunity. So it's not any one single player question is, can the industry respond and make a difference and be relevant? If our industry can respond and make a difference and be relevant, this is profound for everyone. And we certainly think, you know, if we can serve a primary role in the tip of the spear here, we're thrilled to do it on behalf of our clients. Thanks for that. I guess, you know, relationships matter too. So I'm just curious with respect to the M&A practice you have given the some of the asset owners are financing parties, how big of an advantage that is? If at all? Listen. Being able to sit down with the prime with the primary players here at the top of the house and help them understand that in the end, this isn't just brute isn't just brute force investment. This is very much around an integrated risk management strategy will change the economics of how these play out over time. Beyond just the build, but also the operations. When you think about, you know, business interruption measured at million dollars a minute now, there's a way to think about this differently, and you have to think about it differently. So you know, you're right. Being able to actually access the principles is fundamental, and we are in a very privileged position to do this. It's one of the aspects of our M&A services business and with financial sponsors that puts us in a unique position. In addition to the work we do with hyperscalers, addition to the work we do with the asset gatherers, addition to the work we do with the constructors, the builders. Because make no mistake about it, they're in a very unique position. They're being called on to do things they've never done before, and they're being asked to take on risk. On behalf of the scalers that is also uncomfortable. So how one thinks about that risk management profile and how we deliver against it. And then remember, Matthew, this only matters if our analytics can convince capital to come in and buy down the volatility. Otherwise, we don't have a transaction. So we have to get the capital to work to do this. This is why in the end, this is tour de force analytics, the analyzers, the capability. It's tour de force reinsurance, you know, access markets, and it's tour de force commercial risk. And then to be clear, one of the piece here I just have to throw in, and this is man, this is front and center at Davos last week. The human capital application of this is going to be massive. And everyone was gonna is gonna talk about AI and job reduction. Don't we don't think about it that way. We think about it as how we amplify the we've got and help our clients navigate the path of the from to on as you embed this of capability into their firms, not just the hyperscalers. We're talking about the users now, The human capital opportunity here, we think, is profound as well. So anyway, I know that's maybe more than you wanted, but, you know, we're pretty optimistic about this opportunity. And for Aon, certainly, but, you know, equally for our industry. Appreciate all of it. Thank you. Thank you. That's question today is coming from Charlie Lever from BMO. Your line is now live. Charles Lederer: Hey, good morning. Thank you. Maybe I'll move off of data centers. You maybe put a finer point on the incremental opportunities you identified with the upsizing of the AAU savings and with NFP? I guess, what's the pacing of these savings and how much is the 50 basis points you laid out for this year and this year? Well well, maybe, Charlie, if I Gregory Case: I just we do wanna start with just maybe a quick overview of literally the discipline of which we undertaken this is really sort of at the helm of Edmond, and I really want him to describe exactly the discipline and the approach and the and the progress. But remember, me provide, you know, the quick overview. What got us here? You know, what drove this was our initial investment and an incredible progress we've we've actually we've actually made so far against it. And and and now what we're talking about doing is taking this proven progress and applying it into the middle market. So that's in exactly the same time frame that we had before. But remember, I alluded to it in in the prior discussion with Matthew. What we did in '23 is made a decision to double down on AI business services connected to the to the rest of the firm. By the way, embedded in AI business services is an AI platform. I mean, I kid you not. Literally, on Monday, you know, two days from now, we're literally going to show up on Orlando. There will be literally 1,600 clients and markets in the property symposium and casualty symposium of Aon. The entire world's gonna shut down on property and casualty for the most part for three days. And that will be driven by a set of analyzers and content capability that's come out of the investment that we've made. That's why we're so excited about it, the power of it. And now we see that opportunity. This is probably way, an AI platform at scale globally that no one else. Has. We've spent two and a half years working on that. And now we're gonna finish in the third year. And what Edmund highlighted was in addition to what we've done in the core business and the work we began with NFP, the success of NFP for the last you know, now coming on, you know, first full year of a two years, two and a half years in this effort together has truly proven the opportunity inside the middle market. We always had high expectations. Now we see them even greater than ever before, and that's what we're talking about, the additional spend on in the current time frame. But, Edmund, how else would you describe Edmund J. Reese: I mean, the I think the key I'm just excited about our opportunity here, what we've accomplished, and the opportunity, Greg. The key is that we are staying consistent with completing the AAU program this year in 2026, and the savings have moved from $350 million to $450 million. And I stepped back and looked. We started this program in 2023 when we announced it, and we've accomplished a lot. Mindy and I have both been talking about our applications going down 25%. About the application's going into the cloud, 80% of them by the end of this year here. We now to help drive revenue, have a full suite of analyzers. In EMEA and US given the investment that we've made as part of AAU. And we are continuing to move our colleagues, but have a quarter of them today in our global capability centers, standardizing our operations and creating operating leverage. So and we knew that building this foundation was sort of a catalyst that allowed us to continue to bring on these middle market platforms. Greg, you know that me and the NFP team, we went to our global capability centers over the past months in in in many different countries. And the NFP team saw that they could standardize their operations your specific question. They can integrate their technology Operator: platforms, and Edmund J. Reese: innovate and drive product development that was applicable to the middle market. Given that we're so focused on this $31 billion middle market opportunity, we think this is a significant opportunity for us in Aon. So as opposed to doing this over multiple years, we'll accelerate this into 2026. We'll see revenue growth and synergies from it. And it's all because ABS is the scalable foundation that enables us to do this and expand margins in the near term and over the medium and long term. So we're quite excited about this. Charles Lederer: Thanks. Operator: For my follow-up, this is dovetailed to that question. Also sort of Lisa's capital question. On the free cash flow guide, you laid out you're committed to the $4.3 billion had Investor Day. I guess if I just look at the adjusted earnings growth, you're implicitly kind of forecasting in your guide, and and factoring in these upsized costs and the tax payment you mentioned on the NFT wealth sale. Can you help us think about the moving pieces you of how you're going to get to that $4.3 billion in 'twenty six? Thanks. And to clarify, the $4.3 billion is Edmund J. Reese: prior to the tax impact from NFP wealth is driven by the same items that have allowed us to drive double-digit free cash flow over the last ten years to drive it in 2024 as well. The operating cash flows that we have in the continued working capital improvement. And right now, what we're experiencing is the completion of the AAU program that we just talked about in the last question. And the wind down of the original NFP integration costs that we have here. So I think about going into 2025 2026 with an outlook for double-digit free cash flow growth. In line with our history. I think that's anchored in completing the restructuring program, including the acceleration of NFP the operating income growth, the working capital law, working capital improvements offset by the tax. On the NFP wealth proceeds here. So we have momentum going into '26, and confidence in the double-digit growth for 2026. Operator: Thank you. David Motemaden: Our final question today is coming from David Motemaden from Evercore ISI. Your line is now live. David Motemaden: Hey. Thanks. Good morning. I I also just wanted to clarify just on the $7 billion of available capital in 2026, do you guys expect to deploy all of that Edmund J. Reese: in 2026? And then relatedly, in the past, you guys have given David Motemaden: acquired EBITDA target Edmund J. Reese: Is that something you guys can share for 2026? On the first so two questions there. In terms of the deployment, of course, in that is the capacity that we have maintaining our leverage objectives as well. So if there's acquisition, of course, we would use debt capacity associated with that. But outside of we would either return just as we do each year any excess David Motemaden: capital through share repurchases and not allow excess cash to be sitting on the on the balance sheet here just as we've done in all the other path in in the past years. As we think about the pipeline of opportunities, again, we're very pleased with the $42 million in acquired EBITDA after selling NFP Wealth. We said $35 to $40 million expectations for the year coming in at, $42. We feel very pleased with that. We have a pipeline and a desire for high capital deployment in NFP, but we'll continue to balance that with the other opportunities in the pipeline as well. And think about using capital for the entire pipeline as opposed to just one component of the business given that we have strong opportunities across all of risk capital and human capital. Great. Thank you. Operator: Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further or closing comments. Edmund J. Reese: I think we are good. Thank you for joining us, today. We're very excited for our results in 2025 and the momentum that we have going into 2026. I just wanna end the call with exactly what Greg said, an appreciation in the shout to our over 60,000 colleagues around the world. We thank you for all that you're doing. Each day, and we look forward, to going into 2026. With that, Operator: Kevin, I think we should end the call. Operator: Certainly. That does conclude today's teleconference webcast. You may disconnect your line after this time, and have a wonderful day. We thank you for your participation today.
Operator: Good morning, ladies and gentlemen, and welcome to the BayFirst Financial Corp. Q4 2025 Conference Call and Webcast. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call, you require immediate assistance, please press 0 for the operator. This call is being recorded on Friday, January 30, 2026. I would now like to turn the conference over to Thomas Zernick, CEO of BayFirst. Please go ahead. Thomas Zernick: Thank you, Vanessa. Good morning, and thank you for joining our call today. Once again with me is Robin Oliver, our President and Chief Operating Officer, and Scott McKim, our Chief Financial Officer. Today's call will include forward-looking statements and non-GAAP financial measures. Please refer to our cautionary statement on forward-looking statements contained on Page two of the investor presentation. The 2025 marks the completion of several significant milestones. We have executed and completed a number of strategic initiatives, including the exit from the SBA 7(a) lending business, the sale of a substantial amount of seven loan balances, a significant reduction in headcount and expenses, and a complete focus on our community bank. The results of these efforts are lower risk, more efficient operations, and a better position for sustainable growth and enhanced shareholder value. We are also pleased to report that we closed the year well-capitalized, providing a strong foundation as we move forward. You have heard me talk about our community banking mission of delivering excellent service to our customers across the Tampa Bay and Sarasota markets. The next chapter for BayFirst is our focus on what matters most: being the premier community bank in Tampa Bay. To that end, the bank organically grew deposits by $12.5 million in the fourth quarter, and 85% of our deposits are insured. Our net interest margin was stable at 3.58%. Treasury management revenues continue to grow, showing a 69% improvement as compared to 2024. As we previously reported, we recorded additional provision expense in the third quarter in connection with our exit of the SBA 7(a) lending business, specifically allocated to our small loan program, SBA loans. In the fourth quarter, net charge-offs from unguaranteed SBA 7(a) loans were elevated, and this additional allowance for credit losses covered a substantial portion of those charge-offs. Our provision expense for the fourth quarter was $2 million, and we acknowledge the risk in this legacy portfolio, but our efforts around credit administration are designed to make an impact to manage future risk. Although the SBA 7(a) portfolio is winding down, and efforts to sell additional unguaranteed balances are ongoing, I will note that additional charge-offs are likely to continue into this year, but we expect a lessening impact over time. As BayFirst CEO and on behalf of the entire team, I want you to know that we take full ownership of these results. They fall short of our expectations, but we understand the responsibility we have to our shareholders to address these challenges and deliver better results. As I have already noted, outside of a legacy SBA 7(a) business, community bank metrics look strong. Furthermore, I want to highlight that the company's liquidity ratio was over 18% at year-end. As we work through our deposit pricing strategy, this additional liquidity will support efforts to reduce high-cost deposits and improve the bank's cost of funds to levels more in line with peers in our market. These actions are expected to drive improvements in profitability and competitive loan pricing while enhancing the bank's net interest margin. Now I will pass the microphone to Scott McKim, our CFO, to provide an overview of our financial performance. Scott McKim: Thank you, Tom. Good morning, everyone. Today, we are reporting a net loss of $2.5 million in the fourth quarter. This compares to the net loss of $18.9 million we reported in the third quarter, which also included a restructuring charge of $7.3 million and additional provision expense of $8.1 million, as Tom had already explained. Loans held for investment decreased by $34.8 million or 3.5% during 2025 to end at $963.9 million, and total loans held for investment decreased $102.7 million or 9.6% over the past year. During the quarter, loans held for sale decreased by $94.1 million, reflecting the Bonesco USA transaction. Deposits increased $12.5 million or 1.1% during 2025 and increased $40.7 million or 3.6% over the past year to end at $1.18 billion. The increase in deposits during the quarter was primarily due to an increase in time deposits of $26.4 million and an increase in interest-bearing transaction deposits of $20.9 million. This partially offset decreases in non-interest-bearing account balances of $10.2 million and in money market and savings accounts lower balances of $24.6 million. Furthermore, as Tom already mentioned, 85% of the bank's deposits were insured by the FDIC on December 31, 2025. Shareholders' equity at quarter-end was $87.6 million, which is $23.4 million lower than the end of 2024. Net accumulated other comprehensive loss decreased by $109,000, ending the quarter at $2 million. Our tangible book value decreased this quarter to $17.22 per share from $17.90 per share at the end of the third quarter. Our net interest margin was 3.58%. This was down three basis points from the third quarter. Net interest income was $11.2 million in the fourth quarter, which is down about $100,000 compared to the third quarter, yet it was up $500,000 from the year-ago quarter. During this quarter, the bank wrote off about $160,000 of unamortized premiums related to a single USDA guaranteed loan, which was liquidated during the quarter. Non-interest income was a negative $104,000 for 2025, which is $900,000 better than 2024, which included the impact of the loan sale and a decrease of $22.3 million in 2024. I should note that 2024 included an $11 million gain from our sale-leaseback transaction that we closed during that quarter. The year-over-year decrease is primarily, however, from the decrease in gains from the sale of 7(a) SBA government-guaranteed loans. As I mentioned when we spoke last, with the exit of the SBA 7(a) lending business, revenue from gains on the sale of government-guaranteed loans will no longer impact non-interest income as it has in prior periods. Turning now to non-interest expense, which was $11.9 million in the quarter, which is a decrease of $13.3 million compared to the third quarter. Most of this decrease, $7.3 million, represents the restructuring charge. Additionally, compensation expense was $2.9 million lower, data processing was $350,000 lower, loan servicing and origination expense was $2.2 million lower, slightly offset by an increase in professional services of $200,000. On a full-year basis, non-interest expense was $3.6 million higher. However, excluding the third quarter restructuring charge, non-interest expense was actually $3.7 million lower year-over-year. Notable reductions this year include reductions in compensation of $2.6 million, bonus and commission expense was lower by $3.6 million, and marketing was lower by $500,000. These were offset by higher occupancy costs, primarily the rent expense from the sale-leaseback of $1.2 million. Data processing was $1.2 million higher, and loan servicing and origination expenses were higher by $1.6 million. Finally, higher regulatory assessments were $700,000. The provision for credit losses was $2 million in the fourth quarter compared to $10.9 million in the third quarter and $4.5 million in 2024. Net charge-offs were $4.6 million, which was up $1.3 million compared to the third quarter, which came in at $3.3 million. Unguaranteed SBA 7(a) loans account for $1 million of the $4.6 million of net charge-offs during the fourth quarter. Our on-balance sheet, unguaranteed SBA 7(a) loan accounted for $3 million of the $3.3 million of net charge-off which we reported in the third quarter. To highlight the basis for this risk, the bank had $171.6 million unguaranteed SBA 7(a) loan balances on December 31, 2025. This is down $50.4 million from September 30, 2025, and also $51.4 million lower than it was at the end of 2024. Total annualized net charge-off as a percentage of average loans held for investment at amortized cost were 1.95% for the fourth quarter, which was up from 1.24% in the third quarter and also up from 1.34% in 2024. The ratio of allowance for credit losses to total loans held for investment at amortized cost was 2.43% on December 31, 2025, 2.61% as of September 30, 2025, and 1.54% as of December 31, 2024. The ratio of allowance to credit losses to total loans held for investment at amortized cost, excluding government-guaranteed loan balances, was 2.59% at December 31, 2025. It was 2.78% on September 30, 2025, and 1.79% as of December 31, 2024. At this time, I am going to turn the call over to Robin Oliver to continue with our discussion. Robin Oliver: Thank you, Scott. Good morning, everyone. I want to further follow-up on credit risk management as it is a major focus for organizations. First off, total nonperforming loans, excluding government-guaranteed balances, were $16.9 million at the end of the fourth quarter, relatively flat to $16.5 million at the end of the third quarter. The percentage of nonperforming loans, excluding government-guaranteed balances, compared to total loans held for investments was 1.8% at the end of the year, up 11 basis points from September 30, 2025, and up 45 basis points from December 31, 2024. I want to note that of the $16.9 million in nonperforming loans, $3.4 million of these balances were current and paying as agreed. And one loan with an unguaranteed balance of $815,000 was paid in full in early January. As I have mentioned previously, throughout this past year, we worked to strengthen credit administration practices to ensure the timely resolution of problem credits as well as ensuring those same problem credits are resolved timely. Management has significantly increased its focus and resources to ensure all loans are properly risk-rated and accounted for. And as I mentioned last quarter, management scrubbed a significant portion of the portfolio to take an aggressive and conservative stance on problem credit. While that increased nonperforming and classified assets in the short term, management is focused on reducing nonperforming and classified assets expeditiously. I want to point out that as we manage classified assets going forward, more and more we are seeing classified loans paying current, paying off, and nearing resolution altogether. As of year-end, 64% of the bank's classified loans were current performing loans whereby we are working with the borrowers towards resolution. As we move forward into 2026, the goal will be the continual reduction of nonperforming and classified credits to bring these balances more in line with peers. The overall wind-down of the SBA loan portfolio, the potential sales of additional SBA unguaranteed balances, and the continued workout of problem loans is expected to improve asset quality in the coming quarters without significant additional provision for credit losses being necessary. Switching gears outside of our focus on credit, the retail and commercial banking teams are actively engaged in our community and working to attract deposits to the bank, with a focus on small businesses where we can serve as their primary financial institution and offer an array of treasury and merchant services. We saw significant growth in treasury and merchant services revenue this past year, and our team is dedicated to continuing to expand on that success. In addition, we are continuing to promote our kids club and trendsetter club programs, which have proven to be catalysts for deposit gathering and customer referral. I want to end by being clear that our full-service community bank is poised to thrive in our fantastic Tampa Bay market. And at this time, I'll turn it back to Tom for his final thoughts. Thomas Zernick: Our board of directors and leadership team remain fully committed to driving resilience and innovation as we position the company for long-term success and enhance shareholder value. With our 2026 strategic plan firmly in place, we are focused on its two central pillars: fortifying the balance sheet and focusing on maintaining a culture of disciplined risk management. We are confident in this plan and in our ability to execute it, and these priorities will enable us to flourish as a community bank and drive sustainable revenue growth. We trust that these efforts will position both the company and our bank to thrive in a dynamic banking landscape. Thank you for joining our call. Operator: At this time, we'd like to turn it over for questions. And thank you. Ladies and gentlemen, we will now begin our question and answer. Should you have a question, please press star followed by the one on your touch-tone phone. You'll hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you're using a speakerphone, please lift the handset first before pressing any keys. And it seems we have our first question from Ross Haberman with RLH Investments. Please go ahead. Ross Haberman: Good morning. Thank you for the discussion. Could you please focus on the, I think you said it was $171 million of unguaranteed government loans proportion. What is the specific allowance against that, and what's been your recent default experience on that category? Thank you. Scott McKim: Hey, Ross. This is Scott. I'll tackle that one for you. So the $171.6 million represents all of our SBA 7(a) unguaranteed balances that we have on December 31. So that portfolio is going to run off and will continue to shrink. Thomas Zernick: Within our allowance for credit losses. What was that number, what is that? P10, I suppose? Ross, you faded out there at the end. Would you ask that again, please? Ross Haberman: Sorry. I thought a good portion of that went away with your loan sale. What does that number peak at? Scott McKim: Which number? The unguaranteed. The unguaranteed. The unguaranteed portion. Yeah. So as I mentioned in my comments, it was about $50.5 million higher at the end of the third quarter. Ross Haberman: Okay. Okay. Thank you very much. Thank you for the help. Scott McKim: Sure. Thanks, Ross. Operator: And thank you. Our next question is from Julienne Cassarino with Sycamore Analytics. Please go ahead. Julienne Cassarino: Hi. Good morning. Scott McKim: Hi, Julienne. Good morning. Julienne Cassarino: Hi. I was wondering if you could talk about the deposits. I was wondering if you could talk about where the growth is coming from. And just doing some quick calculations, it looks like your deposit cost came down nicely. So, whatever the mix, it looks like it came down over 13 basis points or close to 13 basis points sequentially. And I was just wondering, it sounds like that's local customer relationships. And if those are coming in in part from the treasury management platform. Scott McKim: Thanks for the question, Julienne. Let me kind of, like, answer that quickly. First and foremost, I want to give credit to our retail and operations team people, our frontline people, our branch managers, and also everybody working in our branches. They are the ones that are working hard to address this organic deposit growth, and they are also very actively helping us reduce the overall cost of funds. And they're doing that by growing and nurturing relationships with their customers. Some are existing. Some are new. And, really, it's we're just starting to see the positive impact of doing that. I think, you know, if you recall Tom's comments at the beginning of last year, where that we really wanted to focus on this, and we wanted to really get our cost of funds better in line with our peers in the marketplace. Granted, they're higher. You can look at any number of different sources that support that, you know, they first tend to pay a little bit more on deposits. As we move forward and exit out of the SBA 7(a) business, which typically brought lots higher loan yields for us, and we could afford to pay promotional rates on deposits. Being much more disciplined around it. So the growth that you see is appropriate for how the bank is growing its assets at the same time. Plus, you know, it would be remiss if I didn't point out there was also a couple of rate changes during the quarter as well. That assisted with some of that happening. But, you know, you can't reduce rates on deposits without some form of customer outreach. And engagement, helping them understand what's going on. You know, we still have, I think, premium pricing on a number of our deposit products, but what you're seeing is the result of better management of that. And building relationships. And, Tom, Robin, don't know if you guys want to add anything to that, but this is kind of our top priority. Robin Oliver: Yeah. I would say treasury, to your point, Julienne, our treasury team, is very busy and continues to be very busy. And, you know, they're really partnering with the market execs and the banking center managers, you know, to bring in those deposits and show people what BayFirst can do and that we have all the products that these, you know, small to midsized businesses need. So, you know, it's really a group effort and then being very careful. We certainly don't want a lot of deposit runoff, so we're balancing reducing rates appropriately without creating any undue runoff that we don't want. And I think so far, we're striking that balance, but that's going to be our continued focus in 2026 is to, you know, bring down any of those promotional rates, reduce any reliance on broker deposits, etcetera, to help reduce that cost of funds. Julienne Cassarino: Just from a big picture perspective, how does the deposit franchise breakdown roughly between commercial deposits and retail? Scott McKim: I'm going to answer the question this way, Julienne. It is a very granular portfolio. So we have a lot of what I'll call individual family type of relationships that, you know, they treat us as their preferred financial institution. As far as how much is from the business side of things, we're very focused on growing our business and making sure that as we establish new lending relationships, they're compensating deposits. We want to make sure that we're the preferred financial institution for those businesses that get it. That or that we write loans to, I should say. I think, really, to call it granular is the best definition versus just a breakdown between how much is commercial and how much is not commercial. Julienne Cassarino: Okay. Thank you. Scott McKim: Sure. Operator: And we have no further questions at this time. Ladies and gentlemen, this concludes the BayFirst Financial Corporation Q4 2025 conference call and webcast. Thank you for your participation. You may now disconnect.
Operator: And gentlemen, thank you for standing by. Welcome to the American Express Q4 2025 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. You will hear a tone indicating you have been placed in queue. You may remove yourself from the queue at any time by pressing star then two. If you are using a speakerphone, please pick up the handset before pressing the numbers. Should you require assistance during the call, please press star then 0. As a reminder, today's call is being recorded. I would now like to turn the conference over to our host, Head of Investor Relations Mr. Kartik Ramachandran. Thank you. Please go ahead. Kartik Ramachandran: Thank you, Donna, and thank you all for joining today's call. As a reminder, before we begin, today's discussion contains forward-looking statements about the company's future business and financial performance. These are based on management's current expectations and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from these statements are included in today's presentation slides, and in our reports on file with the SEC. The discussion today also contains non-GAAP financial measures. Comparable GAAP financial measures are included in this quarter's earnings materials, as well as the earnings materials for the prior periods we discussed. All of these are posted on our website at ir.americanexpress.com. We'll begin today with Stephen Squeri, Chairman and CEO, who will start with some remarks about the company's progress and results. Then Christophe Le Caillec, our Chief Financial Officer, will provide a more detailed review of our financial performance. After that, we'll move to a Q&A session on the results, with both Stephen and Christophe. With that, let me turn it over to Stephen. Stephen Squeri: Thank you, Kartik. Good morning, and welcome to our fourth quarter earnings call. We had another year of strong performance continuing the momentum we delivered since introducing our long-term growth aspirations in January of 2022. Full-year revenues were up 10% to a record $72 billion and EPS was $15.38, up 15% over last year excluding the gain. Card member spending was strong throughout the year. Card fee growth continued in double digits, for thirty straight quarters and we maintained excellent credit quality. Importantly, we continue to invest in areas that strengthen our membership model and drive our growth. For example, we continued our successful product refresh strategy with refreshes in close to a dozen countries around the world, including the launch of our new US consumer and small business platinum cards. We renewed and expanded our relationships with key international program partners, including British Airways, ANA, and Air France KLM. We continue to build our membership assets with new lounges, the expansion of our hotel network, and the momentum we're generating from our investments in the business, and the flexibility we have to drive leverage in our business model. We expect 2026 revenue growth of 9% to 10% and EPS of $17.30 to $17.90. We will also continue our strong track record of returning capital to shareholders with a planned 16% increase in the quarterly dividend to 95¢. For the last several years, we've been managing a company with a focus on accelerated revenue and EPS growth. This has generated consistently strong momentum which gives me confidence in our ability to not only deliver on our 2026 guidance, but also to continue driving strong growth over the long term. The key to driving our growth has been our investment philosophy. We consistently invest to strengthen our competitive advantages across key areas including our customer value propositions, marketing, technology, partnerships, and coverage. In 2025, for example, we invested $6.3 billion in marketing, an increase from around 75% since 2019. And in just the last two years, both marketing and technology investments are up 20 plus percent. We apply a rigorous return discipline focusing on outcomes that drive growth. For example, after a product refresh, in addition to its financial results, we measure customer demand and engagement, credit quality, retention, and relationship expansion. In evaluating our marketing investments, we measure the spend and revenue efficiency of our marketing dollars across thousands of campaigns. As a result of this process, we've created a robust pipeline of ideas where we fund the best opportunities from across the company. This return discipline combined with our investment flexibility enables us to dynamically reallocate resources to those opportunities that represent the highest returns. A great example of this is our recent decision to quickly redirect marketing investments to our US platinum products given the strength we saw towards the end of the year. One of the key lessons we've learned in executing this philosophy is that the investments we make in our value propositions pay off in multiple ways, including increasing customer demand and engagement, driving business to our merchant partners, maintaining strong credit performance, and driving efficiencies by enabling our marketing dollars to go further. We're seeing this in our new US consumer platinum card, which continues to perform even better than our expectations. Customer demand is high, engagement is up, credit quality continues to be excellent. We're seeing no change in retention rates as the new fee kicks in. At the same time, investments in our marketing capabilities have driven acquisition incentives to some of the lowest levels in the last couple of years. Powering the success of our product refresh strategy and our growth overall, are the investments we're making in technology. This enables us to quickly introduce new capabilities that drive customer engagement and satisfaction, add new partners and categories that our card members value, and develop new customer experiences that enrich American Express membership. We now spend $5 billion annually on technology. At a high level, we categorize our tech spending into two broad categories. One, I would call run the business investments, things like infrastructure, software licenses, and cybersecurity. Investments in development activities. Development includes things like new mobile experiences and capabilities, and the ongoing modernization of our core systems which we upgrade regularly similar to our product refresh strategy to stay on the cutting edge. For example, we're rolling out our new third-generation data and analytics platform. Which will enable greater personalization in marketing, improve servicing experiences, augment our industry-leading fraud capabilities, and enable new GenAI and AgenTic use cases. The new platform, is built on the public cloud, is already reducing the time for key processes in marketing and fraud by 90% and we expect to migrate 100% of our data and analytics processes to the new platform by 2027. We continue to invest in enhancing our app experiences. In a number of ways, from the new platinum onboarding experience and the launch of our travel app to digital journeys that enable self-service. As a result, we're driving more revenue-generating engagement via the apps we're creating operating efficiencies from digital self-service. Over the last three years, for example, the number of calls per account coming into our service centers has dropped by 25%. We're also expanding our digital capabilities for business customers. Including the integration of Center's expense management solution including those already in market, such as our travel counselor assist tool, our dining companion experience, as well as the deployment of GenAI tools to nearly all our colleagues worldwide. By successfully executing this investment philosophy over the last several years, we've delivered on our goals of accelerating revenue and EPS growth. While maintaining best-in-class credit performance. At the same time, we are substantially increasing capital returns to shareholders. Our expectations for 2026 are no different. We expect to continue delivering the pace and quality of growth we've seen in recent years, while also continuing to invest in areas to sustain our growth, and deliver strong capital returns to shareholders. In summary, we are operating from a position of strength thanks to our loyal premium customers and the dedication of our world-class colleagues. And I'm confident in our colleagues' ability to continue to innovate for our customers as we invest for growth to drive long-term consistent results. Now I'll hand it over to Christophe for more details about the quarter and full-year results, and then we'll take your questions. Christophe Le Caillec: Thanks, Stephen, and good morning, everyone. In 2025, we generated 10% revenue growth and EPS of $15.38, up 15% excluding the gain. If you look back at our performance over the past three years, what you see is a track record of delivering consistent and strong results. We have driven average return growth of 11% per year and have generated mid-teens EPS growth for three consecutive years. Importantly, we delivered these results while maintaining a disciplined focus on premium products and high credit standards. Our momentum continued in 2025. We saw healthy spending and loan growth throughout the year and continued demand for our premium products. Net card fee grew at 18% and reached a record of $10 billion for the year. And we drove greater scale of the business through increased investment enhancing our ability to drive operating leverage over the long term. Overall, our business model is performing as we expected driving our growth in the year ahead. Turning to billed business trends for the quarter, total spend was up 8% FX adjusted consistent with Q3. Both goods and services and T&E continued to grow at a fast pace than during the first half of the year. Retail spending continued to show good momentum in the quarter, up 10%. And spending at luxury retail merchants was up 15%, reflecting the continued strength of our customer base. Growth in airline and lodging spend was largely stable and restaurant spending was up 9% once again this quarter. Our dining assets are driving high levels of engagement, with spend at US restaurants by US consumer customers, up by more than 20%. Momentum from younger card members from younger customers also continued. As of Q4, millennial and Gen Z customers now make up the largest share of US consumer spending, and they remain the fastest-growing cohorts. That momentum is driven by our success in attracting younger customers into the franchise. For example, the average age of new customers is 33 on the US consumer platinum card, and 29 on the US consumer gold card. Giving us a long runway to grow our relationships with these customers over time. International also delivered another very strong quarter, with spend up 12% FX adjusted. Growth remains broad-based across consumer and business customers, and across geographies. Overall, transactions growth of 9% was consistent with what we've seen throughout the year and reflects continued engagement from our customers. Looking at the first three weeks of January, we continue to see good momentum in spend. As we look ahead to 2026, we are encouraged by the strength and stability that we continue to see across our customer base. Turning to new acquisition. Demand for our premium products remains very strong. We reallocated marketing dollars away from lower-cost cash back products to platinum, and platinum new acquisitions were up significantly. In fact, the percentage of fee-paying products for US consumer is up 8 percentage points year over year. Turning to balance growth and credit. Loans and card member receivables increased 7% year over year FX growing at a similar pace to billed business. There was about a one percentage point impact on balanced growth from our held-to-sale portfolios again this quarter. In 2026, we expect loans and receivables to continue to grow largely in line with billed business. Our credit performance throughout the year was remarkably strong and stable. Delinquency rates were flat throughout the year, and write-off rates remain best in class. Notably, both delinquency and write-off rates are still below 2019 levels. In 2026, we expect credit metrics to remain generally stable with some seasonal variation in provision across quarters. Turning to revenue on slide 14. Revenue was up 10% FX reported for both Q4 and the full year. Momentum was broad-based across revenue lines with net card fees, NII, and service fees and other revenue all growing at double-digit rates. Net card fees reached record levels driven by continued success in acquiring new customers onto fee-paying products, our ongoing cycle of product refreshes, and our high retention rates. In Q4, card fees were up 16% FX adjusted moderating a bit as we expected. In 2026, we expect card fee growth to pick up as the year progresses as we see the impact from the platinum refresh, exiting the year in the high teens. We have now started applying the new annual fee for US platinum card members reaching their renewal anniversaries. For those customers, we have seen no change to our very high retention rates relative to pre-refresh. Net interest income was up 12% again this quarter. Continuing to grow faster than balances. We expect NII growth to continue to outpace growth in loans and receivables in 2026. Turning to expense performance. The VCE to revenue ratio was 45% this quarter. The VCE ratio stepped up from earlier in the year as we expected driven by the investment we made in the value propositions of our US platinum cards. As Stephen noted, VCE investments are an important part of our model. They support revenue growth by driving customer acquisition and engagement, they improve credit outcomes by attracting highly creditworthy customers and they drive marketing efficiency by increasing demand for our products. In 2026, we expect the VCE to revenue ratio to be around 44%. Driven by these investments and ongoing mix shift towards premium products, and assuming a similar spend environment to what we've seen recently. We continue to drive leverage from our operating expenses with OpEx as a percentage of revenue down four points since 2022 even as we increased our technology spend by 11% for the year. In 2026, we expect operating expenses to grow in the mid-single digits. Marketing expense totaled $6.3 billion for the year, up 4% year over year. We expect marketing expense to be up in the low single digits in 2026. As we look to generate efficiencies from the investment in product value propositions, and technology as Stephen discussed. Before leaving expenses, let me add to Stephen's comments about our investment approach and where those investments sit in the P&L. At a high level, when we think about growth, we consider three types of investment. The first is spent on welcome offers and distribution channels that generate demand for our cards. These expenses are reported on the marketing line. Second, a significant part of our technology spend drives growth. For example, the new travel app or the enhancements we made to the American Express app for the platinum refresh. These expenses are reported in operating expenses. And third, are the customer benefits and partnerships associated with card membership. Which generate demand and customer engagement. The recent step up in card member services on the platinum card is a good example of this type of investment. These expenses show up in VCE. Every year, we balance how much of these investments to deploy for growth across these investment categories. For 2026, we plan for investment levels to continue to be high with a record level of technology development, the step up in the value proposition of our US platinum cards, and with a large marketing budget. We plan to invest at these levels while generating strong bottom-line growth in line with our aspirations. Moving on to capital. We continue to deliver very strong returns with an ROE of 34% for the full year. We returned $7.6 billion of capital to our shareholders including $2.3 billion of dividends and $5.3 billion of share repurchases. In 2026, we expect to increase our quarterly dividend by 16% to 95¢ per share. Consistent with our approach of growing our dividend in line with earnings, and our 20 to 25 target payout ratio. With this planned increase, the dividend will be up by more than 80% since 2022. And we have reduced the share count by 7% since then. While maintaining capital well in excess of regulatory minimum levels. This demonstrates our confidence in the sustainability of earnings generated by our model and our disciplined capital management. We also have a robust and diverse funding stack. Supported by our continued demand for our high-yield savings accounts. With balances up 8% year over year. The majority of those balances come from our account members. Who, on average, hold higher deposit balances than non-account members. Given strong engagement with our brand and the premium nature of our card member base. With less than 10% of our US consumer card members currently holding a high-yield savings account with us, we see a long runway for growth. This brings me to our 2026 guidance. We continue to run our business with an aspiration to achieve 10% plus revenue growth and mid-teens EPS growth. As shown on slide 21, for the full year 2026 we expect revenue growth of 9% to 10% and earnings per share between $17.30 and $17.90. 2025 was a very strong year for the company. We are well-positioned to continue our track record of strong growth into 2026 and we feel good about the year ahead. With that, I'll turn the call back over to Kartik, and we'll take your questions. Kartik Ramachandran: Thank you, Christophe. Before we open up the lines for Q&A, I will ask those in the queue to please limit yourself to just one question. Thank you for your cooperation. And with that, the operator will now open up the line for questions. Operator? Operator: You'll hear a tone indicating that you've been placed in queue. You may remove yourself from the queue at any time by pressing star then 2. If you're using a speakerphone, please pick up the handset before pressing the numbers. One moment please for the first question. Our first question comes from Ryan Nash of Goldman Sachs. Please go ahead. Ryan Nash: Hey, good morning, everyone. Stephen Squeri: Good morning. Good morning. Maybe to start with the net cards acquired. Stephen, can you maybe expand on the comments regarding allocating away from cash back and putting this towards fee-paying products? And do you expect this remix to continue? And maybe just talk about how it will impact the results going forward. Thank you. Yeah. So I think, you know, as I said in my comments, we have the ability when we see opportunity to be really flexible with our marketing investment. And we saw a tremendous demand for premium products, particularly the platinum card. And, you know, as we go forward, we'll continue to adjust as necessary. I feel again, I don't think this affects the overall results because we don't really focus so much on acquiring cards as much as we focus on acquiring revenue. And, you know, we're hitting all our revenue targets and we're hitting our return on investment targets. So you know, again, I wouldn't focus too much. I mean, if you look at it sequentially, it's a little bit down. If you look at it year over year, it's a 100,000 cards. And, you know, that led to an increase in platinum cards. So we're really happy with those decisions. And we think it was the, you know, obviously, right thing to do. Christophe Le Caillec: Maybe I'd add two small things. The first one is that there are variations among the quarters. Some of that is just a function of our own marketing plans, whether we're running LTU limited time offers or not. And so that drives volatility from one quarter to another. And as you saw, Q4 last year was also lower. The other thing that I mentioned is that if you focus just on fee-paying cards in the US consumer business, the percentage of NCA paying a fee went up by eight percentage points from Q4 last year to Q4 this year. This is not exactly visible to you in the numbers that we are sharing with you, but this shows, you know, that the efficiency of our marketing dollars is improving. And that's the end, what matters. Kartik Ramachandran: Thank you. The next question is coming from Sanjay Sakhrani of KBW. Please go ahead. Sanjay Sakhrani: Thank you. Good morning. I had a question on Commercial Services. Obviously, SME spend still remains pretty weak. Saw a slight deceleration. I'm just curious as we think about next or this year, like what gets things going a little bit more, some of the investment you've made. Obviously, some of your competitors have made some M&A moves and are getting deeper into this space. How do you think that changes sort of competitive backdrop in which you operate? And how would you compare your products? Thanks. Stephen Squeri: Yeah. Look. I think you know, when you tease out SMB, you've gotta look at middle market, and you've gotta look at small business. I think small business is really, really strong. I think middle market is where you see a little bit of the slowdown. Think as far as, the competitive space and, look, you just saw Capital One just acquired Brex. You've got Ramp out there. We acquired Center last year, which we'll be launching, you know, probably by midyear. And you know, it's a highly competitive space. Having said that, we're still three times larger than anybody else. Our platinum refresh has gone very, very well. And we're looking for a pickup as the year goes on, and we'll be communicating more in terms of just what's gonna go on in our overall commercial strategy as the year goes on from a product refresh perspective. So, yes, it's a highly competitive market. I think the other thing to look at is it's not just us that is sort of, you know, slow on the overall growth as it relates to SMB. And I think most of it is middle market from an industry perspective. So again, competitive, I like the hand what we have. I like the plans that we have going forward, and we'll be communicating more as the year goes on on that. Kartik Ramachandran: Thank you. The next question is coming from Don Fandetti of Wells Fargo. Please go ahead. Don Fandetti: Good morning. Stephen, can you talk a little bit about 2026 in terms of US consumer billed business and the health of the premium consumer? I know there's this sort of scenario where we could run a little hot. There's a lot of stimulus and just want to get your kind of sense. I mean, if you're running at 9% now, is it like, steady state from here or could we accelerate? Stephen Squeri: Look. You know, we saw a big uplift in platinum over the holidays. And I think the momentum that the new platinum launch has given us, the momentum that gold has given us, we're really bullish from a consumer perspective. Will it go ahead of nine? I don't know. But, I like what our card members are doing with the product. They're really engaging. I think one of the big things that is sort of lost on a lot of people was the Platinum app that we launched and the ability for our card members to really engage with the product and to go out there and spend. I mean, if you look at restaurant spending, for example, for the quarter, it's up 9%. It very well from us. So as again, I'm not projecting more than 9%. But we do have very, very strong momentum. And that momentum, and, you know, as Christophe just talked about, as well, that momentum from a platinum acquisition perspective, expect to continue. Kartik Ramachandran: Thank you. The next question is coming from Erika Najarian of UBS. Please go ahead. Erika Najarian: Yes. Good morning and thank you. I just wanted to revisit, you know, the net cards acquired number because this is a big talking point with investors. Before the call began. So you know, completely understand the message. And, of course, you know, the focus should be on revenue generation and not that number. But as we think about this remix strategy, as you refocus more of your dollars towards the fee-paying cards, does that over time then impact the trajectory of net card fees, for example, on slide 15, or get you closer to that plus part of your long-term aspiration in terms of revenue growth? Stephen Squeri: Hey. Good morning, Erika. So, yes, you're right. The overall portfolio is slowly getting more premium. Either the platinum portfolio is growing at a very fast pace. The spend because of the strong engagement is also growing at a faster pace than the rest. And we have celebrated on this call for many quarters the growth and their sustained growth on card fees, which just reached $10 billion. Right? And there is in the slides that we talked about this morning, you can see the trajectory over time. A lot of that is coming from the premium cards, especially platinum. And as you think about that card fee line in the P&L for 2026, which is right now growing at 16%, which in itself is like an amazingly strong number for a base, like, that is reaching $10 billion annually. We expect that growth rate to pick up in the balance of the year as the year progresses. And as more and more of our card members on the platinum card are facing their renewal anniversary, and we are moving them to the new price point. So that's very much the dynamic indeed that is happening. The other proof points that are either visible that the portfolio is getting more premium, is there incredible performance on the credit side, you see those delinquency rates, those write-off rates that are not only best in class, but they are flat. And I compare and contrast that with many of our competitors that have guided for a small increase there while we're talking about stability. When it comes to those metrics. So the portfolio is indeed moving towards a more premium portfolio and a lot of the P&L lines are reflecting that. Kartik Ramachandran: Thank you. The next question is coming from Rick Shane of JPMorgan. Please go ahead. Rick Shane: Thanks for taking my questions. It's sort of a follow-on to what Erika just asked. You know, when we look at 2025, marking the strong the low expense on credit on a relative side allowed you to aggressively ramp marketing and rewards. When you we think about the '26 guidance, it feels like it is more in balance in terms of more normalized growth and credit expense. If credit expense continues to be low, as Christophe, you just alluded to, is there incremental opportunity for investment or is that something we would see fall to the bottom line? American Express has historically reinvested those excess returns. Stephen Squeri: Yeah. So to your point, Rick, credit is very low, and there is a hard limit to how low these numbers can be. Right? And 2% is pretty much at that limit. You know, the other component of the model, which we also try to illustrate this quarter, is the efficiencies that we're getting on operating expenses. Right? So as we are expanding their increasing the value proposition on our premium products, as premium products are getting a bigger share of our portfolio, it's putting a downward pressure on credit. And we are generating efficiencies on marketing acquisition as well as on our operating expenses. And that's very much how the model is working. And we try to illustrate that also by saying that this is not by constraining technology growth. We're actually growing technology. I think the CAGR is 11%. It's all the other operating expenses that are generating efficiencies. So, you know, as you think about modeling American Express and thinking about how the business is working, that's very much how you think about it. Now when it comes to potential upsides and what we would do with it, you know, we're guiding towards mid-teen EPS growth. We're providing a range. This includes, you know, a lot of scenarios, including where we overperform on some lines and underperform some others. The idea here is just like we are committed to that EPS, but there will be certainly movements between the lines as the year progresses. Kartik Ramachandran: Thank you. The next question is coming from Mark DeVries of Deutsche Bank. Please go ahead. Mark DeVries: Yeah. Thank you. I had a question about kind of the impacts you see on engagement and the level of spend from existing customers when you do a meaningful product refresh like you did with Platinum. Do you see existing customers actually change the way they use their card when you layer on new value? And if so, is there also a delay in that? Is it they take time to kind of gain awareness of what's kind of new and incremental? You know, kind of in contrast to new customers acquired who presumably are being acquired because they are aware of that and very immediately engage around the new value you've layered on. Stephen Squeri: Yeah. I think with existing customers, they don't uptake it as quickly as new do, but what I will tell you is that it goes very quickly. The engagement with Lululemon, the engagement with Resy, the engagement with the hotel credit was pretty quick with our existing customers. With the new customers, it's what draws them immediately. And I think what's really important there is that that draw is why as you move forward when you have a new value proposition, you don't need to heavy up as much as marketing. I mean, Christophe's point about movement between lines. So there's movement between VCE, marketing, there's better credit performance, there's operating expenses. You gotta look at the entire thing. But the bottom line is new customers look at the product, get very rational about it, and they engage everything they wanna engage in. Existing customers have a little bit of inertia, but then all of a sudden, they start to engage. And one of the things that really made a huge difference for us was the Platinum Travel app. The Platinum app. It made it so easy to enroll in all the benefits. And, you know, we didn't I don't think Christophe mentioned this, but we certainly have it in. We had an uptick of 30% in our travel bookings in the fourth quarter. It is a direct result of that platinum launch and the engagement of our cardholders. So get a lot more engagement across the board, and you just see what's going on with Resy, our restaurant spending is up 20%. So all of the metrics that we look at speak to the fact that this was a wildly successful product launch. It attracted new cardholders. And it engaged existing cardholders to spend even more. Kartik Ramachandran: Thank you. The next question is coming from Craig Maurer of Feet Partners. Please go ahead. Craig Maurer: Yes, thanks. Good morning. I actually wanted to ask the flip side of the last question, which is, when we think about Card Member Services growth as we move through the year, you know, how much of I'm trying to think of how much the growth rate itself could moderate while expecting it to remain high until you lap the relaunch of platinum. But, you know, how much do you think the fourth quarter growth rate was related to this being the new product? And now that we're moving through, into the early part of the year, some of that new car smell kinda wears off and so engagement might wane a little bit versus where we were. So I'm just trying to think about the cadence of that spend through the year. Stephen Squeri: Yeah. I'll make a couple comments, and I'll let Christophe go a little bit further. But I think that, you know, during that you know, look. We launched on September 18 or so. And I think we got to certain engagement levels. I think those are probably the engagement levels we're gonna get to. I think what you'll see is as new people come on, they will engage. But I think the existing card base has planted their flag, if you will. This is what they're gonna use out of the new product. A new card base. They've done what they're gonna do. So as we plan for this, and we're fine with where these with where the VCE levels are. I mean, it's expected. But as we plan for this, I think Craig, you're right. I think you get to a point where it sort of stabilizes. Right? Not every card member uses every single benefit. It's just that's not how we really design the product. Right? We design the product so that it appeals to a wide variety of people. There are core benefits that you know, a lot of people eat. Right? So they'll use the Resy credit, and people take Ubers and things like that. But then there are other credits on the side that they may not use. They may not use a Walmart Plus. May not use a Lululemon and so forth. So you get to that sort of balance, if you will, where it's a lot easier to project what's gonna happen. You know, some things you get more uptake than you thought you were gonna get, and other things you get less uptake than you thought you were gonna get. But in balance, we're very happy with the overall engagement which then leads to a wide variety of spend and more spend on the product. Christophe Le Caillec: I don't have a lot to add. I would just say that in the guidance that we gave you, we are assuming that the VC to revenue ratio will be around 44%, and we'll see whether we land there or not. The current level of spend, of course, because another big driver of that VC is the rewards cost. But, you know, we are assuming 40 around 44% for the balance of the year and we'll be watching it. Kartik Ramachandran: Thank you. The next question is coming from Jeffrey Adelson of Morgan Stanley. Please go ahead. Jeffrey Adelson: Hey, good morning, Stephen and Christophe. Wanted to just ask about the 10% credit card cap proposal out there. You know, obviously, everybody's been quite vocal about this, the unintended consequences, etcetera. Just wondering what your view is of that? What might happen to American Express in the industry if this goes through? Obviously, seems like American Express is more of a defensive mode against us with a premium card focus. But maybe just discuss that as well as maybe any conversations you've had with the administration. Stephen Squeri: Look. I think everybody's pretty much said everything that there is to say on this. I think, look, affordability is really important. I don't think a 10% credit card cap is the answer to that. I think it would reduce the number of cards ultimately in the marketplace. I think it would reduce line sizes. America pretty much runs on credit. I think that would impact small businesses and so forth, and it just has it just has this sort of effect of a downward spiral from my perspective. So I don't think that's the answer. And, you know, I mean, obviously, we have conversations. I'm not gonna get into those. But we just we don't think it's a good idea. Kartik Ramachandran: Thank you. The next question is coming from John Fandetti of Evercore ISI. Please go ahead. John Fandetti: Good morning. Stephen, you mentioned on the competitive backdrop, I know you mentioned the commercial dynamics already. Can you discuss a little bit more on the consumer side? I know competing card players are leaning in still to their travel rewards programs and all that. And then what poses the greatest risk to your 2026 outlook? Is it that competitive dynamic? Or would you say it's more macroeconomic or political at this point? Stephen Squeri: I would say it's, you know, if you look at risk, it's more macroeconomic or political. The competitive dynamic has been here since the financial crisis. I mean, this became a very interesting business after the financial crisis because it's a great return. It's a category that continues to grow about 8% every year. It's a great return on assets for people, and it's a great way to deploy capital. So the competitive dynamic in consumer is as tough as it's ever been. You know, JPMorgan's out there. Citi's out there. Capital One's out there. And, you know, the challenge for us has been the challenge that we faced for the last fifteen years is to stay one or two or three steps ahead of our competitors. And, you know, when you look at what our competitors are doing, they are following our playbook. And so our goal is to continue to move, you know, that playbook to a higher level, and that's what we'll continue to do. And to execute and provide fantastic service to our customers. The one thing I'll say that nobody has really been able to replicate is our customer service. And we continue year over year to perform and win the JD Power Award for service. And I think service is sometimes an underlooked component of the overall value proposition, and it's one that we invest in quite heavily. So, it's a highly competitive market. We never rest on our laurels, and you know, we'll keep fighting and keep anticipating where the competition is gonna go and, you know, and beat them to that point. Kartik Ramachandran: Thank you. The next question is coming from Moshe Orenbuch of TD Cowen. Please go ahead. Moshe Orenbuch: Great, thanks. Most of my questions have actually been answered. I was hoping you could expand a little bit on how you're positioning American Express with your recent acquisitions versus, you know, in that small business arena, you know, given the competition, which obviously has always been there. From, you know, some of those larger private companies and now, you know, obviously, one of them would be combining with, you know, with a large bank. Stephen Squeri: Yeah. Look. I think that, as I said, you know, with our Center acquisition, especially from a small business perspective, you know, rather than partnering with expense management providers as we've done with whether it was Concur or IBM before that, we'll now have our own expense management offering. I think it's what small businesses want. It's what middle market companies want. Think, additionally, you know, and I'm not gonna get into details on this call, but we will be sharing over the next couple of months just a road map of where we are going from a commercial perspective both from a product perspective, an integration perspective, and, you know, other technical capabilities that we will be adding. I think the small business and middle market space is highly competitive. It's been very competitive as it relates to a value proposition perspective. And I think, you know, now the puck is now moving and has moved to from a software perspective. I think the combination of Capital One and Brex is a, you know, it's a very good move for Capital One. It's probably a good move for Brex as well. It's great software, and you put a balance sheet together. And I think that works. They'll work on their integration issues and challenges like you do when you have an acquisition like that. But I think when we're out in the marketplace, I feel that we're gonna be able to compete quite effectively. So more to come on it, but it is, you know, it'll be a battleground just like it has been. It's just that it's gonna be a battleground on even more multiple fronts now. Kartik Ramachandran: Thank you. The next question is coming from Mihir Bhatia of Bank of America. Please go ahead. Mihir Bhatia: Hi, good morning. Stephen, you kind of may have preempted a little bit of question with that last answer. But I was just wondering, obviously, 2025, the platinum refresh, was a big thing at American Express. As we go into 2026, are there two or three initiatives that are really high impact that you're working on that we should be thinking about? Just, like, what are the priorities, I guess, for 2026? Stephen Squeri: I mean, look, the priorities are pretty much, you know, if you think about even the platinum refresh, you go back to sort of strategic priorities that we have from a company perspective, which is really to win in the premium space, to continue to build our position in commercial, you know, obviously, our coverage and our network. And we're gonna continue to focus on those things. I mean, you know, listen. The platinum card is launched. Right? Now we wanna continue to get value out of that platinum launch in both consumer and in small business. We're gonna continue to build coverage, obviously, in international as that continues to grow and continues to be the fastest-growing overall part of our business. And we're gonna continue to build more capabilities both digital capabilities and capabilities as we just discussed for our small business customers. And then, you know, we've got Resy and Tock, and we're gonna be combining those as the year goes on as and I think those two acquisitions have been really great for us as you see the differential in overall restaurant spending and overall restaurant Resy spending, which is not only good for our card members, good for us, but good for the restaurants as well. So, I mean, you know, as I said to somebody on, you know, one of our calls recently, I think when you sort of look at this year, it's more of the same for us. Right? It'll be we're still gonna have product refreshes not as big as we had from a platinum perspective this year. But the fact that we continue to refresh our products that we continue to refresh our technology base, we continue to make more things available to our consumers, that we continue to build on partnerships and that we continue to use those partnerships to bring value to our card members something that we're gonna continue to lean into. Kartik Ramachandran: Thank you. The next question is coming from Brian Foran of Truist. Please go ahead. Brian Foran: Hey. Good morning. I guess you've on my question a little bit through various answers. I just wanna circle back I do hear a lot of investor concern for American Express and for the market as a whole. You know, just whether the cost to grow is getting too high. And it is tough to measure from the outside, partly because of the investment required upfront to get premium customers. And then partly, you shared some of them with us here. You've talked about the rigor behind measuring that. Is this kind of cost to grow concern in the market right now really just kind of economic and accounting dynamics showing us all the costs upfront and the benefits more on the lag? Stephen Squeri: Well, I'll let Christophe comment after I comment. I'd look at the last four or five years, and I'd look at what our guidance is. What we're basically saying here is consistently we're gonna grow 10% and consistently we're gonna deliver you mid-teens EPS growth. Not a lot of companies do that. And we are committed to doing that. And one of the earlier questions was well, if you have extra flexibility, you're gonna drop it down to shareholders. A couple of years ago, we had extra flexibility with the certified gain. We dropped it down to shareholders. I think one of the reasons we have been able to have this consistent growth trajectory over the last, really, five years now and going into this year is the plan is because we have stayed true to who we are, and we have made investments for the longer term and not taking any short-term shortcuts. And so, you know, while people may not be happy all the time that, hey. You had some extra money and you invested it. Why didn't you drop that to shareholders this year? It's because our goal is to drive some consistent shareholder returns year after year over year after year to continue to grow our dividend and line with how we're growing EPS, to continue to do our share buyback program, to continue to return capital to shareholders which has allowed us to drive our market cap up and has allowed us to be consistent. You know, it's really been the same old story with American Express, for the last four or five years, and that's what we're gonna continue. So I don't look at the cost to grow as all that expensive right now. I mean, we've we stay out of things that we think are noneconomical. And there are portfolios out there that we do not think are economical. We do not bid on it. You know, we have a large co-brand portfolio, and we believe that that portfolio is a one plus one equals three for us. And we have a great premium customer base. We're growing very strongly internationally. And we still see those growth prospects over the horizon. As I said earlier, this is a market that continues to grow. On a global basis by about 8%. So I you know, again, I don't share the it looks like it's too expensive to be in this business. I think you may see from time to time, you'll see some rewards cost that get a little bit higher. You might see some attendance office get a little bit higher. But I think what people fail to do is to look in aggregate at the entire expense base and how one investment plays off another investment. And so when Christophe and I sit down and look at the expense base, we look at an investment, how it impacts our operating leverage, how it impacts our credit performance, how it impacts our ability maybe to dial back marketing or maybe we have to dial up marketing. So there's a lot of levers that we're pulling. We've been doing this a long time now. And so we feel really good about '26 and beyond at this point given the macro environment that we have, the you know, with all the you know, with all the contingencies that are out there, but, yeah, I don't I don't view this as an overheated market in any way, shape, or form for us. It's competitive, no doubt, but I don't think it's overheated from a cost perspective. Christophe Le Caillec: Yeah. I'll add two more thoughts, Brian. The first one is you know, when you look at the quarter we're reporting, these are an outcome of a lot of decisions we made two years ago five years ago, ten years ago, twenty-five years ago. And that's the way we think about the decisions we're making now. When we are acquiring a new card member, we're thinking about that card member not only in terms of what that card member will do to us this year or next year. We're thinking about the next twenty years. That's very much critical to the way we make all our decisions. And when you think about specifically the cost of growth, on the back of this platinum refresh, when I look at the cost of acquiring and welcome offers that we put on the market. We've seen some of the lowest cost of acquisition for platinum. And so it's definitely a very competitive place. In the last two years happening, like, in Q4. Have invested in value proposition. Have an amazing brand. We have a technology that allows us to personalize those offers and optimize the cost of origination and acquisition. And when you put all of this together, and you combine that with that long-term view that we have on those relationships, I can tell you the economics are very compelling. And that's why we and that's how we are locating our investment dollars. Kartik Ramachandran: Thank you. Our final question will come from Christophe Kennedy of William Blair. Please go ahead. Christophe Kennedy: Good morning. Thanks for squeezing me in. You've given a lot of great engagement metrics. And you do have the new data analytics platform on the horizon. Can you just talk about that journey and the tools that you'll have to drive more card member engagement as you get into AI, etcetera? Stephen Squeri: Well, I think as you know, look. And we're constantly this is I think in the last ten years, the third big data mart conversion that we've done here is you know, the technology gets better and better. I think what's really exciting for us is to be able to take large language models that are out there and take our data and insert that in and really come up with great card member offers, great card member insights, be able to create archetypes of various cardholders, be able then to treat cardholders in a and target cardholders in a much more effective way. And so and we'll roll those tools out and access to that entire data mart across the entire company. And so it takes till 2027 because you're doing it sort of organization by organization. Process by process. Application by application. But we're already seeing some benefits of that in some of our card member marketing, which again, leads to some of the reduction in overall cost. So we're excited by that. We're excited that it's on the cloud. Which gives us the ability to expand that on a very dynamic basis. And so I think as we go on, we'll be able to talk more about just how the proof points of that come out. But this is a business that you know, not only you have to invest in value propositions, but you really have to invest in a light way in the technology behind it because, ultimately, it's technology that drives those value propositions, and it's a technology that drives the appropriate engagement with your cardholders. With that, we will bring the call to an end. Thank you again for joining today's call, and your continued interest in American Express. The IR team will be available for any follow-up questions. Operator, back to you. Operator: Ladies and gentlemen, the webcast replay will be available on our Investor Relations website at ir.americanexpress.com shortly after the call. You can also access a digital replay of the call at (877) 660-6853 or (201) 612-7415. Access code +1 375-7801 after 1PM eastern time on January 30 through February 6. That will conclude our conference call for today. Thank you for your participation. You may now disconnect.
Operator: Hello, and welcome to Charter Communications' fourth quarter 2025 investor conference call. We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question and answer session. Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. I will now turn the call over to Stefan Anninger. Stefan Anninger: Thanks, operator, and welcome, everyone. The presentation that accompanies this call can be found on our website ir.charter.com. I would like to remind you that there are a number of risk factors and other cautionary contained in our SEC filings, and we encourage you to read them carefully. Various remarks that we make on this call concerning expectations, predictions, plans and prospects constitute forward-looking statements, which are subject to risks and uncertainties that may cause actual results to differ from historical or anticipated results. Any forward-looking statements reflect management's current view only, and Charter undertakes no obligation to revise or update such statements. As a reminder, all growth rates noted on this call and in the presentation are calculated on a year-over-year basis unless otherwise specified. On today's call, we have Chris Winfrey, our president and CEO, and Jessica Fischer, our CFO. With that, let's turn the call over to Chris. Thanks, Stefan. Christopher L. Winfrey: In 2025, we continue to compete for customers by delivering great products. Video customers despite well-known headwinds. The video product improvements we've made over the past two years which improved connectivity relationships, are having an impact. In Internet, competition for new customers remains high, but customer losses improved year over year. Driven by customer losses, our revenue was down about 0.5% in 2025, and a challenging political advertising comparison. While EBITDA grew by about half a percent. The operating environment for new sales, in particular Internet, continues to reflect low move rates and higher mobile substitution. Along with both expanded cell phone Internet competition and fiber overlap growth similar to earlier in the year. Collectively, that drove fourth quarter Internet sales slightly lower year over year. Churn improved year over year, as expected, given last year's ACP-related impacts. And Internet churn, including non-pay churn, remains at low levels. With 2026 in full swing, our shareholders should know that we are a highly competitive group, and we intend to win in the residential and business connectivity marketplace. In this environment, getting back to positive net additions is a game of inches. We're incredibly focused on one, while clearly messaging our superior value and utility and two, providing the best quality service in the market in a way that is recognized by our customers and our service is a competitive advantage. Let me go through how I believe Fortinet Assuming regulatory approval of Cox, Spectrum will cover over 70,000,000 households, which gives us additional scale to develop new products and services serve more business customers, and save customers significant money. In 2026, we'll nearly complete our rural build-out providing us with over 1,700,000 new subsidized rural passings with growth for years to come. As well as upside from the densification of higher growth areas in places like Texas, Florida, and The Carolinas. We're gig capable everywhere. And by the end of this year, 50% of the current spectrum network will be upgraded to symmetrical and multi-gig service. With significant work on the remaining 50% in flight and moving to completion in 2027. Those capabilities matter long term, as customer data usage continues to increase. And we're working with content owners in Silicon Valley to create applications and next-generation products like Spectrum Front Row, That's immersive content with Apple and the NBA, that makes full use of our ubiquitously deployed largely fallow fiber-based network. Bandwidth-rich products have always followed our network capability, And think of the last few 100 feet of our fiber-powered network as 1.8 gigahertz of contiguous spectrum. Delivered at full capacity to each individual home and business. With the ability to place cellular radios nearly everywhere along the way, fiber deep, power, and right of way. We already have a fully converged connectivity service in 100% of our footprint. Now with expanding hybrid MNO capabilities, through CBRS and Wi-Fi to drive our seamless connectivity advantage, at gigabit speeds wherever you go. So data usage will continue to increase for both wired and wireless networks, and customers don't know or care which network they're on as they move about. It just has to work. That is the service we uniquely provide. In mobile, we have a structural and strategic mobile reselling agreement with Verizon for current and future services. And we'll launch an additional MVNO for business with T-Mobile in the next six months. Nearly 90% of Spectrum mobile traffic goes over our network already at higher speeds, making us the fastest mobile operator with the best prices. Mobile's profitable, It'll continue to grow. And improves broadband churn meaningfully with the opportunity to drive more Internet sales. Our network carries more mobile traffic than any operator in our footprint. So we are a facilities-based provider of mobile services. With five gs macro cell towers as backup. Our owners' economics of a differentiated network create long-term advantage, which means we can save customers over $1,000 in a single year with Internet and mobile. And now we can do the same with video. Our video product and platform is now a killer app. When our video customers activate their included apps, video and broadband churn improvement is meaningful. Our video product can become another unique selling tool. Seamless entertainment with all the key programmer apps included as part of our service over $125 of value per month. And finally, customers have a platform in Zumo that brings unified search discovery for all your live TV and apps. Utility and value. Competitive advantage. And we continue to invest in technology, including AI, to increase customer satisfaction through self-service where customers want and enhancing our employee service capabilities. That's across sales, call center services, field operations, and the network itself. In 2026, for the first time, granule incentives will include net promoter scores. We have competitive advantage with our service capabilities, and we're gonna make sure we earn credit the reputation that reflects that significant investment from our customers one by one. And we're gonna guarantee all of it. Guarantee Internet service through a new invincible Wi-Fi product we'll launch in February. Symmetrical and multi-gigabit service with a Wi-Fi seven router and battery backup and backup five g service. Seamlessly switched on the same SSID for storms or outage. As well as Wi-Fi seven extenders for larger homes. Invincible Wi-Fi is a market-first product combining Wi-Fi seven with five g and battery backup. Over a year ago, we deployed the nation's first wireline and wireless service commitment, guaranteeing transparency, reliability, and same-day installation and service. Internally, we're now moving that service window target to two hours. And one hour for business. At your doorstep from the time you call. None of our competitors match our service here. In addition to backing our customer service guarantee with credits, beginning in February, we'll now guarantee you a thousand dollars of savings per year when you take Internet and two lines of mobile from Spectrum. If we can't save you a thousand dollars or more when compared to the big three telco carriers, we'll credit the difference on your bill during the first year. Guarantee connectivity, guaranteed service, and guaranteed savings. With the best products in The US, uniquely serviced by U. S. Employees 24/7. We want to be America's connectivity company. With hyper-local service delivered by your neighbors where our local employees and with community investment, including unbiased hyper-local spectrum news. All of this will expand to Cox following closing, assuming regulatory approvals. Our plan there is to introduce spectrum pricing and packaging, rapidly grow mobile, similarly return to Internet growth, and giving Cox's low video penetration and our capabilities we expect to grow video in the Cox footprint for a period of time as well. I also believe the combination of our very complementary b to b will create gross synergies we didn't anticipate when we did the deal. Winning connectivity in a cyclical and newly competitive environment is a game of inches. I'm not projecting broadband relationship growth this year. We expect to see an improved trajectory from the investments we've made over the past three years. The recipe for winning here is Sybil. Best connectivity, best overall value, with the best service. And we aren't perfect. We own our mistakes with customers. But we are improving the way we communicate our value, utility and quality service across our But I do believe we're the best-positioned company in the connectivity industry, and we will get better. From a financial perspective, we expect our operating plan to deliver EBITDA growth this year. And the investments we've made to lower service transactions and our efficiency programs including early benefits from customer and employee-focused AI tools, will continue to provide a tailwind for many years to come. 2025 was our peak year of capital expenditure. And capital expenditures after this year will decline significantly. Free cash flow will take off from an already significant amount We expect our capital intensity to return to 13% to 14% of revenue by 2028 at Charter standalone. And we can probably do the same even with the Cox integration. One of the bigger debates around Charter has been about the best way to deploy our significant free cash flow. And that cash flow is meaningful. It's about to become much larger. Debating how to allocate that cash flow is a first-class problem to have my mind, and Jessica will provide an update on their balance sheet strategy and capital return priorities in a moment. But the key focus for me real driver of the team and for value creation of our company is to make sure we deliver long-term customer EBITDA and cash flow growth and demonstrate that long-term growth rate for investors along the way. If we do that, rest will take care of itself. Now I'll pass it over to Jessica. Thanks, Chris. Jessica M. Fischer: Before covering our results, I want to mention that we made several reporting changes to our customer and financial data this quarter, which are detailed in the footnotes to the trending schedule we issued today. To better reflect the converged and integrated nature of our business and operations, we now present our customer relationships statistics inclusive of all mobile customers, including mobile-only customers. We've also added a total connectivity customer section to the trending schedule, which represents all receiving our Internet or mobile connectivity services. We've also revised our mobile lines reporting methodology better align with how we report our other services. Please also note that any forward-looking financial or customer information that we provide in today's discussion or presentation does not include Cox or any transition costs related to Cox integration planning consistent with how we reported during the TWC BHN transactions. Now let's please turn to our customer results on slide nine. Including residential and small business, we lost 119,000 Internet customers in the fourth quarter, better than last year's fourth quarter with lower connects year over year. More than offset by lower disconnects driven by last year's ACP-related disconnects. In mobile, we added 428,000 lines, with higher gross additions year over year and higher disconnects on a larger base. Net adds in the quarter were lower due to heavy device sub subsidy activity by the big telco competitors, including the new iPhone 17 through the holiday sales cycle. Video customers grew by 44,000, versus a loss of a 123,000 in 04/2024. With the improvement primarily driven by lower churn year over year resulting from the new pricing and packaging we launched last fall Zumo, and seamless entertainment product improvements, including our programmer app inclusion packaging. New connects and upgrades to our fully featured video package with apps were up year over year. Our video customer results also include a small benefit related to the YouTube TV Disney dispute. Wireline voice customers declined by a 140,000. With year over year improvement primarily driven by lower churn. In rural, we continue to see a strong customer relationship growth We generated 46,000 net customer additions in our subsidized rural footprint in the quarter. And in the fourth quarter, we grew our subsidized rural passings by 147,000. And by over 483,000 over the last twelve months. Above our 450,000 target. We expect subsidized rural passings growth of 450,000 in 2026. Our last large build year. In addition to continued non-rural construction and fill-in activity. Moving to fourth quarter revenue, on Slide 10. Over the last year, residential customers declined by 1.2%. And residential revenue per customer relationship also declined by 1.2% year over year. Given the growth of lower-priced video packages within our base, a decline in video customers during the last year, dollars 165,000,000 of costs allocated to programmer streaming apps and netted within video revenue, versus $37,000,000 in the prior year period. And our free months promotion for new residential customers that we mentioned on our last call and which is no longer in the market. Those factors were partly offset by promotional rate step-ups, rate adjustments, the growth of Spectrum mobile lines, and $34,000,000 of hurricane-related residential customer credits in the prior year period. By the way, the streaming app gap allocation headwind to residential revenue that I mentioned a moment ago should continue to grow over time as more customers authenticate into our streaming app offers. It could be as much as $1,000,000,000 for the full year 2026. And as a reminder, the GAAP adjustment is ultimately neutral to EBITDA. As an equal and offsetting benefit is applied to our programming expense line every quarter. As slide 10 shows, in total, residential revenue declined by 2.4% and was down by 1.2% when excluding costs allocated to streaming apps and netted within video revenue in both periods. Turning to commercial. Total commercial revenue grew by 0.3% year over year. With mid-market and large business revenue growth of 2.6%. And when excluding all wholesale revenue, mid-market and large business revenue grew by 3%. Small business revenue declined by 1.3% reflecting modest year over year declines in small business customers and in revenue per small business customer. Fourth quarter advertising revenue declined by 20%, including the impact of less political revenue. Excluding political, advertising revenue was essentially flat year over year. Other revenue grew by 7.3%, driven by higher mobile device sales. And in total, consolidated fourth quarter revenue was down 2% year over year, and down 0.4% when excluding advertising revenue and programmer app allocation. Moving to operating expenses and EBITDA on Slide 11. In the fourth quarter, total operating expenses decreased by 3.1% year over year. Programming costs declined by 8.4% due to a higher mix of lighter video packages, a 2.2% decline in video customers year over year and $165,000,000 of costs allocated to programmer streaming and netted within video revenue versus $37,000,000 in the prior period. Partly offset by higher programming rates. Other costs of revenue increased by 2.4% primarily driven by higher mobile service direct costs. And mobile devices. Partly offset by lower advertising sales costs given lower political revenue. And lower franchise and regulatory fees. Cost to service customers, which combined field and technology operations and customer operations decreased 3.9% year over year primarily due to lower labor costs and lower bad debt expense. Excluding bad debt, cost of service customers declined 3.2%. Marketing and residential sales expense was essentially flat year over year due to lower labor expense, offset by a change in sales mix to higher cost sales channels. Transition expenses related to the pending Cox transaction totaled $15,000,000 in the quarter. Finally, other expense declined by 3.1%. Primarily due to lower labor expense. Adjusted EBITDA declined by 1.2% year over year in the quarter. And for the full year 2025, EBITDA grew by 0.6%. For the full year 2026, we are planning for slight EBITDA growth, excluding the impact of transition costs. Note that first half 2026 EBITDA will be more challenged than second half EBITDA, given the onetime benefits we saw in 1Q last year. And the benefit of political advertising that we expect in the 2026. Turning to net income, we generated $1,300,000,000 of net income attributable to Charter shareholders in the fourth quarter. Compared to $1,500,000,000 in the prior year period. Given lower adjusted EBITDA and higher income tax expense. Turning to Slide 12. Fourth quarter capital expenditures totaled $3,300,000,000 $273,000,000 higher than last year's fourth quarter primarily due to two multiyear software agreements that were accrued in the quarter and higher network evolution spend, which lands in upgrade rebuild spend, 2025 capital expenditures totaled $11,660,000,000 slightly above our recent expectation for $11,500,000,000 given the new software agreements I just mentioned. Which will drive other benefits across the business. We expect total 2026 capital expenditures to reach $11,400,000,000 On Slide 13, we have provided our current expectations for capital at spending through the year 2029. And now now including line extension spending associated with the Bead program. Which totals about $230,000,000 and is mostly in 2027-2029. For the years 2025 through 2028, the outlook you see on Slide 13 is in line with what we have provided in January 2025. With the inclusion of Bead, some modified timing across years, and slight changes across categories. As I mentioned, we have added 2029 to our outlook and expect it to exhibit about the same amount of spend as we expected for 2028. Looking beyond 2026, we expect total capital spending in dollar terms to be on a meaningful downward trajectory. And after our evolution and expansion capital initiatives conclude, our run rate capital expenditures should be below $8,000,000,000 per year. Just to highlight, that reduction in capital expenditures on its own from $11,700,000,000 in 2025 to less than $8,000,000,000 in 2028. Is equivalent to $28 of free cash flow per share based on today's share count. Turning to free cash flow on Slide 14. Fourth quarter free cash flow totaled $773,000,000 about $200,000,000 lower than last year given a less favorable change in working capital and higher CapEx, partly offset by lower cash taxes due to the One Big Beautiful Bill Act, and cash paid for interest. Turning to cash taxes, fourth quarter cash taxes totaled $139,000,000 And while year 2025 cash tax payments totaled just under $900,000,000 We currently expect that our calendar year 2026 cash tax payments will total between $500,000,000 and $800,000,000. We finished the fourth quarter with $95,000,000,000 in debt principal. Our weighted average cost of debt remains at an attractive 5.2%. And our current run rate annualized cash interest is $4,900,000,000 During the quarter, we repurchased 2,900,000.0 Charter shares totaling $760,000,000 at an average price of $259 per share. As of the end of the fourth quarter, our ratio of net debt to last twelve month adjusted EBITDA remains at 4.5 four 0.15. And stood at 4.21 times pro form a for the pending Liberty Broadband During the pendency of the Cox deal, we plan to be at or slightly under 4.25x leverage. Pro form a for the Liberty transaction. As you may recall, when we announced the Cox transaction, we committed to move our target leverage to the midpoint of a 3.5 to four times range. We're very comfortable with our balance sheet. And our ability to pivot rapidly given our significant free cash flow generation. Which provides flexibility to reduce leverage by up to zero five turn annually over the next several years. But we have also heard our shareholders' preference for less leverage during a lower growth period. So today, we are moving our post transaction target leverage to the low end of a new 3.5 to 3.75 times range, which we expect to achieve within three years following close. Even with this delevering, we continue to expect significant ongoing capital returns to shareholders. Lower leverage will drive some impact to our weighted average cost of capital, which should in turn positively affect valuation. It should attract a broader constituency of holders to the stock, and open the potential for improved debt ratings, including an investment grade corporate family rating. Although that is not an explicit goal. We will continue to generate very meaningful and growing levels of free cash flow. And while we always reinvest in the business as our top capital allocation priority, there are no large scale projects like RDOF or Network Evolution on the horizon. We expect to revert to normalized CapEx in the range of 7.5 to $8,000,000,000 per year by 2028. We will have significant additional capital available to return to shareholders. To overcome the perception of negative perpetuity growth implied in our valuation today, we need to win in the marketplace. And as Chris outlined, that's where we are focused. And where we believe we can drive value going forward. With that, I'll turn it over to the operator for q and a. Thank you. Operator: At this time, if you would like to ask a question, please click on the raise hand button, which can be found on the black bar the bottom of your screen. When it is your turn, you will receive a message on your screen from the host allowing you to talk, and then you'll hear your name called. Please accept, unmute your audio, and ask your question. As a reminder, we are allowing analysts to ask one question today. We will wait one moment to allow the queue to form. Our first question will come from Craig Moffett with MoffettNathanson. Your line is now open. Please go ahead. Craig Eder Moffett: Hi. Thank you. Good morning. Let me start with wireless. First, you signed a new agreement that both Comcast and Verizon have talked about. I wonder if you could just say anything about what that new agreement looks like and whether it has any impact on your strand mount and offload strategy, And then on that point, Chris, you said that you're close to 90% offload. I think you had previously said 85 a couple of quarters ago, and then last quarter, I think, said 88. That already is a 20% reduction. In how much you're sending over the wholesale network that you're leasing from Verizon is the 90% just a reference to that similar to 88, or is it gotten even has the offload gotten even better since then? Sure. Look. Christopher L. Winfrey: For obvious reasons, we'll stay consistent with what Comcast and Verizon have said as well. But you know, that's for the most part, we've amended and modernized our long-term MVNO agreement with Verizon, and continued to support profitable growth for both Charter and Verizon. It is a very good deal for them and a relationship for both. You know, as you know, it's long-term, and, you know, the market evolves over time. And so it's just natural that you have, you know, partners inside of a deal take a look and want clarity on certain things. So I'd look at it more as in that context as opposed to anything else. You know, we have a structural and long-term, you know, agreement that underpins everything that we're doing here, and that hasn't changed. On the 90%, you know, I think it's around 89% or something like that. It's bumping in that area. So it's moved up bit. It's but it's it's on a steady climb. And as we've always talked about before, the reality is that we have a very attractive structure and partnership with Verizon and so we can be opportunistic here. But because of the favorable economics that we've always had with Verizon continue to have know, there's a balance there in terms of the pace of 23 markets last year that we talked about for CBRS. Probably do, I think, maybe 20 or so more, but we'll be in all the states where we have you know, CBRS power licenses, you know, within this So we continue to roll out there at an opportunistic pace. Thanks, Craig. We'll take our next question, please. Operator: Your next question from Ben Swinburne with Morgan Stanley. Benjamin Swinburne: You know, Chris, you guys have been competing in the market with the converge strategy for a number of years now. I'm wondering if you could maybe assess the position of of spectrum Mobile in particular in the market with consumers. You guys have been marketing the product for a long time. You've got very attractive price points. But, you know, you've been building a new product and new brand for some time. Where do you think that sits with consumers today? Is there more work to do and maybe tie in how the how the sales force is, is executing in your mind on on you know, selling that into the base, into new customers. Obviously, it's core to the long-term growth of the company. Christopher L. Winfrey: It is. So the conversion strategy is working. You can see that in our results. You would one hand, you would look and say, well, the net add rate ticked down a little bit, but it ticked down in environment with a tremendous amount of, you know, flooding the market subsidies that we didn't match, and yet we continued to grow, which shows and demonstrates the value of the product that customers perceive that we have. I don't think that customers are ultimately, at the end of the day, fooled. They can be entertained with an offer at one point in time, but at the end of the day, you look at the total amount that's on your bill. And if you compare that with our competitors to what our bill looks like, you can buy a lot of advanced telephone. Telephones, cellular devices, with that savings that we provide. So we're the all in you know, best product for both speed as well as savings. Now your question about market perception, Spectrum Mobile is still a relatively new brand in the marketplace. And Yeah. And getting that product from your cable providers and, you know, still relatively new concept. So our brand awareness continues to go up every year. The reputation of the product continues to improve and settle in. The savings recognition and the word-of-mouth I think, is improving. But it'll take time for that to continue to develop. And if you think back to some of the things that we did around video, there are other products broadband, video, and you can phone, can both be an asset as well as can be a liability to the mobile reputation a particular moment in time. And so, you know, when we have programming related rate increases that go through on the cable bill and impacts the spectrum, customer there. It flows through a little bit to mobile. So that's a piece that we try to manage and think through as well. But I think the do I think there's more that we can do? Of course. And but we're on a steady path to increasing brand awareness I think the increasing capabilities, the convergence, is recognized. Most customers still today haven't picked up on the fact that as you're moving around across the country, both inside our markets as well as other MSO cable markets that you're actually connecting to faster speeds through Wi-Fi. And for those of our investors who live in, for example, New York City or LA, I just encourage you as a Spectrum Mobile customer to drive drive around walk around, and what you'll notice is that you're actually attached not to a five g network, but you're attached to a Spectrum mobile. At a vastly superior speed than you would have gotten with five g. And we haven't in my mind, we have work to do to really show and demonstrate that product capability in the way that we go to market, and I think that's upside for us. Because it is better speeds. It's at a better price. So eventually, word-of-mouth gets around that it is a great product. It's better than anything else out there, and it saves you money. So I'm positive. And the fact that we can do that in an environment that had so much, you know, as I said, flooding the market with subsidy know, I think gives us a lot of confidence. Benjamin Swinburne: Got it. Great. So much. Christopher L. Winfrey: Yep. Thanks, Ben. Operator, we'll take our next question, please. Operator: Your next question will come from Vikash Harlalka with New Street Research. Vikash Harlalka: Hi. Thanks so much for taking my question. I have one for quick one for Jessica. Quick, could you just provide us any details on how your market share has trended in markets where you're competing against fiber operators for a few years now and how do you see that evolve over time? And then one for Jessica. Jessica, you said you expect EBITDA growth to be slightly positive this year. By our estimate, political advertising adds about a percentage point to EBITDA growth. Could you grow EBITDA higher than 1% this year? Christopher L. Winfrey: Sure. So I'll take the first question related to fiber competition. I mean, we've competed well against fiber for many years. We expect to continue to do so. The reality is that's been going on for fifteen years, so we have a lot of experience, and we have a lot of data and trends there. We have greater penetration than our fiber competitors, even in mature fiber markets. And, you know, when it happens, overbuild impact tends to be limited to a few percentage points Internet penetration during the first year. Of a new overbuilt vintage, as it were, coming online. It's not ideal for us, but, you know, the pace of that's tied to the pace of overbuild. And that's been, you know, fairly consistent. And the meantime, as a result of all that, you know, we really don't see overbuilders reaching their ROI goals within our footprint now or in the future. The piece that I would, you know, add to that is you know, and I know you've done some analysis around this. Obviously, the introduction of fixed wireless access you know, has impacts on everyone's penetration. I think that needs to be factored in as well. But inside of our footprint where we have a lot of experience, a lot of years of fiber overlap, As I mentioned in the prepared remarks, that's not new. And while it is new competition and that in and of itself presents some challenges, it's one that we've dealt with over time. The bigger issue over the past three years is the macro environment in terms of housing, low moves, and the introduction of even though it's an inferior product, it's a brand new competitor in the marketplace with expanding footprint through phone, Internet, or fixed wireless access. So on on your second which I think is will we grow EBITDA when excluding advertising, think the answer is maybe. It's certainly our goal. Look. EBITDA EBITDA growth has challenged in 2026 given the headwind from broadband subscriber declines. But we think we can overcome that with the combination of mobile growth changing mix of Internet driving positive ARPU growth, continued operational improvements, and attentive expense management in addition to what we see from the from the political advertising space. Vikash Harlalka: Thank you. Operator: Your next question will come from Jessica Reif Ehrlich with BofA. Jessica Reif Ehrlich: Thank you. I guess two questions. Of course, I'm gonna ask on video. Chris, what do you think the sustainability of the video sub gains are? And is there any color that you can provide on first quarter trends And then just to follow-up on your comments, just something really quickly about Silicon Valley. Can you you give us some color on what the what you're doing you know, what the endeavors are, what's the goal, and, you know, what's the timing of of maybe some products coming out? Christopher L. Winfrey: Sure. Look. For video, I wanna be really clear. Our north star here, our goal is not to have net gain of video just for net gain stakes. Our goal is to have a video product supports broadband acquisition and broadband retention, and I think it's a powerful tool to do that if we can provide value and utility for customers. I do and I know you spend a lot of time in this space. I do think it's good for the ecosystem, everything that we've done. And, you know, of course, we pleased about that, but that's you know, that's not what our shareholders ask us to do, and so it's a nice side benefit. But in getting there, I think does help broadband You know, I think it's important to thank the programmers here. And particularly some of the key execs. I'm not gonna name them out, but it's a handful, and they know who they are. They leaned in, and they continue to lean into help us. I think they believed in what we were doing. It wasn't easy to get there, but, you know, eventually, you know, did believe what we're doing. And the reason is because you know, again, with the viewpoint of solving for our broadband customers, we're really solving for customers first and providing that value. And we're unique. In a relationship with the programmers because we bring a broadband distribution capability that most others don't have, and that means we can serve all of these customers with the programmers product, whether that's a skinny bundle, whether that's the full expanded product with apps. You know, we get to put in ad-free upgrades that, you know, benefits the customer at a much lower incremental cost as well as the programmer. Then you know, from their perspective, the direct to consumer apps that we sell a la carte to our 30,000,000 customers now. And that's gonna be an increasing component. And so what we've been able to do with video is create the best economics and choice for the customer which means that we're actually I think we're the best channel distribution path to maximize the opportunity for the programmer as well. And so back to your question about video growth. I mean, the ecosystem is still really challenged. Programming costs, you know, continue to go up and particular retrans is is a real problem. And but around that, I think you'll see us continue to innovate We do have some new product ideas. You know, we'll talk to the programmers about that in the course of this year. But the key, you know, for us to go back to, you know, connectivity, you know, acquisition insurance. So I on your net gain question, it's not the goal that you're on the razor's edge. You know, if you use that parallel, There's and you say, well, what happened in Q4? Q4 was really no different than Q3. So You know, there's a slight difference between Q3 and Q4 that went from net loss to net gain. So can just as easily, you know, float back into the net loss category and it's you know, the net gain isn't our goal. I think the parallel there is you know, when you're on the edge, and you have a high amount of gross adds and a high amount of you know, gross or disconnects, it's a dangerous place to be in terms of volatility. I think there's some parallel there to Internet in a way that we need to get ourselves out of that space. And when I talk about game of inches, you know, that really applies to all subscription businesses. And you know, if you can get a more commanding lead through the things I talked about, the ways I think we win, I think that helps us in Internet, which really is is the goal here together with mobile. Silicon Valley, the big overarching thing that we're trying to do there is communicate to the people who develop products and software that they should stop developing to the least common denominator in terms of network capabilities. That because the cable ecosystem covers nearly the entire country, unlike fiber overbuilders who do a lot of cherry picking redlining, You know, we upgrade everywhere. We have already, we have a gigabit everywhere we operate. We're upgrading to symmetrical and multi-gig speeds. Effectively nationwide. And that's the platform with low latency, by the way. And that's the platform that software developers and product developers should be developing to. They have, you know, unfettered access to that network. Convergence multi-gig, and the product capabilities that come about as a result of that I think, are significant, and our networks put us in, you know, a unique place to go deliver that. And so the product that we supported Apple in the NBA with Spectrum Front Row Do we need to own those rights? Do we need to own that product? No. Absolutely not. In fact, what we're just trying to do is show the way that a ubiquitously deployed network in The US exists that can carry that type of eight k or 16 k product provides an immersive experience. That can actually have caching you know, at the local edge in a way that hasn't been thought of before. And given the fact that just a charter loan, we have a thousand hubs or data localized data centers. That provide local edge compute. And so we have a lot of assets that aren't being used today Our experience has been once people understand that these networks exist and their capabilities there, that they'll develop products to go do that. And so our time out in Silicon Valley has really been spent around making people understand that this platform has been built for them There there are things that we can do with it. If you take a look at what we've done with you know, Amazon in terms of convergence and offloading. Think about the things that we could do in the electrical vehicle market in terms of offloading. In a way that's attractive for them and really make use of the tools that we have So that's that's the major goal. The biggest one is, you know, we've internally, we've called it the fill the pipe tour. And to go really explain to people that this network's available there for them, and they should develop to Jessica Reif Ehrlich: Thank you. Christopher L. Winfrey: Thanks, Jessica. Operator, we'll take our next question. Operator: Your next question will come from Michael Ng with Goldman Sachs. Michael Ng: Hey, good morning. Thank you so much for the question. I wanted to ask about operating expense growth next year and investment opportunities. You guys are obviously seeing really good momentum on the video side and streaming app inclusions and obviously, also with convergence and Spectrum Mobile. So how are you balancing the commitments to EBITDA growth with the potential to invest to drive these opportunities a little bit faster And, you know, how do you balance that with efficiencies that you could potentially realize? Thank you. Christopher L. Winfrey: I think Jessica can chime in for a second. But if you know, strategically, if you step back we've made the investments. So if you think about the place we're coming from, we've made the investment by keeping our pricing low We've made the investment by having a fully US-based in-source sales and service capability across the country. We've made the investment in our technology platforms And so that gives us the ability to have increasing efficiency through the business and still be able to innovate and develop new products along the way and to be able to manage both your foot on the gas and foot on the brake at the same time. Jessica M. Fischer: Yeah. I think that's right. And if you think about how that translates into you know, something like cost to service customers, like, ultimately, I expect that to service customers to be slightly down over the year. In the year versus last year. But a big chunk of that is related to improvements in operating efficiency, and in the way that we utilize technology to make our services more efficient. I guess top of that, you know, in marketing and resi sales, last year, we had seen some substantial growth in the year over year I expect that to be meaningfully slower this year than what we saw last year, largely related to of investment that we already made sort of bringing the expense rate up and then changes that we've made that I think Chris talked quite a bit about inside of last quarter. To really try to find the right way to drive our message into the marketplace. And to do so efficiently. And so I think with those you know, we believe in our ability to generate EBITDA growth while still doing the right things for the business. To drive medium and long-term growth, which ultimately has always been sort of the strategic goal of the management team. Michael Ng: Great. Thank you, Chris. Thank you, Jessica. Appreciate the thoughts. Jessica M. Fischer: Thanks, Michael. Operator, we'll take our next question, please. Operator: Your next question will come from Michael Rollins with Citi. Michael Rollins: Thanks, and good morning. There's been a bit of discussion lately around pricing strategies for these services, and what are companies should move to everyday value pricing versus that you know, lower, higher promotional stack? And just curious, Charter's latest views on how you're approaching pricing in that strategy and the sustainability for what Christopher L. Winfrey: Sure. You know this, but by way of background for everybody else, in September 2024, we introduced new pricing and packaging Bundled. At those lower prices. And despite that, we've been able to maintain consistent ARPPUR in many cases growing. And in parallel, use that to first reactively and then proactively migrate good portions of the existing base to lower product pricing. And but in the meantime, maintain or actually grow customer relationship ARPU through that process. Absent some of the video tier mix that is well known. Because people are taking more products per household. And so that's been a long-held strategy at Charter that can keep your product pricing low and you can have higher customer relationships ARPU by getting higher product penetration And that's that was the goal of that pricing and packaging. At the end of 2025, we were about 40% of our footprint had that new pricing and packaging. We'll probably be at 60% at the end of this year. And so we've been able to manage an environment where you are really lowering your broadband pricing at promotion and at retail. Both in standalone, but more importantly, in bundled pricing and packaging in a way that creates significant savings for customers. And whether that's mobile where we save you, you know, over a thousand dollars a year, or it's in video where actually now we can also save you over a thousand dollars a year because the inclusion of the apps We're using these tools that we have that are really unique in the marketplace. We can offer mobile everywhere, we can offer video everywhere. And I know, you know, you didn't ask it, but so I was thinking about mobile everywhere. I know one of our large competitors the other day mentioned that in a in their wireline footprint, you know, which is limited to where they offer mobile, they thought they could get mobile penetration to 75% to 80%. I thought that was interesting because if that's true, and it was said by one of our large competitors, I mean, the implications for Charter and Comcast are, I think, dramatic. If you can get 75 to 80% penetration, you know, on our broadband footprints and that's sustainable. You know? You would say, well, you know, maybe to the earlier point, we don't have the brand you know, to go do that. But we have a structural advantage without the same macro cell tower and spectrum investments that's required out of the big telcos. And 90% of our traffic goes on a much faster multi-gig network. So yeah, we have a we have a product advantage and we have the ability to offer those products. You just ubiquitously. We cover all of our DMAs, essentially. And so that provides a marketing and service advantage. And then we can save customers a lot of money with the pricing strategies that we have back to your original question. So we're pleased with where we're heading. It's you know, there's this is a you know, it's a tough migration path to manage, but we've got a lot of experience doing it, and we've done it many times. And we'll actually end up doing the same thing with Cox and look forward to doing that assuming we get regulatory approval there. And Chris, maybe that'd be helpful there and translate a little bit of that into financials as well because I know folks are focused on sort of what does that mean for ARPU across the business. And we don't often talk about product ARPUs, but I'm gonna go there because I think it's helpful in this context as we're sort of doing the pricing migration. Ultimately, I think we expect Internet ARPU grow this year, though more slowly than it has in prior years. As we drive spectrum pricing and packaging through the footprint. I think mobile ARPU has been declining as more customers take our gig product, which includes unlimited press plus at unlimited pricing. And as we see some contra revenue from phone balance, dial plan, I think that we're at a low point there. And so there might be additional mobile ARPU declines in the year over year going forward. But sequentially, I think that we've we've bottomed out on that front. And then, you know, there are multiple headwinds that impact video ARPU. That make that one difficult. You've got programmer streaming app allocation which continues to accelerate. You have some more unfavorable bundled revenue allocation. And you have a higher mix of skinnier video tiers. If you think about that together with programming and programming cost per video sub, I expect that programmer cost per video sub will be up in low single digits when you that program or streaming app allocation. And we did pass through some programmer costs in our video pricing at the beginning of this year. So ultimately, what what happens then, you know, to think about it in March, instead of individual costs. So you might have video ARPU continuing to decline But it's really based on those impacts. Michael Rollins: Very helpful. Thanks. Thanks, Michael. Christopher L. Winfrey: Thanks, Michael. Operator, we'll take our next question, please. Operator: Your next question will come from Steven Cahall with Wells Fargo. Steven Lee Cahall: First, Chris, just going back to fiber. You know, you said you don't expect the fiber overbuilders to reach their ROI goals, and we haven't necessarily seen that pressure translate into a slowdown, especially from the telcos. Don't know if that's due to lower cash taxes or something else, but I was wondering if you could just speak to how you expect you know, the competitive environment to play out when we might actually see a slowdown in that activity that could lessen some of the competitive pressure? And then also just on the promotional environment, I thought slide five was interesting with, maybe a $40 gig offer in the market. Was just wondering if you see a really attractive to be more promotional this year or if I'm misreading that slide, But if you are, what you think that could do to subscriber trends as we move through the year? Thank you. Christopher L. Winfrey: Yeah. So let me start with that one first. The $40 gig is when bundled with either two mobile lines or video. That's been in the market since you know, since September 2024. So that's that's our, you know, everyday pricing that's out there that's been in the market. And clearly, it's had a big impact on the percentage of gig uptake in amongst acquisition. So it's not new, and we agree with you. We think it's positive. The ROI question I mean, I've said this for twenty five years that when we take a look at ROI, we think about classic IRR cash from cash payback. You know, years for that return to take place. And I guess the danger is always that other people's ROI may be based on a going concern, That as opposed to a real financial ROI. I'm not sure that you should be investing for growing concern ROI because I think most shareholders would say, you know, we'd rather have that capital back as opposed to deploying it in a in a poor return way. But that's not new. I mean, that's existed in with telcos for at least I've been in it for almost thirty years, and it's always been the case. So that makes it dangerous. When your competitor isn't focused on traditional financial returns, and shareholders are, you know, either confused or willing to look the other way and not insist on, you know, understanding what those ROI ROIs are. I think that's and know, that's not me complaining. That's just saying I think that's what the case is. I don't think it's gonna change, and we have to be able to compete irrespective of that. And we do. And we've been doing that, you know, for know, for a really long time. So you know, given what I just said, I don't know when the competitive slowdown occurs I do know that as you get deeper into the market, density gets lower. And the cost per passing ultimately has to increase when the density gets lower so there's a natural throttling mechanism that exists there relative to what they've done in the past. You know, whether it's taxes or interest rates that, you know, put an additional lever on that, I'm not sure. But we're that's not that's not our job. And so our job is to go compete against whatever's you know, being brought to us, and that's what we've been doing since fiber's been doing overlaps for the overbuilds for the past fifteen years or so. Steven Lee Cahall: Thank you. Operator, we will take our last question please. Operator: Your last question will come from Frank Louthan with Raymond James. Frank Louthan: Great. Thank you. When you looking forward here, on as far as some of the promotional activity that you have, how how long do you see the need for for price locks? And and what is sort of your your thoughts on that as a long-term solution? And then how quickly do you think you can get the charter the Cox customers up to levels wireless penetration that you experience in your your base footprint? Thanks. Christopher L. Winfrey: Look. We don't have any change you know, plans to change our pricing strategy. I think the price locks is both a good competitive reaction on our part it's something that gives customers a lot of comfort and the ability to switch. And so I think that's here to stay. You know, could you see over time that you know, we evolve that further into a next evolution? Yes. But we're not not at that stage today. You know, we actually think what we have is is working and will work. But we'll always continue to modernize our pricing strategies So I don't see any big change today. On the wireless or the mobile penetration at Cox, I think you should take a look at you know, maybe not our early days of spectrum mobile penetration, because we were still putting the product together, getting, you know, larger brand awareness. So but I think you can take a look at the Spectrum mobile penetration at CharterCurve, I think that's a good indication. I would expect the earlier days to be much faster. Than that simply because we were a better operator in that space than we were whatever it is six, seven years ago. In terms of our platforms, our sales channel, our marketing, our, you know, national brand awareness it's all in a much better place. But I think an improvement to that original curve is probably a good starting point for people to think about how we can get into into the market there. Frank Louthan: Alright. Great. Thank you. Christopher L. Winfrey: Thanks, Frank. Operator, I'll pass it back to you to close out. Thank you. Operator: Thank you for joining today's call. You may now disconnect. Christopher L. Winfrey: Thank you all.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Airtel Africa 9 Months 2026 Results. [Operator Instructions] Please note that this event is being recorded. I would now like to hand the conference over to Sunil Taldar. Please go ahead, sir. Sunil Taldar: Thank you very much. A very good morning, good evening to all of you, and thank you for joining on today's call. I'm joined on the line by Kamal Dua, our CFO; and Alastair Jones, our Head of Investor Relations. We will shortly be answering your questions. But first, I would like to provide you with a brief overview of the recent performance at Airtel Africa. I think these results speak for themselves. We have continued to produce a strong operating and financial performance with reported currency revenue growth of 28.3% and almost 36% growth in EBITDA over the last year. Constant currency revenues and EBITDA, a reflection of the underlying performance saw encouraging growth of 24.6% and 31%, respectively. The outstanding feature of this performance, in my view, is the continuing scale of opportunity across the business. We operate across African continent with a combined population in excess of 650 million people, where the -- whereas the penetration of both telecom and financial services remains low. We have a broad portfolio of services that are in high demand, spanning data, home broadband, enterprise solutions, mobile money and merchant payments to name a few. As digital adoption and financial inclusion continues to rise, this positions us to sustain strong growth rates over the coming years. Our refined strategy is working to capture this opportunity as we attract customers and build loyalty in order to sustain this industry-leading growth. These results underscore the substantial work we have been undertaking over the last few years to embed this customer-centric strategy across the group. The result has been increased adoption of our digital services, which allows customers to access them with ease, alongside the launch of transformative offerings such as the AI spam alert, which protects our customers from fraud, and the recent partnership with Starlink, which will enhance connectivity to our customers across the footprint. These are strong examples of innovation -- innovative initiatives that differentiate us from competition and solidifies our position of being able to capture the significant opportunities across our markets. To deliver an outstanding customer experience, we have accelerated investment to increase capacity and coverage across our footprint. We've increased our sites by approximately 2,500 and expanded our fiber network to over 81,500 kilometers, as we focus on enhanced coverage and data capacity to further improve the customer experience. This investment remains the cornerstone of our ambition to capture a larger share of the opportunity on offer across the continent and is reflected in the strong operating and financial results we have reported this morning. In summary, our primary focus remains delivering an exceptional customer experience essential for creating value for all our stakeholders. Our revenues reached -- let me now briefly run through the financial performance in quarter 3 specifically. Our revenues reached $1.69 billion, which was 24.7% growth in constant currency, an acceleration from 24.2% in the previous quarter. Given the recent foreign exchange developments, this translated into a growth of almost 33% in reported currency. On a regional basis, a key highlight was the performance in Francophone Africa, which saw its constant currency growth accelerate from 15.8% in quarter 2 to 18.7% in quarter 3, as our investments and strategic focus has helped drive a strong recovery over the last few years. In Nigeria, strong demand and tariff adjustments contributed to a further acceleration in growth to 53% in constant currency. While in East Africa, constant currency growth of 16.1% remains robust despite evolving market dynamics over the quarter. Moving on to our two primary business segments. Our Mobile Services business continued to see strong trends with operating momentum and customer growth, usage and ARPU driving revenues 23.6% higher in constant currency. Customers of 179.4 million grew by double digit with data customers rising almost 15% to 81.8 million. Smartphone penetration increased almost 4 percentage points, reaching to 48.1%, but this also reflects the scale of the potential for further smartphone opportunity and takeup in our footprint. Data traffic increased by almost 47% as data usage per customer reached 9.3 GB per month in quarter 3, up 25.6% from the previous year and an 8% increase from quarter 2 levels. It is clear that underlying fundamentals, combined with our strong execution are enabling the sustained level of demand. In addition, data ARPU remains supported by these operational trends with a 16.2% increase in quarter 3, leading to a data revenue growth of 35.5% in constant currency terms. With data revenues now being the biggest component of revenues, the performance in this segment is key to sustaining a strong overall group revenue performance. Now on to another very significant growth engine for us, the mobile money business. Airtel Money crossed two thresholds in the last quarter. Firstly, it exceeded the 50 million customer mark with 52 million customers at the end of quarter 3. The second milestone was seeing the annualized total process value, or TPV, exceed $200 billion, reaching over $210 billion, a growth of 36%. Both these achievements reflect not only the significant market opportunity, but also the structural competitive advantage and scalable platform, which has driven increased customer engagement as ecosystem continues to expand. With only 52 of our almost 180 million GSM customers using the service, the ability to sustain this strong customer growth momentum remains intact. This, combined with continued uptake of new services and increased engagement on the platform, highlights a very compelling growth narrative. In the quarter, revenue growth of 28% in constant currency and EBITDA margins of over 50% reflect best-in-class financials, where growth, profitability and strong cash conversion enables the continued scaling of this very attractive business. The strong growth across all businesses has also benefited the profitability of the group, with EBITDA margin continuing to expand to 49.6% in quarter 3, up from 49% in quarter 2 as cost efficiencies, a more stable macro backdrop and operating leverage continues to benefit. Notable mentions are Nigeria, where margins increased to 57.8% and a further increase in Francophone margins to 44.3% on the back of strong operating results. At a group level, this has driven a very pleasing 31% increase in constant currency EBITDA, which when combined with currency tailwinds has resulted in a 40.8% increase in reported currency EBITDA. Within finance costs, aside from the more stable FX environment, the group's effective interest rate has declined by 200 basis points. We have seen the interest rate cycle turning more supportive with policy rates moving lower and the increased free cash flow generation, enabling us to pay off higher rate debt. Leverage remains very comfortable with these adjusted leverage declining to 0.7x, down from 1.1x in the prior year. Adjusting the extraordinary items in the previous year and all foreign FX gains or losses, we have seen the underlying EPS increase from $0.074 in the prior period to $0.116 in the current 9-month period, an increase of 57%. Basic EPS has increased to $0.131 from $0.044 in the prior year. Underpinning this performance has been our CapEx investments. As we communicated at the H1 results, we've announced CapEx guidance of between USD 875 million to USD 900 million for this financial year. This is a significant step-up from the previous year, reflecting continued confidence in the outlook for the growth and scale of the opportunities available for us to capture. In this 9-month period, CapEx increased over 30% to $603 million, and we are on track to deliver according to our guidance. As I highlighted earlier, the prospects for multiyear growth remains very apparent, and this accelerated investments will provide the platform necessary to capture a higher share of this growth, while also enabling us to unlock additional growth opportunities in areas such as data centers, but also the home broadband space where we have seen strong momentum. Before I hand it over to the Q&A, just summarize a few key points. Firstly, there were strong results with constant currency revenue and EBITDA growing by almost 25% and 31%, respectively, in quarter 3, translating to a 33% and 41% reported currency revenue and EBITDA growth. Operating momentum remains intact with strong customer base growth and usage growth across our telecom business. Airtel Money continues to scale with strong results, reflecting the truly unique business opportunity. And we are seeing strong progress in the preparations for the IPO, which remains on track for the first half of 2026. We have accelerated our investments to capture the significant growth opportunity that is available to us, and we believe this will put us in a much stronger position to showcase our ability to capture the structural growth potential. We're excited by the future, and we see a unique opportunity to sustain strong levels of growth going forward through a laser-like focus and strategy of putting the customer at the heart and center of everything we do. We look forward to reporting our successes in the future and continuing to generate value for our shareholders. And with that, I would now like to open the line for questions for which I'm joined by Kamal. Operator, I'll now hand over to you to facilitate the Q&A. Operator: [Operator Instructions] The first question that we have today is from Rohit Modi of Citi. Rohit Modi: Congratulations on the results. I have three, please. Firstly, on EA, as you mentioned higher competitive intensity in some of the markets. Can you give more color on which of the markets where you're seeing this higher competitive intensity and how you think that's going to -- how we should model our numbers for future quarters? Do you think that this is more short term that you're seeing or a bit more long-term impact from this? Second is on Nigeria. You'll be lapping the price increases this quarter. Just trying to understand how you see the growth in Nigeria beyond this quarter. I mean I think fully you'll be lapping in the next quarter, particularly and can you give us more color on that? And third question is, if you can please remind us in terms of your leverage targets, given leverage has come down to 1.9x, at what leverage do you really look at the capital allocation policy? Sunil Taldar: Thanks, Rohit, for your compliments and the question. Let me just take the first question first on East Africa. See, if you look at East Africa, it is our largest market segment, and this is one market where we've been consistently performing over the last few years and many quarters. It's a very, very robust business that we manage in East Africa. First, let me talk about the underlying metrics of the business so that we are clear that there is no structural underlying issues in East Africa. Let me start with our base growth. If you look at our base growth, it is about -- the business is growing at about 9.5% in terms of our customer base growth. Smartphone growth, which is another very important metric that we look at, is growing at about 19% or so. So in terms of our underlying metrics performance, the business remains very, very stable and strong. The opportunity in East Africa remains very, very compelling. It's a very strong business for both money as well as for GSM for us. And as I said, we have over the quarters and years, demonstrated our ability to execute very, very beautifully and delivered strong results. In the last few quarters, there is one thing that we've experienced is a significantly higher competitive intensity. And if you remember, this was the same story on Franco Africa about 6 or 7 quarters ago where we had said that Franco, there is a significantly higher competitive intensity and -- but our underlying metrics, which is customer base growth, smartphone penetration, et cetera, et cetera, were all looking all right. So there is -- because of this competitive intensity in few markets, we've seen a temporary challenge, but we've rolled out action. And I'm fairly confident because of our very strong team and their ability to execute plus the capability that we've added that we will be able to accelerate growth in East Africa as well. There is just one more thing that I would like to highlight. In the last 1 quarter, in the quarter 3, there were certain regulatory challenges that the business faced, which are very temporary in nature because of which there were certain -- the Internet outages were called out for certain security issues, which is not only specifically to us, but for the market, which temporarily impacted the growth of the business. And hopefully, because this is now behind us, that was a temporary issue. We are fairly confident of our prospects in East Africa. We don't give guidance with respect to our future quarters. So I'll not be able to give you guidance, but I want to offer confidence that we remain confident about the opportunity that East Africa offers, our ability to execute brilliantly and that is demonstrated capacity that we've shown over the past few quarters and years, and the actions that we've rolled out should start to see results in the coming quarters. Moving to your second question on Nigeria pricing. Nigeria, first, let me just give you a context as to how this price adjustment has benefited the entire industry. This price adjustment was very, very badly needed by the industry. What this has done is it has provided a lot of stability in the industry. And industry has responded very, very positively because our investments in Nigeria have gone up -- overall at the industry level has gone up significantly. What that is doing, it is actually -- is fueling demand in Nigeria. If I look at it from a customer point of view, the price adjustment has been very well accepted by customers because while we see some titrating when it comes to voice consumption, but from a data point of view -- but from a data point of view, we've seen very, very strong acceleration in data consumption numbers. So our base growth has improved, which means there are more customers are coming into the industry. The consumption has gone up, which is obviously a great news, which basically goes to see that the customer has accepted the price adjustment very positive. We've made a lot of investment in improving the quality of service as an industry, and Airtel has done a lot of work in improving the quality of service. We have implemented a lot of digital capabilities so that we continue to accelerate our growth in the coming quarters as well. Coming to your question specifically on pricing, we -- about 40% to 50% of last year growth came from tariff. And we see that -- as you said, we will be overlapping this tariff period. With the growth completely slowed down, we have -- given the current momentum in the business and the investments that we've made, we remain very confident about our growth prospects in Nigeria. The real results will be visible to us in the next 3 to 4 months from now as we start to report the quarter 1 performance, which should be a full overlap of the pricing numbers in Nigeria. Kamal Dua: And as far as your third question is concerned regarding the leverage target for the company, I think we are fairly comfortably placed at 1.9x of leverage. Our lease-adjusted leverage has been coming down gradually and is standing at 0.7x. So financially, I think we've been pretty comfortable. We per se do not have any target in my mind -- our mind to say that like we have taken a target. But nonetheless, I think from a balance sheet point of view, I think we are in a good shape and in a great health. Operator: The next question we have is from Tracy Kivunyu of SBG Securities. Tracy Kivunyu: Congratulations to Airtel Africa for the results. A few questions from me. The first question on Francophone region. Again, congratulations, very strong acceleration this year. I just want to understand which are the key regions in Francophone that drove that for data? And if you could give us an update on how -- if you could give us an update on how mobile money is growing, particularly in countries like Guernsey, which is one of your largest there. What sort of levers are you unlocking? Is it your basic remittances? Or are you seeing it across the business? My second question on Francophone is on voice. I can still see it in declining territory, albeit at a lower base. So do you think we've lapped the effects of voice declines and will be returning to growth in fourth quarter? The next question is on Nigeria, which is the last question is on Nigeria. So on VAT lease reforms that would allow Nigerian companies to claim input VAT, have you done any sort of analysis that you could share on the impact of that on your future EBITDA margin and CapEx estimates for Nigeria? And lastly, on Nigeria, what is your 4G population coverage at the moment? Sunil Taldar: Thank you very much for your compliments and your questions. Let me first address your question on Francophone Africa. If you look at Francophone markets, Francophone markets offer massive opportunity for growth and both in terms of the -- for GSM as well as for the mobile money. There is a massive opportunity for growth for category penetration as well as upgrade opportunity for moving our customers from 2G to 4G. And what we have done is given this opportunity, we've stepped up our investments in Francophone Africa. So that's one thing which is driving growth in Francophone Africa. We've stayed very, very true to our strategy. Our strategy is very focused, which is focused on making sure that we deliver great experience to our customers. And we've made massive amount of investments both in our network, which is on the radio side and also on the transmission side to ensure that we provide seamless experience to our customers. Our teams have done a fabulous job on staying true to our strategy, and that's what is driving growth across markets. What we have done is -- and there's a significant investment, as you pointed out, that voice is actually the -- across all the regions, Francophone markets have the lowest voice usage per customer. And therefore, what we've been -- and we have seen this usage also decline because the voice ARPUs in these markets are high. And what we see is customer moving to OTT. And therefore -- and that leads to also very high data consumption, the data ARPUs are also very high. What we've also done is we have significantly expanded our 4G coverage in our 4G sites in Francophone markets. And today, 90% of our sites are 4G sites. And this number used to be about 85%, 86% about a year ago. And this is resulting into a very strong smartphone customer growth of about 25%, and that is driving our data revenue growth of about 34%, and that demand we see continue to increase. This is a customer behavior. And right now, what we are doing is we are making sure that we continue to provide seamless experience to our customers. You were asking about some color with respect to market. We don't provide market level information, but I've just painted the picture for the overall Francophone Africa. And we remain very, very positive about our prospects in this market, and we see a massive opportunity for both GSM as well as mobile money for the Francophone Africa. Do you want to talk about the Nigeria, Kamal? Kamal Dua: Yes. So Nigeria, as you're rightly saying, the Nigeria VAT is claimable effective 1st of January. And our estimate is roughly that will give us a margin increase of 1.5% in Nigeria starting from quarter 4 of this financial year. Tracy Kivunyu: So one other question on population coverage, yes. Sunil Taldar: So you had asked another question on Airtel Money, the Airtel Money growth and why have we divided this into various segments that we've offered. I think that was your question. So what we've done is we have divided our Airtel Money total revenue into wallet services and financial services and merchant services. Now what we have done is in the past, the business was primarily focused on driving cash in, cash out and peer-to-peer revenue. And as the business has achieved scale and we're seeing very strong traction in our business, what we -- while this is our strength, which is driving our -- leveraging our go-to-market and accelerating customer base, which has been driving business for us. What we now want to do is we want to make sure that our payment and transfer business and financial services business starts to trade with a higher focus. And this is being led through our efforts, which is digital efforts, which is driving app penetration and making sure that we drive engagement on the app and drive multiple use cases, and that's driving and accelerating the growth for our Airtel Money business. Very quickly on the other question that you asked on Nigeria. Nigeria covered -- sorry, 4G pop covered is about 82% for us. Operator: [Operator Instructions] The next question we have comes from Mollie Witcombe of Goldman Sachs. Mollie Witcombe: I just have one actually. It's about the Starlink Direct-to-Cell partnership that you announced recently. I was wondering if you could give us some color, perhaps time line to launch, the potential upside that you see from this and just whether it's customer demand driven or fitting a business need, that would be great. Sunil Taldar: So if I heard you correctly, there was a slight disturbance in the audio. Your question is on Starlink? Mollie Witcombe: Yes, that's correct. Sunil Taldar: All right. So I'll just give you a little bit of a context on what we -- the agreement that we signed with Starlink. This is the second agreement that we announced with Starlink. The first was -- the first agreement that we announced, I think, 2 quarters ago was with respect to offering enterprise connectivity solutions to our customers across our 14 markets and also for backhauling. The recent, which is agreement that we signed on 16th of December that we announced, what it covers is offering Direct-to-Cell services to our customers across the 14 operating markets that we have in our footprint. I'll tell you how it works. The way it works is we'll be offering through the Gen 1 as SpaceX refers to it as Gen 1, which is SMS and light data services. Using these services, all our customers, Airtel customers across our 14 markets, once we launch this service, subject to approvals from our regulators, using their existing 4G and 5G phones will be able to remain connected anywhere across these 14 markets. In their respective markets, each time when a customer goes out of our terrestrial coverage, the customers will fall on to the satellite coverage and which is offered through Starlink. The face of the service remains Airtel. So as long as the customer has an active Airtel SIM, the customer will be connected even if the customer goes out of our terrestrial coverage using their existing 4G or 5G devices. So that's how the service works. What it does is, as I said, because we are the face of the service for the customers, we control end-to-end experience for the customers and also for the security, the entire system moves through our operating systems. What we are doing right now is we are in the process of -- because we announced this partnership on 16th of December, we are in the process of seeking regulatory approvals across all our markets, and we are fairly confident that very soon we'll be able to also tell you where we are launching the service. We are the first operator to offer this service to our customers in our -- in the 14 markets that we operate. And so there's a little bit of time that it is taking us to seek this approval. Both us and the SpaceX teams are working with the regulators to ensure that we get these approvals in time. It's a great service for a continent like Africa where still there is a huge coverage gap. And therefore, what we will do by offering this service, one is pitch the digital divide by -- and make sure that we are driving digital and financial inclusion by offering this service. And as I said, as we are the first operator to offer, at this point in time, if you look wherever we launch this service, it also gives us some amount of competitive advantage to deliver best experience to our customers and showcase that this is -- this service, we believe, is very, very complementary in nature when we start offering this service across our footprint. Mollie Witcombe: That's very clear. Can I just follow up? Since if you're going to launch this Direct-to-Cell product, does this mean that you will scale back your coverage ambitions longer term in some markets? Sunil Taldar: See, it doesn't compromise -- the way we are looking at it is this is a complementary service, and we don't see this as replacing. So wherever as we -- so till the time we expand our terrestrial network, this service is a complementary service in any area where we don't have -- there is no telecom coverage, this service ensures that our customer remains connected with the network. And this ties in actually very beautifully with our core strategy of making sure that we provide the best experience to our customers, and that has been the driving force behind us signing this agreement with SpaceX. It is not to either save our capital investments to say that we will offer this service because customer will need an Airtel SIM, an active Airtel SIM to be able to access this service. So we would like to -- our primary this thing is -- and this service is actually a great benefit for the customers, especially in far of rural areas. In the metro areas or the urban areas, the customer will remain on our terrestrial network unless there is any disturbance on the network, that's when the customer falls on to the satellite network. So customers will not lose connectivity has been the underlying and the driving force behind us signing this agreement with Starlink. Operator: The next question we have comes from David Lopes of New Street Research. David-Mickael Lopes: Congrats on the results. A couple of questions, please. The first one is on margins. I know you don't give guidance on margin, but I was wondering if you can talk how much confident are you for next year for margin improvement? And could you comment on the cost structure? I think with the macro improving and also the Dangote Refinery being at full capacity, how is that going to play on your margins? And the second question is on the network sharing with Vodacom and the one with MTN. Could you comment on maybe the time line when are we going to see a benefit from these agreements? Sunil Taldar: Thanks, David. Let me take your first question on the margins first. See, what we have seen is about 240 basis points improvement on constant currency over last year. And this entire improvement has happened primarily because of, I would say, so three areas because of three things. First is there is a very stable and improving macroeconomic environment where we are seeing currencies have remained stable, inflation is coming down, growth is improving. And overall, the fuel prices have remained stable. So that's been the one area. The second is we've also seen acceleration in our revenue growth that is also helping us to improve margins. And finally, there's a very, very strong, and this is something that we announced about 6 or 7 quarters ago, a cost efficiency program that we had launched. And it's a combination of these three factors, which has helped us to improve our margins by 240 basis points. Now on the cost efficiency side, we remain very, very focused. And the entire organization is very focused on identifying costs -- from the idea of eliminating waste and not attacking any growth enabling costs. So that program continues to run, and we are very fairly confident that this program will continue to give us and it will continue to yield benefits to us. The only thing that the currency environment and the macroeconomic environment, the specific thing that you spoke about with respect to Nigeria, we are seeing currently the currency is improving. It's down to about NGN 1,380 is the last number that we've seen. The actions which have been taken by the government seems to be helping us. The inflation is down, the growth is improving. So the current outlook remains -- economic outlook in our largest market remains very positive. The macroeconomic environment is supporting. There's no reason why our efforts are there to constantly continue to find opportunities to eliminate waste in our business and continue to improve margins. As you said, we don't give guidance. I'll not be able to provide guidance, but I just wanted to paint a picture for you to say our cost efficiency program, we are very, very focused on that. Macroeconomic environment, every indicator today across our large markets because we've seen currency improving across all our markets, barring maybe one. So that environment remains fairly positive from now. And therefore, we remain fairly confident that things should continue to improve. On the network sharing agreement, what we did was we announced a network sharing agreement with MTN for Nigeria and Uganda a few quarters ago and very recently with Vodacom in Tanzania and DRC, and also for -- Tanzania and DRC was coverage expansion duplicate and also for sharing the fiber networks. This was -- this is being done to eliminate -- fundamentally, if you look at in a continent like Africa, there's a huge opportunity for us to expand our coverage, which is the ask. And each time when we expand coverage, we increase our baseload and overall revenue for the industry goes up. To eliminate duplication of investments in infrastructure is the reason why we reached out to all of -- other partners, and we've signed these agreements. The other challenge that we have in our markets is making sure that our networks remain resilient. And that resilience also drives growth. And because if one network goes down, we fall on the other network, and those are agreements that we've signed with our partners. So from the point of view of avoiding duplication and ensuring our -- expanding coverage and ensuring that our networks remain resilient. These benefits have already started accruing to -- some of the benefits have started accruing to our business. From a cost point of view, we will be able to share maybe at a later date. But yes some of these agreements are in play as we speak, and there is more needs to happen. And we will share a little more texture to what benefits are we accruing in the coming quarters. But as I said, the benefits are at three levels. First is additional coverage, which allows us to acquire -- accelerate our base growth and therefore, accelerate our revenue. Resilient networks reduce outages, better experience, continuity improves and it improves our revenue. Avoidance of CapEx, that's something that helps us to expand coverage. And it also reduces our operations and maintenance and some amount of operating expenses comes down. So there are benefits which happen across the growth line and the cost lines, which is the benefit that we are seeing of signing lease agreements with our partners. Operator: [Operator Instructions] The next question we have comes from Samuel Gbadebo of CardinalStone Partners. Samuel Gbadebo: Can you guys hear me? Sunil Taldar: Samuel, can you speak up, please so that we can hear you? Samuel Gbadebo: Congratulations on your impressive performance. It's much expected, right? But my question is on a few things I just need clarity on. Number one is we saw a lower print in effective tax rate. That's despite the higher profit before tax in the period, right? So I'm just trying to understand what brought about that? And why is the number for your effective tax -- hello? Sunil Taldar: Sam, we can't hear you. Is it something about profit after tax? Samuel Gbadebo: Yes. So I'm saying why did you -- why was there a lower print in your effective tax rate despite profit before tax being higher -- effective tax rate was lower in the period despite a higher print in profit before tax. So I just want to understand what drove that, and why is the number for effective tax rate in your earnings release different from the breakdown you have in your IR pack? And my next question is in the period, there's also a line that says your group effective interest rate is lower for 9 months, right? But when I did a glance -- a rough, a surface level check on your cash flow, and particularly the financing activities, there was a higher net borrowing in the period. So I'm just trying to understand why you have a lower effective interest rate in the period despite that. And lastly, Dangote recently announced that there's going to be like an increase in PMS price by about NGN 100 thereabout. And effectively, we've seen first stations do the same here in Nigeria. My question to that effect is, is there a cause for concern with respect to how margins has been recovering, right? So do you guys have a concern? And if there is any concern, how are you moving ahead of that headwind? Did you guys get all my questions, please? Kamal Dua: So our effective tax rate is reported at roughly 39.6%. See, it's -- there are too many moving parts in calculation of this effective tax rate. One is the mix of our profit-making OpCos and loss-making OpCos. So technically, our profit-making OpCos, the weighted average effective tax rate is roughly 32.5%. Then there are a few loss-making OpCos where we haven't triggered this recognition of the DTA. And there's a lot of upstream, which has been happening from OpCos by the way of dividends. So all this WHT, which eventually has been paid for repatriation of dividend also gets accounted in the tax line. So it's a combination of multiple things which eventually is resulting into a higher tax rate of 39.6% versus a corporate tax rate of 32.5% in the profit-making OpCos. On a year-on-year basis, this is coming down from 41% to 39.6%. This is primarily a denominator impact because our profits are rising, hence the WHT, what we are paying for the repatriation as a percentage to the profit, which has been reported is declining. So this is at a very macro level, why the ETR is higher than the corporate tax rate and what are the broad reasons for a reduction in the ETR, the effective tax rate. But if you have any specific questions, I would request you to just drop a note to Alastair, then we can come back to you on that specific question on the ETR. Operator: The next question we have comes from John Karidis of Deutsche Bank. John Karidis: Let me add my congratulations to -- for the results that you printed today. I've got three questions, please. The first one is what are the key considerations driving your decision of where to IPO the mobile money business in which stock exchange? So what are the key considerations driving that decision? Secondly, in the statement, you talk about closer integration of the GSM and the Airtel Money services. It would be really nice to add a little bit more detail to that. What do you mean by that? And what are the consequent benefits? And thirdly, did I hear you correctly that customers with their existing handsets can access Starlink? I didn't know that was possible. Could you sort of help me out there to help me understand why that is? Sunil Taldar: Thanks, John. Let me answer your third question first because the other two are related to money and I'll take it. On the Starlink, the Direct-to-Cell service, customers can access because we have signed up -- we have signed this agreement, and we allow those customers to access the satellite service through our network. And that's how the service works. And you're right that customers with their existing handsets, 4G or 5G handsets, will be able to use the Gen 1 services offered by Starlink, which is SMS and light data. So they'll be able to make calls, voice calls on certain OTTs once we roll out these services, subject to the regulatory approvals from the respective office, and we are, at this point in time, engaged with -- along with the SpaceX teams to get regulatory approvals from the markets. Moving on to your other question. As we've communicated even in the past, we continue to evaluate all major listing venues, and we are very close to -- we are close to finalizing the preferred location. And we will provide further updates to the market regarding the selected venue and the advisers in the due course. The other question that you had with respect to -- see, if you look at the mobile services and money services are interdependent and hence, these services are exchanged in the ordinary course of business, which includes having money providing services to GSM like recharge, collections and disbursements. And the GSM business provides services to Airtel Money like SMS, USSD, IT support and the go-to-market services. And then additionally, Airtel Money provides added services for improving the customer stickiness for which GSM pays remuneration to Airtel Money. So for all this, there's a value or a cost attached to it. As both businesses are gradually maturing and also the -- so all these are governed by an IGA. And this IGA is what pretty much guides all these activities. What we've seen is as the businesses are gradually maturing and also the expiry of the existing lock-ins that we had, the dependencies on each other is coming down. Accordingly, the prices have been revised considering the effect of changing market dynamics and while ensuring that they continue to be at arm's length. So that's what the interdependencies and the IGA is. What we are making sure that these -- both these businesses are intertwined, as I said, but they are all governed by an intergroup agreement that we have. And these are the services that each business provides to the other. Operator: The next question we have comes from Linet Muriungi of Absa. Linet Muriungi: Congratulations on your strong set of results. Two questions from me. The first is regarding Nigeria's renewed leases. Could you please share details on some of the terms that you can disclose, whether there are any changes to USD indexing on the lease agreements and any fuel adjustments? And what does this mean for the new average life term of leases in Nigeria? By how much have they extended? The second question is regarding mobile money business. Could you please share the revenue breakdown from basic services, that's cash in, cash out and airtime advance vis-a-vis the advanced services tied to ecosystem transactions? And in ecosystem transactions, could you give us a breakdown, if possible, between payments, micro lending, micro insurance, et cetera? Operator: Sunil, can you hear us, sir? Kamal Dua: Operator, can you hear us? Operator: Yes, sir, we can hear you now. Kamal Dua: Yes, okay. Sorry, there was some technical glitch in between. So I was saying there are two primary tower companies which we have within Nigeria. The first one is ATC and the second is IHS. So the contract with ATC, if you recall, has been renewed in September 2024. And the term was until, I think, it was 12 years of contract which we renewed. So that is the first element of the renewals. And the second is the IHS. And the IHS contract has been renewed till 2031. So these are the renewal terms from Nigeria to tower companies. And related to your second question, which comes to the breakup of our revenue of Airtel Money. We do not disclose the one which you've been asking for, like what's the revenue of cash in and cash out. What we disclose is the services which are wallet services, payment and transfer and the financial services. So it will be difficult for us to give you the breakup of this one. Thank you. Operator: Thank you, sir. Ladies and gentlemen, we have reached the end of our question-and-answer session. I will now hand back to management for closing remarks. Please go ahead, sir. Sunil Taldar: I would like to thank you all for joining this call, and I look forward to speaking to you again at the time of our full year results. Thank you very much once again. Operator: Thank you. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Airtel Africa 9 Months 2026 Results. [Operator Instructions] Please note that this event is being recorded. I would now like to hand the conference over to Sunil Taldar. Please go ahead, sir. Sunil Taldar: Thank you very much. A very good morning, good evening to all of you, and thank you for joining on today's call. I'm joined on the line by Kamal Dua, our CFO; and Alastair Jones, our Head of Investor Relations. We will shortly be answering your questions. But first, I would like to provide you with a brief overview of the recent performance at Airtel Africa. I think these results speak for themselves. We have continued to produce a strong operating and financial performance with reported currency revenue growth of 28.3% and almost 36% growth in EBITDA over the last year. Constant currency revenues and EBITDA, a reflection of the underlying performance saw encouraging growth of 24.6% and 31%, respectively. The outstanding feature of this performance, in my view, is the continuing scale of opportunity across the business. We operate across African continent with a combined population in excess of 650 million people, where the -- whereas the penetration of both telecom and financial services remains low. We have a broad portfolio of services that are in high demand, spanning data, home broadband, enterprise solutions, mobile money and merchant payments to name a few. As digital adoption and financial inclusion continues to rise, this positions us to sustain strong growth rates over the coming years. Our refined strategy is working to capture this opportunity as we attract customers and build loyalty in order to sustain this industry-leading growth. These results underscore the substantial work we have been undertaking over the last few years to embed this customer-centric strategy across the group. The result has been increased adoption of our digital services, which allows customers to access them with ease, alongside the launch of transformative offerings such as the AI spam alert, which protects our customers from fraud, and the recent partnership with Starlink, which will enhance connectivity to our customers across the footprint. These are strong examples of innovation -- innovative initiatives that differentiate us from competition and solidifies our position of being able to capture the significant opportunities across our markets. To deliver an outstanding customer experience, we have accelerated investment to increase capacity and coverage across our footprint. We've increased our sites by approximately 2,500 and expanded our fiber network to over 81,500 kilometers, as we focus on enhanced coverage and data capacity to further improve the customer experience. This investment remains the cornerstone of our ambition to capture a larger share of the opportunity on offer across the continent and is reflected in the strong operating and financial results we have reported this morning. In summary, our primary focus remains delivering an exceptional customer experience essential for creating value for all our stakeholders. Our revenues reached -- let me now briefly run through the financial performance in quarter 3 specifically. Our revenues reached $1.69 billion, which was 24.7% growth in constant currency, an acceleration from 24.2% in the previous quarter. Given the recent foreign exchange developments, this translated into a growth of almost 33% in reported currency. On a regional basis, a key highlight was the performance in Francophone Africa, which saw its constant currency growth accelerate from 15.8% in quarter 2 to 18.7% in quarter 3, as our investments and strategic focus has helped drive a strong recovery over the last few years. In Nigeria, strong demand and tariff adjustments contributed to a further acceleration in growth to 53% in constant currency. While in East Africa, constant currency growth of 16.1% remains robust despite evolving market dynamics over the quarter. Moving on to our two primary business segments. Our Mobile Services business continued to see strong trends with operating momentum and customer growth, usage and ARPU driving revenues 23.6% higher in constant currency. Customers of 179.4 million grew by double digit with data customers rising almost 15% to 81.8 million. Smartphone penetration increased almost 4 percentage points, reaching to 48.1%, but this also reflects the scale of the potential for further smartphone opportunity and takeup in our footprint. Data traffic increased by almost 47% as data usage per customer reached 9.3 GB per month in quarter 3, up 25.6% from the previous year and an 8% increase from quarter 2 levels. It is clear that underlying fundamentals, combined with our strong execution are enabling the sustained level of demand. In addition, data ARPU remains supported by these operational trends with a 16.2% increase in quarter 3, leading to a data revenue growth of 35.5% in constant currency terms. With data revenues now being the biggest component of revenues, the performance in this segment is key to sustaining a strong overall group revenue performance. Now on to another very significant growth engine for us, the mobile money business. Airtel Money crossed two thresholds in the last quarter. Firstly, it exceeded the 50 million customer mark with 52 million customers at the end of quarter 3. The second milestone was seeing the annualized total process value, or TPV, exceed $200 billion, reaching over $210 billion, a growth of 36%. Both these achievements reflect not only the significant market opportunity, but also the structural competitive advantage and scalable platform, which has driven increased customer engagement as ecosystem continues to expand. With only 52 of our almost 180 million GSM customers using the service, the ability to sustain this strong customer growth momentum remains intact. This, combined with continued uptake of new services and increased engagement on the platform, highlights a very compelling growth narrative. In the quarter, revenue growth of 28% in constant currency and EBITDA margins of over 50% reflect best-in-class financials, where growth, profitability and strong cash conversion enables the continued scaling of this very attractive business. The strong growth across all businesses has also benefited the profitability of the group, with EBITDA margin continuing to expand to 49.6% in quarter 3, up from 49% in quarter 2 as cost efficiencies, a more stable macro backdrop and operating leverage continues to benefit. Notable mentions are Nigeria, where margins increased to 57.8% and a further increase in Francophone margins to 44.3% on the back of strong operating results. At a group level, this has driven a very pleasing 31% increase in constant currency EBITDA, which when combined with currency tailwinds has resulted in a 40.8% increase in reported currency EBITDA. Within finance costs, aside from the more stable FX environment, the group's effective interest rate has declined by 200 basis points. We have seen the interest rate cycle turning more supportive with policy rates moving lower and the increased free cash flow generation, enabling us to pay off higher rate debt. Leverage remains very comfortable with these adjusted leverage declining to 0.7x, down from 1.1x in the prior year. Adjusting the extraordinary items in the previous year and all foreign FX gains or losses, we have seen the underlying EPS increase from $0.074 in the prior period to $0.116 in the current 9-month period, an increase of 57%. Basic EPS has increased to $0.131 from $0.044 in the prior year. Underpinning this performance has been our CapEx investments. As we communicated at the H1 results, we've announced CapEx guidance of between USD 875 million to USD 900 million for this financial year. This is a significant step-up from the previous year, reflecting continued confidence in the outlook for the growth and scale of the opportunities available for us to capture. In this 9-month period, CapEx increased over 30% to $603 million, and we are on track to deliver according to our guidance. As I highlighted earlier, the prospects for multiyear growth remains very apparent, and this accelerated investments will provide the platform necessary to capture a higher share of this growth, while also enabling us to unlock additional growth opportunities in areas such as data centers, but also the home broadband space where we have seen strong momentum. Before I hand it over to the Q&A, just summarize a few key points. Firstly, there were strong results with constant currency revenue and EBITDA growing by almost 25% and 31%, respectively, in quarter 3, translating to a 33% and 41% reported currency revenue and EBITDA growth. Operating momentum remains intact with strong customer base growth and usage growth across our telecom business. Airtel Money continues to scale with strong results, reflecting the truly unique business opportunity. And we are seeing strong progress in the preparations for the IPO, which remains on track for the first half of 2026. We have accelerated our investments to capture the significant growth opportunity that is available to us, and we believe this will put us in a much stronger position to showcase our ability to capture the structural growth potential. We're excited by the future, and we see a unique opportunity to sustain strong levels of growth going forward through a laser-like focus and strategy of putting the customer at the heart and center of everything we do. We look forward to reporting our successes in the future and continuing to generate value for our shareholders. And with that, I would now like to open the line for questions for which I'm joined by Kamal. Operator, I'll now hand over to you to facilitate the Q&A. Operator: [Operator Instructions] The first question that we have today is from Rohit Modi of Citi. Rohit Modi: Congratulations on the results. I have three, please. Firstly, on EA, as you mentioned higher competitive intensity in some of the markets. Can you give more color on which of the markets where you're seeing this higher competitive intensity and how you think that's going to -- how we should model our numbers for future quarters? Do you think that this is more short term that you're seeing or a bit more long-term impact from this? Second is on Nigeria. You'll be lapping the price increases this quarter. Just trying to understand how you see the growth in Nigeria beyond this quarter. I mean I think fully you'll be lapping in the next quarter, particularly and can you give us more color on that? And third question is, if you can please remind us in terms of your leverage targets, given leverage has come down to 1.9x, at what leverage do you really look at the capital allocation policy? Sunil Taldar: Thanks, Rohit, for your compliments and the question. Let me just take the first question first on East Africa. See, if you look at East Africa, it is our largest market segment, and this is one market where we've been consistently performing over the last few years and many quarters. It's a very, very robust business that we manage in East Africa. First, let me talk about the underlying metrics of the business so that we are clear that there is no structural underlying issues in East Africa. Let me start with our base growth. If you look at our base growth, it is about -- the business is growing at about 9.5% in terms of our customer base growth. Smartphone growth, which is another very important metric that we look at, is growing at about 19% or so. So in terms of our underlying metrics performance, the business remains very, very stable and strong. The opportunity in East Africa remains very, very compelling. It's a very strong business for both money as well as for GSM for us. And as I said, we have over the quarters and years, demonstrated our ability to execute very, very beautifully and delivered strong results. In the last few quarters, there is one thing that we've experienced is a significantly higher competitive intensity. And if you remember, this was the same story on Franco Africa about 6 or 7 quarters ago where we had said that Franco, there is a significantly higher competitive intensity and -- but our underlying metrics, which is customer base growth, smartphone penetration, et cetera, et cetera, were all looking all right. So there is -- because of this competitive intensity in few markets, we've seen a temporary challenge, but we've rolled out action. And I'm fairly confident because of our very strong team and their ability to execute plus the capability that we've added that we will be able to accelerate growth in East Africa as well. There is just one more thing that I would like to highlight. In the last 1 quarter, in the quarter 3, there were certain regulatory challenges that the business faced, which are very temporary in nature because of which there were certain -- the Internet outages were called out for certain security issues, which is not only specifically to us, but for the market, which temporarily impacted the growth of the business. And hopefully, because this is now behind us, that was a temporary issue. We are fairly confident of our prospects in East Africa. We don't give guidance with respect to our future quarters. So I'll not be able to give you guidance, but I want to offer confidence that we remain confident about the opportunity that East Africa offers, our ability to execute brilliantly and that is demonstrated capacity that we've shown over the past few quarters and years, and the actions that we've rolled out should start to see results in the coming quarters. Moving to your second question on Nigeria pricing. Nigeria, first, let me just give you a context as to how this price adjustment has benefited the entire industry. This price adjustment was very, very badly needed by the industry. What this has done is it has provided a lot of stability in the industry. And industry has responded very, very positively because our investments in Nigeria have gone up -- overall at the industry level has gone up significantly. What that is doing, it is actually -- is fueling demand in Nigeria. If I look at it from a customer point of view, the price adjustment has been very well accepted by customers because while we see some titrating when it comes to voice consumption, but from a data point of view -- but from a data point of view, we've seen very, very strong acceleration in data consumption numbers. So our base growth has improved, which means there are more customers are coming into the industry. The consumption has gone up, which is obviously a great news, which basically goes to see that the customer has accepted the price adjustment very positive. We've made a lot of investment in improving the quality of service as an industry, and Airtel has done a lot of work in improving the quality of service. We have implemented a lot of digital capabilities so that we continue to accelerate our growth in the coming quarters as well. Coming to your question specifically on pricing, we -- about 40% to 50% of last year growth came from tariff. And we see that -- as you said, we will be overlapping this tariff period. With the growth completely slowed down, we have -- given the current momentum in the business and the investments that we've made, we remain very confident about our growth prospects in Nigeria. The real results will be visible to us in the next 3 to 4 months from now as we start to report the quarter 1 performance, which should be a full overlap of the pricing numbers in Nigeria. Kamal Dua: And as far as your third question is concerned regarding the leverage target for the company, I think we are fairly comfortably placed at 1.9x of leverage. Our lease-adjusted leverage has been coming down gradually and is standing at 0.7x. So financially, I think we've been pretty comfortable. We per se do not have any target in my mind -- our mind to say that like we have taken a target. But nonetheless, I think from a balance sheet point of view, I think we are in a good shape and in a great health. Operator: The next question we have is from Tracy Kivunyu of SBG Securities. Tracy Kivunyu: Congratulations to Airtel Africa for the results. A few questions from me. The first question on Francophone region. Again, congratulations, very strong acceleration this year. I just want to understand which are the key regions in Francophone that drove that for data? And if you could give us an update on how -- if you could give us an update on how mobile money is growing, particularly in countries like Guernsey, which is one of your largest there. What sort of levers are you unlocking? Is it your basic remittances? Or are you seeing it across the business? My second question on Francophone is on voice. I can still see it in declining territory, albeit at a lower base. So do you think we've lapped the effects of voice declines and will be returning to growth in fourth quarter? The next question is on Nigeria, which is the last question is on Nigeria. So on VAT lease reforms that would allow Nigerian companies to claim input VAT, have you done any sort of analysis that you could share on the impact of that on your future EBITDA margin and CapEx estimates for Nigeria? And lastly, on Nigeria, what is your 4G population coverage at the moment? Sunil Taldar: Thank you very much for your compliments and your questions. Let me first address your question on Francophone Africa. If you look at Francophone markets, Francophone markets offer massive opportunity for growth and both in terms of the -- for GSM as well as for the mobile money. There is a massive opportunity for growth for category penetration as well as upgrade opportunity for moving our customers from 2G to 4G. And what we have done is given this opportunity, we've stepped up our investments in Francophone Africa. So that's one thing which is driving growth in Francophone Africa. We've stayed very, very true to our strategy. Our strategy is very focused, which is focused on making sure that we deliver great experience to our customers. And we've made massive amount of investments both in our network, which is on the radio side and also on the transmission side to ensure that we provide seamless experience to our customers. Our teams have done a fabulous job on staying true to our strategy, and that's what is driving growth across markets. What we have done is -- and there's a significant investment, as you pointed out, that voice is actually the -- across all the regions, Francophone markets have the lowest voice usage per customer. And therefore, what we've been -- and we have seen this usage also decline because the voice ARPUs in these markets are high. And what we see is customer moving to OTT. And therefore -- and that leads to also very high data consumption, the data ARPUs are also very high. What we've also done is we have significantly expanded our 4G coverage in our 4G sites in Francophone markets. And today, 90% of our sites are 4G sites. And this number used to be about 85%, 86% about a year ago. And this is resulting into a very strong smartphone customer growth of about 25%, and that is driving our data revenue growth of about 34%, and that demand we see continue to increase. This is a customer behavior. And right now, what we are doing is we are making sure that we continue to provide seamless experience to our customers. You were asking about some color with respect to market. We don't provide market level information, but I've just painted the picture for the overall Francophone Africa. And we remain very, very positive about our prospects in this market, and we see a massive opportunity for both GSM as well as mobile money for the Francophone Africa. Do you want to talk about the Nigeria, Kamal? Kamal Dua: Yes. So Nigeria, as you're rightly saying, the Nigeria VAT is claimable effective 1st of January. And our estimate is roughly that will give us a margin increase of 1.5% in Nigeria starting from quarter 4 of this financial year. Tracy Kivunyu: So one other question on population coverage, yes. Sunil Taldar: So you had asked another question on Airtel Money, the Airtel Money growth and why have we divided this into various segments that we've offered. I think that was your question. So what we've done is we have divided our Airtel Money total revenue into wallet services and financial services and merchant services. Now what we have done is in the past, the business was primarily focused on driving cash in, cash out and peer-to-peer revenue. And as the business has achieved scale and we're seeing very strong traction in our business, what we -- while this is our strength, which is driving our -- leveraging our go-to-market and accelerating customer base, which has been driving business for us. What we now want to do is we want to make sure that our payment and transfer business and financial services business starts to trade with a higher focus. And this is being led through our efforts, which is digital efforts, which is driving app penetration and making sure that we drive engagement on the app and drive multiple use cases, and that's driving and accelerating the growth for our Airtel Money business. Very quickly on the other question that you asked on Nigeria. Nigeria covered -- sorry, 4G pop covered is about 82% for us. Operator: [Operator Instructions] The next question we have comes from Mollie Witcombe of Goldman Sachs. Mollie Witcombe: I just have one actually. It's about the Starlink Direct-to-Cell partnership that you announced recently. I was wondering if you could give us some color, perhaps time line to launch, the potential upside that you see from this and just whether it's customer demand driven or fitting a business need, that would be great. Sunil Taldar: So if I heard you correctly, there was a slight disturbance in the audio. Your question is on Starlink? Mollie Witcombe: Yes, that's correct. Sunil Taldar: All right. So I'll just give you a little bit of a context on what we -- the agreement that we signed with Starlink. This is the second agreement that we announced with Starlink. The first was -- the first agreement that we announced, I think, 2 quarters ago was with respect to offering enterprise connectivity solutions to our customers across our 14 markets and also for backhauling. The recent, which is agreement that we signed on 16th of December that we announced, what it covers is offering Direct-to-Cell services to our customers across the 14 operating markets that we have in our footprint. I'll tell you how it works. The way it works is we'll be offering through the Gen 1 as SpaceX refers to it as Gen 1, which is SMS and light data services. Using these services, all our customers, Airtel customers across our 14 markets, once we launch this service, subject to approvals from our regulators, using their existing 4G and 5G phones will be able to remain connected anywhere across these 14 markets. In their respective markets, each time when a customer goes out of our terrestrial coverage, the customers will fall on to the satellite coverage and which is offered through Starlink. The face of the service remains Airtel. So as long as the customer has an active Airtel SIM, the customer will be connected even if the customer goes out of our terrestrial coverage using their existing 4G or 5G devices. So that's how the service works. What it does is, as I said, because we are the face of the service for the customers, we control end-to-end experience for the customers and also for the security, the entire system moves through our operating systems. What we are doing right now is we are in the process of -- because we announced this partnership on 16th of December, we are in the process of seeking regulatory approvals across all our markets, and we are fairly confident that very soon we'll be able to also tell you where we are launching the service. We are the first operator to offer this service to our customers in our -- in the 14 markets that we operate. And so there's a little bit of time that it is taking us to seek this approval. Both us and the SpaceX teams are working with the regulators to ensure that we get these approvals in time. It's a great service for a continent like Africa where still there is a huge coverage gap. And therefore, what we will do by offering this service, one is pitch the digital divide by -- and make sure that we are driving digital and financial inclusion by offering this service. And as I said, as we are the first operator to offer, at this point in time, if you look wherever we launch this service, it also gives us some amount of competitive advantage to deliver best experience to our customers and showcase that this is -- this service, we believe, is very, very complementary in nature when we start offering this service across our footprint. Mollie Witcombe: That's very clear. Can I just follow up? Since if you're going to launch this Direct-to-Cell product, does this mean that you will scale back your coverage ambitions longer term in some markets? Sunil Taldar: See, it doesn't compromise -- the way we are looking at it is this is a complementary service, and we don't see this as replacing. So wherever as we -- so till the time we expand our terrestrial network, this service is a complementary service in any area where we don't have -- there is no telecom coverage, this service ensures that our customer remains connected with the network. And this ties in actually very beautifully with our core strategy of making sure that we provide the best experience to our customers, and that has been the driving force behind us signing this agreement with SpaceX. It is not to either save our capital investments to say that we will offer this service because customer will need an Airtel SIM, an active Airtel SIM to be able to access this service. So we would like to -- our primary this thing is -- and this service is actually a great benefit for the customers, especially in far of rural areas. In the metro areas or the urban areas, the customer will remain on our terrestrial network unless there is any disturbance on the network, that's when the customer falls on to the satellite network. So customers will not lose connectivity has been the underlying and the driving force behind us signing this agreement with Starlink. Operator: The next question we have comes from David Lopes of New Street Research. David-Mickael Lopes: Congrats on the results. A couple of questions, please. The first one is on margins. I know you don't give guidance on margin, but I was wondering if you can talk how much confident are you for next year for margin improvement? And could you comment on the cost structure? I think with the macro improving and also the Dangote Refinery being at full capacity, how is that going to play on your margins? And the second question is on the network sharing with Vodacom and the one with MTN. Could you comment on maybe the time line when are we going to see a benefit from these agreements? Sunil Taldar: Thanks, David. Let me take your first question on the margins first. See, what we have seen is about 240 basis points improvement on constant currency over last year. And this entire improvement has happened primarily because of, I would say, so three areas because of three things. First is there is a very stable and improving macroeconomic environment where we are seeing currencies have remained stable, inflation is coming down, growth is improving. And overall, the fuel prices have remained stable. So that's been the one area. The second is we've also seen acceleration in our revenue growth that is also helping us to improve margins. And finally, there's a very, very strong, and this is something that we announced about 6 or 7 quarters ago, a cost efficiency program that we had launched. And it's a combination of these three factors, which has helped us to improve our margins by 240 basis points. Now on the cost efficiency side, we remain very, very focused. And the entire organization is very focused on identifying costs -- from the idea of eliminating waste and not attacking any growth enabling costs. So that program continues to run, and we are very fairly confident that this program will continue to give us and it will continue to yield benefits to us. The only thing that the currency environment and the macroeconomic environment, the specific thing that you spoke about with respect to Nigeria, we are seeing currently the currency is improving. It's down to about NGN 1,380 is the last number that we've seen. The actions which have been taken by the government seems to be helping us. The inflation is down, the growth is improving. So the current outlook remains -- economic outlook in our largest market remains very positive. The macroeconomic environment is supporting. There's no reason why our efforts are there to constantly continue to find opportunities to eliminate waste in our business and continue to improve margins. As you said, we don't give guidance. I'll not be able to provide guidance, but I just wanted to paint a picture for you to say our cost efficiency program, we are very, very focused on that. Macroeconomic environment, every indicator today across our large markets because we've seen currency improving across all our markets, barring maybe one. So that environment remains fairly positive from now. And therefore, we remain fairly confident that things should continue to improve. On the network sharing agreement, what we did was we announced a network sharing agreement with MTN for Nigeria and Uganda a few quarters ago and very recently with Vodacom in Tanzania and DRC, and also for -- Tanzania and DRC was coverage expansion duplicate and also for sharing the fiber networks. This was -- this is being done to eliminate -- fundamentally, if you look at in a continent like Africa, there's a huge opportunity for us to expand our coverage, which is the ask. And each time when we expand coverage, we increase our baseload and overall revenue for the industry goes up. To eliminate duplication of investments in infrastructure is the reason why we reached out to all of -- other partners, and we've signed these agreements. The other challenge that we have in our markets is making sure that our networks remain resilient. And that resilience also drives growth. And because if one network goes down, we fall on the other network, and those are agreements that we've signed with our partners. So from the point of view of avoiding duplication and ensuring our -- expanding coverage and ensuring that our networks remain resilient. These benefits have already started accruing to -- some of the benefits have started accruing to our business. From a cost point of view, we will be able to share maybe at a later date. But yes some of these agreements are in play as we speak, and there is more needs to happen. And we will share a little more texture to what benefits are we accruing in the coming quarters. But as I said, the benefits are at three levels. First is additional coverage, which allows us to acquire -- accelerate our base growth and therefore, accelerate our revenue. Resilient networks reduce outages, better experience, continuity improves and it improves our revenue. Avoidance of CapEx, that's something that helps us to expand coverage. And it also reduces our operations and maintenance and some amount of operating expenses comes down. So there are benefits which happen across the growth line and the cost lines, which is the benefit that we are seeing of signing lease agreements with our partners. Operator: [Operator Instructions] The next question we have comes from Samuel Gbadebo of CardinalStone Partners. Samuel Gbadebo: Can you guys hear me? Sunil Taldar: Samuel, can you speak up, please so that we can hear you? Samuel Gbadebo: Congratulations on your impressive performance. It's much expected, right? But my question is on a few things I just need clarity on. Number one is we saw a lower print in effective tax rate. That's despite the higher profit before tax in the period, right? So I'm just trying to understand what brought about that? And why is the number for your effective tax -- hello? Sunil Taldar: Sam, we can't hear you. Is it something about profit after tax? Samuel Gbadebo: Yes. So I'm saying why did you -- why was there a lower print in your effective tax rate despite profit before tax being higher -- effective tax rate was lower in the period despite a higher print in profit before tax. So I just want to understand what drove that, and why is the number for effective tax rate in your earnings release different from the breakdown you have in your IR pack? And my next question is in the period, there's also a line that says your group effective interest rate is lower for 9 months, right? But when I did a glance -- a rough, a surface level check on your cash flow, and particularly the financing activities, there was a higher net borrowing in the period. So I'm just trying to understand why you have a lower effective interest rate in the period despite that. And lastly, Dangote recently announced that there's going to be like an increase in PMS price by about NGN 100 thereabout. And effectively, we've seen first stations do the same here in Nigeria. My question to that effect is, is there a cause for concern with respect to how margins has been recovering, right? So do you guys have a concern? And if there is any concern, how are you moving ahead of that headwind? Did you guys get all my questions, please? Kamal Dua: So our effective tax rate is reported at roughly 39.6%. See, it's -- there are too many moving parts in calculation of this effective tax rate. One is the mix of our profit-making OpCos and loss-making OpCos. So technically, our profit-making OpCos, the weighted average effective tax rate is roughly 32.5%. Then there are a few loss-making OpCos where we haven't triggered this recognition of the DTA. And there's a lot of upstream, which has been happening from OpCos by the way of dividends. So all this WHT, which eventually has been paid for repatriation of dividend also gets accounted in the tax line. So it's a combination of multiple things which eventually is resulting into a higher tax rate of 39.6% versus a corporate tax rate of 32.5% in the profit-making OpCos. On a year-on-year basis, this is coming down from 41% to 39.6%. This is primarily a denominator impact because our profits are rising, hence the WHT, what we are paying for the repatriation as a percentage to the profit, which has been reported is declining. So this is at a very macro level, why the ETR is higher than the corporate tax rate and what are the broad reasons for a reduction in the ETR, the effective tax rate. But if you have any specific questions, I would request you to just drop a note to Alastair, then we can come back to you on that specific question on the ETR. Operator: The next question we have comes from John Karidis of Deutsche Bank. John Karidis: Let me add my congratulations to -- for the results that you printed today. I've got three questions, please. The first one is what are the key considerations driving your decision of where to IPO the mobile money business in which stock exchange? So what are the key considerations driving that decision? Secondly, in the statement, you talk about closer integration of the GSM and the Airtel Money services. It would be really nice to add a little bit more detail to that. What do you mean by that? And what are the consequent benefits? And thirdly, did I hear you correctly that customers with their existing handsets can access Starlink? I didn't know that was possible. Could you sort of help me out there to help me understand why that is? Sunil Taldar: Thanks, John. Let me answer your third question first because the other two are related to money and I'll take it. On the Starlink, the Direct-to-Cell service, customers can access because we have signed up -- we have signed this agreement, and we allow those customers to access the satellite service through our network. And that's how the service works. And you're right that customers with their existing handsets, 4G or 5G handsets, will be able to use the Gen 1 services offered by Starlink, which is SMS and light data. So they'll be able to make calls, voice calls on certain OTTs once we roll out these services, subject to the regulatory approvals from the respective office, and we are, at this point in time, engaged with -- along with the SpaceX teams to get regulatory approvals from the markets. Moving on to your other question. As we've communicated even in the past, we continue to evaluate all major listing venues, and we are very close to -- we are close to finalizing the preferred location. And we will provide further updates to the market regarding the selected venue and the advisers in the due course. The other question that you had with respect to -- see, if you look at the mobile services and money services are interdependent and hence, these services are exchanged in the ordinary course of business, which includes having money providing services to GSM like recharge, collections and disbursements. And the GSM business provides services to Airtel Money like SMS, USSD, IT support and the go-to-market services. And then additionally, Airtel Money provides added services for improving the customer stickiness for which GSM pays remuneration to Airtel Money. So for all this, there's a value or a cost attached to it. As both businesses are gradually maturing and also the -- so all these are governed by an IGA. And this IGA is what pretty much guides all these activities. What we've seen is as the businesses are gradually maturing and also the expiry of the existing lock-ins that we had, the dependencies on each other is coming down. Accordingly, the prices have been revised considering the effect of changing market dynamics and while ensuring that they continue to be at arm's length. So that's what the interdependencies and the IGA is. What we are making sure that these -- both these businesses are intertwined, as I said, but they are all governed by an intergroup agreement that we have. And these are the services that each business provides to the other. Operator: The next question we have comes from Linet Muriungi of Absa. Linet Muriungi: Congratulations on your strong set of results. Two questions from me. The first is regarding Nigeria's renewed leases. Could you please share details on some of the terms that you can disclose, whether there are any changes to USD indexing on the lease agreements and any fuel adjustments? And what does this mean for the new average life term of leases in Nigeria? By how much have they extended? The second question is regarding mobile money business. Could you please share the revenue breakdown from basic services, that's cash in, cash out and airtime advance vis-a-vis the advanced services tied to ecosystem transactions? And in ecosystem transactions, could you give us a breakdown, if possible, between payments, micro lending, micro insurance, et cetera? Operator: Sunil, can you hear us, sir? Kamal Dua: Operator, can you hear us? Operator: Yes, sir, we can hear you now. Kamal Dua: Yes, okay. Sorry, there was some technical glitch in between. So I was saying there are two primary tower companies which we have within Nigeria. The first one is ATC and the second is IHS. So the contract with ATC, if you recall, has been renewed in September 2024. And the term was until, I think, it was 12 years of contract which we renewed. So that is the first element of the renewals. And the second is the IHS. And the IHS contract has been renewed till 2031. So these are the renewal terms from Nigeria to tower companies. And related to your second question, which comes to the breakup of our revenue of Airtel Money. We do not disclose the one which you've been asking for, like what's the revenue of cash in and cash out. What we disclose is the services which are wallet services, payment and transfer and the financial services. So it will be difficult for us to give you the breakup of this one. Thank you. Operator: Thank you, sir. Ladies and gentlemen, we have reached the end of our question-and-answer session. I will now hand back to management for closing remarks. Please go ahead, sir. Sunil Taldar: I would like to thank you all for joining this call, and I look forward to speaking to you again at the time of our full year results. Thank you very much once again. Operator: Thank you. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.