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Kati Kaksone: Good morning, everybody, and welcome to Terveystalo's Q3 Results Call and Webcast. My name is Kati Kaksonen. I'm responsible for Investor Relations and Sustainability here at Terveystalo. As usual, we'll go through the result highlights with our CEO, Ville Iho; and our CFO, Juuso Pajunen. And after the presentation, you will have a chance to ask questions. I will take the questions from the phone lines, as well as through the webcast, after the presentation. Without further ado, over to you, Ville. Ville Iho: Thank you, Kati, and good morning from my behalf. Let's dive directly into Q3 highlights. As you can see from the numbers, this quarter 3 was a quarter of margin improvement amid a revenue headwind. So the EBIT -- adjusted EBIT margin developed positively; very strong operating cash flow; EPS developing positively as expected; very high NPS, taking all-time highs all the time; but then with a decline of some 5% top line, adjusted EBIT in absolute terms slightly down. Double-clicking into different P&Ls and their role in the business, how they are contributing and continue contributing in the future, starting from Sweden. Just as a reminder, Sweden is in a phase still of turnaround. We have been adamant in the fact that we continue focusing only on turnaround and profitability improvement. Sweden is getting -- our Sweden team is getting the results. The underlying efficiency is continuously improving. The results continue to improve. The market being fairly muted at this stage still, we are not making proper profits yet. But looking at next year, volume development looks positive, and we start making results, and then it's time to focus on growth. Portfolio Businesses, quite the same story. The profitability turnaround has for large parts happened. Some minor fixes in smaller businesses, but the bigger businesses are doing fine and developing positively. Now, it's time to grow, and we are eyeing specifically in 2 different segments, as we have said before, dental and then opening public market. Healthcare Services, our biggest business, margin on a very, very high level, really strong, starting from a very strong position. Now, our eyes and focus turn into volume growth, and we continue to boost that one with selective specialties-driven M&A, and then investments in digital delivery and capabilities. Further double-clicking into the strategic agenda, as I said, Sweden profitability improvement program, [ Gamma ], almost done and dusted. Efficiency in all-time high level. Now, looking at organic and potentially inorganic growth there on a solid base. Portfolio Businesses, as I said, profitability improvement done and dusted. Now, organic growth in dental and also inorganic growth in dental and public partnership being relevant in the opening market when health care counties are actually starting buying, where we have seen positive signs already. Inside Healthcare Services, we are seeing very strong development in our consumer-driven businesses. We continue boosting that one, Kela 65 being a prime example of sort of a positive drive. Also in insurance business, our position continues to be strong and developing nicely; out-of-pocket in good place and developing positively against the low morbidity. We have reorganized our operations and our delivery model so that there's clearly separate brick-and-mortar delivery through our health care services or hospital network, and then, now, forcefully and decisively scaling up the digital health 10x, where we are eyeing at major leaps in efficiency, in transactions, more intellect in our patient and customer steering, and then finally, truly scaling up truly digital health care services, tech-based services, nurse services and in very near future also, AI-supported health services. Among all the positive developments, the challenge currently, which we'll further discuss is in occupational health care. We know exactly where we are. We know how to turn around the negative development. There we have a program called [indiscernible], led by new SVP, Occupational Health care or Corporate Health, Laura Karotie, and that one will be discussed in more detail. So, all in all, agenda, very clear, sort of 9 out of 10 moving very fast to the positive territory, more focus needed for occupational health care, which will be fixed. Looking at the volume development and our sort of view on markets in near term, next 12 months, starting from the smallest, Sweden, as we have communicated many times, the market has been very soft. Swedish economy has driven the demand for occupational health care services very low. Now, looking forward, both the market seems to be picking up. Sweden economy is doing better next year. But more importantly, looking at our internal view on the sales funnel, commercial activities, sales funnel looks positive. And when we are able to do, in next year, more volume on higher operating leverage, of course, then we'll start making money. Portfolio Businesses, public business, as all know, has been very, very slow in buying. Health care counties are only sort of picking up the buying activities. What we see in large tenders and also in smaller tenders is increased activity. And looking at the next 12 months, we see the market developing positively. Same goes with the consumer business. It has been fairly muted due to low confidence of consumers. We have seen already some positive signs, specifically in the dental services, which typically is the most sensitive for consumer behavior, and we expect the positive drive and vibe to continue for next 12 months. In public business, when we jump over to Healthcare Services, in public services produced by health care services units, it has come down and it has brought -- or contributed to lower volumes in Healthcare Services. We see that one bottoming out, and next 12 months should be more positive. Consumer business, even though our own position has been strengthening, has been fairly flat due to low morbidity. But with the sort of normalized view on that one, our strong drive in Kela 65 and insurance business, we see that one developing positively also going forward. Insurance business, equally, it has actually been the growth driver inside Healthcare Services, continues to be so. Number of insured persons in Finland continues to slowly pick up, and use of services is on a high level. Occupational health care, finally, so we'll double-click on the development, what has contributed to lower volumes in Q3, but very shortly, it's number of connected employees, sort of thinner scopes in the agreements by the corporate clients, and then inside those agreement scopes, lower use of services. All of these are slightly negative from our business point of view. It's been negative. It's going to stabilize. But specifically, number of connected employees will not be sort of turned around in 1 quarter. We'll turn that one around, but it will take a couple of quarters to get to -- again to all-time highs. If we dive deeper into this phenomena, as you can see, and it's good to remember the phases that we have seen in the development over the last couple of years and quarters. In '22 and '23, in the number of connected employees, we were pushing all-time highs. At the same time, as you remember, the profitability of this business was really, really low. And we struggled with the low contribution to rest of the business and hence, the Alpha program. With the Alpha program, we totally turned around the profitability of not only occupational health care, but the company. With that one, of course, the -- some of the less profitable agreements went out. And now, we see also some unintended tail effects of the Alpha period. Now what we are doing is, of course, we are rebalancing products, pricing, offering, and it's not going to be either or. It's going to be both, so both profitability and volumes. Occupational health care, as I said, is the biggest focus area in our agenda currently. It will be turned around with our program. It's a comprehensive exercise of renewing, partly even transforming sales and account management, our product offering to become more relevant and according to expectations by ever-demanding customers. And then, finally, digital front renewal, which we now can accelerate and fast track with our MedHelp joint venture. And our customers will see tangible results already from Q1 onwards on this area. Positive thing -- a very, very positive thing in our portfolio is consumer side, so combined insurance, Kela 65, out-of-pocket area. Our brand is doing fine. And that's, of course, one of the basic building blocks for boosting this business. We are the most preferred brand when we look at the brand preference development. We have been so. But now, we are all-time high. Also in top of mind, the company, health care services company that Finnish consumers think about them when they wake up in the morning, that's now Terveystalo for the first time. And that itself gives a very solid base for further improvement in this business. We have invested heavily in services. We invested heavily in digital engagement with our consumer customers. We have invested in Kela 65. And in that particular new segment, we are a clear leader in that developing market. Finally, Juuso will explain in detail the strength of our finances, the profitability, cash flow and balance sheet. We continue increasing our investments in our digital capabilities. It's an ever-increasing value driver in our business model. And we have some key focus points and developments in that digital ecosystem. For the professionals, we have launched the Ella user interface and digital front door and continue scaling that one up. And that's going to bring tangible efficiency improvements during next year in our sort of traditional brick-and-mortar appointment activities. For individual care, looking at -- looking from a customer's point of view, as I said, it's very much in the core of our 10x agenda. We are making leaps in efficiency, in transactions related to our incoming traffic and customer contacts. We are going to further improve the leading capabilities that we today already have in patient steering and customer steering. And then, finally, we'll make efficiency leaps in text-based appointments, text-based digital appointments, nurse services and introduce first AI-supported health services in very near future. In occupational health, as I said already, we are now in a very good position to migrate our occupational health capabilities, digital capabilities into new MedHelp environment. It's best-in-class in Europe. And our customers, as I said, they will see tangible results and fully a new view and sort of better control on their own people, own organization, sick leaves, workability, starting from Q1 next year when we start deploying new system to first customers. All in all, we are, in this digital journey, in very strong, very good place. Our architecture is where it should be. Our initiatives, projects create value, not in years, but rather in months, and we are confident in investing more and getting more yield out of the digital engine. With that one, over to you, Juuso. Juuso Pajunen: Thank you, Ville. So good morning all. I'm Juuso Pajunen, CFO of Terveystalo, and let's talk about the financial performance in the third quarter. So first of all, if we look at the whole group, we have the positive margin development continued despite the revenue headwinds. This was, in relative terms, the second best Q3 during the group's history, and the best one was during the COVID times. So what I want to highlight is that our efficiency is in place, our machine is [ ticking ]. But also having said that one, we do know that we can't be happy on the growth and especially the revenue development when it comes to occupational health care. So if we look at the big picture, portfolios in Sweden improved both in relative and absolute profitability, while they are still facing anticipated negative growth. So portfolios in the outsourcing businesses in Sweden, we are still coming from the efficiency hunt and now going for the growth mode. And then, with Healthcare Services, we have the strong margin, but the headwinds in the occupational health and the morbidity have been pushing the growth negative, like Ville also explained a bit on the occupational health part. So then, if we look first on the Healthcare Services, I will double-click in the next slide on the growth, especially what comes to visit growth. So let's park that question. But all in all, the performance, what comes to the relative profitability, it was really solid. We had the decline in revenues, headwind in the markets. And despite those ones, we were able, through solid cost control and our flexible operating model, to keep our profitability in a good place, especially remembering that this is the low season Q3. And for the growth, we have a strong plan. And in the longer perspective, I still remind you that the megatrends will continue to support our long-term outlook [ what ] comes to the growth. So then, let's see the visits. Let's address the elephant in the room. So basically, we can split our visits growth. So now, we are talking about the volume. We can split it into different type of buckets. First of all, we have the morbidity. So, that one is basically seasonal. We have no control over that one. And we had plenty fewer visits compared to previous year. And this is part of normal seasonal variation, and it changes annually. We have -- then if we go into the occupational health care, we have different factors behind the decline. We have basically macro-driven components. So the general employment in Finland is lower than earlier, and we have a sluggish economy, and that one also then impacts on the employers' behavior. So basically, they are implementing cost reduction initiatives due to own economic pressures and push, and that one impacts on our demand also. So, a concrete example on that one would be narrowing down the contract scopes on what they offer to their employees. Then we have the third component, which goes into more on what we have done ourselves. As Ville explained, how our profit improvement program has been progressing and how the -- despite having very high amount of connected employees, our occupational health business was not super profitable. Now, we have very efficient machine, profitable business, and we need to load further volume on that one and get then the benefit of the operating leverage. And for that part, we have a solid strong program ongoing, like Ville mentioned. The name is [indiscernible]. And we are confident that by implementing that program, we will address the weaknesses we have had, and we would expect to see growth in the number of connected employees in the coming year. In public sector, especially the capacity sales, which is a minor part in the Healthcare Services segment, but it is in a very low level due to the wellbeing county setups and all of that one. But now we have seen that the sales pipeline is opening up and the market is little by little finding its form. And then, we have the positive momentum, Kela 65 consumer insurance market where we have been growing and we have been able to capture positive momentum. And that one, we will obviously continue pushing. The experiences from Kela 65 are very positive from the patient perspective and also from our perspective. So with all of this one, there are various factors impacting our growth, and we will address especially the occupational health part decisively when going forward. Then if we go into the Portfolio Businesses, we have clear improvement in profitability. We have been able to improve the EBIT margins continuously, 2.2 percentage points up compared to previous year. And then, we have the momentum in especially public sector business. Outsourcing, we have been guiding you that it will most likely decline EUR 30 million this year, and we are on that trend, on that pattern and continuing on that one. On staffing, we started to have revenue headwinds during roughly a year ago, and now those ones are stabilizing out. And part of that one was also our own selection on how we address the market. But now little by little, the positives are coming, markets are opening up. Wellbeing counties are more and more capable of also buying and willing to buy. So this market momentum is little by little turning. And then, we have the consumer part that is growing. It is performing positively, and we will obviously continue to push on that part. So solid performance improvement in the portfolios when it comes to profitability. Then in Sweden, we are also improving both absolute EBIT and relative EBIT. We are still showing heftily negative numbers in a very seasonally low quarter. So Q3 is always difficult and weak in Sweden due to how the offering behaves during vacation period. In here, what I'm really proud is that our efficiency continues to ramp up. We have -- we continuously see, on our KPIs, positive development what comes to occupancy rates, but also we start to see that one on a monthly gross margin levels going up. So we are now getting into an efficiency place, and we will load further volumes on top of that one. We have a solid sales pipeline that supports us getting back on track and on heftily numbers. So program is in plan. Improvements are now continuously more visible also in the backward-looking income statement, and we will push forward. However, there is a weak market environment still in Sweden as a totality. So the macro has not recovered yet to the full extent. But despite macro, we are able to push Sweden back to good numbers in the coming year. Then, if we look at our investments, we've been continuously investing in technology. We have been stating since the Capital Markets Day last year that we will land somewhere between 4% to 5% of revenues in the longer perspective on the investments. Now, we are at 3.4%. We are heavy in digital. We have been talking about Ella, our professional user interface and related flows. You have seen, during the quarter, investments in MedHelp, the joint venture, which will be the digital front door in our occupational health. And then, some may have seen that we have deepening our collaboration with Gosta in the artificial intelligence and ambient scribing, further improving our tools. We have a good momentum. We have solid technology road map, and we have capability to invest. So we will continue on doing on that one. And then, in inorganic growth, the market is there, and we are evaluating different type of opportunities. And for those opportunities, we had a solid quarter for cash flow. We are now in the green bucket again. As was the [ negative part ] normal seasonality, so is this one. Our cash profile has not materially changed, and there is no reason to believe it materially changes either, so normal volatility. We are the Swiss clock we have been. We tick, tick, tick cash. And then, our leverage ratios, 2.1 at the moment, so we have powder to continue investing. So positive financial position, and we can definitely do organic and inorganic investments. Then, if we look for our guidance, basically this is unchanged. So despite some market headwinds, we reiterate our guidance after the second best third quarter ever. So we are expecting our adjusted EBIT to be between EUR 155 million and EUR 165 million. These are based on the current demand environment, employment levels and morbidity rates. So normal disclaimers, nothing new on that one. What is good to note maybe that the implied range for Q4 seems highish compared to previous year Q4. But then, you need to look back on your notes and remember that in previous year Q4, we had especially personnel-related items that we don't have this quarter -- this year in Q4. So the baseline adjusting needs to be a bit taken to understand our Q4 performance. So all in all, I'm happy to reiterate our guidance, EUR 155 million to EUR 165 million in total. With these words, let's invite Kati on stage and let's have a Q&A. Kati Kaksone: Thanks, Juuso. I think we are ready to take questions from the phone lines. Operator: [Operator Instructions] The next question comes from Anssi Raussi from SEB. Anssi Raussi: Maybe I'll start with your guidance as you mentioned that as the last item here. So you already said that there were some special items in your comparison period. But how should we think about underlying assumptions here? Like, does it require any improvement in the market sentiment or something you are not seeing yet to reach your lower end of the guidance range? Juuso Pajunen: I think that's a very relevant question. So, at the moment, the guidance is based on the current market environment and the current morbidity rates. So it already factors in, like always when issuing the guidance, everything we know up to yesterday evening. So the current guidance assumes lowish morbidity rates and the occupational health market in the conditions we know at the moment. Anssi Raussi: Got it. That's clear then. And maybe the second question about your occupational health care. So I think you said that maybe you lost some connected employees due to your profit improvement program. So do you think that it's possible to increase the number of employees or connected employees without sacrificing some of your profitability gains in this program? Ville Iho: Yes. Again, a good question. So, as I said during the presentation, it is not going to be either or, so either volume or profitability. It's going to be both going forward. It requires some balancing in our sort of offering and pricing, but we are not going to sacrifice the profitability just for the sake of absolute volume. Anssi Raussi: Okay. So maybe continuing on that one. So when we look at your -- of course, you showed your appointment volumes and the impact of prices. So how should we think about the pricing going forward in the coming quarters or years? Ville Iho: So, of course, the cycle is very much different than it was, let's say, 2, 3 years ago. The pressure on the -- contracts pressure on prices is, of course, higher post inflation cycle. And we should not -- or you should not expect as sort of a rapid price development going forward. Now, it's more on the how we package our products, what is the mix in our sort of agreement portfolio, and how efficient are we under the hood in delivering those services. And then, final component is the volume. So the growth cannot be, for example, next year, driven so much by the price increases as we have seen during last -- or past 2 years. Operator: There are no more questions at this time. So I hand the conference back to the speakers. Kati Kaksone: All right. It's a busy results day today. I think there are some 30 companies today. There's one question in the webcast currently from DNB Carnegie from Iiris; two parts. Regarding the plan to address the revenue headwind, can we talk about when do we actually expect to see these measures to become visible in the top line and whether we plan to provide any financial estimates of the sales or earnings impact of those actions? Juuso Pajunen: If I start, like I actually hinted a bit, or not even hinted, written out loud in the bridge that we would expect the connected employees' impact to be visible in '26. And that's obviously coming from the nature that if you today win something before it's visible and the connected employees are part of our portfolio, that, especially in the big cases, is a matter of months rather than anything else. So we would expect on '26 the impact. And at the moment, obviously, our financial guidance relates to Q4 and full year '25, and we will come back for the total guidance for '26 along with Q4 publication. Ville Iho: Yes. Again, the only caveat is sort of with what Juuso said, this is that -- as I said before, we are not hunting the volume with the price of profitability. So it is going to be both profitability and revenue and also volumes. So we are not repeating the mistakes that the company did some 6, 7 -- or 5, 6, 7 years ago. Kati Kaksone: Maybe then, continuing on that one, a follow-up question from Iiris. We talked about an update to our product offering in the occupational health to make it more relevant for our customers. Can we give some examples on what that means in practical terms and where we expect to see the largest positive impact? Ville Iho: It's down to the segmentation of different needs amongst our customers. Of course, we are serving 30,000 -- roughly 30,000 different companies in Finland. And there's a wide spectrum of different type of needs and appetites also to pay for the services. Now, when we are talking about sort of transforming or renewing the products, typically, it concerns the sort of customers who are more sort of keen on looking at the price and value for money type of sort of comparisons. And there, we do have strong means inside the company to steer the services across our vast network. We have not used them to the full extent. So what I mean is that if there's a company whose main focus is to get things to a certain level and then look at the spend after that one, we have means to serve that type of customer. If there's a customer that wants to maximize the services to the employees, then we can serve that type of customer. If there's a product, which is priced with a fixed contract, we have means to control both the profitability, delivery and cost for that type of customers. And that type of steering capabilities will be sort of utilized to full extent now going forward. So we have the flexibility. We have different type of delivery models, and we are also renewing sort of commercial packaging of these type of different models. Kati Kaksone: Yes. And of course, MedHelp is a concrete example of the value increase that we can show to our customers in a relatively short term as well. Ville Iho: Absolutely. It's going to be the next level. Kati Kaksone: Good. Then, a question on the public outsourcing tenders and the outlook there. Besides the tender of Pirkanmaa wellbeing services county, which was won by our peer yesterday, are there any larger tenders opening up at the moment? Ville Iho: Well, there's one other which we know of. And then, I think what's going to happen is that health care counties are watching very closely each other. And when somebody is opening a path, then the rest will follow, specifically if there's a successful implementation of a certain model. So we believe that this is only a first step, this [ Pirka ], and congrats to Pihlajalinna for good competition and a nice win in there. Kati Kaksone: Yes, indeed. Then maybe a question to both of you. Can we talk about the M&A pipeline? How does it look at the moment? Juuso Pajunen: Yes, if I start, so basically, it is fair to say that M&A opportunities are now little by little emerging in different type of segments. And we are, as we have said, happy to do disciplined M&A when we see an opportunity to fill a blank, whether it's a technology bank, offering blank or other blank. So, that market is little by little activating, and we are and we will be active in that one. Ville Iho: Yes. There's -- just looking from sort of a short history perspective, where we have been and where we are now and potentially will be, the activity on our desk is way higher than it has been for 5 years or so -- 5, 6 years, sort of post-COVID or during COVID times. This is sort of an all-time high activity. And there are sort of real potentials out there. Of course, you always need to get to the -- get over the sort of finish line to get something materialized. But the funnel is there, and it's strongest that it has ever been during my term in Terveystalo. Kati Kaksone: Yes, definitely signs of picking up there. Then a couple of questions from Matti Kaurola, OP. We mentioned that the insurance business is growing fast. Are there any possibilities to take more market share from other players in that segment? Ville Iho: Well, I would say, it's not growing fast. It's growing steadily. So it's -- coverage of insurances in Finland has been developing positively, and then use of services have been developing positively. We have gained market share over the 2 last years. And then, further gaining market share, of course, requires also new means and new type of value creation for insurance companies. I think we have a strong plan there, which we continue implementing. The bigger moves, in my view, will happen only in 2027. Next year will be more like a steady progress in this segment. Kati Kaksone: Of course, we have a clear attack plan for 2027 to deepen the cooperation with the insurance companies. Then, maybe continuing on the outsourcing market and the well-being services counties, how do we look at the public outsourcing market in general in the future? Is it attractive? And is it a part of our core offering and our business going forward? Ville Iho: Well, we explicitly said earlier that we are interested in this new type of outsourcing deals. We were part of [ Pirka tender ]. And one can say looking now in hindsight, the competition and the outcome that each and every out of 3 main players were on the ball in sort of pricing and offering the package. So very close margins who won and who did not win. When it comes to profitability, of course, this would have not been sort of the richest agreement, but still value-creating, EPS enhancing, which is the key for our business model. So when this type of tenders come to the market, we are interested. Kati Kaksone: Indeed. At the moment, we don't -- we have one more question from the phone lines. Let's take it now. Operator: The next question comes from Anssi Raussi from SEB. Anssi Raussi: One follow-up from me. So you also mentioned these somewhat extraordinary costs last year in Q4 and that there were some one-offs related to employee expenses. But can you remind us like what kind of amount we are talking about that you consider one-offs in Q4 last year? Juuso Pajunen: Yes. So basically, compared to baseline in last year, if you go into the details, you remember that we paid EUR 500 per employee to all employees an extra bonus. And based on the CLA, there was EUR 500 per employee fall all under CLA. So that's the personnel expenses I referred to. And then, if you go into a bit deeper, you see that there was a bit of accelerated amortizations and depreciations in the income statement in Q4 last year. So, that one you need to put your finger into yourself, but normally, forecasting depreciation and amortization is not super difficult. Kati Kaksone: Thanks. With that, I believe we don't have any further questions on the phone lines or from the webcast. So any closing words? Over to you, Ville. Ville Iho: Well, as discussed earlier, a quarter of improving margins with revenue headwind; strong agenda to further accelerate the areas where we are progressing well and to tackle the headwind in occupational health care; investments with the dry powder provided by [indiscernible], used more and more to digital offering, where the agenda is -- strong architecture is there and delivering tangible results. Kati Kaksone: Great. With that, we thank you for your time, and have a great rest of the week. Juuso Pajunen: Thank you. Ville Iho: Thank you.
Bertina Engelbrecht: Good afternoon and a warm welcome to the webcast of our annual results for the year ended 31 August 2025. I am Bertina Engelbrecht, Chief Executive Officer of the Clicks Group. Joining me here today is Gordon Traill, our Chief Financial Officer. We will be taking you through the presentation of our annual results and respond to your questions after the conclusion of our presentation. This slide sets out the outline we will follow. I will start with a review of our financial year. Gordon will follow with an overview of our financial results. I will take you through the trading performances of our business units; first Clicks, then UPD; and I will then close with the outlook for the group. Please submit any questions that you may have via the webcast platform during and after the conclusion of our presentation. Sue Hemp from our Investor Relations team will read out your questions to which Gordon and I will respond. I will now commence with a review of the year. At the macro environment level, green shoots are starting such as a slight expansion of GDP growth, the easing of domestic inflationary pressures and lower debt servicing costs. Although confidence levels are below historic averages, the latest consumer confidence index reported a modest easing of pessimism. Despite some challenges, particularly the high unemployment rate and fiscal constraints, we maintained performance momentum because of our focused results orientation, resilient business model, brand strength and incredibly loyal ClubCard customers. In the year, we delivered diluted headline earnings per share growth of 14.1%. This is comfortably within our guidance range and an enviable return on equity of 49.2%. We are reaping the benefit of the foresight of past leaders who launched our loyalty program in 1995. In August, our ClubCard celebrated its 30th anniversary with over 12.6 million active members who contributed 82.6% to our sales. Last year, I said I would be disappointed if we did not exceed our store and pharmacy rollout targets. True to form, our teams did not disappoint. We increased our Clicks store count to 990, pharmacy count to 780 and primary care clinics to 225. We are strengthening our relationship with the Department of Health, a key stakeholder. Post the year-end, additional pharmacy licenses are being issued. This supports our pharmacy expansion program. In a subdued trading environment, customers focus on value by switching to lower priced brands, buying on promotion and using loyalty programs. As a value retailer with a respected private label program, we were well positioned to leverage our market-leading shares in defensive retail categories. Customers responded favorably to our product and price offers resulting in market share gains in our core health and beauty categories. I will provide greater detail on the market share and category performances in the retail segments review stabilized and the business is gaining positive traction. Purchasing compliance from both Clicks and the listed private hospital groups have recovered. Expense management, as Gordon will share in more detail, was exceptional. As a group, we embrace inclusive transformation with a strong emphasis on gender diversity and local empowerment, the results of which are reflected in our BBBEE level 3 rating and our top achiever status in the UN Women's Empowerment Principles. I now hand over to Gordon, who will take you through the group's financial results. Gordon Traill: Thank you, Bertina. Good afternoon. As in previous years, we will cover the financial performance of the group starting with the group highlights. If we consider the financial highlights, group turnover increased by 5.3%. Retail turnover grew 6% for the year with half 2 slightly slower due to new stores and pharmacies being opened later in the year and lower inflation. UPD had a slower second half after the recovery from the system implementation in the previous year. Total income margin grew by 90 basis points resulting from strong growth in private label, supply chain efficiency income and lower shrink in the retail business. The group trading margin at 9.8% increased by 60 basis points due to the growth of retail and good cost control from UPD. Diluted headline earnings per share for the group increased to ZAR 13.62 per share, up 14.1% on last year within our guided range of 11% to 16%. The group's operations generated strong cash inflows of ZAR 6.6 billion. During the year, we returned over ZAR 2.7 billion to shareholders in dividends and share buybacks. The group's return on equity at 49.2% increased from 46.4% in the prior year. And the dividend declared for the year has been increased by 14.2% to ZAR 0.886 per share, which is a 65% payout ratio. Retail had a slower second half due to the later opening of stores and pharmacies, inflation remaining muted and a slower flu season. UPD's compliance levels in both its main channels continued improving resulting in good growth in sales to Clicks while positive growth was maintained in the hospital channel. If we exclude the Unicorn disposal in the prior year, retail grew 7% with same stores growing 4.7% excluding the additional trading day in the prior year. New stores and pharmacies added 2.3% to the top line while selling price inflation averaged 2.6% for the year, lower in the second half. Distribution business had a consistent performance in the second half with good compliance from its major sales channels. The business grew despite continuing genericization in the hospital channel and lower inflation. Bertina will cover the detail of each business' performance later in the presentation. This slide reflects our total income earned, which has increased by 8.4% for the year. You can see the total income margin in retail was 70 basis points higher than last year as there was good growth across pharmacy, health and beauty and personal care driven by private label. In addition, the previous investments in systems has allowed us to generate additional supply chain efficiency income. UPD's total income margin was down 10 basis points to 9.9% and this was due to the higher SEP increase granted in the previous year. Overall, the faster growth of the retail business at 8.1% and the growth in UPD has resulted in the group's total income margin being 90 basis points higher than last year. Retail costs grew 7.9%, which was lower than in the first half and remained well controlled. In the second half, cost growth was 7.3%. Store staff bonuses have increased by 9%, which is on top of a 21% increase in the prior year and is well deserved based on this year's performance. In the year, we have added a net 55 Click stores and a net 60 pharmacies. We are looking forward to continue accelerating our pharmacy growth in the next financial year. We would also like to thank the Department of Health for their support in the last year in working with us to close the gap in stores without pharmacies. Comparable retail cost growth, excluding new stores, was up 5% for the year with costs growing at a lower rate in the second half. The IFRS 16 interest charge increased as a result of the increase in number of renewals in the period. The growth has slowed from the prior year. UPD's costs have grown lower than turnover as the systems implementation was completed and efficiencies have been extracted. It is pleasing to note that costs grew 1.6% in the first half and 2.2% in the second half. Employment costs in the second half continued to be well controlled although were ahead of the first half due to the provision of performance bonuses. Other costs fell by 3.9% in the second half as a result of good cost control and lower debtor provisions required. The investments in solar have paid off with electricity, water and generator costs for the year declining by 35% despite the higher electricity tariffs. Our investment in electric vehicles has resulted in further efficiencies with transport costs down 0.2% year-on-year. Further investments have been made to allow delivery with electric vehicles, which will come through in our financial year 2026. This further supports reducing our carbon footprint. Retail grew trading profit by 8.4% with the margin improving by 30 basis points to 10.5%. This has been due to good sales growth, strong other income generation together with efficient cost management. UPD's trading profit increased by 9% with the trading margin increasing by 10 basis points to 3.3% and this was due to consistent sales growth and good cost control. Overall, the group's trading profit increased by 12.1% to ZAR 4.7 billion for the year. This slide reflects the growth in turnover, trading profit and margin of the group over the past 5 years. The company has sustainably grown its performance through various economic cycles. And to note that in last year, inflation has moderated, interest rates have reduced and we have all benefited from the lack of load shedding in the past year. There are some concerns though with the impact of external tariffs further straining the economy. That said, the group has demonstrated its ability to continue to evolve the trading margin over the past 5 years. Inventory levels for the group has increased by 4 days to 78 days. Retail stock days are 1 day higher than last year and inventory remains well controlled although increased due to the later opening of new stores in the year and higher levels of inventory being held ahead of the warehouse management system going live in Cape Town. UPD stock days at 45 days are 3 days higher than last year partially due to higher levels of GLP-1 buy-ins and Unicorn stock held at year-end. Overall, working capital was well managed with net working capital days at 34 days. This slide shows the movement of cash during the year. As you can see, we started the year with cash of ZAR 2.7 billion reflected in dark blue on the left-hand side and ended the year with ZAR 3.3 billion on the right-hand side of the slide. The group has generated cash of ZAR 6.5 billion highlighted in green, working capital inflows of ZAR 73 million, repayment of lease liabilities amounting to ZAR 1.1 billion and tax payments of ZAR 1.2 billion. ZAR 985 million was reinvested in capital expenditure across the group. From this amount: ZAR 599 million was invested in new stores as well as quick store refurbishments, ZAR 152 million was spent in distribution centers including the expansion of our Centurion DC and ZAR 234 million was spent in IT and other retail infrastructure. We returned ZAR 2.7 billion to shareholders this year and this was in the form of dividends of over ZAR 1.9 billion and share buybacks of ZAR 751 million. Final cash dividend of ZAR 1.5 billion will be paid out to shareholders in January. This slide shows our commitment to a disciplined approach to capital allocation. We expect to continue to invest in the business and return capital to our shareholders through dividends. Over and above this, our preference is to return any excess cash through share buybacks, which is demonstrated in this graph. Since 2006, we have bought back 164 million shares at a cost of ZAR 7.8 billion. At the closing share price on 31 August 2025, the value of these shares would have amounted to ZAR 61.2 billion. CapEx of over ZAR 1.2 billion is planned for the year ahead. ZAR 662 million will be invested in our store and pharmacy network and this will include 40 to 50 new Clicks stores and pharmacies and 70 to 80 retail store refurbishments. ZAR 594 million will be spent on IT systems and infrastructure, ZAR 88 million of this amount will be invested in UPD IT and warehouse equipment and we will invest the balance of ZAR 506 million in retail IT systems and infrastructure. This will include the completion of our new pharmacy management system and rollout of the implementation of the new warehouse management systems to our 2 other DCs and further investment in solar. We will continue to grow and invest in the retail footprint. UPD is positioned for growth now that the implementation has been completed and we will continue investment in systems for pharmacy and our distribution centers in the retail business. This slide reflects our medium-term financial targets. We have made good progress against these. Importantly, the group has continuing headroom for growth, particularly in expanding the retail store base. While we have shown good progress, these targets will not be revised at this stage. As indicated earlier, we have increased our investment in the business for growth. In framing these medium-term targets, we continue to seek to optimize the balance sheet, improve working capital efficiency, enhance cash returns to shareholders and maintain the dividend payout ratio between 60% and 65%. This slide demonstrates how the group has sustained its financial performance over the past decade. This is reflected in the 10-year compound annual growth rates achieved in diluted headline earnings per share of 13.5% per annum and dividend per share growth of 14.2% per annum. The compound annual total shareholder return over the past 10 years equates to 17.3% per annum. These excellent growth rates have been driven by strong organic growth, particularly in our health and beauty business, which has been supported by an efficient supply chain. This has in turn translated into strong cash returns, which have not only been reinvested in the business, but also allowed us to progressively increase our dividend. This graph shows the group's share price performance over the last 10 years. This performance is all the more pleasing when compared to the return in the Food and Drug Retailers Index of 4.6% and the Top 40 index of 7.8%. This performance is a testament to the hard work of all our employees throughout the group. Earlier, I noted that bonuses for employees have again increased. It is pleasing to note that our long-term shareholders have also benefited. I will now hand over to Bertina to cover the trading performance. Bertina Engelbrecht: Thank you so much, Gordon. I will now take you through our trading performances starting with Clicks followed by UPD. This is the review of the Clicks business. Despite the subdued trading environment and a muted cold and flu season, the retail business delivered a solid result. Existing stores grew sales by 4.7% excluding the extra trading day in 2024. Inflation slowed down from 6.3% last year to 2.6% this year and we achieved volume growth of 2.1%. I now turn to the 4 categories to provide you with greater detail. Pharmacy sales grew 6.9% despite a soft cold and flu season as well as significant price reductions in key molecules to align with medical scheme formulary compliance requirements. Turnover in our 24-hour UniCare format achieved growth of 8% driven by strong support from doctors, the implementation of our after-hours doctor service and the exceptional performances of wound care, diabetes, primary care and IV clinics. Despite the delay in opening new pharmacies, we accelerated in the second half to open a total of 62 new pharmacies for the year, of which 29 were in the last quarter. ClubCard customers contributed over 87% of pharmacy sales and we continue to be rated as the customer's first choice retail pharmacy. We have increased our primary care clinic count to 225. Clinic sales increased by 10% driven by medical aid funded services and support for our virtual doctor consultation services. Front shop health and baby achieved strong growth with value growth of 8% and volume growth of 10.1%. In the baby category, volumes were up 15.3% compared to value growth of 6.2%. Front shop health growth was driven by the extension of our health care elevation to 138 stores, exceptional performances in sports and slimming which was up 27% and the continuing strong momentum of branded supplements up 29%. Our integrated baby strategy is entrenching our position as the leader in baby. Despite price deflation driven by supplier branded diapers and baby foods as well as supplier infill challenges. This category is continuing to perform well with private label and exclusive ranges the key to our success. Sales in our stand-alone Clicks baby stores were up 23%. Baby store-in-store sales grew by 12.4% and online baby sales grew 27%. Sales growth, as you can see, is gaining momentum and we are evolving margin. Sales in our beauty and personal care category was up 7.4%. Despite a heavily competed beauty market and the disappointing performance of The Body Shop, we grew sales ahead of the market fueled by new launches and the continued rollout of the elevated beauty hall concept in key nodes. The personal care category delivered a strong performance up 9.8% driven by strong private label sales which was up 17.6%, strong promotional sales and innovation in [indiscernible], Being Kind, Dove and Vaseline product ranges. Our exclusive body freshness range was up 42.6% driven by exponential growth in Spritzer, which was up 44%. In May, the new Body Shop owners unveiled their post-acquisition turnaround strategy with new product development launches such as Spa of the World and Passionfruit. These new ranges are in store and the teams are working to improve the infill rate. General merchandise sales performance was disappointing, up just 4.4% due to our underperformance of small household electrical appliances. In the next section, I will provide you with more detail. Despite the increasingly competitive environment, we are continuing to extend our market shares in core beauty and beauty retail categories. Let me take you through these starting with health. It is a relief to report that our intentional efforts at engaging collaboratively with the Department of Health to advance our public health agenda of improving the accessibility and affordability of health care is delivering results. We opened 62 new pharmacies in the year. Although 29 pharmacies only opened in July and August, we gained market share of 20 basis points creating positive momentum for our new financial year. Front shop health declined by 30 basis points despite strong gains across sports and slimming up 140 basis points, first aid up 290 basis points and incontinence up 100 basis points. Our comprehensive baby execution; which integrates our private label and online offering, convenient locations, competitive pricing and Baby ClubCard benefit strategy; drove our market share gain of 80 basis points in baby. Exceptional gains were recorded in diapers up 110 basis points, baby wet wipes up 270 basis points and baby dry foods up 230 basis points. Pleasingly, we have identified even more opportunities to grow our share of baby. We continue to gain market share in beauty and personal care. Skin care gained another 20 basis points fueled by strong share gains in face wash, lip care and moist wipes and we defended our market-leading share in hair care. Personal care continues to gain market share up 60 basis points across every measurement period with strong gains in body freshness, [ sun pro ] and sun care. In general merchandise, we declined by 40 basis points in our legacy category of small household appliances. This was due to significant out of stocks in the first half and an oversupply in the market. What is encouraging though is that over the last quarter, we were once again regaining market share. I now turn to the key drivers that support our growth starting with value. Our brand position of feel good, pay less supported by generous ClubCard rewards, extensive private label and exclusive ranges and convenient locations resonated with consumers. Despite heightened competition, we stayed true to our legacy as a value retailer with great everyday pricing and promotions. In so doing, we maintained our competitive pricing against all major retailers on a volume-weighted price index that excludes our 3 for 2 promotions, bulk offers and ClubCard cashbacks. We grew promotional sales by 12.4% to account for 47% of turnover across all front shop categories. We are committed to delivering on our public health care agenda of extending access to affordable health care for all. The convenience of our pharmacy and clinic network, virtual doctor offering and partnerships with health care funders enable us to deliver on our agenda. In the year, generics grew by 8.8% accounting for 59% of sales by value and 71% of sales by volume. Cash rewards are relevant especially in a tough economic environment. During the year and with the support of our affinity partners, we returned ZAR 855 million to loyal customers in the form of cashback rewards. Our differentiation strategy is premised on responding to changes in consumer demographics, preferences and shopping behaviors within the context of the trading environment we face. Our private label and exclusive ranges are core to offering the consumer choice. Private label and exclusive brands delivered sales of ZAR 9.7 billion as it continues its momentum of growing sales ahead of total retail sales. Customers trust our private label brands because of their proven quality and price positioning. This year, 1 in every 3 products sold in our front shop was a private label or exclusive product. Private label and exclusives contributed 25.9% to total sales, 30.6% to front shop and 12.3% to pharmacy sales. Our private label and commercial teams drive innovation and quality in addition to supporting our sustainability and local empowerment goals. In the year, 6 of the private label products won SA Product of the Year in their respective categories. Sales in our 6 stand-alone baby stores grew 23.7%. We increased our store-in-store executions from 5 last year to 14 this year. This is what enabled our gains in baby market share as we also improved margins in this category. The execution of our elevated beauty halls, which is now in 44 stores is driving increased sales in the big beauty brands and in brands exclusively available in Clicks. Our affinity partnership with and equity investment in ARC, a retail brand focused on the premium beauty market, enables us to extend our access to the premium beauty customer. In this month, ARC opened the largest beauty store in Africa at Sandton City to great acclaim. This year we are celebrating the 30th anniversary of the Clicks ClubCard loyalty program. The nostalgic reflections of loyal customers who shared their ClubCard journey with us and on their social media platforms fill us with pride. 30 years on, we are still growing with an active ClubCard membership base that increased to 12.6 million this year. The contribution of ClubCard members to total sales increased to 82.6% accounting for 80.7% of front shop and 87.4% of pharmacy sales. The 2025 Truth and BrandMapp loyalty white paper confirmed the ClubCard program as the most used loyalty program in South Africa. It continues to provide us with the mechanism to attract, engage and retain customers through personalized experiences that reinforce emotional affiliation to our brand. The use of advanced analytics to drive focused customer segmentation and tailored personalized rewards is critical to the success of the ClubCard loyalty program. This is an area that requires targeted investment in technological enablement as well as in the correct skill sets. Although online sales grew by 15.9%, we can and we will do better. Pharmacy is a key driver of our sustained performance. By November, we will have completed the national deployment phase of our LEAP pharmacy management system. We can now leverage the system to enhance service levels and increase sales. The expansion of our store network is progressing well and we are accelerating our pharmacy and clinic rollout program because of its proven positive impact on front shop growth. Internally, we have invested in people and improved processes to support our growth aspirations. We ended the year on 990 Clicks stores, 1 UniCare specialized 24-hour pharmacy store, 780 Clicks pharmacies and 225 primary care clinics. We remain committed to delivering affordable, accessible health care. 53.2% of the South African population live within a 5-kilometer radius of a Clicks pharmacy. We have increased our primary care clinics to 225. These are profitable due to medical aid funded services such as diabetes and the extension of our virtual doctor consultations. Now that M-Kem has been integrated and the rebranding of the UniCare concept approved, we will be extending our specialized 24-hour UniCare format by 2 greenfield sites and 2 acquisitions by February of next year. As with property, we have invested in the skills required to accelerate the growth of this format and we are accelerating our presence in lower income areas with 247 of our stores located in such areas contributing 23.7% of turnover. That completes the review of the Clicks business. I will now turn to UPD's trading performance. UPD's fine wholesale turnover, which excludes bulk distribution and preferred supplier contracts, was up 5.2% despite the subdued cold and flu season and lower inflation, a pleasing improvement against last year's negative 0.5% performance. This performance is attributable to greatly improved service levels, which has always been a core UPD strength. All operational service metrics are being met and the investments we made in systems, people and processes are bearing results. I will briefly turn to the core customers in this channel. As UPD's largest customer, Clicks contributed 58.4% of the turnover. Sales to Clicks pharmacies grew by 9.5% as purchasing compliance improved to over 98%. Clicks is growing ahead of the market and is accelerating its new pharmacy openings and importantly, actively driving purchasing compliance. This will greatly benefit UPD. Sales to the private hospital channel, which contributed 36.2% of turnover, grew by just 1.4% despite improved purchasing compliance. Volumes were up 8.8% due to increasing genericization and growth in the nonlisted acute hospital space. The continued decline of sales to independent pharmacies and other smaller channels is eroding UPD's market share, which is down to 26.2%. The improved purchasing compliance from both Clicks and the private hospitals as well as the stabilization of UPD's operational and service metrics will sustain its performance. UPD's total managed turnover, which includes fine wholesale sales as well as turnover managed on behalf of bulk distribution clients, was up 2% to ZAR 30.5 billion. In the prior year, UPD's total managed turnover was down 6.7%. So this is a good turnaround. The growing contribution of generics now 75.7% of volume versus 68.8% last year coupled with lower price inflation had a deflationary impact on turnover. The UPD team focused on improving quality and service levels and invested in its key account management principles to drive sales. During the year, UPD stock levels were elevated to improve stock availability for retail pharmacy and hospital formulary lines and to also improve access to GLP-1 medicines for its customers. The termination of excess property leases has been completed. We have, as Gordon pointed out, extracted the surplus costs carried during the wholesale system rollout and we have now also implemented more effective management practices to reduce variable employment costs. The UPD team achieved excellent cost management at a low growth of just 1.9% aided by its early investments in solar, batteries and electric vehicles. The wholesale systems implementation is complete. On the bulk side, the new systems have been rolled out to 7 distribution clients with the rollout to the remaining distribution clients on track to be completed by March next year. In support of our commitment to a sustainable carbon neutral future, we are in the process of ordering another 40 electric vehicles for use nationally. This completes the review of our trading performance for the year. It was a challenging year. Despite positive shifts in macroeconomic indicators, the early promise of an improved trading environment did not fully materialize. The resilience of our business model and our teams was tested. I am incredibly proud of our performance. It was forged by teams with an unrelenting focus on excellence. In retail, the teams delivered superior income growth and margin expansion coupled with truly outstanding shrink and wastage results. The continued growth of private label and exclusive ranges inspires confidence and the contribution of ClubCard to turnover is positive. Our new stores, pharmacies and clinic openings as well as the record number of store revamps exceeded expectations. Bongiwe Ntuli has inherited a healthy business from Vikash Singh. I'm confident that she will lead the team to even greater success. Gwarega Mangozhe and the new Rest of Africa team delivered a stellar performance with sales growth in every territory exceeding target due to strong delivery of the operational and customer service metrics. I'm going to call out Corne Visser and the Namibia team in particular who delivered a consistent exceptional performance. The UPD's team performance in the second half of the year was outstanding. The operational and customer service metrics are aligned to our goals and the work that Trevor McCoy and the team have put into improving the business has created positive momentum for the new financial year. Our group services team under the leadership of my colleague here, Gordon Traill, has been instrumental on delivering and might even say getting very, very close to the upper end of our medium-term financial targets. The IT team under his control has partnered well with the business to progress our IT investments. We still have so many opportunities to increase our scale, to leverage our loyalty and strengthen customer loyalty, to extend our private label offer, to extract efficiencies and to improve on our digitization. What matters most is our people, especially our store, pharmacy teams and our DC teams. Last night, we were privileged to have our Top 10 store managers and our Top 10 pharmacy managers as well as our Clicks and UPD DC general managers join our senior leadership team as we took our teams through our results after close of the market. This provided them with the opportunity to represent their teams and for us to publicly recognize their contributions. In presenting our results here today, Gordon and I acknowledge that we do so on behalf of our people. From our Board and executive teams to all of our people and their extended families, thank you. I will now conclude our presentation with the outlook. Although the macroeconomic indicators are improving, the consumer remains constrained. The consumer is therefore prioritizing value, convenience and rewards from companies that inspire trust. Our retail strategic pillars of value, convenience and differentiation supported by our private label and exclusive program and ClubCard loyalty program is aligned to the consumer needs and positions us for sustained growth. In distribution, our strategic pillars of quality, efficiency and customer excellence is fundamental to profitable growth. We remain well positioned to thrive in this environment due to our competitive advantage in defensive health and beauty sectors, our growing market-leading shares in core retail categories and in pharmaceutical wholesale and distribution, our sustained long-term growth opportunities underpinned by our value proposition and customer service and our increasing scale which enables us to maximize efficiencies and leverage it for effective execution and reach. Over the past 5 years, we invested in systems in both retail and distribution for growth. We have invested in Lee, a modern pharmacy management system to fuel our pharmacy growth. We invested in infrastructure and in the expansion of our store, pharmacy and clinic network to support growth. And we invested in adjacencies in health and beauty to extend our access to market segments in which we are underindexed. We are now poised to fully leverage these investments made to improve service and increase sales in our network. In the 2026 financial year, we will increase the number of UniCare 24-hour specialized pharmacy stores to a total of 5. The Sorbet and ARC customers are our most profitable ClubCard customers. And increasingly, we still have opportunity to increase ClubCard penetration in these businesses. Our first Sorbet master franchises for Botswana and Mauritius will be concluded in 2026 and we are on track to extend the number of Sorbet stores in South Africa. We will deliver on our medium-term target of 1,200 Clicks stores. In 2026, we will open another 40 to 50 stores and 40 to 50 pharmacies and over the medium term, we will open 10 to 15 UniCare stores. Our private label and exclusive program is core to our offering and we are driving towards our goal of achieving a 35% contribution to our front shop sales. The objectives outlined above require investments, which will be supported by our planned CapEx spend of ZAR 1.3 billion per annum over the medium term. The increasing scale of the business and requirement to plan for succession necessitated a review of our executive structure. In September, the group executive was expanded to 6 members to drive focus, create capacity for growth, invest in core capabilities and to prepare for succession in our usual disciplined manner. The expanded group executive portfolios in addition to the CEO and CFO covers Retail South Africa, Rest of Africa Retail, UPD, our investments in health and beauty and people. The complementary diversity profile, broad sector experience and track record of performance of the expanded group executive team significantly strengthens our leadership capability. Earlier, Gordon shared with you our pleasing performance against our medium-term targets. No wonder I remain confident of the group's capability to continue to delight shareholders by delivering on our medium-term targets. Thank you so much for listening. I will now hand over to Sue Hemp, who will assist us with taking your questions. Sue Hemp: The first set of questions I have come from Michael Jacks at Bank of America. Congrats on the solid results. I have 3. One, can you please elaborate a little more on the LEAP system implementation, expected benefits and whether it is a differentiator of Clicks or UPD versus peers? Bertina Engelbrecht: I can take that one. So first of all, Michael, thank you very much for the message that you’ve sent us. Let's talk a little bit. By November, we will have completed the rollout of LEAP to all our pharmacies. In my notes, what I said is now the next step for us post deployment is to really utilize the system in order for us to improve service levels and of course as well to increase sales. How will we do that? It's to ensure that the pharmacists when they are consulting with the customer has the opportunity to now also talk about expanded services, first of all, within our network; but importantly, some of the complementary medicines that the patient ought to be taking. When we take an antibiotic, ideally we should be taking a probiotic as well. So that's what we mean in terms of the expanded benefits. We are of course also because of our ability to service the customer much more quicker, what it means is the pharmacist has more time to consult with a patient that is standing right there with them. Differentiation, all of the pharmacy management systems were built at a time when there was no corporate retail pharmacy. And so what we have done is to acknowledge that retail pharmacy is the bedrock of our performance. And so what we have done is really to ensure that we've got a modern system, which no one else has, that will create for us an incredible advantage going forward. The process to develop a modern pharmacy management system will take years. Gordon, I’m not sure if you wanted to add anything. Gordon Traill: The only other point is probably the last point regarding does it give us a differentiation? Well, bottom line is it does give us a differentiation because there is no other system in the market just now that is modern and web based and our competitors are going to have to find something that they can use. Sue Hemp: His second question, market share trends are positive in many categories, but you lost some share in general merchandise. Has this been due to online or offline competition? Bertina Engelbrecht: The way that we look at the competitor is every competitor not only in South Africa in terms of bricks and mortar, but every online player within South Africa and every online player globally. That's really our competitive set because we had significant out of stocks in the first half of the year and there was a drought of supply in the market itself. And really what we have to take is we look at all of these opportunities and say where can we do better. And I would say we didn't do good enough and so now we are poised to really focus on that in our usual manner. And as I've noted, in the last quarter of the year, we were once again regaining market share in that legacy category of ours. I will not give up on it. Sue Hemp: His third question. You mentioned earlier in the year that you were accelerating on e-commerce. The online store and app looks great, but delivery options and lead times are still limited. What are you doing to address this? Gordon Traill: So I think we recognize that we can do better in this area. So over the next 12 months we are going to be replatforming our online system both on the app and the web and that's going to allow us further delivery options. But not only that, a lot of other functionality that we're going to be able to roll out. So I think the advice is watch this space and in 12 to 18 months, we should be in a very different position. Sue Hemp: Another set of questions from Michael de Nobrega at Avior Capital Markets. Well done on the great set of results. His first question. On the beauty and health care segment, growth has moderate yet Clicks has maintained market share despite increased competition and accelerated rollouts from peers. Could you please elaborate on how you see the competitive landscape evolving and where you view growth to come from in this category? Bertina Engelbrecht: Well, let me talk about the market in terms of 3 segments. First of all, thank you very much, Michael, for the comment. The market really is in 3 sectors. So first is the super high LSM customer, which is super protected against any of the economic indicators in the country and you see that really in the performance of ARC. Now that's the reason 5 years ago we took an investment decision to invest in ARC and so we've got that exposure to that premium beauty customer. And the way in which it works, ARC is an affinity customer. That customer comes and redeems the cashback rewards within the Clicks store. We of course play very, very solidly within the middle and the end of the market and there the things that we have done is of course we use our ClubCard program and of course what we do is as well, we've got private label and exclusive brands. And so that I think is great. We have to grow our market share. We have specifically elevated our execution in beauty and that's the 44 elevated beauty halls that I speak about and we have seen incredible growth in those stores. We are learning from what we've done there and we are improving even more. Our performance and market share in skin care is not by accident. It is because of the way in which we have changed the customer journey by bringing skin care much more to the front of the store itself. And then there's the lower end of the market. Now interestingly, we have got a private label brand actually at the lower end of the market called [ Swatch ], which in the SA Product of the Year actually won the SA Product of the Year award -- 2 actually of the awards. So I think great opportunity for us there. But yes, here we competed and that's the reason why the way which we are preferring to, if you will, respond to the changes in the market and competitive activity is to really stratify the market into these 3 broad sectors and to ensure that we are acting in order to respond to the needs of every one of those segments. Sue Hemp: His second question, could you please expand on the rationale for the WMS rollout across the 3 retail distribution centers? Do you expect any large operational disruption during the implementation and what efficiency or benefits do you anticipate once it's fully deployed? Gordon Traill: So the rationale was to create capacity because the ways of working on the previous warehouse management system limited the amount of product that we could get through these DCs. So in introducing the new warehouse management system, it allows parallel working and just allows throughput through those DCs and extends the life of these without further expansion. Expansion will be necessary at some point and we've been doing that in Centurion over a period of time. Do we expect disruption? I haven't been through our system implementation yet, but there isn't some disruption. But what I am pleased to say is that yesterday, we were actually picking up in the Cape Town DC above levels that we were doing in the prior year. So it's hard work and I really commend our systems implementation partner, our IT teams and especially our DC teams for working with us. I think we've got over the hump in that one and everything is really firing at Cape Town DC now. Sue Hemp: His third question. Clicks Group has built up a strong cash position of ZAR 3.2 billion. How are you thinking about capital allocation priorities going forward? In particular, would you consider accelerating store expansion or increasing share buybacks? Gordon Traill: I think we always look at investing in the business and that we've been doing on a consistent basis for a number of years and reinvesting in our systems and we've also increased the number of stores. We've also done some acquisitions over the past few years. We've set out what our dividend policy is. We’ve given the range of 60% to 65% and where the opportunity has come up, any excess cash has been returned to shareholders through share buybacks. But I don't think any of that is going to change over the next few years. We would consider expanding or accelerating store growth where the opportunity came up and we've done that in the past where in certain years we've grown store expansion by 100 stores where there's been an acquisition. Sue Hemp: Yes. Last question on post period trade is also asked by Sa'ad Chothia from Citi who says well done on the pleasing results. Can you give some color on post period trade? Bertina Engelbrecht: One of the teams actually asked the question last night and I said well, I'm not displeased. Gordon and I certainly am not displeased by the performance since we started the new financial year. Sue Hemp: His second question is what sort of inflation can we expect in FY '26? Gordon Traill: I think since our Reserve Bank is doing such a great job on inflation and it's got to be commended for that, you would probably expect that inflation is going to be remaining on the lower side. Bertina Engelbrecht: And if we could encourage the Reserve Bank to then also look at the interest rates, I think that the consumer would certainly welcome that. Sue Hemp: [ Ander Tyami ] from Invest Securities says please can you provide some color on occupancy costs in retail remaining flat year-on-year despite higher than guided store growth? Gordon Traill: I think the thing to bear in mind with occupancy cost growth is it's not actually rental related or it's not the rents and it’s largely the other aspects of store costs that include parking, et cetera. It does include some turnover rentals, but it's really the lowest element of the cost growth related to stores. Store cost growth sits in our ROU depreciation and our IFRS 16 charge. Bertina Engelbrecht: But it also would be fair to say, Gordon, that we have taken control of that. We put in metering for example, we check all of the bills that are coming through for payment. We don't take it for granted. We've invested in solar. So there are a number of things. We've got automatic switches for example in the stores to switch off electricity at night when it's not trading. So it's also not as a consequence of luck. We have done work to get us to that point. Sue Hemp: And it also asks about post period trade, which we've answered, but say particular store openings, including pharmacies. And I think we've given numbers in the presentation of 40 to 50 stores and 40 to 50 pharmacies. But if we get more opportunities, we will open more. Bertina Engelbrecht: We will. And maybe the point to call out is that the teams have promised me that we will get to number 1,000 by December. Sue Hemp: Jovan Jackson from Fairtree. How should we think about the normalization of intra-group profit on Unicorn stock? Do you recoup this through increased retail margin in FY '26? Gordon Traill: So this is a little bit of an odd year. Because of the Unicorn disposal in the prior year, what we had was we had an intra-group profit related to the Unicorn stock that we had purchased when Unicorn was still our subsidiary. So that's been unwinding during the year, which is where the intra-group profit comes through. That is not a one-off because that does move into retail that will sit in the retail division next year. So this year is an odd year. Sue Hemp: Kgomotso Mokabane from Sanlam Private Wealth says well done on the net 55 new stores. Can you give some color on the execution challenges or constraints that resulted in the bulk of openings being delayed until Q4 of the financial year? Gordon Traill: We would always prefer to open our stores earlier. What impacted us probably more last year was some weather-related challenges that impacted landlords that just pushed store openings later. But it's not something that we plan to do, but it was an unfortunate impact. Sue Hemp: Kgomotso also asks or says commercial and private label sales were both up strongly in double digits. And with internal inflation low, one would have expected a bit more of a pickup in volumes than the 2.1% reported. Can you give some color on what's driving the volume outcome? Gordon Traill: So we did have some really excellent growth in certain categories. Where it was probably a little bit slower in the year was on the pharmacy side and that was due to later opening of pharmacies, both this year and in the previous year when we couldn't open pharmacies. So although we've worked really well with the Department of Health, we still got over 100 applications for new pharmacies that are waiting to be considered there. So as we get these, we're really seeing a very nice volume boost in the pharmacy side and that also impacts the rest of the store as well as those pharmacies are rolled out because we see a real lift in front shop when we drop in the pharmacies. Sue Hemp: Another question from Kgomotso. With the rollout of the new pharmacy management system LEAP, have there been any teething issues or disruptions to operations? Gordon Traill: LEAP was a very different rollout because we could do it on a store-by-store basis so it was in a very controlled manner. So no, we haven't really seen any impact of the store rollout. Bertina Engelbrecht: I was also going to say one of the things that we learned through the UPD system is that we have invested in project management capability. And secondly, understanding the changed management must be integrated into any UPD particular project as well as training. So I think that's the reason probably, Gordon, even if you look at SEP upgraded UPD September last year, looking at the LEAP program, we're looking even WMS; I think they've all gone a whole lot smoother because we've taken the lessons and we have applied those lessons and we are trying to do better. Sue Hemp: Another question from Kgomotso. Can you comment on the performance of the 247 stores located in low income areas relative to convenience and destination formats? What percentage of these stores include a pharmacy component and have there been any unexpected trends or outliers in performance so far? Gordon Traill: Generally, these stores actually ramp up in terms of sales much quicker and have been performing ahead of the rest of the estate. I think the trends that you see are probably in line with what you would expect. You see a very big component of baby in those stores and because we offer such good guarantees in our electrical and electrical is also a favorite destination in these stores. So while it's better, it’s not dissimilar to the performance that we see in the other stores. Sue Hemp: A question from [indiscernible]. If 55% of population that's within 5 kilometers radius to Clicks, would that mean co-mobilization is possible? Bertina Engelbrecht: The way that we look at it is it's 53.2% to a Clicks pharmacy and remember, we've got 780 pharmacies. So not every store currently has a pharmacy because, as Gordon called out, we still have the gap that we're working to close with the Department of Health in terms of the issue of the pharmacy licenses. Sue Hemp: [indiscernible] says well done on the results. You mentioned that the wholesale market share loss is due to decreased sales to independents. Is this a strategic choice? Bertina Engelbrecht: Well, we've always said the reason we acquired the UPD business in the first instance was for it to be the preferred supply chain partner to Clicks in order to fuel Clicks' growth in pharmacy and that it does very well. And if you look over the period how the Clicks market share within UPD's wholesale channel has just grown and that's good for UPD. The second one is that UPD has got strength in terms of the listed private hospital groups where you see that happening. And of course partly it's because UPD up until probably the first half of the year was a little bit hamstrung by the effects of its systems implementation, but that has now recovered. But what is happening within the private hospital space is there's increased genericization. So that's having an impact there. Now are we super concerned about independence? Not necessarily and the reason for that is because we've always said UPD because of its low margins has to always focus on efficiency and profitability. And what we shouldn't be is a place where people use us just to circle through because they are managing their credit risk. Sue Hemp: Warwick Bam from RMB Morgan Stanley asks what are the challenges of The Body Shop? Bertina Engelbrecht: The challenges of the Body Shop is as always when you've got a change of ownership, first of all, there are some transition challenges there. The second bit is that the new owners, as one could expect, focus on the areas that they wanted to turn around first, which was the Body Shop corporate portfolio in both the U.K. and of course within the U.S. And what that meant is that product development and innovation, which is so critical to any beauty brand, was maybe put later on the agenda. Now that's where we are and we can see the new product ranges coming through. So I mean I think we are cautiously optimistic about what the future holds. Sue Hemp: His second question is about what we think about the medium-term prospects for the small electrical appliances sales growth. I don't know if there's anything more you want to add from what you’ve already said. Bertina Engelbrecht: We didn't have sufficient stock in the first half and the market had an oversupply. Sue Hemp: I have a very complicated list of questions here so I'll take them one by one. Given the disinflationary pressure on comparable store sales; volume growth, OpEx control and further total income margin expansion will likely be required to provide earnings support. With this in mind, could you provide a bit of color on, one, the GLP-1 opportunity for Clicks in SA? Gordon Traill: GLP-1s have been growing very, very fast over the past 24 months and we referenced that at the interim. To bear in mind on the high sales, that’s because we maintain a very low dispensing fee, our income that we generate from those GLP-1 is much lower than any sales growth. The opportunity would be as the originators genericize and that is where there would be likely to be some margin that's possible because generally in the generics, you're earning a higher margin than the originators especially on UPD side in terms of distribution. Sue Hemp: Secondly, is there any expected benefit to Clicks following the recent Supreme Court ruling allowing pharmacists to now administer HIV treatment? Bertina Engelbrecht: What we have done is in that particular case, we did provide commentary. Obviously, our public health agenda is how do you extend access to affordable health care. And you're talking here about a vulnerable segment of the population that we could most certainly support both through our pharmacy program. So we are reviewing very carefully the implications of the decision or the judgment and what, if any, how would we respond to that. But we are supportive broadly of the outcome of the judgment. Sue Hemp: Thirdly, the rollout of PCDT or primary care drug therapy pharmacist model and whether you're seeing any consumer traction here? Bertina Engelbrecht: We're probably seeing more traction in terms of the virtual doctor consultations and most certainly an increase in medical aid co-funded services through the clinics itself. So those are probably the 2 areas we'll continue to focus on. Sue Hemp: Four, are there any OpEx levers you can pull to drive positive operating leverage in existing stores? Gordon Traill: I think some of that is going to come out of the systems investment because that was the reason for investing in LEAP so to free up the time of the pharmacist to consult with patients and hopefully to deal with more patients in the same period of time. There are always opportunities that we've got because we can look at the same that we've done with UPD, rolling out smaller electric vehicles within the retail DC network because we saw that UPD managed to slightly reduce the overall transport cost for those. So we're always on the lookout. The big things that we've done, but we've always been able to eke out further efficiencies. Sue Hemp: And I think we've answered his remaining 3 questions which are on Africa inflation, the benefits of LEAP and the WMS possible disruption. [ Lulama Qongqo ] from Mergence Investment Managers says well done on the performance. On UniCare, how are the store economics of the 24-hour store versus a normal Flexicare with the pharmacy in it? What are the opportunities with this kind of format? Bertina Engelbrecht: Obviously it is about ensuring that we in the mind of the customer, in the mind of doctors and the health care profession are seen as a place to go to. So first, I think understand our position in terms of health care. What UniCare does? UniCare offers a comprehensive suite of services. So that's why we talk about the wound care clinic. In fact the catchment area, if your normal catchment area for a Clicks pharmacy is 5 kilometers, for a UniCare store it's actually 50 kilometers. And so you've got a much broader catchment area from which you draw patients. You now find that many of the specialist doctors actually refer their patients to a UniCare store. Thirdly, there is an opportunity for medical aid. So I think that the specific data point is that something like over 50% of medical aid members who go to an ER 24 service should not have gone there first if they could have gone to a doctor. So the fact that we've got a 24-hour doctor service attached to the 24-hour specialized pharmacy means that we can support medical aid scenes in that regard and of course the script flows into that store. There's other things such as for example diabetes management, the IV infusion clinics and the travel clinics. UniCare for example works a lot with corporates to drive vaccination. So very often corporate people that are traveling or local municipalities, the people that work for example in sanitation, they got to have certain vaccinations. And so it's a very, very different format; high, high, high service touch that we have there. Sue Hemp: Junaid Bray from Laurium Capital says congrats on the results. How much of a concern is Sorbet's spa's expansion into pharmacy? And with regards to your market share gains, who are you gaining market share from? Bertina Engelbrecht: I guess we're thinking about that one for a minute. First, I mean my own view always is competition is good because if we weren't doing a good job as a drug store, then no one would be interested in trying to emulate our success. So that's the first I'd take from that. The second is to always remember you mustn't be arrogant and you mustn't be complacent about your success. So that's the second part. Then we look at the competitors coming in and we understand that it's because we've been able to show them that you can do this successfully and profitably. And I think it's always been aware of what it is that they're doing and how do you respond to it. To really, really, really compete with us, you have to have an integrated pharmaceutical distribution, wholesale and retail pharmacy model supported by an independent group such as Clicks. And I think that is probably our single biggest advantage. Our single biggest advantage is that we've got a completely integrated strategy. And then of course the fact that if you spoke only about -- if you ask the customer maybe a pharmacy, well, we come up first consistently. Someone else comes up second not a grocer. And third comes up [ Clicks ] , which is a brand that we own. So I think that we are very well positioned without being arrogant and without being complacent because we are still nowhere as great as we could be. We are only on the path to greatness though. Sue Hemp: [ Junie from AAP ] asks with 47% of sales now promotional, do you see that as a new normal? And how will you protect margins if that level persists? Gordon Traill: I think if we look at the last few years, we have consistently grown promotional sales as a percentage of our total sales, which we've been happy to do because suppliers have worked with us because they wanted higher volumes and have funded the growth in promotions. It's also supported by the growth in our private label, which is at a higher margin and that's also allowed us to evolve margins over the last few years. I don't see that this is going to change. Sue Hemp: Craig Metherell from Denker Capital. Given the trading margin is near the top of the medium-term target range and you've alluded to not updating your targets at this point, could you provide any further detail around the margin profile going forward? Gordon Traill: I think we will always be aiming to evolve our margin, which is one of the graphs showed. However, we have also got to bear in mind that if you take something like the UniCare format, which is profitable and it's much higher turnover and to a certain extent that could result in a little bit of margin dilution, but not profit. So we've just got to bear that in mind over the next 12 to 18 months. But the rest of the business will be evolving the margin. Sue Hemp: I have some more questions from Kgomotso Mokabane from Sanlam Private Wealth. Can you give some color on how Flexicare is performing and whether it's starting to gain real traction or scale within the business? Also, are there deliberate plans in place to accelerate growth of the offering? Bertina Engelbrecht: We are working with the Discovery team. It would be fair I think to say that we are not satisfied with the performance of Flexicare. And so we are working with our partner, which is Discovery, to say what is it that we have to do to improve the performance of the Flexicare product. Sue Hemp: And I think in the interest of time, the last question from Kgomotso. Can you give some color on the rationale behind strengthening and expanding the group executive team? Where did you identify capability gaps or areas needing reinforcement? Bertina Engelbrecht: It's not so much about identifying gaps. It's about what is it that we have to do to ensure that we are positioned for the future. That's really what it is all about. So first South Africa, there can be no doubt South Africa has got tremendous opportunities for us to expand and it therefore made sense that we focus on South Africa and that is why Bongiwe Ntuli was appointed to specifically focus on South Africa. Then when I look at the Rest of Africa Retail and the complete unperformance of it made complete sense to say now what we do need is an executive that can focus specifically on the Rest of Africa because every market is different and we most certainly want to make sure that we get the offer right. So this is about Southern Africa and the areas in which we already are. If you look at Namibia as an example where we have added 2 stores in the last 12-month period, the forecast for Namibia's GDP growth is fantastic. Why would we not be there when it’s about focus on the Rest of Africa. The third one is around people. Are you seeing enough people in corporate affairs? And it was making sure that we do not neglect that in a retail business the people are the difference and that we needed to have a person at this level. And then finally, it's well, of course UPD. And then the final one is that we've made investments in adjacencies such as Sorbet and in M-Kem, which are all health and beauty. What we now need to do is to ensure that we've got dedicated focus on that as well. So that was the reason for expanding the group executive not gaps, but opportunities to do better. There being no further questions. Thank you so much, everyone, for dialing into our webcast. The questions that you asked were really great. It's made me think and I'm sure Gordon as well and we'll leave it at that. Thank you.
Operator: Welcome to Dometic Q3 Report 2025. Today, I am pleased to present CEO, Juan Vargues; CFO, Stefan Fristedt; and Head of Investor Relations, Tobias Norrby. [Operator Instructions] Now I will hand the conference over to the speakers. Please go ahead. Juan Vargues: Good morning, everybody, and welcome to the presentation of this third quarterly report. I would like to thank you all for participating today. We know that this is a very busy morning for many of you. And with that said, let's move rapidly to the highlights. Starting obviously with still tough market conditions where the most effect is really by consumer confidence still staying at pretty low levels all over the world. We see also retailers, dealers, OEMs being keeping to be still today being very, very careful in building up inventories. At the same time, we also see encouraging signs of stabilization in order intake, and we see few quarters. We see improvements already in Q2, clear improvements as well in Q3. Looking at performance, a decline of 6% organically with Service & Aftermarket showing an improvement in comparison to Q2, moving from minus 12% to minus 4%. Distribution declined by 6%, very much driven by Mobile Cooling Solutions, and we will get back to that. There are some aspects or some reasons for that negative decline. And then OEM also showing negative minus 8% organically, which is a good improvement versus first quarters. and where we see Land Vehicle Americas moving in a positive manner as well as Marine after many quarters being positive in the quarter. Strong EBITDA margins landing at 10.4% versus 8.6% for last year, a combination of one side of the margin improvements led by cost reductions. As you all know, we are running a restructuring program that has been kicking in since day 1, and we see very positive effects out of that at the same time as we are working in many different areas. And at the same time, we also see that all segments with exception of Mobile Cooling are improving our margins in comparison to the last quarters as well. And again, we will comment specifically on Mobile Cooling Solutions. And strong cash flow, free cash flow, EUR 527 million and a leverage landing on 3.2% (sic) [ 3.2x ] in comparison to 3% -- to 3x last year. Looking in more detail to the numbers, almost SEK 4.9 billion in revenues with 6% organic decline -- 6% decline driven by FX and then 1% decline led by the portfolio changes that we have been doing, leaving some of the businesses that we have been into before. EBITA, just a little bit over SEK 0.5 billion over an EBITA margin of 10.4%. Looking at adjusted EPS, we ended up at SEK 0.64 and again, a free cash flow of SEK 527 million. And leverage, I already commented, landed at 3.2. Looking at the year-to-date numbers, almost SEK 17 billion in revenues with a decline of 9% organically, 5% led by FX and the same 1% led by portfolio changes. And EBITA just below SEK 2 billion. And good to see, obviously, that we are getting closer as well on the EBITA margin where we landed exactly the same level as 1 year. So we have seen a recovery in recent months in comparison to the first half of the year. Adjusted EPS, SEK 2.90 and a strong free cash flow of SEK 1.4 billion. Looking a little bit deeper into the sales evolution over time, Land Vehicles ended up at minus 9%, which is a clear improvement versus Q2 with Americas showing 3% negative growth, which is a substantial improvement in comparison to the situation we saw in Q2. EMEA showing a degradation as well as APAC in comparison to last quarter, very much led still today by the OEM side. Marine positive, was great to see after many quarters and also showing a positive order intake, which is positive for us, obviously, Mobile Cooling, 8% and then Global Ventures, minus 6%. When looking at the different channels, no major changes in reality, perhaps to point out that the OEM side is for the first time in many, many, many years below 40%, while both Distribution and Service & Aftermarket are moving 100 basis points upwards. And just as a reminder, looking at the RV OEM situation, we are just now -- RV OEM stands for 18% of total business in comparison to the 49% in 2017. So obviously, we are a less sensitive company to the cyclicality that we have seen on the OEM side. Looking a little bit more in depth into the different channels. We see a clear improvement in Service & Aftermarket. Still, we see that -- we see volatility month-to-month, but again, moving in the right direction. Distribution, very much affected by Mobile Cooling Solutions. And the main reason for that is really inefficiency in Katy, Texas since we had to employ above 200 new employees and by that training, a lot of training cost us inefficiencies, we will see this negative effect in Q3. We will also see that in Q4 and then it's going to be gone. And then -- so we will come back to Mobile Cooling, but we have a double effect on one side that had a negative impact on the growth and that had also a negative impact on the margins. Looking at OEM, we see a clear path moving forward, different segments. So we see LVA turning positive in the quarter, and this is the second quarter in a row that OEM in LVA has been positive, and we also see Marine turning positive, while we see still -- LVE and LVC being negative. Positive to see, obviously, when looking at our results, strong margin recovery in comparison to last year. We see strong gross margins, almost 30% compared to 27.3% last year, very much driven by cost reductions. Again, on one side, we have restructuring program, but we also have contingencies driven in all segments simply because we still see negative growth coming in. And we also have a positive impact on the sales mix. When looking at operating expenses, another area where we are working very, very hard. We see a decline of 6% in constant currencies despite the fact that we continue to invest in a number of areas. We see product development, one of the areas where we are investing the most, but also building up our sales organizations in a number of segments where we see a stronger growth moving forward. We see, again, margin improvements in all the segments with the exception of Mobile Cooling in the quarter. When looking at tariffs, not much new here to comment in comparison to last quarter. As you know, we have good protection in the U.S., having 9 of 12 factories that we have in North America based in the U.S. In the short term, obviously, and this is still carrying a lot of uncertainties moving forward. We -- it's very much about passing prices to the market, something that we have done in a pretty good way, and we have compensated for everything, but for a few customers in the Mobile Cooling Solution area. And that's really the impact that we see negative in the quarter of SEK 35 million that will be compensated by the pricing. We implemented prices already twice in all of the areas, by the way. But in the specific case of Mobile Cooling, we had a couple of customers where we prolong the time for kicking in with the new prices. This is going to have also a negative effect in Q4. And from Q1, We will not see any more negative effects. Looking at the different segments, starting with Land Vehicles. Total organic growth, negative organic growth of 9% with soft distribution on sales and aftermarket, while we see as well a double-digit decline in OEM in both EMEA and APAC, but positive growth in Americas. We see also a pretty strong recovery of margins for the entire segment, 6.3% versus 3.7% with clear profitability improvements in EMEA, a decline -- a slight decline in APAC, but still showing very robust margins. And then we see as well reduced losses in Americas. And we will continue, as you know, to drive the recovery on the Americas situation. And as we informed a couple of times during the last quarters, the most of the restructuring program that we are driving, it will have an impact on LVA and LVE. Moving over to Marine. Positive Q3 quarter with organic growth of 1%. We see OEM coming back to growth. We still see a single-digit decline in Service & Aftermarket, but we also see a positive order intake that should help us as well in coming quarters. EBITA recovered as well. We are again over 20% in EBITA margin, 20.8%. And as a consequence of the mix and also the cost reductions that we are driving in the segments. Then Mobile Cooling Solutions, a double hit, I would say. On one side, we didn't manage to see growth due to the labor constraints that we had in the factory that are costing us in efficiency. At the same time, we also saw a negative effect on the margins coming from both the tariffs. Again, that will be gone in Q1 next year at the same time as we have the labor ineffeciencies. And we also have negative wage impact simply. The Mobile Cooling business is highly seasonal. Historically, we always had a couple of hundred of non-immigrant foreigners working on our factories to keep up with the capacity needs. And the U.S. administration did some changes on forcing us to increase the salaries. Again, we are compensating on prices, but we have a time lag. And those negative effects will be gone from Q1, as I commented before. Moving over to Global Ventures, where we see also a negative growth of 6%, with growth in Other Global Verticals, very positive in some of the areas and then still decline in Mobile Power Solutions driven by the soft RV industry. Good margin improvements, 11.5% versus 9.2%, very much driven by Other Global Verticals. Happy to see as well our progress in the sustainability area with injuries well below target, 1.5. We see as well that we are on target in regards to female managers, and we'll keep working hard in that area moving forward as well. We see renewable energy also quite a bit already now above the target for the year. We keep assessing our suppliers, our vendors, and we ended up at 60%, slightly below the target for the year. And of course, we will reach the target at the end of December. and we see also progress in innovation where we landed at 22%, a couple of percentage points above last year. We are talking a lot about sales decline. We are talking a lot about cost reductions, but we keep investing in the product area and product innovation. This is for the first time. It's the first time that as the Dometic brand, we have soft coolers. It's a totally new area for the Dometic brand. We have soft coolers under the Igloo brand, but we're also launching a new series of soft coolers under the Dometic brand for the first time and we have great expectations. Also from a branding perspective to help us to reinforce the Dometic brand among consumers. Then if we move over into the gyro. We have very, very positive reception by customers. We have been introducing the products in a number of different shows around the world. We see order intake kicking in, in many different areas. I'm happy with the results. And on top of that, we are getting a lot of awards, which is always helping us when visiting new customers offering a totally new product area for us as well. And again, we are getting awards, a lot of awards, not just for the gyro in the Marine industry, but also for many other products that we have been launching in the last 12 months. So positive to see that our investments are paying off both in terms of awards and order intake. And then on the restructuring program that we initiated 1 year ago, as you all know, will generate savings of SEK 750 million when it is completed at the end of 2026. We closed down so far 1 factory and 3 distribution centers affecting 250 people altogether. And we are running just now at annual savings of SEK 250 million as the running rates. We had a cash out in the quarter of SEK 35 million and year-to-date a little bit above SEK 100 million. We keep continuing on our portfolio, and we discontinue one of the product areas that we had before. This is leading to a negative organic growth of 1% and we keep investing on -- sorry, keep spending time on the divestments. Still, we have not seen the finalization of any of them, but we keep working and are convinced that we will see the results moving forward. And with that said, Stefan, let's go a little bit deeper into the results. Stefan Fristedt: Okay. Thank you, Juan. Starting off by summarizing the P&L for the third quarter. we are very satisfied how the gross profit margin continues to develop, 29.6% versus 27.3% (sic) [ 27.4% ] last year. And the increase is driven by sales mix. We also have the restructuring program and other efficiency measures that are taking effect. Then we also need to mention here that Juan has mentioned a couple of times of the effects, especially in Mobile Cooling, where we have a time lag between the tariff cost as well as labor cost increases versus the mitigating price increases, and that has had a negative effect in the quarter of approximately 0.7%. And we expect that to continue in Q4, as was mentioned before. But from Q1 next year, we expect that the price increases are done to fully mitigate this development. Moving over to operating expenses. We have reduced operating expenses in constant FX due to the decline in net sales, it has increased somewhat in percentage of net sales. We keep on investing in strategic growth areas, as we have mentioned, and you have seen some of the results of that in terms of product development, Mobile Cooling and Marine are definitely 2 areas where we keep on investing deliberately. Other operating income and expenses, SEK 18 million, a small number in the quarter, and it's mainly related to a part of the FX effect. Net financial expenses is up a little bit in the quarter. However, the net interest on bank loans and financial income is down SEK 197 million versus SEK 214 million, and then we have a negative FX revaluation effects and other items leading towards that. On tax, we have an effective tax rate of 32%, which is equivalent to SEK 54 million in tax in the quarter. Moving over to the summary of our cash flow. Operating cash flow-wise, we see that we are continuing to drive efficiencies in working capital, coming back to that in a second. Then we have cash out related to restructuring of SEK 35 million in the quarter. And then as you can see, we are carefully managing our capital expenditure and where we spend. Free cash flow before M&A, as we mentioned before, paid and received interest is spending down and then we have been paying lower tax. Then cash flow for the period has also been impacted by that we did a bond issue of EUR 300 million in Q3. Coming back to that. At the same time, we also did a tender offer of EUR 100 million, so -- which was then a partial repayment of the bond that is falling due in May 2026. And then I would also like to underline that we are going to see further debt repayments in Q4 and in 2026. Moving over to more of how has the free cash flow developed over time. And as you can see, I mean, SEK 527 million. It's not on the same level as last year, which I did not expect either, but still solid level, I must say. And then you can also compare it to the other periods before that. So satisfied with the level of free cash flow in the quarter. Moving over to the working capital components. You can see that working capital over the last 12 months is starting to come down 26% compared to 30% in relation to net sales. And if we look on the quarter stand-alone, it was down to 21%. So we are moving in the direction that we have been talking about, where the target is to reach around 20% of net sales. And you can see on the inventory balance, we are SEK 4.6 billion now compared to SEK 6.3 billion 1 year ago, and the number of days is down to 124 versus 139. So things are moving in the direction that we have been planning for and expecting. As you can see, accounts payable level is staying stable as well as accounts receivables. Then moving over to CapEx and research and development. We are prioritizing among our CapEx project, and we have been spending a little bit less than SEK 100 million in the quarter. It's 2% of net sales versus 1.7% in the last 12 months, that's equal to 1.3%. If we look on R&D, as I said, we continue to keep up that level very deliberately because we believe in that this is important for the future. And the R&D expense to net sales is now 3% compared to 2.7% 1 year ago and 2.8% last 12 months. And as I mentioned before, it's a strategic important growth areas for us, example being Mobile Cooling and Marine. Next is going to talk about the debt maturity. As I mentioned, we did a EUR 300 million bond on a 5-year maturity with a fixed rate of 5% in the quarter. And the proceeds are going to be used to refinance our debt portfolio. We already did EUR 100 million in connection with this transaction by doing a tender offer on the 2026 bond. So there is EUR 200 million left on that one. And then as I mentioned before, you will see further debt repayments here in Q4 as well as in 2026. We have a USD loan that matures in '28, but it can be prolonged 1 year to 2029. And the average maturity is 2.8 years, which is obviously a longer average maturity compared to last year. Average interest rate is 4.8%, and we still have an undrawn revolving credit facility of EUR 300 million maturing in 2028. So moving over to our leverage. Maybe we can -- I mean, leverage went down 0.1 versus Q2 and which is obviously positive. And you can see in the table down below that it is mainly our cash flow development that has contributed with that development. We are obviously having a high focus across the organization on protecting margin and reducing working capital, as you know. And we just keep on repeating that we are committed on achieving our leverage target of 2.5. That is important to us. and it's -- but it is difficult to give an exact timing of when we will achieve it. So with that one, I hand back to you to give a summary of the quarter. Juan Vargues: Thank you, Stefan. So I mean, in tough times like we are going through and we have been going through now for 4 years, we have to control what we can control. And from that perspective, I feel good that we are improving our margins. We had a tough first half. We saw improvements at the end of the quarter. We have seen more improvements in Q3. And our intention is obviously to keep showing improvements moving forward as well. We see -- even if it's still tough and difficult to predict, we see a market stabilization. I'm happy to see the order intake improving and happy to see the backlog becoming stronger for every month. I have been spending a lot of time on the marketplace. I have been visiting a lot of shows. I have been meeting a lot of customers. And again, it's still tough out there, but the sentiment in the value chain is slightly better than it was 3 months ago and much better than it was half a year ago. So that's kind of sending some positive signals and some faith that we are getting closer and closer to positive territory. I'm happy to see cash flow. We are working extremely hard on our working capital on driving down inventories, but not just on inventories. I think we do an excellent job on receivables and we do an excellent job in payables, trying obviously to improve as much as we can our capacity of releasing cash and improving our leverage. Tariffs situation, lots of uncertainties, of course, but we are dealing with that in a good way. We had a negative effect in the quarter. But again, in comparison to what we expected on the 4th of April, I believe that the organization has done a terrific job landing the situation with our customers and our customers are also keeping faith in what we are doing every single day. Moving forward, difficult to predict, as I said, but the starting point in Q4 from a top line perspective is a little bit better than we had 3 months ago. And hopefully, we will see that even in the future. And then from a strategic perspective, we keep investing despite all the cost reductions that we are doing in a number of areas. There are 2 areas that where we are not cutting. The other way around, we keep investing in product development, innovation, and we keep investing in building up our sales organizations. And of course, we need to finance that, and that's why we are driving a restructuring program, which is clearly paying off. And with that said, I would like to open for a Q&A session. Please. Operator: [Operator Instructions] The next question comes from Agnieszka Vilela from Nordea. Agnieszka Vilela: I will ask them one by one. So on growth, Juan, you sound cautiously optimistic about the OEM business now in Marine and in RV in the U.S. But when I look at some of the peers commenting on the market development such as Malibu Boats or Winnebago, they do point to still flat wholesale volumes in 2026 in RVs and even declining both retail and wholesale in Marine. So can you give us an explanation why you are relatively a bit more optimistic on that? Juan Vargues: I mean everything is relatively in line, right? I mean we are coming from a situation where we have been kind of shrinking 11%, 12% quarter after quarter after quarter. For the first time, we see order intake moving upwards. We see the fact that we delivered 1% organic growth, and we have a different backlog situation that we have seen. I fully agree with you that we are not going to fly. I don't see the market turning back anytime soon, but I see an improvement. I see obviously that we are launching new products. I see that we are taking orders. I still believe that we might be seeing as well what we saw on the American RV industry, growth for a number of quarters and then slowing down for a couple of quarters, stabilizing the market. So that's the expectation. I don't see that we are dropping 11%, 12% again from where we are. So that's on the Marine side, Agnieszka. On the other side, Americas, I think, it's pretty stable, just now. I think that, again, retail is still coming down slightly at the same time as manufacturing is adapting again, as you have seen in the last couple of months and expectation is that it will be balanced between retail and wholesale in Q -- sorry, in 2025 and expectation for 2026 is a growth of some 3% versus 2025. Agnieszka Vilela: Perfect. And then the second question is on EMEA and profitability in the business. When I look what we expected in Q2, you beat our expectations quite significantly. Now in Q3, you missed a bit. So just if you could give us some factors that are affecting profitability right now in EMEA. What are the tailwinds, maybe savings and less logistics costs? And what are the negative impacts in EMEA right now for you? Juan Vargues: So you have a couple of questions. I mean, first of all, we had a better mix in Q2 than we have in Q3. So after OEM, the balance of the aftermarket and OEM was different. Then we have a second issue. We -- as you know, in EMEA, we have also an important business for us, which is the CPV, the Commercial Passenger Vehicles. We have the situation of one of the main customers we have, JLR, did suffer a cyber attack. In that business, we have decent margins and that had a negative impact, both from a sales perspective, but also from a margin perspective. So those are the 2 main differences that we have in EMEA. Stefan Fristedt: So on JLR, I mean, their factories have been closed for a big part of the quarter. Agnieszka Vilela: Okay. Can you quantify the impact on your EBITA in the quarter? Juan Vargues: No, not on EBITA, but it had quite an impact on the EMEA numbers specifically. Stefan Fristedt: On sales. Juan Vargues: On the sales, absolutely. Stefan Fristedt: I mean, CPV is generally a more profitable -- or yes, it's an over-average profitable business. Operator: The next question comes from Daniel Schmidt from Danske. Daniel Schmidt: A couple of questions. And then maybe turning back to Marine. I appreciate that it's quite difficult to exactly know if this is a longer turnaround or not. But I think given that sort of retail is not super strong, but it's also a function of the fact, I guess, that it's been quite hefty underproduction in Marine over the past 4, 5 quarters. So I guess there's some catch-up to be done there. Is that your feeling as well? Juan Vargues: Yes, it is. But at the same time, I need to comment as well, Daniel, that we might be seeing what we saw on the RV side that we had a couple of positive quarters and then might slow down before getting stability. So again, I do believe that we need just now to be super agile, right, on the way up and the way down as we have been on the RV side. I mean, the good news, when I perceive still, Daniel, I mean, again, you can take it from a negative perspective or a positive perspective. The positive perspective is obviously that I don't see the market coming down 12% again, that even the decline in retail is becoming smaller than what we have seen. At the same time, as you are totally right, production has been very, very low in comparison to retail. So there is a catch-up. So my feeling is that some manufacturers, they have started to produce again. But then, of course, if retail doesn't come in Q2 when the high season starts in the U.S. specifically, then we might have a slowdown again. And then you have another factor, which I would like to comment because, obviously, a lot of the questions that we get are always about the U.S. market simply because it's 75% of the market, the world market. But we have positive growth in EMEA that was pretty nice in the quarter, and we had positive growth as well in APAC. So as a matter of fact, for us, the growth in Marine in the quarter was not negative, but we want to fly in Q1. And just again, 75% of the business is in the U.S. So I was telling you that the rest of the world, we performed better. Daniel Schmidt: Okay. And could you say something about the pace? This is very detailed and sorry for that. But given that you are shifting from decline to growth now in Marine after 8 quarters in a row of decline, could you say anything about the pace you saw from July until now basically when it comes to Marine on a year-over-year basis in order intake or in sales or anything? Juan Vargues: It has been pretty stable in sales. We have seen improvements on the order intake. So our intake was positive -- the order intake was more positive than sales in the quarter. Stefan Fristedt: But keep in mind, Dan, that the part of that order intake is obviously for delivery also next year. So not everything is going to be delivered now. Juan Vargues: In the coming weeks. Stefan Fristedt: In the coming weeks or in the coming quarter. Daniel Schmidt: Yes. But even though there's no sort of big meaningful improvement in top line in Q3, it is back to growth, but the margin is up quite a bit, and of course, it comes back to the savings. But is there anything -- has there any impact at all when it comes to the gyro that you've talked about? Is that selling. Has that been delivered in Q3? Is that having an impact? Is that going to have a bigger impact in the coming quarters? Juan Vargues: We are delivering the gyro. It doesn't have any substantial impact on the margins. On the contrary, you have, as I commented, the geographical mix, which is benefiting us just now. Daniel Schmidt: Okay. And then when we -- as you mentioned, if you look at OEM on Americas on the LVE side, it is the second quarter in a row that you are performing better than the market. Is that the function, you think, of the work that you did last year in trying to get back to on certain customers that have been maybe discarding you a little bit and you're back to the model year '25 and '26 now. Is that what we're seeing because the market was -- it looks to be a little bit down on shipments so far in Q3 and the same was -- I think it was flat in Q2, the market and you were up a couple of percent. Is that what we're seeing? Juan Vargues: We have a lot of activities ongoing. We have -- so that's what I can tell you is that we are working very, very close to our customers just now. We're spending a lot of time. I am visiting quite a few of the customers myself, getting the feeling. We see positive -- we get positive comments in the recent shows as well, both in the U.S. as in Europe. So I'm optimistic. I mean we are not there, obviously. As you know, we shrunk more than the market for a couple of years. And of course, our intention is to recover part of what we lost. Daniel Schmidt: Yes. And then on EMEA, if you look into the last quarter of this year, I think there was quite substantial production shutdowns, especially from one of the bigger players. Do you see the same development happening in this year? Or will there be less shutdowns, you think? Juan Vargues: I think that we will see improvements versus last year simply because last year was brutal, right? I mean Q4 last year was very, very, very healthy. So I don't expect -- I mean, as you know, this industry is always kind of correcting by running shortened weeks, still to be seen what's going to happen in connection to Christmas, but I'm not expecting the same negative effect that we saw in Q4 last year. You're reading and you are talking to more or less the same people as I'm talking. I mean the positive is more optimistic today than we had 1 year ago. I mean 1 year ago is really when all these massive shutdowns took place, right? Now we have seen very low production numbers for 9 months basically. Stefan Fristedt: And registrations are bit higher than production. Juan Vargues: Absolutely. I mean registrations, if you look at registrations, registrations after 9 months are down to minus 4% in Germany, minus 2% for Europe, right? So of course, that after 1 year, you will get more and more into balance. Daniel Schmidt: Yes. And then sorry for missing the very early part of this call, but you did refer to labor irregularities impacting Mobile Cooling in the quarter, and you said something about needing to hire 200 people. Is that coming back to immigration policy in the U.S.? Is that -- was that the reason? And what was the impact in terms of impact on profitability? And is that continuing into Q4? Is that ending now? Juan Vargues: It's Q3 and Q4 and then we are going to be done. Stefan Fristedt: Yes. So I mentioned that the impact for Q3 was approximately 0.7% on the profit margin as a whole. And then it will continue into Q4 somewhere 1% to 1.5% units on the margin. And then from Q1, we expect these effects to be fully compensated by price increases. So it's... Daniel Schmidt: And that impact, is that both the tariffs and the labor irregularities combined? Stefan Fristedt: Yes. It is mainly tariffs and the labor efficiency/labor cost. There is also some currency effects in there as well. But the majority is related to the 2 first ones. Daniel Schmidt: Okay. And also, sorry for dwelling here. But Juan, you mentioned at the end of your remarks, I think that the starting point on -- from a top line perspective is a little bit better. Was that referring to the start of Q4 compared to the start of Q3? Or what was that comment relating to? Juan Vargues: Yes. So we have seen order intake improving quarter-by-quarter, right, since Q4 last year. So we had a pretty low Q4. Backlog situation was pretty low at the end of Q4 last year. Then we saw a further deterioration in Q1. We saw a clear improvement in Q2, and we saw an additional improvement in Q3. So our backlog situation at the end of the quarter is much better on the backlog situation than we have had at the beginning of Q3, which is positive. Operator: The next question comes from Gustav Hageus from SEB. Gustav Sandström: If I can ask a question on the organic growth in the quarter down with 6%? You mentioned customers trading down in aftermarket. You mentioned some price increases, but more to come. So it would be very helpful if you could try to sort out the components in organic decline here in respect to price mix and volume and what you expect in terms of prices now, if you can quantify that a bit with your new price hikes going into 2026, that would be helpful. Juan Vargues: I mean the vast majority of the prices is going to take place from a Service & Aftermarket perspective. And then the other one is really on Mobile Cooling, what we have seen. We compensated for the tariffs in both Marine and LVA. We almost compensated for the tariffs in Mobile Cooling. But again, we had a price time lag for a couple of customers, and they are major customers for us. So that's where we have the difference. And then, of course, we are doing minor price adjustments depending on the market, depending on the product and depending obviously on the competitive situation. So I would not expect massive price increases moving forward as far as the market looks as it does. I think we need to be careful just now, and we also need to find the right balance, obviously, between keep improving our margins, but also starting to recover some volume now when the market seems to move into a little bit easier situation. Gustav Sandström: Sure. But the negative organic growth in the quarter, is it fair to assume that the volume growth was bigger than that number? So we had... Juan Vargues: No, but I wouldn't overestimate how much bigger. I think we are a little bit bigger, not much. Gustav Sandström: Do you think single-digit volume decline in the quarter. Is that a fair assumption? Juan Vargues: Yes, it is. Gustav Sandström: Okay. Okay. And you mentioned the order intake improving sequentially. Do you see any trends in terms of mix, what type of products that are sold. And in terms of price versus competitors, if you can have a comment on that given that you have quite a lot of exposure from internal production versus some peers? Juan Vargues: Yes. So we see -- let me say, there were 2 questions. The first 1 was -- the second one is competition. The first 1 was? Gustav Sandström: Sort of did you see any improving mix sequentially? Juan Vargues: Yes. So we have seen very clear improvements on the OEM side. We have seen very clear improvements on the distribution side. And then on the contrary, Service & Aftermarket has been a [ second ] month. Gustav Sandström: And that comment relates to mix, so gradually improving mix in those 2 first? What was that comment on? Juan Vargues: But again, if we think about the 3 channels, we have seen very clear improvements on the Marine side, right, is on the OEM altogether, but especially on the Marine side and LVE, we still see that LVE and LVC are tough still today from an OEM perspective. But again, altogether, the OEM channel is improving quite a bit. We see the distribution channel also improving. And there, we have, as you know, a number of businesses where the biggest one is Mobile Cooling. So as I said, Mobile Cooling order intake is improving quite a bit as well. and then Service & Aftermarket has been pretty flattish in comparison to where we are coming from. So still a negative order intake, less negative, but still negative. Gustav Sandström: Okay. And in terms of pricing in U.S. versus some competitors, I guess, in particular, in Mobile Cooling and so forth, are you following also nondomestic producers in terms of price? Or are you -- yes. Juan Vargues: No, I think the difference -- the main difference is that we were pretty early. I feel some of our competitors were pretty late, but we see that all of them are increasing prices step by step. So I feel the difference, obviously, that most probably they built up a lot of inventories just in case as soon as Mr. Trump was elected, while we implemented the prices in connection to the tariff implementation. Gustav Sandström: Okay. And then final one for me, I guess it's a bit speculative, but on the net debt-to-EBITDA gearing target, what you chances are that you'll come below 3 as we end the year? Stefan Fristedt: I think we are now moving into the part of the year where cash flow is a little bit less strong, right? Q2 and Q3 is the 2 strongest cash flow quarters that we have. So it's -- I would probably say that 3 years would be nice, but I would still feel that I think we are still going to end above. Operator: The next question comes from Fredrik Ivarsson from ABG. Fredrik Ivarsson: Sorry, I got in a bit late, so excuse me if you already discussed this, but I'll try. First one on Mobile Cooling. We've seen sales declining, I guess, for 3 years now, and we've been talking about inventory reductions among retailers for quite some time now. Do you guys have a view on the inventory levels at the moment where you're at, especially Igloo in the U.S.? Juan Vargues: Inventories are not bad on the channel, what we can see, right? I mean then, of course, you have -- we have seen 2 months pretty nice inventories coming down and then you get major orders and then all of a sudden, the sell-through is a little bit worse. So I mean, something that we didn't comment on the report is that the last month, meaning September was pretty rainy in the U.S. And for the Mobile Cooling business, that has a lot of impact. So we cannot say that we perceive inventory levels in the Mobile Cooling channel being high just now. They are gone. I think people on the contrary are very, very, very careful in not building unnecessary inventories. So everybody is placing the orders in the very last minute. And that's a change from where we are coming from pre-pandemic, where people were building up inventories in advance. Now people are -- I don't know if we can talk about Just In Time manufacturing, but retailers are as much Just In Time as they can and putting on us being ready. Fredrik Ivarsson: Very clear. And then staying on Mobile Cooling, it seems to me like the margin is almost set to expand in 2025 despite all the issues you mentioned and then obviously, sales being down 20% organic over the last 3 years. So my question is, where do you see the margin in this business under more, say, normal circumstances? Juan Vargues: I mean we commented from the beginning, right, that we expect Mobile Cooling to be 15-plus EBITA. That's where we -- and that's still below, so to say, what the Dometic brand is coming from, right? But we believe that lifting from where we acquired the company to 15% is a pretty nice achievement. If you look at what we have been delivering during the last year, we have seen an improvement year-by-year, and that's our expectation. Stefan Fristedt: And I mean if you look on the product launches that we have been showing here over the last couple of quarters in Mobile Cooling, I mean, that is products that is certainly going to contribute to that development. Juan Vargues: So I mean this is one of the areas, clearly, where we are investing a lot in product development. We are investing in building up our sales organizations. And despite all the investments that we have, still, we see margin improvements. Now we have a couple of one-offs this quarter, and then we had also the production issues in Q2, right? But apart from that, we see an underlying improvement year-by-year, a clear improvement year-year. Fredrik Ivarsson: Yes. Yes, I appreciate that. And a follow-up just on the one-off you mentioned just now. Juan, did I hear you right? Do you guide for 1% to 1.5% on the group margin impact in Q4? Juan Vargues: Yes, based on both the tariffs and the wages and the labor efficiencies. Fredrik Ivarsson: Okay. So like SEK 40 million to SEK 60 million. Juan Vargues: It will be gone again from Q1. Fredrik Ivarsson: Yes, absolutely. Good. And maybe last one from my side. I saw the Igloo lawsuit trial moved to March from September. Do you have anything to comment on that? Juan Vargues: No. I mean from our side, the sooner, the better since we feel very, very confident that we are going to win the case. So there is not -- we have not provoked that delay. It's not us trying to delay. It's the other way around. We would like to get it done. the discussion beyond us. Operator: The next question comes from Rizk Maidi from Jefferies. Rizk Maidi: Sorry if this has been tackled. So I'll start with tariffs and Section 232 extension in August. Just wondering if this drives you to -- if there's any impact direct or more importantly, indirectly on the business, and I'll start there. Stefan Fristedt: I think that we will have to see where this ends in the bidder end. But I mean, with the price increases and other measures we have taken, we believe that we have -- when the time lag has closed, we believe that we have taken the measures to compensate for the increased tariff cost. Rizk Maidi: Okay. And then secondly, on Service and Aftermarket, I mean, the decline now, as you said, Juan, was less than before. Historically, you talked about this bullwhip effect. Maybe if you could just talk about sort of sell-in versus sell-out here. This market has historically been quite resilient. This is exceptional. Do you actually expect to recoup those big, call it, destocking years sort of -- does that need to reverse at some point in your view? Or that's basically you see it as a post-COVID buildup in inventories that would never go back to? Juan Vargues: No, I think that we are human beings. I think that's going to come back. But in order to get into that point, we need to get consumer confidence. We need to see the traffic and the foot traffic into the stores, the foot traffic, both physically and digitally to increase for the dealers to there to build up more inventories that they are doing today. Just now it's in the very last minute. But again, I'm fully convinced. Remember, if you go back 5 years ago, we -- the flight industry would never come back, right? The carriers would never recover, and you know where they are today, right? I think it's time. Rizk Maidi: Understood. And then perhaps last one on my side, just perhaps an update on divestments of noncore assets. How much has been achieved? How much is left? I don't know if you can communicate on this? And how do you see the appetite from potential buyers at the moment and the valuations you're able to get? Juan Vargues: So you have 2 different areas. One is product areas that we are leaving that we are discontinuing, low margins, we don't see that we can get into a #1, #2 position globally, and then we don't want to be part of that. As you know, we have already left 1% and is more to come. We will see changes over time. And then we have the divestments where we are working extremely hard. We are in discussions with a number of partners. But obviously, we still have a gap between the sell side and the buy side. And as we said, I mean, we want to create value. We don't want to give things away. And if we need to wait until the market looks in a better way, then we will do it. But again, all those discussions keep on going. Operator: The next question comes from Johan Eliason from SB1 Markets. Johan Eliason: Juan and Stefan, just a few questions here at the end, maybe on the cash flow again, you already alluded to where you sort of think net debt will end up to. But are there any particular issues we need to bear in mind when modeling the final quarter cash flow? Or are there any sort of higher charges from the restructuring programs or tariffs being paid out, et cetera, that could potentially impact the fourth quarter cash flow? I guess, otherwise, the pattern this year has been a decent cash flow, but a bit weaker than last year. And I thought that would be the case for Q4, but I just wanted to see if there's anything to bear in mind there. Stefan Fristedt: I think that you should look on the seasonal pattern, right, of our cash flow. That's number one. Then we were talking about that we had SEK 35 million in payout in Q3. I think you should expect that to be a little bit higher in Q4. And that will then, of course, also give you an indication that the cash out has been a little bit lower for 2025 compared to what we did believe in the beginning. But that's more related to the timing of certain activities. So that will be a little bit more that is flowing over to 2026. So -- but I think you should expect the payouts of that to be a little bit higher. So I think that's what I should comment. I mean it's like I've said, I mean, '23 was the best year ever. '24 was the second best year. And then I think 2025 is coming thereafter. So it's probably a good way of thinking about it. Johan Eliason: Good. And then you are leaving some areas where you see are not competitive. You have seen some competitive pressure. I think you talked about the big fridges over in the U.S. previously. Are you seeing any changes in the competitive picture now after tariffs and all what you have out there? Juan Vargues: Not much that far. I mean what we have seen is that we were pretty early increasing prices on the tariffs. Most of our competitors in the U.S. were slower, I guess, that they built up inventories in connection with the election. And -- but we have seen that all of them are increasing prices step by step. So I do believe that we need to wait a little bit longer to see what happens. I think that a lot of people have been living on inventories. Unknown Executive: And we have one question from the webcast audience. Could you please give some color on the inventory situation in the different distribution channels? Juan Vargues: We commented before. We see inventories in both APAC and EMEA coming down stepwise simply because of the difference between retail and manufacturing in the last 12 months. We see the U.S. LVE side. So the RV side in the U.S. is in balance, total in balance. We see Marine still unbalanced. In the marine side, 70% of dealers, American dealers still feel that they are carrying too high inventories. We are talking about distribution, we don't see any inventory buildup. I think that what we see there is that dealers and retailers are carrying as little as they possibly can. They rather lose business than they carry inventories. So everything is in the last minutes. And then on the Service & Aftermarket, it's exactly the same. So wholesalers nowadays, bigger distributors are not carrying inventories. They want manufacturers like us to carry the inventories. And dealers and smaller dealers, they are gone. So I believe we got a question before. Do you think that this kind -- the typical inventory buildups are going to come back? I'm fully convinced that they will. But in order for that to happen, we also need to see consumers starting to spend more money. I think we have been suffering the entire industry or industries. It's not just this industry. I mean we see that everything having to do with consumers with the exception of food is behaving in a very similar way. Unknown Executive: And we have one question remaining in the queue, I believe. Operator: The next question comes from Daniel Schmidt from Danske. Daniel Schmidt: Yes. Just 2 short follow-ups. On the savings program, it sounds like you're quite happy with the progress so far and a run rate of SEK 250 million by the end of Q3. How should we view that going into '26? Because it's quite meaningful steps that are supposed to be taken in terms of savings in '26. I think you've said run rate SEK 750 million as we leave 2026. And of course, it comes back to the actions that you need to take, how are they sort of scheduled for '26? Or how should we view that? Is that back-end loaded or even through -- evenly distributed through the year or... Stefan Fristedt: I would probably say that it's a little bit more back-end loaded because you're obviously going to get the full effect is coming -- going to come gradually after the implementation. But we have some bigger projects, right, that is going to take until like mid next year before they get fully implemented. But on the other hand, we also have some other activities that is going to be completed now in Q4. So -- but I would probably say it a little bit twisted towards the second half. But I mean, we still confirm SEK 300 million run rate saving at the end of this year and SEK 750 million by the end of next year. Daniel Schmidt: Yes. Okay. And then just maybe coming back again to the CPV incident in EMEA, you got the question and you said that it had an impact on sales, sounded meaningful. Would you dare to estimate how much that was in top line impact for you guys? Juan Vargues: It was -- well, in terms of krona, we are doing about SEK 30 billion for EMEA. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Juan Vargues: Thank you very much to all of you for your attention. As we commented at the beginning, we know that it's a very busy day for many of you. We will keep working hard to protect our margins, but also to keep investing in the areas where we see the growth moving forward. And we are fully convinced that we are going to get down our leverage to the target. We cannot say when, but that's our firm intention, and we will get there. So thank you very much for your attention, and have a great day, all of you. Thank you. Stefan Fristedt: Thank you.
Operator: Good morning. Thank you for standing by, and welcome to the Sodexo Fiscal Year 2025 Results Call. If you -- I advise you that this conference is being recorded today, Thursday, October 23, 2025. I would like to hand the conference over to the Sodexo team. Please go ahead. Juliette Klein: Good morning, everyone. Welcome to our fiscal 2025 results call. I'm here with Sophie Bellon and Sebastien De Tramasure. They'll go through the presentation and then take your questions. [Operator Instructions] The slides and the press release are available on sodexo.com, and you'll be able to access this webcast on our website for the next 12 months. Please get back to the IR team if you have any further questions after the call. I remind you that our Q1 fiscal 2026 revenues announcement will be on Thursday, January 8. With that, I now hand over to Sophie. Sophie Bellon: Good morning, everyone, and thank you for joining us today. We spoke to you a couple of weeks ago regarding our governance changes. And today, we are going to cover our fiscal year '25 results and our priorities and outlook for 2026. Just on the slide here, a brief summary of what we're going to cover today. When I became CEO in 2022, our priorities were clear: reposition Sodexo as a pure-play food and services company and simplify the organization. Over the past 3 years, we've made solid progress, streamlining the portfolio, refocusing on food, accelerating key investments and strengthening client relationships. These were essential steps to build a strong foundation for sustainable growth. In financial year '25, results came in line with revised guidance, reflecting both operational and commercial challenges. We are actively addressing these with targeted action plan in commercial and in U.S. universities. We're also continuing to strengthen our foundation. With this in mind, fiscal year '26 will be a year of transition and the start of a new phase for the group. Thierry Delaporte will soon take over as CEO, bringing the right experience and profile to drive operational execution, accelerate commercial momentum and lead the group forward. But let's now first take a backward perspective on our key achievements from the last 3 years and 2026 priorities before Sebastien walk you through the fiscal year '25 results and the resulting fiscal year '26 guidance. Turning to the next slide. While I won't go into every detail here, this timeline of recent years shows the major steps of our shift to a pure-play food and services company. We have simplified our structure through geography reorganization and the sale of Sofinsod. We have actively managed the portfolio by spinning off Pluxee and making other non-core disposals, while pursuing targeted acquisitions to accelerate in food. So if we look now at the impact of this refocus on core activities, you can see that there has been real progress in the numbers. Let me pick out some highlights. Food now covers more than 2/3 of our portfolio, up from 62% in fiscal year '22. We have modernized the offer based on data-driven insights across culinary, digital and sustainability. Digital engagement has surged almost 6 million active consumers, up from just over 1 million, showing how we're expanding our reach and creating new growth avenues. Our branded food offer now represents over 50% of revenues versus less than 20% 3 years ago, improving client experience, standardization and operational efficiency. Entegra has more than doubled in size, boosting procurement benefits, and we have also advanced catalog compliance, both strengthening our competitive edge. On sustainability, we are hitting the targets we set on workplace safety, carbon and food waste, thanks to close collaboration with our clients and partners, and we are leading by far the industry on those aspects. And all of this is creating tangible value. Our underlying earnings per share has grown at 14% compound annual growth rate, and we have seen a marked improvement in our return on capital employed. Moving on to commercial performance. We have made a solid improvement in retention and development compared to the pre-COVID period. Over the last 3 years, our average retention is 94.5% versus 93.5% between 2017 and 2019. Likewise, on development, we signed around EUR 1.7 billion of new contracts per year, including cross-selling compared with EUR 1.4 billion before the pandemic. This is a result of our ongoing focus on processes, team culture and competence, but also client relationship. However, this does not reflect our full potential with fiscal year '25 presenting some commercial challenges. In fiscal year '25, retention came in at 94% due to the negative impact from the loss of a global account and softer performance in North America, in particular, in Education. Performance is uneven across the business. For example, U.S. Healthcare. In U.S. Healthcare, we delivered retention above 97%. And in France and Australia, we were above 96%. On development, H1 was strong, especially in Europe and Rest of the World, but H2 softened and total new business landed at EUR 1.7 billion. North America, which remains our largest market, is where we need to improve. We have clear actions underway. We are addressing near-term priorities in U.S. Higher Education, and we are strengthening our U.S. sales team through expansion and training. We are also investing and reorganizing to make sure we capture the market's potential. I will now walk you through in more detail how we are addressing the challenges in U.S. Higher Education. We clearly had some performance gap over the past couple of years in this segment, and it's translated into market share losses. Since February, together with Michael Svagdis and his team, we have carried out a comprehensive diagnostic process to fully understand the root causes behind this lack. A few key issues stood out. First, our footprint is still too concentrated in small and midsized institutions. Second, we have not focused enough on mid-plan renegotiation. And third, we've had some resource misalignment. The remedial action plan is already well underway. Michael has put in place a new organization with culinary and digital now reporting directly to him, and he has reenergized the team to drive best practice and greater standardization. Our sales function was clearly subscale, so we have expanded the team by 50% with the newly hired sales executives already in place and operational. We are also targeting more large universities and athletics, working more closely with Sodexo Live!. To strengthen existing relationship, we are growing our account management team and refreshing our broader teams, bringing in new talent where needed to ensure the right capabilities are in place. Execution is a big focus. We are currently renegotiating 75 meal plans for implementation in fall 2026, and we have rebuilt the meal plan team, which had been disbanded during the COVID period. Now we are harnessing data and tech to methodically track what's selling, where and to whom. We are deploying digital platforms like Everyday and Grubhub, and strengthening our own retail brands to streamline the offer. This plan is clear, but it won't be executed overnight. Some levers will take time. And given the timing of the selling season, fiscal year '26 is largely set already. The goal is, therefore, to restore growth momentum and capture new market opportunities progressively from fiscal year '27 onward. Michael and his teams are laser-focused. Michael has visited more than 20 campuses in the last 3 weeks. The feedback is very consistent. Universities are under financial pressure. They are becoming more business-driven, and they are open to change. That creates challenges, but also a lot of opportunities, and we are now in a much better position to seize it. So as you can see, we have set focused priorities in the U.S. for this year, short term very execution-driven, to put us back on a stronger trajectory. With that in mind, fiscal year will very much mark itself as a year of transition. It will still reflect some of the commercial challenges we have just discussed, but also the investments we are making to strengthen our foundation to drive efficiency, accelerate digital and prepare for long-term growth. Sebastien will get back to that. We have a strong foundation to build on, with a solid balance sheet and the flexibility to invest where it matters most. We are the #2 player globally with a balanced portfolio across regions and segments. We have the scale to leverage procurement, technology and operational excellence across the group. Our culture remains a key driver of sustainable performance, purpose-driven, people-focused and deeply engaged with our clients. Retention in our industry drive resilience, and our teams are proud to deliver on our mission every day. And of course, we operate in a large and attractive market, still 50% in-sourced with significant outsourcing opportunities ahead of us. Looking ahead, I'm also very confident in the next phase for Sodexo. On November 10, Thierry Delaporte will join us as Group CEO. He brings over a decade of leadership experience in the U.S., strong digital and AI expertise and proven track record in leading large people-intensive organization. He's operational and execution focused and deeply aligned with our values. He is the right fit to take Sodexo into its next stage of development. And with that, I'll now hand over to Sebastien to take you through the fiscal year '25 financial and fiscal year '26 guidance in more detail. Sebastien De Tramasure: Thank you, Sophie. Turning now to our fiscal '25 performance. Overall, our performance was in line with our revised guidance. Organic growth came in at 3.3%, slightly higher at 3.7%, excluding the base effect from the major sports events and the leap year in fiscal 2024. Underlying operating margin was 4.7%, up 10 basis points at constant currencies, while on a reported basis, it was broadly flat due to the FX headwinds. Free cash flow was EUR 459 million, including the exceptional cash out of circa EUR 160 million related to the finalization of the tax reassessment in France. And excluding that, our cash generation remained robust with an underlying cash conversion of 91%. Underlying EPS reached EUR 5.37, representing a rise of plus 3.7% at constant currencies. And the Board will propose a dividend of EUR 2.7 per share, up 1.9% versus last year and in line with our 50% payout policy. So now let's have a look at our performance by geography. Breaking down our results further, all regions contributed positively to our performance. Our largest region, North America, delivered 2.8% organic growth, reflecting strong results in Sodexo Live! and Business & Administrations, along with solid underlying momentum in Healthcare despite timing impact and partly offset by contract losses in Education. In Europe, organic growth was plus 1.7%, or 2.7%, excluding the base effects from the Olympics and the Rugby World Cup with steady progress across segments, notably in Healthcare & Seniors and Sodexo Live!. Rest of the World delivered strong organic growth of 7.5%, which was mainly driven by strong performance in India, in Australia and Brazil, which remain key countries where we are strengthening our positioning and consolidating our market share. And overall, close to 86% of our revenue in this segment are generated by Business & Administrations services. On margins, North America was stable at constant currencies, while Europe and Rest of the World improved 20 basis points, lifting the overall margin for the group of 10 basis points, to 4.7%. And the margin also reflects procurement efficiencies and benefit from our Global Business Services Program. So now let me guide you through the full P&L picture. Fiscal '25 consolidated revenue reached EUR 24.1 billion, up 1.2% year-over-year. As already mentioned, we faced currency headwinds this year, mainly from the U.S. dollar and several Latin America currencies, which had a minus 1.8% negative impact on revenue. And we also saw a small net impact from acquisition and disposal of minus 0.3%. Underlying operating margin, as we discussed, was stable on the reported basis and improved 10 basis points at constant currencies. Other operating income and expenses reached minus EUR 154 million with minus EUR 97 million of this related to restructuring and efficiency initiatives covering our global business service program, ERP implementation and other organizational optimization. Operating profit came in at close to EUR 1 billion compared with EUR 1.1 billion last year. Net financial expenses were EUR 88 million, lower than expectation due to some one-off gains. The new USD bond issuance had little impact this year as higher coupons were largely offset by cash interest income and gains from tendering existing bonds. However, net financial expense will increase next year as a result. The tax charge was EUR 198 million with an effective rate of 22.2%, reflecting updates on the tax credit and use of previously unrecognized tax losses in France. And looking ahead, our normative tax rate is expected to be around 27%. As a result, group net profit reached EUR 695 million, translating into EUR 785 million of underlying net profit, which was up 3.7% at constant currencies. So let's now turn to cash generation, which remains a key strength for the group. Free cash flow in fiscal '25 was EUR 459 million, compared with EUR 661 million last year. The change in operating cash flow mainly reflects the exceptional tax outflow for around EUR 160 million related to the finalization of the tax audit in France. Working capital remained well contained and net capital expenditure increased by 3%, translating into a CapEx to sales ratio of 2%, broadly in line with last year. Acquisition net of disposal amount to an outflow of EUR 93 million following the acquisition of CRH Catering in the United States and Agap'pro, a GPO in France. Both acquisitions fully aligned with our strategy to strengthen our convenience business in the U.S. and our procurement capabilities. Overall, our free cash flow remains solid, supporting both reinvestment in the business and shareholder returns. Then at the end of the financial year, net debt stood at EUR 2.7 billion, which was slightly higher than last year, while EBITDA increased by 2% over the same period. So this translated into a net debt-to-EBITDA ratio at 1.8x, within our target range of 1 to 2x. During the year, we repaid the EUR 700 million bond maturing in April 2025 and successfully issued a USD 1.1 billion bond. And part of the proceeds was used to repurchase some of our 2026 bonds. Overall, the balance sheet remains solid and give us the flexibility to invest in growth. So now that we have looked at the performance and the financials for the year just ended, I'd like to take a step back and talk about how we are accelerating our investment in foundations that will drive our long-term efficiency and profitable growth. This is really a strategic phase for the group as we are making significant investment into our HR, finance and supply system and our food and FM platform. In short term, this will put some pressure on margin, but it is essential that we position ourselves for improved efficiency and stronger profitable organic growth. We will continue to invest in sales and marketing, especially in North America to ensure more consistent net new business, as Sophie stated earlier. An important part of our investment program is supply chain management with a strong focus on the U.S., where we are optimizing processes, systems and ways of working to improve both cost and agility. The idea is really to bring more sites into a single unified purchasing system, giving us much better visibility on spend and allowing us to track compliance in real time. We are also standardizing our menus and recipes, so that they automatically link to order guides and purchasing system. And that means simpler execution for our site manager, stronger compliance and more leverage from our volume, including greater pooling between our on-site operations and Entegra. All of this is about making compliance and efficiency happen at the site level, and we are now incentivizing our unit manager directly on compliance. Another key area is our digital and IT foundations. Our global ERP rollout is a perfect example. It allows us to standardize end-to-end processes, secure our infrastructure, which is instrumental in all aspects of our operation, obviously, for data and performance management, but also to strengthen client account management by giving teams better visibility and faster insights. We are also investing to enhance our analytics and AI capabilities to support better decision-making, sharper performance tracking and faster execution across the organization. Finally, Global Business Services is another major focus. We are transforming support function into a shared service model with center in Porto, Mumbai and Bogota, now employing over 900 people. And these teams are centralizing finance, HR, other functions like supply and legal. And by doing this, we are driving efficiency, standardization and innovation while also creating talent hubs for the future. And we are already seeing some early benefits. For example, in the U.S., more than 90 positions were moved over to the Bogota center during the summer, improving competitiveness, process harmonization and supporting employee administration, recruitment and tender preparation. So this is really the second leg of our near-term priorities. The first being the U.S. turnaround that Sophie discussed before. And this investment position us to capture growth more effectively in the future and over time, and the margin improvements will follow. It's also about building the right platform today to deliver stronger performance tomorrow. Now moving to the outlook for fiscal year 2026. As we mentioned previously, fiscal 2026 will mark a year of transition as we proactively address the commercial challenges faced in 2025, especially in North America. And at the same time, we are accelerating the investment in our foundation, as just mentioned, to build a stronger platform for future efficiency and profitable growth. With that in mind, our guidance for fiscal year '26 is as follows: We expect organic growth between 1.5% and 2.5%. This includes a minimum plus 2% contribution from pricing, neutral to moderate contribution from both like-for-like volume and net new business and a one-off reclassification triggered by the renewal of a large contract. And this last point relates to a large NorAm contract currently being renegotiated. And under the new terms, we will act as an agent rather than the principal, meaning that revenue will be recognized on a net basis. And this will mechanically reduce reported organic growth by around 70 basis in fiscal year '26 with the new terms of the contract taking effect during the second quarter of the year. And our underlying operating margin should be slightly lower than fiscal year 2025, reflecting mix and timing of growth driver and the targeted investments we are making. In terms of quarterly phasing, we expect a relatively soft start with growth gradually improving over the year. This will be mainly driven by North America, where the impact of last year's Education losses will be most visible early on. And in addition, several contracts existed last year will annualize in the second half. Now I would like to conclude with you on our capital allocation priorities. We remain focused on disciplined execution, and that also applies to how we allocate capital. On capital allocation, framework remains balanced and consistent, designed to support both near-term execution and long-term value creation. First, we continue to focus on organic growth, with acceleration of our investment and CapEx objectives remaining unchanged at 2.5% of revenue. We remain selective on M&A, targeting midsized bolt-on acquisitions that are accretive and aligned with our strategy. On average, we expect to allocate about EUR 300 million per year to M&A, mainly focused on convenience, GPO and food services in our key existing markets. And recent acquisitions fit perfectly within the framework and the closing of the acquisition of Grupo Mediterránea expected to happen by the end of the calendar year. It's also part of the objective to strengthen our food services position in our key markets. And this acquisition will allow us to double our footprint in Spain. Furthermore, we are committed to optimizing returns to shareholders. Our dividend payout ratio is unchanged at 50% of underlying net income, ensuring an attractive and balanced remuneration for shareholders. And finally, we keep a close eye on liquidity and balance sheet strength, with a leverage ratio maintained between 1x and 2x and a commitment to preserving our strong investment-grade ratings. Overall, this framework supports our near-term priorities while providing the flexibility to adapt. With that, we are very happy to take your questions. Operator: [Operator Instructions] First question is from Jamie Rollo, Morgan Stanley. Jamie Rollo: Two questions then. First, could you please quantify the margin guidance? What is slightly lower, please? And also, is that pressure in all the regions? Or is that going to be concentrated in North America? And the second question is, you're describing '26 as a transition year, but you said the other day that the new CEO probably wouldn't announce their review until maybe early summer, which could that not mean that 2027 then is another transition year if there were further changes to be made? Or are you going to be doing all of the implementation in 2026? Sebastien De Tramasure: Thank you, Jamie. So I will take this first question about the guidance. So as I said, the objective is to have an operating margin to be slightly lower than fiscal year '25, reflecting really the mix phasing of our growth driver and also the phasing of the targeted investment we have to do. Then, the reason we did not give a range is that because there are a lot of moving parts. Again, at this stage, we do expect margin to be slightly below fiscal year '25. There are different drivers. Again, the low organic growth with small optimization in terms of volume increase. And then there is a timing of the investment. And also, we do expect also some headwinds from the -- from the exchange rate that will also impact our margin. So a lot of moving parts, the reason why we decided not to quantify this guidance. Sophie Bellon: So thank you, Jamie, for your question. I will take the second question on the transition. So 2026 will be a year of transition in several ways. First and foremost, it's a year marked by a change in leadership with the upcoming arrival of Thierry as the CEO next month, on November 10. It's also a year of investment to continue to lay the foundation for sustainable future growth. We are investing heavily in our HR, in our finance, in our procurement system, in tech and data as well as in our food and FM platform. And in the short term, this weigh on our margin, but I think it is essential to prepare for the future to be more efficient, more agile and to support sustainable growth. So for example, in the supply chain, particularly in the U.S., where we are improving our processes and system to better manage our expenses. And also, we want to increase our compliance in real time. We're also investing in data and analytics and artificial intelligence to better track the performance and execute faster. And -- does it mean another year of transition in '27? No, we are not standing still. We have our near-term priorities, U.S. Education, as an example, the investment in the commercial, and our underlying organic growth is between 2.2% and 3.2%. So we are moving forward, and we are in the actions. Jamie Rollo: If I can -- can I just come back on the margin answer? I appreciate you can't give guidance. There are lots of moving parts. But obviously, with a margin of under 5%, every 10 basis points is quite a big impact. I mean, is slightly lower nearer to 10 basis points or nearer to 30? Sebastien De Tramasure: Again, as I said, Jamie, we are not quantifying the guidance at this stage. We are talking about a slight decrease in terms of margin. And to also answer your question, the pressure on margin will be mostly in the U.S. because, again, as I said, our focus on accelerating investment in sales and marketing and all the supply initiatives will be also focused on strengthening our position in North America. Operator: Next question is from Estelle Weingrod, JPMorgan. Estelle Weingrod: I've got three, please. I mean the first one on U.S. Education and Higher Education more specifically. Could you give us some initial colors on the full-term enrollments? Then on North America, again, you elaborated on the action plan underway in the U.S. When you talked about targeted investment to enhance foundations for profitable growth, is it mostly investment in U.S. Higher Education? And within this, is it mostly about expanding sales higher? You mentioned 50% expansion of sales teams. And last question is just on your -- on modeling details. You've got that slide in the PowerPoint. On other income and expense, you guide for EUR 160 million, which is broadly flat year-on-year despite the step-up in investment this year, being an investment and transition year. So I was a bit surprised there's not more of an increase there. Sophie Bellon: So thank you, Estelle. I will take the first question on U.S. Education and Sebastien can answer on the other two questions. So first, you asked on the enrollment. The early indication from our boarding data show that we are about 0.7% below last year in our comparable base, and it really varies from countries to another. Some are growing, others are slightly down. Geographically, we're seeing softer trends in the Midwest and Northeast, while the Southwest and Southeast are showing increases. And these figures are still preliminary, and we'll have a more definitive year-on-year view once final enrollment numbers are confirmed over the next few weeks. But obviously, we are not standing still looking at that. Let me remind you the measures we are taking, and I told you, to boost volumes, retail and of course, to win new clients in the next selling season. And I explained that earlier in the presentation. Also, if we go specifically on international students, enrollment for the fall 2025 is expected to drop due to visa delay, denial, revocation, post-graduation restriction. So it will mostly be graduate program and will be most affected. We could reduce demand for housing, dining and other campus services. And undergrad services like mandatory meal plans are less affected. And also, what we see is that universities are adapting with, for example, mid-semester starts, which may mitigate some of that decline. And of course, we will monitor those trends closely and be ready to adjust our offering, our financial planning and the support to respond to the potential changes in the campus demand. And also, as I said on the slide, we are really investing in our sales force. We expanded our sales team by 50%. So I think it's -- and also investing in our account management team. So we are in the action. Sebastien De Tramasure: So on the second question regarding the investment and the acceleration of the investment in North America. So we have specific investment as described by Sophie for the Education segment. But we are really targeting investment across the organization. We want to strengthen the sales and marketing organization, not only for Education, but for all the segments. And all the investment regarding supply is not only for Education, it's, again, for all our businesses. And on your third question. So we are guiding other income and expenses at EUR 160 million, flat versus fiscal year '25. But the combination of the different restructuring program is slightly different. We had many regional restructuring program to optimize the structure at the regional level in fiscal year '25. We will have less than in fiscal year '26, and we will increase our investment again in our GBS program. The restructuring costs related to the GBS will increase in fiscal year '26. But if we combine both, yes, it's flat between fiscal year '25 and '26. Operator: Next question is from Jaafar Mestari, BNP Paribas. Jaafar Mestari: I have three questions, if that's okay. First one is in terms of your operating models and services. You mentioned some of the qualitative targets that you've achieved this year: branded offers, more than 50% of revenue; Entegra, more than doubled; carbon emissions, minus 34%; food waste, you didn't quite get to minus 50%, but not far. There was another one on digital and new services, 10% of revenue, you haven't said, but I assume you're not that far. My question is, you've achieved most of your soft qualitative targets and yet the overall financial performance was disappointing. What is your assessment here? Did you take targets that were not the right ones, and they need a complete rework under new management? Or was the delivery not deep enough? I guess you can get to 50% branded by changing a logo on the site. So have the teams delivered on these targets the right way, a way that benefits the business? Or have they delivered sometimes in a cosmetic way that has not really helped cross-sell or cross-fertilize the business? Second question, shorter, just on business development. You said yourself, your average signings pre-pandemic were EUR 1.4 billion each year. In H2 '25, this is where you are, EUR 700 million. What have you seen? Is it the industry? Is outsourcing less dynamic? Or would you say it's entirely market share issues on your side? And lastly, on full year '26, net new business, if I look at the forward-looking retention and signings, it looks like you could be a plus 1%, but you never quite get there. And I think that was one of the issues last year where you had 1.6% forward-looking, but you don't quite get there because you lose more staff, because the contracts take time to ramp up. So in terms of net new, could you help us a little bit more in terms of your assumptions in the guidance? Sophie Bellon: Okay. Thank you, Jaafar, for your question. So first -- on the first question, yes, we have delivered. I think when you talk about the offer and the branded offers and the fact that we have reached our target, I think it's a first step. No, it's not just a logo on -- it's not just a logo in a restaurant saying that we are implementing a new offer. It is much more than a logo. It's a menu. It's a number of SKUs that are linked to that menu, and it's more compliance. So I think it's a first phase. And I agree with you that it's not driving gross profit enough yet. And we are fully aware of that and especially in the U.S. where our compliance, at the site level, is not sufficient. And that's why starting in September, all our managers are incentives, from the site manager and upwards are incentives on the compliance. It's a new -- it is for every member in the organization. I think also when you have -- so it takes more time than just sending the offer. You need to also go -- we need to go deeper now. Second, when we talk about the, for example, the digitalization and the fact that now we have 6 million of people that can have access through -- digital access, it will also drive the revenue because we have seen that. And it will also drive the margin because we will be able to answer better what people want on a daily basis. So on your third question, I will let Sebastien answer, and then I will get back to you on the net development. Sebastien De Tramasure: Yes. So on the net new, you're right. I mean, the net impact, if we take the looking forward KPI, 1.4%, and then the in-year impact expected for '26 will depend obviously of the net new from '26 as well and the in-year impact. It depends on the phasing of the development, phasing of the retention. And it's the reason why we took this year a more cautious approach, I would say, baked into the guidance, as we said that the net new impact in-year expected for fiscal year '26 should be between neutral to moderate contribution. And again, the phasing development retention is explaining this cautious guidance in terms of net new impact for fiscal year '26. Sophie Bellon: And in terms of the -- the last question was about the development, right, and the EUR 1.7 billion. Clearly, this year, as I said it in my introduction, financial year '25 has been a challenging year and on new development, especially in the second half, we had a first -- a good start in H1. And what we see -- and the second half was very disappointed. What we see is that, for example, in the U.S. our hit rate with big contract is not sufficient. I think we are doing well in Healthcare, and we had a good net development. We had, as I said, a good retention in Healthcare in the U.S. this year, but we also had a good development. So a net development above 2% in Healthcare in the U.S. We have invested for a while in those teams. We have teams that are capable of addressing and winning a large contract. And we are in the process also of building and strengthening those teams in the U.S. in the other segment. But that being said, there are countries or geography where -- like France or like Australia, where we are winning market share and where we have a good net development rate. So we need to make it happen everywhere. Jaafar Mestari: And that last qualitative target that you didn't explicitly say, the 10% of revenue from digital and new services. Did you achieve that in '25? Sophie Bellon: I'm not sure I understand your question. Jaafar Mestari: I think in your qualitative target, you had doubling Entegra, and you had reaching 50% branded offers, but you also had a target to reach 10% of group revenue from vending and digital and new services. So I just wanted to check if that one was on track as well. Sebastien De Tramasure: On that one, we are slightly below this 10% objective we defined at the beginning of the... Sophie Bellon: 8%. Sebastien De Tramasure: Yes, we are around 8% in terms of covering of -- from advanced food model. Operator: Next question is from Simon LeChipre, Jefferies. Simon LeChipre: I've got three, please. First of all, on organic growth for next year. Could you clarify the timing of the demobilization of the global accounts and also the timing of the -- impact of the reclassification of the contract? I don't quite get why organic growth should drop from 4% underlying in Q4 to kind of 1.5% in Q1, and then how you would then accelerate in subsequent quarters. Secondly, on this contract reclassification, could you clarify if there is any impact on profit and on margin in percentage terms? And lastly, in terms of the organization, I mean, I noticed that Michael is managing Government Services on top of universities. What is the rationale for this? And does that mean you do not necessarily believe in a strategy focused on sectorization similar to what your closest competitor is doing? Sebastien De Tramasure: I will take the first one. So regarding the timing of demobilization of the global account, if you look at the one we lost in fiscal year '24 and the one we lost in fiscal year '25, basically, the overall impact for fiscal year '26 is minus 50 basis points. And it's -- combining both, it's similar impact between H1 and H2. Regarding the reclassification of a large contract in North America. So here, we are talking about a preemptive renegotiation and to extend, the duration of this contract. As I said, we -- given the new term of the contract, we moved from gross revenue to net revenue. And overall, we are renegotiating the economics of the contract, and we are not expecting any significant impact in terms of margin, in terms of [ UOP ] margin. Sophie Bellon: And on the third question on organization, it -- why is it together? Because it has been historical. The person that used to be in charge of Government then extended his role to University. Yes, of course, we are doing market sectorization. It's the only exception. I want to remind you that for us, Government is not a priority. It only represents 4% of our revenue and with a huge contract that you know, U.S. Marine Corps. And so it has been part of that portfolio. And I don't think it's -- it doesn't affect the bandwidth of -- that Michael has to put on universities. And just for the U.S. Marine Corps, because it's the biggest part of that Government business, it still runs for another 18 months. And we are working proactively to -- we expect the client to launch an RFP , but we are fully engaged in the process and also -- yes, fully engaged in the process. Sebastien De Tramasure: And I will go back to your question -- sorry, I'll go back to your question about Q4 underlying versus the guidance in terms of organic growth. We have to keep in mind that Q4, the mix and the weight of Education is lower. So it means that this had a positive impact in our Q4 organic growth. It will not be the same for the full year '26. And also, we had a very strong Q4 fiscal year '25 in Sodexo Live!, with a more than double-digit organic growth in the U.S. with some specific events. And this will not obviously reproduce the full year '26. We will not have 10%, double-digit organic growth in Sodexo Live! during the full year '26. Simon LeChipre: Okay. Just on this impact of contract reclassification, I mean, can you quantify it? And is it going to impact you as soon as Q1? Or does the impact start later on in the year? Sebastien De Tramasure: Okay. So we are currently, again, under renegotiation of this contract. Again, it's a preemptive extension of the contract. Today, we are expecting to sign the renewal of the contract in Q2. So the impact will start in Q2 fiscal year '26, and it will impact negatively the organic growth by 70 basis points for fiscal year '26. Simon LeChipre: So it means that you need to accelerate organic growth after Q1 to offset this impact on top of the rest, right? Sebastien De Tramasure: Yes. And that is the plan, again, with some ramp-up of development. And again, this phasing of Sodexo Live! will be quite different between fiscal year '25 and fiscal year '26. Operator: Next question is from Leo Carrington, Citi. Leo Carrington: If I could ask just two questions. Firstly, I appreciate he doesn't officially start for 3 weeks, but did Thierry Delaporte have any input into setting this guidance? And then secondly, just on the margin outlook again. In terms of the factors pushing margins down mix phasing investments, is it correct to say these are all headwinds? And in terms of the relative importance of all three of them, is one more important than the other? The investment sounded significant, but I wonder if you can quantify that. Sophie Bellon: So thank you, Leo, for your questions. I will take the first one. So regarding the involvement of Thierry, of course, we had a few preliminary discussions with him. But I remind you that he's only starting on November 10. And however, the financial year '26 guidance reflects the work of the current team. It's also the result of a bottom-up approach based on the visibility we have for the year. Sebastien De Tramasure: Okay. And on the investments, so we are not providing any specific quantification at this stage of each investment. We'll do it in another time, I would say. And again, there are moving parts on this timing of the investment. It's the reason why we said that, again, it will have [ this ] negative impact in terms of margin for next year. Operator: Next question is from Kate Xiao, Bank of America. Kate Xiao: I have a couple. The first one is a follow-up on the previous question on branded offer. You mentioned, Sophie, that now the first step is done, and you need to go deeper now. I wonder if you could elaborate what that means? Do you mean a further, I guess, change of the organization, change of the team so that it's more brand focused, more sectorized? And would this be a big task for the new CEO? That's my first question. And the second question also on just investment. I think, Sophie, you mentioned before for fiscal year 2024, you spent more than EUR 600 million on IT, data, digital. I wonder what that number is for '25? And do you see a step-up in '26? If you could just -- obviously, I appreciate you cannot give us exact numbers, but the level of step-up would be really helpful. And then just number three, specifically on retention. I think you mentioned that you're doing preemptive renegotiations with big contracts. I guess, any progress there? Are you doing more in terms of preemptive retention -- preemptive efforts to help really with retention? If you could elaborate on the efforts there? Sophie Bellon: Okay. So I will take the first question on the branded offers. I think it's a work, as I said, that started a couple of years ago. And when I mean go deeper, it's that -- for example, we are implementing in Education a brand that -- are -- one and all brand, it's close to EUR 1 billion of revenue, thanks to the active conversion of the sites during summer break. Now it's our largest brand globally and regionally. So it means that now the team have adopted the brand, but then we need to make sure that the implementation is happening right, that the right recipes are implemented, that the right menu, the right products. And it's by -- when I mean go deeper, it's making sure that operationally, it happened on each and every site the way it should happen. That's why I explained that, for example, in the U.S., where -- when you implement a brand, like I just said for University, it implies a lot of people. We have also added for every single manager the compliance because that's what will improve the margin and the profitability on those sites. And then about Thierry, of course, he will make his assessment of the situation. But definitely implementing the brands and not just putting names but an offer with -- that matches the client and also especially the consumer needs with price points, more standardization, less SKUs, better leverage on our purchasing powers simplifying the bid process. All that takes time, but it will definitely help us make progress. Maybe, Sebastien, you want to answer the second question? Sebastien De Tramasure: On the investment in IT and digital, based on all the ongoing program, we have been increasing our investment if you take OpEx and CapEx in fiscal year '25 compared to fiscal year '24. And again, with this acceleration of our transformation with the ERP, with the finance supply platform, the food platform as well, AI and data, again, this amount will continue to increase for fiscal year '26. Sophie Bellon: And in terms of retention, as we said, we have made progress, and there are areas or countries where we are fully aligned with our targets, to be above 95% and at some point, in midterm, at 96%. And on the preemptive bid, yes, we are pushing. I don't have the exact number with me today, but we can get back to you. And we are definitely pushing, and it's something that we want to make happen, as I said, not just in some geography, but all geography and all segments, especially in the U.S. Operator: Next question is from Sabrina Blanc, Bernstein. Sabrina Blanc: I have three questions from my part. The first one is regarding the branded offer. I would like to have more idea of how it has been organized. I mean, who has designed the brand, who is in charge of the leadership of the brand? My second question is regarding -- you have mentioned the hiring of commercials. I would like to understand in which areas specifically, if it's regarding the GPO for new commercial? Or is it commercial dedicated to the retention? And are they incentivized in these three key segments? And lastly is regarding the M&A. You have mentioned bolt-on acquisition, but we would like to understand in which areas you are focusing and what are your KPIs? Sophie Bellon: Okay. Thank you, Sabrina. So for the branded offers, for example, I just discussed, all in one, in the Education market in the U.S. This brand has been designed one and all -- sorry, in the U.S. in the University business. It has been designed by the team in Universities and getting some support from the North American marketing team. There are some brands like Modern Recipe where we have -- that we have implemented in different countries, in the U.S., but also in Europe. And there, we have a center of expertise at the group level, so we can accelerate the share of best practice between countries. And -- but it's the countries that are responsible for growing the brand at the local level by segment because, of course, those offers are different what we propose, an indication is different from what we propose with a Modern Recipe or Good Eating Company in corporate services, even though sometimes Good Eating Company, if there is a need, could also be proposed on a campus. But the brands belong where most of the revenue happen with that brand. On the second -- your second question about commercial: in which area specifically? Well, in all areas. Now we hired a number of salespeople with -- in the GPO and in our Entegra business and especially in the U.S. But we also hired -- as I said, we want to increase our sales team. And we have increased our sales team, I think, in the U.S. by 30% this year. And how are they incentivized? We have changed the incentive for our sales team. And we have revamped our sales incentive structure. Previously, it varied by region and wasn't always linked to the individual performance or profitability. Now we have a global commission that based system with a consistent rule across the region. It includes clear threshold and accelerators for over-performance and staggered payouts to ensure quality and overs. And we also -- we have also added specific incentives for renewals, cross-selling and strategic priorities. So in terms of sales incentive, we have worked a lot. And now it's really rolling out, and it's really implemented for fiscal year '26, but we have really worked a lot on making sure that we have the right incentive and also the right teams. We have changed a number of people in our sales team. Sebastien De Tramasure: And to the third question regarding M&A. So we have a very clear strategy regarding M&A. We want to invest in food. We want to invest in our existing markets. And then we have done investment in GPO, especially in Europe over the past year and especially in France in fiscal year '25. We are also investing, and we have been investing since 2022 in convenience in the U.S. So here again, we are talking about small, midsized bolt-on acquisition, very important to get the scale and the efficiency with the supply. And then we want to invest in also a key market on food, again, market share in the U.S., in Europe, also in the Rest of the World, but again, focusing on our key existing markets. A good example is the acquisition, the signing of Grupo Mediterránea in Spain. It will allow us to double our footprint in the Spanish market. And also, we can also do some small acquisitions to gain capabilities in advanced food models. It can be also linked to commissary and central kitchen capabilities. And in terms of indicators, [ LGO ] payback, we look at the [ LGO ] payback below 10 years. And we looked at the ROCE and the objective is to have a ROCE above 15%. Operator: Next question is from Andre Juillard, Deutsche Bank. Andre Juillard: Just a follow-up on investments in general. Could you give us some more color about what you plan to do in terms of IT and reporting software? Do you still have some significant investment to do on that side? And could you give us some quantification on that? And regarding CapEx, you remain relatively low with 2% compared to your main competitor. Do we need to anticipate a significant improvement on that side or not? Sebastien De Tramasure: So I will start with the CapEx. So you are right. Today, our CapEx level is around 2%, fiscal year '24 and fiscal year '25. The objective is really to reach 2.5% with, I would say, two main components. The first one is supporting retention and development. So we need CapEx to sign large deals. And as we said before, this is one of our priority. And then we need also CapEx for the -- our investment in IS&T and digital, especially for our ERP program. So this is really the reason for the targeted increase in terms of CapEx. Sophie Bellon: And just to add to what Sebastien just said, in terms of CapEx, as I said -- and as I said also earlier, we want to sign more large deals, and we want to improve our hit rates on large deals. So the way that happens, the large deals are the one where we spend more money. And the fact that our hit rate has not been as good as expected explain also the fact that our CapEx today is closer to 2% than 2.5%. So hopefully, when our hit rate with those big targets improve, it will have an impact also, and it will automatically increase the percentage of our CapEx, and we will get closer to 2.5%. Andre Juillard: But you still consider that 2.5% is the right number? Sophie Bellon: Yes. Well, we have been talking about 2.5% and still staying at -- so far now, we really want to reach 2.5%. And if you know, some specific deals that sometimes it happens in Sodexo Live! or in Universities in the U.S., if we need to go beyond, we will go beyond but not systematically. Operator: Next question is from Johanna Jourdain, ODDO BHF. Johanna Jourdain: Two questions from me. First one, could you please remind us the level of renewals in large contracts to come in '26? And can you update us on where you stand there on those renewals? And second question, can you update us on the ramp-up of the Healthcare contracts that were delayed in '25 or late to start and in particular, the captive contract in North America? Sophie Bellon: So thank you, Johanna, for your question. So the level of renewal for the large contract, I think you're talking about the GSA contract because last year, we had -- in fiscal year '24 and '25, we had a big number of those GSA contracts in renewal. And today, this fiscal year, we don't have any. So there will not be any renewal of those large contracts and a very small number also for fiscal year '27. The contract that we discussed earlier is not -- it's not a global account. And so that's for a clarification on those large contracts. And then for captive, first, last year, we talked about the ramping up of Healthcare and especially that contract. We have had two big contracts in Healthcare, ProMedica and University of Cincinnati that started in June and July. So there, we are on track. And as I said, we had a very good net development for Healthcare during the fiscal year '25. For captive, during the first year, as I remind you, it was a very innovative contract. And the first year, we spent more time and focus than anticipated in evaluating the existing client for the transition into the captive program. And this led, as you know, to a slower-than-anticipated ramp-up of new business. We signed the very first contract with captive members at the end of financial '25. Currently, we are negotiating with a significant number of clients. The pipeline is well advanced and robust. And our objective remains unchanged to sign over EUR 100 million in contracts within the first 2 years of the program. But since the launch was shifted to the end of fiscal year '25 instead of the beginning of '25, our target is now to reach EUR 100 million in signed contracts across '26 and '27. Operator: We have no further questions registered at this time. Back to Sodexo for any closing remarks. Sophie Bellon: Well, thank you very much for your question. And as this is my last call as CEO, I would like to sincerely thank you for all your -- for your engagement and your constructive dialogue over the years. I remain deeply confident in Sodexo's strength, and I look forward to continuing to support the company as Chairwoman. Thank you very much, and take care. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.
Unknown Executive: Good morning, and welcome to TGS Q3 2025 presentation. My name is Bård Stenberg, Vice President, Investor Relations and Business Intelligence in TGS. Today's presentation will be given by CEO, Kristian Johansen; and CFO, Sven Børre Larsen. Before we start, I would like to draw your attention to the cautionary statement showing on the screen and available in today's earnings release and presentation. For those of you on the webcast, you can start typing in questions during the presentation, and we will address those after management's concluding remarks. So with that, I give the word to you, Kristian. Kristian Johansen: Thank you, Bård, and welcome, everyone. So I'll start with the Q3 highlights. And before I go through the numbers, I just want to say I'm very pleased that we have a solid recovery after a very weak Q2, and I want to thank all our employees for pursuing sales opportunities aggressively in a challenging market and at the same time, being extremely focused on our cost base, which you will see from the numbers that we have a solid beat on EBITDA and EBIT due to lower cost in the quarter. So starting with the numbers on the top line, we had revenues of $388 million. That compares to $308 million in the second quarter of this year. So sequentially, that's a 26% increase. As I said, our EBITDA was strong at $242 million. That's a 62% profit margin and again, driven by a very strong cost focus of the organization. We had a Q3 EBIT of $105 million. So it's the first time in several quarters that we're over $100 million in EBIT, and that represents a 27% profit margin. We had an order inflow of $436 million, and that takes our total order backlog up to $479 million -- sorry, total order backlog of $473 million at the end of Q3. Our cash flow was strong, and that means that with a free cash flow of $81 million and $30 million dividend payment, we managed to reduce our net debt from $432 million or down to $432 million, and this compares to $479 million in Q2 of 2025. We're maintaining our dividend of $0.155 per share, and we have also adjusted our CapEx guidance down. So that's been reduced to $110 million versus previously $135 million. So overall, strong numbers and strong -- slightly stronger than we expected for Q3, which is always good after, as I said, a very disappointing Q2. On the business update, and I'm not going to cover all the projects that we had in the quarter, but what you can see here is that Q3 is usually dominated by a strong North Sea season. So we have almost half of our assets working in the North Sea during the summer season and into Q3. You see we had 2 vessels in Brazil, and we're probably going to keep vessels in Brazil for the time being due to strong interest for data acquisition and even our existing data library. We also have OBN operations, so 2 OBN operations in the U.S. Gulf. And then you see we have 1 vessel in Egypt and 1 vessel in India during Q3 of 2025. I'll also cover the business units. So starting with multi-client. We had multi-client sales of $226 million in the quarter that compares to $277 million in Q3 of 2024. And the difference there is pretty much explained by higher transfer fees in Q3 that we -- in last year than we had in Q3 this year. Multi-client investments of $86 million this quarter compared to $129 million in the same quarter of last year. And again, that corresponds to a sales to investment for the last 12 months of 2.1. That's similar to what we had last year. But again, it's above the historical average of about 1.9. So very pleased about continued strong sales investments of our multi-client data. In terms of new awards and key projects that we were executing in Q3, we had PAMA Phase II offshore Brazil. This is a streamer survey in the Equatorial margin area. And then we had another project in the same area called Megabar Extension Phase I. And it was a pleasure for us and for TGS, Petrobras and Brazil to see that Petrobras finally got environmental approval to start drilling in this area. And this is an area where TGS has been acquiring lots of data over the past 12 to 18 months. So again, extremely excited to see that things are moving on. And for those of you who remember the last lease sale in Brazil, you also saw companies such as Chevron and Exxon picking up blocks in that area. So this is a --probably one of the last frontiers and one of the most exciting frontiers in Brazil for sure. So great interest from clients on both surveys that we've been carrying out for, yes, over the past 18 months. Then last but not least, we had a project called Amendment West 1 in the Gulf of America in the quarter. So this is an ultra-long offset OBN survey over legacy streamer data, and this is a TGS-only project with no partners. If we move on to the historical multi-client performance, just to put the quarter in the perspective, and this looks at -- last 12-month sale is a light blue and then dark blue is investments. And then the line there, the gray line is last 12 months sales over investments. And you see it's coming up from about 1.9 in the previous quarter to about 2.1 now. So really where we want to be in terms of profitability of our multi-client business, which historically has been yielding returns of somewhere between 1.9 and 2.0. Our internal goal when we start a new multi-client project is always around 2. Marine Data acquisition, relatively weak quarter as we expected, and we guided the market after Q2 that Q3 would be relatively low in terms of activity level, and then we came in slightly above what we expected. We had contract revenues for OBN of $87 million versus $127 million last year. Our streamer contract revenues in the quarter were $127 million, and we had total gross revenues of $215 million. And as you see, a strong EBITDA margin of about 36% for our assets in Q3. In terms of new awards and key projects executed during the quarter, we had -- we were awarded a streamer contract in the Mediterranean, as you all know, commenced acquisition of that in Q3. And then we have secured a large streamer contract offshore Indonesia in the quarter, and this is scheduled to start in Q4, has a duration of 8 months. It's a big contract. And again, it's mostly 3D, but the last month of the 8 months is going to be a 4D over some existing production. We've also been awarded a streamer acquisition contract in Africa. So this is a Q4 start, and it has a duration of about 50 days with some options to extend. And then we have an OBN contract in the Gulf of America. This is also due to commence in Q4, and it has a duration of 4.5 months, a quite large contract for our OBN crew in the Gulf of America. In terms of our new Energy Solutions business, we had contract revenues of $18 million. It's up from $16 million in the same quarter of last year. Multi-client revenues of $5 million versus $3 million last year. So total revenues of $23 million, which is up from $19 million in Q3 of 2024. And again, as with the other business units, a stronger EBITDA margin year-on-year as compared to Q3 of 2024. We've been awarded a UHR-3D contract offshore Norway. This commenced acquisition in early July, and we were acquiring that data going into Q3. We acquired also a CCS contract offshore Norway. And then we continue our collaboration with Equinor through our --subsidiary, Prediktor through something called Prediktor Data Gateway solution, and this is delivered to Equinor's Empire Wind Project. Also happy to see that Imaging & Technology continues a strong growth with good margins. So on the gross imaging revenues, we're $32 million versus $26 million last year. But if you look at the external imaging revenues, they are about $20 million. So it's a doubling of revenues compared to last year. And you've seen that we've been on that kind of growth track for quite some time. We have a -- yes, $20 million this quarter. We're going to be slightly short of $80 million for the year. And again, next year, our goal is for imaging to be above $100 million in external revenues with strong EBITDA margins. So we continue to take market share in the Imaging & Technology space. And part of that -- part of the reason for that is a strong strategic focus on the external market. TGS used to be more focused on the internal market and processing of multi-client projects. But now we made a strategic choice that we're going to go after the external imaging market, and you see the results of that with significant growth and good margins. We see a significant reduction of HPC costs from added scale. So TGS is a big customer of the big cloud compute providers such as Google, AWS, et cetera. And we see obviously great benefits and synergies from the combination of TGS and PGS in that regard. So again, as I said, we expect continued growth in external imaging revenues, and you've already seen a substantial margin improvement on the imaging side. With that, I'm going to hand it over to Sven Børre, and then I will be back talking about the outlook shortly. Thank you very much. Sven Larsen: Thank you, Kristian. Good morning, everyone. It's always a pleasure to report strong financial numbers. So although the revenue numbers are not that strong in a historical perspective, highlighting the upside potential in the longer term, they are quite strong in a relative perspective and relative to where we've been in -- particularly in Q2, of course. But more importantly, we have a very strong performance on all other parameters, including cost and cash flow parameters. So we are very, very pleased about that. So let me take you quickly through the numbers. On the revenue side, we came in at $388 million. That consisted of $217 million of multi-client revenues and $171 million of contract revenues. The multi-client revenues were particularly strong in the quarter, mainly driven by strong sales from the Vintage library. The prefunding of new projects were actually lower this quarter than we have seen in some of the previous quarters. So library sales, very strong in the quarter. Then going to net operating expenses. I'll come -- go into more detail on that on a later page here. So let me just mention that the net operating expenses were $147 million versus $221 million in the same quarter of last year. So a significant reduction there, of course. Depreciation and amortization. Depreciation, $61 million continues to be reasonably stable, around plus/minus $60 million, as you can see on a quarterly basis. Amortization was quite low in the quarter. The straight-line amortization is stable, whereas the accelerated amortization is quite low in the quarter. That's partially explained by the lower prefunding rate, as I talked about, but I'll -- and also, of course, explained by the mix of the different types of projects that we have in the portfolio right now. This gave us an EBIT of $105 million in this quarter, corresponding to an EBIT margin of 27%, slightly ahead of the operating result in the same quarter of last year despite having significantly higher revenues last year. Then as I promised, I'll go -- in more detail through the cost base and how the cost has developed during the quarter and how it is likely to develop going forward. On the chart here on the left-hand side, you see Q3 specifically, this Q3 compared to the Q3 of 2024. So as you can see on the left-hand bar in both those 2 charts, you see the gross operating expenses. And you can see it's at $217 million is significantly down compared to the $289 million we had last year. It's -- the decline is particularly visible, obviously, on cost of sales. And it has to do with several factors. First of all, of course, we have gone through, as we have talked about in previous presentations as well, we've gone through quite a bit of efficiency -- efficiency projects internally. We have realized a lot of cost synergies, of course. And also, after the integration project has been more or less completed, we have continued to look at different efficiency gains, and we've been quite successful in that. But I also have to admit it's also, of course, partially related to lower activity, particularly on the OBN side, where utilization of the crews that we got is a bit lower in this Q3 relative to the Q3 of last year. And finally, there is also some, call it, nonrecurring items in the quarter, which reduced the cost of sales by a little bit more than $10 million. It's probably-- it's not genuinely nonrecurring items. They are nonrecurring in this quarter, but it's -- most of it is a reversal of costs that have been expensed previously. So over time, it's not a nonrecurring cost, but in this particular quarter, it is nonrecurring. And as you can see, if you compare to the same parameters of last year, we are significantly down even when adjusting for the one-off costs we had related to the merger integration process in last year. So you see that last year, we had $162 million of cost of sales. There were no merger integration costs in that number. On personnel cost, we had $95 million, where we had $11 million approximately of merger integration-related costs. So the underlying costs in that quarter were $84 million, still well -- still well above the $69 million we have in this quarter. And on other operating costs, we had approximately $5 million of -- or $6 million of merger integration-related costs. So the underlying cost there was $25 million in the previous quarter. So we're actually a little bit up this quarter compared to last quarter on an underlying basis, and that has to do with compute. We are using more high-performance compute resources now than we did last year. And that obviously has to do with higher imaging activity and more use of AI and machine learning and algorithms that require more high-performance computing, and that's an -- a deliberate development, of course. If you look at the right-hand chart or the right-hand side of the page, you see a chart showing the cost development on a last 12-month basis over time here. And as you can see, the last 12 months as of end of Q3, we had $982 million of gross cost. Our guidance remains firm at -- around $950 million for the year as a whole. So you see the trend there. We have come significantly down, and we expect to come further down in -- when we report Q3 -- Q4. In fact, we -- if anything, we expect to be below $950 million and not above. So we're quite happy with the development on the cost side, and you can also see the evolution of our guidance through the year on the right-hand side of the chart there with the dark bar where we have -- where we're down basically $100 million relative to the original gross cost guidance. So we have done a lot on the cost side, which is obviously helping us quite a bit in terms of delivering a strong EBITDA in this quarter. Looking at the profit and loss statement, we had $388 million of total revenues consisting of $217 million of multi-client revenues and $171 million of contract revenues. I've talked about cost of sales, personnel costs and other operating costs, which already. This gave us an EBITDA of $242 million compared to $280 million in the same quarter of last year. Straight-line amortization was $60.5 million, where its roughly where it has been on the --on the previous quarters. As I mentioned, accelerated amortization, quite low this quarter related to the mix of projects we were doing and a lower prefunding rate. We had a small impairment on one of the multiclient projects that we do. That's not uncommon. As you can see, we had something similar in the same quarter of last year. And depreciation of $61 million, which gave us this operating profit of $105 million. We had financial income of $4.3 same level as last year. We had financial expenses of $19.4 million, which is slightly above last year, which may surprise people because we did a refinancing that reduced the interest cost quite significantly in Q4 of last year. However, bear in mind that we took a lot of that interest saving in the PPA. So we wrote up the PGS debt in the PPA, which reduced the interest charge in the PPL -- P&L already ahead of the refinancing. So that's the main explanation for that, call it, not so intuitive development. And this gave us a result before taxes of $85 million compared to $97 million in the same quarter of last year. Cash flow, as Kristian alluded to, quite strong in the quarter. We had cash flow from operations of $242 million in the quarter, almost the same level as the $265 million we had last year when you subtract the multi-client investment and CapEx and adjust for timing and working capital movements. We had cash flow from investment activities negative by $94 million compared to $59 million in the same quarter of last year. And then -- if you then subtract the cash flow items related to financing of $97 million, we end up with a net change in cash and cash equivalents of $50 million in this quarter compared to $82.6 million -- or $83 million in the same quarter of last year. So looking at cash flow in a slightly different way, looking at the evolution of our net debt, you can see that we reduced that quite significantly in this quarter. So the cash flow before dividend, which is a key measure that we are looking at internally was $77 million in this quarter. We paid the dividend of $30 million, which helped us reduce net debt from $479 million to $432 million at the end of the quarter. Let me -- and this is to be compared with our net debt target of $250 million to $350 million. That's the range we are aiming at, and we're getting down there. It takes a little bit longer time than we initially planned for, and that has to do with the market development, but we are still firm in our belief that we will get there in -- in due course. Let me also mention that in Q4, you should expect a somewhat negative development in net working capital items. So it's a seasonal thing. And so you shouldn't expect the cash flow after net working capital adjustments to be as strong in Q4. Balance sheet, not many significant developments worth mentioning here. The only thing I'm going to mention is the goodwill. You can see that it's down by $4 million. That has to do with the PPA adjustments that we did. So when you do an acquisition as we did with PGS, you can do PPA adjustments up until 12 months after the acquisition closed. And -- and what we have done here is that -- we have increased our long-term receivables by $4 million and reduced the goodwill by a corresponding number. And apart from that, the balance sheet, of course, remains very strong and even stronger than it was at the end of Q2, given the net debt development. This allows us to continue to pay a dividend of USD 0.155 per share, corresponding to NOK 1.56 per share in this quarter. The ex-date is 1 week from now on the 30th of October, and we will pay the dividend to the shareholders on the 13th of November. So by that, I'll hand the word back to you, Kristian. Kristian Johansen: Thank you, Sven, and we're going to touch on the outlook, and I'll start with a slide that we find very interesting, but it's a bit challenging to understand. So I'll take you through it very slowly. But if you start on the left-hand side, you see the chart there, you see that the light gray color shows the current decline curve. So that is debated whether it's 8% as we show here, and these are numbers from IEA or whether it's 15%, which is Exxon's number that they publicly state that the real decline curve is. But anyway, if you use 8%, 8% is then equivalent to losing more than the current production from Brazil and Norway every year for the next 10 years. It's quite steep even at 8%. But then in order to satisfy demand going forward, then the big question is how much do we need to invest and how much does the E&P sector need to invest? So if I take you to the right-hand side and you go all the way to 2025, you see that we as an industry or the E&P industry globally invest around $600 billion in CapEx. That's a total CapEx of the entire industry. And that's been pretty much the average. It's just -- right now, it's about $575 million, and it's been $600 million pretty much on average for the past 3 or 4 years. If you take that information, the $600 billion and you take it back again to the left-hand side, you see that $600 billion is the second blue color from the top. That's where it's going to take us in terms of continuing to invest at today's level, which basically is flat. It's a flat demand compared to today. So today's or the current investments are probably going to satisfy a flat demand development going forward. But if you think that demand for oil and gas is going to continue to grow in the future, we need to invest more. And we actually need to invest probably somewhere around $750 million because that takes us up to the expected demand going forward. So it's a very powerful slide in terms of understanding that today's investment level is not sufficient to satisfy any growth in demand. And I think most of you and most other readers would argue that there will be growth. There will be continued growth in demand. We've seen that, and we've been wrong several times. Demand has surprised on the upside, and it will continue to do so. So again, today's investment level from the industry is not sufficient in terms of satisfying any demand growth going forward. And that is further backed by the second slide we have. So last week, I attended something called Energy Intelligence Forum in London. And I think 8 out of the 10 -- 8 CEOs of the 10 largest oil companies in the world were there. And I just included some quotes from 4 of the CEOs that were there and attended the conference. And the first one from Darren Woods who said that the oil market oversupply is likely to be short term with demand from emerging economies set to make meeting global energy demand more challenging in the medium to longer term. I mean, Nasser was very clear that we had a decade where people didn't explore. It's going to have an impact. If it doesn't happen, there will be a supply crunch. And then Patrick Pouyanné from TotalEnergies, this non-OPEC supply, which today is impacting the market from Brazil, Guyana and shale oil will plateau. There is a limit to this growth. And then finally, Vicki Hollub from Occi said that discoveries have gone way down. Investment in exploration has gone way down, but it's not just investment that's a problem. We just aren't finding big resources anymore. So very much backing the statement that we had on the first slide that the industry needs to invest more if you believe in demand growth for oil and gas and I think most of us are now convinced that there will be continued growth in demand for both oil and gas. Going more to the micro level in terms of streamer contract tenders, it's down, and it's down for 2 reasons, mainly the fact that there's been quite a few awards recently. So TGS has been awarded a couple of streamer contracts quite recently. And also on the OBN side, we have announced 2 contracts recently. But the market is not great. There is nothing that indicates that 2026 is going to be a great year for contract tenders. I have to be honest and state that. But keep in mind that this does not include multi-client. And we have big projects in Brazil. As I said, we have 2 vessels in Brazil as we speak, probably going to keep those 2 vessels there for the time being. And we have -- we see great -- or a great uptick in activity in Africa in terms of multi-client. So the fact that multi-client is not part of this means that this slide gives a very skewed picture in terms of how the market for TGS actually is. So I feel like with the recent increase you've seen in our order backlog, which is mainly and very much driven by multi-client prefunding, I think we see a future that is far brighter than this slide will indicate. On the OBN market development, 2025 will be back to 2023 level in terms of activities or total revenues for this sector or segment, and that is down from 2024. So that significant growth trajection that we saw in 3 years that has stopped and has come down slightly. This is partly due to some big projects in Brazil that have been awarded, but they have not been acquired yet. So they haven't started yet. And these are big projects that TGS was unsuccessful in winning and some smaller competitors won big projects in Brazil that again has not yet started. So we’ll wish them good luck on that. In terms of the guidance for the 2025, obviously we're entering the last quarter of the year. So our multi-client investments, we keep our guidance of $425 million to $475 million. We're probably going to be in that kind of mid-range of that investment guidance. We're going to have approximately 70% of the investment expected to be acquired with our own capacity. In terms of CapEx, as we've said a couple of times today, we're reducing our CapEx guidance from $135 million to $110 million. And on the gross operating cost, we again target $950 million for the year. So that's unchanged from the previous quarter. In terms of utilization, we expect improved utilization year-on-year of our 3D streamer fleet and again, partly helped by multi-client. And then we expect lower OBN acquisition activity, which you have seen, especially over the past quarter or so. So that will be down compared to 2024. And to give you slightly more flavor on that, so we'll start with the order backlog and inflow. So again, as you see, the order inflow was strong this quarter at $430 million -- or above $430 million and that leads to a backlog of $473 million. Again, very weak numbers in Q2 this year, but a relatively solid comeback in Q3, where you see quite significant growth in the order inflow with the resulting increase in the total order backlog. And then you see on the right-hand side, you see the pie chart, and you're obviously familiar to that, and it gives you some guidance in terms of expected timing of recognizing this backlog as revenues. We also provide you with a summary of our booked positions. So basically, this is where our fleet and OBN crews are booked for the next 2 quarters. So you see on the streamer side, you see that we have about 16 months booked for Q4 and you see the composition of contract versus multi-client. And again, as I alluded to you see more multi-client there than contract. And again, if I look into the 2026, that's probably going to be the case. It's going to be more than 50% as we can tell today on multi-client because of good prefunding and a healthy backlog in terms of some of our big multi-client projects, particularly in Brazil. And then on the OBN schedule, you see that we're just short of 2 crews working for Q4, and it's going to be approximately the same for Q1, and it's pretty much 1 crew for multiclient and 1 crew for contract, and it's close to being fully utilized for 1 quarter. In terms of geomarkets, we're going to have contract work for our streamer fleet in Africa, Asia and then multi-client in Brazil. For the OBN, we're going to have contract work in Gulf of America and we're also going to have 1 crew working multiclient in the Gulf of America. We expect total multiclient investments in Q4 of $120 million and utilization, as I said on the left-hand side, you see pretty much how it's going to be for the next quarter. And then obviously, there is still time to book more capacity for Q1 of 2026. So with that, I'm ready to summarize the presentations. Again, pleased to announce solid performance on financial key figures. We had net debt reduced to $432 million based on a free cash flow of about $80 million and $30 million paid in dividends. We've been very disciplined in terms of cash outflow, meaning that we're reducing our 2025 CapEx by $25 million, and this has been reduced several times during the year. So the latest number now is about $110 million for the full year. Obviously, there is -- the short-term market development is sensitive to oil price, but the long-term market outlook, as you've seen from this presentation, remains very positive. And we're maintaining a dividend of $0.155 per share. With that, I want to bring Sven up here and the Bård is going to take you -- take us through some Q&As, and we'll take it from there. Thank you very much. Unknown Executive: Thank you, Kristian. We have a nice audience here in Oslo. So we can start with questions from the audience. Yes, John? Unknown Analyst: Yes. May I ask a little bit of detail on Sven Børre on the OpEx. You mentioned that the gross OpEx is $217 million was $217 million in Q3. And if I add the $10 million that you mentioned as nonrecurring, it will be $227 million. But what did you say -- were there any merger costs included in that $227 million? Sven Larsen: No, no. The merger costs I talked about were just for the comparable ‘24 number. Kristian Johansen: Right. Unknown Analyst: And going forward, what's still the running quarterly cost base in TGS? Is it $227 million? Sven Larsen: I mean we've guided for $950 million annualized. Unknown Analyst: That includes higher OpEx in the first quarter. What's the running on the quarterly basis? Sven Larsen: Yes, it's a bit lower than that. And it will depend a little bit on the activity level. But if you take a little bit lower than $950 million and divide by 4, you should be at an approximately right level. Unknown Analyst: It's not too far away from $227 million then? Sven Larsen: No, it should be reasonably representative. Unknown Analyst: And then a question on multi-client sales in the quarter. You want to specify or give an indication of the transfer fee? Did you book a transfer fee for the Chevron Hess deal in Q3? Kristian Johansen: No, we're not allowed to be specific on which transfer fees we booked, but I think the market has been pretty right in terms of there were a big transfer fee this quarter, and that was related to one transaction. We probably had 2 or 3. We have transfer fees in every given quarter, but there was one that was particularly large. I think the market has speculated that in total, we had transfer fees around $25 million, $30 million. So that's pretty much where it was. Unknown Analyst: And that means that other late sales were probably not too bad either. So I just wonder the key driver -- I assume one of the key drivers in Q3 was the U.S. Gulf -- the American -- the Gulf of America lease round in December. Is that correct? And also more specifically, did you see all the sales that you expect or most of the sales that you -- late sales that you expect in connection with the December round, did they come in Q3? And was there a significant impact on that? Or will you also see it in Q4? Kristian Johansen: Yes. There were a couple of drivers. And number one, you're right. I mean, our late sales was pretty strong regardless of whether you adjust for transfer fees or not. And our transfer fees were far lower in Q3 this year than they were last year, where the transfer fee was very high. I think one driver of the strong late sales in Q3 was a weak late sales in Q2. And I think that's a reminder to the market that when you looked at it, particularly late sales, but overall, the multi-client performance of TGS, you probably have to look at it in a slightly longer perspective. So if you look at the average of Q2 and Q3, you're more back to normalized level and Q2 was embarrassingly low and Q3 is back where we should be. So that was one driver is that Q2 was very low. Transfer fees, we've been discussing that. And the third one, yes, we had impact from the lease sale in the U.S. go that is coming up in Q4. Was that significant? Not really. I mean we're talking 10 to 20 rather than 40 to 60, right? Is there more to be sold? Absolutely. But we don't know when that's going to happen, and we don't know if it's going to happen. I mean it's obviously uncertainty around that. Sven Larsen: What we can say to add to that is that in the licensing round in '23, most of the sales related to that round happen after the round. So the dynamic around this is a bit uncertain, of course. Kristian Johansen: And we have talked about that multiple times that the licensing round, particularly in the U.S. haven't really had the same impact as it used to have. So now we do more of the sales beforehand. So we have much higher prefunding of the surveys that we do in the U.S. GOM today than we used to have historically. And then as Sven Børre said, we have some of our sales after the round is taking place rather than lining up for the licensing round. So it's probably more evenly distributed now than it used to be. In the past, it was always you shot without prefunding and then you had a significant kicker at the -- before the licensing round. And then after that, there was nothing. Unknown Analyst: And my final question before I give the word to somebody else. You mentioned that it's too early to expect a great year for contracted streamers in '26. What do you think it will take? What kind of oil price levels do we need to see to see a great year for streamers in seismic? Kristian Johansen: We've been doing some internal analysis in that regard and looking at the dilemma of an oil company today or an energy company today is that they have this dividend obligations, they have buyback obligations and then they have CapEx and seismic is obviously part of that discretionary CapEx. And with the oil price dropping from $70 and down to $60, although it's higher today, then you obviously put a lot of strain on that kind of dilemma. So are they going to cut the dividend? Probably not. Are they going to cut back on the buybacks? Potentially, yes. Total has already announced that. Are they going to start spending more on exploration? Well, if you listen to what they say and if you listen to what they told me last week, they are, but we haven't seen it yet. And I think with the current oil price, we should be a bit cautious expecting that to kick off in 2026. So we're planning for a market that is going to continue to be quite challenging in that regard. But saying that, when we talk about the contract market, and it is important to say that we should be using at least 50%, perhaps up to 70% of our fleet on multi-client projects. And that's where I'm probably more optimistic today than I was 3 months ago in terms of the backlog that we see building up on the multi-client side. So we're not too concerned about the utilization of our fleet in 2026. But obviously, if you look at the contract market per se, it's not great. There is no reason to question that. Unknown Analyst: And what oil price is needed to change that? Kristian Johansen: We've been saying that you probably need somewhere between $70 to $75 to see a significant increase in exploration. But again, back to what I heard from the CEOs last week and the oil price was $60 at the time. They're saying that we have -- we've been -- we've done a terrible job in terms of exploration, and we need to get better and we need to spend more. Yes Lukas. Unknown Analyst: You said that multi-client performed better than what you expected in Q3. So I guess you had a view on the transfer fees. So what exactly was better than what you expected? Kristian Johansen: You know how it is when you get really beaten up like we did in Q2, you set expectations slightly lower for Q3 and I think that was partly what happened. And we pretty much knew the range of the transfer fee at the time. And obviously, there are always tough discussions on -- and it goes back and forth in many, many iterations before you end up with a number. But that pretty much came in as we expected. I think the market probably estimated that to be bigger or more significant than it was, but we pretty much came in where we thought we would be. Unknown Analyst: And what are your expectations related to the licensing round in Brazil? Kristian Johansen: Yes, there was one yesterday with five-blocks where we had data in most of those areas. And obviously, we see some opportunities related to that. I think the news of the environmental permit to Petrobras is very good for TGS. I mean this has been the area where we have invested more than anywhere else in the world over the past 18 months. Obviously, we've taken some risk on that environmental assessment. And obviously, it's great to see that, that had a positive outcome. So I think -- yes, I think that's as specific as I can be. Okay. Unknown Analyst: And your EBITDA margin on the contract business was nicely up. Is that better pricing, lower costs? Sven Larsen: Yes. We probably don't see better pricing. I think that's fair to say. It's not significantly down either, but it's not kind of the right environment to increase pricing to put it that way. So it's cost control and cost efficiency and obviously also partially these reversals that I talked about in this particular quarter. But that has to be seen over time where it's basically mostly related to costs that have been charged previously. Unknown Analyst: And you are cutting your other CapEx guidance with $25 million. What is that... Sven Larsen: No, we've been working constantly on our cost base and our cash outflow base, so to speak, during this year. And CapEx obviously has been under a lot of scrutiny to try to work that down. At the same time, we need to invest in the business, and we need to be maintaining our fleet well and keep it up to the highest standards, and we need to replace streamers. But we have worked on that streamer replacement program and how we can maintain the current streamers in a better manner and keep them longer and or push or spend more time on that replacement program than we initially planned for. That's essentially what's doing it. And of course, there are a lot of -- we are cautious on all other types of CapEx spending for the time being. Kristian Johansen: There's not a lot of peers to TGS in the streamer space. But if you look at the peer or peers, you will see that our CapEx is far higher. And it's been a reason for that. But of course, there are things we can do in terms of getting that down, and that's what we've done. Unknown Analyst: And if you break down the $110 million between streamers, computing power, vessel maintenance and other, what would the split be? Kristian Johansen: Almost half is related -- purely related to streamers. Unknown Analyst: Can I ask on the CapEx? What should we expect going to '26? Is it fair to assume the same level? Sven Larsen: Yes, we will come back to that when we guide in February. But our ambition is to continue to keep that at a lower -- significantly lower level than what we initially guided for this year, of course. Unknown Analyst: Yes. And did I see an offshore wind contract that you're going to do in July? What vessel will you use for that? Is Ramform Vanguard still going to be stacked? Or do you think you will take that out to do that work? Kristian Johansen: Yes. We haven't made that decision. And again, we stacked it and we're going to stack it and keep it stacked until we see improvements in the market, and we have 6 vessels who can do the job if we need to. But that's something we consider at any point of time, and we're not ready to make that decision today. Unknown Analyst: And one last technicality about how you allocate your streamer vessels. You talked about at least 50% doing multi-client and then also maybe up to like 17%. If you can help us a little bit in '26. What’s… Kristian Johansen: It's too early. What I mean by saying that is that we have that flexibility, and we're not totally dependent on the contract marketing for our fleet. We should be in a position to use at least 50% to 75% on multi-client. We will guide you on -- on a rolling basis for two quarters going forward, but we're not going to give you any more clarity than that. Unknown Executive: Okay. We have a couple of questions from other people on the web. Jørgen Lande in Danske Bank. You mentioned prefunding was a bit lower. Do you expect prefunding levels to trend downwards compared to what you have indicated? Sven Larsen: Probably not a trend, but we are -- we have had, call it, quite high prefunding levels over the past quarters, and it's probably almost naturally high for -- some periods. So I would think that we're -- yes, we think it will be at that 80% to 90% level over time, give or take, but it may vary from quarter-to-quarter depending on the mix of the different projects that we're doing. Kristian Johansen: It also has a lot to do with how much risk do we want to take in terms of if we believe that we're at the bottom of the cycle, and we believe that these CEOs who talk about the need for more exploration. Is this the time to go out and do some frontier work with lower prefunding. I mean that's discussions that we have with the Board at any point of time. And similar discussion to what all companies have in terms of are they going to invest more in exploration for the long-term. Yes. So we have those discussions, and that will obviously have an impact on the prefunding rate. But there is no indication in the market that it's harder to get prefunding than it's been before. Not at all. Unknown Executive: And we have a question from Mick Pickup in Barclays. You talk of advanced multi-client levels, yet consensus that you supplied has investments down in '26 versus '25. This doesn't seem consistent. So without giving guidance, can you talk directionally about '26 multi-client investment levels? Kristian Johansen: Yes. I'm not going to do that. But of course, the consensus is not -- we don't make consensus. We just collect consensus. So if consensus is lower in '26 than it's '25, it doesn't necessarily represent what we plan to do. But it's too early for us to say what we're going to invest for '26. We're in that period right now where we're looking at our investment level. I would be very surprised if it differs significantly from what it does this year. And especially on the downside, I would be very disappointed if we see a much lower number. Unknown Executive: Next question comes from Ole Martin Rødland in Pareto Securities. While order intake was good this quarter, backlog is still at low levels. Based on best expectations, do you assume lower external streamer and OBN revenues in 2026? And will that possibly be offset by higher multi-client investments and revenues? Kristian Johansen: Yes, it's too early to say. What we have been saying today is that we have that flexibility, and we can do it -- if we need to. And the beauty of our business model and the beauty about being fully integrated as we are, and we're the only company in our space that can claim that is that we have the flexibility at any point of time to switch between contracts and multi-client. And there's been speculation as to our price is down in the contract market, how bad is the contract market, et cetera. Well, if it is bad and if pricing is down, then we just do multi-client if we can get funding for multi-client projects. And I think we've delivered today, and we've shown you today, and we even showed you in the past four or five quarters that we generate a return of 2x on our multi-client project. So if pricing is low and if we see that we sacrifice too much on our margins by doing some of those contracts, we don't do that. Sven Larsen: And another point to bear in mind in our multi-client investments in 2025, we have – we still have quite a bit of external investments where we're using external vessels and external providers. It takes -- following the merger, it takes a little bit of time to in-source everything. So you should probably expect more or less 100% of the capacity that we source to be internal in '26. So even if you, for the sake of argument, assumed flat multi-client investments, you could see higher utilization of our own assets on multi-client. Unknown Executive: Okay. Then we have another question from Steffen Evjen in DNB Carnegie. Do you have any leads to sign more OBN contract work over the winter season on top of the current book positions that you disclosed today? Kristian Johansen: Yes. I mean the sales cycles in OBN are longer than streamer. We like to say they're typically 5 or 6 months at least. So that gives you an indication in terms of when you will see new contracts. We have a number of leads. Some of these leads are related to single contracts and some of the leads are related to what we call capacity agreements or bigger long-term agreements with some of our customers. So there are negotiations going on. And obviously, we're going to announce that to the market as soon as we have contracts to announce. Unknown Executive: We don't have any further questions from the web. Any last questions from the people here in Oslo? If not, that concludes the Q&A session. So I give the word to you, Kristian, for your concluding remarks. Kristian Johansen: Yes. Thank you very much for your attention today. And again, as I said initially, it was a relief to come back with better numbers than we had in Q2. We were obviously as surprised and disappointed as you were in Q2, and it's good to see not only that we have a revenue growth of 26% compared to the last quarter, but we see a very strong profitability and all key metrics are very positive compared to previous quarters. So I wish you all the best and looking forward to see you at our Q4 presentation. Thank you very much.
Operator: Hello, and welcome to Inchcape's 2025 Q3 Trading Update. We are now joined by -- today by Duncan Tait, Group Chief Executive; Adrian Lewis, Group Chief Financial Officer; and Rob Gurner, Head of Investor Relations. [Operator Instructions] I would now like to hand the call over to Duncan. Please go ahead. Duncan Tait: Very good. Thank you, [ Sergey ], and good morning, everyone, and thank you for joining us. I'm here with our CFO, Adrian Lewis; and our Head of Investor Relations, Rob Gurner. I'll give an overview of trading and strategic execution during the quarter before handing over to Adrian for more detail on our regional performance and the outlook, which has remained unchanged since March. We'll then take your questions. Our performance in Q3 was supported by market growth, distribution contract wins and ongoing product launches. However, headwinds remain in Asia. We delivered strong organic revenue growth in the third quarter of 8% and reported growth of 7% against softer comparators and in the context of a market growth of 5%. This reflects the underlying strength and diversification of our business as well as consistent operational execution by our teams. We also continue to make progress against our Accelerate+ strategy. We further scaled the group through the acquisition of Askja in Iceland, an exciting new market for Inchcape, where we are now the market leader. This bolt-on acquisition also helps to further strengthen and diversify our global portfolio of OEMs. Our progress in optimizing our business is perhaps most evidenced with the disposal of a retail-only business in Australia, which generated annualized revenue of around GBP 100 million. As we have said before, optimizing our retail network is a core pillar of how we operate as a distributor in providing the most efficient route to market. Our execution against Accelerate+ is also highlighted by our successful track record in winning distribution contracts, including the recent addition of GAC AION in Greece. We're also continuing to optimize our distribution contract portfolio. And in this quarter, we have, in collaboration with our OEM partners, decided to exit 4 immaterial contracts in certain small Americas markets, which are unlikely to provide the opportunity for mutually viable commercial operation. So to sum up, Inchcape's performance during the third quarter was in line with our expectations and demonstrates our ability to execute against our Accelerate+ strategy. This supports our confidence for another year of growth in 2025, in line with our medium-term target to deliver EPS CAGR of more than 10%. And with that, I'll hand over to Adrian. Adrian Lewis: Thank you, Duncan, and good morning, everyone. During the period, the group generated revenue of GBP 2.3 billion, up in Q3, 7% in constant currency and on a reported basis. Reversing out the impact of disposed noncore retail assets and the impact of recently acquired businesses, organic revenue was up 8%, with distribution contract wins contributing around 1/3 of this organic revenue growth. Before looking at the regional detail, at a headline level, the market trends were as expected. Underlying Inchcape TIV was up 5% compared to the first half of the year where industry volumes in our markets were down 2%. This is in part due to softer comparators in Q3, but also a continuation of the improving trends we have seen in the Americas and a strengthening rate of growth in Europe. We outperformed the market with our volumes up 13% to around 91,000 cars in the quarter. And we spoke earlier in the year about the need to see a step-up in volumes in H2 versus H1 as well as improved growth rates. This is a good indicator of the step-up in absolute performance as we anticipated. Summarizing the regions, starting in the Americas, the market environment continues to improve with our performance ahead of the market. Colombia and Peru continue to see very strong growth and Chile, on an underlying basis, is showing positive trends. And it is worth noting that in Chile in September, we saw a very strong market due to regulatory changes, pulling demand forward. This will normalize in Q4. Some markets like Costa Rica remained weaker. We are seeing the usual seasonality in the region this year with our performance underpinned by new product launches and contract wins. Turning to APAC. The macro and competitive dynamics that proved to be a headwind for us in H1 continued with the premium segment remaining weak. The Singapore market continues along the certificate of entitlement up cycle, but remains a highly competitive market as does Hong Kong. Australia returned to growth in the quarter. Our performance in the region is supported by new product launches, such as the Subaru Forester in Australia and a number of Toyota products in key markets. Demand for these is on track, and we expect this to be supportive of an improving performance in comparison to H1. And finally, our business in Europe and Africa continues to show positive momentum and market outperformance, especially so in Romania and Bulgaria, where we have seen strong growth. Growth was enhanced by the contribution from the contracts announced in recent years across the region as well as a first contribution from our Icelandic operation. While only a revenue update, as expected, we have seen reducing inventory levels since the position at the end of June. And as Duncan mentioned, we have maintained our disciplined approach to capital allocation. And alongside the acquisition of Askja, we have now acquired approximately GBP 200 million of our own shares, equating to 8% of the shares in issue as part of our GBP 250 million share buyback program that will be supportive of EPS growth. In relation to acquisitions, we see these as a crucial part of our growth strategy, and we remain disciplined on valuation as we look across a healthy pipeline of bolt-on acquisitions. And finally, on to outlook. Reiterating our position through the year, we have -- we continue to expect another year of growth at prevailing currency rates, including the impact of tariffs. Our outlook for this year is based on our expectation for a stronger second half of the year compared to half 1, and our performance in Q3 is supportive of this. Our performance in the second half continues to be driven by product launches in a number of markets. And so far, these are progressing in line with our expectations. Additionally, we continue to manage costs, inventory and working capital, and you have seen us take further steps in the optimization of our retail network. We continue -- we expect to deliver a higher rate of EPS growth relative to profit growth this year, driven by our operating performance and capital allocation and in line with our medium-term target of greater than 10% compound annual growth rate. So now let's take your questions. Operator: [Operator Instructions] First question is from Arthur Truslove from Citi. Arthur Truslove: First question just on capital allocation. Can you just remind us how you think about the scenario in which there would be another buyback at full year? And second question from me, obviously, your price mix element is slightly sort of negative 5% or thereabouts in the quarter. Are you able to just talk about how that likely impacts margin and things like -- how the price mix likely impacts margin, please? I know that's something that has been a concern to people in the run-up to this. Duncan Tait: Good morning, Arthur. Adrian, over to you both, please. Adrian Lewis: Thank you, Duncan. Thanks, Arthur, for the questions. So I'll start with capital allocation. And I think our policy, Arthur, is really clear. What we said in our medium-term guidance that was issued in March is that on the back of a very highly cash-generative business, turning profit after tax into cash at around 100%, we'll pay dividends with 40% of EPS, and then we will do share buybacks and M&A. And the balance between those 2 with the cash that we generate will be around -- will be decided based on a disciplined approach to valuation, and that's in the context of our own shares and a very healthy pipeline of bolt-on acquisitions. As I said in my words, we are super excited about expanding the scale of this group. We were very pleased to find value in the Askja deal and continue to look at a pipeline of bolt-ons that were very -- that I think can add scale to this group. But as we have done this year, you can expect us to be disciplined about how we do that in 2026. On price mix, what you've seen -- and absolutely, you've got it right. So look, 13% volume growth in the context of a market growth of 5% and an organic revenue growth of 8%. So what you're seeing there and that delta between the 13% and the 8%, is really about a faster-growing Americas region, a faster-growing Europe and Africa region, where we play in segments that have a lower average selling price in comparison to Asia, which in proportion to the rest of the group is smaller in proportion than it was in previous years. 1/3 of our Americas business is Chinese brands, and 1/3 of our growth rate this year has come from new contract wins, which, as you know, is skewed towards Chinese brands. What that's doing is bringing down the average selling price. We've been pretty consistent around our view on margin and how we think about margin as we look forward at around circa 6%. And I wouldn't -- and I don't think you should think about that price mix and changing mix within the business as a headwind to margin. We're about driving scale through this organization, leveraging our overhead, and that's what's going to underpin margins as we look into the medium term. Arthur Truslove: Just one follow-up. Obviously, about 18 months -- well, 12 to 18 months ago, you presented some data on the profit progression in new contracts. Is it reasonable to think that these contracts that are growing very nicely are progressing in line with what you presented that in the Driving Seat episode? I think it was in May 2024, if I remember correctly. Adrian Lewis: Yes. I think Arthur, great question. I'll take this one, Duncan, if I may. Yes, look, you started to see us disclose the contribution that they are making to our overall growth. It's around 1/3 of the 8% has come from contracts that have been signed over the recent few years. And I think net-net, we're at about 50 contracts in aggregate that we've signed over the last few years. And the vast majority of them are still in year 1 and year 2. And that 5-year time line that we presented back in that in the Driving Seat webinar, how the average contract evolves, I think we're still pretty consistent with, and we're seeing those 2022 and 2023 contracts starting to climb up that curve. I'd say one thing we have noticed it sometimes takes us a little to get from the moment of signing through to products in the market. Sometimes it's getting through homologation process, getting all the right vehicle specification documents into local governments where we're working with brands that aren't necessarily used to working in export markets and international markets. That's taking us a little bit longer to get out of the blocks perhaps, but the trajectory of maturity continues to be on that archetype as we presented in May last year. Operator: Our next question is from Abi Bell from UBS. Abi Bell: Just wanted to ask 2 questions about the growth building blocks. So firstly, your comment that 1/3 of the growth was from contract wins, so this is about 2.7% of organic revenue growth. Should we assume that is the rough contribution you'd expect in Q4 and at the start of next year? And you've won a lot [Technical Difficulty] you mentioned. So any help on timing of the ramp-up, that would be [Technical Difficulty]. And then secondly, your markets were clearly strong this quarter. I mentioned there were some markets like Chile, and it sounds like you expect Q4 to be slightly softer, but the contract wins and end markets, do you expect Q4 to see positive growth at this stage? Duncan Tait: Thank you so much, Abi. Adrian, you again. Adrian Lewis: Yes, so 1/3 of our growth absolute [Technical Difficulty] contracts, we're really pleased with that. Those contracts, which I referred to earlier as sort of 2022 and 2023 beginning to hit their straps as we expected to, as we -- when we look at the maturity curve that we expect to see. We expect them to provide a contribution into Q4. And I think I'd point you to our medium-term guidance framework, which talks about a market outperformance. Market is growing at around 1% to 2%, 2% to 3% outperformance to give a 3% to 5% volume growth. That's the sort of framework and how you should think about rolling forward, the contribution from these contracts that we've been running over recent years. As I said, a lot of them are still in the foothills of their growth maturity curve, and we've got work to do to make sure that they contribute as we expect them to over the '26, '27 and '28 time period. On growth rates, looking into Q4, as we've said in the statements and in our words, Q3 had some softer comps. So I would expect Q4 to be a growth quarter for us, but I wouldn't expect it necessarily to be as strong as we have seen in Q3, in part due to the comparators. Duncan Tait: Is that helpful, Abi? Abi Bell: Yes, that's great. Just a quick follow-up. Do you think you'll be disclosing the contract contributions going forward in your remarks or materials? Adrian Lewis: I think we've heard investors and our analyst community loud and clear that a greater level of disclosure in this regard is helpful. So you should expect to see us to start to talk about how it contributes to the group, both strategically and in the near-term results. Operator: We'll now take our next question from David Brockton from Deutsche Numis. David Brockton: I also have 2 questions as well. Firstly, could I just return to the price/mix headwind from the first question. I guess one element there that's been contributing has been a softer premium market, particularly in Asia. And as you look towards next year for the business, can you just comment on whether those pressures should ease as you lap this year? Or is that on a worsening trend in that segment, please? The second question relates to Australia. Just a clarification for me. Can you confirm you're now completely out of retail activity in Australia? And is the sort of strategy evolved there? Or am I missing something because I thought there was a benefit to the partially integrated model there? Duncan Tait: Very good. Thank you, David. Look, I'll take those. So specifically about Asia, look, we we've seen 2 dynamics in Asia this year. One is more pressure on the premium segment, and we've seen those declines, which we referred to at our interims of a 40% decline in the premium market in Indonesia as an example. And then generally across Asia, it's a really, really competitive environment. Do I expect 2026 to see a big step-up or an improvement in that environment in Asia? Look, I think our teams are executing pretty well. But we -- do I expect the premium segment to bounce upwards or for the competition and the competitive environment to reduce? No, I don't. So I think we will continue to execute well, but Asia is super competitive and the premium segment is still quiet. But what I would say going back to the way Adrian is encouraging us to think about 2026 is we should apply our medium-term growth framework to how we think about 2026. Then just in terms of Australia and retail, so let's be clear about what we're trying to do. We have had a program over the last half a decade or so of reducing our exposure to pure retail. So like the U.K. business where we don't have distribution contracts, but we had end retail, and in Australia, what you see us do is take those dealerships in Brisbane, which are supporting OEMs where we're not the distribution partner, that is the business we've sold. So it's exactly like you've seen us do in the U.K., the way you saw us exit Russia and other businesses in that regard. In terms of our distribution business, retail is super important. We don't need to own and control all of it. And in fact, in Australia, we own about 20% of the retail, physical retail that supports our distribution contracts in that country. And I would remind you, we've just launched Foton in Australia also. Operator: Our next question is from Akshat Kacker from JPMorgan. Akshat Kacker: A couple of questions, please. The first one is on the mutual exits from the small contracts in Americas that you've talked about. I see that 3 of them are with Geely. And obviously, this comes on the back of the exit from Chile at the end of last year as well. And I do remember that you have a global cooperation agreement with Chile -- with Geely, sorry. So just a question on Geely still is an important distribution partner and how are your discussions actually evolving with them? If you could just share some more details, that will be helpful. The second one is on Asia, and I appreciate it's a Q3 trading call. You've talked about a very competitive environment. There are continuous headwinds. Could you talk about the margin recovery potential for that region going into the second half, please? We've obviously come down from the 8% to 9% margins in the last few years to 6.5% in the first half, but now we have higher volume contribution and positive momentum from product launches. Could you just talk about Asia margins, please? Duncan Tait: Yes, sure. Akshat, let me clarify your second question. Are you talking about the Americas region? Akshat Kacker: Asia. Duncan Tait: It's Asia, okay. Very good. Thank you very much. I do want to clarify that. Look, I'll take the first question and Adrian on the second. So look, let's put this in context. We've won over 50 contracts over the last few years, many of them in our Americas business, with OEMs from Europe, from Japan and from China. And we did sign a global relationship with Geely just a few years ago. So if you look at the Geely brand itself, yes, we have now exited the contracts that we signed in the Americas. We have done so in a highly collaborative basis with our OEM partner. And we genuinely wish them all the very best as those contracts move to other third parties. But actually, let's not forget, we've also signed a whole bunch of contracts with smart, which is a Geely joint venture with Mercedes. We have our Volvo business also in the Americas, and I'd hope that we would have some more Volvo businesses over time. So in terms of our relationship with Geely group, I think that's in super shape. And those particular brands that we've exited, look, they're better off with other parties running those distribution contracts in those small markets in Central America. Adrian Lewis: And in respect of margins, Akshat, and you took the words right out of my mouth. This is a trading update, so I won't comment very specifically. Safe to say, you're absolutely right. This descaling effect we saw in the first half of the second half skew of volumes weighed on margins. We've seen that scale come back in the third quarter and expect to do so with product launches in the fourth quarter. We launched Subaru Forester into Australia. We've got some product going into Singapore and Hong Kong, EV going into Hong Kong with the bZ3X started this month. And we've got some -- the Noah product going into Singapore. They play in certain segments, which will be helpful to us, particularly in MPV, fleet and taxi. So we should see the -- we expect to see the rescaling effect in Asia. Save to say that, that premium segment continues to be weak. And referring to Duncan's comments around it being a very competitive environment. We've seen an improved performance in Q3 in the context of a market that is now flat and in the context of our half 1 performance. But I want you to sort of hear the words of caution of Asia being a difficult environment for us, but that rescaling effect will be supportive of a better margin profile in half 2. Operator: Our next question is from Andrew Nussey from Peel Hunt. Andrew Nussey: A couple of questions from me as well. First of all, given the significance of the new contracts in terms of the growth profile, can you just give some color around the pipeline in terms of signing up new contracts, whether that's sort of OEM or region? And secondly, we cast our minds back to the disposal of the U.K. retail operations. I think from recollection, you retained some of the liabilities from any potential misselling of consumer products and commissions and what have you. Given the recent FCA paper, do you see any exposure for the group there in terms of that historic disposal, please? Duncan Tait: Very good. Andrew, I'll take one. Adrian will follow up on number two. So in terms of contracts, so we've won a lot, as I keep on saying on this call and in our previous engagements, and they're starting to come through in our revenue growth in the second half, which I am pleased about. And generally, I've said this group will win somewhere around high single into double digits contracts annually. This year, so far, gross number is 9. Do I think we'll sign a few more contracts before the end of the year? Most likely. And then, look, are we going to hit 10-ish every year? This is a bit of a lumpy business in terms of contract wins. But the teams are doing well, and we're talking to key OEM partners across our 3 regions. So in summary, you should expect us to sign a few more before the end of the year. Adrian Lewis: And Andrew, in relation to the U.K. retail disposal, your recollection is absolutely correct. We did provide an indemnity in certain circumstances where that FCA investigation was going to come back to us as was appropriate at the time. Now the FCA is in their redress scheme, is in a consultation period. So it wouldn't be appropriate for me to comment on how that would conclude before that does conclude. And I'd just point you back to what we said in our half year statements, we had an unquantified contingent liability set in our disclosure schedules, and we'll have to reconsider our position post the consultation period as that plays through for consumers through the third and fourth quarter, and you'll see more in our full year financial statements in the spring. Operator: [Operator Instructions] And we will now take our last question today from Sanjay Vidyarthi from Panmure Liberum. Sanjay Vidyarthi: Just one for me. I'm just looking at the TIV data that you provided. Just a couple of ones that I'd like to go on, Hong Kong. Is there anything in terms of phasing there in that being up 43% in Q3? And then just across Europe, there's been remarkable strength, double-digit growth across most of the markets. What's driving that? Duncan Tait: Good morning, Sanjay. Over to Adrian for both. Adrian Lewis: So Hong Kong data, yes, look, you remember last year, we talked about tough comps in the first half and weaker comps in the second half. And what you see in Hong Kong data was a little bit of that playing through. Hong Kong is 10,000 units, 10,000 to 11,000 units a quarter business. We're lapping an 8,000 unit quarter in Q3. And that's because there was a pull forward into Q1 last year -- sorry, Q2 last year with some regulatory changes where they changed the taxation rates applied to EVs on imports. That's what skewed the market. 12,000 cars in the quarter is a pretty decent quarter in what is a highly competitive market. There's nothing in this year's phasing that would indicate that's a pull forward, but we see that market as being a broadly 40,000 unit market and pretty stable at that level through the year. In relation to Europe, yes, look, absolutely, we've seen a very strong market performance. There are some nuances in there, both slightly weaker comp, and you can see that in the historics. Romania has a slight inflated number, I would say, because of some -- again, some regulatory changes there. We expect that to level out a bit into the fourth quarter, and you can see some fairly spiky quarterly data in Romania, big negative, big positive. I'd encourage you in the circumstance for Europe to look at a full year rate of growth for the market as a barometer for momentum in the region. David Brockton: Okay. Understood. Is there any kind of distortion there from EV sales? Or is there anything to think about on that not just Romania but across Europe? Duncan Tait: I would point to Bulgaria -- sorry, Belgium and Luxembourg as being a market that is shifting towards EV very quickly in relation to some taxation changes that came into effect at the start of this year, and that's a market that is shifting quite quickly to EV and BYD, where we're distributing for them has been -- we've been real winner in that space in that regard. And that's -- when we talk about some of the momentum we're seeing in those contracts, that BYD Belgium contract is one of those early ones that where we're seeing that business gather pace. That's the only EV point I would make. And obviously, you can see the market data there was fairly flat, but it is a market that's shifting to EV. I wouldn't read the other market growth rates as an indicator of an accelerated curve. Operator: It appears there are currently no further questions. With this, I'd like to hand over back over to Duncan for closing remarks. Over to you, sir. Duncan Tait: Thanks very much, [ Sergey ]. So thank you for joining us this morning, everyone. To summarize, our performance in Q3 was supported by market growth, distribution contract wins and ongoing product launches, while headwinds remain in Asia. We reiterate our outlook for 2025, and we remain well placed to deliver on our target of greater than 10% EPS growth over the medium term. That's it from us. Please get in touch as well if you'd like to follow-up on anything we discussed today. Bye.
Operator: Hello, and welcome to the AutoNation, Inc. Q3 Earnings Call. My name is Harry, and I'll be your operator today. [Operator Instructions] I will now hand the conference over to Derek Fiebig, VP of Investor Relations. Please go ahead. Derek Fiebig: Thanks, Harry, and good morning, everyone. Welcome to AutoNation's Third Quarter 2025 Conference Call. Leading our call today will be Mike Manley, our Chief Executive Officer; and Tom Szlosek, our Chief Financial Officer. Following their remarks, we will open up the call to questions. Before beginning, I'd like to remind that certain statements and information on this call, including any statements regarding our anticipated financial results and objectives, constitute forward-looking statements within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks that may cause our actual results or performance to differ materially from such forward-looking statements. Additional discussions of factors that could cause our actual results to differ materially are contained in our press release issued today and in our filings with the SEC. Certain non-GAAP financial measures as defined under SEC rules will be discussed on this call. Reconciliations are provided in our materials and on our website at investors.autonation.com. With that, I'll turn the call over to Mike. Michael Manley: Yes. Thank you, Derek. Good morning, everybody. Thank you for joining us today. And as usual, I'm going to start on the third slide. Firstly, we were very pleased to report our strong third quarter. We delivered 25% adjusted EPS growth, generated strong cash flow and deployed significant capital for share repurchases and acquisitions while maintaining our leverage at the lower half of our targeted range. Overall market conditions for New and Used Vehicles, we think are reasonable and holding up well, industry inventory of about 2.6 million units remains well below the 4 million units which was the norm ahead of the pandemic and units are down about 6% year-to-date. I think OEMs have been adding some production, but overall, inventory levels are in good shape. New vehicle sales remained below historical standards with the year-to-date light vehicle [indiscernible] averaging 16.3 million units and the retails are averaging around 13.6. Our industry sales are up 5% year-to-date, with about half of that increase attributable to a strong performance in March and April. But we think comparisons will probably get tougher in the fourth quarter as we [indiscernible] of $16.7 million and $13.9 million, respectively. The tariff story continues to evolve. Most of the negotiations with major trade partners are nearing completion, and the effects on the auto industry, I think, are becoming clearer. The impact on the OEM profitability is significant and well chronicled but they're clearly not standing still. There will be manufacturing relocations and other actions to drive a more efficient tariff supply chain and the knock on impacts of the dealers and consumers are beginning to play out as well. We expect decontenting and reductions in trim levels, additional fees and moderation in incentives and marketing spend. Now in the third quarter, we've already started to experience a reduction in certain types of incentive spending, which I will discuss a little bit more shortly. Our same-store sales of New Vehicles increased 4.5%, largely in line with the overall industry and unit growth was led by our domestic segment, which increased 11% from a year ago on a same-store basis. Import brand also increased and Premium Luxury was slightly down. With the expiration of government incentives for EVs on September 30, there was a significant increase in sales of Hybrid Vehicles, which were up 25% from a year ago and [indiscernible], which increased 40%. With the incentive exploration in mind, we reduced our BEV inventory by approximately 55% from year-end to around 1,550 units or less than 20 days of supplier quarter end. New Vehicle profitability moderated in the quarter as one might have expected with the mix of ourselves being more heavily weighted to bad and domestic vehicles. And as I mentioned, our [indiscernible] incentive spending played a part in here as well. [indiscernible], it is worth noting over the course of the quarter, we did see an improvement in unit profitability with September closing out more strongly than the average. Used Vehicle gross profit increased 3%, which was 2% on a same-store basis year-over-year as we benefited from stronger unit sales and improved performance in wholesale. Our unit sales increased 4% overall and more than 2% on a same-store basis, outpacing the industry. We had strong performances for the over $40,000 price point. In terms of acquisition, the team did a nice job acquiring vehicles through trade-ins and directly from consumers to our We'll Buy Your Car effort and these channels accounted for around 90% of the vehicles acquired in the quarter. We ended September with over 27,000 Used Vehicles and inventory, which has positioned us well for the fourth quarter of this year. Customer Financial Services gross profit was the highest we had ever reported in a quarter increasing 12% from a year ago. We continue to attach more than 2 products per vehicle with extended service contracts continuing to be the top offering which is, of course, fantastic for our future After-Sales revenue and customer retention. Our finance penetration was higher from a year ago with around 3/4 of units [indiscernible] with financing and we benefited from improved margins on vehicle service contracts. The momentum in After-Sales continued. We delivered record [indiscernible] revenue and gross profit. Total gross profit increased by 7%. The total gross profit margins expanded by 100 basis points from a year ago. Our growth was led by customer pay, which reflects our ongoing customer retention efforts. We continue to focus on our technician workforce by recruiting, retaining and developing our technicians. And I think we're continuing to see positive signs here. Turnover has decreased and franchise technician hand count increased 4% from a year ago on a same-store basis. Now the strong momentum at AN Finance continued originations have nearly doubled from the year prior, and we continue to scale the business with the portfolio now exceeding more than $2 billion. The portfolio and balance continues to perform in line with our expectations from a delinquency and a loss perspective and the business's base cost to remain reasonably stable, enabling good profit scaling as the portfolio grows. Our Q3 performance, combined with our share repurchases, helped us to grow our adjusted EPS by 25% from a year ago. This was the third consecutive year-over-year increase in adjusted EPS. Cash flow for the quarter and year-to-date was also strong. On a year-to-date basis, our adjusted free cash flow is 1.7x that for 2024, and Tom will talk a little bit more about that after me. Our investment-grade credit rating and balance sheet, as you know, is really anchored around a low net capital, high free cash flow model, enabled us to once again deploy significant capital in the quarter for both share repurchases and acquisitions to improve our franchise density and portfolio in existing markets. We've expanded our presence in 2 key markets, including the acquisition of a [ Ford and Matastore ] in Denver as well as an [ Audi ] in the Mercedes store in Chicago. All in all, I think, really good results and good progress from the automation team. And as usual, it is their results that have delivered this. So thank you all, many of you listen. At that time, I'm going to hand it over to you to take everyone through the results in more detail. Thomas Szlosek: All right. Great. Thanks, Mike. I'm turning to Slide 4 to discuss our third quarter P&L. Our total revenue for the quarter was $7 billion an increase of 7% a year ago on both total store and same-store basis. We achieved attractive same-store growth across the entire business, including double-digit growth in Customer Financial Services. 7% increase in same-store new vehicle revenue, which reflects new unit volumes across all 3 segments and After-Sales growth of 6%. Gross. Profit of $1.2 billion increased by 5% from a year ago, reflecting same-store CFS growth of 11%, After-Sales growth of 7% and Used Vehicle growth of 2%. The growth was offset in part by a decline in New Vehicle gross profit. Adjusted SG&A of 67.4% of gross profit for the quarter was in line with a year ago. For the year-to-date, we are at 67% within our targeted 66% to 67% range. Adjusted operating income increased by 9% and margin of 4.9% increased modestly from a year ago, reflecting excellent growth and performance in CFS and After-Sales, offset by moderation in new vehicle gross profit -- our unit profit. As a reminder, CFS and After-Sales comprise close to 80% of our gross profit together comprised a gross margin rate of more than 60% of revenue. Below the operating line, floor plan expense decreased by $13 million from a year ago as average rates were down approximately 100 basis points, combined with lower average outstanding borrowings. Non-vehicle interest expense was approximately flat from a year ago. As a reminder, we reflect floor plan assistance received from OEMs in gross margin. This assistance totaled $34 million compared with $38 million a year ago. Net of these OEMs have net new vehicle floor plan expense totaled $12 million, down from $20 million a year ago. In all, this resulted in an adjusted net income of $191 million compared to $162 million a year ago, an increase of 18%. Total shares repurchased over the 12 months decreased our average shares outstanding year-over-year by 5% to 38.1 million shares, benefiting our adjusted EPS, of course, which was $5.01 for the quarter, an increase of nearly $1 or 25% from a year ago. Adjusted EPS for the quarter excludes the $40 million in business interruption insurance recoveries related to last year's CDK business incident. Also the year-over-year comparison of adjusted EPS benefited from non-reccurence of the residual effects of the CDK business incident that adversely impacted the third quarter last year by approximately $0.21. Slide 5 provides some more color on New Vehicle. New Vehicle Unit volumes increased 5% from a year ago in total store, on a total store basis and 4% on a same-store basis. Total store unit sales were led by domestic vehicles, which grew approximately 12% in the quarter, followed by import growth at 4%. Premium Luxury was relatively flat year-over-year. By powertrain, Hybrid New Vehicle unit sales representing 20% of our volume, were up nearly 25% from the third quarter of a year ago. BEV New Vehicle sales representing nearly 10% of our volume, we're also up more than 40% year-over-year and on a sequential basis. Our New Vehicle unit profitability averaged approximately $2,300 for the quarter, down approximately 500 from a year ago for the reasons Mike mentioned. New Vehicle inventory amounted to 47 days of supply, down 5 days from the third quarter of last year and down from 2 days or down from 2 days at the end of June. The strong BEV sales during the quarter reduced battery electric inventory close to 70% from a year ago to less than 1 month of supply. For the fourth quarter, we expect the mix of new unit sales to improve, including less Battery Electric Vehicles and a higher percentage of Premium Luxury, reflecting seasonal strength during the holiday season. Turning to Slide 6. Used Vehicle retail sales improved on a total store basis by 4%. Average retail prices were up about 4%. Used Vehicle retail unit profitability of [ 14.89 ] was lower than a year ago, reflecting higher acquisition costs, but remains in line with historical levels. Total used gross profit increased 3% from a year ago, reflecting increased units and stronger wholesale performance. We remain focused on optimizing vehicle acquisition, reconditioning, inventory velocity and pricing. Overall, industry supply of Used Vehicles remains tight. We continue to be competitive in securing our vehicle supply from our retail operations, including trade-ins, We'll Buy Your Car, services loaner conversions and lease returns. We source more than 90% of our vehicles from these channels and are encouraged by the level and quality of our Used Vehicle inventories heading into the fourth quarter of the year. Turning to Slide 7. Customer Financial Services. Momentum continues to be strong for CFS. Gross profit increased 12% on a total store basis. Approximately 2/3 of the increase was from higher unit profitability. The rest was volume related. The results reflect improved margins on vehicle service contracts, consistent product attachment and higher penetration of finance products. The continued unit profitability performance in CFS is even more impressive considering the growth of AN Finance which, while superior long-term profitability dilutes our CFS PVR unit profitability. In fact, without the AN Finance dilution, our CFS per unit profitability would increase by an additional $30 from a year ago. Slide 8 provides an update on AN Finance, which is our captive finance company. As expected, the profitability of this portfolio is gaining meaningful traction as the portfolio matures and we get leverage on the fixed cost structure from the outstanding portfolio growth. Year-to-date, you can see that we improved from a $10 million operating loss in 2024 to a $4 million operating profit in 2025. During the third quarter, we again originated more than $400 million in loans bringing the year-to-date originations to more than $1.3 billion, nearly double our originations from last year. We had approximately $160 million in customer repayments in the quarter. Portfolio has more than doubled since last year is now greater than $2 billion. The quality of the portfolio continues to be credit and performance metrics are improving with average FICO scores. Our originations of [ $6.97 ] year-to-date compared to [ 6.74 ] a year ago. Delinquency rates at quarter end of 2.4% or solid and losses are stable as a percentage of the portfolio. We do expect delinquency rates to continue to normalize as the portfolio continues toward full maturity with delinquency rates migrating to the 3%-ish range. Our loss reserving methodology incorporates this expectation. The nonrecourse debt funded status of the portfolio also continued to improve as we have improved advance rates for our warehouse facilities and are benefiting from higher nonrecourse debt funding levels from our ABS issuance in the second quarter. Just going to 86% debt tonnage status that you can see on the page, released over $100 million of equity funding back to AutoNation. As we become a more regular ABS security this year, we expect to further increase the nonrecourse debt funding proportion of the portfolio, and we expect to carry out a second ABS transaction before the end of the first quarter 2026. Closing off [indiscernible] finance, the businesses attractive offerings are driving strong customer takeup, and we continue to expect attractive ROEs in the business driven by profitability growth and the shrinking equity. Moving to Slide 9, After-Sales. Representing nearly 1/2 of our gross profit, continued its revenue and margin momentum and gross profit posted a third quarter record for AutoNation. Same-store revenue increased 6% and gross profit was up 7% led by customer pay, which increased 10%. Internal and warranty were also higher than prior year, reflecting higher value repair orders along with higher overall repair orders. Our total store gross margin increased 100 basis points to 48.7% of revenue. We remain focused on hiring, developing and retaining our technicians. And as Mike mentioned, these efforts helped us to increase our franchise technician headcount by 4% from a year ago on a same-store basis. The increased technician workforce is a key to consistently driving that mid-single-digit growth in after sales gross profit. On Slide 10. Adjusted cash flow for the 9 months of the year totaled $786 million, which is about 134% of adjusted net income, and this compares to $467 million or 91% a year ago. The big increase reflects stronger operational performance, including our continued focus on working capital and cycle times as well as CapEx management and prioritization, which resulted in a $40 million lower spend on CapEx in 2025 and '24 as well the recovery from the CDK outage, including the $40 million in business interruption insurance receipts in the quarter. Our CapEx to depreciation ratio was at 1.2x compared to 1.5x a year ago. We continue to expect healthy free cash flow conversion for the full year. Slide 11, capital allocation. As we've discussed in the past, we consider capital allocation opportunity to either reinvest in the business in the form of CapEx or M&A or to return capital to share owners via share repurchase. Year-to-date, we've deployed over $1 billion in capital, as you can see on the page. We remain prudent in CapEx, which is mostly maintenance-related compulsory spending and totaled $223 million for the first 9 months of 2025, which is 15% lower than 2024, as I previously mentioned. We continue to actively explore M&A opportunities to add scale and density to our existing markets. So far this year, we spent approximately $350 million closing on transactions in Denver and Chicago, which Mike discussed. Share repurchases have been and will continue to be an important part of our playbook year-to-date. We've repurchased $435 million worth or 6% of the shares that were outstanding at the end of 2024 at an average price of $183 per share. In the 9 months ending September 30, we repurchased September 30, 2024, we repurchased $356 million at an average purchase price of $159 per share. In our capital allocation decisioning, of course, we consider our investment-grade balance sheet and the associated leverage levels. At quarter end, our leverage was 2.35x EBITDA, down from 2.45x EBITDA at the end of last year and well within our 2 to 3x long-term target which gives us additional dry powder for capital allocation going forward. Now let me turn the call back to Mike before we go to question and answer. Michael Manley: So I think we just go straight into Q&A. Derek Fiebig: Harry, if you could please remind people how to... Operator: Yes, of course, no problem at all. [Operator Instructions] And our first question will be from the line of Michael Ward with Citi Research. Michael Ward: Thank you very much. Good morning, everyone. I wonder if you can quantify, it looks like the variable gross per unit from 2Q to 3Q went down by about $250. And it looks like -- is it split about equal between the unfavorable seasonal mix with Luxury and then in the BEV sell-up. Is that what we're looking at? And how does that reverse? Or does it fully reverse in 4Q? Michael Manley: Yes. Mike, I'll answer first and then Tom if you've got anything that you want to attend. So I think you saw 2 effects really on the growth. Obviously, everyone is talking about the significant increase in BEV mix, and there's no doubt about it that margins are absolutely -- were absolutely terrible and have been terrible for some time, but we'll talk about our view on how that moderates going forward. So we -- it's still -- even though they increased significantly, it was only 10% of our total mix and it did have an effect on our margin, the biggest effect, frankly, came from our domestic combustion or [ life sales ], where we saw quite a compression, particularly in the middle part of the quarter. We were able to reverse that to some extent as we came out of the quarter, as I alluded to in my comments, and I was pleased with our exit trajectory, but I think we had too much pressure on our domestic mix, as I said, in the middle of the quarter. And that was the largest contribution to the sequential and year-over-year reduction. I think we've got better balance now going into Q4 with regard to that. And I do think that we are going to see a much better dynamic with regard to supply and demand on BEVs in Q4, and we could have a relatively long discussion about what does the effect of the loss of the $7,500 due on that? And what's the thoughts about that? But I do think that we have a better dynamic in terms of supply, matching demand and therefore, less pressure potentially on margins. So a long answer to your question. It was actually more from our -- the highest contribution with our domestic sales. And Tom mentioned, they were up [ 11% ] in the quarter. There was, of course, an impact of BEV, but remember, it was only 10% of our total mix. Some of which will get mitigated as we go into the Q4 and you'll obviously get the benefit if we see normal patterns of a better luxury premium mix in December. Tom, do you want to add anything? Thomas Szlosek: No, I think you hit them all, Mike. Michael Ward: And the flip side of that is you have this record level of finance and insurance per unit. Any reason that won't continue? Michael Manley: Well, I have expectation that team has continued to grow their contribution to our company throughout my 4 years now with AutoNation. And they are led by a great group of people in the dealerships, by the way, in our markets and here. So our expectation is that their performance will continue. And I think the thing that Tom and I are delighted about is that it's really in value-added products. We mentioned the attachment rate, for example, of [indiscernible] service contracts. And it is clear that, that really for us is good for the future in terms of loyalty and in terms of our After-Sales business. So there's no reason why we would see that not necessarily change. It is and will continue to be mitigated by increased penetration of AN Finance in terms of the periodic reporting of that. But over the long term, the contract turn, we're better off with the overall returns AN Finance delivers rather than the one-off contracts we sell on behalf of others. Operator: The next question today will be from the line of Rajat Gupta with JPMorgan. Rajat Gupta: I just wanted to ask a little bit of a high-level question on just the auto credit trends. You noted that delinquencies were flat quarter-on-quarter looks like your average FICO mix is a little similar to some of your public peers out there, you know CarMax and others. I'm curious like, is there anything in the data that you see or the performance that you see in your loan book that concerns you with regard to the health of consumer with regard to how maybe losses or delinquencies have been performing within the quarter, maybe in certain cohorts of the consumer? Any more color you can share there would be helpful. And I have a follow-up on the Used car business. Thomas Szlosek: Yes. Thanks, Rajat. This is Tom. Good question. And obviously, there's a few headlines with some of the well-chronicled issues that came through in a couple of the larger portfolios this quarter. Obviously, that makes us double down and look at everything that we're doing, and we're very, very confident in the portfolio. I mean the growth has been outstanding, the financing levels continue to grow, minimizing our equity. But importantly, the portfolio itself is something that we look at very closely. Mike looks at it every week. And we look at not just the delinquencies, the delinquency rates, but we look at loss rates and write-offs, high vintage going all the way back to the start of when we were -- we did this business. The trends are all in line with what we expected. Our reserving has reflected those expectations and not seeing anything by way of acceleration in anything like repossessions or first payment skips or anything like that, that is not already reflected in how we manage the book. So I'm pretty good, pretty happy knock on wood with how that's been going. Rajat Gupta: Understood. That's helpful color. Just following up on the Used Car business, you had a pretty strong same-store growth number last quarter. Looks like it slowed down a bit. I'm sure like there's been some effect of the prebuy that happened last quarter that's causing the decel. But curious if we can get an update on some of the initiatives you talked about last time on improving the business there, both growth and profitability, where you are in the time line of that progress? And should we start to see further acceleration in that growth here over the next few quarters? Michael Manley: Yes. I'll give you an answer to that question. I would tell you that one of the things that we talked about was that we believe that we could grow our Used Car business, and we are -- we are growing our Used Car business above the industry. And all of those things are continuing to happen and our margin is relatively stable, albeit there's some downward pressure on it. So I think if you look objectively at our performance, you will say, yes, it's market, that's a good performance or some people would. So I would tell you that the team and I are really, really focused on what the other possibility here. And we are maintaining higher stock levels for the sale than we would normally have. Historically, I'd like to make sure that we have an inventory turn rate that for me, balances, obviously, the depreciation that we're now back into a normal cycle with how long we're keeping those vehicles in our inventory. And we're not at that turn rate but the level of inventory that we're carrying today. We are typically the team would balance back down to just above their run rate to give them room to grow. But we're not going to do that time. We're going to hold the line with higher inventory on Used for a period of time. While we continue to work on the other levers to get our run rate to get back to the turn levels that we would expect. Now the consequence of that, of course, is the depreciation effect on our margin will be there for a period of time and will continue, frankly in Q4. And as you know, when you think about depreciation impact and it is completely time based that put some downward pressure on our overall result. So I would say we've made -- we continue to make progress that more headroom, we're not where I or the team would like to be. We're not going to take the balancing approach that we've taken before because we want to work the kinks out of the system. There will come a point that we may have to rebalance Used Inventory down so that we can alleviate some of that margin pressure that we're seeing. We're not there at this moment in time, but we'll make that decision as the quarter continues. So the short answer is progress above industry in Q3. Our expectations are higher. We are doing numerous things to get there. They haven't all worked in the quarter, albeit the result was good. We're going to hold higher inventory levels than we normally would to make sure that we have the supply that is there as we work through those other things. The consequence of that is pick up increased depreciation, which is accounting for about 0.2% of our margin at this moment in time, and we will stay there in Q4 to enable the organization to grow, and we will see what happens with the overall marketplace. That doesn't mean to say that at some point in the quarter, we will balance our inventory back if we see that the market is not giving us the results that we need. That's what our job is to do. But at the moment, we're holding the line with our inventory, which is why you see our inventory levels where they are on Used. So hopefully, that's enough color for you. Operator: The next question will be from the line of Jeff Lick, Stephens inc. Jeffrey Lick: Tom, I was wondering if you could give a little more detail on the impressive 100 bps of gross margin expansion in service and parts, just kind of what's driving that and how sustainable that will be going forward? Thomas Szlosek: I mean when you look at the performance in the quarter, I would say that the total -- just to reference, the growth was roughly [ 7% ] in growth. And I'd say it's equally balanced between volume and price. And with volume, I'm talking about both parts, number of repair orders and labor hours per repair order. Those were all up and tracking nicely. Also from a price perspective, there's inflation in the market and we definitely do our part to offset that on a regular basis. And then we probably got a little bit more mix favorability as well. But the initiatives that Christian and the team are driving around technicians and the hiring and training of technicians as well as having appropriate capacity from a service day perspective or working out well for us, and we're able to leverage the investments that we've made. We talked about maintaining a reasonable level of CapEx spend and been able to achieve these results while being thoughtful about the amount of capital we're putting in as well. So I'd say those are the big drivers. Jeffrey Lick: And just a quick follow-up on SG&A, 67.4% as a ratio of gross profit and flat last year, which given your peers' reports that you're the leader in the club. Outlook's pretty impressive. I know you're kind of taking a bit of an outsider's point of view given your previous professional experience in -- just curious where you see that going and what highlights you'd give as to what's going to lead that? Thomas Szlosek: Mike has his expectations. We talked about a range of 66%, 67%, but that's we're driving even more aggressive than that. I think the other important thing is there's a disparity amongst the group in terms of how service loaners are reported. We include the entire expense for service loaners and our SG&A rate as well. So that I think ours is a bit penalized compared to some in the group. So overall, it's a I agree with you that the performance is good from an outsider's view. But I would say we have a number of initiatives driving productivity on the -- in our variable side, both whether it's on the sales side in the service space, that's really important and drive the outcomes -- unit outcomes also on advertising being very, very thoughtful in terms of return on investments that we're getting there. And then lastly, there was a whole pool of cost, other SG&A types of costs that we manage every day. We have a number of initiatives I've talked about before. But those are front and center. We look at them every month as a leadership team and course correct when we see things not in the direction we want. I think it's getting the right amount of attention in the company. I expect us to closely manage that. Now we've got investments that we make and those are fairly regular. They can be a bit variable and spike at times, but they're all made with the idea of driving further growth. So that's in terms of how I'm looking at it. I think it's a big area focus. Jeffrey Lick: Mike impressive performance. Best of luck in the fourth quarter. Operator: Our next question today will be from the line of Daniela Haigian with Morgan Stanley. Daniela Haigian: One question on forward demand. As we've kind of passed through the peak tariff fears as you spoke to, Mike, we're now seeing OEMs revise up guidance is. Kind of clears the bar on improved outlook here. You spoke to decontenting, but how are you seeing pricing on new model your vehicles. Is that relatively unchanged? How are you thinking about '26? Anything you can share there would be helpful. Michael Manley: Yes. So I think you're right in your view. I think the OEMs now have had enough time and are getting to a level of clarity where they have looked at their product plans, look at their supply chains. And the 2 big impacts of tariffs, but also from a powertrain perspective, have driven significant change into all of the OEMs views on their product lineup and the powertrains that they're going to deploy. And I think that they have, to the most extent, got their heads around that and understand what they want to do and therefore, they're being much more clear and less cautious about their future outlook. A lot of that hasn't really made its way yet into the market. Some of it has, of course. But I would tell you that my view on this is look at pricing and what's come through the system so far, it looks broadly in line with normal pricing that we would expect for the model year changeover. But that, of course, is just a headline. We know that there is, as always, option decontenting. Things that were standard made optional and there is always value engineering that happens with every single OEM. So at the end of the day, if you were to assess true value delivered to the customer for each dollar. I can't really give you a clear picture on that yet. But we know that the levers that have been pulled are on the supplier side, they are on, obviously, the cost per vehicle side and the bill of materials and also on some of the incentives that have been provided to dealers, whether it's volume growth incentives or other support incentives that do not directly impact net transaction price in the marketplace, but ultimately do impact dealer margins. So we know there's effect across all of that. Some of that we saw in the quarter. We alluded to that in my incentive comments. I think that's going to continue as we get into deeper into Q4 and we clear our prior model year. But I'm pleased with where the industry is, frankly. We said at the beginning of the year, we thought it was -- we were hoping 5% up year-over-year. And we had no clue really of the turbulence that we were going to see that we have seen this year. And I think the OEMs have largely navigated it well, some better than others are always. So we are hoping that Q4 continues back. We think that the year-over-year comps are higher bar in Q4. And we said that because we wanted to give you an indication of our view of October through the end of December. But as we get into next year and you see some of the more rapid supply chain changes that OEMs are there. I think what they're going to want to do is to maintain the progress in this year. So it's too early for me to call what I think 2026 will be in terms of the total inventory. But I do think there's a lot more clarity from the OEMs. And I do think we're going to see more potential impacts that will be mitigated to some extent by their actions and dealer actions in Q4. Daniela Haigian: Great. That's very helpful. And back to Used Car, you spoke to sourcing challenges. Availability should improve at the margin over the next year. But how do you expect the strategy around older Used Cars to shift over time? It's clearly a very fragmented Used Car market? How are you viewing competition from the likes of online pure play retailers? And is there a greater opportunity to grow and consolidate there? Michael Manley: Yes. I'm always -- I always believe that there's opportunity to consolidate, particularly when you add the fragmentation that we have got. I mean even if you take the largest of the players in their forecast, it's a tiny percentage of market. So there's always opportunity for that to happen. But let me try let me try and answer your question in sections and redirect you if necessary. Firstly, we have continued to see competition for retail grade used inventory and that competition, it has resulted in some upward pressure on wholesale prices. We and the other big retailers benefit from one more channel than some of the pure plays, and that is obviously in our trading, but that channel is not completely isolated from competition because of the level of transparency pricing in the marketplace, which will only increase. But I think we have a very strong sourcing strategy that enables us to keep the level of inventory we want in place, albeit an elevated, albeit at an elevated cost. Our growth, really, as we alluded to, came from higher-priced vehicles. Others are leaning into maybe lower-priced vehicles. I think as we exhaust the art of the possible from 20,000 units [indiscernible] and above, and we want to continue to grow, we can lean higher into those lower-priced vehicles with obviously, the consequence of the investment required to get them road ready. But as I mentioned, we're going to hold slightly elevated used inventory in the quarter. Really to see the art of the possible of our sales teams and our marketing teams to get our turn rates back up to what we're used to. They'll be given some time to do that. We understand the consequences of that which will be some downward pressure, particularly around the aging that will be in addition to some slightly elevated wholesale prices that we're seeing. We may have to balance that, as I mentioned before, as the quarter closes. But I do think for us, we have a very strong North Star in terms of what we think we should be capable of with our physical the relationships and the confidence that comes from the brands that we have above our doors and the fact that we have multiple sourcing channels. So I am -- if you were to talk to any of our market presidents, I would tell you that I am very bullish on Used Car volumes. I understand it doesn't -- it's not a switch. It takes time, and of course, it includes all of the channels. But the reality is most people buy a Used Car within 50 miles of the dealership that's got it. Operator: The final question in the queue today will be from the line of Bret Jordan with Jefferies. Bret Jordan: One of your peers yesterday was noting that the consumer sentiment around the luxury space was feeling a little softer. Are you seeing any changes sort of at the underlying demand level at the higher price points? Michael Manley: Yes, I think that -- so I mean, it's a good question because really when we closed out the quarter and we saw the level of activity around hybrid and there's a lot of that, obviously, for us is in luxury space, and we come into what really is a bit of a quiet period for luxury. I would tell you that I think it is more muted than last year. But I still have expectations we will see a seasonal uptick in December. But I do think it is more muted, particularly as the way as I see October developing. So that's the best color I can give you at the moment. Bret Jordan: Okay. And then within the domestic internal combustion GPUs, was it brand specific? Or was there sort of a one-off event in there that is to be corrected? Or are we thinking that domestic ICE GPUs are just under some sustained pressure? Michael Manley: Well, I tell you something. I think some of them self-inflicted, frankly. And that's one of the conversations that we have internally. We've set ourselves strong expectations in terms of how we want to perform in line of the marketplace. And it is always a 3-way balance between what share are we able to achieve with the brands that we've got at what margin level and what marketing expense. And I think we -- as I tried to allude to, probably had some self-inflicted downward pressure in the middle of the quarter that was corrected in September, and I expect that to continue to be corrected. But you saw all of the domestic players, all of the domestic players chasing volume, domestic players tend to chase volume and they do it in conjunction with their dealers. In other words, they have programs and schemes and relationships with their dealers when they're chasing volume. Everybody participates into driving a very competitive net transaction price, we're very -- we have a strong partnership with all 3 of the domestics and we were supportive as we could, and that had general downward pressure across the piece. It is true that some domestics had higher downward pressure than others, but that's the nature of the game and the cycles that they're in. I think, as I said, some of our performance was a bit self-inflicted, which was corrected as we came out of the quarter. We just want to make sure that we are growing because I think there's opportunity for us to grow but we do that in an appropriate balance fashion, knowing that for every new car that we sell, we get a customer who has a very high loyalty for us to have 7 years if they keep the vehicle. And large percentage is a great opportunity on used car sales because the value we offer for their trades as well. So it isn't just one element. We try to think about the best balance we can achieve in the business. Sometimes we get it right, sometimes we push a little bit hard. That's why we look at it every day. Operator: With no further questions on the line at this time. I will now hand the call back to Mike Manley for any closing comments. Michael Manley: Yes. Thank you, Harry. Thank you all for being on the call. As always, we appreciate your questions, and we wish you well. Thank you. Operator: This will conclude the AutoNation, Inc. Q3 Earnings Call. Thank you to everyone who is able to join us today. You may now disconnect your lines.
David Mulholland: Good morning, ladies and gentlemen. Welcome to Nokia's Third Quarter 2025 Results Call. I'm David Mulholland, Head of Nokia Investor Relations. And today with me is Justin Hotard, our President and CEO; along with Marco Wiren, our CFO. Before we get started, a quick disclaimer. During this call, we will be making forward-looking statements regarding our future business and financial performance, and these statements are predictions that involve risks and uncertainties. Actual results may therefore differ materially from the results we currently expect. Factors that could cause such differences can be both external as well as internal operating factors. We have identified such risks in the Risk Factors section of our annual report on Form 20-F which is available on our Investor Relations website. Within today's presentation, references to growth rates will mostly be on a constant currency and portfolio basis, and other financial items will be based on our comparable reporting. Please note that our Q3 report and the presentation that accompanies this call are published on our website. The report includes both reported and comparable financial results under reconciliation between the 2. In terms of the agenda for today, we will go -- Justin will go through our key messages from the quarter, and then Marco will go through our financial performance. We'll then move to Q&A. With that, let me hand over to Justin. Justin Hotard: Thank you, David. Overall, we delivered a solid performance in the third quarter, in line with our expectations. We grew net sales by 9% with all business groups growing. Order intake was again strong, particularly in optical networks and IP networks driven by AI and cloud customers. Our profitability in the quarter was as expected. Network Infrastructure gross margin improved sequentially, that was impacted slightly by product mix. Cloud and Network Services had a strong gross margin in the quarter. Product mix impacted the gross margin of mobile networks with a lower mix of software revenue. Our operating margin declined year-on-year due to a onetime benefit seen in the prior year from a loss provision reversal. Without which our operating margin would have been flat. The broader demand environment remains healthy as we move into the fourth quarter. We have seen some improvements in CSP expectations along with the strong order intake I mentioned in AI and cloud. In fact, entering the fourth quarter, our backlog coverage is stronger than in recent years. We're also pleased with our progress on the Infinera acquisition. We are ahead of schedule with the integration time line and with synergy expectations. The acquired business contributed strongly through both our net sales growth and order intake growth in Q3. So after a solid Q3 and continued strong order intake, we are well on track to achieve our full year outlook. We expect the fourth quarter with net sales growing sequentially and slightly above our historical seasonality of 22%. We are currently tracking towards the midpoint of our operating profit outlook range. Let me now share a few highlights across the business from the third quarter. For our network infrastructure business, and the key highlight has been our progress in the AI and cloud customer segment. In Q3, this segment accounted for 6% of our group net sales. Breaking it down, it was 14% of our network infrastructure business and more specifically, 29% of optical networks. In Optical, as mentioned, our 800-gig ZR, ZR+ coherent pluggables became available in the quarter and ships to our first hyperscale customer. Our pipeline in this space is growing as customer investments accelerate and data center architectures evolve. Q3 also saw us announce strategic partnerships with both end scale and Super Micro. With Endscale, we are now a preferred partner for advanced networking technologies across our NI portfolio. Super Micro is adopting our SR Linux network operating system for their 800 gig Ethernet switches, providing expanded footprint for our network operating system. Finally, we secured 2 new design wins for our switching platform in the quarter with hyperscalers. The market is growing rapidly. And while I'm pleased with these initial signs of progress in IP networks, clearly, we still have a lot of work ahead of us. In our fixed network business, we launched our new 50 gig PON offering. With our unique solution built on our Chilean chipset, operators can easily evolve from GPON to XGS, 25 gig and 50 gig PON on the same fiber. Ready with encryption for the post-quantum era, Nokia solution also provides enterprises with the bandwidth, security and reliability they require. Customers like Frontier Communications in the United States are already using our unique PON technology to seamlessly introduce 25 gig PON. Now I want to turn to our mobile businesses, starting with Cloud and Network Services. The team has delivered strong network -- net sales growth and operating profit growth as it continues to focus on autonomous cloud native architectures. In voice core, we became the market share leader in the first half of 2025 and as reported by Dell'Oro. Approximately 70% of 5G stand-alone core network deployments outside China use a portion of Nokia's 5G core stack. And network penetration is still less than 30% for 5G stand-alone core. In Mobile Networks, we continue to see the market stabilize. We recently announced a deal with Vodafone 3 that will see us enter their new combined network in the U.K. as a major RAN supplier with approximately 7,000 sites. We are focused on improving the returns in the business over time. delivering for our customers and differentiating through innovation. In Nokia Technologies, we secured several new agreements in the quarter. The team continues to be disciplined on productivity and operating leverage. While we are now entering the heightened investment phase for 6G standardization, we continue to see stability in our annual operating profit. In Q3, we completed a strategic review of our venture fund investments. We have decided to scale down our passive venture fund investments. Over time, we will substantially reduce the capital deployed in these areas. As a result, our venture fund investments are now reported within financial income and expenses. Going forward, we will consider targeted direct minority investments in companies that help us to accelerate our strategy. An example is the investment we made in Endscale alongside the strategic partnership that I referred to earlier. Because of this change, we are making a technical change to our operating profit guidance. increasing it by EUR 0.1 billion, which is related to the negative impact the venture funds had on our operating profit in the first half. However, operationally, our guidance is unchanged. After a solid Q3 and with recent order trends, we are well on track to achieve our full year outlook for operating profit. As I mentioned before, we expect fourth quarter net sales to grow sequentially at slightly above our historical seasonality of 22%. And we are tracking towards the midpoint of our operating profit range of EUR 1.7 billion to EUR 2.2 billion. At our Capital Markets Day in New York on November 19, we will share our strategy to unlock the full potential of our portfolio and the steps we are taking to focus the company to deliver ongoing growth and operating leverage. The AI super cycle is accelerating demand for providers of advanced and trusted connectivity. Nokia is uniquely positioned to be a leader in this market. With that, let me hand it over to Marco to discuss our financial performance. Marco Wiren: Thanks, Justin, and hello from my side as well. In quarter 3, we saw net sales increased by 9%, and we are pleased to see growth across all our business groups. Gross margin for the group declined 150 basis points year-on-year, and this was largely as we have expected. And this is because of the product mix within both network infrastructure and mobile networks. Operating margin was 9%, 220 basis points below the prior year, although this was mainly due to a onetime impact from the reversal of loss allowance for trade receivables in the prior year. Without this, the operating profit -- operating margin would have been flat year-on-year. And we generated EUR 429 million of free cash flow and ended the quarter with $3 billion of net cash. I would like to update you on our cost savings program, which we introduced in 2023. We expect to get about EUR 450 million savings in 2025. And going forward, we will focus on delivering operational leverage through continuous productivity improvement, IT simplification, digital instrumentation and organizational efficiency rather than using large restructuring programs. Ultimately, this means a cultural shift towards consistent cost discipline and efficiency to help us deliver our strategic calls. Turning to business group now, starting with net infrastructure, which had another strong quarter with 11% growth. Optical Networks was the standout performer with 19% sales growth and continue to see strong order trends with book-to-bill well above 1. IP Networks also saw a strong growth in orders in the quarter as we start to see and increased traction with AI and cloud, as Justin mentioned. IP Networks sales grew 4% and fixed networks grew 8% in the quarter. Gross margin was impacted by product mix and declined 190 basis points, although it did increase from the level we had in quarter 2. Operating margin declined because of lower gross margin along with the increased investments in R&D and the acquisition of Infinera. In the quarter, we see -- did see a small positive contribution to operating profit from Infinera as we start to see some initial benefit from synergies, along with the growth in the business. Cloud and Network Services sales grew by 13% in the quarter as we continue to see strong demand for our cloud-based core platforms. Gross margin increased 380 basis points as we improved cost of delivery, along with the operating leverage benefit of higher sales. Operating margin also increased by 250 basis points with some of the gross margin strength partially offset by higher R&D expenses. And mobile networks net sales increased by 4% year-on-year, driven by growth in Vietnam and Middle East and Africa. In quarter 2, we said we expect Quarter 3 gross margin to be lower than normal, reflecting a lower software contribution, and this was indeed the case. During year we saw a 370 basis point decline. With respect to operating margin, although operating expenses declined, the reversal of loss allowance in the prior year meant that operating margin declined. Without this, the operating margin would have only slightly declined despite this being a quarter with a low software contribution in the mix. Turning now to Nokia Technologies. Net sales grew by 14% in the quarter, and we signed several new deals in quarter 3. And our annual net sales run rate remains at approximately EUR 1.4 billion. Operating expenses in quarter 3 saw some timing benefits and therefore, will increase slightly in quarter 4. We continue to expect EUR 1.1 billion operating profit for the full year in Nokia Technologies. Now let's look at the net sales by region. In North America, we saw strong growth in network infrastructure and cloud and network services, while mobile networks declined slightly. In APAC, India sales grew in network infrastructure, driven by strong demand for fixed wireless, while mobile network sales returned to some modest growth. Outside of the benefit we saw from Nokia Technologies, Europe was stable in quarter 3. Now turning to our cash performance. We ended the quarter with a net cash position of EUR 3 billion. Free cash flow was positive EUR 49 million, consistent with our profit generation and well-managed working capital. We continue to target 50% to 80% free cash flow conversion from comparable operating profit for the full year. David Mulholland: Thank you, Justin and Marco. Before we turn to the Q&A session, you should really received an invitation to register for our Capital Markets Day, which as Justin mentioned, will be held in New York on the 19th of November. We hope as many of you as possible will be able to join us at the event. As usual, for the Q&A session, as a courtesy to whether is in the queue, can you please limit yourself to 1 question and a brief follow-up. Kelly, could you please give the instructions? Operator: [Operator Instructions] Yes. Let's go. I'll now hand back to David Mulholland. David Mulholland: We will take our first question today from Artem Beletski from SEB. Artem Beletski: So my question would be relating to IP Networks and switching business on that front. So how do you see the progress on that front in general. And you have also said to target 3 quarters ago, when it comes to year 2028. So are you well tracking on it? David Mulholland: One second, could you start your question again, please? We just got tech difficulty on our side. Artem Beletski: Yes, no worries. Can you hear me now? David Mulholland: Yes, we can hear you. Artem Beletski: Okay. Great. So I would like to ask a question relating to IP Networks and your initiatives what comes to data center and switching business. So you mentioned that you have some new design wins during the quarter. So how you're tracking against your target for 2028? And also, should we anticipate some contribution to revenues looking at upcoming quarters? Justin Hotard: Yes. So Artem, I think as I've said in a couple of forms, but maybe just to share here, I think when we talk about EUR 100 million incremental investment, the reality for me is that's a small portion of our overall capital. And so I don't think you'll see us focus on that metric going forward. What I will say about the business is, I was pleased with the wins I'm pleased on the book-to-bill in IP networks overall. The reality, as we all know, is that we're still a fairly small player in this space, well behind some of the market leaders. So we're at the start of a journey. But the announcements we've made, I think are positive. The metrics are positive. It's much more work to be done longer term. David Mulholland: Did you have a quick follow-up, Artem? Artem Beletski: Yes, absolutely. So maybe more general questions. So looking at your growth opportunities when it comes to AI and cloud. So it was sales in the quarter, so increased compared to Q2. But in general, looking at the next couple of years, where do you see the biggest growth opportunities looking at different customer segments. So as it's like hyperscalers, enterprise or super insight where you see the biggest opportunity for you? Justin Hotard: Yes. I think, first of all, the biggest opportunity is clearly it's clearly is in the hyperscalers and the neo cloud. So that's driving most of the demand. Obviously, the partnership with Endscale is a good example of our focus in this area. We've made other announcements in the past. And we also believe that sovereign clouds will present a significant opportunity for us over time. As we've talked about before, we're optimistic about the work that's being done in the EU as well as in other regions. So we think that these are all important growth segments for us. But clearly, the demand today is largely coming from the hyperscalers on some of the larger neo clouds. David Mulholland: We'll take our next question from Simon Leopold from Raymond James. Simon Leopold: Appreciate it. So nice to hear about the progress in the hyperscalers. I want to dig a little bit more deeply here in that more recently, we've heard about an application refer to a scale across for optics, which I think of as basically data center interconnect on steroids. Could you talk a little bit about what this means for Nokia in particular and how you see that as an opportunity. Justin Hotard: Yes, sure, Simon. And I think it's something that's been around obviously scale up or what's been talked about at scale across has been in networks for in data centers for a long time in certain parts of the market. So this isn't a new technology. But what is happening is as we push bandwidth demands, which obviously the AI data centers are driving it's creating new demand for innovation in that space. And I think this is where the assets we have, I think, are well positioned. It's not a place where I can tell you we can point to it and say, we've got material revenue today. It's still early days. But I do think if you look at our assets here, particularly what we're doing in Indian phosphide with the fab, the ability to build optical components down on the indium phosphide silicon and innovate and packaging in these areas. We think we've got technology that can be relevant here. But obviously, as bandwidth demands continue in networks, both scale across and scale out, which is what we typically call -- what we typically see in top-of-rack networking and IP switching, both of those create tremendous opportunity for us. And the way I would dimensionalize the opportunity in optical is we'll share more of this at CMD is that every time you get to the next unit, if you go from the long-haul networks to the metro networks to the data center or inside the data center, then inside the rack, each 1 of those has incremental opportunity at a volume level. Of course, there's a performance and cost delta you have to hit as well because what we build for long-haul networks is obviously going to be significantly more expensive than what you'd have to build to fit inside of a server inside of a rack. So there's a part of this that will require us to continue to innovate in this space. And you'll hear more about it in our discussions. David Mulholland: Did you have a follow-up, Simon? Simon Leopold: Sure. Yes, I presume we'll talk about the long-term strategy, of course, at the Capital Markets Day. But I'm wondering if you could provide us a few thoughts on how Nokia's plan is regarding 6G mobility investments. Have you started investing? Is that in the R&D today? Is it something that starts in 26 or is it something further out in time? I'm just really focused on modeling for the moment because I expect we'll hear some more at the Capital Markets Day next month. Justin Hotard: Yes. So on technology standardization, which is obviously very important relevant for tech, that work has already started and the investment is ongoing. And as I touched on in my comments, we're going to go through a bit of an investment. You go through a bit of an investment cycle in that space. So that ramp is happening, and we obviously reiterated confidence in the on the ongoing profit outlook for Nokia Technologies as a part of that. So I think that gives you some indication from a modeling standpoint. For MN, we are -- we've talked about this publicly. We're doing work on early on 6G -- I'd say pre-standard 6G radio technology. There's more work here. I think the thing for me in this space is. And Simon, I've talked about this a little bit in comments as well as I think there's a lot of focus on for obvious reasons on the G transition, the 3G, 4G, 5G, 6G. I actually think what's more important for us is what we've done in cloud and network services, which is the pivot to a cloud-native core. And then you look at the results and the performance on share capture and revenue growth. I think that's a good indicator for how we see the -- we're going to start to think about the opportunity in RAN, which is as we go into AI and in yes, there's going to be a new generation of radios in terms of hopefully, frequencies with spectrum approvals and, of course, 6 capabilities in terms of spectral efficiency. But there's a lot more to do in terms of radio capabilities and features. And we've got -- this is why we announced things like the AI ran Alliance. Previously, it's where we see opportunity with our work in Cloud RAN, for example. And I think that's where we'll continue to invest. What will impact for you is that these are things that we need to focus on and invest and innovate and of course, continue to work closely with customers. So we'll unpack that for you at CMD as well as how we're approaching that. But I wouldn't assume that we haven't -- it's a binary thing where we haven't started. It's a part of ongoing investment. David Mulholland: We'll take our next question from Alex Duval from Goldman Sachs. Alexander Duval: Yes. Thank you so much for the question. Firstly, just dovetailing off the last question, I'm very much looking forward to hearing more about the long-term tech strategy on wireless. Just in the short term, you talked about a measure of stabilization there. I wondered if you could give a bit more color as to the extent to which that's driven by the RAN market in your most important geographies versus progress you've made on your product? And then secondly, it was interesting to hear in your prepared remarks about how you will focus on cost control by ongoing steps like digitalization rather than large restructuring programs, wondered if at this point you could talk a bit more about what motivates that shift and the benefits this brings? Justin Hotard: Let me start with the second part, Marco, do you want to talk about that [indiscernible]? Marco Wiren: Yes, absolutely. And what comes to cost savings just like I mentioned in my introduction as well. So thinking is that operational leverage is extremely important for us and continues improvement is something that we want to get in our genes that every entity basically continuously in ways, how can we continuously improve and do things more efficiently and of course, here comes quite naturally in the new technologies, utilizing AI and other digitalization opportunities that you can find, and that's why IT simplification is extremely important in this and securing that we can actually get the benefit out of those different installations of AI that we have and continuously work on the process simplification and find ways how we can make the processes more efficient continuously. And it's not a one-off action. It's something that you have to do continuously. Justin Hotard: Yes. And then in terms of the market outlook, first of all, I think you're pretty clear from what we've been saying that if you think about the AI and cloud market growing rapidly, the CSP market broadly has been quite stable. So as we think about that, when I look at our results, I think stabilizing in MN in terms of our performance being predictable. There's always puts and takes. There's going to be ups and downs in the quarter and varies based on a given customer's volume in 1 quarter. So we'll see a little bit of that. But when you look at the longer-term trends, I think we're feeling better about a stabilizing environment. And then on Cloud and Network Services, as I touched on, we believe that we believe we're growing above market rates at this point. David Mulholland: Thanks, Alex. We'll take our next question from Sami Sarkamies from Danske Bank. Sami Sarkamies: Could you please elaborate on the factors that drove the positive surprise in the third quarter as you had anticipated similar sales and margins as in Q2. And when we think about Q4, you also mentioned a strong order book, but do you have still uncertainties related to timing of deliveries as you chose not to narrow the guidance range down? Marco Wiren: Yes. Thank you, Sami. And what comes to them, if you look at gross margin development and in different businesses, you can see that we had a very good development in Cloud and Network Services. And here, as you understand, this business has been frequently so that you get a big part of the profits in quarter 4. Now this year, we have been working actively to try to actually balance that distribution of profits more equal between the different quarters. But at the same time, you see also that we have increased our gross margins, and there's a few reasons for this. One is, of course, that we've seen a good traction on 5G stand-alone core implementations where we have been very successful in gaining market share. And then, of course, we've been working quite a long time in the CNS as well to clean up the portfolio. And this, of course, giving result as well. And the third point I would say as Wally is that also in our core business CNS has been working heavily to take cost out and make things more efficiently and by that, improving the margin levels. David Mulholland: Do you have a follow-up, Sami? Sami Sarkamies: Maybe a detail question on the 6% exposure to AAN Cloud in the third quarter. I think you mentioned 5% hyperscaler exposure after Q2. These are different metrics, right? Justin Hotard: These are comparable, Sami. So think of the 5% 6% as Q3. David Mulholland: We'll take our next question from Richard Kramer from Arete. Richard Kramer: Justin, when we look at your competitors into the various NI divisions, many of them are point solutions in 1 or another of the field of routing optics are fixed. In the current hyperscaler [indiscernible] are these areas being kept separate? Or do you think that the end-to-end promise we heard about so much from both of the prior CEOs at Nokia is finally being realized at least within NI? Justin Hotard: Well, I think a couple of things on this, Richard. So first of all, for me, clearly, fixed access is its own business and the technology and innovation there is coming out of a few markets. I mean, the largest 1 for us, obviously, is in the U.S., but there's other markets where we're seeing technology and innovation opportunities and so I think that's almost its own trend. And I shared -- obviously, I shared the discussion around the 50 gig PON but this capability that we have to allow you to add new technologies in line in your terminals, we think is a true differentiator. We hear that from customers. The customers using it, believe it gives them value because they can -- they don't have to invest in a complete infrastructure upgrade to overhaul. The key message there is we're competing on the technologies merits itself. And I think if you look at IP switching and certainly in optical networking, I would say the same. We've got a win on the technical merit themselves. I mean we've got very capable customers across our portfolio, AI and cloud as well as piece that want to buy best-of-breed technologies and enable their solutions and execute on their strategies and deliver value to their customers. And our focus has to be on doing the things that add value to them. and where I think there's leverage and synergy for us is being able to see what's happening across these markets and bring greater scale and innovation to them. But I think that for me, the term is an end to end. It's -- you've always got to have best-of-breed products, breast of breed technology, and then you've got to be able to leverage the ecosystem so that you're obviously, you're better together, but it's not something that we do that assume we could have a deficiency in 1 area. That's certainly not how we think about it. Marco Wiren: And just in just sense that, of course, the compatibility is very important. So that's a benefit that we can get compared to competition, which only go with 1 product. And when we come with several products and they are best of breed and customers want to buy those, that those actually work well together. David Mulholland: Did you have a follow-up, Richard? Richard Kramer: Yes. Quick 1, quickly for Marco. We saw a reduction in your forecast restructuring cash outflows from EUR 450 million to EUR 350 million. and an increase of EUR 50 million in gross cost savings. Is this Nokia finally transitioning from what's been a decade-long restructuring to maybe being able to focus more beyond '26 on just growth? Marco Wiren: Yes. I would say that the important thing is that we want to avoid this large-scale restructuring programs going forward and more get this into our DNA as continuous improvement and customer focus and secure that we continuously find ways how we can take out cost in our fixed cost basis and our operations and utilize all the digitalization opportunities that could bring instead of doing this large-scale cost-cutting programs. So that's our focus going forward. David Mulholland: We'll take our next question from Felix Henriksson from Nordea. Felix Henriksson: Good to see Infinera turning positive on operating profit contribution. And I wanted to ask about that, that in light of the progress that you made on integration, do you see the EUR 200 million in run rate operating profit synergies for 2027 as conservative? And are these savings something that you will have to reinvest in the growth in the optical business, kind of what you're doing in the IP side of things? Justin Hotard: Yes, multiple questions in there. So let me sort of answer. First of all, we'll provide a full update at CMD on our view. But I would say, certainly well on track on our commitments as we've talked about on the cost synergies, clearly, with the growth that we're seeing ahead of our expectations on top line synergies. And then I think in terms of investment, what I would say is we'll talk more about that talk more about that in CMD, but we're going to be very disciplined in capital allocation. Obviously, you saw 1 dimension of that with our decision on venture funds this quarter. But this is a place where if we see the opportunity to accelerate or enhance returns, we'll make continued investments. But right now, I think, again, pleased to be on track on the cost synergies and thrilled to be running ahead of expectations on revenue. David Mulholland: We'll take our next question from Rob Sanders from Deutsche Bank. Robert Sanders: I just had a question on mobile networks. This some speculation that the EU will apply pressure on some member countries to accelerate their swap out of Chinese vendors. So I'm just interested in that. And how you think about that given your recent public statements. And then, of course, I just want to talk a bit about OpEx, how you're thinking about OpEx into next year, given you clearly wanted to invest more in these growth areas. Justin Hotard: Yes. So Rob, thanks for that. First of all, I mean, obviously, we're -- we would love to see regulations in the that create the market opportunity you're talking about. And I think it's important from a high-risk vendor standpoint, it's also important from a -- just from a sovereignty perspective in terms of having the largest providers of networks in the West being European. I think that's important. We're optimistic that we would be able to obviously grow and that capture some portion of that market if it was available. Number two, in terms of the OpEx question was really just around operating leverage. I think our -- my push is really specific on this is I want to see us drive operating leverage, something Marco touched on in his comments, but the reason for that is because I want to be able to maximize returns in terms of capturing value from the business we have and then deploy capital in areas where we think we can win, things like incremental R&D if there's demand in the market, things like increasing factory capacity and optics to the extent that we see opportunities there. And it's important, we talk a lot about the fabrication facilities. These are far smaller than you think of a fabrication facility in silicon. And actually, the investment sizes are much smaller. And again, we'll impact more of that for you at CMD. But those are the kinds of things I want to be able to deploy capital into, obviously, incremental sales coverage where we're seeing growth in AI. But I would think of all of this as is driving enhanced returns, not something that's going to -- not going to dilute our performance, and that's key. David Mulholland: We'll take our next question from Andrew Gardiner from Citi. Andrew Gardiner: Thank you, David. I just had 1 on gross profitability, please, both I suppose on the positive side and what you've seen in CNS and then perhaps on the more negative side with mobile networks. We're seeing quite a lot of volatility quarter-to-quarter. CNS clearly driven nicely in 3Q by the mix towards 5G core. Is that mix sustainable? And so high 40s gross margin for CNS is what we should be anticipating? Yes, perhaps with some quarterly fluctuation, but perhaps not to the extent that we've been seeing, right? Can you sustain gross margins around that level? And then similarly, on the other side with mobile, 41% in the prior quarter, down to 35% in the current quarter. Yes, I understand again, software mix has changed, but quite dramatic moves. What do you think is sort of a more normalized level, given the revenue run rate that you're at in mobile? What's a more normalized level of gross margin for MN at this point? Marco Wiren: Yes. Thank you. If I start with the mobile network side, there is variability, and that's why we usually see that mobile networks would be better to look on an annual basis of 4 quarters because you have always some product mix fluctuations. The level of software has a big impact on gross margin and that you see also between quarter 2 and quarter 3, while we see this fluctuation between those quarters where you have more software in quarter 2 and less in quarter 3. And I would say that if you look on a longer-term or annual basis, then you can see the levels of mobile networks, gross margins and get an understanding of where it is and how we are tracking compared to previous year. And then when it comes to I mentioned already a few points there that are what about the reasons for the improved gross margins. And we definitely believe that it is sustainable. And this has been a multiyear journey to get the improvements here in up the portfolio, focus on cost out on the different products that we have. But also we see the market support here. It took for a while before the 5G stand-alone core started to get traction actually from our customer side on CSP side. Now we've seen in the past 18 months that it actually have been quite positive, and we have momentum there. And thanks to our cloud-based solution that we have, we have actually gained market share and been able to improve our market position. David Mulholland: We'll take our next question from Daniel Djurberg from Handelsbanken. Daniel Djurberg: Congrats to strong numbers. I actually would like to continue on that question, I heard the same, more or less. On the mobile networks, the software upgrades on stand-alone seems not to be in tandem, at least with the CNS on the 5D core. So should we expect to have a little bit of an upgrade in the baseband software radio unit software or ahead of us on back stand-alone core now being let down. Marco Wiren: Usually -- I can start and Justin, if you have anything you can add as well. What usually happens is in the new generation is that you first install the hardware basement and radios, and when you see that the demand increases on the customer side, then you actually implement the core as well when you see that actually you need those features that the new generation can offer. And this is exactly the same example here in 5G. In the beginning, the 4G core was still functional quite well and on the early 5G installations. And now when there's more opportunities to slice and done the network, you need actually a 5G stand-alone core to be able to capture those opportunities and offer those services to our customer base. Justin Hotard: I would just add a couple of things. I think we're -- we want to make sure we're clear on the Q2 to Q3 margin impact in is timing because of how we release software in this portfolio, which is we release an upgrade, we then recognize the revenue of those upgrades as they get deployed into customers and they largely customers take their release. And so that's the timing dimension between Q2 and Q3, but also realize that the MN baseband software, which is the majority of the software revenue we have in mobile networks today, is still largely in a legacy, what I would call more legacy appliance model. Cloud and Network Services or our core networks have moved to a cloud model. And that means you have much -- we have more subscription-based pricing. We have more ratable deployment. That means customers will be paying on a recurring revenue basis for an ongoing support and service. So whether it's a subscription-based models there. It's a very different. It's a different business model and that dynamic. Obviously, we think that's the long-term direction of travel in mobile, but that's not where the market is today. Today, our CloudRamp business is fairly small. David Mulholland: Did you have a quick follow-up, Daniel? Daniel Djurberg: Yes, please. Yes, just a question on -- a little bit on your work already in Q2, you commented to unify corporate functions, simplify work, et cetera, and more change culture, but to unlock the operating leverage. And then you've seen quite a large changes, especially when your CTO office. And my question is on the Nokia Bell Labs organization. Should we expect this to be more focusing on AI data center than on the mobile networks and radio access networks ahead given the departure of [indiscernible]? Justin Hotard: Yes. Look, I think for me, a couple of things. First of all, I talked about functional excellence, which was the purpose around the corporate functions. And I think having a leader that is the Chief Technology and AI officer that's focused on technology key areas of our platforms, AI, security, cloud, all of those elements that we're touching on or talking around on this call today is very important. And having someone who's excellent in that but also understands fixed -- our fixed network infrastructure business and mobile infrastructure. And if you look at Palabi's background, she has a career where she's done both across Juniper HPE and then also at Intel. And then the other thing was focused around corporate development, and that was not just out of the strategy organization, but also bringing together some of the corporate development folks we had within the business groups and also within the finance organization. So for me, this is all about around functional excellence and aligning accountability and having cleaner and simple functions. And then obviously, we also moved the digital office or the IT organization into finance, which really ties back to the focus that Mark touched on in his comments around driving ongoing improvement, ongoing productivity and enabling that through digitization, through AI, through simplification around processes. And obviously, IT is an important part of how you both simplify and standardize and realize those benefits. And so we felt like that was a natural alignment. So I think that's the way I would think about it. I think it's important. We have 2 compelling assets in both our network infrastructure business and our mobile portfolios. And we had a CTO that can look across all of that and also make sure that we're thinking about the right long-term investments in Nokia Bell Labs, whether it's from a research or from a near-term innovation standpoint. David Mulholland: We'll take our next question from Emil Immonen from DNB Carnegie. Emil Immonen: Hi, can you hear me? David Mulholland: Yes, we can hear you now. Emil Immonen: So I wanted to maybe ask a little bit on the demand in Europe in general. So on the revenue decline on some parts in NI and also mobile networks in Europe. Do you see that this is more, let's say, structural or would you say that this is temporary in the way that Europe is just not investing right now. How do you see this developing going forward? Justin Hotard: I think in terms of CSPs, I think that I would say telcos, it's stabilizing demand, and we think that's a good thing. Obviously, we talked about the potential of upside in Europe over time if there's regulation that addresses high-risk vendor status. But I think overall, that feels pretty good. And then Look, we're excited about the potential of AI and data center business in Europe. We're certainly excited about the opportunity we -- the partnership we have with Endscale and the opportunity for other companies to invest in Europe. And so we like the trends of what we're seeing. But the reality is the majority of the investment today is happening in the U.S. And so as you look at our revenues and you look at our profile, the demand is coming from the U.S., and I think that's important. So that's how I would net it out. David Mulholland: Did you have a quick follow-up, Emil? Emil Immonen: Yes. Maybe quickly touching on the private wireless side. The customer numbers grow nicely, but you haven't really discussed it at all in terms of revenue or anything. Could you say how is that part of the business going. Marco Wiren: Yes. Just like you said, we've seen a nice increase in number of customers. But remember, we are still in a very early phase of this journey. And even if growth rates are pretty good, but it will take some time before this will be a meaningful business. So it's worth focusing more about that. Justin Hotard: Yes. And I would just add, I think if you look at where we are today, I think Marco has summarized it well. I would tell you that where I see our biggest opportunity is in focused vertical markets vertical market use cases. And so there's some examples in railways, for example, and utilities is the other, right? So if you look at those, those are the places where we've got opportunity. But again, this goes back to that message of focus. David Mulholland: Our next question from Sébastien Sztabowicz from Kepler Cheuvreux. Sébastien Sztabowicz: Coming back to mobile networks. Your business is going back to moderate organic growth in the third quarter, but to remain close to breakeven rather those days. How do you plan to return to more decent margins in the coming years, maybe not double digit, but maybe high single digit, is it more cost cutting? Is it more to support your revenue with more growth opportunity? And the second question is also linked to mobile. We have heard some comment that the Chinese government could be looking to push the network vendors in Europe outside the Chinese market? Is this something that you already see in your order intake in China? Or is this not something that you see already in your business? Justin Hotard: Yes. Absolutely. I mean, I addressed this a little bit in my comments. I mean, I think on mobile networks, we're absolutely -- 1 of my priorities right now is on improving the returns. And I think we do that in a couple of ways. Continued tight focus and tight engagement with customers. It ties a little bit to the second question you asked, which I'll address in a minute, but tight focused engagement with customers, particularly those customers that want to co-innovate and collaborate with us. because I think differentiation for us longer term comes through innovation and technology leadership. That was historically where the market was. I would say that obviously, if you go back 5 years, the business -- the company's business was in dire straits because we weren't in that case. We've now stabilized the portfolio. But as an industry, and I think certainly as a player in this industry, we need to continue to innovate. So that's as much of a preview as I'll give you to CBD, but I'd encourage you to attend. But I think absolutely, that's the line of where we're headed. And then in terms of China, this is 1 of the places where we were largely not exposed. The revenue in China has come down massively over the last few years. So I -- the reality is it's a fraction of our revenue today, and our market share is fractional in mobile networks in China. It's not a core market for us. So the communications from the government, obviously, we follow those closely. We respect and support their decisions. And the reality for us is we're going to focus on markets where we believe there's significant opportunity and customers where we believe we can collaborate and innovate. And I think there's more opportunity ahead for us. David Mulholland: We'll take our last question from Didier Scemama from Bank of America. Didier Scemama: Thanks, David, a question for Justin really. You've been in the job now for a few months. I just wondered if you could share your thoughts about the direction of the business strategically, especially when it comes to the mobile networks the core activities and also IPR, which are vastly different, I guess, from your day-to-day activities, which presumably are focused on getting those AI and cloud contracts. So that was my first question, and I've got a quick follow-up. Justin Hotard: Sure. So Didier, look, I think probably nothing I haven't shared in my comments. I think we have 2 businesses: network infrastructure, and mobile businesses in the portfolio. I mean, obviously, if you look at the comps, there's 4 major providers of mobile infrastructure. They all have 3 things. They have core networks, they have the radio networks, which was what we call MN and they have IP licensing, which is what we call tech. So I think we've got a pretty clear -- it's pretty clear you need the full portfolio. If you look at the players that have not had the full portfolio they've all struggled to innovate or sustain a foothold. And so I think that's for me, number one. In terms of the difference, look, as I've said before, I think connectivity is going to be an area where performance, reliable and trusted providers are going to be very valuable. And the reality is we have a portfolio that plays across all of those core elements of connectivity. What we're seeing today with AI, and I think the thing that, candidly, we weren't capturing a historical Nokia prior to the Infinera acquisition as much as we could have, was the fact that in our optical and IP businesses, the market -- the technology investment or the technology leadership has shifted to cloud and now AI and cloud. So now we're starting to capture some of that. Like I said, I'm pleased with the progress there. And I think that same -- I think you're going to see those same trends happen and roll into mobile over time. Because ultimately, if you think about some of the compelling uses of AI, autonomous vehicles, robotics, smart glasses, virtual reality, augmented reality. They all need mobile connectivity and I think that will be favorable. But I don't know if the answer I think -- I don't think the answer is going to be doing the same thing we've always done. I think we have to continue to innovate. And that's why I like what we've done in cloud and network services with setting up an autonomous cloud native core stack, and I think there's more opportunity for us ahead in mobile networks. Again, it's going to require the things I talked about: focus, collaboration and co-innovation with customers and an emphasis on best-of-breed technology and strong partnerships. David Mulholland: Did you have a quick follow-up, Didier? Didier Scemama: Yes, completely unrelated on the Nokia Technology side. So I mean, Nokia sold their phone business to Microsoft, what 10 years ago or so. So I just wondered how is the innovation pipeline in the IPR business for the nonstandard essential patents? Is there a risk of a cliff at some point as you're not in the phone business? Or are you confident that you can continue to monetize the SCP and non-SEPs at least at the current level? Justin Hotard: Yes, absolutely. I mean I think this is a good question. So just back to the comment I just made. Again, every player of scale in mobile infrastructure has to -- has a strong IP business, what we call tech with the changes, I didn't touch on this in my earlier comments, but with the changes we made in the CTO office, we've also now really tightly aligned the Standards team into tech. But we see -- one, we see very good , stable revenue in the business. We are -- we've said already, we're starting to invest in 16 gene monetization. That's important for us. And we see other -- we also see other emerging revenue streams in other segments. So I think the business is very healthy. The team is doing an excellent job. They're also doing, I think, probably the best job of any of the businesses right now. And in pushing on operating leverage so that they can continue to deliver the performance they need to. And you'll hear a little more about that in CMD. So that's the last plug I'll make for CMD. But we'll talk about some of that as well there. David Mulholland: Thanks, Justin, Marco, for the comments. Ladies and gentlemen, this concludes today's call. I would like to remind you that during the call today, we have made a number of forward-looking statements that involve risks and uncertainties. Actual results may, therefore, differ materially from the results currently expected. Factors that could cause such differences can be both external as well as internal operating factors. We have identified such risks in the Risk Factors section of our annual report on Form 20-F, which is available on our Investor Relations website. Thank you for joining us. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings, and welcome to the Dow Third Quarter 2025 Earnings Conference Call. [Operator Instructions] And as a reminder, this conference is being recorded. I will now turn it over to Dow Investor Relations Vice President, Andrew Riker. Mr. Riker, you may begin. Andrew Riker: Good morning. Thank you for joining today. The accompanying slides are provided through this webcast and posted on our website. I'm Andrew Riker, Dow's Investor Relations Vice President. Leading today's call are Jim Fitterling, Chair and Chief Executive Officer; Karen S. Carter, Chief Operating Officer; and Jeff Tate, Chief Financial Officer. Please note, our comments contain forward-looking statements and are subject to the related cautionary statements contained in the earnings news release and slides. Please refer to our public filings for further information about principal risks and uncertainties. Unless otherwise specified, all financials, where applicable, exclude significant items. We will also refer to non-GAAP measures. A reconciliation of the most directly comparable GAAP financial measure and other associated disclosures are contained in the earnings news release that is posted on our website. On Slide 2 is our agenda for today's call. Jim and Karen will review our results and discuss how we are navigating current market conditions to restore our core earnings. Karen will also provide an overview of our operating segment performance. Jeff will share an update on our in-flight actions to provide near-term cash support as well as some details on the macroeconomic environment and our modeling guidance for the fourth quarter. Jim and Karen will close the prepared remarks with Dow's view on current industry actions while demonstrating how Dow is well positioned to win in a recovery. Following that, we will take your questions. Now let me turn the call over to Jim. James Fitterling: Thank you, Andrew. Beginning on Slide 3. In the third quarter, we executed against now strategic priorities to deliver sequential earnings and cash flow improvement despite continued pressure across the industry. These results reflect our focus on navigating the near term while positioning the company for profitable growth when our industry recovers. In the third quarter, we delivered net sales of $10 billion. Sequentially, gains in our Industrial Intermediates & Infrastructure segment were more than offset by declines in Packaging and Specialty Plastics and Performance Materials & Coatings. EBITDA was $868 million, and while this is lower than the same period last year, our earnings reflect an improvement over second quarter. This was driven by volume gains stemming from our new growth investments in the U.S. Gulf Coast, lower planned maintenance activity and the progress we're making on our cost reduction actions. Cash provided by operating activities was up $1.6 billion sequentially, primarily driven by working capital improvements, and advanced payments for low carbon solutions and other long-term supply agreements. We also delivered $249 million of dividends, reflecting our commitment to competitive shareholder returns over the cycle. Next, Karen will provide some additional context around the more than $6.5 billion in actions that we have completed or currently have in flight. Karen Carter: Thank you, Jim. We advanced several strategic actions in the third quarter. We announced an expansion of our strategic agreement [indiscernible] global to formalize the contractual offtake of an additional 100 kt of ethylene supply at attractive economics for both parts. We closed the second and final phase of our strategic infrastructure asset partnership in the U.S. Gulf Coast delivering $3 billion in total proceeds for Dow this year. We completed the second of 2 previously announced noncore divestitures, delivering a total of approximately $250 million at attractive EBITDA multiples of around [ SYNNEX ]. And we issued an additional $1.4 billion bond to take advantage of tight credit spreads, providing added financial flexibility. We are progressing the delivery of at least $1 billion in targeted cost savings by the end of 2026. We are on track to deliver approximately $400 million of the cost savings this year, which was clearly visible in our third quarter performance. We have also lowered our CapEx spending in alignment with our $1 billion reduction target this year compared to our original plan of $3.5 billion. This reduction is largely due to our decision to delay the Alberta project until market conditions improve. As we announced in April, this decision supports our near-term cash flow and adjust our timing to align with the market recovery. We remain committed to the long-term strategic rationale of the Alberta project, which further improves our industry-leading cost position and the growth upside that it will enable and targeted applications like pressure pipe, wire and cable and food packaging. However, our expectation for when this capacity will be needed have changed, given the prolonged down cycle our industry is facing. As we committed, we will provide an update on this during our fourth quarter earnings call in January. Any decisions related to the project time line will remain centered on maximizing value. So taken all together, these near-term strategic actions demonstrating Dow's continued efforts to adjust our cost structure and response to the current operating environment. These actions also support our overarching goal to build a more simplified modern Dow that consistently delivers strong performance, profitable growth and lasting competitiveness. Next, I'll turn to our operating segment performance on Slide 4. In the third quarter, we continued to focus on margin improvement, while prioritizing volume growth in attractive end markets such as food packaging, electronics, home care and pharma. We also took decisive actions to lower our cost base and progress our cost savings actions. So starting with the results for our Packaging and Specialty Plastics segment. Net sales were down compared to the year ago period. Higher demand for flexible packaging applications was more than offset by lower downstream polymer prices, lower merchant olefin sales and lower licensing revenue. Sequentially, net sales declined, driven by lower prices for downstream polymers and olefins. Volume decreased 1% year-over-year and 2% sequentially. Notably, the polyethylene volumes increased in both comparison periods, particularly in flexible packaging applications, and as a result of our new polyethylene unit in the U.S. Gulf Coast. These items were more than offset by lower Olefins volumes in Europe, following our earlier decision to idle one of our crackers into [indiscernible]. Operating EBIT was $199 million, reflecting a decrease compared to the year ago period. This was primarily driven by lower integrated margins. Operating EBIT increased sequentially due to higher integrated margins and operating rates, lower fixed costs from our cost reduction actions and the benefit of the startup of our new polyethylene unit in the U.S. Gulf Coast, which is helping Dow to realize the full benefit of our integration. Next, turning to our Industrial Intermediates & Infrastructure segment on Slide 5. Net sales were down 4% year-over-year driven by continued pricing pressures globally, resulting in an 8% impact on revenue. Sequentially, net sales increased, reflecting volume gains in both businesses and all regions. This was supported by lower planned maintenance activity and the start-up of one of our near-term growth projects, which partly offset lower prices. Volumes increased 2% compared to the year ago period, driven by gains in the U.S. and Canada and both businesses as well as in energy applications. Sequentially, volume increased 5% with improved supply availability following planned maintenance activities in both businesses as well as additional volumes from our new constellation unit in Seadrift, Texas. Operating EBIT for the segment increased versus the year ago period, driven by higher volumes and operating rates as well as lower fixed costs, which were partly offset by lower prices. Sequentially, operating EBIT increased by $138 million. This was driven by lower planned maintenance activity and higher volume in both businesses. This volume growth was enabled by the startup of our new alkoxylation unit in the U.S. Gulf Coast, which serves more resilient home and personal care end markets. Moving to the Performance Materials & Coatings segment on Slide 6. Net sales in the quarter were $2.1 billion, down 6% versus the year ago period and 2% sequentially, driven by pricing pressures on the upstream areas of the segment. In the third quarter, Architectural Coatings experienced normal seasonal patterns, but downstream silicones remained a bright spot, both compared to the year ago period and prior quarter, particularly in high-value applications such as home care and electronics. Operating EBIT decreased both year-over-year and sequentially, driven by upstream margin compression, partly offset by lower fixed costs from our cost reduction actions. To conclude, Team Dow is focused on continuing to take actions to help navigate the challenges our industry is facing, while driving a streamlined, more modern and more simplified enterprise. We are protecting and growing our position in high-value markets while also realizing the benefit from our targeted and accelerated actions to deliver at least $1 billion in cost savings by 2026. We also continue to optimize our global manufacturing footprint as evidenced last quarter when we announced the outcome of our strategic review in Europe, resulting in the shutdown of 3 upstream assets in the region. I will now turn the call over to Jeff, who will share more on the actions we are taking to ensure Dow's financial flexibility as well as some macroeconomic insights and our outlook for the fourth quarter. Jeffrey Tate: Thank you, Karen. Good morning to everyone participating in today's call. Turning to Slide 7. We continue to advance several strategic priorities to support Dow's near-term cash flow, further enhance our balance sheet and deliver structural improvements. This positions the company for growth and better profitability and the recovery. For example, this quarter, we completed the second phase of our strategic partnership with Macquarie for the sale of a 49% equity stake in select U.S. Gulf Coast infrastructure assets, receiving approximately $3 billion in total cash proceeds this year, and we're making solid progress on several additional actions that support our near-term cash generation. This includes optimizing working capital, which we expect to be an approximately $200 million to $300 million release of cash in the second half of the year compared to the first half. In addition to these items, we've completed 2 bond issuances at attractive spreads for a total of $2.4 billion this year. Doing so provides added flexibility and support while maintaining our commitment to investment-grade credit profile, and it extends our material debt maturities out to 2029. As of the end of the third quarter, our cash and cash equivalents balance is above $4.5 billion. We have an additional approximately $10 billion of available liquidity including a revolving credit facility that we recently renewed through 2030. With all these actions, we're building on our long history of navigating the cycles our industry faces. As we've demonstrated in the past, we will continue to take additional actions when and where warranted. With that, I'll share some of the key indicators we're continuing to track on Slide 8. The broader macroeconomic landscape remains largely unchanged since our last update. As it relates to Dow's key market verticals, while we are seeing some pockets of stability of broader recovery has yet to take hold. Based on the visibility we have through current customer orders, we continue to see a cautious operating environment. Business investment and consumer spending are subdued due to ongoing economic uncertainty and affordability challenges. These dynamics are impacting demand across several key end markets Dow serves. At the same time, recent monetary policy shifts and the beginning of a rate cutting cycle so it begin to more positively influence demand, and our packaging market vertical, global demand remains steady. Industry growth in North America was supported by record September domestic and export volumes. Manufacturing activity in China continues to be modest, while Europe contracted in September. In the infrastructure sector, market conditions remain soft across the United States, Europe and China. In the U.S., 30-year mortgage rates have eased modestly, but remain above 6% this month. Demand is unlikely to increase in the near term due to limited affordability, but lower mortgage rates could spur a recovery in 2026 as conditions improve. Consumer spending has remained resilient, but with that, confidence is low, which has been driving value-seeking behaviors. In September, U.S. consumer confidence declined to its lowest level since April and sentiment in the EU remains below historical averages. In China, retail sales grew year-over-year in August, but at its slowest pace since last November. And in mobility, we continue to see mixed demand signals across the industry and regions. In the U.S., auto sales rose in August as consumers moved ahead of the EV tax credit expiration. And in China, government incentives for EVs also continued to support higher auto sales and production. This strength has helped offset weakness in internal combustion vehicles, including in Europe, where new car registrations are down year-to-date. Given this backdrop, we will continue to focus on the actions within our control. Doing so, we have Dow to navigate the complexities of this down cycle while strategically positioning the company to capitalize when the market conditions do improve. Next, I'll turn to our outlook for the fourth quarter on Slide 9. The macroeconomic dynamics that I described continue to limit visibility into customer buying patterns, making projections challenging. As always, we're committed to maintaining transparency and will provide timely updates if they become available. Based on current indicators and normal seasonality, we anticipate our fourth quarter EBITDA to be approximately $725 million. Our disciplined and targeted cost actions and lower planned maintenance activities are expected to provide sequential tailwinds. Normal seasonality, especially in building and construction end markets should be a headwind for our Performance Materials & Coatings and Industrial Intermediates & Infrastructure segments. Additionally, we anticipate some margin compression from our feedstock costs in the fourth quarter. In Packaging and Specialty Plastics, lower planned maintenance in the U.S. Gulf Coast in Europe will provide a $25 million sequential tailwind, along with another approximately $25 million in support from our cost reduction actions. Higher feedstock and energy costs are expected to be a headwind for the fourth quarter despite anticipating higher downstream volumes. Globally, we expect approximately $0.01 per pound of margin contraction in the quarter. This will be partly offset by higher equity earnings following an unplanned outage Estadao in July as the impacted asset is now back up and running. Additionally, following a fire at our [indiscernible] polyethylene unit in Texas this month, we anticipate a $25 million unfavorable impact for the fourth quarter. Initially, the event required us to bring down 3 polyethylene units at the site. Two of those units have already resumed operations. However, we expect that [indiscernible] will remain offline for the remainder of the year. We are leveraging our global flexible asset footprint to mitigate impact and meet our customers' needs. In Industrial Intermediates & Infrastructure, we expect fourth quarter EBITDA to be approximately $20 million lower than the third quarter. This is largely driven by seasonally lower demand in building and construction. Additionally, we anticipate margin compression from higher energy costs and pricing pressures. We'll see this primarily in Europe, the Middle East, Africa and India as Asian exporters redirect volumes into the region from prior U.S. locations where those volumes would now be subject to adopting duties. Sequential tailwinds are expected to be provided by higher demand for deicing fluids, lower turnaround spending and our cost reduction actions. And in Performance Materials & Coatings, we expect lower sequential EBITDA of approximately $100 million. Normal seasonally driven decreases in demand for building and construction and infrastructure end markets reflect an approximately $100 million headwind in the quarter. We expect this to be partly offset by continued strength for downstream silicones applications in electronics and home care. Finally, the incremental tailwinds from our cost reduction actions will be partly offset by planned maintenance at our Deer Park Texas site. So in summary, as we look ahead, Dow remains committed to delivering accelerated cost savings actions across the enterprise as we've demonstrated throughout the year. Doing so will help offset the impact of higher feedstock costs and normal seasonality. Now I'll turn the call back to Jim. James Fitterling: Thank you, Jeff. Turning to Slide 10. The prolonged down cycle continues to weigh on our entire industry, but we're starting to see some encouraging actions in response, most notably around addressing industry oversupply. Specifically, announcements to date include significant rationalization of global ethylene, propylene oxide and siloxane capacities, each of which will benefit Dow's diversified portfolio. The vast majority are occurring in Asia and Europe, targeting assets that sit high on the global cost curve. This includes Dow's decision to shut down 3 European assets across each of our operating segments in order to rightsize upstream regional capacity, reduced merchant sale exposure and remove higher-cost energy-intensive parts of our portfolio. Dow's rationalization announcements and those from industry peers have exceeded the majority of consultant projections, paving the way for improved operating rates, which will also be supported by anticipated polyethylene demand growth remaining above GDP for the foreseeable future. As we have experienced through prior down cycles, we expect to see additional announcements and actions until more visible signs of recovery begin to materialize. As it relates to anticompetitive oversupply activities, our teams continue to be actively engaged in conversations with governments around the world to mitigate impact, progressively defend local production and to ensure a fair trade environment remains. These discussions have led to various actions and duties to protect local industries, including MDI in the United States, polyols in Brazil and more. Dow's global asset footprint and product portfolio position us well to win in the key markets that we serve, particularly as purchasing patterns trend for buying local products and materials to mitigate any potential tariff headwinds. Next, Karen is going to unpack some of these advantages in more detail. Karen Carter: Thank you, Jim. We are pleased to see several of the industry actions that you described beginning to unfold. We continue to monitor both supply and demand signals, and we're staying close to our customers and key external stakeholders to understand their unique challenges while identifying opportunities to drive profitable growth. At the same time, our teams are working to lower Dow's cost structure, enhance our cash position and strengthen our manufacturing footprint through the shutdown of higher cost assets and the start-up of our advantaged growth investments serving high-value end markets. And as the macroeconomic environment improves, our actions will ensure Dow is best positioned to beat our competition, capitalizing on our key advantages. First and foremost, we are committed to being a low-cost producer. Currently, more than 75% of our global cracking capacity is in a top quartile cost position. This number will increase to approximately 80% once we complete the announced shutdown of our [ Bowling cracker ]. In addition, we continue to upgrade our world-class asset footprint by rightsizing higher cost capacity across a variety of value chain, including the shutdowns of 500 Kt of PO capacity in North America, 150 kt of upstream siloxanes production in the U.K. and one of our CAB units in Germany. Our downstream specialties capacity helps to differentiate and improve Dow's performance across the economic cycle, which will become more evident when our previously announced shutdowns are completed. And our innovation capabilities also enable strong earnings compared to our peers over the cycle as evidenced in this year's annual benchmarking report. So to summarize, with the addition of our U.S. Gulf Coast investments, broad product range, leading cost efficiency and global scale that expect to gain share in premiums in markets that traditionally grow above GDP like packaging, electronics, mobility and consumer goods. And we are confident that Dow's differentiated portfolio paired with our team's strong execution will position us to outperform as the industry recovers. James Fitterling: In closing, on Slide 11, our priorities are clear, and our teams remain focused on restoring core earnings enhancing our long-term competitiveness and delivering more than $6.5 billion in strategic actions and cash support items to position Dow well for profitable growth and value creation and the recovery. As a reminder, this includes the $3 billion we received for our strategic partnership with Macquarie as well as accelerating our in-year savings from the $1 billion in cost actions that we announced in January. In addition, our diverse product portfolio, strategically advantaged asset footprint and global scale will help now to capture demand in attractive end markets growing above GDP. And our new alkoxylation and polyethylene units in the U.S. Gulf Coast are already delivering returns, providing further evidence of the value of our integration and low-cost asset footprint in the Americas. Importantly, we continue to engage in positive and productive conversations with several governments around the world as it relates to anticompetitive behaviors as well as changing trade and tariff policies. We remain confident that we're in a strong position to mitigate the impact of tariff costs. In summary, we're focused, and we're taking strong actions to navigate the current environment while advancing our long-term strategic priorities. We remain committed to delivering strong performance, profitable growth and lasting competitiveness in key value chains. And as we have demonstrated in the past, we will continue to identify and implement the right actions that help us stay closer to our customers while outperforming the competition. With that, I'll turn it back to Andrew to get us started with the Q&A. Andrew Riker: Thank you, Jim. Now let's move on to your questions. I would like to remind you that our forward-looking statements apply to both our prepared remarks and the following Q&A. Operator, please provide the Q&A instruction. Operator: [Operator Instructions] Your first question comes from Vincent Andrews with Morgan Stanley. Vincent Andrews: Wondering if we could just get a bit of a reconciliation about the third quarter. Ultimately, the results came in nicely ahead of what you expected when you gave the original guidance at 2Q. Obviously, about a month ago, you were anticipating things were going to fall short of that, particularly in Packaging and Specialty Plastics, but you wound up being able to exceed your original estimate there, likewise in III. So just wondering what happened. Was it just in September came in better than expected? Or were you better on costs or just what allowed this outcome to take shape? James Fitterling: Vincent, let me ask Karen to walk through the business results, and then maybe Jeff to comment on how things came in on cost and cash. Karen Carter: Yes. Thank you for the question. There were really 2 areas that I would like to highlight in terms of the sequential improvement. Higher integrated margins in both NSP and II&I, and that was, in part, driven by our new growth assets. So volume did come in better than we expected. And then the second thing is really around our cost efforts. And of course, we committed to those earlier in the year, the $1 billion. Originally, we thought that $300 million would be the number in 2025. We [indiscernible] accelerated that to $400 million and have clear line of sight to that. And that actually showed up in the bottom line in third quarter in a visible way. So I would say that those 2 things were really the difference in terms of how we not only exceeded expectations from the last guide, but also sequential improvements quarter-over-quarter. Jeffrey Tate: Vincent, this is Jeff. I'll just make a couple of additional comments here related to cash flow. And even on the cost reductions that Karen was just mentioning, initially in our guide for 3Q, we expect it to be approximately $50 million. Tailwind for us, it was actually better than that in September came in a little bit stronger on the cost reduction side at about $75 million. So about a $25 million improvement there. I do want to spend a second on the cash flow as well, though, because you'll notice that our cash from operations came in at $1.1 billion in third quarter, which was an improvement sequentially of $1.6 billion. And that was really driven by 3 different areas here. Sizable improvement in our working capital. The team has done a phenomenal job of continuing to really double down on the working capital improvement going into the second half of the year. In fact, as you heard in my prepared remarks, we're expecting in the second half of the year, our working capital to deliver a release of cash of $200 million to $300 million, and we saw $80 million of that working capital improvement in terms of a source of cash during the third quarter. We also had the 2 long-term strategic supply agreements that Karen mentioned in her prepared remarks, as well as the improved earnings that we have sequentially from second quarter to third quarter. Operator: Your next question comes from the line of Hassan Ahmed with Alembic Global Advisors. Hassan Ahmed: Jim, really appreciate the industry sort of outlook you guys provided on Slide 10. So just a broader question around rationalization and new project cancellations. On the rationalization side of things, obviously, the South Korean side, the Japanese side and the European side, you can assign projects. You can see which capacity is being shut down. What's less clear is the anti-evolution side. China, in particular, what cancellations may transpire over there. So I'd really appreciate if you could sort of provide your thoughts around that. And part and parcel with that, I keep hearing that, look, I mean, once China announces new facilities, they never canceled those projects. I mean they have a long track record of that. So is that also changing? James Fitterling: Hassan, thanks for the question. I would say a couple of things on the ethylene supply outlook. And I think most of your questions were geared toward that. We've got right now line of sight to about 9,300 kilotons of global capacity, which has been rationalized. You've got about 4,400 kilotons in Europe, Middle East and Africa, and those have been announced and I think are well documented, and that includes our [ Bolon asset ]. You've got 4,900 kilotons in Asia Pacific. That includes China, obviously, about Japan, China, Singapore and about 1,000 tonnes -- kilotons across the rest of Asia. We've got speculation on the closures of about 13 million metric tons from a combination of additional capacity in Asia, Japan and Korea to the tune of about 5 million tons and China from the [ anti-evolution ] policies to the tune of about 7 million tons. So that's what's out there. Obviously, the 9,300 kilotons that I mentioned, I would say, much more confirmed than the 13 million. But all of that together starts to bring you toward 10% of the global capacity. And when you get into Europe, it's probably bringing you more into the 20% of European capacity range. And I think that's right in line with what the industry is seen. Your comment on China in terms of once announced completed, I don't have any data to counter that. I would say, I think you might see some delays in some announced capacity in China just from a standpoint that the market in China is slow. And for certain grades of product, we're not as big and something like high-density polyethylene, for example. But for certain grades, they've reached self-sufficiently -- self-sufficiency. And they really don't have the cost position to export them. And as the world pushes back with antidumping duties and other measures to keep trade fair, that's going to put pressure on them. And so I think they'll look at the timing on those. Operator: Your next question comes from the line of Michael Sison with Wells Fargo. Michael Sison: Nice quarter. In terms of PSP, I think you noted global integrated margins could be down $0.01 in the fourth quarter. Can you bifurcate that from whether pricing or cost in the U.S., Europe and export? And then just a quick follow-up. Slide 8, the pretty colors really haven't changed, well, they're not that pretty. But -- if those -- if the global demand backdrop stays similar in the first half of '26, does EBITDA improve? And I know you have more cost savings next year. Can you maybe just talk about what happens in the event that we have this same colors heading into next year? James Fitterling: Thanks, Michael. Karen, do you want to hit P&SP and I'll try to cover Slide 8. Karen Carter: Yes. So it's important to note that, first of all, in third quarter, take a look at how we ended the quarter from an industry perspective. So when we came in the third quarter, we expected that prices would move up. And of course, as you know, they settled flat even though we thought the market fundamentals were there. And so if you look at the ACC data in September, both domestic and export demand set record for the month, but then also industry inventories drew down. It was the second largest draw of the year. And so that's why we expect and we anticipate that prices should go up in October. We have $0.05 on the table, and that should continue to occur even though it's a challenging market environment. So when you look at why our integrated margins are predicted to be down by $0.01, it's really because of the higher feedstock cost that are expected based on weather, frankly. So natural gas and ethane are both expected to go up. At the beginning of the month, there was a spike on ethane. It has since come down. And so we could get some relief on that. But right now, our view is that integrated margins will decline by about $0.01 globally. But that also should provide some support for prices going up in October. And again, we've got $0.05 per pound on the table. James Fitterling: And Michael, if I could touch on Slide 8. I think the main reason for the no change that you see there is there's just a lot of uncertainty in the marketplace right now. And we don't have settlement yet on all of the trade deals that have been announced. And you see in the market, and I think everybody feels that every time there's a swing in an announcement from either side on one of the trade deals, there's usually a bit of a pullback and everybody is trying to figure out what the impact is going to be. We've seen throughout the year, our own supply chain team who's been doing a phenomenal job, really shifting gears to try to make sure we don't get caught out and product keeps moving. So that's the hardest part to project going forward. The industries that are driving the demand are still good. If you look at electronics, if you look at data centers, tech AI and really in the construction side of things, that is what's driving the construction markets today. There's government spending on infrastructure. We've seen more government support for infrastructure projects that's helping to drive demand than we have seen, for example, in China, you see really no support for the housing industry there. So that's having a pretty heavy weight on the Chinese market. And here, we've got, I would say, some interest rate declines in housing, like Jeff mentioned, but nothing yet that has caused an uptick in new mortgages or existing home sales or anything that would drive demand. So we're optimistic that things are moving in the right direction. And I think if we can see some completion of some of these trade deals by the end of the year, that should bode well for next year. If this lingers into next year, then obviously, we need some of that certainty to be able to have people make decisions, stop sitting on the sidelines and move forward with investment plans. I think tech AI and data centers, that utility construction for power, I think that's all going to continue because that's new capacity that's needed. Those are decisions that can be made right now, and people are ready to move fast in that space and there's liquidity. And so there's good money to chase those projects. But I think when it comes to rebounds in some of the existing long-established global supply chains, we need to see some certainty. Operator: Your next question comes from the line of Josh Spector with UBS. Joshua Spector: I was wondering if you could talk a little bit more about kind of the range of CapEx as you think about 2026. I mean I think you made the comment that you're not going to make a decision on Alberta or at least you're not going to announce it until the January or February call. But can you help us think about maybe a low end range if you decide that you're not going to do it and bring basically everything down versus the high-end range if you say we are going to kind of continue what that ramp-up would look like? James Fitterling: Yes. I think the simple answer, Josh, is if we continue the way we are, you could see another $2.5 billion next year, and we can manage that. And within that, you've got about $1 billion of maintenance CapEx. We've obviously got less -- we just started up a unit down in Texas and our [ coxilation ] unit as well. So those come off the docket going into next year. We have some downstream silicones projects that are very good, that will be on the docket. But we're not starting anything else right now until we get a little bit better line of sight to demand and the question that Michael raised just previously. So I think we could land it in that range. And we will come back in January. I think we've got teams working really hard on the triggers and what would cause us to declare when the start of construction would be on path to 0. Operator: Your next question comes from the line of Jeff Zekauskas with Morgan Stanley. Jeffrey Zekauskas: One of the things that Dow hasn't really talked about is joint venturing the Alberta cracker. Why wouldn't that make sense and take pressure off the cash flows of the company? And then is that something that you're considering? Or why wouldn't you consider it? And then secondly, what's polyethylene demand been like for you in the third quarter and year-to-date? James Fitterling: Jeff, let me ask Karen to talk about polyethylene demand, and then I'll come back and talk about Alberta. Karen Carter: For us, polyethylene demand has been stable. I mean if you look at the market segments that we play into packaging, has remained relatively stable. I know there's been discussion around the consumer and although consumer sentiment is weaker. What we are hearing from both brands and our customers is that they are actually shifting down. So shifting from of course, the consumer branded labels down to private labels, but that's still good for us. We sell into all of those segments. So packaging has been stable. Personal Care for us is another space that's been stable for us in packaging as well. You heard me say earlier that the industry set a quarter -- a record in September, both for domestic sales as well as exports. And so we continue to see those exports flow, and we grew in the third quarter. So we expect that packaging demand for us will continue to be stable to relatively strong depending on the segment. The other thing I would just highlight again is [ Polyseven ]. And we brought up Polyseven early in the quarter and third quarter, and it's already sold out, and we expect that to continue to occur. James Fitterling: And on Alberta, Jeff, I don't have anything specific to say, and I don't have a pushback on your question on joint venturing. If you look back at Texas 9 at the time when we did it, our partners from Kuwait, I mean, Global came in and made an investment to consume up to 30% of that cracker and that's worked extremely well. In fact, we just contractualized the last increment of that in the third quarter. So that's worked extremely well. So we have experience to do something like that. I think a couple of things I would say about Alberta, still a delay, not a cancellation. It's still an asset from an investor standpoint that you want in the fleet longer term. It has the scale, it has the cost position, and you're bringing an additional asset cracker and derivatives up into that pocket in Alberta, which has really a cost advantage on ethane over a long period of time, decades that you can lock in where the Gulf Coast is a little more exposed to market swings. And so I think that's a big advantage. So we're looking at how to time it. We're looking at, obviously, the best value creation for it. We don't want to bring it on well ahead of demand. We want to bring it on with the market. Those are some of the things that we're factoring in. And don't have anything to talk about in terms of the JV, but certainly, all possibilities are things that we would consider. Operator: Your next question comes from the line of Matthew Blair with TPH. Matthew Blair: I was hoping you could talk a little bit more about some of the moving parts in your polyurethane business. Are you seeing any benefits to U.S. MDI margins from tariff impacts that have reduced imports from places like China. Also on the -- just on the construction end market side, I think you mentioned that rates are coming lower, but is it fair to say that's not really coming through in the market yet. And then finally, do you have any sort of commentary you can provide on the relative strength with your polyols business versus your isocyanates business. Is one holding up a little bit better than the other? James Fitterling: Thanks, Matthew. Karen, do you want to tackle that? Karen Carter: Sure. So let me start just with the building and construction market because you're right. We did see rates come down, but we definitely believe that they need to come down further for us to see really a recovery in that space. They're currently sitting in the mid-6% range. We believe they'll probably need to have a 5 handle on them before we see any reasonable recovery in that segment. And of course, as we said before, about 40% of our products are aligned to infrastructure across our entire portfolio. So it's a good start, but it's not good enough for us to see a recovery. Let me answer your second question, maybe it was your first on MTI because we are encouraged by some of the recent rulings that we've seen around antidumping. And so in September, the U.S. Department of Commerce made a preliminary finding concluding that MDI dumping was occurring by Chinese producers in the United States. Chinese imports account for about 20% of the MDI market here. And so industry imports are reporting that on top of the preexisting duty that were already there, that the market for Chinese imports is dissipating quite quickly. And so we are seeing some starts of additional volume, not yet a lot of pricing there, but we are seeing some additional volume. And again, I have been encouraged by those initial findings. Operator: Your next question comes from the line of Kevin McCarthy with Vertical Research Partners. Kevin McCarthy: Jim, I was wondering if you could comment or elaborate a little bit more on the here and now in terms of the demand function. How are your October and November order book shaping up relative to normal seasonal patterns? Just trying to get a sense for your fourth quarter guide of $9.4 billion in sales, $725 million on EBITDA. How conservative or not, you think those levels are relative to the normal seasonal year-end movements? James Fitterling: Kevin, I'd say a couple of things and then I'll get into the order pattern stuff here in a second. On GDP, there was a report out. I think Harvard put a report out recently that if you looked at the U.S. economy and you backed out growth from data centers and all of the related investments that are going into that space, the rest of the economy grew at about 0.1% GDP for the year. So I think that tells you that in some manufacturing sectors where you're up against, and we know China's domestic -- gross domestic product has been under pressure as well because their domestic economy hasn't shown the kind of resilience that they saw. Karen just mentioned what's going on with MDI, antidumping duties here. And while that means that MDI coming into the U.S. is down about 80%. The product has gone somewhere, right? It's showing up in Europe, it's showing up in other areas, and it's probably more than likely being dumped there. And so we have to pursue those same kind of cases around the world. And so that's the thing that we've got to look at is how does the rest of the GDP to recover. And when do we start to see durable goods move, when we see automobiles move again, appliances move again. Some of the other things that are really going to drive some of this economy. September was a strong month, and I think October order books look good. A little bit early to call November. Usually, when we get to the beginning of the month, we have a really good line of sight to the order books and way too early to call December. But so far, so good on the order books. I don't think -- I wouldn't lean in too conservative or too optimistic, I'd say, kind of right down the middle with our experience year-to-date. Operator: Your next question comes from the line of Chris Parkinson with Wolfe Research. Christopher Parkinson: Jim, on Slide 10, we can all see that the cost curve is pretty steep when it gets to the third and the fourth quartile and we continue to see some of the rationalization of the asset footprint, presumably in the fourth quartile on an ongoing basis. But at the same time, that means certain third quartile assets become the operational fourth quartile assets. And the cost curve, the perceived cost curve could actually be a little bit flatter than previous estimates. How, if any way, whatsoever, does that filter in to your return assumptions, your longer-term term resumptions on Alberta? And how does that help you triangulate your decision-making process over the next 6 to 12 months? Or is it simply just too early to tell? James Fitterling: Yes, Chris, it's a good question. I mean you know these curves change over time. They get steep and they flatten out in different periods of time. I'd say it's been pretty steady in this kind of range. Just recently, I think you've seen some moves at naphtha that have brought some things down. But at the same time, propane's come down as well. And so that gives us a little bit of pro-nap advantage in Europe. So things move around. What I would say is that in any scenario on a Canadian asset, will be a low-cost asset and to be a first quartile assets. So I think we look at it that way. And then we look at the rest of the footprint and through the cycle, peak-to-peak, trough-to-trough, you want to try to make sure you're in a position to maximize the next peak for the shareholders. And when you get to the next trough, you've got your high-cost assets out of there in the next trough, you have got more assets to the left of the center point of that line. And so that's our decision-making right now. The focus in Europe has been rightsizing it to the European market. And I think the big question mark is going to be how long will the European market continues to stay at that size, we'll continue to [indiscernible] stop or continue to shrink. And then China, I think the other factor that comes in is the trade and how trade is going to be regulated because a lot of capacity that's been built there is not low cost. And if countries around the world are trying to keep their manufacturing industries, they're going to have to put up some protection barriers to keep product from being done. And we're starting to see that happen now as a result. Those are the big factors. And I think we try to factor in that. And then the timing of the demand to come back. So if you think about what we were talking about on supply-demand rationalization before, you've got 10% of global capacity, either announced or talked about in terms of coming out. That would be a significant bump up in ethylene operating rate. Karen mentioned polyethylene demand, which has been for a low, slow growth economy has been pretty good volume. We haven't seen the pricing power yet. But I do think the world is not going to sit at the slow growth place forever. So that capacity comes out, that demand rate kicks up pretty quickly, you get yourself into that 85-plus percent operating rate, and then you start to see price power and you start to see move up that's going to really benefit the investors. Operator: Your next question comes from the line of Duffy Fisher with Goldman Sachs. Unknown Analyst: First of all, 2 questions maybe. So one, just to be explicit, your guide for Q4, what are you baking in for ethane pricing doing in the U.S.? How much of that $0.05 do you have baked in and then your sequential operating rates, do they stay flat, would be question one, just around the fourth quarter. And then second question is, have you guys done work or do you have a view on what you think happens with natural gas pricing in the U.S. as we start to export more natural gas. So a view on where '26 natural gas price goes? James Fitterling: Duffy, on ethane, we got $0.04 in -- on the ethane in the quarter. Ethane is moving as you see. But I mean, natural gas production is good. The U.S. has plenty of natural gas liquids. So it's all going to be a function of operating rates. Our view on operating rates is the assets are going to run hard in the Americas. So I think that will come through. Natural gas, weather is going to be a big factor, always is this time of year. And you've seen it, it has come off where the strip was for the beginning of the quarter. It's come off because we're still producing products still going into inventory. There hasn't been as much demand for heating. And so we've had this kind of warmer September, October, I think, which has helped into the strip starting to cool off a little bit now. So we'll watch the inventory levels. That will be the biggest factor there. But the near-term moves on gas have been positive. And as gas moves down, you'll probably see the frac spreads will stay about the same, so that they bring ethane down. The other wildcard to watch is, does ethane get in the middle of a trade negotiation between U.S. and China. It did in the previous round. And so what happens with ethane exports. I'm not advocating for anything here. I'm just saying that China is a big receiver of ethane exports. And so it got treated a little bit like rare herbs in the last discussion and we have to watch that. Operator: Your next question comes from the line of Patrick Cunningham with Citi. Patrick Cunningham: You talked quite a bit about volume gains from new investments in the U.S. Gulf Coast and reference picking up share in better markets. I guess, first, can you help quantify the run rate earnings contribution from some of these growth investments? And are there any other incremental investments or tailwinds we should be aware of that gives additional uplift next year? James Fitterling: Maybe I'll ask Karen to make a few comments on the run rate investments. Karen Carter: Yes, absolutely. Thanks for the question. So just to clarify, the 2 growth assets that are now up and running are the Polys unit down in the U.S. Gulf Coast, and then the [indiscernible] capacity that's also down in the U.S. Gulf Coast. So we expect that from a full run rate perspective on an annualized basis that, that will deliver $100 million to $200 million. And so far this year, and so I'll talk about third quarter in particular, it's around $40 million in the quarter, and we expect that to continue into fourth quarter. James Fitterling: And the other factor, Patrick, that I would just add in is we're balanced now on ethylene in the marketplace. And so what that allows us to do is capture the full integrated margin on that ethylene versus selling merchant ethylene. Karen Carter: Yes. Operator: Your next question comes from the line of Matthew DeYoe with Bank of America. Matthew DeYoe: I appreciate the view that PE demand is going to grow in excess of GDP. But as we look across -- a lot of the chemical chain and trends you're seeing in China. Is it possible that multiplier has been diluted because domestic sales year-to-date are up 1%, which is below expectations on GDP, but I know there's a lot of noise and just to put in context, I guess, a higher level rate, inventories are down in September for polyethylene, but that's because the industry took rates down. But how do I rationales the plan or the expectation for that to keep going at lower rates? Because I know there's also the view that the U.S. will run harder. And I guess I asked this because it reflects a larger question that we have. It's like if we're still going to be adding capacity in things like MDI and polyethylene, is it possible that U.S. assets just have to derate if we can't take capacity out in Europe anymore? James Fitterling: Yes, there's a lot there, Matthew. Let me take a couple of stabs at it. So domestic sales and production are 2 different things. And I think, as I mentioned before, the U.S. GDP ex data centers and that has been relatively low. So I think the multiplier is still there. It's been in around the 1.4x GDP multiplier. It feels like it's still there. I mean at the heyday of the big ramp-up in plastics, it was probably in the 1.5 range. I've seen estimates from third parties that could go as low as 1.2%. That wouldn't be surprising as the industry matures. And then I think product mix is the other thing that factors in. We're geared more towards elastomers, about 30% of the capacity being in Functional Polymers. And then obviously, a lot in flexible packaging, linear low density is a big part of what we do, low-density is a big part of what we do. I think we're pushing for a lot of capacity adds and isocyanates here. I think the world has enough isocyanates capacity. So I don't think you're seeing that coming on. I think it's more a question of rebalancing of the trade and then taking people off the sidelines because there's a lot of people on the sidelines right now. I'd say the supply chain is more hand to mouth. There's not a lot of inventory build anywhere. Maybe in the year, we've seen a little bit of early moves on imports and exports because people are trying to get ahead of tariff dates like the first of October, you see that drive certain shifts we saw it in China with their production rates and exports. But those are the things. But at the high level, I don't think the GDP multiplier has shifted. Operator: This concludes our Q&A session. I will now turn the conference back over to Andrew Riker for closing remarks. Andrew Riker: Thank you, everyone, for joining our call, and we appreciate your interest in Dow. For your reference, a copy of our transcript will be posted on Dow's website within 48 hours, which concludes our call. Operator: This concludes today's conference call. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Textron Third Quarter 2025 Earnings Release. [Operator Instructions] I would now like to turn the conference over to Scott Hegstrom. Please go ahead, sir. Scott Hegstrom: Thanks, Rob, and good morning, everyone. Before we begin, I'd like to mention we will be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risk factors, which are detailed in our SEC filings and also in today's press release. On the call today, we have Scott Donnelly, Textron's Chairman and CEO; and David Rosenberg, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website. Revenues in the quarter were $3.6 billion, up 5% or $175 million from last year's third quarter. Segment profit in the quarter was $357 million, up 26% or $73 million from the third quarter of 2024. Adjusted income from continuing operations was $1.55 per share compared to $1.40 per share in last year's third quarter. Manufacturing cash flow before pension contributions totaled $281 million in the quarter compared to $147 million in last year's third quarter. With that, I'll turn the call over to Scott. Scott Donnelly: Thanks, Scott. Good morning, everybody. Let me just start with yesterday's announcement. I'm sure you've all read by now that yesterday, we elected Lisa Atherton to become our new President and CEO, effective at the beginning of January. At that point in time, I'll transition to be the Executive Chair. This is the result of a long, thorough process that we worked with on the Board. I think Lisa, who's been with our company for about 18 years is an outstanding leader. She's had a number of really important roles in the company over the years. She was the President and CEO of our Textron Systems business for about 5 years. Most recently, obviously, she's the President and CEO of Bell, where she's been very involved in both the capture, the win and now the execution of the ramp on MV-75. She's a fabulous leader. She knows the team. She's surrounded by a great team at the business level across the company. So we're proud of the fact that we had a great internal promotion, and I think she'll just do a fabulous job leading the company into the future. So with that, let me go ahead and talk about the quarter. Overall, revenue was higher, driven by strong growth across our aerospace and defense businesses. Aviation had higher segment revenues and profit compared to the third quarter of last year. We delivered 42 jets and 39 commercial turboprops compared to 41 jets and 25 commercial turboprops in last year's third quarter. Textron Aviation's fleet utilization remained strong in the quarter, contributing to an aftermarket revenue growth of 5% as compared to last year's third quarter. Aviation backlog ended the third quarter at $7.7 billion as demand remains strong. Earlier this month, Textron Aviation completed the certification of the CJ3 Gen2 and autothrottles on the M2 Gen2. Also this month, the Citation Ascend made a debut as it landed in Las Vegas for the NBAA exhibition. We are nearing completion of the certification process and continue to expect deliveries this quarter. During the quarter, the Latitude received FAA certification for new features of the Garmin 5000 avionics suite. These features include Synthetic Vision Guidance Systems and for improved approach capabilities down to 150 feet and a new taxiway routing feature. We continue to implement Starlink high-speed Internet connectivity onto our aircraft. With the recent announcement of the Latitude and Longitude supplemental type certifications, Starlink is now available on 14 platforms across Aviation's product portfolio. On the defense side, Aviation announced a partnership with Leonardo to launch the Beechcraft M-346N as a solution for the United States Navy Undergraduate Jet Training System competition. Throughout the quarter, Aviation participated in a nationwide demo tour to highlight the capabilities of this aircraft. At Bell, increased revenues were driven by higher military volume, reflecting the continued ramp and acceleration of the MV-75 program. In the quarter, Bell exceeded their 90% engineering release milestone, enabling continued fabrication and procurement activity for the prototype aircraft. Fabrication and assembly work on the program is continuing across numerous sites, including wing assembly at our Amarillo, Texas site, fuselage assembly at our Wichita, Kansas site, in addition to ongoing fabrication of critical rotor and drive system components in our Fort Worth operations. On the commercial side of Bell, we delivered 30 helicopters, down from 44 in last year's third quarter. Bell continues to see strong demand across its commercial product portfolio. Bell announced a purchase agreement with Global Medical Response for 7 429s and an option for 8 additional helicopters with deliveries expected to begin in 2026. Moving to Systems. Revenues were up as compared to last year. During the quarter, Systems received new contract awards for several programs, leading to an increase in backlog of about $1 billion in the quarter. These awards included ATAC awards for both the United States Navy and the United States Marine Corps, a new contract award for the U.S. Army to provide 65 mobile strike force vehicles in support of the Ukraine Security Systems Initiative and increased quantities for the Ship-to-Shore Connector program. In the weapons business, Systems completed delivery of the first production lot of XM204 anti-vehicle terrain shaping systems to the U.S. Army in support of operations in Europe. Moving to Industrial. We saw lower revenues, reflecting the divestiture of the Powersports business. At Aviation, we continue to make progress on several of our core development efforts. The team completed the Hover flight test envelope for the Nuuva V300 and set the stage for Air Vehicle 2 to enter the flight test program. As disclosed in our 8-K filing, Textron will be eliminating the Textron Aviation segment as a separate reporting segment, realigning the eAviation business activities across Textron Aviation and Textron Systems to leverage our existing sales and business development capabilities. This change will be effective at the beginning of fiscal year 2026. With that, I'll turn the call over to David. David Rosenberg: Thank you, Scott, and good morning, everyone. Let's review how each of the segments contributed, starting with Textron Aviation. Revenues at Textron Aviation of $1.5 billion were up 10% or $138 million from the third quarter of 2024, reflecting higher aircraft revenues of $116 million and higher aftermarket parts and service revenues of $22 million. The increase in aircraft revenues were largely due to higher volume mix, which included higher Citation jet and commercial turboprop volume, partially offset by lower defense volume. Segment profit was $179 million in the third quarter, up 40% or $51 million from a year ago, largely due to higher volume and mix. Backlog in the segment ended the quarter at $7.7 billion. Moving to Bell. Revenues were $1 billion, up 10% or $97 million from the third quarter of 2024. The revenue increase was driven by higher military revenues of $128 million, primarily due to higher volume from the U.S. Army's MV-75 program, partially offset by lower commercial volume of $31 million. Segment profit of $92 million was down $6 million from last year's third quarter. Backlog in the segment ended the quarter at $8.2 billion, an increase of $1.3 billion from the prior quarter, primarily reflecting the award for the prototype testing and evaluation phase of the MV-75 program. At Textron Systems, revenues were $307 million, up 2% or $6 million from last year's third quarter, which included higher volume on the Ship-to-Shore Connector program. Segment profit of $52 million was up $13 million compared with the third quarter of 2024, largely due to a gain resulting from the early termination of a vendor contract. Backlog in the segment ended the quarter at $3.2 billion, an increase of $980 million from the prior quarter, reflecting new contract awards for the Ship-to-Shore Connector land vehicles in the adversary air business. Industrial revenues were $761 million, down $79 million from last year's third quarter, driven by Textron Specialized Vehicles. This reflects $88 million in lower revenues related to the divestiture of the Powersports business. Segment profit of $31 million was down $1 million from the third quarter of 2024. Textron eAviation segment revenues were $5 million in the third quarter of 2025 as compared to $6 million in last year's third quarter, and segment loss was $15 million as compared with a segment loss of $18 million in the third quarter of 2024. Finance segment revenues were $26 million and profit was $18 million in the third quarter of 2025 as compared to segment revenues of $12 million and profit of $5 million in the third quarter of 2024. The increase in revenues and segment profit was largely due to gains on the disposition of noncaptive assets. Moving below segment profit. Corporate expense were $26 million. Net interest expense for the manufacturing group was $26 million. LIFO inventory provision was $48 million. Intangible asset amortization was $8 million and the non-service components of pension and postretirement income were $67 million. As expected, our adjusted effective tax rate for the third quarter of 2025 was 25.5%, largely reflecting the impact of the One Big Beautiful Bill Act. We now expect our full year adjusted effective tax rate to be approximately 21%. During the quarter, we repurchased approximately 2.6 million shares, returning $206 million in cash to shareholders. Year-to-date, we have repurchased approximately 8.4 million shares, returning $635 million to shareholders. To wrap up with guidance, we are reiterating our expected full year adjusted earnings per share to be in the range of $6 to $6.20 and maintaining our expected full year manufacturing cash flow before pension contributions to be in the range of $900 million to $1 billion. That concludes our prepared remarks. So operator, we can open the line for questions. Operator: [Operator Instructions] And your first question today comes from the line of Peter Arment from Baird. Peter Arment: Congratulations, Scott. I appreciate all the help over the years. On the MV-75, could you guys give us -- there was an announcement by the Army here recently regarding accelerating the fielding of the Version 2. Just how that would impact any the cost profile? Or does it change anything? Scott Donnelly: It won't change anything in the near term, Peter. I mean, obviously, part of the strategy on the program, which has been there all along was to start with a very basic aircraft and focus on the critical parameters around speed and range and basic aerostructure. But as you know, part of the incorporation of MOSA in terms of the architecture of this aircraft allows you to do that and then build out variants and derivatives and capabilities in different variants going forward. So our focus, obviously, right now is very much around the acceleration, getting the first prototype aircraft going. Those will be the first variant. So -- but there's already a lot of work clearly going on in the Army around what future capabilities they'll want to put on the aircraft, but that's enabled by the MOSA architecture. So it doesn't affect or impact the work that's going on around the basic aircraft today. Peter Arment: That's helpful. And then just a quick one on -- just on Aviation, you talked about the demand remains strong. Just maybe any highlights you would call out just regarding whether it's regionally or just in general on the biz jet market. Scott Donnelly: It's really across the whole portfolio, Peter. I mean we continue to see strong retail demand. People are flying. The end market industry remains robust, I would say, everywhere that we see it. The performance of the business is improving, obviously, as we talked about every quarter, improving margins. We had a lot of certification activity in the quarter. We would have originally planned probably to get the M2, the CJ3 and the Ascend in Q3. It's turned out. Of course, we now have the M2 and the CJ3, but those happened right at the beginning of Q4. And Ascend, we should have wrapped up here by the end of the month. The FAA, despite the shutdown is supporting us in that effort, which is great. So I think the market is strong. Our product portfolio is in a good place. So we feel pretty good about where things are. Operator: Your next question comes from the line of Sheila Kahyaoglu from Jefferies. Sheila Kahyaoglu: Congratulations, Scott, on a great run and promoting both Dave and Lisa internally. I think that says a lot. Maybe if I could follow up on the MV-75 question, if that's okay, for Peter. Can you provide additional color on like where -- what's the update on the program? You've completed 215 flight hours. I think you're scheduled to deliver 6 test articles over the next 1.5 years. What happens from there with the Army? And how do we think about a contract being signed on? Scott Donnelly: Sure. So I mean, the current program, it's -- Sheila, it's a good question. I think there are some misunderstandings about this program and sort of where it is and what's going on. I've heard a lot of people said, hey, is this going to be one of these programs as we've seen with a lot of defense contractors around these big fixed price programs. We're familiar with those. We had that, as you know, on Ship-to-Shore Connector. It's a healthy program today, but went through a very difficult phase given the nature of the fixed price development and production at the beginning. As you know, we don't have that. This is a very large program, obviously. It's mostly cost-plus development. There are some fixed price elements. We've already put the fixed price LUT aircraft into our program estimates to complete. We will, at some point, add the LRIP 8 once that is exercised by the government. But I think that the program as it's laid out today covers all of that development, which is largely cost plus. It does have LUT as a fixed price. It does have LRIP as a fixed price. And that's kind of where that -- where the current program stops. So the discussions around acceleration are really bringing forward that LRIP. We collectively with the Army, believe this is something that we can do with low risk. That's in part by, as you referenced, the fact that we flew 200 and some 300 hours on the V-280. The team is already building a lot of the key components and fabrications, getting ready to build the first prototype test aircraft. There will be 6 of those and then the 2 LUTs. So the risk of bringing that LRIP in rather than having a big gap is pretty minimal. People need to keep in mind that, that first LRIP aircraft is really sort of serial # 10, if you count the initial V-280 plus the 6 EMDs, which are cost plus and then those first 2 LUTs that are fixed price. So I think the team is doing a great job on executing. Obviously, we work very, very closely with the Army on the acceleration process. It's going very well. We're building wings. We're building fuselages. We're building gearboxes. It's all going quite well. And again, I think there is a little bit of a misconception around how this works. It is a big performance obligation. We will -- as you guys saw last year, when we did the LUTs and added those to the mix, we took our booking rate down, and that will result in a [ cume catch ]. It did result in a cume catch that was a bad guy. On the other hand, this quarter, they exercised one of the large cleanse for the cost-plus side. We actually increased our booking rate and took a modest cume catch good guy. So this is something to expect through the course of the program. But unlike these big fixed-price development, fixed-price production programs, we certainly don't see this thing entering into lost territory. It will continue to book at a low margin, which we've said from the beginning. But I think we're, again, in a pretty good place, and it's a program, I think, that's executing well and obviously is hugely important to the future of the company. Operator: Your next question comes from the line of Gavin Parsons from UBS. João Santos: This is João Santos on behalf of Gavin Parsons. You have talked before about improving Aviation profitability. What is the long-term margin target that you are aiming for? And what are the main levers to get there? Is it volume, pricing or more of mix? Scott Donnelly: Well, I mean, obviously, these dynamics are different in each one of the businesses. But generally speaking, across all of our product lines, we have good gross margins. So the biggest lever is around volume and what that does in terms of conversion to the bottom line in terms of performance. So that's -- most of the investments that we make around product are around making sure that we have products that have high demand and can command good volume and obviously, solid pricing, which, again, we've seen that in the last number of years where we've had very positive price feedback as well. João Santos: Great. And then in Aviation bookings have been fairly steady each quarter this year, even through the 2Q tariff uncertainty. Do you think long lead times are holding back new orders? And if production ramps, could that actually drive bookings higher? Scott Donnelly: Well, look, it's -- there is some connection between news. There's no doubt if you get out too far out in time line that it's difficult for people to make that commitment. But as you said, look, I think that the market demand remains strong. It has been pretty steady. We've guided a 1:1 book-to-bill through the course of the year. I still feel good about that. And certainly, we do have plans where you'll see incremental volume in 2026 as opposed to 2025. So we're not obviously quite ready to guide 2026 here, but we certainly expect, as manufacturing continues to ramp, we will see additional output in terms of the number of aircraft. Operator: Your next question comes from the line of Robert Stallard from Vertical Research. Robert Stallard: Congratulations, Scott, on the move up. But my first question is actually in relation to that and how you and Lisa expect to divide the role going forward because you will be Executive Chairman. Scott Donnelly: Sure, Robert. Look, I mean, this is, I think, a fairly standard transition in our business. I've been working with Lisa for a very long time in her capacity and key program jobs. She worked for me directly for the last 8 years running the Systems business and then the Bell business. So I want to be really clear, she becomes the President and CEO. She's running the company. That's -- and she's ready to do that, by the way. So I'll be there to help with some of the processes that we just haven't gone through around regulatory stuff and closing out the year and things like that. But I fully expect she's ready to run the company, and she'll start doing that on January 4, and I'll be there to help and do whatever it is that she needs me to do and obviously run the Board. But I think it will be a normal transition. I expect it will be very, very smooth. Again, we've been working together for a very long time. So I'll be around, but no one should have any questions, she's going to be running the company. Robert Stallard: Okay. And then as a follow-up on Aviation, we've seen some recent signs of biz jet activity actually picking up in terms of year-on-year growth. Are you starting to see this flow through in terms of your aftermarket activity? Scott Donnelly: Yes. We had a good quarter on the aftermarket side. There's no doubt utilization is strong. People are flying, which is a great indicator. Obviously, it's really important in terms of helping to continue to drive growth in the aftermarket side of the business. But I think it also bodes well just for demand for aircraft, which again, we're seeing the retail, the level of interest, inquiries, orders, bookings remain strong. So I think the industry right now probably is as healthy as we've ever seen it. Operator: Your next question comes from the line of Myles Walton from Wolfe Research. Myles Walton: Scott, on the retirement or move to Executive Chairman. You're not retired yet. Work to do. On the Aviation side, can you comment on the supply chain and how that's coming along and whether or not that's an impediment to hitting the $6.1 billion rev placeholder within the forecast? Scott Donnelly: No, look, I mean, there are still supply chain issues as we've kind of talked about, it's not as many part numbers, for instance, as it used to be, but there are still some critical suppliers that are struggling. And yes, it does impact us on different models at different times. It continues to create a little more problem in just some production efficiencies and flow doing out-of-station work. Again, it's not as bad as it was. And so we are seeing improvements in that area. But there's some critical things that are sort of a little bit of hand to mouth and that we keep a close eye on with a relatively small number of suppliers, but they're critical suppliers. So again, overall, it's improved, but it's one that we -- I mean the team works this stuff every day. There are still some problem children out there, and that's been the sort of the nature of where we are. But I don't believe -- just to be clear, I think everything we look at today, getting to that $6.1 billion, we clearly feel good about our path to get there. Myles Walton: Okay. Great. And then just a follow-up on Systems, great bookings. Is this the point of inflection for growth after a long time of relatively flat revenue? Scott Donnelly: Yes. Look, I think so. The bookings were very strong. You guys know we started the year with a bit of a challenge with things like RCV and FTUAS getting restructured and changed. I do still think there's opportunities there in our participation in those kinds of programs. There's a lot of interest in a lot of the technology we developed around FTUAS. And so that stuff will play out. But for sure, what you're seeing, despite not getting those bookings, the growth in the rest of the business has kind of overcome that. Our ATAC business is just doing great. Those guys are performing really, really well. They've won a ton of new programs. Ship-to-Shore continues to grow. And as I said earlier, with Sheila, the program is healthy. Volumes are there. The team is executing really well. We continue to see growth in the Sentinel program. So I think when you look across that business, despite some of the challenges around a couple of those programs, it's good growth. And absolutely, we feel good about sort of that inflection point you referred to. this business has been executing, performing really, really well for a number of years. The only thing that's lacked, as you guys know, is growth. And I do think we're hitting that inflection point where we'll start to see it growing here as we go forward. Operator: Your next question comes from the line of Seth Seifman from JPMorgan. Seth Seifman: Congratulations, Scott. Just wanted to ask, starting off about Aviation, and you just spoke to kind of the revenue. When we think about the margin, it's a pretty significant uptick in profitability in the fourth quarter and kind of what enables that. Scott Donnelly: Yes. I mean, look, I think as we've talked about, Seth, we expected to see a progression as we go through the course of the year. The fourth quarter will be strong on the volume side, which it normally is. I think we -- I mean, there are still challenges, but the team is performing better and better every quarter around getting flow. And largely, we'll see a nice significant bump in volume in the quarter, and that will drive good margin with it. Seth Seifman: Okay. Okay. Excellent. And then maybe one more on MV-75. When we think about the LRIP units and bringing those forward, are there kind of additional contractual provisions that you can get to protect the company from concurrency risk? Scott Donnelly: Well, so the LRIP have always been laid in there. So I don't think there's anything that would change contractually on that. To be honest, we're not that worried about the risk of that. Again, the base configuration of the aircraft is really solid. Obviously, it's a derivative off of what we did on V-280. There are changes, but we know what those are. We are fabricating right now the first of the prototype aircraft. So again, by the time we are building that first LRIP aircraft, we will have built, obviously, the original V-280, but we will have built 8 aircraft, the 6 EMD aircraft and the 2 LUT aircraft. So -- and certainly, there's an enormous amount of ground testing, component level testing, stuff that we already are fabricating and building parts. So I think we feel very good about the things we need to learn, any issues that we run into -- we're going to run into here on these initial EMD aircraft long before we get to where we're building that first LRIP aircraft. Operator: Your next question comes from the line of Ron Epstein from Bank of America. Ronald Epstein: Yes. Maybe just circling back on Systems. How is the unmanned portfolio doing when you look across the -- you've got unmanned land system stuff and Shadow and Aerosonde and some other stuff. We've seen such kind of surging demand for unmanned stuff. Just curious how that's going for you guys? And do you have anything in the pipeline that you're working on developing to kind of expand in that market? Scott Donnelly: So I would say that, Ron, the Aerosonde program is going well, right? You know we went through a bit of a challenge as Afghanistan came out. We had a lot of aircraft that were deployed over there. Those have largely been redeployed to other theaters, other applications, a lot of marine applications. So that business is doing very well. That is where the next significant tranche really was going to be around FTUAS with that program not happening at least in the way it was envisioned. That was a hit. But look, the reality is these brigades need ISR. And so what really changed on FTUAS is that you understandably frustrated over how long it was taking to get stuff out there has basically said, look, you got to take these systems directly to the brigades and they'll drive that demand. So that's what we're doing right now. And that's why I say, while FTUAS didn't happen as a program, I do think that we will see a number of opportunities as we go out and sell that technology directly out to the war fighter. So there's also been some international opportunities. There's things out there with customs and border patrol. So in terms of our core platform today from Aerosonde and then transitioning into what was basically the FTUAS configuration, I believe we're going to start to see some nice growth in there. In terms of new platforms under development, part of what we did with the eAviation segment is that team in Pipistrel has been developing this unmanned cargo aircraft, what we call the Nuuva 300. That's now into flight test. We've already done the flight testing on Article 1. We're about to do the final build-out on Article 2, which has our own flight control fly-by-wire systems and such. And so part of the change here in the segment is that our Textron Systems business, which has always been the developer and sort of leading the business development on Aerosonde and Shadow and those other unmanned platforms, we will basically have responsibility to take that kind of product to market. And so it's the Nuuva unmanned cargo. We also have a nice niche that we've -- Pipistrel has for a long time and in high altitude unmanned sort of long-duration surveillance products. That's a product we already have today. We have some new developments in process there for very long duration aircraft. And again, those will now start to largely go to market through our Textron Systems business, augmenting our strength in unmanned aircraft. Operator: Your next question comes from the line of Kristine Liwag from Morgan Stanley. Kristine Liwag: Scott, congrats on your next chapter. I guess over the years, there's always been discussions and conversations with you about the broader Textron portfolio and if it should all belong together or if there are other ways to unlock shareholder value. At this point, all reporting segments are fairly stable. The balance sheet is very strong and the company generates solid free cash flow. I wanted to check with you to see if this management change also signals a reevaluation of the portfolio once again and how you think about it now? Scott Donnelly: Well, I don't know that we would say that the change is drive that. I do think we are always looking at the portfolio. I think to your point, look, we don't have a burning platform, but would we look at either disposing or acquiring? Of course, we would. So that's a process that has been ongoing for some time. Obviously, we just did the dispositions around the Powersports business earlier this year. That was something we thought we really needed to do and wanted to do to help position the company going forward. But we're -- we continue to look at other opportunities, and I expect we'll continue to do that regardless of the leadership change. Operator: Your next question comes from the line of Doug Harned from Bernstein. Douglas Harned: If you look at the mix of deliveries across business jets, it's been pretty stable over the last 2 years. I mean I would have expected more of a shift toward the Latitude and Longitude, although that might have been an incorrect assumption. Are you seeing demand shifts across your portfolio? Is that -- and is that -- is the mix in there constrained more by where demand is or where your capacity is? Scott Donnelly: Look, it is right now probably more of a capacity issue. I would say in terms of the end market demand, it has been steady, right? The demand or whether it's a Longitude or Latitude, whatever has been pretty stable, these things are often influenced by new products. So I would say, for instance, when we launched the new CJ4 Gen2, we saw a very strong spike in order activity, which kind of puts that lead time well out there because people were pretty excited in that piece of the market about that product. And we've seen the same things with things like the CJ3 Gen2s, certainly the Ascend. So there's -- I would say the end market is stable. Demand is pretty strong across all the pieces of the product portfolio. Usually, you see some of these spikes of order activity demand that can be affected by the launch of new product, of which we've had quite a bit. Douglas Harned: Yes. And then when you look -- you've talked a little bit today about the strength of the demand environment. But if you look back to the beginning of the year and then where you are today, how would you characterize demand mix in terms of corporate versus high net worth individuals? Have you seen any shift there? Because obviously, there's been a lot of -- it's been a very dynamic sort of economic outlook over the last 9 months. Scott Donnelly: Yes. It's actually pretty remarkable despite all of the noise of which there's plenty for sure, we're not seeing it impact that market. We haven't seen any piece or segment or interest that has changed because of what's going on. And I think part of that is the fact that you're out there, whether it's 18 months or 2 years, people are kind of looking beyond what current noise is in the marketplace, because they're not going to take delivery of that new aircraft for 18 months or so. So I think it's had a little bit of a muting effect on that. So -- but yes, remarkably, despite all of the noise that's going around, it's -- the demand is stable. Operator: Ladies and gentlemen, this concludes the Textron Third Quarter 2025 Earnings Call. Thank you for joining us today. You may now disconnect.
Operator: Thank you for standing by, and welcome the Lloyds Banking Group 2023 (sic) [ 2025 ] Q3 Interim Management Statement Call. [Operator Instructions] Please note, this call is scheduled for 1 hour and is being recorded. I will now hand over to William Chalmers. Please go ahead. William Leon Chalmers: Thank you, operator, and good morning, everyone. Thank you for joining our Q3 results call. As usual, I'll run through the group's financial performance before we then open the line for Q&A. Let me start with an overview of our key messages on Slide 2. We continue to make great progress on our strategy. In doing so, we are creating value for our customers and wider stakeholders through improved propositions, targeted growth and enhanced operating leverage. In Q3, we delivered a robust financial performance, supported by healthy growth across the business, driving continued income momentum. We maintained our cost discipline and strong asset quality, reflecting stable credit performance in the period. Taken together, this is driving strong capital generation. As you know, in the third quarter, we've taken an GBP 800 million additional charge relating to the FCA consultation process on motor commissions. Clearly, we are disappointed by this outcome, and I'll talk more about it later in the presentation. Accordingly, we've revised our 2025 guidance to reflect the motor provision. Excluding the charge, we are beating our prior targets. We remain highly confident in our 2026 guidance. Before turning to our financials, a brief update on 2 important strategic developments. Firstly, I'm delighted to say that we have completed the full acquisition of Schroders Personal Wealth to be renamed Lloyd 12. This is an exciting step forward for both our customers and shareholders. who will deliver full control of a market-leading wealth management business that has GBP 17 billion of assets under administration, more than 300 advisers and 60,000 clients. Embedding Lloyd's Wealth into the broader group will advance our end-to-end wealth ambitions, delivering clear benefits and proposition and journey for our customers. Secondly, we've taken significant steps forward in our digital asset strategy. Earlier in the year, we partnered with Aberdeen Investment to deliver a U.K.-first FX derivatives trade collateralized with tokenized digital assets. Alongside, we're co-chair and the U.K. finance project to deliver GB tokenized deposits. Retail and commercial pilot use cases in programmable digital money are due to deliver in H1 of next year. These developments will ultimately drive material customer opportunity and maintain our commercial leadership. We look forward to elaborating on this alongside other areas of our technology, digital and AI strategy in an investor seminar on the 6th of November. Let me now turn to the financials on Slide 4. The group demonstrated a robust financial performance during the first 9 months of the year. Year-to-date, statutory profit after tax was GBP 3.3 billion with a return on tangible equity of 11.9%. Excluding the motor provision, return on tangible equity was 14.6%. Looking at the full year, we now expect RoTE to be around 12% or around 14%, excluding motor. We are pleased with the group's continued income momentum. In the first 9 months, net income of GBP 13.6 billion was 6% higher than the prior year. This was driven by further growth in net interest income, alongside a 9% year-on-year rise in other operating income, led by customer activity and strategic investment. Within the quarter, net income was up 3% versus Q2. This was supported by a net interest margin of 3.06% and in line with our expectations for a gradual increase, again, alongside ongoing OOI growth. Looking forward, we now expect net interest income for the full year to be circa GBP 13.6 billion slightly ahead of our previous guidance. We remain committed to efficiency. Year-to-date operating costs of GBP 7.2 billion were up 3% year-on-year, in line with our expectations for this stage. Credit performance meanwhile remains strong. year-to-date impairment charge of GBP 68 million equates to an asset quality ratio of 18 basis points. Given our performance to date, we are upgrading full year guidance on the asset quality ratio to circa 20 basis points. Meanwhile, tangible net assets per share increased to 55, up 2.6p in the year-to-date and 0.5p in the quarter. Our performance delivered strong capital generation of 110 basis points year-to-date or 141 basis points, excluding motor. Our losing CET1 ratio is 13.8%. I'll now turn to Slide 5 to look at developments in our customer franchise. We have seen good growth across both the lending and the deposit franchises so far this year. Group lending balances of GBP 477 billion are up GBP 18 billion or 4% year-to-date. Focusing on Q3, lending is up GBP 6 billion or 1% versus Q2. Within this, retail lending grew GBP 5.1 billion. This was driven by an increase in the mortgage book of just over GBP 3 billion, reflecting both market growth and a completion share that remains at around 19%. So far, we are seeing no sign of a slowdown in mortgage applications ahead of the budget in November. Elsewhere in the retail business, we saw continued growth across each of our cards, loans and motor businesses as well as growth in European retail. Commercial lending balances meanwhile, are up by GBP 1.3 billion in Q3. As has been the case throughout the year, we saw growth in CIB across our targeted sectors, including in institutional balances. In BCB, balances were broadly stable with new lending in mid-corporates, offsetting the net repayments of government-backed facilities. Turning to liability franchise. Year-to-date deposits have grown GBP 14 billion or 3%. In Q3, we also saw a good performance, up GBP 2.8 billion quarter-on-quarter. Within retail, PCAs grew by GBP 1.2 billion, driven by income growth, subdued spend and lower churn during the quarter. Alongside the reduction in savings balances of GBP 0.9 billion, was largely due to some fixed rate savings outflows following our post ISA season pricing decisions. Commercial deposits are up by GBP 2.4 billion in Q3, driven by growth in targeted sectors across both CIB and BCB. Pleasingly, NIBCA balances were up in the quarter. Alongside deposit developments, we continue to see steady AUA growth in insurance, pensions and investments, with circa GBP 3.3 billion of open book net new money year-to-date. Let me turn to net interest income on Slide 6. Year-to-date and in Q3, we are seeing sustained growth in net interest income. And for the first 9 months was up 6% year-on-year to GBP 10.1 billion. This included GBP 3.5 billion in Q3, up 3% quarter-on-quarter. Income growth continues to be supported by positive momentum in the net interest margin. The Q3 margin of 306 basis points was up 2 basis points on Q2, driven by a growing structural hedge tailwind. Net interest income was further supported by average interest earning assets of GBP 466 billion in Q3, up GBP 5.5 billion versus Q2. The increase was driven by sustained lending growth, particularly in the mortgage book. Looking ahead, we now expect net interest income for 2025 to be around GBP 13.6 billion. This incorporates the healthy volume developments we have seen alongside a slightly more supportive rate environment. We remain very confident in the trajectory for net interest income growth. Let's turn to other income on Slide 7. We continue to demonstrate strong and broad-based momentum in other income. Indeed, our diversified franchise has supported consistent high single-digit growth over the last 3 years. Year-to-date OOI is GBP 4.5 billion, up 9% year-on-year. In the third quarter, OOI was GBP 1.6 billion, up 3% versus Q2. This was particularly driven by growth in motor and LPG investments. It also represents a good performance in protection, boosted by improving mortgage take-up rates. Other income growth continues to be supported by investment and strategic progress across the business. I spoke earlier about 2 specific areas of delivery, the slide shows a number of other proof points to testify to our progress, including, for example, the launch of the Lloyd's Ultra card in retail as well as further scaling of capabilities in our commercial franchise. Looking forward, the full acquisition of Schroders Personal Wealth will further support OI growth. We see an opportunity to meaningfully grow the business in the coming years as part of our integrated wealth proposition. Briefly turning to operating lease depreciation. The Q3 charge of GBP 365 million was up slightly, in line with growth in the fleet, driving other income. Moving to costs on Slide 8. The group continues to maintain strong cost discipline. Year-to-date operating costs of GBP 7.2 billion are up 3% on the prior year, in line with our full year expectations. Excluding growth in severance, operating costs are up 2%. Business growth and inflationary pressures continue to be mitigated by savings driven by strategic investment. Within the third quarter, costs of GBP 2.3 billion are down 1% compared to Q2. This is partly helped by investment timing. And looking forward, Q4 will see higher operating costs due to the usual seasonal factors and added costs from the full acquisition of SPW. We will meet our GBP 9.7 billion full year guidance, excluding these additional SPW costs or modestly above this, including them. Remediation was GBP 875 million in the quarter. This reflects low levels of non-motorbased charges alongside the GBP 800 million incremental motor finance provision. I'll now spend a moment on that on Slide 9. The additional GBP 800 million provision for the potential motor commission remediation costs takes our total provision to GBP 1.95 billion. The recent FCA proposals are subject to consultation and so the final outcome differs. However, as it stands today, they represent an outcome that is at the adverse end of our previously modeled expectations. Based on the proposals, there are a high number of cases determined to be unfair. Resumptions a unfairness do not apply the legal clarity provided by the recent Supreme Court judgment. And the address calculation is less linked to harm than it should be. We will, of course, be making representations to the FDA on our points of concern, and we look forward to engaging in a constructive dialogue. Our total provision of GBP 1.95 billion still using scenario-based methodology includes both redress and operational costs. It represents our best estimate of the potential impact of this issue. Moving on to asset quality on Slide 10. Asset quality remains strong. Neutral arrears are low and stable across our portfolios. Early warning indicators also remain benign and again, very stable. The year-to-date impairment charge is GBP 618 million equivalent to an asset quality ratio of 18 basis points. The charge of GBP 176 million in the third quarter represents an asset quality ratio of 15 basis points. This is the result of a low underlying charge, reflecting our prime customers, a prudent approach to risk and stable macro conditions as well as some one-off model benefits. It also incorporates a small MES charge of GBP 36 million in the quarter. Our stock of ECL on the balance sheet meanwhile, is GBP 3.5 billion, which remains around GBP 400 million above our base case expectations. Given the strong performance year-to-date, we now expect the asset quality ratio for the full year to be circa 20 basis points. Let me turn to our returns and tangible equity on Slide 11. Lloyd Group delivered a return on tangible equity of 11.9% year-to-date or 14.6%, excluding the motor provision. This benefits from strong business performance, cost control and low impairments. Below the line volatility and other items were GBP 157 million in the 9 months or GBP 109 million in Q3. The third quarter charge driven by negative insurance volatility and market developments and the usual fair value unwind. Tangible net assets per share at 55p are up 2.6p since year-end. This continues to be driven by profit build and the unwind of the cash flow hedge reserve partly offset by shareholder distributions. Looking ahead, we expect material TNAV per share growth in both the short term and in the medium term. Including the motor charge, return on tangible equity for the year is now affected at around 12%. Excluding Motor, the RoTE is expected to around 14% and upgrade versus prior guidance. Turning now to capital generation on Slide 12. Our business performance has driven strong capital generation in the year-to-date. Within this, total RWAs ended the quarter at GBP 232 million, up GBP 7.7 billion year-to-date and GBP 0.9 billion in the third quarter. This increase reflects strength in lending, partly offset by optimization activity. Q3 also saw the full reversal of the remaining GBP 1.2 billion of temporary RWAs that we have previously highlighted. Note that while we've taken no new additions for CRD 4 secured risk weightings in the year so far, we do expect to do so in the full quarter. Year-to-date, our strong banking profitability has driven capital generation of 110 basis points in the first 9 months or 141 basis points, excluding motor. Expected full year capital generation is now circa 145 basis points or circa 175, excluding Motor. Our closing CET1 ratio is 13.5%. This is after a 74 basis point accrual for the ordinary dividend. We still expect to pay down to around 13% by the end of 2026, with this year a staging post towards that target. I'll now wrap up on Slide 13. To summarize, group demonstrated a robust performance in the first 9 months of 2025. We are building momentum in income growth whilst retaining cost discipline and strong asset quality. Together, this is delivering meaningful operating leverage. The business is performing as we expected, if not a little better in some areas. While the motive provision is obviously unwelcome, the underlying business continues to drive strong, growing and sustainable capital generation. This financial performance results in improvements to our underlying 2025 guidance, including net interest income, asset quality and return on tangible equity ex motor. Alongside, we remain confident in our 2026 targets. Guidance for both years is laid out in full on the slide. Overall, the business is in good shape to deliver for all stakeholders. Third quarter represents another step in this journey. That concludes my comments this morning. Thank you for listening. Now I open the lines for your questions. Operator: [Operator Instructions] Our first caller is Benjamin Toms from RBC. Benjamin Toms: The first is Motor Finance. The provision post top-up leaves you with the [indiscernible] just below GBP 2 billion. That's based on a weighted average scenario calculation. If the consultation paper does not get softened and the FCA is correct with their 85% claim rate, how material would the provision top-up be from here? Just some sensitivity around that would be useful. And then secondly, on NIM, I think before you said you expected NIM to build faster in Q4 than Q3. Is that still the case? And can you give us some indication about whether you'd expect NIM to continue to build through 2026. I think the hedge will continue to be additive and mortgage margin compression deposit mix shift should fade. So it's hard to see how NIM doesn't increase materially next year? Is there a missing moving part like asset mix shift that we need to consider? William Leon Chalmers: Thanks, indeed, Ben. Just to take each of those in order, the start point and perhaps the end point is to say GBP 1.95 billion in respect of motor represents our best estimate of the cost of this issue. It is, as you say, a scenario-based estimate and those scenarios or sensitivities, as you called them, represent what we think are reasonable FCA responses to the issues that we raise, and I assume the issues that others raised. And those will be principally around things like the calculation of dress, which is set, we think is best tenuously linked to [indiscernible].The termination of fairness, which we think is too broad. And these types of things will be part of our response to consultations. And when we look at scenarios, that's what's figuring into those scenarios, some slide amendment around those. But to be clear then, the FCA proposals, as currently proposed, represent the heaviest weighting in our overall scenario analysis. My script at the adverse end of our expected outcomes, i.e., they are all DCAs, most of the commission that we get -- that we received gets handed back, and it is a very high response rate. That all means that with the FCA being the heaviest weighted component in our overall provisioning analysis suggests that even if the FCA proposals come out exactly as they are today, then our overall position is not going to move by that much. So we are not far off then in short. On your second question, Ben, in respect NIM has said, has had a tick up in the course of Q3 by a couple of basis points. We're now at 3.06. And it is our expectation that we see continued, if you like, growth in that earn interest margin over the course of Q4. As I alluded to, I think at Q2 and possibly before that in Q1, we do expect to see a bit of a back-end loaded step-up in Q4, and that is predominantly because of the structural hedge contribution, which is slightly more heavily weighted in Q4. It is somewhat offset by the usual headwinds that is to say bank base rate and deposit effects, predominantly deposit effects as our -- rather our next bank beta is now not expected until next year. but then also at the mortgage point. So the mortgage headwinds, as you know, has a little further to play out, that includes quarter 4, and it includes '26. But summing all of that up, then you should expect to see that interest margin expansion in the course of Q4. There will be a step up there. And it will be a little greater than what we have seen Q2 to Q3. In respect to '26, Ben, your analysis is right. We should expect -- you should expect -- we do expect to see continued margin expansion during the course of '26. It is predominantly because of the factors that you've identified, that is to say the structural hedge makes a meaningful contribution, GBP 1.5 billion increase in structural hedge expected earnings for is what we've guided to earlier on this year, and that still remains more or less the case as we go into '26. And then there is some offset from that in the context of, again, base rate decisions and indeed some continued level of deposit churn off the back of a slightly higher rate environment. And then alongside of that, the playing out of the mortgage refinancing headwind. So those factors are still at play. But nonetheless, the net of it for 2026 is continued and reasonably meaningful margin expansion. That is our expectation. Ben, maybe I'll just finish off with the point. As you know, we have moved from kind of large AIA and nonbanking net interest income guidance to net interest income guidance in its totality. And we've upped that guidance for the remainder of this year, i.e., circa GBP 13.6 billion. We will be guiding to what that means for 2026 in due course, but it is the combination of net interest margin expansion as well as AIA growth that we expect will deliver meaningful NII growth in 2026. And that, in turn, is what will help us deliver our greater than 15% ROE. Thank you, Ben. Operator: Our next caller is Jason Napier from UBS. Jason Napier: Two, please. The first, I wonder if you could just talk about how Lloyd's sees wealth as a sort of a banking business in the U.K. the Schroders Personal Wealth business today, you might, as you read your slides, about the 300 advisers and the funds that they advise and look after but then the bullet point on scaling to mass affluent and workplace might suggest that this is really just an integrated mainstream client type offering. The backdrop for this is, as you recognizes that the market is quite interested in whether you might be interested in inorganic expansion in IFA led businesses. And so if you could just talk about what we can learn from the buy end of the half of the SPW business? And then the second, I don't want to steal the thunder from your upcoming tech event, but the slide on tokenized assets does, I think, invite further inquiry. At a very high level, I just wondered whether you could talk about the work that you've done so far and where you think things like tokenized assets and deposits. What that does to banking industry revenues in total. At a high level, people are somewhat concerned that we might see compression in things like payments and remittances and a bunch of the CIB revenue lines that we actually can't see from the outside as the sort of technology takes through. So any early thoughts you might have on the outlook for [indiscernible] William Leon Chalmers: Thank you, Jason. On both questions. First of all, in respect to the wealth question, a couple of comments there on SPW and then a couple of comments on how we see the wealth opportunity. it's worth me just repeating that we are really pleased to see the conclusion of the SPW -- now Lloyd 12 transaction. It brings us full control of what we think is a great business. So you've heard the statistics, but at the risk of repeating them, 17 million assets under management, 60,000 clients, 300 advisers. It is a really promising start, if you like, for a business that we hope to grow into, frankly, an awful lot more. So there is a great business there that we think we can really grow and help profit going forward. It is part of an integrated proposition as we see it. That is to say it will sit alongside our direct-to-consumer self-serve proposition. It will also sit alongside the building digital proposition that we are currently creating. But it is important to have alongside those more or less self-service facilities, an advisory capability. And that's really what Schroders Personal Wealth now Lloyd's Wealth will deliver for us. It is important in the sense that we can make our customer journey seamless with those other capabilities, EG, the digital direct-to-consumer offering. Likewise, we can, if you like, bring the benefit of the group to bear here, not just in terms of group infrastructure, cost synergies and the like, but also in terms of plugging it into our 3 million affluent customers, and then there's a third really important part of that integration, if you like, which is around the workplace proposition. At the moment, at least, we have a very strong workplace proposition in the context of our insurance, our [indiscernible] business. But at the same time, we really want to build the advisory component of that as people's pensions plans mature so that we can advise them properly on what to do with those proceeds, which at the moment, is a source of leakage from our perspective to other third-party providers, we'd much rather keep it within group. And that's what SPW now Lloyd's Wealth will allow us to do. So there is something with the Lloyd's Wealth acquisition, the SPW acquisition, which itself is in good shape as we speak today. And my statistics earlier on, then testimony to that. But hopefully, you can tell from my comments that we think it can be, frankly, a lot more going forward. You asked in that context about inorganic, Jason. I obviously shan't comment on that explicitly. Safe to say that we've got a lot to do with what we've just done. The acquisition of Lloyds Wealth is a tremendous step forward for us and the franchise. It enables us to develop and enhance our existing customer propositions in what we hope will be a very compelling way which in turn, most importantly, will create customer value, but in doing so, we think, create quite a lot of shareholder value, including benefits to our other operating income over the course of Q4 and looking forward into 2026 and growing thereafter. So I think for now, at least, we're very happy with what we've done. We're going to focus on the organic integration of it, and we're going to build our customer propositions and shareholder value as part of that. The totalized deposits topic is a very interesting one. It's a topic which I could probably talk for ever on, but I won't. I'll try to [indiscernible] my remarks somewhat. In essence, there's a couple of things going on right now. First of all, as you mentioned, in respect of our strategic update, I just mentioned that we've done what was a really exciting partnership with Aberdeen, where we effectively delivered an industry first tokenized assets use case, i.e., using tokenized assets as collateral for a market-based trade. That was the industry first. It was more or less a proof of concept, but it offers illustration of the potential. When we look at the landscape right now as it's developing, there are a couple of things going on. One is, obviously, the rise of stable kind, which is much commented on. And indeed, it seems to us that in the international sphere it may be that by virtue of speed of payments, for example, and by virtue of low costs, it may have something to offer in respect of international transactions. But actually, if you bring that back to the U.K., much of what is offered by stable coin is already effectively offered in the context of things like faster payments. That is to say they're instantaneous and they're very low cost. So really what excites us actually in the context of tokenized assets is an opportunity that goes well beyond stable coins, which is around programmable currency. And we're currently sitting at joint chairs with U.K. Finance, in a project, which is called GB tokenized deposits, GTD is the acronym. It used to be called regulatory liability network. But GBTD is essentially building of a programmable and exchangeable currency in the U.K. that is part and parcel of the existing commercial money framework. That is to say it is interchangeable between digital money and if you like, analog money. We think that has the potential to offer customers tremendous amounts of value in terms of programmable capabilities. And at the moment, we're running use cases in respect of wholesale use cases, particularly digital gilts, in respect of mortgage use cases, i.e., programmability around that capability and an exchange of effectively payment on receipt capabilities from a consumer point of view. So there's 3 use cases that will land in early part of next year. The reason for just briefly commenting on that detail, Jason, is because we see that as an example of tokenized deposits, digital assets, offering a tremendous customer opportunity. And if it can be brought in the sterling monetary framework, if you like, and be interchangeable with analog money and the way that we're proposing, I think there's a lot more that we can do with our customers to offer them value. And if you like, far from this being a threat, it's an opportunity. Operator: Our next caller is Perlie Mong from Bank of America. Perlie Mong: William, so just a couple of questions. One is on distribution. So it sounds like you're pretty comfortable with the motor finance charge or any top-up if necessary. So clearly, you've talked about paying down to 13% next year. But as you think about full year distribution at '25, would you think of it as there is no more uncertainty in your mind regarding to [indiscernible]? And then while we are on that topic, clearly, one of your peers have moved on to quarterly buybacks. You're still on annual buyback. So is there any thinking about maybe moving to a more frequent distribution cadence? And then secondly, on mortgage margins, again, your peer reported yesterday talked about 5-year mortgages rolling off next year. And that cohort had a relatively high margin. So I presume that is already in your guidance and in the way you think about '26 mortgage margins. But as we come into this period, do you expect competition or behavior of competitors to change in any way, given this is something that is happening across the board. William Leon Chalmers: Yes. Thank you, Perlie. There's -- perhaps 3 questions there, at least that's how I'll interpret it. And you'll have to let me know whether I'm responding appropriately. First of all, in respect of motor, as said, our current revision, GBP 1.95 billion, best estimate, to the extent there's a worst case, we can't be far off simply because, as I said, the FCA case is most heavily weighted in scenario-based planning. Alongside of that, the FCA case captures a pretty adverse outcome, all DCAs, for example, most of the commission will be received being handed back a very high response rate. Those 3 things tell us that the FCA case, the proposals, if currently enacted are, as I say, at the adverse end of the spectrum and most heavily weighted in our overall provisioning. So not terribly far off. When we look at distributions for 2025. A couple of points to make there, really. One is we remain very committed to distributing excess capital. Two is, as per the comments earlier on, we are generating strong capital generation over the course of this year. We put forward guidance now of 145 basis points, which that is post motor to be clear. When we look at our expectations for the full year in terms of distributions, we also have the reduction in CET1 ratio that we have previously advised you of and we expect it to reduce our CET1 ratio from about 13.5% end of last year to about 13.25% or thereabouts, give or take towards the end of this year before landing at circa 13% at the end of '26. So that is an additional 25 basis points of capital there, which if you add it to the GBP 145 million that we're guiding to is 170 basis points in total. Perlie, you'll be able to tell from our numbers today that the dividend will be about 100 basis points of that. We've accrued 74 basis points year-to-date. So therefore, a full year is about 100 basis points of that 170 that I just mentioned, which in turn, leaves about 70 basis points of excess. Against what will probably end up being about GBP 234 million, GBP 235 billion of risk-weighted assets, something like that. And all I'm doing is simply taking Q3 outcomes in RWAs and adding on a bit for our continued lending performance. and indeed a CRD4 add-on in the quarter of quarter 4. So that gives you an idea of 70 basis points against that GBP 234 million, GBP 235 billion of RWAs. It gives you an idea of the excess capital that will be available and up for consideration by the Board as to what it chooses to do with it towards year-end. Clearly, you asked about buyback and whether we should move to a more frequent buyback. The I guess what I'd say to that is, first of all, capital distribution, not just the quantum, but also the form, if you like, is always going to be an outlet for the Board. And we'll, of course, respect that. What we've done to date, of course, is once per annum. And our view is that, that has allowed clarity in terms of our guidance, number one, and it has been appropriate as we reduce our capital ratio, number two. As we look forward, there are some advantages from considering a switch. Lower CET1 over the course of the year is one of those. The timing benefits, obviously, from a shareholder point of view is another. There are also some considerations taken into account, which is to say a lower capital base implies a slightly lower level of flexibility either for dealing with contingencies or alternatively, take advantage of opportunities. So these are the types of things, probably that we'll have to consider when we look at the buyback. But every year, we consider not just the quantum, but also the form in which we make distributions. And this year, in that respect will be no different, and we'll have a conversation with the Board at the end of the year to that effect. The 1/3 of your topics earlier around 5-year merges, in a sense, it's welcome to the club. We've been talking about a mortgage refinancing headwind for about 2 years now. Our expectation was that, that will continue during the quarter of '25, and that it will continue into '26. And we said that before, and that remains the case. What I am pleased to say though is that our guidance in that respect has not changed. And when we've talked about in the past, our expected increase in net interest income, including in response to Ben's question later on, that incorporates our expected headwind from a mortgage point of view over the quarter '26. So we do expect continued growth in net interest income and indeed margin. And that does incorporate the headwind that we see from the type of 5-year mortgages with the spreads written at that time as they mature in '26. So yes, it is all integrated into guidance for sure. In terms of what effect that might have, it's obviously a little hard to say, but at the risk of speculation, maybe there is a chance that as these higher spreads roll off, people reconsider the spreads that they're currently writing business at today. And maybe, therefore, there is a marginal benefit to spreads being written during the course of '26. Partly, that is, of course, speculative. But as these higher spread mortgages come off, will that cause people just to reconsider the rate at which they or rather spread at which they write new mortgage business and cause them to revise up what I think an appropriate spread is for mortgage business? Possibly, yes. And if it does, we'll obviously welcome it. Operator: Our next is Jonathan Pierce from Jefferies. Jonathan Richard Pierce: Got 2 questions. The first is on structural hedge, again, some about that. I wondered if you could help us a little bit scale the contribution from Q4, you talked previously in that significant increase this year and the contribution to the movement has been was 4 basis points in the latest quarter and 10 basis points in the first quarter. Maybe you could put Q4 in the context of that for that would be helpful. And just a supplementary on the hedge. I wondered if you could -- just talk a little bit about what happens to '26 in terms of timing because I'm still entirely -- sure, I understand how are you thinking about that? I mean it's rose that the '27 tailwind is probably more about the full year impact of the '26 in the trend then we get as a lot of the [indiscernible] starts to roll through be helpful just to get a little bit more on that. [indiscernible] an idea what will be next year and how fast forward you will be looking in the sort of metrics you will be updating or distribution so on and so forth. But will this be sort of 2028, '29, look forward. William Leon Chalmers: A couple of questions there. First, on the structural hedge. Second on strategy and what we'll be talking about and where the next year. In respect to the structural hedge, maybe just a kind of a mark-to-market. The Q3 yield on the structural hedge is about 2.3%. As you rightly said, the contribution to the margin of the structural hedge in respect of Q3 was about 4 basis points. And we've previously highlighted and maintained still today that the contribution of the structural hedge going into Q4 will be meaningfully greater. We've put a precise number on that, but just maybe help the discussion. The expectation for the yield as a whole during the course of '25 will also be around 2.3%. I'll come back to '26 in just a second. . But the expectation is, as I said, is that the structural hedge contribution to the margin will meaningfully increase in the course of quarter 3 and I would expect in that context, Jonathan, again, without putting too precise number on it, the structural hedge contribution to the margin will more than double in quarter 4 versus what it was in quarter 3. And as I said, that all leads in combination with the deposits headwind and mortgages headwind to an expectation that the margin in totality will step up in Q4. Will step up in a way that is more significant than what we saw Q2 to Q3. So I know I'm not putting precise numbers on it, but hopefully, that gives you some steam. When we look at 26% on the structural hedge, the expectation for the yield in '26 is consistent with our previous discussions, actually, on average, about 2.9%. You cut that out, obviously, from the circa GBP 6.9 billion guidance that we've given you for structural hedge earnings off the back of about a GBP 244 billion structural hedge, you'll get to 2.9% through that path, too. But that gives you a sense for the year as a whole. There is obviously a bit of a journey in respect to the structural hedge. At this point in the year, I'm not going to kind of go through it on a quarterly basis. But it isn't all delivered on quarter 1. It isn't all delivered at quarter 4, and it won't be perfectly linear in between. But overall, that is the contribution of the structural hedge, i.e., GBP 6.9 billion in total, an incremental circa GBP 1.5 billion versus what we got over the course of '25 as we look forward. It is important to say in this content section that structural hedge then continues to build over the course of future years. And I would -- again, I won't give precise numbers on it. but you should expect continued build, most notably in '27 and then continue building the years thereafter '28, '29 and so forth, but at a slightly lower level. We'll talk more about that in the course of the year end, give you more specificity. In respect to strategy, Jonathan, our focus right now is very clearly on delivering '26. We set out some very explicit, some very clear and I think some very important commitments in respect to what we're going to do in '26. Cost-to-income ratio less than 50%, ROTE in excess of 15% and capital generation in excess of 200 basis points we are going to deliver on those '26 commitments. And so that is very much our focus. Now it's a very fair question for you to ask having said that, about where do we go from there? Our expectation is that we will also update in the course of next year as to '27 and beyond. It will probably be around the middle of next year when we come to market with that update. So that gives you a sense of timing. Then in terms of the look forward period, that's something which we'll probably discuss actually over the course of next year. But these things often end in round numbers, and maybe I'll leave it there. Operator: Our next caller is Aman Rakkar from Barclays. Aman Rakkar: I actually had 2, please. I wanted to query on nonbanking funding costs. I think that's actually [indiscernible] a touch lower than your commentary previously around up GBP 100 million year-on-year. So I was wondering if you can give us an update for that. And I don't know if that's contributed in any way to slightly firmer outturn for this year. But if you could just kind of update us on that particular line item within NII, that would be great. . Just another one on other operating income, actually. So obviously, the headline rate is good again. It's quite divergent trends within the division. So I think it looks like retail has kind of reaccelerated again in Q3. The insurance business is, it looks like it's actually tapering off, if I look at the year-on-year trends through the course of this year, and then commercial continues to be quite soft. So could you give us a bit of a kind of steer on how to think about these divisional trends going forward? I'm just trying to work out how we arrive at a similar kind of run rate next year. And if there's anything kind of episodic or lumpy that we should think about or one-off elements that might kind of unwind into next year, that would be very helpful. William Leon Chalmers: Thank you, Aman, both of those questions. The -- taking them in turn. In terms of NB NII, nonbanking net interest income. Q3 as we disclosed today, GBP 136 million, that is running at about 10% ahead of where it was last year. So year-to-date, I think it's about GBP 372 million thereabouts. That's about 10% up versus where it was -- and what's going on there, as you know, it is very much about the funding of the other operating income -- income streams insofar as they're not related to banking. So LDC is an example of that. Lloyd's living in is an example of that. Of course, Motor is an example of that, but so is the insurance pensions and Investments division. And so is commercial banking activity. It is probably running a little bit more slowly, i.e., slightly slower growth rates versus what we previously thought. That is, if anything, partly attributable to commercial banking activity, which has been a little bit less in that space, at least than we previously expected. I'll come back to that in a second. But overall, what's going on within the nonbanking net interest income that is most important is that we are seeing the takeover of volumes rather than rate rises driving it. So if you look at the trend last year in nonbanking net interest income, it was probably about half and half to do with volumes, number one, but also increased rates in refinancing number two. But if you look at it this year, it's more like 15% or thereabouts in terms of rates and 85% in terms of volumes. So volumes is really making the running in terms of the increases in nonbank net interest income that we see over the course of this year. And of course, looking forward, what that means, Aman, is that if you believe in other operating income growth, which we do, and I'll come back to in just a second, you should expect that nonbanking net interest income to continue to grow over the course of 2026 but continue to grow from very much a volume-driven perspective as opposed to a rate perspective. Rates won't be 0 because there is some term financing going on, in particular in relation to Motor, which has got about a 3.5-year average life. So it won't be 0, but it will be predominantly a volume-led story within long bank net interest income. Before moving on, it's worth just wrapping that up in the context of the net interest income guidance that we have given you and will give you for 2026 and beyond. That is including, obviously, nonbanking net interest income in all of that. So that is wrapped up in the guidance that we give you for net interest income, GBP 425 million this year, circa GBP 13.6 billion now. And indeed, for the guidance, we will give you next year of '26. In respect to other operating income, maybe just to start off with the core point that as you know, when Charlie and I launched the strategy in February 2022. It was very much focused upon trying to ensure that we diversified the business from an undue dependency on rates. Looking to avoid being, if you like, pressured by a downward trend in rates during the next cycle and also achieve the benefits of what is a strong and very highly present franchise right the way across the U.K., across the retail the commercial sector and indeed within insurance, pensions and investments. So the other income -- the other operating income strategy was a strategic diversification, which is intended to benefit from the strength of the Lloyds Banking Group franchise. It's that combination that led us to deploy significant strategic investments in this area. And then we've seen the benefits of customer activity, if you like, picking up on those strategic investments and helping us drive the operating income now for about 3 years of high single-digit growth. And that's again what we've seen during the quarter 3, whether you look at it year-to-date or whether you look at it year-on-year [indiscernible] introduction, Aman, but before getting into your question, I thought it's important to highlight those points. The individual business components within other operating income, as said, up 9% in total. What are we seeing year-to-date? We're seeing strength within retail. I've talked about transportation there, but it is also about PCA offering. It is also about protection offering increasingly to mortgage customers and it is also about cards year-to-date. So a retail offer that is growing significantly. It's transportation, but it's also those other factors. Within commercial, commercial has been a slightly slower pattern over the course of the year-to-date performance, and that is partly because low markets performance has been probably slower than we would have perhaps expected but it's been somewhat offset by things like cash management and payments, number one, it has been also the case that the comparative period benefited from valuation adjustments on a year-to-date basis, which, of course, inherently don't repeat during the course of '25 so there's a slight comparative issue there, which has meant that commercial has been slower year-to-date versus where you would normally expect it to be. And indeed, our expectation looking forward is that, that is going to change as those comparatives come out of the analysis. I'll come back to that in just a second. Insurance pension investments up about 5% year-to-date. That is off the back of long-standing strength. It is also off the back of GI strength and things like share dealing. But to be clear, if you look at it on a quarterly comparison basis, weather in respect of substance, the back of dry weather hits a little bit in the course of Q3. So insurance is still growing for sure. But the reason why you're seeing it at 5% in part at least, is because of that weather during the course of quarter three, which, of course, we wouldn't expect to be repeated on a BAU basis. And then finally, Aman, the strength in investments is clear to see. That is the living LDC has been a significant contributor to the business on a year-to-date basis and again, on a look-forward basis. When we put that together, Aman, first of all, we would expect those growth streams to continue to build over the course of the remainder of this year and certainly into next. And that is a combination of strategic investments landing, if you like, and increased customer takeup. Allied to that, we now are adding in previously -- that is going to contribute in Q4, and it's going to contribute during the course of 2026 more meaningfully. We haven't given precise numbers around that. Our expectation is that, that is going to boost other operating income for the course of 2026 at least, by around GBP 175 million or so beyond what you would have previously seen in the other operating income line. Now of course, our ambitions in respect of Lloyds Wealth go meaningfully beyond that. And so we would expect it to build in the years thereafter, but that gives you a sense to what we expect it to contribute in '26, which, of course, will be added to the contributions from the other income streams that I've just been highlighting. Hopefully, that's useful, Aman. Operator: Our next caller will be Sheel Shah from JPMorgan. Sheel Shah: The CIB business has been particularly strong this year. I want to stand out performance, I think, at least when I look at your balance sheet momentum, could you talk a little bit about this business? What's actually happening? How much of this is market driven? How much of this is an active strategy to maybe target share gains and what are the margins looking like in this business? And then secondly, to come back to your less than 50% cost-to-income ratio for 2026. Just looking at consensus, it sits at 51% at the moment. You've just mentioned GBP 175 million coming from the Schroders Wealth business into OOI. What do you think the market is missing either on the revenue line or the cost line to get to this cost-to-income ratio target? William Leon Chalmers: Thanks, Sheel. Two questions there. One relation to commercial bank in CIB in particular and one in relation to costs. Just before getting into CIB, just to step back, as you know, our commercial banking business consists of both business and commercial banking BCB and the CIB business. And we are engaged in quite a bit of transformation in respect of each of those 2. When I look at the BCB business, as I mentioned in my comments earlier on, we've seen some really constructive signs in terms of BAU lending growth, which is great to see. When you look at it externally, that is offset by the government repayments that have been going on in respect to bounce back loans. And so the net, if you like, is affected by that. But we are encouraged by some decent positive signs, if you like, our ongoing BAU growth. And that is alongside of creating a much broader digitalized proposition to our customers, which in turn is going to help us drive other operating income growth going forward. When we look at CIB, again, that is going through a significant period of transformation, but it is about product broadening and product deepening. There have been some areas that have probably been slower than we might like to have been, for example, the loan markets area. There have been some areas that have been successful, particularly successful over the course of this year. I mentioned cash management and payments, for example, capital markets have shown some strength alongside working capital. And actually, the indicators that we've got on an early Q4 basis have been really promising in respect of CIB. Now CIB comparatives, as I mentioned a second ago, have been a little bit weighed down by strong valuation adjustments in the course of '24. So kind of bear that in mind. But the underlying momentum in CIB we're really encouraged by. We think it's really positive, and it's really -- it's a big part of our transformation story going forward. In respect to your second question, Sheel, on costs, the cost shape for 2026, as said, remains very much a commitment to sub 50% cost income ratio. Within the cost/income ratio, it is clearly composed of 2 elements. One is to say income strength. We've talked a bit about that during the course of this call, so I shan't repeat those points. But your specific question is around the cost part of that equation. And how do we see that developing? I guess a couple of points, really. One is we spent quite a lot of money on various strategic initiatives, which in their orientation are cost focus. As we go into 2026, we see the full year run rate benefit of those investments take place. Whether those are around the business units are alternatively around the functions, including things like our systems and, of course, our various other risk, finance and other support functions, those strategic investments engineer rather help us engineer a lower cost base going forward and '26 represents a full year run rate for a number of those. At the same time, our cost growth in respect of OpEx is slowing somewhat. And that in part is because of some of the investments in things like the FTE reductions that we have made over the course of this year. You'll remember earlier on this year, we talked about our severance budget being higher for '25 than it had been previously. And that has been the case, said in turn, that helps us address OpEx growth over the course of '26. The result of that is that we expect 26 costs to be flatter than you have seen recently. I won't commit to absolutely 0, but nonetheless, you should expect to see them be flatter than they have been previously. And that, in turn, or rather in conjunction with the income developments that we talked about is what helped us deliver a cost/income ratio of sub-50%. Now to be clear, Sheel, it is not going to be sub-50% by much. And we've said that before, it's worth repeating. But nonetheless, it will be delivered and it will be sub-50%. Operator: Our next call is Chris Cant from Autonomous. Christopher Cant: I had one on stable coin and tokenized deposits and one on motor, please. So on the former topic, I mean, obviously, lots going on and you're involved in this U.K. finance initiative in terms of tokenized deposits. In terms of time scales and relative regulatory burdens, I guess the question is, can the industry move fast enough to deliver tokenized deposits ahead of stable coin providers potentially trying to get a foothold? And what sort of time lines do you think we're talking about to move beyond the use cases? I know there's a few things that are moving outside the sandbox in terms of remortgage, for instance, what sort of time line are we talking about to move beyond the use cases currently envisaged by the U.K. finance initiative. And on programmable money, could you give us an idea of the use cases that you see? I guess, it's corporate clients that are more interested in these options. Could you give us some examples of use cases that corporate clients are looking for? That would be interesting. And then on motor, the FCA consultation, obviously, you're going to feed into. One of the points from the FCA's perspective, I suppose, is that if we don't capture the majority of cases through a redress program, and it goes through the courts, then administrative costs would be potentially materially higher. Is that something that you agree with? i.e., you would be pushing for a narrower scheme potentially or for less redress and taking then some risk that the administrative burden of more cases remaining in the court system would push costs in that area. William Leon Chalmers: Yes. Thanks for those questions, Chris. First of all, on stable car and tokenized deposits. A couple of points to make there. What is about the path forward on that? And then the second is around use cases. Said earlier on, the rise of stable kind has obviously been notable in recent periods. And it's been particularly notable in the context of international payments where, as I said, there may be some advantages in terms of speed and cost. What we think in the U.K. is that the GB tokenized deposits, GTD that we are constructing together with the industry is effectively commercial bank money in its current form, which allows interchangeability between a digital point, if you like, an analog coin the current coin that is there in the market. And that has tremendous advantages. It has tremendous advantage from a customer point of view because it is basically one and the same, and they should be able to move freely between digital money and, if you like, analog money. And that makes it a much more kind of customer-friendly approach. It also means that we, as banks can offer that to customers as our money effectively together with all of the security and indeed, insurance benefits that are currently in place and of course, from a regulatory point of view, together with all of the KYC and so forth that we currently have in place. So it is -- it goes hand in hand with today's money in a way that is, as I say, very user-friendly from a customer point of view. And in that sense, has material benefits over what stable coin has to offer, which is clearly not interchangeable with commercial bank money. It is not one and the same thing. In terms of timetable, Chris, I think your point -- your question rather, is a good one. We need to move quickly on this. And indeed, use cases, as I said, landing in the first half of next year, we would expect off the back of that to be able to get something out in a workable customer proposition format, I hope by the first half of 2027, if not before. Now what we really need to fall into place in order to secure that progress, if you like, is a regulatory framework that is consistent with the ambitions of the industry and indeed is consistent with how the Bank of England would like to see this play out. As a form of digital money in the U.K., it is important that in place in a supportive manner. So that's really what we need. But if that is in place, then the speed of this is very much within the sex hands, and we would expect to play a leadership role in securing that, making progress and indeed getting to the customer benefits that we think are promising as a result of this. In terms of use cases, you mentioned hotel and for sure, there are wholesale use cases here, Chris, but I don't think it's just that. That is to say, digital money offers use cases, both in the wholesale and in the retail space. Wholesale, we've just started an example with Aberdeen using basically tokenized assets as collateral that offers meaningful efficiencies in the context of collateral management and need speed and pace and indeed cost of collateral alongside transactions. Likewise, the digital kill is an innovation that is being sponsored in terms of one of my use cases and again, offers meaningful speed, cost and efficiency benefits from a customer point of view. And then, of course, transacting with each other. I say corporates can transact with each other in digital asset format. Again, that is going to offer speed and transaction cost benefits. But as I said, these are also [indiscernible] benefits. So 2 out of 3 of our use cases are in the retail space, one being effectively cash on delivery to meaningfully cut fraud in the retail space and the other being effectively reengineering the home buying journey off the back of programmable money for just that journey. So I think there are meaningful retail benefits there, too, Chris. We've got a lot to do in this area in digital assets. But as I said, if we get it right, there's an awful lot of customer value to be created. On the second topic, Chris, on Motor. It is our view, as I mentioned earlier on, that the motor proposals as put forward by the FCA are currently disproportionate. And they're disproportionate as for 3 main reasons. One is because we believe the determination of unfairness is too broad who is because we build the judgments that are inherent in these proposals do not align to the Supreme Court clarity that was provided earlier on this year. And 3 is because we think the redress calculation as said, is at best tenuously linked to harm. Now what that all means, Chris, is that, indeed, if the proposals remain as broad as they are. In many respects, at least, we would expect to see better outcomes in the context of litigation because presumably, the courts will take into account the Supreme Court rulings in the way in which they were made. And presumably, the courts will take into account the linkage between address and harm. So in that sense lease, I would expect litigation outcomes to be better than much of what is in the FDA proposals right now. Now having said all of that, Chris, we clearly want to move on from this. We clearly want the business to move Ireland to focus on customer value creating propositions we have today just as we expect to be in the future. So as a result, that is why we've taken a GBP 1.95 billion best estimate for the provision which in turn is not far away from what it would be if the FDA were to enact their proposals in full. It's very much in the spirit of saying, okay, look, we don't agree with them. We're going to do what we can to change them and get them into a better place. But we are provisioning on the basis that a large part of them is going to stay in place, and we want to move on, and that's what this provision is designed to do. Operator: Our next caller is Guy Stebbings from BNP Paribas. Guy Stebbings: Had a couple of questions back on net interest income. The first one is around volumes. The interesting asset growth was quite strong in the quarter, a couple of billion ahead of consensus on average nearing assets and the end of period position at [indiscernible] Q4 in a good place. If you could talk about sort of broad expectations for the outlook from here, I made your contractor comments on mortgage volumes probably being out of our better-than-expected performance in Q2. So it sounds like we're talking to a positive trajectory, which given your Q4 NIM which takes quite a promising picture. And then related to this, on mortgage spreads. So interested in your comments in response to Perlie's questions and perhaps the market reacts to the headwind from mortgage spread shown on upcoming maturing cohorts by lifting new spreads. I wondered within that, your comment signal that maybe current spreads have drifted a little bit lower in recent months on new lending and perhaps you're getting to levels you're a little bit less comfortable [indiscernible] just reading too much into the remarks there. I guess I'm really trying to work out on the upside versus downside on your initial expectations. You had the visibility clearly on the maturing yields for quite a while, but where the new lending spreads are coming in better or worse than what you'd initially envisaged. William Leon Chalmers: In respect of AIA, first of all, the Q3 performance, as you know, saw a meaningful jump in terms of AIs off the back of what has been increased lending over the course of the year as a whole and continued into the third quarter. So maybe taking a step back before getting to AAAs. As you know, we've had GBP 18 billion growth within the lending book year-on-year, which, of course, contributes to meaningful IA growth on a kind of realized basis, if you like. And within that, we've had cards year-to-date up 7%. We've had personal loans up 13%. We've had Motor up 5% over the course of the year. We've had mortgages up GBP 8.7 billion or 3%. It's a really decent loan performance for the business. in total, GBP 18 billion, up 4% up on assets for the year. And as you say, that is now translating into AIA growth, 65.5% in the -- we're seeing continued growth in the course of quarter 4 across the asset. So of course, it is a slightly shorter period because of seasonal factors but [indiscernible] you should expect to see growth within assets within quarter 4 that will be perfectly respectable. And off the back of that, deliver continued strength in AIA for the remainder of this quarter and looking into '26 and it will be that combination, i.e., AIA growth, together with the step-up in the margin that I mentioned a second ago, which in turn sets the stage for 2026 and gives us a lot of confidence in our 2026 guidance. So that's a picture of AIA's guy, which I hope is helpful. On mortgage spreads, it's interesting. I mean, we've seen now 70 basis points Q1, Q2, Q3. It is fair to say that we've seen perhaps a basis point or 2 of erosion within that over the course of these successive quarters but we are still rounding to circa 70 basis points in the course of quarter 3 and comfortably rounding to circa 70 basis points in quarter 3 to be clear. A couple of points to make within that. One is -- when we look forward, my comment earlier on about whether there will be a bit of repricing of the back of 5-year charities and therefore, people feeling a bit more pressure in their mortgage books. We're not banking on that to be clear. When we put forward our guidance for in excess of 15% ROTE and the guidance we'll be giving you next year for the component of net interest income that will make up or contribute to that outcome. We have never been and are not banking on any uptick, if you like, in mortgage spreads that is driven by that 5-year maturity pattern that I talked about earlier on. So we're not banking on it. If it comes, so much the better, and you'll see that in the context of our interest income at the time. The second point I wanted to make is the business or rather the spreads at which we are writing business right now, contribute to ROE attractive mortgages for us. And that's certainly true on a stock -- on a marginal basis. It is also true, albeit at a lower level on a fully loaded basis. So you're seeing very attractive marginal returns even at the current spreads. You are seeing, if you like, fully loaded returns that are still above the cost of equity. So we're happy to write them. We're particularly happy to right and bearing in mind a couple of other factors. One is that we are increasingly able to contribute protection alongside the mortgage product as our insurance and our retail businesses work increasingly closely alongside of each other. We're now up to about 20% protection penetration for mortgage products and so this is a strengthening relationship that we're seeing, not just a one-off mortgage relationship. And then the second is that we see an increasing share of our mortgage coming through the direct channel. And that is a more profitable product for us to write. It is also one that more closely aligns us to the customers, to be clear. But at the moment, at least, we're seeing about 24% of our mortgages coming through the direct channel. That is, frankly, more than we've had for a long time, and it is a result of a very deliberate strategy that we are embarking on. So in that context as well, Guy, we were able to write mortgages which are attractive to us on a stand-alone basis. But off the back of the, if you like, relationship that we're developing and the channels through which we're distributing is a more attractive position. Operator: Our next caller is Ed Firth from KBW. Edward Hugo Firth: I had 2 questions actually. The first one was just the sort of -- I guess, I don't know what the right way is cadence, I guess, if you like, or the growth rate of NII. I mean if I look at your -- you're talking about around GBP 13.6 billion for the year. And year-to-date, it's 10.1%, which would suggest somewhere around 3.5 in Q4, even my analysis, I can do that. We suggest that to a slightly slower growth rate than you saw in Q3 rather than a higher growth rate. So I'm just trying to think -- is there something I'm missing there? Is it something about nonbanking income? Or is the GBP 13.6 billion really a number that we should take us up as a sort of very safe space that actually all other things being equal, we could see something better than that. So I guess that's my first question. And then the second one was, I think you were saying that we should put another GBP 175 million in for next year for the buyout in revenue, other income for the buyout of the SPW joint venture. Is there a cost offset on that? Or is that just like straight through the bottom line? I mean, obviously, you talk about modestly higher for the little bit for this year. I'm just wondering what sort of cost numbers might equate to that GBP 175 million or is that just a straight number we should just put in straight [indiscernible] William Leon Chalmers: Yes. Thanks, Ed. In respect to net interest income growth, first of all, the easiest way to explain it is I think the following. As you know, we've upgraded to circa GBP 13.6 billion from GBP 13.5 billion. That is intended to be, and I hope very clearly is a sign of confidence in terms of our net interest income trajectory. It is -- as you pointed out, hopefully, as is evident in the guidance, the circa word, the C is very deliberate. That is to say 13 points is not intended to be a cap. It is saying circa GBP 13.6 billion. So I'll kind of leave you to move around from that. But it is -- now that in how things develop will be around GBP 13.6 billion, including numbers that go above GBP 13.6 billion provided that they are within the circa range. . The -- stepping back, net interest income in quarter 3 was, what, GBP 3.45 billion. It's up about GBP 90 million growth versus Q2, which we, as you know, is about 3%. Some of that Q2 growth that we saw in Q3 is day count increase. And so a slightly lower amount of that is underlying increase. If you look forward into Q4, we expect to show continued progress in NII with to be clear, probably a similar absolute income growth in Q4 as we saw in Q3, a similar absolute income growth in Q4 as we saw in Q3. But to be clear, none of that will be daycount benefit. And that is to say the daycount in Q4 same as the daycount in Q3, which if you translate that, that means that growth is actually strengthening, not weakening. So growth is strengthening in Q4 rather than weakening, and that is off the back of the factors that we discussed before, which is the step-up in the margin, which is, as I said, more pronounced in Q4 and then the AIA progress that I was discussing with guidance just a second ago. And now it's coming off the back of the fire. So all of that, hopefully, helps can illustrate the point. And in turn, we have a lot of confidence in that number. So hopefully, that's helpful. On the SPW point, when we -- unfortunately, all good things come into price, I guess. So when we look at the GBP 175 million incremental That, in turn, comes with costs, which are probably going to be about GBP 120 million in excess of what you saw previously there. Now you didn't actually see them previously because they were all consolidated in the OI line. So it's probably about GBP 120 million adding costs to procure that circa GBP 200 million which, in turn, the OOI is about GBP 175 million ahead of what we'd have previously seen. So I hope that's clear. There's a couple of other points that maybe I should make in the context of the SPW transaction, [indiscernible] transaction, which are important to us, one is we did it at 0 capital cost. As you know, we had to give up our 20% share in [indiscernible] in order to get that. But the benefit that we're getting from that casino share was a modest annual dividend that you saw in Q4 and frankly, this feels to us like -- from our perspective at least, a really positive trade, but it was done at 0 capital cost. And then the second point is we'll have to work at it to make sure that it comes within our cost income ratio. But as I said, that's consistent with our sub-50% cost income ratio guidance. But at the same time, you can probably imagine, as with many of these wealth businesses, this is a materially RoTE positive transaction, and we'll deliver an RoTE that is well above not just our cost of capital, but probably well above the types of IoTs that we'll be delivering on a kind of group aggregated basis. This is a net positive contributor to the ROTE of the business. Most importantly, Ed, it's a very important strategic development and indeed, a very important part of our customer proposition. Operator: As you know, this call is scheduled for 1 hour, and we have now exceeded the end of the allotted time. So this is the last question we have time for this morning. If you have any further questions, please contact the Lloyd's Investor Relations team. With that, our final caller is Amit Goel from Mediobanca. Amit Goel: So 2 relatively quick questions from me. One, just on the deposits -- the real deposits. So some positive trends there on the back of the pricing decisions. Just curious whether that's largely done now or whether we could continue to see a little bit of that shift and whether or not that can benefit the hedge capacity. And then the second question, just curious how engagement with the government is going ahead of the budget and also whether or not they kind of recognize the motor costs when also thinking about banking sector taxation? William Leon Chalmers: Yes. Thanks, Amit. The -- in respect of each of those, as you say, deposit performance has been pretty good over the course of this year, GBP 14 billion up in total, 3% year-to-date increase. So a good performance in deposits. And within that, retail is up GBP 4 billion year-to-date. And what we saw within retail in the third quarter was a little bit of outflow within the U.K. retail savings area, and that was very much within the fixed-term product, off the back of effective pricing decisions that we had taken, given the fact that we performed so strongly in Q2, in particular, in the ISA season, which we highlighted at the time. So this was a kind of, I suppose, inevitable reaction to very deliberate pricing decisions that were taken in the course of quarter 3. It was good to see that it was offset by PCA performance in the course of we were up GBP 1.2 billion, which is a good performance. And as you know, leads us to a year-to-date performance within PCA is up around GBP 0.5 billion or so. I think a couple of things are happening there, Amit, which are pretty constructive on the whole. We're seeing continued wage inflation with respect to our customers. Importantly, we are also seeing reduced levels of churn out of the PCA product into savings products and into fixed term in particular. And so that falling churn is down about 33%, i.e., down about 1/3 in Q3 versus Q2. That's a material reduction in churn, and we expect to see that pattern more or less continue going forward. But it's good to see. As said, PCA is an incredibly important customer product from our point of view. It's an incredibly important product from a structural hedge point of view. And so the solidity of the PCA performance has been good to see. As we look forward, I think we do expect churn to continue to add Q3 was particularly marked, but nonetheless, we continue to see -- we continue to expect it to add going forward. PCAs, we are seeing other trends slowing government payments, for example, probably over time saying wage growth as well. And so PCA performance, I don't think we expect to see it be particularly exciting, maybe more or less static might be a reasonable way of looking at it. We'll see how it goes. Going into next year, I think that starts to change as things pick up perhaps a little bit more. Our expectation for the structural hedge to be clear and it insofar as it relates to this issue is we're not banking on significant increases in structural hedge balances. So all of our forecasts for you, the GBP 1.5 billion growth in structural hedge income, for example, going to next year, GBP 6.9 billion revenue in total from the structural hedge. That is built on a steady hedge. And so if we see performance within PCAs, instant access and other hedge eligible deposits, including NPCA within BCB, which has shown an uptick actually in Q3, if that performs more positively than we expect, that would represent structural hedge upside and opportunity. At the moment, we're expecting flat structural hedge performance. On your second question, Amit, in respect to budget, a couple of points to make, really. One is the business has been really only very modestly affected, if at all, by budget concerns. So I mentioned earlier on that we've seen mortgage performance being very strong. As you know, GBP 8.7 billion year-to-date, GBP 3.1 billion of that in the third quarter. We've seen applications up 19% over the course of the third quarter. We've seen completions up 23% over the course of the third quarter. And so no meaningful sign, if you like, of insertion because of budget in the third quarter mortgage performance. And then within the pensions business, another area that conceivably might be affected. We've seen a little bit of an increase in individual pension encashments, but no material change to be clear within Workplace. And in any case, any change in volumes that we have seen in the pensions area have been well below what we saw last year. So really nothing to report effectively in terms of the, I suppose, hesitation that might be induced by the budget overhang in respect to the business as usual. In respect to tax, I mean, I think those are really decisions for the government, obviously, and we'll leave them to make those decisions as and when they see fit. From our perspective, at least, the most critical thing is that we have a stable and a predictable tax regime and one that is competitive. That is to say, at the moment, we're a material taxpayer as you know, GBP 1.5 billion of corporate tax all in, including things like NII and BA and so forth about GBP 2.5 billion of total tax paid. We see ourselves a meaningful tax contributor. We see a stable and competitive tax regime and indeed a predictable tax regime as essential, frankly, to the continued prosperity in the financial services sector and by extension, all of the things that we can do for the U.K. economy as a whole. So I think that's really all we'd say on the tax front, Amit, which I hope is useful. Operator, we're going to call it a day for now on the questions. I just want to say thank you to everybody for joining the call today and your interest in the stock and the company is, as always, greatly appreciate it. Thanks very much, indeed. . Operator: Thank you. This concludes today's call. There will be a replay of the call and webcast available on the Lloyds Banking Group website shortly. Thank you for participating. You may now disconnect your lines.
Operator: Ladies and gentlemen, welcome to the STMicroelectronics Third Quarter 2025 Earnings Release Conference Call and Live Webcast. I am Myra, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions]. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Jerome Ramel, EVP, Corporate Development and Integrated External Communications. Please go ahead. Jerome Ramel: Thank you, Myra. Thank you, everyone, for joining our third quarter 2025 financial result call. Hosting the call today is Jean-Marc Chery, ST President and Chief Executive Officer. Joining Jean-Marc on the call today are Lorenzo Grandi, Creditor and CFO; and Marco Cassis, President, Analog, Power & Discrete, MEMS and Sensor Group and Head of ST Microelectronics Strategy, System Research and Application and Innovation Office. This live webcast and presentation materials can be accessed on ST Investor Relations website. A replay will be available shortly after the conclusion of this call. This call will include forward-looking statements that involve risk factors that could cause ST result to differ materially from management expectations and plans. We encourage you to review the safe harbor statement contained in the press release that was issued with the results this morning and also in ST's most recent regulatory filings for a full description of these risk factors. Also to ensure all participants have an opportunity to ask questions during the Q&A session, please limit yourself to 1 question and a brief follow-up. Now I'd like to turn the call over to Jean-Marc Chery, ST's President and CEO. Jean-Marc Chery: Thank you, Jerome. Good morning, everyone. And thank you for joining ST for our Q3 2025 earnings conference call. I will start with an overview of the third quarter including business dynamics. I will then hand over to Lorenzo for the detailed financial overview, and we'll then comment on the outlook and conclude before answering your questions. So starting with Q3. We delivered revenues at $3.19 billion $17 million above the midpoint of our business outlook range with higher revenues in Personal Electronics while Automotive and Industrial performed as anticipated, and CCP was broadly in line with expectations. All end markets, but Automotive are now back to year-on-year growth. Gross margin of 33.2% was slightly below the midpoint of our business outlook range, reflecting product mix within Automotive and within Industrial. Excluding impairments, gross recurring charges and other related phase on costs, diluted earnings per share was $0.29. During the quarter, we managed to work down inventories, both in our balance sheet and in distribution and we generated a positive $130 million free cash flow. Let's now discuss our business dynamics during Q3. In Automotive, during the quarter, we grew revenues about 10% sequentially, in line with expectations, driven by all regions, except Americas. Our book-to-bill came above 1. We expect to grow mid-single digits in the fourth quarter compared to the third quarter, which would be the third consecutive quarter of second During the quarter, we continued to execute our strategy for car electrification. We had with both silicon and silicon carbide devices for electrical vehicle applications, such as traction inverter and onboard charger designs. On new application where we see silicon carbide being used is investors for full active suspension. Here, we have a design win with a module solution for our key Chinese electrical vehicle maker. Another key event is a switch to electronic fuses to support the land and domain architectures, both in 12 volts and 48 volts. Here, we added to our pipeline of designs for our IFUs controller with leading electrical vehicle makers and qualified our products for volume ramp up. Other wins in the quarter included microcontrollers for DC/DC management in electrical vehicle powertrain, body control modules and HVAC systems across multiple vehicle models. In car digitalization, we are executing our micro color product road map with a strong lineup of new solutions across both our Airbus Stellar and STM32 product families. Design-in activity continues globally with engagement from both large-scale automotive OEMs and Tier 1 suppliers. In legacy application, we have several significant wins based on our smart power technologies in application where we lead such as airbags, Steele and braking solutions. With our automotive brake sensors, we continue to see strong designing momentum and growing opportunities. Wins in the quarter included MEMS sensors for road noise constellation and door control and both MEMS and imaging sensors for in-cabin monitoring. Shortly after our results announcement in July, we announced that we entered in a definitive transaction agreement for the acquisition of NXP's MEMS sensor business, for a purchase price of up to $950 million in cash, complementing and expanding our current leading MEMS sensor technology and product portfolio. The transaction remains subject to customary closing conditions, including regulatory approvals and is on track to close in H1 2026. In Industrial, revenues were in line with expectations, showing increase of 8% sequentially and 13% year-over-year, back to year-on-year growth for the first time since the third quarter of 2023. Importantly, inventories in distribution further decreased. In Q4, we expect to grow value low single digits sequentially, as we continue to decrease inventories in distribution. During the quarter, we saw strong designing activity for our Power and Analog portfolio across a range of applications. These included factory automation over system medical equipment, motor control, white goods, solar inverters and metering. We also continue to expand the use of our industrial sensors in robotics, including robots and cobots and robots, an area where we see demand for significant number of sensors. We also had wins in medical devices like insulin pumps and full detectors. In Embedded Processing, we continue to win designs with our STM32 microcontrollers for a wide range of industrial applications with products from all parts of the portfolio from high end to wireless to specialized functions. This included power supply and optical modules for AI servers, industry automation and robotics, energy storage, metering and goods. We have a full pipeline of new products and software coming to market in the next quarters, and you will hear more about this during our STM32 summit in November. For general purpose microcontroller, we grew revenues both sequentially and year-on-year and we are on the right trajectory to return to our historical market share of about 20% -- 23%, sorry. For Personal Electronics, third quarter revenues were above our expectations, up 40% sequentially, reflecting the seasonality of our engaged customer programs, but also increased silicon campaigns, which also translated into year-over-year growth. Further strengthening of our unique position as a sensor supplier with both MEMS and optical sensing solutions, we signed a new license agreement with This new agreement broadens our capability to produce advanced meter leveraging ST's 300-millimeter semiconductor and optics manufacturing capabilities. This opened up new opportunities from smartphone application like biometrics, LiDAR and camera acids, robotic, jester recognition and object detection. Revenues for communication equipment and computer peripherals were broadly in line with expectations and up 4% sequentially. For AI data centers, we had multiple wins with silicon and silicon carbide devices for high-power solution. Although last quarter, we announced that we are working closely with NVIDIA, a new architecture for 800-volt DC AI data center, leveraging our power By combining silicon care, guided nitride and silicon-based technologies with advanced custom design at both chip and package level. I am pleased to underline that we recently completed the full power testing on a prototype social successfully demonstrating over 98% efficiency. Silicon photonics is another key technology for future data center and AI factories. ST now has the collaborative R&D programs across the full value chain with key suppliers and customers to develop high-speed optical solutions for data center, AI, telecommunication and automotive, from the substrate to the final product. During Q3, we have seen an increased demand for photonics IC prototypes to be launched in the next quarter and beyond in our 300-millimeter wafer fab. This confirms that photonic ICs will be a revenue growth driver for ST in the detail. In low earth orbit satellites. We have further strengthened our leadership position in the rapidly growing low broadband market by beginning shipment to a second global customer, leveraging our combination of biosimilars technology for front-end modules and paddle level packaging for user terminals. Our business in this segment is well positioned for steady growth delivered by several satellite constellations. Now over to Lorenzo, who will present our key financial figures. Lorenzo Grandi: Thank you, Jean-Marc, and good morning, everyone. Let's start with a detailed review of the third quarter, starting with the revenues on a year-over-year basis. By reportable segment, Analog Products, MEMS and Sensors was up 7.0%, mainly due to imaging. Power & Discrete products decreased 34.3%. Embedded Processing revenues grew 8.7%, mainly due to general Marconi. RF and optical communication declined 3.4%. By end market, Industrial increased by about 13%; Personal Electronic by about 11%; Communication Equipment and Computer Peripheral by about 7%. Automotive was still decreasing by about 70% and by showing some improvement in respect to the 24% decline recorded in the second quarter. Year-over-year sales to OEMs decreased 5.1% while revenues from distribution increased 7.6% back to year-over-year growth for the first time since the third quarter 2023. On a sequential basis, Power & Discrete was the only segment to decrease by 4.3%. All the other segment grew led by analog products, MEMS and sensor up 26.6% with Embedded Processing up 15.3% and RF and Optical Communication, up 2.4%. All our end markets grew, led by Personal Electronics, up by about 40%, followed by Automotive, up by about 10%. With Industrial and Communication Equipment and Computer and Peripheral up, respectively, by about 8% and 4%. Turning now on profitability. Gross profit in the third quarter was $1.06 billion, decreasing 13.7% on a year-over-year basis. Gross margin was 33.2%, decreasing 460 basis points on a year-over-year, mainly due to lower manufacturing efficiencies, negative currency effect lower level of capacity reservation fees and to a lesser extent, the combination of sales price and product mix. Total net operating expenses excluding restructuring, amounted to $842 million in the third quarter, broadly stable on a year-over-year. They were better than expected. Preferably, notably our continued cost discipline with the first benefits of the resizing of our global cost base. For the fourth quarter of 2025, we expect to stand at about $950 million, increasing quarter-on-quarter due notably to calendar base effect. This will lead the net OpEx for the full year 2025 to decline by 2.5% compared to 2024 despite unfavorable currency effect. As a reminder, these amounts are net of other income and expenses and exclude restructuring. In the third quarter, we reported $180 million operating income, which included $37 million for impairment restructuring charges and other related phase-out costs. This reflects impairment of assets and the restructuring charges predominantly associated with the previously announced company-wide program to reshape our manufacturing footprint and resize our global cost base. Excluding this not recurring item, which is partially not cash, Q3, non-U.S. GAAP operating margin was 6.8%, with Analog Products, MEMS and Sensor at 15.4%. Power & Discrete at minus 15.6%. Embedded Processing at 16.5%, and the RF Optical Communication at 16.6%. This quarter, to 2025, the net income was $237 million compared to $351 million in the year ago quarter. Diluted earnings per share were $0.26 compared to $0.37. Excluding the previously mentioned nonrecurring items, non-U.S. GAAP net income and diluted earnings per share were respectively, $267 million and $0.29. Net cash from operating activity decreased 24.1% on a year-over-year basis in the third quarter to $549 million. Third quarter net CapEx was $401 million compared to the $565 million in Q3 2024. Free cash flow was a positive $130 million in the third quarter compared to the $136 million in the year ago quarter. Inventory, at the end of the third quarter, was $3.17 billion, a reduction of about $100 million compared to the end of the second quarter. These sales of inventory at the quarter end were 135 days, slightly better than our expectation and compared to 166 days for the previous quarter and 130 days in the year ago quarter. Cash dividends paid to stockholders in the third quarter totaled $81 million. In addition, ST executed share buybacks of $91 million. ST maintained its financial strength with a net financial position that remained solid at $2.61 billion as of the end of September 2025, reflecting total liquidity of $4.78 billion and total financial debt of $2.17 billion. It is worth to mention that in the course of the third quarter, we repaid fully in cash, $750 million for the first tranche of our 2020 convertible bond. Now back to Jean-Marc, who will comment on our outlook. Jean-Marc Chery: Thank you, Lorenzo. Let's move to our business outlook for Q4 2025. So we are expecting revenues at $3.28 billion, an increase of 2.9% sequentially, plus or minus 350 basis points. We expect our gross margin to be about 35%, plus or minus 200 basis points, including about 290 basis points of unused capacity charges. This business outlook does not include any impact for potential further changes to global trade tariffs compared to the current situation. The midpoint of this outlook translates in full year 2025 revenues of about $11.75 million. This represents a 22.4% growth in the second half compared to the first half, confirming signs of market recovery. Gross margin for the full year is expected to be about 33.8%. Finally, to optimize our investments in the current market conditions, we have reduced our net CapEx plan, now slightly below $2 billion for full year 2025 compared to a range of $2 billion to $2.3 billion previously. To conclude, in the fourth quarter, we expect to report further sequential revenue improvement. With revenues now broadly stabilized on a year-over-year basis as well as an increased gross margin while continuing to decrease inventories in distribution. We are on the right path to improve our gross margin in the medium term through the reduction of unused capacity charges, the reshaping of our manufacturing footprint and definitively our product mix improvement. In a context marked by signs of market recovery, our strategic priorities remain clear, accelerating innovation executing our copay program to reshape our manufacturing footprint and resize of our global cost base, which remain on schedule to deliver the targeted savings, and strengthening free cash flow generation. Thank you, and we are now ready to answer your questions. Operator: [Operator Instructions] The first question comes from the line of Francois Bouvignies from UBS. Francois-Xavier Bouvignies: My first question is on the top line. I mean, you guided plus 3% quarter-on-quarter, 2.9% to be precise. It seems to be below your seasonal at plus 7% quarter-on-quarter, if I'm not wrong. I mean you can remind us maybe the seasonality. Can you explain us as to why you are a bit below seasonal in Q4 for the top line and the drivers? And then secondly, on the gross margin, I mean, it's nice to see this improvement of 180 basis points quarter-on-quarter, how sustainable it is this gross margin? I mean, if you have any seasonality, product mix, should we extrapolate this dynamic of 35% into the first half of '26? Just trying to understand the work you have done on gross margin, how sustainable it is at least in the first half of '26 would be great. Jean-Marc Chery: So we'll take the revenue seasonality and Lorenzo, the gross margin. No, on the revenue seasonality of Q4, basically, there is 2 effects. The first effect is on automotive. Because in automotive, even if we will grow on a quarter-over-quarter, but year-on-year, it is still minus 12%. And why? Because, okay, 80% of this performance gap is explained by 2 reasons. It is a decrease of our capacity reservation fees compared to last year. And you know it is overall volume of one important customer of ST in the field of electrical vehicle. So this is what is explaining why in Q4, we are below the seasonality. The second explanation to be below the seasonality in Q4 is because in Industrial, we continue to decrease inventory in distribution. So our POP revenue recognition is significantly below the POS. However, on the other, let's say, verticals like Personal Electronics, Communication Equipment, Computer Peripheral and other legacy on Automotive or Industrial in the field of power, energy; basically, okay, we are at the seasonality we expect. Lorenzo Grandi: About gross margin. In Q4, the gross margin, the main positive driver, let's say, when we look at the sequential increase of our gross margin moving from the result of Q3 and the expectation of Q4 is clearly improved manufacturing efficiency. That is -- if you remember, let's say, in the first half and also in Q3, we were impacted by a significant negative impact on the efficiency -- manufacturing efficiencies that was due to the very low level of production that we have, especially in the first half of the year. There is also some improvement in terms of new charges. When we look, let's say, to how we will move moving in the first half of next year, but we have to remind that clearly, there are negative effect that we will impact moving forward. One effect is related to the fact that there will be some reduction entering 2026 of capacity reservation fees. And definitely, you know that in the first half of the year, there is some seasonality in terms of our revenues, let's say, in respect to the second part of the year. And then don't forget that there is also the negotiation of the pricing that will impact even if we see to a significant drop. We think that it will be something in the range of low single digit, mid-single-digit decline. On the positive side, we will have, let's say, still continued positive impact on manufacturing and reduce -- continue to reduce level of saturation. At this stage, it's a little bit to difficult to size, let's say, the level of gross margin because it will depend also on the level of the revenues. But this is directionally the trend that we will have moving -- entering in the next year. Operator: The next question comes from the line of Joshua Buchalter from TD Cowen. Joshua Buchalter: Maybe to follow up on that last one. Could you maybe spend a couple of minutes talking about how you're thinking about managing utilization rates right now? It seems like you're taking things back up. Are you at the point where you feel comfortable building a little bit of inventory downstream and/or on your balance sheet given the comments. You mentioned you're going into some negative seasonality into 1Q, but it sounds like utilization rates are going to be up in the fourth quarter and the first quarter. Could you maybe just spend a couple of minutes talking about what you're seeing there? Lorenzo Grandi: Now for the inventory, clearly, let's say, as you have seen, we try to keep control on the level of inventory in the current quarter, we think to stay substantially stable in number of days. This is our expectation in respect to Q3. But the positive point is that entering in the next year, clearly, let's say, as I said, there is our seasonality, the normal seasonality that means that, in general, the inventory in the first half of the year is a little bit higher also in number of days in respect to the second part of the year. Then you have to consider that entering next year, let's say, we start to have some decrease in terms of overall capacity, linked to the fact that we started to have some benefit coming from our reshaping of the manufacturing infrastructure. This will somehow mitigate the level of unused moving in 2026. This is, let's say, one of the drivers that we see in terms of progressively improve in terms of the utilization rate, together, of course, with some growth in Joshua Buchalter: I was hoping to ask about the Industrial segment. So it looks like book-to-bill went back to parity. Anything major going on there? Any geographies that are better or worse? And maybe how would you categorize the health of the general purpose microcontroller business underneath there? Basically, should we assume sort of shipping back to normal now? Jean-Marc Chery: No. In industrial, we see a different dynamic when we grow on some segments. We see a growth and dynamic more pronounced for power energy, basically all subsegments, okay, of this one are growing. And it is growing more definitively than the smart industrial, it means the factory automation. We can say that robotics is so far good, but overall, the factory automation is really, really soft. More than all the industrial, which are volume-driven, means consumer-driven, the hub cycle is pretty soft. So the takeaway we can have on the Industrial is what is related power energy infrastructure and robotics is now upcycle pretty solid. What is related volume and consumer is a very soft upcycle. It looks like inventory are digested, but the visibility is pretty short, it's pretty low. So that's the reason why the customers are still putting order on short term. But here, our decision is to continue to manage the distribution very closely and continue to adjust our POP below their POS forecast to continue to decrease inventory. Inventory and general purpose microcontroller came back what we classified normal, means a level of months of inventory that enable short-term business. Well, we have still some pockets of other inventory on some specific products like Power & Discrete or sometimes general purpose microcontroller, but we are going in the right direction. So this is a dynamic, okay, we are seeing on the industrial market. Operator: The next question comes from Tristan Gerra from Baird.. Tristan Gerra: I wanted to see how linear is the reduction in capacity reservation fees that you expect in '26 from the $150 million, $200 million reduction that you're looking at for this year. Is there a big drop in Q1? Or is it going to be pretty linear throughout all of next year? Lorenzo Grandi: In terms of capacity reservation fees, it works in this way, let's say, substantially, the capacity reservation fees that are ruled by contract with the carmakers quite constant over year the in term of million dollars. But yes, you can have a little bit higher, a little bit lower during the various quarter of the year, but they are not linearly going down. Let's say, they are substantially quite flattish, I would say, quarter after quarter. Clearly, when the contract expires, that is, at the end, for instance, of 2025, many of these contracts are expiring. But then, yes, you have a decline. And then the decline remains the level that you get in the first quarter will remain substantially similar all over the other quarters. So this is the way that it works. So what we will see in Q1 will be this reduction? And then that after that, we will stay stable, more or less stable during the course of 2026 at the level of capacity reservation. Tristan Gerra: Just a quick follow-up. Of course, it's going to depend on end demand, but any sense of -- or when you think POP can get back in line with point of sales in Industrial next year? Jean-Marc Chery: Globally, POP will be aligned with the POS each time our product line reach the target of inventory, we didn't want to exceed. This is okay, a lesson we learned from the past. And now, we are really disciplined on this point. So you cannot see the POP overall. We have to look the POP in detail by product line. And I repeat our microcontroller is pretty well aligned. So our POP is really driven by the end demand POS and by region, I have to say. While China, APAC, America are pretty okay, but Europe is still soft. And for the other product line, okay, we are still in a mode where the POP is below the POS; however, we expect to go back normal in H1 2026, most likely Q2. Operator: Next question comes from Stephane Houri from ODDO BHF. Stephane Houri: Yes. I have a first question about the CapEx budget because you're adjusting downward the CapEx for the end of this year. I guess this is in the course of managing your capacity by the end of the year and so an expectation of 2026. But what are you reducing at the moment? And how do you look at 2026 in terms of CapEx at the moment where you're transforming your tool from 200-millimeter to 300-millimeter? Jean-Marc Chery: We reduced the CapEx. In fact, there is 2 dynamics. There is a dynamic driven by where you know we want to close the 200-millimeter, so And of course, okay, we need to put the CapEx to increase the capacity at the right level in 300 and in coal 200. But here, we have not especially limited the dynamic because the demand is pretty solid. But then the other main important action is the CapEx for 200-millimeter conversion on silicon carbide because we will close the 150-millimeter. But here, we have limited the CapEx delivered by the demand, which is below what was -- we expected 1 year ago. So the main impact of the capacity limitation is on, let's say, silicon carbide. But then after it's more spread across test assembly, where we clearly adjust the capacity of what we need and no more. And generally speaking, is more adaptation to mix rather than volume increase. Stephane Houri: Just to ask you, with the Nexperia situation, you do receive phone calls or kind of rush orders from your customer? Or you see nothing for the moment? Jean-Marc Chery: No, I mean, we are sure that the carmaker and the Tier 1 of the automotive industry have clearly taken the lesson of the previous shorter period, and they have enabled many source to prevent such issues. And of course, okay, as the other semiconductor player, STMicro is part of this process. More than that, I have no comment. Operator: Next question comes from Didier Scemama from Bank of America. Didier Scemama: I have first question maybe on your inventory and related to that. on what you're thinking about in terms of factory loadings for the first half, I think, one of your U.S. peer already announced last week or earlier this week that they would reduce factory loadings to reduce inventory, especially in the context of a shallow recovery? So I think it looks like your inventory are tracking about 30, 40, 50 days above where they used to be. So are you thinking about taking down further factory utilization in the first half, I guess. Lorenzo Grandi: In terms of inventory, I would say that, yes, you're right, it's a little bit higher in respect to what was our historical ending of the year, that is a little bit higher. But at the end, I think that when we look next year, I think the dynamic of our -- we will continue to keep under controlling that. The dynamic of the inventory will, let's say, be, as usual, a little bit increasing during the first half of the year to go back and to decrease in the second part of the year. In terms of that, let's say, unloading factory utilization I think that moving in 2026, there will be an improvement. Notwithstanding, we will continue to keep the control our inventory. This improvement that I was saying before is due to the fact that we do expect some, let's say, increase in terms of our revenues, so looking at the evolution of the market. And the other element is that we start to, let's say, reduce capacity in some of our fabs. The one that we aim, let's say, to progressively close in the course of the -- by the end of 2027. So we will start, of course, to move out some equipment, and this will reduce the capacity, and this will reduce the level of unused then. Didier Scemama: Got it. And then I think last quarter, you said that the gross margins were impacted by, if I remember correctly, roughly 70 basis points of the 140, at 70 basis points of FX headwinds on and 70 basis points of related basically the manufacturing transition from 6 to 8 and 8 to 12. Is there any of that in Q4? Lorenzo Grandi: No, no. Let's say, moving from Q2 to Q3, let's say, the FX was overall an impact of 140 basis points. Q2, Q3, let's say, related to the combination of these 2 effects, but very different. Let's say, something in the range of 120 basis points was the FX and around 20 basis points was the impact of these extra costs, let's say, related to our programs. Now, let's say, in this quarter, clearly, the FX is a minor impact. This is quite stable. It's a little bit negative because we moved from 114 to 115 is ranging in the range of 20 basis points negative impact. It's not so material, while these extra costs related to the activity to reduce the capacity and to start to move products from one side to the other is impacting our gross margin expected for Q4 between 30 to 40 basis points. This is -- so the turnkey impacted by something ranging between 30 to 40 basis points of extra cost. Didier Scemama: Understood. And just a clarification, because it wasn't clear, your OpEx guide for Q4 is 915, right? It's not 950? Lorenzo Grandi: No, no. It's 915. And this is driven by the fact that we have a negative calendar days impact for 2 reasons. The calendar is longer. And the vacation in Europe is, let's say, less than what we benefit in the course of the previous quarter. On the other side, we will continue with our, let's say program to reduce account in expenses, and this will bring us some benefit. Operator: The next question comes from Sandeep Deshpande from JPMorgan. Sandeep Deshpande: My question is regarding the trends into the first quarter. I mean, you normally have a weaker first quarter. And thus would you expect the utilization rate to go down? And given all the other factors you've talked about in the earlier factors, which are there, there is a downtick associated with the capacity reservation fees. Should we expect that your gross margin in the first half of the year to be weaker than where it is at the moment? And I have a quick follow-up after that. Lorenzo Grandi: Yes. In terms of gross margin, it's true that in the first half, the seasonality is not favorable. And yes, there are the lower capacity reservation fees. On the other side, in respect to where we stand today, our expectation is that the level of a new budget will decrease. The decrease is not due to the fact that we aim to increase our inventory. There is some seasonality in our inventory, but the decrease, as I was trying to explain before, it's mainly driven by the fact that we start to reduce the capacity. So it means that we will start to some transfer of equipment. And this or, let's say, not utilization of equipment due to the fact that we progressively in some fab, we started to reduce the capacity aimed, at the end, let's say, to move to close the spec. So we will start, and this will progressively impact our capacity and, for some extent, our unused capacity. Sandeep Deshpande: I mean, a follow-up to that essentially -- quickly on that would be, is the number of days in Q1 [Technical Difficulty] you have any new engaged programs with your customers, which will improve revenue significantly either in first half or into the second half, particularly? Lorenzo Grandi: No, I confirm, Sandeep, that in Q1, Q1 will be shorter in terms of number of days, than Q4, Q4 is longer in terms of days than normal 91. And the calendar next year, Q1 will be shorter than the normal 91. It's a little bit the same trend that we have seen this year, let's say, in terms of calendar. So yes, I confirm that there is a shorter calendar in Q1. Jean-Marc Chery: Well, first of all, okay, about next year 2026, Q1. With the current visibility, we have for the loading of the backlog we have seen in Q3 and we are seeing today. But we don't see a specific reason why we will not be at the usual seasonality of Q1 revenue versus Q4. This is generally speaking, really slightly above minus 10%. Well, then moving forward, of course, we will -- but it's depends on the market dynamic. But I would like to say that for 2026 Well, first of all, okay, in the second half, we will clearly see the normalization of inventory everywhere. We really expect that in H2 2026, we will have no other inventory, point number one. Point number two, next year compared to 2025, the silicon carbide will be a year of growth because 2025 is a year of transition where basically, okay, we have cumulative headwinds related to one specific customer, some program not going at the expected speed in Europe. And you know we are not specially still present in China. But next year will be a -- but then after we have our exposure to fast-growing segment. Clearly, that already give us a sign of growth like ADAS with our main customers that already provided some let's classify upside and MEMS as well. And definitively, one point is our increasing content in terms of value and silicon in our main customer. So all in all, we do believe that Q1, we have no sign that the seasonality will be impacted by other factors that we do not control. And in H2, we will be as well as the usual seasonality of growth H2 versus H1. Do we grow more like here because this year, we grow at 23% and the usual seasonality, 15% H2 versus H1. Well, here, we need to have a little bit more booking in Q1 and in Q2 to confirm. So my takeaway is, yes, we will have, let's say, idiosyncratic growth driver on top of the, let's say, up cycle of the market that we are seeing today even if this up-cycle market of automotive and industrial should be classified at this stage, soft, okay? And with subsegment pretty dynamic like the one related to infrastructure. Operator: The next question comes from the line of Janardan Menon from Jefferies. Janardan Menon: I just wanted to go back -- go to the Power & Discrete business where your margins are still very weak at minus 15% in the third quarter. So what can be the drivers to improve that? You talked about silicon carbide improving in Q3 -- I'm sorry, in 2026. But would that revenue come mainly from your Sanan JV to Chinese customers? And will that help your overall profitability given low utilizations in Europe? And do you need to take any further action to try and improve the profitability there Power & Discrete, given the kind of competitive environment in that industry? And then my follow-up is just a small clarification on a previous answer. Your 30 to 40 basis points of manufacturing inefficiency from the conversion and shutting down, et cetera, does that continue until you reach the end of that journey, which is when you fully close down your 200-millimeter transition to 300 millimeter? Or does that drop off before that? Jean-Marc Chery: So Lorenzo will comment about the improvement driver on Power & Discrete profitability. While Marco will comment on the dynamic of Power & Discrete revenue because as I have already anticipated, in my last answer, clearly, silicon carbide for us in '25 is a transition period. And Lorenzo, on Lorenzo Grandi: Yes, I can take it. Clearly, well, I will let Marco to explain what are the drivers. But at the end, let's say, clearly next year, we do expect a recovery in terms of the top line that is this year, we were impacted by a significant inefficiency in our manufacturing environment for the Power & Discrete in general and for the silicon carbide, in particular, due to the fact that we were working a very old level of saturation for these steps. Clearly, there are the following drivers that we expect to recover in term of profitability. Having a higher level of revenues clearly will help to better load our infrastructure. Then don't forget that silicon carbide, it will be the first to move, let's say, in the course of next year from the 6-inch to the 200-millimeter to the 8-inch, and this will bring clearly, let's say, some positive in the medium term in terms of profitability. Moving up in terms of revenues will improve significantly our expense to sales ratio that today clearly has been impacted by the fact that revenue are quite depressed. So at the end, these are the main drivers that we see together with the fact that we are improving, and we are moving to the next generation of silicon carbide that give also some benefit in terms of performance for what concerns, let's say, the profitability. Before to give the -- to pass to Marco, I just clarify the point of this extra 30 basis points on gross margin. Yes, this is mainly related to the duplication of mask related to the, let's say, qualification of processes. But this will continue, the amount will be more or less this range over, for sure, the next part of 2026 and probably also in the second part because we will continue with this program. This will be probably peaking in the first half 2026 then it will go down. But yes, this is something that we need to expect to have -- as we have this activity, let's say, to migrate our products from one fab that is going to be close to another fab. Marco Cassis: Okay. So we take on the dynamics. So we'll have basically 2 dynamics in 2026 that will help to start to grow. First of all, well, as Jean-Marc said, during the first half of 2026, we will keep reducing and will be clean in terms of inventory in Power & Discrete; here, speaking mainly about the noncedarbide portion. And this will allow the market dynamics next year to restart having year-over-year growth. Specifically, on season carbide as Jean-Marc has already anticipated, 2025 is a transition year, meaning is that we are experiencing lower volumes and inventory collection from our main customers. I would like to underline, this is happening while we still are maintaining stable our commercial contractual level of market share. This is happening since the beginning of 2025. And during 2025, we are -- this dynamic is not yet offset by Europe and China. So there is yet no strong contribution from the rectification programs in Europe and China. During the next year, we will start seeing growth in these 2 regions that will help the 2026 overall growth of the silicon carbide versus 2025. I hope that this answers your question. Jerome Ramel: Thank you, everyone. This is ending our call for this quarter. So thank you for being us today, and we remain here at your disposal should you need any follow-up questions. Sorry for the one that you don't have time to ask a question there. Thank you very much. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Fernando Fernandez: Hello, and welcome to Unilever's Third Quarter Trading Statement for 2025. Thank you for being with us today. I am joined here by Srini Phatak. Srini's appointment as Chief Financial Officer was confirmed by the Board last month, following an extensive search process. Srini's vast experience and expertise are great assets for Unilever, and I am really delighted we will keep building on the strong partnership that we have formed. In a moment, Srini will take you through the detail of the third quarter results. First of all, let me highlight the key elements of our performance as I see it. We have delivered a good quarter with 4% underlying sales growth and acceleration of volume growth to 1.7% for Unilever, excluding Ice Cream, despite subdued markets. Growth was broad-based across all business groups, with each of them delivering underlying sales growth above 3%. This performance keeps Unilever on track to meet our full year outlook and is evidence of our powerful innovation, improved execution and significant shift into premium segments and fast-growing channels. It is also fully in line with the priorities we have set for the business. For example, our major growth engines, Beauty & Wellbeing and Personal Care delivered particularly strong performances. Our power brands continued to outperform, delivering 4.4% growth in the quarter with volumes up 1.7% for total group and 2.2% excluding. We also saw a continuation of sustained strength in developed markets, particularly North America. Volume-led growth in that region was 5.5%, and it was driven by Personal Care and improved performance in Prestige Beauty, and once again, exceptional delivery in Wellbeing. Europe grew underlying sales by a competitive 1.1% despite a strong comparator. Structurally, our business in Europe continued to improve and strengthen. Our emerging market business step up with 4.1% USG led by a return to growth in Indonesia and China. Overall, emerging markets grew well despite the short-term impact of the goods and service tax reforms in India and some challenges in Latin America. We have delivered these results while preparing our Ice Cream business for the demerger, which we expect to be completed before the end of the year. The time line is being revised as a result of the U.S. government shutdown impacting the work of the SEC. Shin will say more about the final stages towards the merger in a moment. In summary, a positive set of results this quarter that reaffirm our confidence in the steps we have taken to make Unilever a true marketing and sales machine. They will continue to guide and inform our actions over the quarters ahead. With that, I will hand over to Srini to take you through the third quarter results in detail. And after that, I will come back to say something about the remainder of the year and beyond and also provide a brief wrap-up. We will then take questions. First of all, over to Srini. Srinivas Phatak: Thank you, Fernando. Unilever's underlying sales growth in third quarter was 3.9% with broad-based progress across the business groups. Underlying price growth was 2.4% and volume contributed 1.5%. This resulted in a two-year compounded annual volume growth rate of 2.6%. We expect the Ice Cream demerger to be completed in 2025. In this context, excluding Ice Creams, our underlying sales grew 4%. Volume in the quarter was 1.7% compared to 1.1% in the previous quarter. All the four business groups delivered positive volume growth with a two-year compounded annual volume growth rate of 2.4%. Our Power Brands, which represent over 75% of our turnover, grew 4.4% in the third quarter, including 1.7% from volume. Power Brands, excluding Ice Cream, delivered 2.2% volume growth, in line with our medium-term volume ambition. Strong performances included double-digit growth from Vaseline, Liquid I.V., Nutrafol, Cif and Domestos and high single-digit growth from Comfort, OLLY and Cornetto. Dove, our biggest brand, keeps outperforming the market with a 6% USG in the quarter and 8% year-to-date. Before turning to the business groups, let me first provide some color on our performance across different geographies. Developed markets continue to perform strongly. North America grew underlying sales by 5.5% with 5.4% from volume, reflecting the continued benefits of our multiyear portfolio transformation. Growth was driven by strong performances in our Personal Care and Wellbeing brands, underpinned by premium innovations. This marks the fifth consecutive quarter of robust volume-led growth in North America, supported by share gains across key categories and sustained brand investment. Europe grew underlying sales by 1.1% with a 0.6% decline in volume and 1.7% growth from price. Our performance was broad-based and robust given high comparators of over 6% growth. We gained share across major markets, power brands and multiyear premium innovations, including the rollout of Wonder Wash and Cif Infinite Clean continued to perform well. Asia Pacific Africa delivered 6.8% underlying sales growth with 3.5% from volume and 3.1% from price. This is a clear acceleration versus the first half, reflecting an improved performance in key markets and a stronger execution across categories. Indonesia returned to growth as we saw the benefits of the extensive business reset we have undertaken. Strengthened brand plans, sharper channel execution and renewed customer partnerships are driving improving trends. Sequential improvements in run rate position Indonesia for sustained progress into 2026. In China, while the market environment remains subdued, we delivered low single-digit growth, supported by innovations within our key brands and interventions in pricing. The macro environment in India continues to be favorable. Earlier in the year, personal income tax and interest rates were lowered. In September, the government reduced GST or sales taxes to 5% on around 40% of our portfolio, making the affected products roughly 10% cheaper. While these changes are expected to improve consumption through higher disposable income and improved sentiment, quarter 3 sales were temporarily impacted as trade reduced inventories and consumers delayed purchases in anticipation of lower prices. Trading conditions are expected to normalize from November onwards. Underlying performance was driven by premium portfolios in Beauty & Wellbeing and Personal Care. Turning to Latin America. Underlying sales declined by 2.5% in third quarter with a 7.3% decline in volume, partly offset by a 5.2% from price. Markets across Latin America are experiencing a broad-based softening, reflecting continued macroeconomic pressure on category growth and consumer demand. In Brazil, our focus remains on restoring competitiveness in laundry, where we are seeing early signs of progress. In deodorants, we continued to gain share in a declining market, impacted by a temporary shift in product formats. Our Foods business delivered double-digit growth in Hellmann's, supported by the continued success of its flavored mayonnaise range. In Argentina, the macroeconomic backdrop remains unstable amid ongoing political uncertainty. We expect to see improvement in the region during 2026. Beauty & Wellbeing underlying sales growth was 5.1%, driven by strong volume growth of 2.3% and 2.7% from price. Our volume momentum remains very solid with a two-year CAGR of 4%. Dove Hair, Vaseline, Hourglass, K18, Liquid I.V. and Nutrafol, all delivered double-digit volume-led growth, reflecting the strength of our premium innovations and disciplined execution. Hair Care was broadly flat. Growth in our premium portfolio was offset by declines in Clear and Sunsilk, which were impacted by soft market conditions in China and Brazil and by lower TRESemmé volumes in the U.S., where we have pricing and promotional corrections in place to support improvement. Core skin grew mid-single digit, led by Vaseline, which delivered double-digit growth in both sales and volume. Growth was supported by premium innovations such as the new Cloud soft light moisturizer in India. Prestige Beauty grew mid-single digit, led by volume as the category showed gradual recovery. Performance remained mixed with Hourglass and K18 continuing to grow double digit, while Paula's Choice and Dermalogica returned to low single-digit growth after declines in the first half. Wellbeing continued its exceptional run, delivering strong double-digit growth. Power Brands, Nutrafol and Liquid I.V. sustained their outstanding performance, supported by deep innovation funnel, increased brand investment and selective international expansion. Personal Care underlying sales growth was 4.1%, driven by 1% volume and 3.1% price. The two-year compounded annual volume growth rate of 2% reflects the continued resilience across our core categories, supported by strong growth in Asia Pacific, Africa and in North America, which was driven by Dove. Premium innovations in deodorants and skin cleansing continued to lead growth with the rollout of whole body deodorants and the expansion of premium body wash driving strong consumer engagement and share gains. Deodorants grew low single digit, led by Dove in North America. Growth was partly offset by weaker performance in Latin America, reflecting a decline in category volumes and a temporary shift in product formats. Skin cleansing grew low single digit with commodity-related pricing weighing on volumes. Dove continued to perform well, supported by its premium innovations and the launch of a limited edition seasonal body wash ranges. Lifebuoy grew low single digit. Oral Care delivered high single-digit growth led by our power brands, CloseUp and Pepsodent with strong momentum in Asia Pacific Africa. In September, we further strengthened our Personal Care portfolio with the completion of acquisition of Dr. Squatch, expanding our presence in the fast-growing premium male grooming segment in North America. Home Care underlying sales grew 3.1% in the third quarter with 2.5% from volume and 0.6% from price. Volume growth stepped up versus the previous quarter, driven by sustained performance in Europe and improving trends across several key markets in Asia Pacific, Africa. Fabric cleaning was flat overall. Europe grew mid-single digit as the rollout of Wonder Watch continued to drive volume growth and strengthen our competitiveness. Wonder Wash will reach 30 markets by the end of the year. This was partially offset by a decline in Brazil, where the market conditions remained soft and we implemented corrective pricing actions. Home & Hygiene grew mid-single digit with balanced contributions from both price and volume. Growth was led by Cif and Domestos, both delivering double-digit performances. Cif Infinite Clean, a multipurpose cleaner powered by probiotics has now been rolled out across major European markets and is delivering strong early results. Fabric enhancers grew high single digit. Comfort delivered strong volume-led growth, supported by the continuous success of its Crystal Fresh technology. Foods delivered growth ahead of the market with underlying sales of 3.4% with 1.3% from volume and 2.1% from price. Growth was broad-based across regions, led by strong brand execution. Condiments delivered mid-single-digit growth with positive volume and price. Hellmann's maintained its strong momentum with mid-single-digit growth led by volume. This was supported by competitive growth in developed markets and by a particularly strong double-digit growth in Brazil, where Hellmann's is growing from strength to strength. Cooking Aids grew low single digit with positive volume and price. Knorr and Unilever Food Solutions both delivered low single-digit growth amidst subdued market conditions. Ice Creams underlying sales grew 3.7% in the third quarter with flat volume and 3.7% from price. Volumes were flat against a mid-single-digit comparator last year with a two-year compounded annual volume growth rate of 3.4%. Growth continues to be competitive, reflecting strong innovation, ongoing operational improvements and disciplined execution across regions. Cornetto led with high single-digit growth, while Ben & Jerry's grew mid-single digits, supported by the launch of new Sundae flavors and a larger shareable pack format that is expanding the consumption occasions. Now let me take you through the latest update on the Ice Cream demerger. All the preparatory work for the demerger remains on track with the shareholder circular published on 2nd October and the approval of share consolidation received on 21st of October. Due to the U.S. government shutdown, the SEC is currently unable to declare the U.S. registration statement effective, resulting in revisions to the original time line. We remain committed to and are confident of implementing the demerger in 2025, and we will share further updates as soon as practicable once there is greater clarity on the timing. Let me also now explain how the demerger and the share consolidation will work in practice. As a part of the demerger, shareholders will receive one share in the Magnum Ice Cream Company for every five Unilever shares they hold. Following the demerger, we will carry out a consolidation of Unilever shares to maintain comparability between Unilever's share price and key per share metrics before and after the demerger. This is a standard technical adjustment in transactions of this nature, and the final ratio will be confirmed shortly after TMICC shares begin trading. Importantly, Unilever is expected to pay quarter 4 dividend in full, ensuring continuity for our shareholders through the completion of the Ice Cream demerger. Turnover for the third quarter was EUR 14.7 billion, down 3.5% year-on-year. Underlying sales growth of 3.9% was more than offset by a negative currency impact of 6.1%. We now expect an adverse currency impact on full year turnover of around 6% and a 30 basis points on the underlying operating margin. Portfolio changes also reduced reported turnover with an impact of negative 1% from net disposals. Acquisitions contributed 0.5%, led by strong double-digit growth from K18 and Wild and supported by the addition of Dr. Squatch following the completion of its acquisition in September. This was more than offset by a negative 1.6% impact from portfolio disposals, including The Vegetarian Butcher, which was completed in September. With that, over to you, Fernando. Fernando Fernandez: Thank you, Srini. Let me conclude by saying something about how we see the remainder of the year. In short, our outlook is unchanged, and that applies both including and excluding Ice Cream. In either case, we expect underlying sales growth to be within our 3% to 5% multiyear range. Growth in the second half will be ahead of the first half. This despite some softness in certain markets, notably Latin America. Overall, we expect we will continue to outperform our markets with a strong competitive performance in developed markets and an improved performance in emerging markets. Volume growth in quarter 4 should be at least in line with quarter 3. On the bottom line, we continue to expect an improvement in underlying operating margin for the full year, with second half margins of at least 18.5% or at least 19.5%, excluding Ice Cream. Of course, we will continue to monitor external events closely in what remains an uncertain environment. Finally, on the back of a strong quarter, we are looking ahead to the rest of the year and into 2026 with confidence and resolve. Unilever is changing fast and the strategic priorities we have set out. The portfolio is stronger with more beauty, more wellbeing, more personal care. This quarter saw Beauty & Wellbeing up 5.1% and Personal Care up 4.1%. The shift to premium and digital commerce is accelerating, both organically and through M&A as per the recent acquisitions of Wild and Dr. Squatch. Our anchor markets are delivering superior growth. Our U.S. business has now posted five consecutive quarters of strong volume-led growth. The performance expectation we are placing on people within the company are higher with clear accountability and real differentiation in our incentive outcomes. And our commitment to make Unilever a marketing and sales machine permeates everything we are doing from the acceleration of desire at scale in elevating our brand portfolio to the significant investment we are making to step up execution and excellence in every part of the business. In short, we are crystal clear on what we need to do and where we want to invest. We will not be diverted from these priorities. As we look ahead, it is clear that some markets and categories will remain soft for a while, but we have put Unilever on a stronger footing and are increasingly confident in our ability to continue outperforming markets, whatever the conditions. With that, thank you for listening, and we are looking forward to taking your questions. Operator: [Operator Instructions] Jemma Spalton: Our first question comes from Warren Ackerman at Barclays. Warren Ackerman: Warren here at Barclays. So I've got two and one housekeeping. The housekeeping one on the clarification on volume, at least Q3 level. Can you just confirm, Fernando, you're confirming also 2% volume growth into '26 as well. So just looking forward. And my two questions are, firstly, North America, really super growth, very impressive. Can you talk a bit about the growth of the wellbeing -- the Prestige and Wellbeing unit within North America, there's been some investor concerns that Liquid I.V. might be plateauing, and you've seen a recovery in the Prestige piece. Maybe you can talk a little bit about what's happening with Paula's Choice and Dermalogica and sort of the look forward in North America. And then the second one on Latin America. I mean, clearly, the macro is tough, but there seems to be some self-inflicted issues in Brazilian laundry powder, Brazilian deodorants. Can you explain a little bit your actions you're taking, what learnings you've made? I think you've been in the region yourself. Is there a risk that you've taken too much pricing in Latin America to hit hard currency FX? And what reassurance can you give us that we won't see that in other EMs? And as we look forward on LatAm, can you maybe give some clarity on the pathway forward and the growth you expect in LatAm in '26? Fernando Fernandez: Thank you, Warren, and good morning, everyone. Well, let me start by North America, and I feel the performance that we are having there with five consecutive quarters now of volume growth of 4% and at a time in which markets are visibly tougher there, I believe it's a reflection of the profound transformation we have done in our portfolio, the setup of a U.S. for U.S. innovation model and a huge focus in strengthening relations with key retailers. I mentioned that in the last call, for the first time in many, many years, we have ranked #1 in Personal Care, #1 in Foods and #3 in Beauty in the most popular survey with the top 130 retailers in U.S., and that basically show our ability to make markets in that region. Regarding performance of Beauty & Wellbeing there, it was really strong. Wellbeing continue having an exceptional performance in the U.S., double-digit growth both in Liquid I.V. and Nutrafol. Both brands are approaching there the $1 revenue mark for the year. Prestige Beauty has improved after a relatively flattish first half. We delivered mid-single-digit growth. But we don't take that as a new trend, I would say. Very good growth in our glass, very good growth in K18 in the most premium part of Prestige and Paula's Choice and Dermalogica are back to growth, but low single digits. So these are our main Prestige beauty brands there. But also our core in skin care was solid with very, very good performance in Dove and Vaseline there. We have some issues in hair care in the U.S. We decided to release some brands that is having some impact in our growth in care in the U.S., the likes of AXE Hair and Love Beauty and Planet are in process of delisting. That was a conscious decision. We didn't believe that these brands were sustainable, and we decided to delist them. About Latin America. Well, indeed, it has been a very weak quarter for us in Latin America. It's a combination of markets under pressure due to a deteriorating macro broad-based price increases to deal with currency depreciation. And as I have already mentioned previously, we scored a couple of phone calls there. The three major Latin American economies are under pressure, different reasons. In Brazil, the level of household debt and the interest rates are extremely high, remittances in Mexico going down, Argentina contraction in consumption run against the local currency in the short term. And as a result of that, we have seen the markets really going down significantly. If you look in volumes in H1 '24, volume growth of 7%, H2 3%, flat in H1, negative in quarter 3. But there are definitely a couple of goals. In laundry, Brazil, we went too far in our pricing. Historically, our competitors in powders in Brazil tend to follow us in a period of 8 to 12 weeks. That was not the case. We have corrected that, and we are starting to see significant improvements in our sellout. And on top of that, the market is really shifting very quickly to liquids, and we are introducing in quarter 3. We have introduced in quarter 3, our very successful European wonder was mix. So we expect competitive in laundry to progressively improve. And the other big category we have in Brazil, particularly deodorants in that category, we have been gaining substantial market share in the territory of 200 basis points there. But we did boosting our contact applicator formats at the expense of aerosol and this has had some negative consequence in the overall market growth because the revenue per use of aerosol is significantly larger than the one of contact applicators. So the negative growth in aerosol format is crucial. The plans are in place, and there are clear learnings from these two issues that we have had, and we will be sure of not repeating that anywhere else. So that's basically to say about Latin America. We don't expect -- we expect that we will see improvement in Latin America during 2026. At this stage, I don't want to commit to more than that. Regarding the long-term ambition, we continue thinking that it's absolutely possible for us to deliver 2% market volume growth. In the long run, our combined categories and geographical footprint offers around 2% market volume growth, even if at this moment, it is more in the 1% territory. But we are outperforming markets very clearly in Europe and U.S. And in D&E, we see a significant progress, particularly in Asia. Jemma Spalton: Our next question comes from Guillaume at UBS. Guillaume Gerard Delmas: Two questions for me, please. The first one is on pricing. I mean we're having a relatively benign commodity cost environment. You also flagged a relatively weak consumer environment in some key countries like Brazil, where you mentioned some pricing adjustments. So given this backdrop, do you expect price growth to remain at current levels or to actually come down over the coming quarters? So any color on your price growth outlook would be very helpful. And then my second question is on Europe. I mean, volume growth turned slightly negative in the quarter. Could you talk a little bit about the drivers behind this? Is it just down to this very elevated base of comparison? And so nothing to see here volume to return to positive territory from next quarter? Or on an underlying basis, are you maybe seeing some changes in category growth or in the consumer behavior? Fernando Fernandez: Thank you, Guillaume, and Srini will help me with the pricing question. In Europe, we have positive volume when you exclude Ice Cream in the quarter. So against a very tough comparator. We delivered 7% volume growth in Europe in the same quarter last year. So the comparator was very, very tough. I believe you read the same information that we read and you see that we are gaining significant share in Europe, particularly in Home Care and Personal Care that are two of our most sizable business in Europe. So our innovation in the premium segment is really working very, very well there. We are very confident about our prospects in Europe, but the comparator was very, very tough. Our share gain is solid. It is broad-based. In the top five markets in Europe, we are gaining share. We are very pleased overall with the performance that we have structurally in Europe. In the case of pricing, and Srini will help me with that, it's true commodity cost is relatively benign with the exception of a few family of materials, palm oil in particularly is increasing significantly. This has significant implications in HPC liquids, home care, personal care and beauty liquids and also in skin cleansing bars. Aluminum is going up. But I feel it's important also for you to remember that wage inflation is significant. You see wage inflation in Europe and in U.S. in the territory of 4%, and we need to cover for that also. Srini? Srinivas Phatak: So, two additional elements to that, Guillaume. Clearly, the inflationary pressures, as Fernando said in skin cleansing are higher. However, when you look at something like a home care, it's quite benign with crude sitting at around the $60 mark. Having said that, when we really look at the total net material inflation, which is a composition of the materials and ForEx devaluation. That's another important element to see that in all the emerging markets, the currencies have devalued, and therefore, there is an imported inflation. Give or take, we see that net material cost should be about EUR 0.5 billion for this year, and we expect similar levels for next year given the information that we have now. This will really warrant a sensible pricing. This is lower than what we have seen the historical average of EUR 200 million to EUR 300 but it's a little better than that, but obviously much lower than what we experienced through the COVID period. So, in essence, if you really think about those levels of inflation, there is price in the market and there is price clearly in some categories. The only last color is that when it comes to beauty, given the value chain, I think the bigger impact for us will really come from price and mix together because with premium innovations and what we are bringing to the market, we have the propensity and the ability to price up, and we will do that in a sensible manner. Jemma Spalton: Our next question comes from Olivier at Goldman Sachs. Jean-Olivier Nicolai: Just two questions, please. First on within Hair Care and particularly in the U.S., TRESemmé has been struggling for a couple of quarters. Is that still expected to continue into Q4? Or has it improved already by the end of Q3? And how much of an impact it had on price/mix in the U.S.? And then just lastly on Liquid I.V., could you perhaps give us a bit of an update on the global rollout of the brand in how many countries you're expecting to launch it, not necessarily obviously in Q4, but also into 2026? And which geographies will be the priority? Fernando Fernandez: Thank you, Olivier. Regarding Hair Care in the U.S., this year, we entered with two significant relaunches. One was the Dove hair one and the other one was TRESemmé, both imply significant repositioning of growth brands. In the case of Dove hair has been an incredible success, growing double digit in the U.S., significant reposition in terms of pricing, much closer to the average of the market. In the case of TRESemmé, that didn't work in the same way. But we have corrected that. And in the quarter 3, TRESemmé is back to growth with particular good performance in styling. So we are confident in the trend that we are seeing in TRESemmé and in hair care in the U.S. The main issue in U.S., I would say, when you look at hair care performance has been the delisting of some of the brands, but this has been a conscious decision. In the case of Liquid I.V., excellent performance in the U.S., as I mentioned before, the brand is really approaching the EUR 1 billion mark with double-digit growth in another quarter. The brand has been rolled now to eight markets, particularly in Western Europe, Australia. We are starting to introduce the brand in Urban India. The initial results are very, very good. Of course, Canada was launched last year also. Jemma Spalton: Our next question comes from David Hayes at Jefferies. David Hayes: So, two from us as well. So, firstly, just on kind of broader questions, I guess. So just in terms of the margin levels, India, Indonesia, you're seeing signs of improvement, but you've obviously taken quite a dramatic step in terms of profitability as you invest in those areas. So, the question is, is that something you need to do more in other markets, I guess going back to the hard currency question that we had earlier, 2019 margins, which is kind of where you're getting back to, you've had two previous CEOs say that was too high. Why is that the right level now? And is something -- does something needs to be done in other markets to try and restimulate the volume growth as you've seen in those two areas? And the second one, just to pick up on what you talked about a few weeks ago in Boston. The eight power brands focused for the One Unilever markets, you talked about not really supporting the other brands. Just to get a bit more detail on that, is that a case of no A&P spend at all beyond those eight brands in those markets? Can you quantify what percentage of sales that leaves not being supported? And can you talk about what impact you think that might have on those brands in terms of a headwind to growth for a period of time? Fernando Fernandez: Thank you, David. I'll take Power Brands and then Srini will talk about regarding margin. Power Brands in One Unilever market represent around 80% of the revenue. We want to take that into 90%, 95%. This doesn't mean that we will not use other levers of support of our local brands in these markets or that we will let these brands to die. But definitely, we don't want complexity in our strategic move that we are doing. Our performance in One Unilever market has been very strong, consistently strong during this year. We have delivered another quarter of 4.9% with good volumes, excellent performance in most of the geographies. And definitely, we are really concentrating our efforts in rolling out our strongest brands, usually three in beauty, two in Personal Care, one in Home Care and one in Foods in most of these markets, and this is a conscious decision that we are doing. Of course, when there are local jewels, we will protect them. We will support them. We will use our drivers of demand in all these cases. Margin? Srinivas Phatak: So, David, I think it's important to appreciate what is different in the way we are thinking about our profit and profitability. The six or seven levers that we are today exercising are significantly different. We've talked about the importance of volume growth that the 2% volume growth of the anchor actually then starts to provide a leverage for us across the value chain, and that starts to become an important contributor. Given the work that we have done, whether it's in terms of the portfolio mix, the geography mix, the channel mix or the format mix, mix is actually becoming a component, which gives about 25 to 30 basis points on a regular basis for us. In the past, we have spoken to you about how we have reshaped the whole supply chain space, how we are actually buying, whether it's technology, whether it's game theory. Project Lighthouse is consistently enabling us beat the market inflation by about 1%. When we look at the controlled cost element to it, again, serious amount of work which is happening in terms of reshaping the network of manufacturing and logistics, and we can go on. You've also seen how we have reshaped our overall overheads trajectory where we have actually completed, we are well ahead on our productivity program. And actually, now we are driving productivity as a habit and a culture in the organization where our costs will be lower than our revenue growth on a consistent multiyear basis. And we are deploying capital, more than 55% to 60% of our capital today has gone towards savings initiatives, and we are actually looking at a lot more backward integration projects. So when we add up all of these elements and also given the relative strength of our brands, this is what is enabling us to drive our margins differently. Equally, important to highlight that the margin profile, now we will be talking about businesses, excluding Ice Creams, and Ice Creams at an aggregate was a margin dilutive for us. So when we really look at Beauty, Personal Care and Foods, very strong and healthy margins. Given the footprint of Home Care and the positioning, a little lower, but all of them are actually contributing in a sensible way. We're also really very focused on hard currency earnings because that's again a multiyear clear objective. And there, when you look at it, we are also pulling all levers, which includes below-the-line items such as taxation, pension, interest costs. All elements of the value chain today are in play. And I think what gives us this when we have a consistent business, which is delivering day in and day out, margin expansion becomes very integral to the way we really think about growth and we think about profit. So a lot more confidence today is Unilever to continue to build our margins, drive hard currency earnings and get hard currency earnings, hopefully, on a multiyear basis, which are ahead of our sales ambition. Jemma Spalton: Next question comes from Sarah Simon at Morgan Stanley. Sarah Simon: Just a question on the U.S. So we're starting to hear some sort of negative commentary from some of the consumer-oriented companies about the effect of the government shutdown. Just wondering if you are seeing any of that in your businesses? Fernando Fernandez: Thank you, Sarah. We have not seen any significant impact of the government shutdown at this stage in the consumer sentiment. Of course, we follow similar service you follow. I feel the Michigan University consumer sentiment service shows relatively low levels in the last metric, and we see a clear bifurcation in the market there between households that own stocks and households that don't own stocks. So that is -- I believe this explains probably the resilience of our premium portfolio in the U.S. And as you could see in our performance, we continue delivering significant volume growth in the U.S. We are very pleased with our performance there, but it's very clear that we are outperforming markets by a mile there. Jemma Spalton: Our next question comes from Tom at Deutsche Bank. Tom Sykes: Just you mentioned in the presentation, the growth of digital commerce and the channel shift in retail seems to be happening at an accelerated pace. Why would you be well positioned versus that channel shift, please? And any sort of details you could give me? We've got a bit more of an idea of what's happening in the U.S., but some sort of views on the pace of that channel shift in Europe, perhaps in India and some of your other larger markets would be great, please. And just a quick one just on China. Maybe any details on the improvement there and any impact of timing of Chinese New Year on Q4 growth, please? Fernando Fernandez: Yes. Digital commerce is 17% of our revenue. I can give you some data. We are growing Amazon at 15%. We are growing walmart.com at 25%. We are growing Flipkart in India at 30%. We are growing TikTok globally at 70%. So our portfolio is much better suited now after the kind of reset we have done with disposals of value brands and with significant acquisitions in the premium segments, digitally native brands that are operating with a lot of success there. And I believe one of the reasons that we are delivering the type of growth that we are delivering in U.S. is that that's the portfolio with the highest exposure to e-commerce that we have globally. But we see similar trends in other markets. Of course, China India, quick commerce is accelerating a lot. Our quick commerce business in India is more than doubling this year. So we believe that our portfolio is well suited. Our capabilities are significant in that space. A lot of capabilities that were acquired to the business through the acquisitions we have done are really helping us in all these markets. So we are very, very happy with the development of e-comm, particularly in Beauty & Wellbeing in which the level of e-commerce is approaching 27%, 28% for our total business. China, Srini, do you want to talk about that? Srinivas Phatak: So, on a China perspective, actually, it's quite encouraging for us. In the sequence of improvements, we had said that Indonesia will do much better, and it is doing much better. China, we said just given the macroeconomic conditions, we said we are making some fundamental changes to our business model, our go-to-market are updating our capabilities in e-commerce and also actually driving the ongoing premiumization of the portfolio, particularly in Beauty & Wellbeing, Vaseline and Home Care. What's really encouraging is that in quarter 4, all four of our business groups, I'm excluding ice creams, given where we are, have actually returned to positive growth, both from value terms and on volume terms. And just given the fundamental work that we have done, it positions us well going forward. Of course, as Fernando referred to, there is more work to be done in some of the channel shifts which are happening, notably Douyin and what does it really mean to compete. And that's where we are spending a lot of time and effort to really make it strategic, make it important and really play the full 6 piece to win in that channel. But overall, I think given where we are, we are confident in terms of our progress going forward. Jemma Spalton: Next question comes from Jeff Stent at BNP. Jeff Stent: Three questions, if I may. The first one is, could you just shed a little bit more color on Mexico, which I think was down high single digit. What's happening there beyond the macro? And then secondly, do you still expect to grow hard currency earnings this year? Fernando Fernandez: Yes. Mexico, we have seen soft markets there. If you look at the performance of the main retailer in Mexico, I feel in the last two quarters was around 1% and 4%. And that has basically reflected the fact that remittances reduction are having a significant impact in the economy. tariffs have created uncertainty and the GDP growth expected there is around 0.4% the last number I have seen there. So our competitiveness is strong in Mexico. So we don't have significant issues there, but we have seen margins really softening. And there are some significant promotional periods in Mexico, particularly during July. It's called July 3. Most of the retailers have significant activities and the pickup in that period has been relatively poor. So the macro in Mexico is not very good. We don't have any fundamental structural issue in our portfolio in Mexico. Our performance has been good. We have a great food business with Knorr there. We have an excellent deodorant business, and they are very, very solid in shares, but the market has been soft. Hard currency earnings? Srinivas Phatak: So, Jeff, an important element for us is the gross margin trajectory and investment behind our brands. On both these elements, we are making solid progress. In fact, we had said that the 45% gross margin, all businesses included end of last year was really the base for us. All the three quarters, we have made continued progress. I've already explained to you some of the levers and the drivers in this respect. We are continuing to invest significantly behind our brands. We have said that we will continue to increase absolute spends every year. Even this year, we'll be actually increasing our absolute spends and our percentage of BMI will be in the range of 15% to 16%. What's really helping us is significant amount of work that we've done in terms of productivity across the value chain. Our program on productivity, we've already confirmed the about EUR 650 million of savings. We are looking to push that harder and get more out of that. We're going to be very disciplined in terms of our costs, which are within our control. That's going to become an important lever for us. We have done significant amount of work and found efficiencies in the taxation line. We've also had benefits coming through from our interest line. Summary, all these put together, we are confident of really having a positive hard currency earnings in the current year. Jemma Spalton: Our final question comes from Ed Lewis at Rothschild. Edward Lewis: Yes. Just a couple of questions really just on Indonesia and China. Fernando, could you just put in sort of context how you feel about the performance, how good or bad, whatever the 12.7% growth in Indonesia is relative to your expectations? And also on China, backing growth in Q3, I think that might have been a bit earlier than we might have expected. So just the changes you made there, how they're having an impact and how you would assess performance there? Fernando Fernandez: Well, thank you, Ed. In Indonesia, we are very pleased with the renewed leadership team we have put in place there and the progress they are doing in resetting the fundamentals of the business. We are operating now with historic low levels of stocks in our distributors. We have removed any fundamental issue of channel price conflict and that drag us down in 2024. We are relaunching our top brands in the market. We are stepping up significantly our social first marketing capability. As a result of that, we are seeing our run rates in Indonesia improving consistently quarter after quarter. We initiated this reset around July, August last year, and the results are solid. So we expect Indonesia to continue contributing to growth in the next quarters. In China, I feel that, Srini has been clear about it. We are pleased that our four business groups for the remaining company are back to growth in China. It's getting better slowly the market there. We have made significant interventions to disintermediate our route to market in e-commerce. We have set up significant manufacturing and logistics capability for direct-to-consumer delivery, and we are starting to see the benefits of these actions, and we expect that to continue improving in the next few quarters. Jemma Spalton: Thank you very much. That was our final question. Fernando Fernandez: Let me finish, Jemma saying that I hope after the call it is clear that our major growth engines of Beauty & Wellbeing and Personal Care continue to deliver very strong performance, about 5% and 4%, respectively. Our shift to premium and digital commerce is accelerating. The performance in developed markets is strong. We are outperforming markets clearly, both in U.S. and Europe with U.S. being a clear standout in terms of our performance. Our emerging market performance is improving. India, in particular, is very, very well positioned over the medium term. The GST reform has had some impact in the short term, but we believe it's very good news for 40% of our portfolio with close to a 10% reduction. This will boost demand in the medium term. Indonesia and China continue to improve. And there are lessons learned in Latin America that will not be repeated in neither in Latin America nor in any other places. And our business in Latin America is structurally strong, remains intact and our shares have grown in six out of the last seven quarters there. All of these give us confidence for the remainder of the year in our ability to outperform markets, and as Srini mentioned, to deliver hard currency earnings growth. Thank you very much.
Operator: Ladies and gentlemen, welcome to the DSV A/S Q3 2025 Interim Financial Report Conference Call. I am Hillie, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Jens Lund, Group CEO. Please go ahead. Jens Lund: Good morning, everybody, and welcome to our Q3 results call. We look forward to a good session where we go through the presentation. We will -- the format will be the same as usual. Michael and I will say something in the beginning, and then we will do the Q&A session. We will quickly go to the forward-looking statements. Please take your time to read it. It gets longer and longer. We will soon need 2 slides for that one we've been discussing. But I'll skip that one and move on to the agenda, which is the same agenda as we normally use. And also, therefore, I will quickly move on to the next slide and talk a little bit about the highlights of the quarter. So I think it's very clear that we are basically seeing good momentum on the Schenker integration. It's, of course, the most important topic that we have right now. It is to ensure that the integration continues to gain momentum. And I think that's also what we see. I'm particularly fond of the fact that we've sort of done really well in relation to the customers. So I think the feedback that we've received on the integration is very positive. And we've seen that there's been very little attrition. So that's definitely an outcome that we're very pleased with. On the financial performance, I think the numbers, they speak for themselves. Of course, it's now with a full quarter of Schenker numbers in there as well. There's still a lot of ground to cover, but I think we are off to a really good start when it comes to the combination of the company and the financial performance. On the deleveraging, yes, I think we've now started to reduce our debt and just shows that we generate cash flow, and that means that there's substance in what we are doing. And then, of course, our guidance, we now have narrowed our guidance. Michael will talk a little bit more about it. But I think it's basically good to see that we stay within the range that we guided at the beginning of the year. And then lastly, I would just say on the execution of the synergies. I'll come on to that on the next slide. But of course, at the end of Q1, we saw that we had a plan, and we presented also a time line we had a lot of uncertainties in this plan. We've managed to reduce the number of uncertainties and also basically then been able to update the plan so that you can see there are new time lines. And I think I would just like to mention that we said we would be done with 15% at the last call. Now we say we will have 30% done before the end of the year. And also the next column is increased from 50% to 70%. Not all plans are finalized yet. So as a consequence, we might -- this is what we know. This is what we have confidence in. We, of course, are working on doing it faster, and that might be the case. But this is what we know for now. So we're very comfortable showing you this as well. I think if we look at the integration itself, I talked about that we set the organization. It's very, very stable, the organization. We are pleased with that. I think, as I said, the customer dialogue, it's something that is really rewarding because it's something that we put extra effort into this integration. I think if we measure the previous integrations, we saw that we needed extra focus on this. And then I think the Country go-lives, they are progressing really well. We are live now in 13 countries. This is where we physically move the people in together that we -- both in the offices, but also in the operational side. So it's a lot of work that needs to get done. It's actually steered by Michael, who is doing a wonderful job on this together with the team. And then, of course, I think the back office functions, here, we also consolidate the functions. It's going really well. And then, of course, we can see that on the white collar side, we've reduced more than 3,000 headcounts as a result of the sort of the combination as well. I'd just also like to mention that we expect to go live in Germany on the 1st of January, as we stated also the last time. And I'm really proud about the work that is being done by the team there, both on the DSV side, but also the Schenker side and the constructive approach from the employee representatives, where we basically have an ongoing, of course, what can I say, open dialogue, but still in a constructive way so that we find results. Yes. I think the finance figures you could probably read yourself and the transaction costs and the expected synergies, they remain unchanged. I think if we look at the financial highlights here, we see the GP is up. I mean, at the end of the day, this is really what it's all about that we produce some more GP. We see that the EBITDA is down, and it is because the productivity, what can I say, needs to increase as well. There's one thing that I would like to say, and I'll also point that out when I come to some of the divisions. The transaction size that we are handling, it gets smaller when the economy has a difficult time. So the volumes sort of that are shrinking a little bit when we are down trading, it doesn't necessarily mean that there's fewer shipments. So we need more shipments to flow through the system, and we have a certain number of transactions per person per day. So on the productivity side, we're actually doing fairly okay, I would say. So it's just a little bit complex to see through some of those numbers here. But when we look at it on the management side, it's under control. We're doing a great job. And I'm very confident that we will see when the synergies start to kick in that we will also see progress on the EBIT side. If we move to the next slide, we come to the Air & Sea division. Here, I think we've always said it's GP that matters. we need to produce some gross profit here. And that's also what our focus has been in this quarter. If we look at it, we can see that the GP is up. The EBIT is down. And here, if I look at both air freight and ocean freight, we produce more shipments than we did last year even if the volumes have evolved as they have. And of course, it puts a little bit of pressure on the conversion ratio as well as the lower productivity we see out of the Schenker organization. Not that we're not going to get the Schenker productivity up, but it's just when you combine, it takes a little bit of time before we get there. And that, of course, has a consequence for the operating margin as well. But once then the conversion gets up, the productivity gets up, of course, the margin will adjust itself. If we look at the air freight, I think we are actually pretty pleased with the developments in the GP. It's really been solid for us. It's the last quarter where we can separate the DSV and the Schenker volumes because, as I said, we are now live in 13 countries, and it means that we cannot separate the hot and the cold water anymore when we do the reporting. So we give you these numbers, and you can see we've had the yield discussion many times, and it's actually holding up pretty well. One of the reasons why it's also holding up is, of course, as I mentioned, and say, you do more shipments in order to achieve, what can I say, the tonnage that we are talking about here. And we all have to remember that, let's say, you do an air freight shipment of 400 kilos or one of 800 kilos. It's the same work that the forwarder needs to do. So really on the productivity side, I think actually, if we measure on the KPIs internally, we can then have aspirations that we need to drive the productivity even higher, which we also have. But I'm very satisfied with the productivity measures that we have. And we're monitoring these all the time. If the market develops differently, of course, we will need to react on it. On the ocean freight, of course, that's the toughest market that we're in right now. It's crunch time. We see that basically GP is down. Of course, there's some FX impact in that as well, which goes for all our numbers. Michael will come back to that, but there's quite a bit of headwind on that. Also here, we've had the yield discussion many times. We've been discussing the value-added services that we produce on a shipment. And I think it speaks for itself that now we do more transactions per TEU. We've also had a lot of focus on the LCL market now for years as well in order to protect what can I say, our GP and have a value proposition where we are in control of the infrastructure. So I think this is very clear in the numbers as well. When you look at it, that this is now what is playing out as well. Then we come to Road. And of course, it's nice to see that in absolute figures, we are making progress. Schenker's road organization is a really good road organization, strong footprint in the Asia Pacific and also a solid footprint, a very strong footprint in Europe here, we are the market leader. So if we sit and look at this, then of course, there's a lot more to come, but we are on the right way. If you look at these numbers, they include both July and August, which if you have a large scoopage network means that you will have a lot of fixed cost and not as much income generated in each month. So delivering a result of there to round it up to DKK 800 million, it's actually quite an achievement from the road organization that I'm very happy about as well. On the shipment side, also here, we are flat. It's flat neutral, what we are seeing here as well. So it's really also well done, I would say. Then we come to CL. And here, we have produced almost DKK 1.1 billion. So definitely quite a bit up compared to what we've seen before. Here, we see that the Schenker contribution is impressive as well. Actually, we've been doing fairly well on the EBIT side on the DSV anyway previously, as you can also see from the comparable figure, which only includes DSV. But the Schenker is definitely also contributing with both footprint, with skills, with competence. And in combination, we have a really solid value proposition. And then we have the problem that which is something that we have a ton of focus on, we need to increase the return on the capital that we deploy because, of course, it benefits the other divisions that we hold cargo that is being moved in our air freight network, our ocean freight network or our road network. But we need to generate, what can I say, a higher return. We simply -- it's unacceptable where we are right now. But the division is really taking this into consideration when doing the integration, and I feel very confident that they are doing something about it that soon also will be visible in the numbers. So with that said, I would really like to hand over to you, Michael, so you can give a little bit of details to some of the numbers as well. Michael Ebbe: Thank you very much, Jens. And then if we look at the Page #12, which some highlights of our P&L. Like Jens mentioned, we have a stable performance in the quarter. And of course, Schenker contribution positively. It's also -- if you look at our -- the net result is, of course, impacted by our special items of DKK 1.1 billion. This is, as we've announced also related to the Schenker integration. Then I know that we have been talking with some of you guys at earlier occasions. We have, you can say, moved our Road activities, legacy Schenker that we have acquired that was moved to discontinued operations for the ones that are really into details in the spreadsheets. Another thing that Jens mentioned, and I will also touch upon that in the next couple of pages, maybe it's the FX headwind, which is, of course, impacting predominantly in our Air & Sea business. Next is also worth mentioning is that our tax rate is very high these days, which is due to the integration of Schenker. It's a little bit higher than what we have anticipated previously is because as we can see with the synergies and so forth, we move a little bit faster than what we did last time. So we are really picking up in pace, and that's reflected in the tax rate. Our diluted EPS is stable as compared to last year. But if you look at compared to last quarter, it's actually kind of picking up. And if you then even there to see if you can adjust for the tax rate, then we would actually already be in a positive mode on that one. It's clear that the ratios is, like Jens also mentioned, it's impacted by the dilution impact of the acquisition of Schenker, but we are working on getting that improved. Once again, on the next page, on the cash flow. Once again, we have actually a strong cash flow, more than DKK 4 billion, cash conversion ratio of 96%. We're very pleased to see that. Our net working capital has improved quite a bit as well. It's below 2%. I cannot promise you guys. Of course, I will do whatever I can to maintain that low level. But as we said earlier, it might be, you can say, to calculate around 2% in anything. We've also been able to reduce the debt by the strong cash flow that we have. So we have reduced our debt with DKK 4 billion. So that also seems to be nice. It is nice and that we are on the right track, as you can see. So that is great as well. Then the next page, 14, is on the guidance, we are very happy that we are able to keep guidance and, of course, lowering the upper range of our guidance. So now we will expect that we will land in DKK 19.5% to DKK 20.5% for the full year. Jens started out by saying that in this number, of course, we have to bear in mind that we have sale -- headwind, sorry, for the FX of around DKK 500 million as a headwind on that one. We also increased our expected synergies for the full year to around DKK 800 million from previous DKK 500 million to DKK 600 million. That's a change in there as well. And also given the pace that we have also means that we increase our expectations of special item costs in our P&L. And again, reflecting the pace on integration, the tax rate will be a little bit higher. It's because, yes, there are tax consequences when we do these kind of integrations. So long term, for the tax rate, we expect that we will be back in 24% area next year, hopefully. Then for the -- you can say the market outlook, it's still impacted by the macroeconomic and geopolitical landscape. So we still expect that uncertainty to persist for the next quarter. So we expect to see, you can say, growth below GDP for the next quarter. That's what we have embedded into this guidance that we have. But overall, again, we are very pleased that we are able to keep our guidance in the way that we have. And then, of course, on the Road and on the Contract Logistics, as Jens already said, it's a stable performance that we expect to continue for the remaining part of the year and hopefully also in the next couple of years, even better. And then back to you, Jens. Jens Lund: Yes. As Michael said, on the key takeaways, I think one of the things is when we take the Schenker integration, it's really all the experience that we have, all the support that we get from the various parts of the organization. They know what they need to do. It's really well done what is in there. But I think it's also a playbook that we've now done many times that everybody feels comfortable with and also to you, investors that have support us, thank you for that. That's really what comes out of it. At the end of the day, this momentum that we now see on the integration, it's really good to see. Then, of course, as an investor at the end of the day, what you get is earnings per share. That's our focus. Right now, of course, we are driving the earnings per share up. And of course, at a certain point in time, when we also delever the company, we'll probably also use the normal tools on the capital allocation to support that thing. This is our core focus that we drive the EPS up. And I think we are looking into a very interesting period when it comes to EPS development. Then, of course, the guidance, I think Michael talked enough about that, so we should quickly go to the Q&A session because I hope that you have many good questions for it. So please go ahead with that. Operator: [Operator Instructions] The first question comes from the line of Dan Togo Jensen. Dan Jensen: Congrats with this report here. Maybe if you can elaborate a bit on your expectations here for Q4, especially the low end of the guidance range of DKK 19.5 billion I mean you need to make DKK 5.5 billion in the fourth quarter on my math, and you made DKK 3.9 billion last year. So that's a bridge of DKK 1.6 billion. Schenker contributed DKK 1.3 billion in Q3. Probably this will be more in Q4 and due to seasonality. And then you have synergies on top, which you have just lifted. So in my mind, this alludes to a somewhat negative contribution from the organic business in Q4 for DSV. And bearing that in mind, I seem to remember you have quite easy comps, at least in the Contract Logistics and in the Road business. So there must be something weighing significantly down in Q4 for you to maintain the DKK 19.5 billion. Just to understand your thinking of the low end. Jens Lund: Yes. It's basically volume, isn't it, on what can I say in particular within Air & Ocean that we are talking about. That is -- I think the yield will be okay. You've seen that we are a little bit down on volume, I don't see that trend really change. So compared to the original guidance, we probably had anticipated that we would have a growth in volume now we have a decline. I think that's the major contributor, I would say, Dan. The other things that you're talking about that we are doing well on -- yes, of course, the FX side is big as well. I think that's important to mention. But on the CL on Road, we're doing okay. And I think basically, if you say volume and FX, that's sort of the main explanation when we look at it. Yes. Michael Ebbe: And lastly, for -- sorry, then for the -- yes, I fully agree, of course. But last year also, we need to take the seasonality of the legacy Schenker into consideration. Dan Jensen: Yes. But shouldn't that pick up a bit in Q4 given the Road business, I mean, where Q3 usually is. Jens Lund: That's one thing you have to remember that they have big group network. So there are many days where there's no production in December. And that's -- I can tell you, we are also learning something new about fixed cost when it comes to that. So we're really trying to figure out how we can organize this in the best possible way in how many days we produce, et cetera, and what's the optimal outcome on that. We're putting significant effort into that. It's going to be less than what we've seen before, but it will probably take a couple of quarters before we really get that structured in the right way. So it is on the Road side, it's a hard one, I would say. It's going to be good in Road here in October and November, really good. And then we're going to get a tough December. But whether we -- the range is the range then. It's from DKK 19.5 billion to DKK 20.5 billion. So if you are a little bit more optimistic than the people that are -- there's a middle of the range as well, if you know what I mean. And I think I won't say more than that. Dan Jensen: Understood. And if I'm allowed, just maybe another question here, digging into the verticals. Could you maybe elaborate a bit which are the strong verticals for you here? Is it firm the growth you see, for instance, in technology, in pharma, maybe aerospace, defense and are yields holding up in these verticals? Jens Lund: I would say that yields are definitely holding up in the verticals you're talking about. It's probably also some of these verticals that do the best. You would perhaps have more, what can I say, we are a big player in Europe. So of course, automotive is a tough one for us also knowing that Schenker is a German company as well, very involved with those companies as well. That's, of course, something that is a little bit tough these days and also some of the industrial areas, the capital goods also a little bit under pressure. I would say. So -- but the verticals, of course, are tech vertical, very strong vertical out of Schenker. We had focused on it as well. But in combination, it's -- we have the broadest service offering of all the players in the market. So of course, we are making good progress there. And it's really good to see. It's helping us a lot when we then see troubles in other verticals. Operator: The next question comes from the line of Patrick Creuset from Goldman Sachs. Patrick Creuset: Congrats on the strong front also from me. Just a couple of questions. The first, just on synergies. I mean, it seems like you're harvesting the DKK 9 billion ahead of schedule. And perhaps can you talk a little bit about some other sources of opportunity, let's say, that you see within the DSV business? I mean, updated thoughts on procurement synergies, for example, and also the latest thinking on Star and Tango IT system rollouts. And then, Michael, you mentioned the strong cash flow leverage reducing. I think you previously talked about bringing the buyback back perhaps in H1 '27 and I appreciate it's early to talk about it, but any thoughts there, updated thoughts on time line on when you might be in a position to return capital again depending on how you continue to progress? Jens Lund: Good. I think I'll take the first couple of questions. Michael, he will talk a little bit about the buyback as well. So I think if we look at the synergies right now, I think what you are alluding to, Patrick, is basically when we do an integration, then we make an initial plan like we're doing now, then we combine the companies. Then once you have it combined, and I think this is what you're thinking about, then you're thinking there's actually a little bit of things we should adjust on top of that. These are not sort of in the plan, but they will come sort of once we've done the other work. I think it's a little bit too early days to say something about that. But let's say, 2 quarters down the road, we should have a much better view on how the combined DSV will look because then we will have done, as you can also see from the plan, quite a bit of the work combining the countries as well. So I think that's what we can say on that. But of course, we really working hard just to obtain the synergies we get right now, and then there's going to be a next step. If we take the Star or the Tango CargoWise One debate, I think the plan is that we now to harvest the synergies roll a lot of countries onto the CargoWise One, but also keep some volume on Tango. Basically, we can backfill both systems with data from each other. So we're not necessarily losing a lot of productivity on that. Then, of course, we have then to have a debate which direction are we going in. And I think we will have to come to a conclusion on that as we go along. So -- but so far, we're producing the volume and we are shifting. We have a data platform where we can exchange data between the platforms seamlessly. So it's not a lot of productivity that we are losing. It also helps us a lot on the customer integrations actually that we can do them, what can I say, in a more what kind of plannable way I would call it. Yes. Then Michael, short term. Michael Ebbe: Yes. Thank you, Jens. And Patrick, also thank you for the question from my side. Of course, the cash flow and how we can return into share buyback area is something that we follow up very, very closely. Believe me, I also want to go there as soon as I can. We have to look at the next couple of quarters. And of course, if we continue the strong cash flow as well, then we will, of course, like we always do, take a look at it quarter-on-quarter and then see how is our gearing ratio, how is the rating agencies consider it. And then we will have to take a relook hopefully, within a couple of quarters. Operator: We have now a question from the line of James Hollins from BNP Paribas. James Hollins: Michael, if I could start with you, if I could just get some, if possible, clarity on the synergies within 2026. I know a lot of investors are crying out for it. If we do some basic math on 30% integration end of this year, 70% end of next year. We took the midpoint, that will be something like DKK 4.5 billion of the DKK 9 billion. I was wondering if you could just give us your thoughts on synergies within 2026 that will impact full year '26 EBIT? And secondly, Jens, you talked about very little attrition in your customer or basically customer retention is strong. Is it sort of better than expected? Is it as thought? And I know you talked previously about you've done the top 275 customers. Maybe to run us through how that's going with the, I guess, smaller customers in terms of attrition? And if I may, are you planning at Capital Markets Day anytime soon? Michael Ebbe: Yes, I will take the first one, and then Jens will take the second one. In terms of the synergies, what I think that you can expect is that like we also have written for the phasing, if you do some math and try to predict it, you would see that 2026 should be around DKK 4 billion, you can say, in synergies that will have an impact on that one. Jens Lund: Yes. Then I can talk a little bit about what can I say, the customers. I would say that, yes, it's correct that, let's say, on the last call in -- after Q2, we sort of initially focused on the larger customers. Of course, that's cascaded down now into the organization so that there's basically a focus, what can I say on what we call A, B, C and D customers where we go and basically have a conversation with all those customers depending on their size and service requirements, et cetera, explain them what is -- the customers, they want to know what does this mean for us. Do we get new rates? Do we need a new contract? Do we need a new integration? Who's my new contract person? What does the team look like? Where is the office, all these questions we have to answer for the customer. If you are proactive and do this, then very soon, we can start to explain them what is it that the combined company can do for them. And this is, of course, where we are much stronger than we were before being now the global market leader. Of course, we have a strong offering to present to them. And actually, we've seen that they've responded very well on that, that we have a very structured approach on this. And I think it's also visible in our numbers that you see that in reality, we've managed to keep the customers, yes. We are down trading because the shipment size, what can I say, on volume in TEUs or tons because the shipment size has decreased. But apart from that, I think we've really stood our ground on this integration. And I think it's thanks to the efforts, what can I say, of the whole organization that wanted to prove to the market that we could up our game a little bit on this one. So I think that's all been very good. If we look at the Capital Markets Day, yes, there's going to be a Capital Markets Day. We need to come out and explain better what it is that we're doing, what's our strategy, what's our plan, what's our thinking, both on generative AI, for example, which is a big topic, what's our thinking on the integration and the strategies for the divisions. So we're really looking forward to that. And I know that our IR team, they are already working hard on planning it so that we will have a very good agenda for you. Operator: The next question comes from the line of Alex Irving from Bernstein. Alexander Irving: Two from me, please, both on Road. First of all, you pointed out the implementation of uniform digital platform. What is it specifically that Star can do for you that Roadway Forward could not? Second, you suggested at one point, it might have been last quarter that if you really excel in Road, a double-digit EBIT margin might be achievable. Is that still achievable? And if so, what would be the path to that? We're talking just structural cost reduction? Does it require a change in the business mix, say, more groupage? Jens Lund: If we take Road and Star, I think when you have to create a system like this, it's very much -- it's not a technical problem. It's a governance problem. How do you want to operate your business? I think Schenker has been on that journey on the groupage side and also managed to divide their business perhaps sooner than we did, whether it's a system freight, groupage, as we also call it in Europe. But let's say, shipments between 30 kilos and 2.5 ton or 2 tons or something like this, so larger than a parcel, but not, let's say, a real LTL shipment where you go direct to the customer. You will then also have the FTL business, which is like the full truckload. We call that direct. Schenker had separated that harder than we had in DSV. So we try to solve both products in the same structure, whereas Schenker really focused on the groupage. And that's really how Star came about. And then they have done a lot of change management in the countries where they're rolling it out because there's a lot of local habits that we have to weed out so that we basically work on one platform. Then you will have what we call, it's like for Air & Sea, you will have a single file system where you don't have, what can I say, different systems with different types of data. at both end different conventions for data and then you need human intervention. And then all of a sudden, what can I say you produce fewer shipments per person per day. It also gets harder to plan. And there are many things that are very difficult, the more complex system landscape you have. So this drives lower productivity. We replicate the same process over and over again. So we have also to say that Schenker, they have done better than separating these 2 things. Actually, we can also do the other stuff on the Star platform as well, the direct business, but it's perhaps supported a little bit less than on DSV, but it's still workable compared to what we have. And of course, if you have these things, then you can actually go to the next stage as well where you start to consolidate some of the efforts so that you go to a more domain-driven approach where you will say, listen, there's a quoting domain. There's a booking area where we handle this kind of could be called customer service. You could also then go to the Westmark cargo events, whatever you want to call it also customer service at the end of the day because now you'll have all this data in one system. And then, of course, on top of this, with a new technology, which was not what I was sort of factoring in at that stage. But of course, here, that will drive a ton of productivity to go into domains. But on top of that, you can probably put more agents in than we are using today. So that can drive the productivity even further. So it's really the technology is there. It's how much change can we impose on the company. This is the limitation. So it's a governance issue like it always is, there's nobody within our industry that has access basically to technology that the other people don't have. So it's how you run your company that decides what the financial outcome will be. Operator: We now have a question from the line of Alexia Dogani from JPMorgan. Alexia Dogani: If we start just on the synergies, you talked about DKK 300 million of impact in the third quarter. Can you just confirm it's all cost and there's no dis-synergies based on your customer attrition point? And then subsequent to that, at what point will you have more certainty that the dis-synergies that are within the DKK 9 billion are no longer valid, and we could be looking kind of at a better outcome? And then if Michael could just clarify, when you talk about -- you mentioned DKK 4 billion of synergies in 2026. Is that right? Because before we've talked about the midpoint of the exit rate, 30% in '25, 70% in '26, midpoint is 50% of 9% is 4.5%. So I don't know if you were thinking year-over-year or absolute. I think that's worth clarifying. And then my second question is on Road. Can you discuss a little bit more fundamentally the operating leverage in this business? Clearly, you're taking a lot of cost out at the moment as we have seen through the D&A reduction you've reported. And how will that kind of improve operating leverage when volumes start to recover and pricing starts to go through? And yes, giving us a little bit of color of the actions you've actually taken to really reshape the cost base of that business or I guess you're starting to make. That's it for me. Michael Ebbe: I can start with the synergies. Maybe just to be clear, you said, it's right that we say 30% for end of year. That means for the full year next year, we'll have DKK 3 billion. Then that's -- you can say that one. And then we have the synergies that we already have right now, which is DKK 800 million-ish. And that you can say, DKK 3.8 billion. And then you have -- you're right about the midrange. I though I would say that the synergies that we harvest the first might be the easiest. So I don't think necessarily you can take a linear approach on that one. But I can't promise you that we will deliver at least the DKK 4 billion, and we will work whatever we can to make that faster and higher, of course. Jens Lund: Yes. Then we talked about the dis-synergies. I think we will really know through the tender season, how that is all playing out. Normally, we've seen actually quite some attrition right now in a normal integration, which we are not seeing. And then, of course, it's the tender season. It's the second test, if we want to call it like that. So I think if we look at it right now, we are off to a good start, and I actually think we have to have the aspiration that we also make it through the tender season and then we can really start to focus on the growth. So of course, all the competition is focusing on us. Right now, we are the market leader. We also did that when we were chasing. So I think -- but I'm comfortable, as you can hear. Then I think the operating leverage on Road. if you look at, let's say, the road network, it's both a physical network, but also a back office thing that we're seeing. And as an example, Schenker, they can produce basically all DSV volume in most countries in their network. So of course, there was too much capacity available. There might even be areas where we still have too much capacity even if we've combined entities. So we are rightsizing that right now. Then, of course, we are looking at whether we need to produce all 100% of the volume in our own network or whether there might be some areas at very remote destinations where we could ask somebody else to do that. That would then limit the physical infrastructure quite a bit. In the offices, we also need to operate at plus index 90 on the capacity side, even if we are where we are right now. And then when we get price increases, I think there's only so much volume we will be able to produce. We might then need to might need to -- what can I say? We might need to say that we can grow a little bit less because we need to take some of those fluctuations out of it and then just increase the prices a bit more because today, we've actually had way too much capacity, so we could handle the peaks, but it's way too expensive in the troughs. So that's in reality what we are focusing on right now on the Road side. Operator: The next question comes from the line of Ulrik Bak from Danske Bank. Ulrik Bak: So in terms of the synergies and the integration process, what is it specifically that has progressed faster than planned? And have you identified other areas where we could potentially see a further acceleration of this synergy harvesting? And then also the DKK 300 million in synergies in Q3, DKK 800 million for the full year as well as '26. If you can provide some guidance on how this is split among divisions, that would be great. Michael Ebbe: Yes. I think if you look at the speed of the integrations, I think if you see what we have moved last time, we said 15% end of this year, and you can say 50% end of next year. Now we have increased to 30% this year and 70% next year. I think it's not that unusual. Remember the size of Schenker that we have acquired. I don't think it's that unusual that you need to kind of get a little bit of a grip on what it is that you have acquired and how you can plan for it. It's a complex thing to migrate 85,000 people in more than 80 countries into our infrastructure. legally as well as organizational and IT as well. So it takes a little bit of a time. That's also maybe why you said last time that it was progressing slower than at least for some of you guys have anticipated. I think what we have found out now, we know what we are dealing with. We have identified all the different scenarios from a system perspective, organizational perspective. So now we have put that into a plan that we are executing on, and this is where we are doing fairly well in execution in DSV. So that is why we are moving faster than what we initially thought through actually. And then in terms of finding, I think Jens already touched upon that in whether there are more synergies elsewhere to come. Right now, we stick to the plan that we have promised to deliver the DKK 9 billion in yearly savings, and we are very committed to deliver that. And of course, to be there as fast as we can. Operator: We now have a question from the line of Kristian Godiksen from SEB. Kristian Godiksen: A couple of questions from my side as well. So first of all, maybe could you comment on the stabilization you've seen in growth that you comment on in terms of what to expect going forward, both in terms of margin progression and maybe also in terms of which kind of price increases you expect to -- you in the market to implement in this quarter? And then secondly, just a household question. Wondering if you could comment a bit on why the legacy Schenker yields are down more, both in terms of sea and air freight than the legacy DSV yields? Jens Lund: If you take the yield question, I think Schenker had, what can I say, a tradition where they were a little bit longer on the procurement side. In certain markets, it had benefited them. And as you can remember, last year, perhaps that was a situation like this. Now if you are longer in this market, of course, then it's -- when the rates are going the other direction, then it's perhaps a different scenario. So I think that will be the explanation to that. I think on the operational side, it's fairly similar volume that we are producing. Then I think if we look at the road side, I think we need to think we don't want too much capacity. We want to have the capacity that is required in the market. This is a journey where you have a ton of infrastructure that you have to rightsize so that you get there. It's part of also certainly, it's also part of me having said that on group, we need to make much more money. Then I think the price increases that we go out with today, perhaps DSV stand-alone, Schenker stand-alone had an aspiration that we need more and more volume. Actually, we got sufficient volume now to have a European network. So we can sit and then look at what's the service, what's the quality of our product. And then, of course, we can then go out to the customers and say, listen, this is a quality product. And this is the SLA that we can deliver to you, and it comes at this price. So we've been out now to our customers basically because also there's pressure from the subcontractors, they want more money. So that with the service catalog, this is a service you get. This is what the price is. And it's, of course, always market driven by the subcontractors at the end of the day. But this in combination then is what we present to the customer. Then I think on the smaller account, if we sit and look at it, of course, we can present that because we don't necessarily have a long-term agreement. But on the customers that we have a longer-term agreement with, it's going to come when we have, what can I say, the freight negotiations basically for the renewal of the contracts. And that's typically happening into the new year. So there's still some bound to cover. But we are off to a good start, and I can see Michael has something he will add. Michael Ebbe: I think also one thing that I don't think that you should underestimate when we talk about stabilization. Remember that legacy Schenker has a huge road organization. And like we also touched upon last time, we have now set the management team, both globally, regionally clusters in the countries. And the team has also worked dedicated to find some of the recovery plans as we call them. So I think that's where we can see that now we are getting hold and grip of these kind of things that also pays into the frame of why we can say that it is stabilized. Kristian Godiksen: Okay. That makes good sense. And just a very quick follow-up on the impact from the longer procurement of volumes from the legacy Schenker. When will we see that impact fade away? Jens Lund: I don't know. It's hard to quantify. I think basically that it's an ongoing exercise that we're talking about. So I don't necessarily -- I don't think we're going to move backwards on the profitability on the road side. We're going to move -- make progress, consolidate and take idle capacity out that is not needed. I think that's -- on the procurement side, we're going to drive, of course, that very efficiently as we've always done and make sure what can I say, we have wholly procurement, let's say, the terminology that was used and think it was wholly management. I mean these 2 words, they are quite different, aren't they? Because it is a procurement exercise for us. We have to deliver the right cost to the customer as well. Michael Ebbe: And of course, it will follow the normal, you can say, renewal of the contracts. So... Operator: The next question comes from the line of Muneeba Kayani from Bank of America. Muneeba Kayani: Firstly, I just wanted to ask around yield mix at Schenker. So Jens, in the past, you've kind of given us a breakdown of the value-add mix for your -- for DSV stand-alone ocean and air yields. How does that look like in Schenker? And kind of along the lines of the previous question on Schenker yields, kind of how do we think about that mix and movements with freight rates going forward? So that's the first one on yield. Secondly, around cost cutting. So your competitor today announced a cost-cutting program. I think what you've said is you need to -- you're looking at it, but haven't really kind of pushed that kind of on top of what you're already doing with the Schenker integration. So what do you need to see to do more of that? And kind of how are you thinking about that? And just a quick one on real estate sales. You've talked about that in the past. Where are you in that process? Can you give us a sense of the time line and potential amount from Schenker real estate sales? Jens Lund: I think if we look at the Schenker yield, it was lower. I don't necessarily think that Schenker had the same focus on selling, what can I say, upselling the services than we had. They had perhaps more an approach where they were also a little bit long short in the market depending on their expectations. We have a clear way forward where we basically don't take positions as a company. And you've seen this play out in the industry as well. That also then leads to some companies then having, what can I say, to make certain decisions on capacity as well when you perhaps have some focus on the yield side that drives what can I say, financial outcomes that are not desired. If we look at our company, we rightsize the company all the time. There's natural attrition. And right now, we can stick to that. We have our performance KPIs, as I talked about when we run the company. So how many shipments, how many transactions per person per day. This is something that our organization, they look at all the time. And we can see what we do on the Schenker integration and with our expectations for the number of shipments we have to produce and the productivity expectations that we have that we don't need to do anything else on top of this right now, which is great. Our staff, they know exactly what we're doing. We're focusing on the Schenker integration and then the normal course of business. We then -- if there's an area here or there where we need more or less capacity, this is adjusted as a normal part of operation. And Michael will talk a little bit perhaps also about this, but also about the real estate as well. Michael Ebbe: I think just a last comment on the -- you say the cost cutting. Now you referred also to one of our competitors. I think you also maybe need to look at the starting point from a conversion ratio perspective and then see what that brings. And like you said, Jens, we are actually looking into, of course, the measures that we normally would take on that one. And for the Schenker real estate, it's correct that we -- that they have been a little bit more asset heavy than what we have. So we are, of course, looking into getting that to fit into our asset-light model and hence, there will be some divestment of real estate. Remember, this is not something that we have, you can say, taken into our business case. So we are looking into that. And, yes, I think we have also mentioned that in the earlier case, it could be around DKK 1.5 billion that we're looking into. And for timing and stuff like that, we need to go in and find a plan for that one before we can say more about it. Operator: We now have a question from the line of Lars Heindorff from Nordea. Lars Heindorff: The first one is on the logistics part of the business. Very strong revenue growth in the third quarter, apparently, a sale of a terminal property. I don't know exactly where and the timing of that. So maybe if you could just give a bit of detail how much impact that has on the top line and also on the gross profit in the organic business? That's the first one. And then secondly, I'm sorry, coming back on the yield questions here. I clearly understand your answer for some of the previous questions on the sequential decline in yields when rates go down in sea freight and how -- depending on how Schenker has been sourcing their capacity. However, in air freight, where we've seen a very, very significant decline in Sinker on a stand-alone basis, we haven't seen a similar decline in rates. So maybe just an explanation why we see that both in sea and in air. And also, I don't know if you can go that far and maybe give us an indication where you think that yields will continue to decline combined into the fourth quarter compared to the third quarter? And then the last one is just a housekeeping question on USA Trucking, the Q2 EBIT impact now that I'm looking for that, now that you've taken it out as a discontinued business. Jens Lund: Good. I think Michael will start, what can I say by answering some of the questions. Michael Ebbe: Yes. If we go to the Contract Logistics side, it is, as always, Lars, and you are aware that we have had some property projects, which we also have talked about in connection with our net working capital and so forth. And we have realized one here. And as always, it doesn't really have an impact on our EBIT and our GP, to be honest with you guys. So that's on that one. For the U.S.A. truck, it's also household, like I said, it's correct that we have now, you can say, classified it as divestment, noncontinued business. We said DKK 90 million on a quarterly. That's the net result, as you most likely know and can see. I think for EBIT impact, it was around DKK 60 million in the quarter. Jens Lund: And then you talked about the yields in ocean freight and air freight as well. I think if you look at the market, what can I say, rates, it's also very different for the 2 products, isn't it? Where it's been declining quite a bit on ocean freight and where it's quite stable, at least the way we see it on the air freight is, of course, declining, but not necessarily at the same pace. So I think this is what drives the difference in outcome, Lars. I think that was basically -- we are at the end of the session. So I would like to thank you all for your interest and look forward to have some conversations bilaterally after this call. But most of all, I would actually like to thank our employees that are listening in on the call for all their hard work, all their efforts and their dedication. We would never ever have been able to pull this off at this pace and with these results if it hadn't been for all your hard work and all your efforts you've overachieved and just continue that. It's really great fun to be at the company right now. Thank you very much. Bye-bye.
Operator: Good day, ladies and gentlemen, and welcome to the Churchill Downs Incorporated 2025 Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Sam Ullrich, Vice President, Investor Relations. Sam Ullrich: Thank you, Andrew. Good morning, and welcome to our third quarter 2025 earnings conference call. After the company's prepared remarks, we will open the call for your questions. The company's 2025 3rd quarter business results were released yesterday afternoon. A copy of this release announcing results and other financial and statistical information about the period to be presented in this conference call, including information required by Regulation G, is available at the section of the company's website titled News, located at churchilldownsincorporated.com as well as in the website's Investors section. Before we get started, I would like to remind you that some of the statements that we make today may include forward-looking statements. These statements involve a number of risks and uncertainties that could cause actual results to differ materially. All forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the SEC, specifically the most recent reports on Form 10-Q and Form 10-K. Any forward-looking statements that we make are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in yesterday's earnings press release. The press release and Form 10-Q are available on our website at churchilldownsincorporated.com. And now I'll turn the call over to our Chief Executive Officer, Mr. Bill Carstanjen. William C. Carstanjen: Thanks, Sam. Good morning, everyone. With me today are several members of our team, including Bill Mudd, our President and Chief Operating Officer; Marcia Dall, our Chief Financial Officer; and Brad Blackwell, our General Counsel. I will share an update on growth plans for our company, including with respect to the Kentucky Derby and our HRM businesses. And then Marcia will provide insight into our financial results as well as an update on our capital management strategy. After she finishes, we will take your questions. First, regarding our third quarter results. We delivered overall record net revenue and record adjusted EBITDA in the third quarter. We also delivered record adjusted EBITDA for our Live and Historical Racing segment as well as our Wagering Services & Solutions segment. We are also very pleased with the performance of our regional gaming properties in the third quarter. Their results reflect consistent strength from our high end and rated guests, along with nice growth from our unrated players across the majority of our markets. Now let's talk about our plans for the company, both near-term and long-term. First, regarding our plans for Derby Week and Churchill Downs Racetrack. During our last earnings call, I discussed the 5 key growth catalysts for the Derby that will power the growth of Churchill Downs Racetrack in 2026 and beyond. The first is ticketing revenue driven by premium experiences during Derby Week. The demand for the Kentucky Derby and for Derby Week tickets is continuing to grow as we deliver new and unique customer experiences. We will also realize further incremental ticketing revenue from the investments we have made over the last number of years. One example of this is the Starting Gate Pavilion and Courtyard. We significantly improved this area this past year and the guest feedback has been overwhelmingly positive. As a reminder, this project transformed 10,000 bleacher seats into a combination of approximately 8,500 premium stadium and trackside box seats. We also significantly improved the amenities for these guests as well as for an additional 2,800 people seated in existing surrounding sections who are now able to access the hospitality options of the newly renovated area. We believe that ticketing revenue from the Starting Gate Pavilion and Courtyard and from other recent investments as well as general price increases will provide meaningful adjusted EBITDA growth for Derby Week going forward. The second driver of long-term growth for Derby Week is our broadcast rates. As I discussed on our last earnings call, our NBC deal will deliver a $10 million increase in adjusted EBITDA for 2026. We also announced that NBC will, for the first time, broadcast the Kentucky Oaks race in 2026 during prime time on Friday night, May 1. We believe this will amplify awareness, engagement and wagering for both the Kentucky Oaks race and for the Kentucky Derby, the next day on Saturday, May 2. The third driver of long-term growth is wagering. We continue to attract the best horses from around the world and are benefiting from the Derby's expanding cultural relevance, both domestically and internationally. We believe the increasing availability of online sports wagering across the United States is very much a positive development for wagering on the Kentucky Derby and races across Derby Week. The huge customer base delivered by the online platforms gives us the opportunity to reach more potential bettors and fans than ever before. Also of note, our TwinSpires.com platform has continued to post strong growth in unique users during this period of rapid sports wagering expansion. And these players are remaining active and engaged long after the Derby. Internationally, we recently announced the expansion of the European and Middle Eastern road to the Kentucky Derby by adding 3 new points races in Dubai and Saudi Arabia. There are now 10 races across 5 countries that comprise this series, allowing for up to 2 horses to qualify for the Kentucky Derby. This strengthens the quality and intrigue of the international pathway to the Derby and extends our brand further into 2 of the sport's most dynamic and high-profile markets with Dubai and Saudi Arabia. We are very excited to deepen our engagement with owners, trainers, sponsors and fans across these regions which we believe will generate long-term benefits for Churchill Downs Racetrack and enhance the global reach of the Kentucky Derby. The fourth driver is sponsorships and licensing. Sponsors are increasingly recognizing the value of our expanding national and global footprint, driven by growth in on-site attendance, television and digital audiences, social media engagement and other strategic initiatives. The heightened visibility is attracting interest from some of the most well-respected brands, and we remain focused on broadening and strengthening our sponsorship portfolio in the years ahead. And finally, the fifth driver is selective renovations and expansions through capital investment. As discussed on our last earnings call, we are on track to complete the renovations of 2 of our most prestigious and exclusive areas, the Finish Line Suites and The Mansion for the 2026 Kentucky Derby. We announced last evening that we are planning to invest $280 million to $300 million to build a new structure called Victory Run, just past the finish line between the Sky Terrace and the First Turn section, an area we refer to internally as the gap in the smile. Victory Run will be a fantastic location and will offer tremendous views of the horses and the pageantry of the event. This new venue will replace existing uncovered ground-level box seats in dated dining areas with new premium hospitality offerings, including private suites and a combination of indoor and outdoor dining and covered box seats. Construction will begin following the 2026 Kentucky Derby with Victory Run completed in time for the 2028 Derby. During the 2027 Derby, Derby 153, we plan to offer an interim upgraded seating experience in this area, featuring temporary covered stadium seating and enhanced amenities to ensure guests enjoy a premium experience even during the year of partially completed construction. We remain committed to strategically investing in our flagship asset over the long-term to enhance the guest experience during Derby Week and to broaden our appeal to new audiences. These investments have delivered and will continue to deliver adjusted EBITDA growth with outstanding returns for our investors for years to come. Churchill Downs Racetrack in the Kentucky Derby remains the crown jewel of our company. These 5 growth catalysts provide a strong foundation for a vibrant and successful future for the Kentucky Derby and our company. Next, turning to our HRM progress. First in Kentucky. We are on track to open our eighth HRM entertainment venue in Calvert City during the first quarter of 2026, on time and on budget. This will be an important addition to our portfolio of entertainment properties in the Commonwealth. With a population of 300,000 people within a 60-mile drive, our Calvert City site is conveniently located near the intersection of 2 interstates, providing easy access for customers from several surrounding cities in Southwestern Kentucky. This venue will be branded Marshall Yards Racing and Gaming inspired by the railroad industry that shape the surrounding communities. Marshall Yards will feature 250 HRMs and a music stage that will host a wide variety of live entertainment attracting customers to the special property. Turning to Virginia. As expected, the rows continued to show great progress during the third quarter. Gross gaming revenues grew meaningfully, and we are rapidly building our customer database. We were also pleased to see continued growth in weekday gaming revenue, driven by increased visitation frequency through our data-driven marketing. As we approach the 1-year anniversary of the opening we are making excellent progress in laying the foundation for long-term growth at The Rose. In Central Virginia, we completed the expansion project at our Richmond HRM venue. We renovated an unused space to expand our gaming floor in May of this year and completed the remaining phase of this project in August, which added 450 incremental HRMs to the property. We also opened the Roseshire Gaming Parlor in Henrico County on September 29, ahead of schedule and below budget. The subscale entertainment venue features 175 games and other gaming-related amenities. It's off to a fantastic start. We currently have 4,875 HRMs deployed in Virginia. Virginia has proven to be a great investment and business environment for us. As the exclusive operator of Thoroughbred racing and HRMs, we are building strong relationships with key constituents in both the horse racing and agricultural industries. We will continue to pursue opportunities to expand our footprint and grow the number of HRMs in this dynamic market. Turning to New Hampshire. We completed the acquisition of a 90% interest in the Casino Salem project located at the Mall at Rockingham Park and Salem, New Hampshire, near the Massachusetts border at Exit 2 on Interstate 93. This is a highly attractive market with approximately 800,000 adults within a 20-mile radius and over 4.9 million people in the broader Boston MSA. More than 100,000 vehicles pass the property daily on I-93. Currently, we are operating a temporary facility with 100 HRMs and 13 table games. Design work for the permanent venue is nearly complete, and we expect the facility to have approximately 900 HRMs, 30 table games, 3 food and beverage venues, a signature center bar and a large live entertainment venue. We will seek local permits and approvals for the final design, after which construction of the permanent venue will begin. We will provide more details on timing on our next earnings call, but expect to open the facility in 2027. We plan to invest approximately $180 million to $200 million to develop the state-of-the-art gaming and entertainment destination. In the near term, we anticipate continuing to operate our Chaser’'s Poker Room in Salem and we have retained the rights to the associated HRM license. We will evaluate and pursue viable alternative uses for the second HRM license in New Hampshire in the future. Turning to Exacta. Our Exacta business has grown through the expansion of our HRM operations in Kentucky and Virginia as well as through our third-party relationships in Kentucky, New Hampshire and Wyoming. Exacta technology is supporting our temporary facility in Salem, New Hampshire and will be utilized in the permanent Salem casino facility when it opens. We anticipate that a new third-party HRM property in Wichita, Kansas will open in December this year with a significant portion of the gaming floor utilizing our technology. We are excited to support the expansion of HRMs into this new market. We have also made excellent progress towards gaining approval to deploy HRM-based electronic cable games. We are working to gain the necessary approvals from appropriate state authorities and expect to have more to share in the near-term. HRMs and the related Exacta technology represent a high-growth, high-margin investment that delivers strong returns for our shareholders. We will continue to focus on developing these businesses. In summary, third quarter was very strong for us with record financial results. We have a portfolio of unique and high-performing assets that collectively provide multiple catalysts for growth and free cash flow generation for years to come. We believe that Kentucky Derby will deliver outstanding growth in 2026 and beyond, as well our recent investments in HRM properties and the related Exacta technology. We will also continue to identify and execute high-quality growth initiatives. Our strategic decisions, disciplined capital allocation, strong balance sheet and diversified portfolio positions us to drive sustainable long-term growth in adjusted EBITDA and free cash flow. We remain focused on delivering superior returns for our shareholders. With that, I'll turn the call over to Marcia, and then we will take your questions. Marcia? Marcia Dall: Thanks, Bill, and good morning, everyone. I'll start with a few insights into our financial results and then provide an update on capital management. First, regarding third quarter results. As Bill shared, we delivered record net revenue and record adjusted EBITDA for the third quarter. Our Live and Historical Racing segment had record net revenue and record adjusted EBITDA for the third quarter. This segment grew revenue by 21% and grew adjusted EBITDA by 25% compared to the prior year quarter. This is the 21st consecutive quarter of record growth in revenue and adjusted EBITDA compared to the prior year quarter for this segment. All of our Kentucky HRM properties contributed to this strong performance. our Louisville and Northern Kentucky teams contributed double-digit growth in adjusted EBITDA compared to the prior year quarter. This double-digit growth was a result of strong execution on the top line as well as from a cost perspective. We are building a strong customer base for Owensboro, Kentucky, HRM venue in Western Kentucky, and our team in Southwestern Kentucky is continuing to successfully penetrate the Nashville market. This will be the fifth consecutive year of strong growth for our Oak Grove HRM venue. Our margins for our Kentucky HRM properties were very strong for the third quarter, collectively increasing over 3 points compared to the prior year quarter from the continued growth and optimization of these properties. In Virginia, The Rose had a strong quarter with GGR per unit per day increasing every month of the third quarter when adjusted for calendar differences between the months. Our HRM venue -- our Richmond HRM venue in Central Virginia has completed the expansion of the property, adding 450 incremental HRMs. The new HRMs and gaming floor expansion has been well received by our guests. We are also very pleased with the initial results from our new Henrico County venue. Our Southern and Western Virginia results reflect the comparison to a strong third quarter in 2024 as well as the impact of increased competition for our Vinton and Hampton properties. Overall, we generated a combined 51% margin during the quarter for our same-store Virginia HRM properties. This margin is best in class, and we believe these margins are sustainable given the continued scaling of our Northern and Central Virginia properties. Turning to our Wagering Services & Solutions segment. This segment delivered record third quarter adjusted EBITDA, driven by the continued growth of our Exacta business. Exacta benefits from the growth of our Kentucky and Virginia HRM properties as well as our third-party customers. And last, regarding our gaming segment, our wholly-owned regional gaming properties performed relatively well in the third quarter. Excluding the impact of removing HRMs from our Louisiana operations, our adjusted EBITDA for our wholly owned gaming properties increased over $3 million and margins were up 1.1 points compared to the prior year quarter. These increases result of both top line growth and effective cost management. Regional gaming consumer behavior was relatively consistent on a sequential basis. We saw continued strength from our rated players with increased visitation and spend per trip from the highest end rated players in our database. We also saw unrated player trends improved compared to the prior year quarter and on a sequential basis. Turning to capital management. We generated $166 million or $2.34 per share of free cash flow in the third quarter, primarily from the strong cash flow generated from our businesses. Free cash flow per share is up 13% from the prior year quarter as we continue to realize the benefit of recent capital investments and the impact of share repurchases. Our free cash flow yield based on our trailing 12 months results is approximately 10%. We spent $53 million of maintenance capital through the first 9 months of the year. We now expect to spend $75 million to $85 million on maintenance capital in 2025. We spent $172 million in project capital through the first 9 months of the year. We now expect to spend $200 million to $240 million on project capital in 2025. For 2026, we are now projecting our project capital to be between $160 million and $200 million. This reflects the 2026 expected project capital for The Mansion, Finish Line Suites and Victory Run projects for Churchill Downs Racetrack and the Casino Salem project in New Hampshire that Bill discussed. Turning to share repurchases. We repurchased over $50 million of our stock in the third quarter under our share repurchase program. Regarding our dividend, our Board of Directors approved a 7% increase in our dividend, which will be paid out on January 6, 2026 to shareholders of record on December 5, 2025. This is the 15th consecutive year of increased dividends per share for our company. As a reminder, because of the federal tax bill that was signed on July 4, we will see an improvement in our free cash flow from favorable cash taxes. The new tax provisions include making the 21% business tax rate and 100% bonus depreciation rule permanent. The federal tax bill also reinstated a 30% of EBITDA-based interest deduction limitation. The additional interest deductions, combined with 100% bonus depreciation will reduce our cash taxes and increase our free cash flow this year and in future years. We estimate that the impact of lower cash tax payments will be $50 million to $60 million in both 2025 and 2026. At the end of third quarter, our bank covenant net leverage was 4.1x. We expect our bank covenant leverage to remain at this level at the end of the year, and then we'll be below 4x in 2026. We are proud of the record performance our team achieved in the third quarter. We are well positioned for sustainable long-term growth, supported by our unique portfolio of high-performing assets, disciplined capital management and our strong balance sheet. We remain committed to creating long-term shareholder value. With that, I'll turn the call back over to Bill so that he can open the call for questions. Bill? William C. Carstanjen: Thank you, Marcia. Andrew, I think we're ready to take questions. Operator: [Operator Instructions] And our first question comes from the line of Barry Jonas with Truist Securities. Barry Jonas: Congrats on the quarter and the announcement of Victory Run. Can you talk more about your ROI targets for Victory Run, how and when you think you'll hit them? And maybe if there are any lessons learned you can apply from the Starting Gate Pavilion introduction at Derby 151? William C. Carstanjen: Sure, happy to do that. Barry, so we target a 20% unlevered IRR. That's what we shoot for. We shoot for that, really focused on year 3. It takes time in this business to introduce the new asset, get trial and then get word of mouth. So it's a 3-year window that we focus on. Operator: Our next question comes from the line of David Katz with Jefferies. David Katz: I appreciate it. I wanted to ask about ETGs -- from not putting words in anybody's mouth, from my own work, my sense is that Kentucky might be closer in than some of the other markets that you have. But generally speaking, have you done any sort of penciling, Marcia and team, around what the prospective opportunity could be, whether it's in Kentucky or in any of the other markets in terms of lift, maybe based on learnings from other markets that have gone into ETGs before and after? William C. Carstanjen: Thanks, David. Good morning. So ETGs, electronic table games, that's an important frontier for us with HRMs, our facilities across Virginia, Kentucky, New Hampshire, they don't have the benefit of offering table games, which is something, of course, a class of customers really want. So electronic table games in states like Virginia and Kentucky represents an important opportunity for us, and it's a technology journey and it's also a regulatory journey. And it's one we have been focused on for a while. So I don't have any news to announce today, and I hinted at that in our comments, but it's a material focus. It's something we think can be really important and it levels us up in terms of having a comparable suite of offerings for customers compared to traditional Class III facilities. So I can't give you and wouldn't -- can't responsibly give you predictions on what it will do, and it also depends on the regulatory framework that's finally approved. But I can assure you that we take it extremely seriously and think it's an important opportunity for us and we're going to focus on it until we can get it done. Operator: Our next question comes from the line of Chad Beynon with Macquarie. Chad Beynon: Congrats on the announcement on Victory Run. I wanted to ask about just capital allocation. So year-to-date, and including the dividend, it looks like about $400 million will be spent on share repo and the dividend. So with the updated CapEx for the next couple of years, Marcia and team, how are you thinking about leverage and the balance between share repurchase and the money that will be spent on the projects? Marcia Dall: Thanks, Chad. As you know, we're very disciplined in our capital management. We have made a commitment to have our leverage come below 4x next year, and we will execute that through that. That being said, we are very thoughtful about -- and strategic about buying shares back when it's appropriate. And we will continue to balance. We have a very good forecasting model that allows us to balance our capital investments with the dividend that we grow at 7% per year, along with other share repurchases throughout the year. Operator: Our next question comes from the line of Daniel Guglielmo with Capital One Securities. Daniel Guglielmo: The brick-and-mortar property portfolio is wholly owned across both the live and historical and gaming segments. Outside of not having to pay rent, what are some of the incremental mid- to long-term benefits of owning the properties outright? And then do you think the market is giving you enough credit for the full ownership piece right now? William C. Carstanjen: Thanks for the question, Dan. So our philosophy for our gaming assets has been to own the real estate. Other companies have chosen other philosophies and they can explain their philosophies. For us, we've been focused on growing these businesses, stabilizing these businesses and running them as best as we can. So owning your own real estate gives you a sense of stability and a sense of predictability that's made sense for our company. But the philosophy is around why different companies do it the way they do it is up for the other companies to explain. For us, I don't think we get credit for it fully in our stock. It's been occasionally a source of discussion on these calls and a source of discussion with other investors. But fundamentally, we structured a very stable, consistently performing well-executed strategy around regional gaming, in particular, and hopefully, the market recognizes that because our track record is clear and our future is also fairly predictable and clear as well. Operator: Our next question comes from the line of Dan Politzer with JPMorgan. Daniel Politzer: Bill, Marcia, I was wondering kind of broad strokes, if you kind of could just touch on the M&A environment here. I mean, obviously, we've seen some transactions lately. You guys obviously participated with Casino Salem. I mean, as you kind of look broadly and think about kind of inbounds and outbounds, how would you describe the kind of level of activity or interest? It just seems like there's been a little bit of a pick up externally. William C. Carstanjen: Yes. Certainly, we've seen that pick up. There have been a couple of announcements in the brick-and-mortar space recently over the last month or so and even over the last week. And that's always encouraging. Now those were -- those are opco/propcos as I think about the ones that come to mind and we're, of course, holdcos. So I think it's nice to see some clarity in the market. So the investor community and the markets in general get a sense of the value of properties, and we watch those markets closely. And as a company in the space, you've seen over the long-term, we're both an opportunistic acquirer, and we're also a seller when opportunities afford themselves. So we're always a flexible participant in the market, and we like to pay attention to the trends and the activities we see. So everything is relevant and interesting to us. But I would say, in general, you are seeing a pickup in activity over the very recent term. Operator: And our next question comes from the line of Ben Chaiken with Mizuho. Benjamin Chaiken: Maybe just a follow-up there. Obviously, in New Hampshire, you acquired 90% interest in Salem. Talk to us about the M&A environment, specifically in this region. Is this an area we could see more activity? Or was this more of a one-off for some reason? William C. Carstanjen: Well, talking specifically about New Hampshire, we entered New Hampshire originally through our Chasers' license in Salem. So we believe very strongly in that market. And the second license was created, so the parties came together and that was an opportunity that just made a lot of sense for us based on the work and our understanding of that market. Generally, in the state of New Hampshire, I like the model in New Hampshire with HRMs, and I certainly like -- I like the demographics there. But there's not a philosophy per se for that particular region. We look at every region. We look at demographics. We look at pricing, we look at the technology that at play and we make a determination based on that. But New Hampshire is a story of us investing in the Salem market and then seeing an opportunity to double down on a market that we really believe is going to be a long-term positive development for us. Operator: Our next question comes from the line of Jeff Stantial with Stifel. Jeffrey Stantial: I wanted to ask a bit more of a high-level strategic question on the Derby. Bill, just as you look at the track assets built up currently. I'm curious just to get your updated thoughts on what inning you think you're in with respect to some of these, call it, more substantial projects such as the First Turn or the Victory Run, and that's a corollary to that. Do you think the current product is diversified enough where it covers the full consumer life cycle? Or is there still some opportunity left to bridge jumps and ticket price, such as going from infield to premium seat and things like that? William C. Carstanjen: Well, thanks for that question, Jeff. I like the baseball analogy. It's World Series time, so that's a very timely analogy. So in that theme, what inning are we in? When it comes -- the Derby is a very old event. It's been around for 151 years, but I think we're in the third inning. I think there's so much opportunity with that, it's a very dynamic evolving event as we develop it. And as the country changes and as we see things moving towards experiential customer spend, so I think the future is very bright for the Derby and there's a lot more to come. I think it's important to have a breadth of offering for the Derby. And a lot of that is still yet to come. When we look at Victory Run, that's a very, very, very attractive part of the track. It's just past the finish line. It has a great view of the stretch as the horse is sort of thunder towards the finish line. And it was a very -- it has seats there, but they're tired -- it's a tired old section that hasn't seen capital investment in a long time. So it was a perfect opportunity to really upgrade that and meet the modern expectations of our consumers, and we get that feedback from them every single year on what they're looking for. So they want more suites. They want more covered boxes. They want higher amenities. That's what they're looking for, and this is an area where we can do that. And there are other areas around the track where that also is in the cards for the future. So I think you'll see us be active on a small-to-medium scale constantly, but the next big project is the one we talked about today, which is Victory Run, and we need to get that done and get that digested before we talk about some of the other big projects that come next. I would say about Victory Run, it increases the capacity of the track, seating capacity by about 2%. It's a 20% increase in that section, and that's a really important section. But we're always very careful about layering in capacity because it's not really about the number of seats. It's about the quality of experience and the segmentation of the experiences that we offer. And so this fits in with a plan and a philosophy that you've seen us execute over time and it's the right next step. Operator: And our next question comes from the line of Brandt Montour with Barclays. Brandt Montour: So I wanted to ask about The Rose. Obviously, a nice ramp you're seeing there. I think you're now within your long-term win per unit per day target. And so I guess the question would be how to think about the margin ramp from here and into next year. And I apologize for the near-term question, but any sort of concerns around the sort of government shutdown that's going on in the DC and the like, that would be helpful, too, as well. William C. Carstanjen: Brandt, thanks for the question. Yes. We're thrilled with the progression of The Rose. We still think we have a long way to go. And we think as we progress and as our win per unit goes up, you should see improving margins. Right now, we're still heavily investing in marketing as we try to drive awareness in a very big, large complex MSA. And you mentioned also what's going on in that market. We don't really see or feel in a way that we can tell that the impact of some of the government shutdown discussions or whatnot. It's such a huge area. It's 6.5 million people, and we've not even been open in a year. So we're just growing through it. So I think it's such a huge market with great demographics, both from the population level and from the income level that we're just in the process of growing into our size. So some of the noise going on is just not something that we can discern as we currently grow. So yes, we're really happy with how that's progressing. We're really happy with the quarter-to-quarter growth. And as our team settles into the pace, we think there's more things -- good things to come there. And it would be our expectation that you'll continue to see improving performance on margins and things like that as we drive better awareness and better performance per machine. Operator: Our next question comes from the line of Shaun Kelley with Bank of America. Shaun Kelley: Just wondering if you guys have thought at all about or could give us some of your kind of emerging thoughts on the whole emerging landscape of prediction markets. This is a fairly disruptive force that's happening out there in the online sphere. And I'm thinking about the potential implications specifically for the Derby, you've obviously, through the pari-mutuel approach and then through the content control have generally had very strong sort of ability to control what's going out there in the betting sphere for the Derby. But this kind of new world seems to do particularly well when we're talking about like really large tentpole events and the Derby, in our eyes from a sporting perspective is definitely one of those. So just kind of wanted to get your thoughts. I know it's an early subject, but if you had any -- and have any of those operators potentially approached you about sponsorship or anything else? William C. Carstanjen: Sure. Thanks, Shaun. So let me start by saying that wagering on horse racing in the United States is actually governed under an umbrella federal law called the Interstate Horseracing Act. That's very different than sports wagering that you see across all of the states, which is a state-by-state sort of balkanized state law construct. So our construct is fundamentally different than all the other sports wagering activity you see in the United States. We are governed by a specific dedicated federal law about how wagering works on horse racing. So that makes us quite different. And the requirements under that law are very clear about what it takes in order to take a wager on a horse race, you have to have a contract with the content provider. That's us. You have to have a contract with our horsemen, et cetera. So our philosophy on the prediction markets are, we will approach them, we will explain to them the legal construct under which activity on our sport happens -- wagering activity on our sport happens. We'll explain that both the civil and criminal elements of the Interstate Horse Racing Act and why compliance with it is so clear. And we'll take it from there. We do not have a deal with any prediction markets -- predictive market companies to take wagers on our product. We are not in discussions to do that at this time, but we do plan on approaching them and explaining to them the legal construct under which wagering happens on our product. This is not a question like some of these other sports between state law and federal regulations. We have federal law that governs how we operate. And certainly, to the extent people act counter to having a deal with us and act counter to the Interstate Horseracing Act will pursue all our rights and remedies under the Interstate Horseracing Act. So for us, I think we're different than the other sports. I think we're different than the other players in the online wagering game. And that's a serious subject. It's one we take very seriously and it's one that we've talked a lot. And for us, it's always a matter of communication and making sure that the players out there on the field understand how this sport works so they can contrast it and understand it compared to the others. Operator: And our next question comes from the line of Joe Stauff with Susquehanna. Joseph Stauff: Bill, Marcia. A question on Virginia, if I could. Sorry to repeat the question as maybe I have in the past, but I wanted to ask again really on the process of shutting down illegal machines kind of where that is, Bill, you've described it as a bit of a whack-a-mole process. Has that changed? And do you think it's affecting some of your assets within Virginia, at least in a modestly negative manner today. Just trying to understand essentially the opportunity and the tailwind of closing down those machines over time and how strong it is, et cetera? William C. Carstanjen: Sure, Joe. Happy to take that question. And we haven't talked about that yet today. So I almost used the term gray games, but these aren't gray games. These games are illegal. The legislature has spoken, and the court has spoken, but there are constant issues of enforcement and also constant variations of games that manufacturers try to introduce to try to distinguish themselves from the very clear law of how this works. So it is a bit of a whack-a-mole. There's been a lot of progress in the state. This isn't binary. It isn't black or white in the sense that there is always going to be an element of enforcement necessary because of the shenanigans some of these manufacturers try to engage in to introduce machines. So generally, there has been pretty strong enforcement. It's very clear from the Attorney General. It's very clear from the legislature. But there's always enforcement issues that will happen, especially when manufacturers may try to muddy the water with games that are different in some way. So I think it's -- I think that's a process that goes on. It's sort of a slow burn indefinitely. And yes, there's still great games out there. We don't think they're really material at this point. The enforcement has been pretty good. But they are out there, and it's -- it requires constant vigilance and constant communication with law enforcement and constant and willingness to engage with the courts. It's just part of the environment in that state and in others. So we're going to grow through that. We are growing through that. We are building our business through that and that's just part of that process that we keep our eye on that and keep pushing on that. But I would say over the most current quarter, it hasn't been a big driver or a big concern. We feel like we have it mostly in a good place. Operator: I'll now turn the call back over to CEO, Bill Carstanjen for any closing remarks. William C. Carstanjen: Thanks for your time this morning, everybody, for our investors. Thank you for your trust in us. We won't let you down. We're proud of the team. We think we had a strong quarter, and we think we have more good things to come. So we'll keep doing what we're doing. And again, thanks for your confidence and trust in us. We look forward to talking to you next year, next -- actually will be next year, but next quarter as well. Operator: Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.
Operator: Thank you for standing by, and welcome to the Regis Resources quarterly briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Jim Beyer, Managing Director and CEO. Please go ahead. Jim Beyer: Thanks, Darcy. Good morning, everyone, and thanks for joining us this morning for the Regis Resources September quarter results. Joining me today is our Chief Financial Officer, Anthony Rechichi, and our Chief Operating Officer, Michael Holmes; and our Head of Investor Relations, Jeff Sansom. As usual, we will refer to some figures in the quarterly report released earlier this morning. So please, it might be helpful just to keep it handy as we step through the results. So firstly, starting with safety, as we always do. Through the quarter on a 12-month moving average basis, our lost time injury frequency rate actually got down to 0. However, unfortunately, towards the end of the quarter, we saw a single LTI occur, which pushed out LTIFR, lost time injury frequency rate, to 0.36, which was in line basically with our performance last quarter. Now while still below the industry average, as always, we should never be satisfied with any injury. And the team, I know, is driving hard as we are diligent and continue to build a strong disciplined safety culture for our teams across all our operations. Now on to production performance. The September quarter marked another period of consistent operational delivery and a resultant strong cash generation. Group production totaled 90,400 ounces at an all-in sustaining cost of AUD 2,861 an ounce. And I note that this also includes a noncash charge of just under $200 an ounce, and that relates to drawdown on historic stockpile inventories. Now we are comfortable with the performance in our first quarter, and we're well positioned to deliver within our FY '26 guidance ranges. From a financial perspective, this quarter has seen another period of unprecedented gold price movements. Spot gold during the quarter increased over 15% from just over $5,000 an ounce to just under $5,800 an ounce during the quarter. And during that time, we sold at an average price of $5,405 an ounce. Of course, since the end of the quarter, gold has risen another $500 an ounce, will actually rose more than that, and we have seen this slight correction in the last couple of days, but the fundamentals are still there, and it is a great time to be producing gold. This meant that we grew our cash and bullion position by $158 million for a balance at the end of the quarter of $675 million. That's another record for Regis and highlights the ongoing strength of the business and really continues to demonstrate the significant cash-generating capacity. We remain debt-free with significant balance sheet flexibility. From a growth perspective, we saw first ore from our underground development projects at Duketon, and these both remain on target. Now with that, I'll hand over to Michael for more detail on the operational rundown, followed by Anthony, who will cover more on the financials. Over to you, Michael. Michael Harvy Holmes: Thanks, Jim, and good morning, everyone. As Jim mentioned, it was disappointing that we had 1 lost time injury in the quarter, which continued our 12-month moving average frequency rate of 0.36. We are working on numerous initiatives within our operations to reduce the occurrences of safety incidents and injuries. Operationally, the quarter was steady across both sites with results consistent and in line with plan. At Duketon, we produced 58,400 ounces at an all-in sustaining cost of $2,832 per ounce, which includes a noncash charge of $238 per ounce. This is a few hundred dollars lower than the previous quarter on stronger production and reduced total material movement with lower open pit waste movement. During the quarter, open pit mining commenced at King of Creation, recommenced at Gloster and continued at Ben Hur open pits. Our open pits contributed 14,400 ounces at a grade of 0.92 grams per tonne. Underground mining at Garden Well and Rosemont delivered 31,800 ounces at 1.9 grams per tonne with development totaling 3,990 meters for the quarter. Milling throughput was 2.08 million tonnes at 0.99 grams per tonne with an 88.3% recovery. Importantly, as Jim mentioned, during the quarter, first ore was mined from stopes at both the Garden Well Main and the Rosemont Stage 3. The first ore contributed to the increased underground ore tonnages compared to the previous quarter. These 2 underground developments are key contributors to our long-term growth strategy, and Garden Well Main is progressing well towards commercial production in H2 of this financial year, so we should see growth capital from the development roll off towards the end of the year. In light of the ongoing strong gold price environment, the team continues to identify and evaluate options for organic growth across Duketon. At Tropicana, production was 31,900 ounces at an all-in sustaining cost of $2,821 per ounce, which includes a noncash charge of $198 per ounce, reflecting solid delivery and grade improvement. Open pit mining delivered 16,100 ounces at 1.6 grams per tonne, with material movement and grade in line with expectations. Total material movement was elevated related to the previous quarter related to the planned waste mining in the Havana open pit. Over the coming quarters, waste stripping in the Havana pit will ease, and we expect the strip ratio will moderate, and this will be particularly apparent in the second half of FY '26. Our share of what Tropicana underground delivered was 15,200 ounces at 3.12 grams per tonne and 983 meters of development with a recovery steady at 89.7%. Growth capital was moderate at $3 million with development of Havana underground progressing to plan. With that, I'll now pass to Anthony for the financials Thanks, Michael. Anthony Rechichi: We're continuing on from a really impressive financial performance that we reported for the full year ended 30 June 2025, with a great start in the first quarter of FY '26. We sold just under 83,000 ounces in the quarter at an average realized gold price of $5,405 an ounce, generating $447 million in revenue. Operating cash flow was $290 million, including $186 million from Duketon and $104 million from Tropicana. As an aside, when we were selling the gold in and around that $5,500 an ounce mark, the team was ecstatic. But as Jim mentioned, what a difference of a few weeks makes, noting that while those gold prices were impressive, the recent few weeks of gold sales have been in the $6,000, which is just incredible. It's an amazing time to be in gold really. Moving on to capital expenditure. We spent $114 million, including $70 million at Duketon, $19 million at Tropicana, and we spent $20 million on exploration. Within the capital spend amount, $66 million of that was growth capital, with $63 million at Duketon and $3 million at Tropicana. The majority of this spend was related to the underground growth projects. At Duketon, Garden Well Main is expected to commence commercial production later in the financial year. And therefore, the capital spend in that area from then on will report to sustaining capital, not growth capital anymore. With this in mind, in the absence of any new organic growth we create along the way, we expect to see the growth capital spend rate reduce as the year goes on. But again, that's on the basis that we don't find anything extra across Duketon that's worth pursuing. So for cash and bullion, in the end, we closed the quarter with $675 million, which is another record for Regis and the $300 million revolving credit facility remains undrawn. I'll just circle back now to all-in sustaining costs, and Michael mentioned the noncash charges across Duketon and Tropicana, and I want to talk some more about that. At Duketon, there was a noncash charge of $238 an ounce related to stockpile inventory movements. And at Tropicana, we had a charge of $125 an ounce for the same reasons. At a group level, that's a charge of $198 an ounce for the quarter. Focusing in on Tropicana, this quarter's all-in sustaining cost per ounce was higher than last quarter. If you cast your mind back, in the June quarter, Tropicana reported a significant noncash credit related to stockpile survey adjustments. If we net off the noncash stockpile movement impacts for Tropicana, then the all-in sustaining cost per ounce becomes similar across the 2 periods. On another topic, and as you now know, with the business high profitability and impressive cash generation, the directors declared a final fully franked dividend of $0.05 per share, totaling $38 million off the back of the FY '25 results, and we paid that earlier in this month of October. And as I've mentioned before, due to that strong profitability, Regis will return to a cash tax payment position and is expected to pay approximately $100 million in the third quarter of this FY '26. So that's all for me. Thank you all, and back to you, Jim. Jim Beyer: Thanks, Anthony, and thanks, Michael. At McPhillamys, we're progressing the dual-track strategy to return the project to an approvable status. And I want to very quickly go over some of the details of the project and remind or highlight why we continue to pursue this line. Look, we released the DFS at McPhillamys back in the middle of last year, and that highlighted a resource of 2.7 million and reserves of 1.9 million At the time we released the DFS, as I said, the reserves were about 1.9 million, which, of course, isn't a reserve anymore, thanks to the Section 10, but the key fact is it's still in the ground and quite valuable at the moment. As expected, it was to have a mine life of around 10 years, so an average production of 185,000 ounces per annum, at a capital cost of $1 billion and a life of mine average all-in sustaining of something like $1,600 an ounce. Now I do have to say that as a result of the Section 10 declaration, of course, the project is no longer viable in its current form, and we were through the DFS. However, if you benchmark the project on those metrics I just mentioned and look at the spot gold price today where it's sitting around $6,300, that gives nearly 3/4 or gives well over $2 million a day, $3.5 billion in pretax cash flow each year on average. Now that's the value to our shareholders. But there is also other stakeholder value in addition to this such as the value that it represents in New South Wales. And this would be significant. It takes the form of 300 steady-state jobs over -- well over now with this price $366 million in royalties along with millions in local rates and taxes. The list of benefits goes on as it always does when we have a grown-up conversation about the real contribution mine makes to our Australian economy and the quality of life, but that's a topic for another time. So with these multiple value benefits for many stakeholders, we are committed in our drive towards a positive outcome for the McPhillamys Gold project. And to that end, we continue to prepare the legal challenge of the Section 10 declaration, and we expect that to be in mid-December. And in parallel, we're also investigating alternative waste disposal options and concepts. This dual-track approach aims to put Regis in a position where we could conceivably return the project to an approvable status and positioned to proceed under either outcome, albeit with probably different time lines. Now back to our current operations. As Michael and Anthony have discussed, the quarter was in line with expectations. And as we sit here today, we are very comfortable with our FY '26 guidance range and see no changes required there. We'll maintain capital discipline focused on generating strong margins for our core assets while positioning the business for future growth. As also noted by Michael and Anthony, we continue to seek out organic opportunities that make good economic sense in this new gold price environment. Our exploration team continues with their focus on conversion and extensional drilling to build long-term optionality. And I haven't said anything -- I won't say anything more on that, but I do note that we will be providing a midyear exploration update later on this quarter. So to summarize, our team has delivered another quarter of consistent performance that has enabled us to capitalize on the exceptional gold price. Cash and bullion is up $158 million to a record $675 million. First ore mine from Garden Well Main and also Rosemont Stage 3, and we continue to ramp up both of these underground projects. Ongoing development at Havana Underground. We continue to seek out and evaluate organic growth opportunities within Duketon. McPhillamys is progressing through both legal and technical pathways. And finally, but very importantly, our FY '26 guidance is reaffirmed. So thanks for this morning. I'll now open the floor up to questions and back to you, Darcy. Operator: [Operator Instructions] Your first question comes from Hugo Nicolaci from Goldman Sachs. Hugo Nicolaci: Obviously, as you said, a great time to be in gold. Just first one for me, just a clarification on the McPhillamys project. Just with the hearing in mid-December, do you have a rough time line for when you'd expect an outcome after that hearing? Jim Beyer: Yes, sometime after that hearing. I mean, unfortunately, these -- as we know, the courts run to their own beat. We would like to think that we would get a result back sometime in the first quarter of next year, but that's not certain. Remembering and understanding the legal process here, it's not actually an overturning of the decision. It's a process of going through and convincing the judge that there were elements of the process that we felt we were significantly disadvantaged over. And as a result, of that, the judge sort of says, well, the decision is set aside. The minister, who is a new minister now, of course, presumably asked the department to correct the injustices, for want of a better description, or the correct the flaws in the process. And then the minister will make a new determination. How long that takes, there is no time line to that? It could easily be out to the end of next year. Hugo Nicolaci: Got it. That's helpful color. And then just the second one for me just at Tropicana, just observing that your partner there had put in and then recently got an environmental approvals for a power plant expansion and a new pace plant there to support the Boston Shaker. Could you just provide a little bit of color around the need for the paste plant? Has there been a change in geological conditions what you expected? Or was it more around cost and greater ore recovery that you're putting that in? And then just any comments around sort of timing and cost benefits there? Jim Beyer: No. I mean the power thing is pretty obvious. We'll need more power. And the paste fill is really, it's a trial at the moment, and it's driven by the potential to improve overall economics by increasing ore extraction ratios. Hugo Nicolaci: And in terms of timing of having that trial up and running? Jim Beyer: I mean there's a trial in the first instance and then there will be -- have to be a decision, and that's on the -- on when it would -- a full approach will be implemented, and there's no timing on that, but I would consider that to be a least a year. Operator: Your next question comes from Levi Spry from UBS. Levi Spry: Just exploring a little bit more of the returns piece of the big cash pile you built and building in the context of these growth options. So how are you thinking about it? Is there a scope to formalize some sort of returns policy? Or do we really need to wait for McPhillamys or potentially something from inorganic [indiscernible]? Jim Beyer: Yes. Look, I mean, it's -- you're the first person who asked that question lately. Look, the first thing -- and I guess, historically, what we've done is we've pointed to the fact that the company and the Board has always had a strong view on returning returns to shareholders via dividends. And it's great and very pleasing to see that as we've moved our way through all the recapitalization and the hedge books over the years that we've been able to return and the debt, of course, for Tropicana, we've been able to return to a position to be able to pay dividends. And our view has always been where we've got the capacity to do it and it makes sense, we will look at that ongoing process very favorably. But as you pointed out, we don't have a policy. That is something that we are under consideration at the moment. And I would imagine as we work our way through that, we'll make some decision on that over the coming months. The next key time for us to make any another decision on whether a dividend is payable or not. And obviously, it's a pretty favorable environment at the moment, but I wouldn't want to preempt anything, but the next time to be making any decision would be the half year results because we look at it on a half year and full year basis. So yes, no, we don't have a policy. We've always said that where we've got the money and the -- it's an important part of our reason for being is to return -- make a return to our investors via dividends as well as regular growth. So -- and that's what we plan to continue to do. We just don't have a locked-in policy at this stage. Operator: Your next question comes from Andrew Bowler from Macquarie. Andrew Bowler: Just a question on the McPhillamys study just looking at the dry stack tailing options. Just wondering on the timing of those studies? And will that be affected by the judicial review? So for example, if it falls in your favor, are we likely to see that study a bit sooner maybe as you sort of -- or should I say, if it falls in your favor, we likely never to see that study? Or if it falls against you, are you like to see it a little bit sooner as you try and get it out to market as quickly as possible? Jim Beyer: Look, our intention is, as I said, we're running a dual track. I think our preferred scenario because it's probably a little bit more timely and requires less additional approvals is -- and test work is to return to the original DFS concept, i.e., what I'm saying there is we much prefer to win the -- we much prefer to be successful in the challenge of the Section 10 and then follow that through with an appropriate decision by the minister after his review. That's the way we prefer it to go. But we don't want to sit around in hope, so we've also planned to find and prove up this alternative method. Probably the reality of that is that it's going to take, at this stage, it could take considerably longer for us to work that through. But the initial test work that we've done is encouraging. It's really a timing issue and making sure that we understand all the risks that this now introduces that we didn't have before and have we got everything in place. So the short answer to your question is we prefer the Section 10 to be successful, but we'll continue to pursue the other one. And if the Section 10 is successful and that's great because it means we've probably got a better time line as well. Andrew Bowler: Yes. Sorry I was on mute. Yes. No, sorry, I was on mute. And just a follow-up. I mean I know you're working through the study, and it's very early stage, but is it the intention for these dry stack tailings studies to retain the relative scope and scale of the old plan at McPhillamys? Or are you -- or is there some tinkering to be done with the dry stack tailings studies that might see a [ biggering ] of the project or a bit of a trimming as well? Or is it roughly the same with the dry stack scenario [ bolted ] on the back end? Jim Beyer: In terms of footprint, it's probably a little smaller. So it's not actually -- the concept that we're working on is not so much a dry stack. It's an integrated waste landform. So we -- there's -- obviously, in terms of what can move as much as I'd like to, we can't move the ore body. The process plant probably stay roughly where it is. There's a big waste rock dump that's already there. It's already part of the approval. But obviously, if we co-mingle the tails in that, then whatever we don't put in the tailings because we won't be able to which has to go under the waste rock dump. And that's why it's sort of, that's why it's called an integrated waste landform. And that would need to be bigger. And so there's a few things that we have to go through and get, work on to see whether that requires extensive changes or reasonably modest modifications. And so that's all part of the work that's kicking off at the moment. Andrew Bowler: Apologies. I wasn't very clear. I mean as in sort of, I guess, the processing capacity scale. So the project itself would be on a similar scale. Jim Beyer: Yes. No, it'd be a similar scale. I mean basically, the concept is you put -- it's not unusual. It's reasonably common certainly in South America, where water is exceptionally at altitude where it's scarce. And there's a couple of operations here in Australia, one over here in WA that uses a form of it. So it's not uncommon, but it is something that involves more equipment. But our plan would be to maintain the scale of the operation as it currently isn't just changed the back end of it. Andrew Bowler: No worries. That's very clear. Operator: Your next question comes from David Coates from Bell Potter Securities. David Coates: Just more on observation. I suppose it sounds like McPhillamys, understandably, is getting quite a bit of attention from you guys. Is that because sort of [indiscernible] the inorganic opportunities that are a bit sort of thinner on the ground and I guess, sort of harder to find value in the current market and McPhillamys obviously has those really compelling metrics that you mentioned -- referenced before? Jim Beyer: Yes. Good question, David. Look, I don't think what -- I guess the question don't misinterpret the fact that we only talk about McPhillamys as we're only inwardly focused. We do talk about it because I do genuinely think that the market doesn't recognize the value that's there. I mean, basically, what we're saying is one way or another, this thing is going to be developed. It's really just a question of when. And if you're sitting down and trying to work out what the value is -- in this new price environment that we see gold in, and frankly, this is not a flash in the pan. This is, you can see that there are global fundamentals that have driven us to this new level from where we were 18 months or 2 years ago. So it reminds us that we need to -- our team needs to keep pushing on and make sure that, that becomes approved in one form or another, and then we can develop it. The thing is the time line. So that could be a couple of years out. And so that we put our effort into it and you can see we're spending not an insignificant amount at the moment on an annual basis on that works under the McPhillamys guidance that we've given, but that doesn't mean that we're not looking for near-term opportunities to sit between now and then either, which is definitely on our agenda and probably everybody's at the moment, but then we're no different. David Coates: Cool. And then just sort of sticking with the organic opportunities. You mentioned with this price that everyone's out sort of looking hard and reviewing the at Duketon in particular. Can you give us a bit more detail on some of the opportunities that might be emerging up there? Jim Beyer: Look, we've -- at the moment, the exploration side of things is pretty interesting and getting exciting again for us, but we haven't really got anything material to sort of hang our head on there yet, although, I guess, we'll keep an eye for whatever it is those time. And -- but if you look at what else and what Michael and Anthony were talking about is where there's no doubt about it that this at this new price environment, we can go back to some of our old pits, be they big or small. And sometimes it's a small ones that are actually the opportunity or back to -- even back to some of our old oxide stomping grounds. We look and go, well, hang on at $5,000 or $6,000 an ounce. This stuff is actually quite viable. And so they are the things that we're looking at. I don't really not in a position, really, I don't really want to go through the nuts and bolts of the individual items. But when we get something that is material, we will certainly update the market on that so that what you can add to our model and add to your valuation work. So we are doing plenty of it at the moment. We're just not in a position yet to strike it into a gold bar. Operator: There are no further questions at this time. I'll now hand back to Mr. Beyer for any closing remarks. Jim Beyer: Thanks, Darcy. And thanks, everyone. Thanks, especially for the folks that asked questions. Thanks for joining us and enjoy the rest of your day. Take care. Operator: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.
Steinar Sonsteby: Hi, and welcome to the Q3 presentation of the Atea numbers here from rainy Oslo. In this presentation, we will update you in more details on both the 2025 guiding and as promised, the development in Denmark. We will give you much more details than normally, not only to Denmark, but also more insight in our business model. In the future, we will not go as deep. So see this as an opportunity to understand more rather than a new way of reporting. So to the numbers. Gross sales came in at NOK 12.3 billion, up almost 10%, and EBIT at NOK 348 million, up 13.3%. Net profit grew by almost 18%, another record-breaking quarter from the place to be. But as always, I leave it to Robert to give you all the good news. Robert Giori: Thank you, Steinar. Atea reported strong sales and profit growth in the third quarter of 2025 with high demand across all lines of business. Gross sales in Q3 were NOK 12.3 billion, up 9.2% from last year. After adjusting for changes in currency rates, organic growth in constant currency was 7.0%. Hardware sales increased by 5.7%, driven by higher shipments of PCs and other digital workplace solutions. Software and cloud sales increased by 17.1% with high demand across all product categories. Services sales increased by 6.0% from last year based on higher sales of consulting and product support services. Group revenue according to IFRS was NOK 8.4 billion, up 5.6% from last year. And gross profit increased by 6.7%, to NOK 2.5 billion. Gross margin increased from last year due to an improved hardware margin and a higher proportion of software in the revenue mix. Operating expenses grew by 5.7%, to NOK 2.2 billion. After adjusting for changes in currency rates, OpEx growth in constant currency was about 3.5%. With strong demand across all lines of business, EBIT in the third quarter increased by 13.3%, to NOK 348 million. And net profit after tax increased by 17.7%, to NOK 226 million. We'll now take a closer look at sales and profit development across the countries in which we operate. Atea's strong sales and profit performance was spread across nearly all countries in the third quarter of 2025. In Norway, gross sales increased by 11.2%, to NOK 3.1 billion based on very high growth within hardware and services. EBIT grew by 8.1%, to NOK 123 million. In Sweden, gross sales increased by 7.7% to SEK 4.6 billion with high growth in sales of software and cloud and services. EBIT grew by 18.3%, to SEK 154 million based on higher sales and relatively low growth in operating expenses. In Denmark, gross sales increased by 13.7%, to DKK 1.8 billion, with rapid growth in sales of digital workplace and networking products. EBIT grew by 25.8% to DKK 15 million. In Finland, gross sales fell by 9.5%, to EUR 95.8 million. EBIT was EUR 1.7 million compared with EUR 1.8 million last year. The Finnish market environment remained challenging in the third quarter with weaker demand from the public sector. In the Baltics, gross sales increased by 9.6%, to EUR 46.2 million, with very strong growth in sales of software and services. EBIT increased by 27.8%, to EUR 2.2 million. Atea Group functions, which includes shared services and group costs, was a net operating expense of NOK 8 million compared with an expense of NOK 2 million last year. The difference was mainly due to higher corporate SG&A costs. Now a word on our cash flow and balance sheet. Atea's cash flow from operations was an inflow of NOK 220 million in Q3 2025 compared with an inflow of NOK 112 million last year. This cash flow improvement was driven by solid growth in earnings and by a reduction in inventory during the quarter. This offset lower sales of receivables into the securitization program and a seasonal increase in other working capital balances during Q3. Looking ahead, Atea expects a very strong cash flow from operations in the fourth quarter with seasonal working capital reductions in line with historic trends. At the end of Q3 2025, Atea had a net debt of NOK 438 million as defined by Atea's loan covenants. This corresponds to a net debt-to-EBITDA ratio of 0.2. Atea's net debt balance at the end of Q3 2025 was NOK 4.6 billion, less than the maximum allowed by its loan covenants. Atea has a strong balance sheet and significant additional debt capacity before its loan covenants would be reached. With Q3 now behind us, we want to provide an update on our financial guidance, which we gave earlier this year. Atea has guided for gross sales of between NOK 57 billion to NOK 60 billion for the full year 2025. We now expect to deliver gross sales in the top end of this guidance range. Atea guided for EBIT of between NOK 1.33 billion and NOK 1.45 billion in 2025. We now expect to deliver EBIT in the middle of this interval. Our guidance is based on a solid order backlog and a healthy market and competitive trends as we enter Q4. We expect that our businesses in Norway, Sweden and the Baltics will continue their solid earnings momentum. Furthermore, we expect that our business in Denmark will progress in its turnaround and that our business in Finland will return to sales growth in Q4. And that concludes the presentation of our third quarter financial results. I now hand the podium back over to Steinar to provide additional information on the Danish business and to summarize Atea's position as we exit Q3. Steinar Sonsteby: Thank you, Robert. So as promised earlier this year, we would deep dive a little bit in Denmark after Q3. I have now spent a little bit more than 6 months in my new home. And I will, as I said in the beginning, dive a little deeper than we normally do. And I will first provide you with some of the issues and then talk about what we are doing about it. Denmark has, for years now, underperformed, and we have not been able to really make a turnaround. In this presentation, I'm comparing Denmark to Norway and Sweden as that makes the most sense compared to size and where we want to go. So first, if we look at hardware, Denmark has had a falling margin curve for the last 5 years. The last 12 months rolling LTM gives us a margin in Denmark at 9.1%. And you see Norway and Sweden on the slide coming in much higher at 12.8% and 12.6%. The margins in Norway and Sweden have been constant for more than 10 years, and the margin in Denmark is falling. So you might think this is because the Danish market is different, pressure on price is harder, but that is really not the case. Because if you dig a little deeper, as normally with Atea's business model, and this is not only for Denmark, it is all about mix. And in this case, it's all about customer mix. If you look at the slide, you see that hardware from SKI contracts. And I just want to say that not all public business in Denmark are done through the SKI contracts. But through the SKI contracts have been growing fast over the last couple of years, and the margin on some of those contracts are low, we have that type of frame agreements in all countries. There is nothing wrong with having large frame agreements. They will have lower margin. The thing is you have to balance the mix. And if you look at this slide, you see that non-SKI business had been falling in revenue. The balance becomes unhealthy. We will keep on serving SKI and the customers that want to buy on the SKI contracts. Of course, it's a big part of our business, but we need to focus on non-SKI also and make that grow. If we look at software and cloud, the margins are slightly falling. And you could think that has to happen because of the Microsoft EA incentives being lowered. But you can see on this slide again that Norway and Sweden are higher. And again, the answer is not really in lower margin in general or price pressure overall. It's, again, a case of mix. So you see total software here, which are the numbers we report. And then you see the EA, which is growing fantastically in Denmark and at hardly any margin. The CSP business is also growing but not as fast and from a much smaller base. That should have been turned around much earlier in the last couple of years. And then other software, so all other software and cloud than Microsoft is hardly growing. Both CSP and other software has very healthy margins. It is the balance of in hardware -- in the case of hardware, customer mix and here, in the case of software and cloud, product and services mix. One way of balancing the revenue and the margin is services, but services is much more important than that. Services is a very, very tough part of our strategy. If we don't build services and added value for the customer and our partners, the margins will be low. That is how the business model for some in the industry are, very high volume, very low margin and very, very low cost. We don't think that is a sustainable business model. Therefore, services is important. In this case, on the slide, you see consulting. So first, the number of system engineers. Norway and Denmark has about the same total revenue, but not so on the number of system engineers. Norway have about 530, Denmark, back when I came, about 130 system engineers. And some of those system engineers have to spend time helping sales, taking certifications, give keynotes or work on customer events and vendor events. So our target for their invoicing rate is around 75%. But when you are below critical mass, it's very difficult to get there. So we need to address the issue. It's the same thing on managed services, one of the more important parts of our strategy -- because we want to be our customers' partner no matter how they want to consume IT infrastructure. Some want to buy and build themselves. Some want to buy and have us build. And some want us to run it all for them. So when Denmark is not growing on managed services, it becomes a strategic as much as a financial issue. So what we have done over the last 6 months? First, we have reorganized sales so that we have a strong account management that can carry the whole breadth and width of our service and product portfolio. We come from a two-siloed sales organization within certain areas. We have now changed. It was done before the summer, and it starts to give effect. It also gives us a much better tool to be able to put new services or products into the sales machine. It's a change that was supposed to have happened a long time ago. We've now done it, and I'm very proud and happy about how smooth this has worked out. And you can see from the numbers in Q3 that we are making progress financially as we are doing the change. Six months ago, we introduced a program, an improvement program called Act as ONE. We need all the force behind one arrowhead, as Scott McNealy once said. The program has five projects, and they all have leads, they all have activities, and we follow up on these weekly. We need to, as you've seen, address the hardware margin. We have gone out and said we'll increase the price, but mostly we'll have resources put on private customers. It's starting to yield, and you will see that already in Q4 as you have in Q2 and Q3. On the software margin, it's important that we put resources and pressure on selling CSP and all the other software vendors that we are carrying like Cisco, IBM, VMware and others. On the AMS side, we have done some changes to the organization and the players that play in AMS. We have increased the pipe, and we need to increase the hit rate, the win rate, which we see are going up. This is a slower part of our business to turn around because there are longer sales cycles and longer implementation processes. But we are moving in the right direction. And then consulting. As some of you might have seen, I have gone out in Danish newspaper saying that we will hire within the next 12 months. This was back in July, 100 system engineers. We are now at about 25 more than what we were at that time. Many of them come with customers, and we are looking forward to, during the rest of this year, to address them with our account management to upsell from consultancy to products and managed services. The culture is something that I have addressed to get turnover down and efficiency up. And I'm happy to say that Atea Denmark today seems like a different company. All in all, I'm very happy with what we have addressed and the results. And the forecast for Denmark in Q4 is an EBIT of DKK 40 million. When that is in the bank, EBIT in 2025 will have grown by 50% as we are doing as much investments into the business and into the company and the people as we see fit. It's a good journey. Within Q1 or the end of Q1, I would have been in Denmark approximately a year. And I will start recruiting a new country manager in November and hopefully spend the spring to get the person into the organization and to take over before summer. So that gives you more details on how we see business, how we see Denmark, and we are very optimistic on what's going to happen in Denmark, but also in the company as a whole going forward. So far this year, we have had a gross sale of NOK 42.3 billion and an EBIT of almost NOK 900 million. We are very satisfied. With that, I'll leave it to you, Chris, to see if we have any questions. Christian Stangeland: Thank you, Steinar and Robert for the presentation. I do have some questions here. First question: Thank you, solid quarter, but can you give some more -- what is happening in Finland? Steinar Sonsteby: Yes. So Finland has been a little bit of a surprise to us this year. We saw some signals to this already in the fall of 2024 that business in Finland was slowing down a little bit. And so we have followed this very closely. It is not Atea that are slowing down. It's Finland that are slowing down. And you can see this looking at a lot of data. And we are, of course, also speaking to all the American partners that we have that have the same development. At the same time, we are winning a lot of contracts. And you've seen that we've publicly talked about some of them, some of the larger ones. And so we expect this to turn around. And our internal forecast say that, that will happen somewhere later this year or beginning of next year. That is difficult to predict. And that's why we are keeping the workforce because we will be ready to go with all the contracts and with a better market soon to happen. Christian Stangeland: Thank you. New question, you seem firm on your guidance with Q4 in Denmark. How can you be so precise? Steinar Sonsteby: First of all, I want to give you two insights. As many of you know, I'm a person that looks at the bright side of life. That gives you a better life in 9 out of 10 chances, and you get surprised negatively once. This is not going to be one of them. And then secondly, we are having a better forecast internally than what we're saying here. But we want to invest as much as possible to grow rapidly in 2026 and 2027 also on EBIT. And so we are balancing -- performing with investments, and that's why we feel pretty confident. But again, predicting the future is not an exact science. Christian Stangeland: Thank you. A new question here. Please, could you help explain how the business has performed outside the public sector, and how are your conversations with your enterprise customers going given the macro backdrop? Steinar Sonsteby: Yes. So the mix between public and private have over many years, grown a little bit in favor of public, especially through corona. But what we see right now is that the investments from enterprises, so private -- larger private companies are super good. Their confidence in what they're doing seems to be high. And I'm now excluding Finland a little bit from that discussion. There are two other factors that are important to weigh in here. First of all, you will see that not all IT companies are growing as fast as Atea. So we are definitely -- our strategy are definitely helping us to take market share. But you also understand that there is nothing a company can do today to improve their business, take market share or develop better products and services than investing in digital services. So we're in the right spot with the right strategy, with the right people. And so we are confident from that part. The discussions are very much centered around finding that edge in investing in technology, security to protect and AI to develop. But you need a broader investment in infrastructure and applications to be able to use those tools. So it's a very cool and interesting time to be in our industry, and we don't see that going away anytime soon. Christian Stangeland: Thank you. The new question, what needs to happen for Atea to achieve a top end of the EBIT range for 2025? Or is that something that's just not in the cards? Steinar Sonsteby: Well, I think we've been pretty precise with what we think will happen. We're still -- we have still given an interval, and it's still possible to have both outcomes. But I think we'll leave it with our guiding. Christian Stangeland: Thank you. A furthermore detailed question on Denmark. What are the plans for ramping up the system engineers in Denmark? And what will be the increased cost? And how much will that happen? Steinar Sonsteby: So first of all, the investment in the 100 new system engineers in Denmark is supposed to give a payout after 1 to 3 months per person. So it takes 1 to 3 months to get people to be profitable. The ramp-up is pretty linear over the 12 months from July to July. And by the way, we are ready to further ramp that up after we've got to the 230-240, which is the target as we've set it right now. But there are two reasons why this is important. So the financial impact of each system engineers by itself is a positive contribution, as I said, after 1 to 3 months. But it's also important in our margins on product, but also how the stickiness between us and the customers will become as we have consultants or system engineers in -- or with the customers. So there is an investment. Of course, the cost per head is what it is, and you can do the average math, and we see a positive contribution pretty rapidly on this. And that is also what we've seen in Q3. Christian Stangeland: Thank you. New question. You've previously stated that reaching the upper end of guidance will require a rebound in Finland and Denmark in H2. Now you say you expect to reach the midpoint despite Finland being weak. Does this mean something else has developed better than you expected? Steinar Sonsteby: Well, that statement is the person putting the question to us. We have not seen any weaker development than what we thought outside Finland. Denmark is exactly where we thought it would be or hoped it would be actually, but we do see a stronger momentum in Norway and Sweden. The Baltics is also performing really, really well, but it's a smaller part of the business. So I would say Finland, surprising a little bit on the negative side. The other countries all in line or a little stronger. Christian Stangeland: Thank you. And the final question. In previous presentations, you've been talking about the four big growth drivers. Can you briefly give us an update on those, please? Steinar Sonsteby: Yes. So very briefly here since we are at the end. AI, starting with that. I think everybody understands that the hype curve was high and very early in the cycle of AI as a technology. We see a lot of interest. We see a lot of people taking advantage of Copilot and some, and not very many, but some who are investing deeper and building solutions based on their set of data. This is a long process. It's going to -- AI is going to be a growth driver for us for years and years and years to come. 5 years from now, we'll look at it and people will say, wow, everybody is using it everywhere. And then we'll start talking about quantum computing or something new, which will accelerate AI even more. Security is right now growing faster than what we thought. We've always thought that customers should invest in security and cyber threats are not going away anytime soon. But it hasn't really happened in the history. People have invested more, but not as much as we thought. Right now, we see an increased interest in investing in security. Defense is strong. And I think it's true to say all over Europe that investments in defense is ramping up. The countries are lacking people, and they have the money. And so we see a very strong demand for investments in defense and NATO going forward. And we will launch some new contracts in the months to come that will prove that. And then Windows 10 end of life. As some of you have seen, there's been a huge push over the last 2 years to go from Windows 10 to Windows 11 operating system. That change by itself is not a huge growth driver, but the fact that you can't run Windows 11 on all the PCs that you were running Windows 10 on at the same time as customers are changing to AI or Copilot plus PCs, so stronger, more expensive PCs, is something that have been driving our revenue on the client side for the last 12 to 18 months. Absolutely a driver that we'll see also into the future, even though Microsoft have prolonged service for some customers for 12 months. There are still about 1 million PCs in the Nordics that need to be upgraded. If they're upgraded because of the operating system or because they're end of life or because you want to run AI central -- locally, sorry, locally, doesn't really matter to us. We're going to sell you the PC anyway. With that, we wrap up the Q3 presentation here from Oslo, and we thank all of you and hope that you have a very, very nice day.
Natalia Valtasaari: Good morning, everyone, and welcome to KONE's Third Quarter Results Webcast. My name is Natalia Valtasaari. I head up the IR function here at KONE, and I'm very pleased to be joined by our President and CEO, Philippe Delorme... Philippe Delorme: Good morning, everyone. Natalia Valtasaari: And our CFO, Ilkka Hara. As usual, we'll start by walking you through the financial highlights of the quarter, what we're seeing in the business and what we're seeing in the markets, then we'll move on to your questions. [Operator Instructions] but with that, over to you, Philippe. Philippe Delorme: Thank you. Thank you, Natalia, and good morning, everyone. I'm very pleased to be presenting our third quarter results today. And let me start by saying that Q3 was, in many ways, a strong quarter. Order development was, of course, a key highlight. Nearly 8% growth is an excellent achievement, and I'm happy that growth was broad-based. We delivered again on our target to consistently improve profitability towards our midterm margin corridor. Not only did we grow earnings, but we also had healthy cash conversion in the quarter. For me, a key point worth emphasizing is that over 60% of our sales is today coming from service and modernization. This shows that our pivot towards a more resilient business model is proving successful. And last but not least, we continue to drive our strategy forward with precision and speed. I will share a few concrete examples of strategy progress, but let's first take a look at our financial performance in more detail. So as just mentioned, order growth was strong this quarter. We saw over 10% growth in all areas except China. The biggest driver was modernization, where orders were up double digits. And I'm also pleased that our efforts to strengthen competitiveness in the residential segment paid off. This supported good momentum in New Building Solutions, especially in Europe and in the Americas. Sales grew by 3.9% at comparable currencies. Modernization delivered another excellent quarter with sales up 15.5%. Our Service business also performed well outside China, while in China, development was more stable. Adjusted EBIT margin expanded by 75 basis points from a low base. And the main driver was the growth in our largest profit pools, service and modernization. And finally, cash generation was strong with operating cash flow increasing by roughly EUR 100 million year-over-year. Let me now share some highlights from the quarter. The first one, and you see the smile on my face, is a very exciting milestone where we secured the contract to equip the Jeddah Tower in Saudi Arabia, rising to over 1,000 meters. This will be the world's tallest building once completed. It will be equipped with solutions from KONE next-generation high-rise offering, including our superlight UltraRope hoisting technology. I'm very proud of this win. It showcases not only our unique innovations, but also our capacity to deliver highly complex projects in a reliable way. With this win, 5 of the world's 10 tallest building will feature KONE technology. I see this as an excellent recognition of the work we've done to reinforce our leadership in the high-rise segment. As you know, our strategy focuses on making KONE an even more resilient business with service and modernization as the key drivers of growth. And I'm pleased with the progress we've made in accelerating this shift during the year. Let's start with services. We began the year with roughly 35% of our maintenance base connected, and we are now approaching 40%. At the same time, our field service technicians are leveraging productivity tools in 41 countries, and we're enabling remote service in 35. These advancements are critical to deliver greater transparency, improved predictability and more efficient service for our customers. Let's now turn to modernization, where customer response to our partial modernization offering has been very positive. This is the fastest-growing segment within modernization and accounts for the largest share of modernized units. For KONE, partial modernization provides scalable growth and enable us to address market opportunities more broadly. For customers, it offers easier installation and improved energy efficiency at a more attractive cost. I see this as a true win-win. Let's now move on to sustainability, where we have lots of good news to share. Let me highlight a few components of our sustainability index, where we've made particularly strong progress. First, we have continued to scale our solution to drive energy efficiency. A good example is the growth of our partial modernization business and the fact that regenerative drives are now included in more than 60% of our deliveries. We have also improved our [indiscernible] rating, which is how we measure progress in cybersecurity, a key priority for us. We're actually now in the top 10 percentile of the engineering peer group. On the people side, I'm proud to share that KONE was recognized for the 6 years in a row on Forbes and Statista's list in the World's Best Employer. This is a fantastic acknowledgment of our commitment to being the #1 choice for employees, fully aligned with our strategic ambition. Finally, we announced a partnership with UNIDO. Together, we will conduct training programs for our suppliers to promote sustainable practices and human rights across the supply chain. Now let me hand over to Ilkka, who will go through the market development and financial in more details. The floor is yours. Ilkka Hara: Thank you, Philippe. And also a warm welcome on my behalf to this third quarter result webcast. As usual, let me start talking about how we are seeing the markets developing in the different regions over the past 3 months. Overall, the trends were broadly similar to what we've seen earlier this year. In terms of New Building Solutions, as I'm sure you are well aware, market conditions continue to be difficult in China. In all other areas, we actually saw increasing market activity. If we move East to West, demand continued to be strong in Asia Pacific, Middle East and Africa. In Europe, activity picked up from Q2, growing slightly compared to last year, and we also saw some growth year-on-year in North America, despite trade policy-related uncertainty. Then looking at Service and Modernization, we continue to see healthy growth in all regions. Next, let's go through our financial development in the quarter in more detail. As usual, I'm starting with orders received, which, as Philippe mentioned, was a highlight of this quarter. 7.8% growth at the comparable currencies is a great achievement. Interestingly, China New Building Solutions was the only soft spot. Modernization continued to grow strongly in all areas, and we had a good quarter also in New Building Solutions outside of China, both in volume business as in the major projects as well. Order margins were stable overall with China still under pressure and more stable development in other areas. Turning into the sales, which grew 3.9% at the comparable currencies in the quarter. Looking at the development by business, it was great to once again see the strong order book rotation in modernization. Sales increased by 15.5% overall. And more importantly, all areas contributed with double-digit growth. In New Building Solutions, continued low delivery volumes in China was the main driver behind the 5% decline. In Service, we grew by 7.3%. Outside of China, growth was very much in line with our targets. In China, we have taken deliberate actions to prioritize margin and cash flow over volume in all of our businesses, including service. This means being selective and sometimes walking away from contracts that are not meeting our performance criteria. Pricing and revenue uplift from digital services solutions continued to contribute positively to service growth. The repair business also performed well in the quarter. This is actually a great example of the benefits of accelerating digital. As Philippe said, connectivity enables productivity. And when we perform service more efficiently, we release time that we can use, for instance, more proactively drive repair sales. Then moving to adjusted EBIT and profitability. Margin expansion in the quarter was 75 basis points year-on-year, which is a good outcome despite the lower -- low comparison point. This took adjusted EBIT to EUR 341 million. Looking into the details, we saw again some negative impact from higher investments into R&D and our strategic growth areas. That said, the main headwind continued to be the new equipment market in China, more than offsetting was the positive mix impact of services and modernization growth. So overall, good delivery of our 11th consecutive quarter of profitability improvement and especially good to see also sequential improvement, which is not always the case for Q3. Then turning to cash flow, one of my favorite metrics. Cash generation was strong in the quarter, supported by growth in operating income and by changes in working capital. Cash flow from operations increased to EUR 364 million, bringing year-to-date cash flow to EUR 1.3 billion. The contribution from working capital came mainly from advances received, which, of course, related to a strong growth in orders. And although not a big contributor this quarter, our focus on collections continues and it's progressing well. Then looking at the whole year '25. First, we have made a small update on our market outlook. We now expect the New Building Solutions market in North America to grow slightly, as activity continued to trend upward in Q3. Of course, the business environment in the U.S., in particular, remains fluid. Our view on other areas is unchanged. China continues to be the main challenge. In Europe, we expect some growth. And in Asia Pacific, Middle East and Africa, we expect clear growth. For Services and Modernization, our outlook continues to be positive with growth opportunities in all areas. Then to our business outlook. With 3 months left in the year, we have specified our guidance slightly. We now expect sales to grow 3% to 5% at the comparable exchange rates and the adjusted EBIT margin to be in the range of 11.9% to 12.3% this year. FX is expected to be a headwind. If it remains at the October levels, we estimate a roughly EUR 30 million negative impact to EBIT. China continues to be burden to both volumes and margin. We also expect some small impact from tariffs. But as we discussed already previously, most of the impact is recoverable in our view. We have already made good progress in mitigation actions. In terms then on tailwinds, service and modernization growth is the main positive. We also expect some support from the ramp-up of performance initiatives. Then Finally, let's look at how we're currently thinking about year '26, starting with challenges. China construction market is not yet showing any signs of leveling out. So this will continue to be a burden, less than in '25 as our exposure continues to come down. We also expect similar inflationary pressure on wages, as we have seen this year. On the positive side, we continue to see opportunities to grow our service and modernization business, which will contribute positively to the earnings mix. We also expect meaningful contribution from our performance improvement measures. And we have made it very -- and we have made very good progress in our product cost reductions this year, which will also be supportive. So those are our initial thoughts. And of course, we will provide more color when we report the Q4. Let me now hand back to Philippe to close the presentation before going to the Q&A. Philippe Delorme: Thank you, Ilkka. So to wrap it up, let's make -- sorry, changing slides. So let me first take the opportunity to thank all the KONE teams for their great achievements and for delivering a strong Q3. We had yet another quarter of good momentum in service and modernization, which shows that the transformation we are driving is well underway. I'm also very happy with the progress we are making in executing our Rise strategy, and we continue to move full steam ahead. And finally, our performance this quarter shows that we are on track to delivering on expectations for 2025 and building solid momentum towards reaching our midterm financial targets. Thank you all for your attention, and I suggest now we move on to your questions. Operator: [Operator Instructions] The first question comes from the line of Andre Kukhnin from UBS. Andre Kukhnin: Maybe actually, I'll start with a quick follow-up on what you mentioned on China exposure coming down during this year. Maybe could you help us to calibrate that a little bit? I think we talked about China New Equipment margin being clearly below group average in 2024. Is it fair to assume that it has come down substantially further in 2025 in sort of more mid- to low single-digit range? Ilkka Hara: It's always difficult with these objectives substantially, like you said, but what I would say that our margins in China in New Building Solutions have come down in '25 further. Andre Kukhnin: Got it. And the main question really for me is on the performance improvement initiatives that you talked about and we've been kind of tracking and talking about since the Capital Markets Day last year. Can you just walk us through what has been done during 2025 and what will be delivering those kind of meaningful contribution, as you mentioned, in 2026? And is there any way we can start sort of quantifying that already for 2026? Ilkka Hara: Well, if I start, I think you're quite passionate about this, Philippe, yourself. So what we outlined in Capital Markets Day is that we see an opportunity for us to improve our profitability by 150 basis points by year '27. And then, of course, we need to make a decision that we invest some of that back to growing the business further. In that progress, we have started to now execute those programs. The largest ones which are contributing to the profitability are focus on our procurement, how we source both at the factories as well as in the local operations and as well as how we perform at the regional level or the lowest level where the KONE teams come together, and we call it sales and operational excellence. On sourcing, I'm very happy how we've been able to drive our product cost down this year. We have yet another record in terms of product cost reductions as a result. We have more work to be done on the local sourcing part, and that's because it's touching more teams, and we need to then just lower to get that executed. So good progress in where it's more centralized, more work to be done and good opportunities in there. And then sales and operational excellence, we are seeing that the teams are really now able to drive better and better outcomes, and we have more and more consistent execution. But also there, we have plenty of work to be done on that one. Maybe you want to comment? Philippe Delorme: Yes. I mean those things take time. I'm rather impatient as a person, but you -- I mean, you don't -- the company is not a light switch. So when you drive things at a branch level with much stronger sense of execution, timely, weekly, tactical and things like this, it takes some time to spread within the company. I think we've said during the Capital Market Day that we would start to see the impact of most of these actions by the end of 2025. Nothing has changed on that front. The only thing I can say that we've been extremely diligent in '25 to ramp up our actions, be extremely systematic. And I feel much better about, let's say, the level of detail and scrutiny and capacity to execute we have on this work. And I would say on procurement, the arrival of Michelle Wen, who came with a very strong automotive background, and she just came in actually in August. So it's not yesterday, but it's a few weeks away, is giving me confidence that we can actually intensify the work we want to do on the procurement side. Operator: The next question comes from the line of James Moore calling from Rothschild. James Moore: I wondered if I could talk about your service growth. Would it be possible just to give us a flavor for the speed of the unit growth in maintenance base versus the price behind that and other topics is the first question. Just to understand whether the speed of maintenance base growth is broadly stable or accelerating or slowing for any reason and whether price is broadly the same behind that? Ilkka Hara: Yes. So overall, on the LIS growth, and I guess I commented that already during the presentation. So the LIS component of that is growing in Q3 a bit less than we've seen as a trend line. And the main reason for that is 2 things. One, which is that in China, we clearly focused more on lining up the business to focus on cash flow and profitability. And in some cases, also in the service business, we've actually decided to let go some of the customer contracts, as they're not meeting our performance criteria. And then it's more of a quarter-by-quarter, there's fluctuations. So it happened to be that in Q3, we had a bit less acquisitions than we've seen in the recent quarters as a result. The good thing is that both pricing including digital as well as repair sales are actually progressing quite well. So in that sense, we are making very good progress on that front. And then lastly, I think it's also that given what I said, so we had very close to the targeted level of 10% growth or close to 10% growth in services in 3 of the areas, whereas really the slowdown in sales was more related to China actions we've taken. Philippe Delorme: Which is a clear choice. And actually, I'm very happy to see the result, which is our cash generation in China and our profit improvement in China on that front is according to plan. So I would say we are executing what we want to execute. And it's a bit of 2 way of doing things, which is China on one side, where we've always said cash margin and moving to more service and modernization versus elsewhere where clearly our -- the way we are executing is different because the markets are different. James Moore: Could I just follow up on that? I mean, over time, I felt that the maintenance base grows with a lag after the first service period from the unit deliveries, but also your win-loss ratio and your conversion ratios. And you always had a very high U.S., European conversion ratio, 80%, 90% and a more muted 50%, 60% conversion ratio in China. I'm just trying to understand, is it that the conversion ratios are broadly staying the same across the 3 regions and that it's the active choice on the win-loss ratio to effectively proactively lose? And is the intensity of this change, which slows your maintenance base growth at the moment? Is that something that's going to intensify yet further going into '26, if you like, with more proactive contract management? Ilkka Hara: No, I don't think that's something which will continue going forward. It's been more of a targeted efforts right now. And it's good to note, so first, your comments on conversions as well as retention. So they are quite stable. And for example, in Europe, where the NBS market has been now for a few years, been down, we've been able to actually quite nicely grow the services business, as I've noted in previous quarters. So we've been able to mitigate with good retention, win-loss ratios improving and some acquisitions as well to drive growth in a market where there's less conversions. Philippe Delorme: And talking about our service business, we -- you've probably noticed that we talk quite a bit about our repair business. Actually, we've done quite some work to make sure that we would optimize that part of the business. It's actually significant in our service figures, both top line and profit. And when trying to understand how the service business work, I would encourage you to really look at, yes, the pricing and the service base but also the repair business, which for us, at least is very important. Ilkka Hara: And actually, the repair business grew really nicely, almost double the speed of our service business in the quarter. Philippe Delorme: Yes, absolutely. Operator: The next question comes from the line of Daniela Costa calling from Goldman Sachs. Daniela Costa: I'll ask just one and it's regarding modernization, obviously, very strong 10% organic order growth there. Can you give us some light on how sort of your installed base age has evolved? I know you talked about the mono elevators being very important for that modernization. So can we see this 10% plus as sustainable going forward when you look at sort of how the curve of age of installed base is? Any light there would be helpful. Ilkka Hara: Well, I guess, first, good to note that the modernization growth was actually on a quite close to the 15% target that we talked about in the quarter. So very good numbers. Then on this aging of the portfolio, so I think there's 2 topics I would highlight. So first, there are so many elevators in the world that need to be modernized that we're not yet making a dent onto the aging as a whole. And most of the elevators that are old are actually outside of our own LIS base. So for us, the growth opportunity, we've been working and targeting previously our own service base. But really, the big blue ocean is the elevators that are not in KONE maintenance. And there, I think we're increasingly making good progress in identifying those and having the right go-to-market to really get to those customers. So at this rate, we're still -- the elevator base is aging more than we're able to modernize as an industry and also, I guess, for KONE as well. Philippe Delorme: Maybe to illustrate a bit more, Daniela, the topic, and I'm going to quote some figures that I think I have listed in the Capital Market Day, but there is 25 million elevators in front of us, of which 10 million are more than 15-year-old total in the world. This 10 million will become 13 million by 2030. So whatever happens every year, whatever happens to real estate market in China, outside of China, there is growth because elevators are aging, whether our elevators or the elevators of competition. With that in mind, today, when I look at our figures -- and we are happy with our figures, and we'll try to do our best to sustain that growth. We are actually modernizing tens of thousands of units versus 10 million units in front of us. So we've said it many times, but we'll repeat and we'll repeat and will repeat, this market is growing structurally because elevators are aging. And today, we have good figures, but we are not -- I mean, there is still a lot more that could be done with innovation, with better execution and so on. So we are confident in our capacity to drive scalable growth in that field. Operator: The next question comes from the line of John Kim calling from Deutsche Bank. John-B Kim: Could we just go back to wage inflation for a second. Can you give us a sense of quantum of growth there as a growth rate and how that compares to what you maybe were seeing earlier in the year? And how should we think about the cadence of the price ups that are in the contracts versus this inflation? Ilkka Hara: So twofold. We are seeing -- I guess, I've said also earlier that our wage inflation this year is around about 5% on average for KONE as a whole. And yes, our escalation in contract prices for services have actually been quite close to the inflation level. So we've been able to continuously now drive not only the CPI level inflation, which is continuously coming down, but actually representing the inflation we are seeing and then we have the productivity as a separate item. So pricing, yes, we can escalate service contracts. But of course, then also we see broadly outside of the service operatives, also the wage inflation impacting our cost base as such. John-B Kim: Super helpful. One follow-on, if I may. Can you give us any color on how you're driving better penetration of connectivity? Ilkka Hara: I think that's for you. Philippe Delorme: Discipline. Discipline and it looks like -- it's not easy. I mean, in every, let's say, original industrial company, I think it takes some time to make sure that our people understand the value of connectivity. And on the few things that I'm really happy with, when I look at the step-up that has happened in the company for every one of us to understand, especially in our service business that service will have to be digital. I think we've been good at discipline. And we'll be even better at discipline. And we've been -- I've been very clear to the people in KONE. We want by 2030, 100% of our installed base to be connected. And we're going to be very disciplined and focused on driving that goal and it makes sense for customers. And actually, I've been on the road for 3 weeks in North America, meeting many, many customers. The great news is -- the feedback from our customers is we execute well. They see the value of our connectivity around transparency, around predictive capabilities, around from time to time remote services, and they really like it. And the feedback we get is we seem to be executing pretty well on that front. So we'll keep doing that. Operator: We are now going to take a question coming from Martin Flueckiger calling from Kepler Cheuvreux. Martin Flueckiger: Two questions. The first one is on China and particularly the property market there, where July, August data seemed to suggest that there was a steepening of the decline. And yet when I look at your data on the Chinese property market, it looks like NBS orders were relatively -- in real terms were relatively stable in terms of dynamics. So just wondering, is that because of rounding? Or -- what do you see on the ground in the field? Was there a worsening in the NBS market actually maybe towards the end of Q3? That would be my first question. The second question, if I just may add on, is on the financial income that you've reported for Q3. If I saw this correctly, you've posted a negative financial income for Q3. If you could just elaborate on the reasons for that, that would be helpful. Ilkka Hara: Okay. I'll take them in reverse order. So the financial income is related to hedging. And if you look at the 9 months year-to-date, that gives you a better picture. So Q2, Q3, you see the opposite direction there. So in 9 months, you see the real underlying performance there. Then on China, so I think as I've said during the last few years that a lot of the KPIs fluctuate somewhat. And whether it's better or worse around that volatility, our view of the market has not changed. So we are seeing the market to decline this year in units and value double digit and more in value than in units. And I would say that during Q2 Q1, Q2, there was a bit some signals that were better, but I would not say that the Q3 has been something where we've seen a big change overall. And it's important for us to also note that, yes, we want to be a meaningful player in China and want to go after the service and modernization opportunity. But as Philippe already said, and I said, I guess, as well that we are optimizing the business to cash flow, profitability and the pivot to services and modernization. So we'll take the business that we see supporting those priorities in NBS then in the market. But I don't see that the market has dramatically -- or there's been a bigger shift during the Q3. Philippe Delorme: And the repeat on the China market, maybe it's clear for everyone, but I will repeat. The market today is 50 NBS, 50 modernization and service. So if there is any change, that is that over multiple years, what was NBS-dominated market, now it's coming 50-50. I'm not having any crystal ball, but it's pretty obvious that, that trend will continue, meaning the share of modernization and service will likely keep increasing if we see what's happening because the country is aging. We see growth and actually pretty healthy growth in modernization. We are driving our service mix first with cash and margin, but there are still opportunity in service. And we are clearly adapting our forces in NBS to take into account that market reality. And I would say on that front, I want to compliment the team for reducing their cost very aggressively, both product cost and the fixed cost we have to adapt ourselves to a market reality, which indeed is going down, on NBS. Operator: The next question comes from the line of Vlad Sergievskii calling from Barclays. Vladimir Sergievskiy: Two questions from me. Can I please start with the follow-up on modernization growth opportunity ahead? To what extent it is driven by the market growing? Or it is actually KONE creating the market for itself by addressing installed base, perhaps in a more proactive way or opening new market niches for themselves? Because I hear your comment that fleet -- the installed base is aging, but it probably has been aging for forever. And KONE modernization growth was almost never as impressive as it is today. Philippe Delorme: I think it's a mix of both. The market is growing, and you have the data on our assumption of the market, but the market growth is good. And we believe that we are gaining market share in that space because we are focused and because we try to drive the right innovation and be customer-centric, which is when you have an elevator in your premise, the last thing you want is having any OEMs coming and say, okay, for months, your elevator is not going to work. So what we are doing is we are listening to our customers and say, you know what, we are going to make it shorter, simpler so that actually we do what's strictly necessary to start with, which very often is electrification upgrade. And then we'll go in a life cycle discussion with you to make that improvement over multiple years with smaller chunk that will be less risky. That's not -- I'm not reinventing the wheel here, but we are executing in a very focused manner, trying to have modular offers in front of this, and it's working very well. So we are gaining share in that regard, and we're really trying to push our team to be very customer-centric on a growing market. And the result is a double-digit growth, which is very consistent, which is driving value for the company, and we are very happy with that. Vladimir Sergievskiy: That's great. And a quick housekeeping question, if I may, to Ilkka. Interest income line was negative about EUR 15 million this quarter, which I think is almost the first time ever when this line was actually negative. Is there something to do with hedging practices? Has any hedging practices changed to drive this change? And where in the P&L, there could be an offset to this line if there is one? Ilkka Hara: So actually, the previous question was on the same one. I said, yes, it's on hedging. And the year-to-date picture gives a better picture of the real underlying income and expenses. So between Q2 and Q3, we had an opposite development on there. Operator: The next question comes from the line of Panu Laitinmäki calling from Danske Bank. Panu Laitinmaki: I have 2 questions. Firstly, on China NBS, just on the margin. So was it still positive in Q3? And going forward, do you expect to kind of protect the margin with the actions you mentioned reducing fixed costs and so on. So that is why you gave the comment that it's a smaller headwind going into '26. Ilkka Hara: Well, yes, on both of the questions. And I guess I was also in the smaller headwind, meaning that the size of the business relative to the size of the rest of the business is smaller. Panu Laitinmaki: Okay. That's clear. Then the second question is on modernization. So how much is parcel modernization out of orders and sales roughly? And then how has the margin of modernization developed? I mean, a year ago, you said at the CMD that it's close to the group average. So is it still there? Or has there been changed so far? Ilkka Hara: We see on the parcel modernization, it continues to be a bigger and bigger part of the modernization. I don't think we've been very clear on exactly how big part of that is. And on modernization, we continue to see, as it has been during the last years that the profitability continues to be improving as we are scaling up the business on modernization. Panu Laitinmaki: Okay. And is it fair to assume that the parcel modernization is more profitable for you than the kind of traditional modernization? Ilkka Hara: Yes, it is. It is focused on the most important components of the elevator and there's less construction work related to that as well. Philippe Delorme: That's what we call the benefit of being modular and standardizing work, which actually for the customer is better value for money. And for us, it's better execution, less time lost in the field. So it's a win-win for everybody. Operator: The next question is from Ben Heelan calling from Bank of America. Benjamin Heelan: I just had one, which was on M&A. Now you've obviously said in the past that you want to be a consolidator of the industry. I just wondered if you -- is that still where your minds in terms of the future of the business? You see consolidation as a focus? And when we think about leverage ratios, is there any sort of framework that you can give us in terms of the leverage that KONE would be willing to go up to? And any framework there? Is it based on credit rating, et cetera? Ilkka Hara: I don't think the comment on the consolidation making sense in the industry has changed. We've said it for a very, very long time. Lately, actually, we've been doing consolidation more on the smaller maintenance companies on an increasing speed. So that's also then that we want to be a driver of the consolidation. Then on leverage, so I guess we don't -- we're net debt negative right now. So it's not been an issue. But I've said previously that we want to continue to be an investment-grade -- strong investment-grade company going forward. Operator: The next question is from Rizk Maidi calling from Jefferies. Rizk Maidi: Just to follow up on M&A and more specifically transformational M&A. Can we maybe just chat around whether you would be considering issuing equity, if you were to pursue a larger acquisition? And then maybe geographically, what are the regions where you feel you have a little or perhaps where we would like to add sort of more exposure? I'll start there. Ilkka Hara: Well, I guess on the first one, so I wake up every morning, and I guess, Philippe as well as somebody who sees that there are bigger companies in the industry. So we're a challenger. We want to grow faster to be the leader in the industry. So that's clear. I don't think it's one geography per se. I think it's a general statement where we want to grow faster than our competitors to make that happen. And as such, then on other things on capital structure, capital raising, I don't think it makes much sense to speculate on that. Rizk Maidi: Okay. And then the second one that I had is just covering the industry for quite some time, and this question is specifically on China maintenance. I think we've seen historically that whenever new equipment business being weak for an extended period of time, we saw that basically spread to the maintenance side of things. I'm just wondering why this should not be applicable. I mean I remember this happening to Europe back in 2013, '14 after the European debt crisis. Just wondering why you think this should not happen in China, whether it's -- you compete with different players, structure of the market different and whether the slowdown in maintenance has anything to do with this? Ilkka Hara: Well, first on China maintenance, I don't think I've ever said it's easy or something where there's not a competition. It is like we see it it's -- half of the market is service and modernization. So of course, everybody knows the same thing. And among the world's fragmented, so i.e. most competitive market in service is China by far. So I think that's a starting point. And then when you have less new elevators enter into the market, then, of course, it makes it tougher. What I'm very happy about is that how our team has been able to address it. And now I call it out because we made conscious decisions now in Q3 that impact the outcomes. And it's not a market-wide comment. It's rather our focus on profitability and cash flow. Philippe Delorme: And maybe to build on your point on China market. When we benchmark across the world, clearly, the China market is more fragmented. And we see at the lower part of the market, companies that are doing the very minimum of what they should do in terms of safety. We see on the other side, the China government being conscious that safety standards should move up, also seeing an opportunity with digital. So my point is not about next quarter, but when I look at a longer time period, I would expect some further concentration because on one side, the lower part of the market would have a hard time to survive with a standard that I would expect would increase with more digital technology that would make it less accessible for, let's say, lower cost, low-value player to deliver a value, which is more and more essential in a country that's being more and more modern and more and more asking for top safety standards. And we have work to do as an industry to help the industry move to a higher level of digital safety and so on. So this is upside. How fast it will materialize, we'll see. We have our role to play here. We are very active on digital to be a digital driver in China. It's taking some time. Rizk Maidi: Perfect. And I promise the very last one, so apologies if this was tackled before because I joined late. Section 232 and its extension to more than 400 products in August, maybe how you're thinking about the direct, but also more importantly, the indirect impact on the business. Ilkka Hara: It is first question on tariffs, and I think there is a reason for it because we don't see that meaningfully impacting our results. We are, number one, of course, working with our own supply chain on what we produce in U.S. and what do we ship to U.S. And actually, the export -- sorry, import to U.S. is less -- about 10% of our business. So it's actually quite small. And then secondly, we're protected by our contracts. So we are actually moving the cost of tariffs largely to our customers. And then, of course, we need to continue to drive product cost actions and efficiency in our supply chain going forward. Operator: Moving on to our next question from John Kim calling from Deutsche Bank. John-B Kim: He just took my question. Someone was strong. Ilkka Hara: Okay. That's good efficiency in action. Operator: And the next question is from Vivek Midha calling from Citi. Vivek Midha: Hope you can hear me. I just have one follow-up really on the questions around service growth with one eye on the quite ambitious aims for midterm growth here and the building blocks there. Is there also any material contribution at all from the strong modernization growth that you've been seeing in adding to the service installed base? Is there expected to be some over the midterm, helping you achieve your targets there? Ilkka Hara: You're seeing me smiling because that's actually a really important topic. And I was talking about the modernization. So the focus and the volume of the opportunities outside of our own maintenance space. And indeed, once we partially modernize an elevator, it becomes a digital modern elevator for us to maintain. So increasingly, that will be a driver for unit growth. And of course, already now with this modernization growth, we're starting to see increasing impact coming from that. And the more mature the markets are the bigger driver for unit growth is modernization in the long run. Philippe Delorme: And those, as you call, modernized connected elevators, actually, we are more efficient in delivering the right output with our customers because we use all our capabilities. So it's playing very positively in the mix. But that's a great point. Vivek Midha: Understood. Just a quick follow-up -- as a quick follow-up on that -- I don't know if you have data, but in terms of the conversion rate of, say, one of these partial mods, for example, compared to NBS, I mean, how does it compare in terms of driving the service there? Ilkka Hara: Well, twofold. So the relative conversion rate is quite high. So it's a very good level. Then still on the absolute volumes, it's still a smaller contributor. So we need to scale up the business, but it's a very good way to increase our LIS base. Operator: There is a follow-up question from Andre Kukhnin from UBS. Andre Kukhnin: So firstly, on the service adjustment in China that where you decided to let go some customer contracts, can you just confirm that, that's a one-off? Or should we think about that for Q4 and then maybe into 2026 as well? Ilkka Hara: I guess I already said it's not a long-term action. But of course, we continue to monitor the business. So let's see now how Q4 develops, but it's not something we expect to continue for years. The priorities don't change, but I think it's more of a discrete focus on this. Andre Kukhnin: Got it. And if I were to think about it, I'd probably think about it being more margin focused than cash as such, as probably some of these units are in fairly sort of spot locations, not really helping density. Is that the right sort of avenue? Or is it cash driven as well? Philippe Delorme: I think it's both, but it's driven by margin, but we've been really very clear with our China team, cash, margin rebalance the business. And there -- I mean, China is seeing some cash tension across the board. So how much is margin and cash? Usually, the 2 are related actually, but it's a bit of both. Andre Kukhnin: And if I may, just one more on China... Ilkka Hara: A follow-up on follow-up. Andre Kukhnin: Yes. Triple follow-up. Is modernization still the highest margin business for you in China? And is there -- well, I think there is scope, but are you also implementing a kind of modular approach there given that you've got a substantial and sort of broader universal installed base there? Ilkka Hara: Yes. So we plan to drive this more modular approach in China as well. And if you think about the size of the buildings, the time to execute the modernization is even more critical for the customers. And we have actually progressed really well be, I guess, fastest in the world in China in terms of driving modernization, is a fair statement. So kudos to the team on that one. And yes, modernization continues to be a good margin business for us in China. Operator: There is another follow-up question coming from James Moore from Rothschild. James Moore: I just wanted to follow up on service and NBS margins at a global level. You mentioned that China's margin is now in a loss in NBS in new equipment. Is that such a loss that the whole global NBS profitability is now a negative one? And the second question is on service margins. Are we at an all-time high in terms of service profitability? And if not, could you say when that was and how many bps or percentage we are below the all-time high? Ilkka Hara: On the first comment, I absolutely did not say that we are making a loss in China in NBS, neither did I say that we're making a loss in NBS globally. So it is clearly a lower-margin business compared to the other 2, but I have not said that we're making a loss. Then second, on services, I'm sure that in the history of 115 years, we've had margins that are peaking due to many reasons in services as well. But I would say that directionally, we continue to see margins improving in services, as we're digitalizing the business and driving productivity and the actions we talked about in pricing and more repair work. So it's directionally continuing to develop quite positively. Operator: Well, ladies and gentlemen, there are no further questions so I will hand you back to your host to conclude today's conference. Thank you. Natalia Valtasaari: Thank you, and thank you, Philippe and Ilkka, for the answers. Thanks, everyone, online for the plentiful questions, lots of varied ones. Really good to have active dialogue. Thanks for everyone who just listened in as well. I know it's a busy results today, so we appreciate the time. And as usual, if you do have any follow-ups, please reach out to me or the team. We're here for you. With that, have a great day. Philippe Delorme: Have a great day. Thank you so much. Ilkka Hara: Thank you.
Henrik Sjölund: Good morning, and welcome to the interim report presentation for the Holmen Group. Today, it's me, Henrik Sjölund and Stefan Loréhn. We will go through the presentation, and then we're happy to take any questions you might have. I know it's a busy day for you, so a special thank you for taking the time also to discuss with us. Well, the third quarter, challenging market conditions, a bit the same message as we actually had after the second quarter, this quarter, well, low demand for wood products. We also have -- despite low utilization rate and very expensive wood, we have, again, a very good result from wood and paper. All in all, a bit over SEK 700 million, a decent result when it comes to Holmen. If you look at our industry, not only wood products, but also wood and paper together, so far this year, during the first 9 months, we've been able to deliver 15% return on capital employed. And if we look at our financial position and what we have done, Stefan, we have distributed a bit over SEK 3 billion in dividend and buybacks during January to September. And if you look at 5-year period, we have roughly the same debt-to-equity ratio today as we had 5 years ago. We have distributed SEK 13 billion in total during the 5 years. Changing subject to forest and wood market. This time, we do see that pulpwood prices start to decline due to lower activities from the mills. We don't see that sawlog prices still or have started to come down. On this chart, it looks like they have. But in our case, it's because we -- there are also big differences in price still between southern parts of Sweden and northern parts of Sweden. And when we buy less in South and a bit more in North, then it has an effect on the graph, which is what we mean by mix effect wood cost. Pulpwood, on the other hand, the prices are going down. In our case, it's a lag before lower cost reaches our industry and our P&L sheets. Prices are high, Stefan? Stefan Lorehn: Yes, they are. And the result from the Forest division was SEK 538 million during the third quarter. That is an increase by some SEK 20 million compared to second quarter and some SEK 50 million compared to the first quarter this year. The gradual higher profit is due to price increases during the year. Looking at the harvesting levels, we harvested 660,000 cubic meters during the third quarter this year. That is approximately 100,000 cubic meters higher than the corresponding period last year. Year-to-date, the harvesting levels is still 100,000 cubic meters lower than what we saw last year at this point in time, but we anticipate that we will be on par with last year when we closed the books for 2025. Henrik Sjölund: So back on track soon. Stefan Lorehn: Hopefully. Henrik Sjölund: All right. Changing to renewable energy. A very special situation or we've had this situation for quite some time now where we see that prices in northern parts of Sweden, where we have not all, but almost all our production of electricity, well, prices are simply very, very low. And it's not easy to make money when prices are that low. And I think we can just -- well, we know that electricity is locked in, in the northern parts of Sweden, and there is a lack of transmission capacity. How long it will be like that? That's difficult to answer. There are so many things affecting whether the price should go up or if it will stay where it is, tables to, for example, Finland, Norway, et cetera. Stefan, we have said that we have produced with premium to market price. Does it help? Stefan Lorehn: Not that much when we have these low prices in the northern part of Sweden, as you mentioned, Henrik, but still we got some premium above the market price. Maybe we can also comment on the wind power production that we have curtailed during the third quarter, and that is due to the low prices that we see and also the high risk for imbalancing costs. So when we add up the financials, we are still loss-making in this segment, and it's, of course, due to these low prices that Henrik mentioned. Can also comment on the hydropower station in Junsterforsen that is now back into production after the rebuild that we have done there. Henrik Sjölund: Yes. Thank you. Okay. Moving on to Wood Products. I said in the beginning, weak demand, and that's obvious when we look at some charts. If you look at U.S., it's not picking up. It's quite weak. China, very clear, even going down, I would say. And if you look on the production side, well, especially Western Canada, producing less, Eastern Canada, more or less on the same level. Germany coming down quite a lot after we have the spruce bark beetle infestation that had an effect on how much that was produced a couple of years ago, but now on quite low levels. It's only one place where people seem to run the sawmills more or less full still, and that's in Sweden or in the Nordics, but especially in Sweden, but not in the southern parts of Sweden where we have our sawmills, we have curtailed production, especially at the Braviken sawmill. And I think that part of Sweden has also been the most affected by, well, the drought we had and also later on, the infestation from bark beetles. Tough situation for sawmills in south of Sweden, and I think especially where we are. Price-wise, well, in the beginning of the year, as it normally happens, prices went up a bit during spring time. And now when we came into the third quarter, we see that there is price pressure and prices are down some 5% to 10%, depending on which market you look at. And as we speak, it's still some price pressure on wood products prices. A lot of negative things, Stefan. Stefan Lorehn: Yes. And it can also be seen in the result, which deteriorated to SEK -91 million during the third quarter. That is due to the lower selling prices that Henrik mentioned. They are down 5% to 10% quarter-over-quarter. That also meant that we needed to adjust the value of our finished good stocks, which had an impact on the result by some SEK -30 million during the third quarter. Henrik Sjölund: Thank you. Clear. Changing to Board and Paper. Finally, something positive to talk about, Stefan. Now to be honest, if you look at demand, it's not so rosy. We are hovering on a level where we are quite far below actually where we were during the pandemic, and we are still below where we were before the pandemic. And also at the same time, we know that there is more capacity in the market. So it's quite challenging when it comes to board. In this case, it's board. We take paper afterwards. When it comes to prices, well, they are always stable, at least in our segment, we used to say, of course, there are changes over time, but it takes time to change the price. In this case, prices are stable. But when you look for marginal volumes to fill up your order books, then there is quite a lot of price pressure. In our case, our order books are -- they are okay, but not even we are running absolutely full. We take some market-related downtime and in line with most players in the market right now. And as I said in the beginning, cautious consumers not spending to fill up order books in the industry. Paper, we have been used to a low utilization ratios. They are really low in board now with all the new capacity. But here, we have been more -- we talked about it for so long. Capacity has been partly closed and converted, but still also here, it's quite a lot of overcapacity. We have been doing well in this market for a long time. Also now we are doing, I would say, really well. We are not running full. The idea is not to run totally full either, but maybe 80%, 85% suits us better given the situation with very volatile electricity prices we think we use to our favor as well. Prices also here, roughly the same, fairly stable. But when you look for marginal volumes, there is a lot of competition for the volumes and some price pressure in the market. Stefan? Stefan Lorehn: Yes. The result for the third quarter were on par with what we reported in the second quarter. In Q3, we had the annual maintenance shut in the Iggesund mill that took a toll on the result by some SEK 150 million. Despite a small increase in energy cost, our energy cost in the division is still very much lower than normal this quarter, and that is due to our ability to adjust to the volatility in the electricity market, as Henrik mentioned. We also had some tailwind from seasonally lower personnel costs in Q3. Henrik Sjölund: And given the circumstances, a really good result, I must say. All right. Just remember what kind of a company we are. We are a forest-owning company or land-owning company, and we do everything we can in order to extract as much value as possible from the land we own in different ways. Thank you. And by that, we are happy to take on any questions you have. Operator: [Operator Instructions] The first question comes from the line of Charlie Muir-Sands with BNP. Charlie Muir-Sands: I had a few short ones. Firstly, on the timing of the pulpwood costs coming down, can you just clarify, was that a -- that was clearly a headwind to profitability of the Forest segment. Was that already simultaneously a tailwind to profitability in the consumption segments like board and paper? Or does that come through with a lag? And can you give any sort of quantification for what you're seeing kind of right now on a kind of year-on-year basis, for example? And then secondly, you mentioned on board and paper, lower energy costs. Can you just clarify, were you talking both year-on-year and quarter-on-quarter? And then just finally, on the tax ruling, can you clarify, would that create a cash inflow? Or does that just release a provision for you? Henrik Sjölund: I think it's all questions for you [indiscernible]. But maybe the first one, yes, there is a lag when pulpwood prices come down. It takes like 6 months before it reaches the industry. Stefan Lorehn: Yes. And if we take the other one when it comes to our lower electricity cost, it's approximately in Q3, SEK 250 million lower than normal. In Q2, we had even lower electricity cost than we had in Q3, but still much lower than normal in Q3. Regarding the tax item, we anticipate that, that will turn into cash flow during the fourth quarter. Charlie Muir-Sands: Okay. Great. Sorry, just going back to the first one. So you said a lag when prices come down on pulpwood but you already face that headwind in the forest segment? Or there's a lag -- further lag and those further headwinds come in the forest segment and further tailwind in the industrial segment? Stefan Lorehn: The prices are moving quite slowly in the forest segment as it does for the industry, as Henrik mentioned. So we have not seen that kind of headwind yet in the forest. How it will turn out, we'll see going forward. Charlie Muir-Sands: Okay. And yes, is there any quantification you can put around the scale of the movements you've seen so far? Henrik Sjölund: Maintenance? Stefan Lorehn: No, I think it's too early -- the wood cost. I think it's too early to comment on and quantify the effects going forward. We've just seen that the pulpwood prices are starting to come down, and we need to come back on the quantification in the next quarter, I think. Henrik Sjölund: But there is quite a big difference how you -- how the market feels when it comes to pulpwood and sawlogs where it's still quite a lot of competition, as you saw on the slide for sawlogs in Sweden. But pulpwood definitely on its way down. Operator: Mr. Linus Larsson with SEB, can you hear us? Linus Larsson: I can hear you now. Could you please dissect the Wood Products result in the third quarter that you already mentioned the SEK 30 million of impairment? And also what to expect in the fourth quarter in terms of product price and sawlog cost delta and other moving parts, please? Henrik Sjölund: Can you take... Stefan Lorehn: The first one with the write-down of the stock, maybe didn't catch you right there, Linus. But we did a write-down of SEK 30 million in the third quarter, and that is due to the lower prices that we've seen in the market. Then we needed to adjust the stock value. So it's as simple as that. Henrik Sjölund: And when it comes to the pulpwood prices and the sawlog price, as I said before, pulpwood prices, well, they are on the way down. But remember, it takes some time before we get a lower cost in our industry. And we buy roughly half of what we make use of comes from our own forest. But also remember, we have a lot more forest up in the north where prices are, especially for sawlogs, they are lower than in the south of Sweden. But also when it comes to sawlogs, still a lot of competition. And so far, prices have not come down, at least not as we see it. Linus Larsson: Okay. So I mean, in terms of direction for the fourth quarter compared to the third quarter, are you still expecting higher sawlog costs and lower finished product prices? Or what's the direction, if you don't want to quantify what's the direction of the both? Henrik Sjölund: Sawlog prices are more or less flat from where we are now. Stefan Lorehn: And selling price is hard to comment, but the market is quite soft. So we need to see where things are going when we sum up the fourth quarter, Linus. Henrik Sjölund: Wood Products in general, still, Linus, it's -- I'd say it's price pressure in the market. Linus Larsson: Right, right. Okay. And maybe a similar question for Board and Paper, what you're seeing in terms of delta Q4 and Q3 in terms of price and cost, at least directionally? Stefan Lorehn: It's -- we don't comment that often going forward, Linus. What we had in Q3 that is exceptional is, of course, the maintenance shut in the Iggesund mill and as always, lower personnel cost during Q3 that will increase then quarter-over-quarter when we look into Q4. But comment on pricing and other cost factors we did. Henrik Sjölund: It's always more difficult to fill up the order books at the end of the year when the new contracts are being negotiated at the same time. Normally, demand is a bit lower, but that you know from before. Linus Larsson: And any initial thoughts on price negotiations going into next year? Stefan Lorehn: No. We don't comment on that, Linus. But as I said before, both when it comes to Board and Paper, our prices are fairly stable. But when you look for new volumes that you don't have a contract with right now, then also now we feel a bit of price pressure. It's not easy to get marginal volumes. Regarding discussions for next year, it's too early. We'll see what happens. Linus Larsson: And maybe just one final on the market dynamics and pricing and like we've now been discussing geopolitics and tariffs for the past couple of quarters. What's the latest on that in your market segments? And how are you seeing that? And how are you feeling that? Henrik Sjölund: If you take the tariff question, I think you already know. But for wood products now, there is a 10% tariff on wood products going into the U.S. And for Board and Paper, it's 15%. We don't have that much volumes going to the U.S. And of course, it's also an ongoing discussion who should take the cost, the one selling into the market or the one importing to the market. And right now, in board, it's roughly 50-50 and paper roughly the same. It's something that's ongoing. Linus Larsson: Got it. And also like dynamically in terms of trade flows, et cetera, are you seeing that whole discussion impacting supply-demand balances in your various segments? Henrik Sjölund: If you look at indirect effects, for example, Chinese board coming into Europe, we cannot see it yet. Might happen, but so far, we don't see any drastic or big volumes coming into Europe. Operator: The next question comes from the line of Ioannis Masvoulas with Morgan Stanley. Ioannis Masvoulas: Three questions left from my side. The first, when it comes to the graphic paper segment, we've seen several curtailments across the industry in Europe year-to-date, but mostly on the mechanical grades, less so on chemical grades. Can you talk about the dynamic? What do you think is driving that? Is it more of a different demand dynamics between the 2? And also, can you talk about how you see that materializing, whether we're going to see more capacity cuts in the coming months or majority of what you expect in the short term is already announced? And then secondly, again, on Wood Products, which was, I guess, the main weakness on the results today, you've only trimmed deliveries by 2% quarter-over-quarter. Is that a function of potentially destocking and production is actually lower? And how should we think about deliveries going into Q4 and early '26? And lastly, you mentioned curtailments on the wind side, given the challenging margin dynamics. Can you give an indication on maybe the yield that your wind mills are running at or maybe a mix between wind and hydro generation and how that's evolved over the past 12 months? Henrik Sjölund: So let me start with paper and graphic papers. We are in the mechanical segment, but we also compete with wood-free paper with some of our products. So we see everything from newsprint to wood-free uncoated more or less as one market when we look into the business we do. It's overcapacity. Demand is dropping. You are absolutely right. There are some capacity taken out. Whether there will be more taken out in the future, we don't know. We only look at what has been officially stopped, taken out or at least announced. And to have a good balance, we need to do, but the market need to take out a lot more capacity, a couple of more million tonnes, to be honest. But on the other hand, it's also -- as we have -- we are quite flexible and we have learned to also operate in an environment where you can't run absolutely full. Nobody can run absolutely full. You have to be a bit more flexible today. So I think the rules of the game have changed a bit as well. But we need to take out more to have a good balance. That's clear. And we are fairly happy with our operating rates, slightly higher than average in the market at least. Stefan, next one... Stefan Lorehn: Trying to remember them. I think it was about the delivery volumes from the Wood Products segment in Q3. Yes, there is a destocking, but that is mainly due to seasonality, lower production in Q3 during vacation periods. If we look at production volumes so far this year compared to last year, we are down some 10%, which partly is explained by the rebuild in the Iggesund sawmill that we did in the first quarter. But also, as Henrik mentioned, we've taken down production in the southern part of Sweden due to the high log cost that we see there. Then I think it was curtailment on wind towers. We have used our wind power turbines to approximately 50% during the third quarter, and that is due to both low prices in combination with high risk for imbalancing cost when you run the wind farms. Hydropower stations, we run as normal, try to maximize the profit we can get from them producing when the prices are as high as they can be for the moment and reduce production when prices are low. Henrik Sjölund: Which wasn't very high. Which wasn't very high. No. Stefan Lorehn: No, I think it was -- hopefully, Ioannis. Did we catch it all? Ioannis Masvoulas: Yes. That was very clear. Maybe a quick follow-up on the graphic paper side. So you mentioned the SEK 250 million, again, gain from better electricity management and therefore, lower power costs. If we were to add it to assume that you didn't have that gain, can you talk about profitability in the graphic paper segment for Q3, like leaving boards aside, just looking at graphic, would it be EBIT positive? And would it be EBITDA positive? Just to get a sense on the underlying profit trends. Henrik Sjölund: Yes, it's -- the underlying business is EBIT profit, even if you extract the effect from the electricity. Stefan Lorehn: Maybe we would have been running it slightly different, but yes. For sure, profit. Operator: The next question comes from the line of Lars Kjellberg with Stifel. Lars Kjellberg: Most of them have been answered, but I just have a couple of follow-ups. On China specifically, of course, we have a significant excess supply, and I appreciate your comments about not reaching European shores. But we did see, for example, Brazil now asking for tariff protection from China. So I guess, directly for the European perspective, how are you seeing the Asian markets in general as an export destination? You do have some volumes going into that market. And I can only assume it's not great. So are you seeing sort of repatriation of tonnes back to Europe and equally so, given the tariff situation and weak demand in the U.S., is that an issue with, again, repatriation of tonnes that normally would have been exported from Europe? Is that a topic that you're seeing in your business and in general for the industry? The last point is really on sawlog pricing. You've commented many quarters now, of course, that they're insanely high relative to the underlying demand trends and pricing for wood products and the pressure is pretty acute as we can tell from your numbers. So what does it take for this market to give on the log price side? Henrik Sjölund: So we start with geopolitics and how it affects our business. You almost answered the questions, I think. Yes, it's much more difficult to sell into Asia, especially for marginal business to find add-on business, so to say, because it's a lot of competition. If you compare to a number of years ago, we have had capacity in China for a long time, but they are both good, and it's more now than before. And the market is not picking up, as we have said. So that's more difficult. When it comes to how much of the volumes that will come into Europe, according to statistics I see and when I speak to our people, I don't see a big change, at least not yet. But you're right, there is a risk, of course, that it could be shifts in volumes between different parts of the world. And then with U.S., you are right again, yes, we are a bit dependent as Europeans on exporting not only to Asia, but also to the U.S. to have a decent supply-demand balance. Roughly 20% when it comes to board should be sold somewhere else than in Europe. That's kind of the European business idea. Second? Lars Kjellberg: And on the specifics around European volumes returning, you can't sell it abroad. Does that put incremental pressure on Europe? I can only assume that the pricing still is better in Europe than it would be overseas. Henrik Sjölund: So far, not much has happened, but there is a risk that, that could be the case, absolutely. But we haven't really seen it yet, to be honest. I think the big issue here is whether we can export as much as we need to export to different parts of the world because the total capacity in Europe is simply too big for Europe. It needs to be shipped both to the U.S. and to Asia in different ways. We ship more to Asia than -- let's say, we do the business in the U.S., for example, but we've shipped the volumes to Asia to be converted, et cetera. So it's different kind of business also in Asia. Not all of them are up to competition with the Chinese producers. Stefan Lorehn: Second question about the sawlogs and the dynamics, I think it was what needs to be -- to happen to the sawlog prices to come down. Well, we have done what we can do so far. We have taken down production in the southern part of Sweden, where the log costs are simply too high for us to get the financials in line with our expectations. How other people will treat their sawmills, we will see going forward. Not much we can do about it in the short term. Henrik Sjölund: Normally, the sawmills when they -- you need to come down quite a lot in profitability also to variable cost more or less before they stop. That's what has happened in the history. And then the wood market changes, sawlogs become cheaper. But obviously, right now, they are simply too expensive and prices for wood products is under pressure. So very tough situation. Different though in northern parts of Sweden, where sawlogs are cheaper. Lars Kjellberg: There's no downward pressure on logs today at all. Henrik Sjölund: Of course, all of us try to get it down. But so far, we haven't seen it happening, to be honest. That's what we had to. That's where we are right now. And in our case, to take down production if it's too expensive, that's the first thing you do. Operator: The next question comes from the line of Christian Kopfer with Handelsbanken. Christian Kopfer: Just 2 questions from my side. Firstly, you talked a little bit about the power prices, the big differences in the North versus the South and maybe it has been even more substantial differences in the last couple of quarters. From your perspective, I mean, you are active in both areas, especially in the North and maybe [ Area 3 ], right? So the big differences, are those only driven by the bottlenecking in transmission? Or what do you see? Henrik Sjölund: That's the main cause. But also, we have seen quite a lot of water in the system up in the north that have put pressure to produce hydropower during the first 9 months of this year. Now the situation is a bit more normal when we look at the levels in our reservoirs at least. Stefan Lorehn: Yes. But if you look at third quarter, I think you answered the question more or less because if there would have been sufficient transmission capacity, situation would have been different as well with lower prices in SE3 and higher in SE2 and 1. That's clear. Christian Kopfer: Has it been bigger differences with the new flow base, you think? Stefan Lorehn: It's quite a short period of time, and it's a combination of factors when it comes to cables being out of operation, lots of water in the system. So it's quite early to say that it's the flow base that has created this situation. Also, when you have revision of nuclear, you have to take down the transmission capacity a bit, which has had an influence, that's clear. But exactly, there are so many different factors now to understand how things are going to be. So let's wait and see a bit. Christian Kopfer: And then we heard from another paper producer or packaging business this morning mentioned that they start to see some, call it, light in the end of the tunnel when it comes to customer behavior, not exactly for Q4, but maybe a little bit better on the demand side going into next year. Is that something that you start to see on your customer base as well? Henrik Sjölund: You mean consumption in general for forest industry products? Christian Kopfer: Yes, demand from your customers -- starting to be a little bit better or how do you see it? Henrik Sjölund: It could be. But if you look at the statistics so far, what has happened and also if I look into our order books, I can't really say that things have changed. I'd say that we have more overcapacity, especially in board than what we have been used to for many years. So demand really needs to pick up quite a lot before we get a healthy demand -- supply-demand balance again. I think it will take some time. Operator: The next question comes from the line of Cole Hathorn with Jefferies. Cole Hathorn: Just a follow-up on the pricing commentary being stable. I mean we're seeing a lot of the folding boxboard price indices and graphic paper price indices decline. So I'm just wondering how Holmen sits within that. Could you talk a little bit around on the paper side, the book paper business, which I imagine is kind of longer contracts and slightly different to the index pricing? And then on your folding carton business, could you just remind us how much is more premium longer-term contract versus traditional folding carton of your business? And when you look into 2026, you talked about spot pressures, but should we be assuming that some of the annual contracts, there will be a little bit of pressure on those into 2026? Henrik Sjölund: Would you like to start? Stefan Lorehn: I leave that to you, Henrik. Henrik Sjölund: First of all, when it comes to negotiations for next year, we don't want to comment that. We are starting to negotiate soon. But -- and when it comes to prices in Europe in board, as I said, especially you mentioned folding boxboard, and we are a lot -- we have bigger volumes in solid bleach board where you are even more into a niche where prices tend to be very stable over time. They do change, but it takes time. And that's the case also right now for us that most of our business, they are stable when it comes to board, slightly more pressure in general in folding boxboard than a solid bleached board. The challenge is more when you need marginal volumes to take on new business, then there is price pressure. What that means for next year, it's too early to say. And then it was how many of our contracts are longer term for 2, 3 years, et cetera? Stefan Lorehn: It's a mixture. Some shorter ones, some 1- to 2-year tenders. Henrik Sjölund: We have some slightly longer contracts, but not that many. And when it comes to paper, we don't have any long-term contracts, maximum 1 year. It's gone the other way, some contracts quarterly or half year as well. Book paper is a good segment where we've been extremely -- we have done well, and we are doing well. Prices have been a bit more stable than graphic paper in general. But also there, a lot of contracts will be renegotiated from 1st of January and second quarter, et cetera. It's no big difference in that sense, but a more stable segment, both when it comes to demand development and also pricing and fewer producers, of course. Cole Hathorn: And then maybe just a follow-up on the Canadian producers in wood products. They're under a lot of pressure considering the duties that have impacted them, and you've showed some good charts on wood staff, particularly around British Columbia sawmills coming down. Are you starting to see better ability to compete with the Canadians in the U.S.? Or any commentary you can provide on the Canadian sawmill side and how that's impacting your business? Henrik Sjölund: Normally in the U.S., they consume like 100 million cubic meters. 20 of those come from Canada and roughly 5 from Europe. And now when the Canadians have 35%, 40%, 45%, well, they have a different wood cost as a base. So it's not really comparable to tariffs we have with 10% in Europe. But normally, when you have increased tariffs and you have that much of import into U.S., you would see prices going up in the U.S. But so far, we haven't seen much of that. And if you look at the future prices, well, they go up and down quite a lot week-to-week almost. Right now, if I would say something, I would say, well, they are up 5% something, but that's last week, et cetera. So, so far, demand and the balance in the U.S. has not made prices come up to cover for the tariff cost, not for the Canadians, not for the Europeans, not to be fully compensated. No, it hasn't happened yet. Cole Hathorn: Fair enough. So in absence of housing demand, is it really kind of sawmill closures in Canada, which might be the supply trigger? Henrik Sjölund: Supply is down, but not enough. Demand is even lower as it looks right now. Operator: The next question comes from the line of Pallav Mittal with Barclays. Pallav Mittal: Most of my questions have been answered. A couple of follow-ups. So firstly, can you comment on the number of transactions in the Swedish forest and how our transaction pricing looking this year because last couple of years, it has been flat to down. So any comment on that would be helpful. And then secondly, can you just talk about the profit split for the Board and Paper business? Is it still broadly 50-50? Stefan Lorehn: Well, if we start with the forest transaction market, most of the transactions are being done during the second half of the year. There's also a lag in the system when they are to be registered, et cetera. So it's quite limited of transactions so far this year as we can see. So it's hard to draw the conclusions for the full year already now. But what we have seen so far is no major changes in the property prices in Sweden. The next question is the split of profitability between Board and Paper. Well, board is heavily affected by the maintenance shuts that we have had both in Q2 and Q3. So it's hard to comment on the exact numbers in Q3. Henrik Sjölund: But both profitable. Stefan Lorehn: Both profitable, of course, yes. Operator: [Operator Instructions] Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to management for any closing remarks. Henrik Sjölund: Thank you very much for good questions, good discussion. Look forward to see you soon again. Thank you.
Operator: Ladies and gentlemen, welcome to the Q3 Results 2025 Conference Call of Beiersdorf AG. I'm Moritz, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. The presentation will be followed by a question-and-answer session. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Christopher Sheldon, Head of Investor Relations. Please go ahead, sir. Christopher Sheldon: Good morning, everyone, and thank you for joining us for our third quarter conference call. I'm here with our CEO, Vincent Warnery; and our CFO, Astrid Hermann. As always, we will start with the presentation of our sales performance of the quarter and the first 9 months of the year, followed by a Q&A session. And with that, I'd like to hand over to Vincent. Vincent Warnery: Thank you, Christopher, and good morning, everyone. Thank you for joining our conference call. Astrid and I will provide an overview of our sales performance and key developments of the third quarter and the first 9 months of the year. The third quarter continued to be impacted by a very challenging market environment. Despite the headwinds, Beiersdorf was able to improve its performance versus the prior quarter. Our Derma business continues to outperform, delivering outstanding double-digit growth and winning market shares across regions. In September, we kicked off 2 major NIVEA launches. In our face care franchise, we roll out our breakthrough ingredient Epicelline. In our deodorant range, we launched the new Derma control line. While the initial impact on Q3 was limited due to timing, these launches are a key building block for our performance in Q4. We've also initiated a strategic rebalancing of the NIVEA core portfolio by broadening our efforts beyond face care to other skin care categories and reinforcing high potential categories like deodorants. And finally, in a continued challenging market, La Prairie returned to growth in Q3, supported by improved momentum in China. Let's take a closer look at how these developments are shaping our recent performance. The third quarter showed signs of gradual improvement, while we continue to see volatility across key markets. NIVEA continues to face pressure from an even weaker mass market environment especially in emerging markets, resulting in an organic sales decline of 0.4%. The major launches initiated in September only had a limited impact on Q3. Excluding the strategic repositioning in China, which is now completed, NIVEA's organic sales growth would have been positive. Our Derma business, with Eucerin and Aquaphor, once again delivered strong double-digit growth of 12.4%, reaffirming its role as a key growth driver in our portfolio. Our Health Care business, which includes the Hansaplast and Elastoplast brands outstanding growth of 9.8%, still supported by the successful rollout of our Second Skin plaster innovation. And despite ongoing market volatility, La Prairie continued its sequential quarterly improvement as planned, turning to positive organic sales growth of plus 1.6% in Q3. Overall, our Consumer Business recorded organic sales growth of 2.1% in the third quarter. Let me point out that our skin care organic sales growth increased to 4% in Q3 compared to 2.6% in the first half of the year. Beiersdorf's performance in the third quarter was flat, in line with our expectations and impacted by the difficult environment in the automotive industry. The Electronics segment, on the other hand, delivered a positive contribution, driven by a strong performance in Asia. Overall, this results in group organic sales growth of 1.7% in Q3. Looking at our Derma business in more detail. Once again, we delivered double-digit growth of 12.4% in the third quarter, a fantastic results on top of the tough 2024 comparison base when we first launched Epicelline. This underlines the strength of our innovation pipeline and our ability to identify and capture white space opportunities. It proves that we can deliver outstanding results and outperform competition even in markets that have slowed down substantially compared to previous years. Innovation remains the cornerstone of our success. This applies both to breakthrough ingredients and to the regular relaunches across our portfolio. Epicelline launched just a year ago, continues its successful rollout and remains a key growth driver in our Derma portfolio. And Thiamidol, which has been on the market for 7 years, continues to grow double digits. At Europe's leading dermatology congress EADV, Thiamidol was recognized as the only Derma-cosmetic active ingredient delivering effective treatment of hyperpigmentation at the root cause. This was endorsed by a newly established global consensus for the treatment of hyperpigmentation, a powerful validation of our science-led approach. But innovation doesn't stop with our hero ingredients. We continue to invest in regular relaunches across our portfolio. With our new Eucerin DERMOPURE Clinical range, for example, we are not simply introducing a new product line. We are delivering science-based solutions for acne, a skin concern that affects up to 85% of people globally. Acne is a leading reason for dermatological consultation and one of the fastest-growing categories in skin care. Our Derma business is not only performing across categories, it's also delivering across regions. In North America, our largest market for Derma, we achieved outstanding growth of plus 56% in the Eucerin Face category despite the slow overall market. The launch of the Eucerin Radiant Tone range with Thiamidol earlier this year, is showing excellent traction. In Europe, we are excited to report double-digit growth of plus 10%. This was fueled by the continued success of Epicelline, which is reinforcing our innovation leadership in the region. Looking at Northeast Asia, the entry of Eucerin into the domestic market in China has exceeded expectations with exceptional organic sales growth of plus 86% in the third quarter. Following the official approval of our patented ingredient Thiamidol last year, we are already seeing early success in the market. The Eucerin Thiamidol serum has already achieved a double-digit market share making it the #1 derma anti-pigment serum in China. And last but not least, we'll be launching Eucerin Japan, another white space next month. With NIVEA, we successfully started the launch of our breakthrough ingredient Epicelline in September. Building on the strong results achieved with Eucerin, we are now scaling this innovation into the mass market. This is the biggest NIVEA launch of all times. While the impact on our Q3 figures were still limited due to timing of the launch, the first week has already performed above our expectations. We are seeing strong early traction, including #1 category positions across key European markets. In France, for example, the NIVEA Epigenetics Serum reached the #1 position in hygiene and beauty products. And in Germany and Austria, we secured the #1 face care position at dm, the region's largest drugstore retailer. The initial strong launch performance is also visible in our September net sales figures for NIVEA with organic sales growth of plus 7.8%. A key driver of this momentum alongside the very recent NIVEA Epicelline launch, has been our NIVEA Derma Control Deodorant range. This is where our skin care expertise meets the high performance of personal care, the skinification of deodorants. While our recent launches are encouraging, we acknowledge that NIVEA's overall performance has fallen short of our initial expectations this year, particularly in the second quarter. So let me remind you of the journey we are on. Four years ago, we put a strategic focus on skin care, our core strength. We are committed to innovation, expanding into white spaces guided by our belief that beauty is global and offer-driven. This strategy has delivered outstanding results since 2022, 2023 and 2024, NIVEA achieved exceptional growth in some cases even double digit. That success gives us confidence in the path that we have chosen. Now to ensure that NIVEA continues on the strong growth trajectory we are making targeted adjustments with a proactive rebalancing of our portfolio. What does it mean? We are broadening our focus within skin care. While face care remains a key category, we are balancing our R&D and marketing investments across other skin care segments. We're also reinforcing deodorants as a strategic growth pillar, a category where NIVEA has a strong right to win through innovation. NIVEA is a value for money brand and stands for affordable prices, and that remains unchanged. While we see customers' willingness to pay for breakthrough innovations like Thiamidol and Epicelline, most of our portfolio continues to be priced at accessible price ranges. We know there is work ahead, but we also know that we are capable of, and we are taking action to bring NIVEA back to stronger growth and continue building on its legacy as 1 of the world's most trusted skin care brand. And let's not forget, as we have always said, even a brand has established as NIVEA still offers significant white space opportunities. A great example is India, where we launched NIVEA Face earlier this year and are continuing our double-digit trajectory. We are equally excited about the potential of NIVEA Thiamidol in China, where we are just beginning to build momentum. This leads me to our NIVEA repositioning efforts in China, which were completed at the end of Q3. Performance has stabilized, and NIVEA in China is already back to growth in October setting the stage for acceleration in the remaining fourth quarter. Our strategy in China is clear. We aim to win through innovation in skin care. With Thiamidol as our hero ingredient, we are confident that it provides a distinct competitive edge in this highly dynamic market. China remains a key opportunity for us in the mid- to long term. It's a demanding environment, but with the right portfolio and continued innovation, we are convinced that NIVEA is well positioned to compete even against strong local brands. Coming to La Prairie, which is back to growth. While the market environment remains volatile, La Prairie delivered a solid Q3 performance with growth of plus 1.6%. This was driven in part by continued momentum in China, which achieved growth of 3% and an outstanding double-digit sellout. I'm also pleased to announce a major milestone in our global expansion strategy. After successfully establishing NIVEA Face and Eucerin in India, we've now expanded our premium portfolio with the launch of La Prairie, exclusively on Nykaa. This marks our entry into 1 of the world's most dynamic and fast-growing beauty markets, an important step in strengthening our global footprint. Before I hand over to Astrid, let me turn to our e-commerce performance. E-commerce continues to be a key growth driver for Beiersdorf. In the first 9 months, we achieved organic sales growth of 16.6% with Q3 accelerating to 19.2%. We are gaining market share everywhere, with particularly strong momentum in emerging markets in Europe. Our Luxury e-commerce business continues to grow, fueled by targeting online activations, while our Derma portfolio shows global trends delivering double-digit growth across all regions. Astrid will now take us through the tesa results and our financial performance in more detail. Astrid Hermann: Thank you, Vincent. Now let us review tesa's business performance for the first 9 months of 2025. Despite ongoing market challenges, tesa delivered 2.0% organic sales growth year-to-date, rising uncertainty and the potential impact of U.S. tariffs continue to affect demand, particularly in Europe and North America, while Asia continues to be a strong growth contributor. Our Electronics business was a key growth driver, supported by strong demand for major customers, particularly in Asia. The automotive segment continues to navigate a complex and volatile market environment. Despite the challenges, the segment showed resilience and delivered growth in some regions, particularly in Asia Pacific, where we are winning new customer projects. tesa's consumer segment remains under pressure, especially in Europe, Nevertheless, it achieved growth over the first 9 months, supported by a solid performance in the third quarter. Finally, I'd like to highlight a leadership change Dr. Kourosh Bahrami, has succeeded Dr. Norman Goldberg as CEO of tesa, with over 30 years of international leadership in the adhesive industry, Dr. Bahrami brings strong leadership and a clear commitment to drive customer value and sustainable growth. We thank Dr. Goldberg for his transformative leadership and look forward to continuing tesa's successful course under Dr. Bahrami's direction. Now let's continue with our 9-month sales performance in more detail. In the first 9 months of 2025 Beiersdorf Consumer division grew by 2.0% organically. Due to unfavorable foreign exchange effects, nominal sales declined slightly to EUR 6.25 billion. The tesa division reported solid organic growth of 2.0% for the same period. In nominal terms, net sales remained flat at EUR 1.29 billion. Overall, the group generated EUR 7.5 billion net sales in the first 9 months of 2025, translating into 2.0% organic sales growth. Now let's take a closer look at the performance of our brands within the Consumer Business segment. Vincent has already provided an overview of the third quarter sales results. So I will focus on a summary of our brand's performance in the first 9 months of this year. In a persistently challenging market environment, NIVEA delivered modest growth of 0.6% in the first 9 months. Our performance was further impacted by higher competition from local brands and the strategic repositioning in China, which we successfully completed at the end of Q3. In addition, our innovation pipeline was weighted towards the second half of the year, especially Q4. Key launches, including Epicelline and Deo Derma Control, were launched in September and only had a minor effect on Q3. They are expected to be a strong pillar of our growth in Q4. Derma sustained its strong momentum with an outstanding performance over the first 9 months, achieving 12.3% sales growth, clearly outperforming the market and our peers. Eucerin Face delivered exceptional results driven by the successful rollout of Epicelline and the launch of Thiamidol in the U.S. Growth was further supported by the remarkable success in Latin America, particularly in Brazil and Mexico, as well as the successful launch of Eucerin in domestic China and India. Building on the strong momentum from the first half of the year, Health Care continued to reinforce its market position in Q3, delivering a remarkable 8.8% sales growth for the first 9 months. Australia and Indonesia delivered double-digit growth, both in Q3 and across the 9-months period, while Germany also accelerated to double-digit growth in Q3. For La Prairie, we have seen a gradual improvement quarter-by-quarter, resulting in a return to growth in the third quarter. This recovery was supported by an improving performance in China, particularly a strong e-commerce business during Q2 and Q3. Let's take a closer look at the organic sales growth of our Consumer Business in the first 9 months across regions. In Europe, we grew by 1.2% with Western Europe growing 1.7% and Eastern Europe slightly declining with 0.7%. Western Europe was negatively impacted by the global luxury travel retail business, particularly during the beginning of the year. Eastern Europe faced pressure from a broader market slowdown and retailer conflicts, particularly in the first half. The Americas region concluded the first 9 months with a robust growth of 2.2%. North America showed a mixed performance with excellent results in Derma, driven by the Thiamidol launch in the U.S. while facing some headwinds in the mass business and with Coppertone in the tough sun care market. Latin America grew by 2.0%, also reflecting a mixed performance. Eucerin delivered strong double-digit growth with outstanding results in key markets such as Mexico and Brazil while our NIVEA business was impacted by general market slowdown, particularly in the deo category and by increased competition from local brands. The Africa, Asia, Australia region delivered solid sales growth of 2.9% despite a negative impact from the ongoing NIVEA portfolio cleanup in China, which was successfully concluded by the end of Q3 as planned. Strong growth was recorded in markets such as India and Japan. With that, I would like to hand over to Vincent, who will provide the outlook for the rest of the year. Vincent Warnery: Thank you, Astrid. Let us conclude with our guidance for the rest of the year 2025. The Consumer Business delivered plus 2% organic sales growth over the first 9 months with an improvement visible in Q3. At the same time, we saw a further deterioration of the market in the third quarter, especially in emerging markets, which is affecting the core of our mass market business. As a result, we are adjusting our full year guidance to around 2.5% organic sales growth for consumer. Our expected growth for the fourth quarter is based on the following pillars. NIVEA is entering the final quarter with a strong innovation pipeline. We recently launched Epicelline, our breakthrough innovation in skin care along with our new derma control deodorant. These launches are still in the early stage and are expected to gain traction and visibility throughout the fourth quarter. Early indicators and the September performance are positive as highlighted in our presentation. The remainder of the year will be driven by the performance of these launches as well as the strengthening of Nivea core business to support both we have implemented targeted rebalancing measures to reinforce our core categories, while at the same time, supporting the successful rollout of our innovations. In China, the strategic repositioning of Nivea, which had a negative effect on our performance during the first 9 months has now been completed and will no longer weigh on our results going forward. Our luxury business with La Prairie is beginning to show encouraging signs of improvement, the return to growth in the third quarter. Finally, our Derma segment continues to perform strongly. We expect double-digit growth over the full year while Q4 is expected to remain below the 9 months performance due to an exceptionally strong fourth quarter in 2024 when Epicelline was rolled out initially. We still confirm our EBIT margin guidance with an improvement of 20 basis points, excluding special factor in the Consumer segment for the full year. In the tesa Business Segment, we confirm our guidance of 1% to 3% organic sales net growth and an EBIT margin, excluding special factors, at around 16%. At group level, we expect organic sales growth of around 2.5% with the EBIT margin, excluding special factors, slightly above last year's level. We continue to be committed to outperforming the market over mid-term, driven by innovation and strategic expansion into white spaces. On profitability, as we have stated in the past, will not sacrifice long-term value creation potential over short-term margin optimization. Nevertheless, we remain committed to profitable growth with EBIT growing at least as fast as the top line. We'll provide further guidance for 2026 and beyond in our full year 2025 call. Now over to you, Christopher for the Q&A. Christopher Sheldon: [Operator Instructions] And we will start with Patrick Folan of Barclays this morning. Patrick Folan: Just 2 questions for me. Maybe focusing on NIVEA first. You had a strong September performance. Was this mainly due to the Epicelline sell-in here and your Derma deo performance? Or was there a wider recovery in the core portfolio here? And my second question is that you talk about value for money for the NIVEA brand, are there any changes you are making to the current pricing strategy with NIVEA in any of your markets? And in terms of the Epicelline price point in Europe, are you still targeting a EUR 25 to EUR 30 pricing? Vincent Warnery: Patrick. On your first question, yes, absolutely, the success of the month of September is mostly due to the launch of Epicelline, NIVEA Epicelline and Derma Control, as the core business, the core market has been in line with Q2. Epicelline is really doing extremely well. I receive every day very good sell-out results. I mentioned, #1 hygiene and beauty product in France. I mentioned also Germany. I was looking also at Italy. This is already the #1 serum in Italy. This is the #1 serum in Netherlands. This is the #1 face care product in Switzerland, in Belgium, in Spain, in Portugal. So clearly, it was already by far the best ever launched Epicelline, but we clearly sell out going in the right direction. Derma Control, we launched it a bit later. We are doing extremely well. I mean, Romania, we are back to the best ever market share in deo. We are regaining market share in deo in Germany. So I feel also very positive about that. On your question about the value for money, I think you have to really to remember that there are only 2 expensive products in the range of NIVEA, which are the Epicelline and the Thiamidol launch. The rest of the product are priced between EUR 2 and EUR 4. So there is no issue of price positioning. This being said, we are currently launching Epicelline. And the way the business is managed, we have some promotions. So for example, if you go to the U.K. that [ Bucci ] is promoting the product at GBP 24, for example, versus a normal price at GBP 29. We have also some promotions. So we will fine-tune the -- we'll see a little bit of the first months are working. And if we feel the need to go below EUR 29, could be EUR 28, EUR 27. We'll do it just to be sure that we have absolutely the right price elasticity. On Derma Control, we had EUR 2.80, so absolutely no issue. So the only open question and again, we'll have the market results soon is do we decrease the price of Epicelline by EUR 1 or EUR 2 in Europe, knowing that, as you might remember, in emerging markets, we are pricing Epicelline below. We are at EUR 22, having also a specific packaging, which allows to keep the same margin, but at a lower price. Patrick Folan: Okay. Just to clarify one thing there. Just on pricing, so you feel comfortable with the price points you have in your current portfolio as we go into next year? Vincent Warnery: Absolutely. I mean the prices are between EUR 2 and EUR 4. What we are clearly trying to do is to reduce the price increase we do next year. You might remember that we were the only brand doing a price increase in 2025, which created some customer retaliations. We try to minimize that next year, focusing really on the products and the innovation where we are bringing a real added value to consumers. Christopher Sheldon: The next question is from Celine Pannuti of JPMorgan. Celine Pannuti: My first question is on the market growth. Vincent, you said that the market has decelerated, especially in emerging markets, and you adjusted your guide for that. How do you feel the company can deliver as you look into 2026? So also given that you're talking about the rebalancing of investment for NIVEA, I wonder as well if you can provide on how you feel in terms of your new level of investment in the deodorant and personal care part and whether for 2026, we should expect that you have -- you need this extra investment and maybe a limited margin expansion? That's my first question. I'll give you the second one after. Vincent Warnery: On your first question, Celine, so what we clearly see, and I mentioned that in my speech that the market -- the skin care market is difficult. And we have -- if you look at the year-to-date figures, we are more -- we are around 0.5%, 1% growth on the market with, of course, different dynamics in mass market, we are around 5%. Derma, this is the news, we are more into the 3%, 4% and luxury is still at minus 5%. So this is a market which is not growing as much as expected. We are expecting a small recovery in the months to come. We see, for example, that the derma market in the U.S. is doing better, and we are over performing this market. We see also luxury, I was mentioning China, but also saw some good figures in luxury going in the same direction. So overall, for the market growth this year between 1% and 2%, and we believe that we go slightly above next year. What we are -- what is making us optimistic in a way is that the worst market dynamics is the derma market. And this is a market which really used to be growing at double digit. And we are now into a market dynamics, which is around 3%, 4%. And this is a market where we are overperforming by a factor to between 2 and 3x the market because we are coming with innovation and because we are supporting those innovation. And this is why when I look at the dynamics next year, on NIVEA. I feel a little bit better than I would say, in 2025 because we have the launches that we are doing right now, and I mentioned Epicelline and Derma Control, but we have also a launch plan, which is much more -- much better balanced next year with more launches in the first semester versus this year and something where we can really have a more balanced dynamics launches versus core. And we are indeed, thanks also to the courageous decisions we have taken on prices, we are able to manage a pretty good gross margin, allowing us to invest -- to continue to invest on those launches. So we will rebalance a little bit the investment between the face care premium product, and we had to launch both Thiamidol and Epicelline in 2025. So rebalance this money into not only other skin care categories, also on more affordable face care proposal, for example, in emerging market, but also on the other end. So with the current P&L equation, we can increase the marketing spendings beyond NIVEA. And of course, on Derma, there is no question, we will continue to invest more. Celine Pannuti: All right. Just maybe to follow up on that, asking whether the 50 basis points plus margin expansion that's your midterm target, how you feel about it going into '26. So that's my follow-up. And then my second question, Astrid now. Can you provide a bit more details about Europe, which really came back to good growth at 3%. Was there a travel retail impact there? If you can tell us what quantify this? And how do you feel about the overall consumer and retail environment? Of course, you have the benefit of the sellout and sell-in of Epicelline. But overall, how you feel the European market is developing as we look into the quarters to come. Vincent Warnery: On your first question, so we will not give a guidance for 2026, and we'll give that in 2025, but we maintain the idea that we have to overperform the market and continue to grow profitably. So we'll come back to that in 3 months. On your question about Europe, yes, travel retail has an impact on the performance of Europe. This is a 40 basis point impact because we are overperforming this market with La Prairie, but this is a double-digit negative market. So this has an impact on Europe. When you look at the question sell-in versus sell-out, the fact that we see some improvement in deo, for example, which was really the biggest market share loss in 2025 in Europe is making us more optimistic. Even if you look at Germany, which is by far our biggest deo market we have been gaining market share over the last 3 months in a row, which is a good news. We see also that the outstanding success of the sun season in Europe, we grew 12% in a market which was growing double digit, but this is really one of the best performance in Sun is also giving us some good momentum. So deo, I would say we feel positive. Sun care is positive. The question is face care. As I said, the sellout results we are getting from specific retailers is promising. But you remember my story, sell-in is one thing, sell-out is another thing. Repurchase is absolutely essential, and this is what we'll be able to measure in the first quarter. So not to -- neither optimistic nor pessimistic, but some good signals that will -- should give us some better performance in Europe next year. Christopher Sheldon: The next question is from Jeremy Fialko of HSBC. Jeremy Fialko: So a couple of questions from me. First one, just to go into the Eastern Europe region that was kind of pretty negative within the period. So just what's going on there? And then the second question is just on kind of capital return. Now you've done the EUR 500 million share buyback for the last couple of years. Do you think -- what do you think the potential would there be to increase that in 2026, given where the share price is [indiscernible] given the kind of existing authority that you have got, if that's something you think would be on your agenda to bring on a board? Vincent Warnery: First question, yes, indeed. Eastern European used to grow double digit. The market was really booming. It suddenly decelerated vigorously and moving from a plus 12% to plus 2%, plus 3%. There's also interesting competitive environment, which has changed. If you look at a country like Poland, 100% of the growth is coming through Korean brands and not really big Korean brands, but Korean brands are there for 6 months and then replaced by others. So all of us, all the global brands are suffering from that. What also worsened the situation are a few customer issues that we have been able to solve. So that's something where we should have a positive momentum in 2026. But the key question is, and this is where obviously rebalancing the portfolio for us is to be sure that we are not only investing on Epicelline and Thiamidol, but we have also a strong action on deodorants. This is by far our biggest market in Eastern Europe. So that's what we are doing right now. And I mentioned the example of Romania, for example, where we reached our best ever market share in deo. That's something which is giving us some hope. On your question about share buyback, we just closed, the second time we did share buyback. So you have to allow us to discuss with the Supervisory Board at the end of the year what we want to do. What is essential? You remember that in terms of priority, we know that we have too much cash available and the priority should and will continue to be M&A. Christopher Sheldon: The next question would be from Guillaume Delmas from UBS. Guillaume Gerard Delmas: Two questions for me, please. The first one on the 2025 revised outlook. I mean, still trying to reconcile this updated guidance of around 2.5% for Consumer. That seems to imply a little bit more than 4% organic sales growth in Q4, but you also had that very strong momentum of NIVEA in September, growing nearly 8%. So why -- wondering why you would expect such a sequential slowdown between September and the fourth quarter? And then my second question, it's on the changes you are making to your strategy, particularly that stronger support behind more skin care categories and deo. I mean, I guess, first, when do you think we should start seeing some benefits from this? I mean, could it be immediate? Or is it more of a slow burn? And secondly, given that your margin guidance for the year for 2025 for Consumer is unchanged, would it be fair to assume that at this stage, it's much more about reallocation of resources rather than an overall increase in your marketing budget? Vincent Warnery: Guillaume, on your first question, you should not forget that, obviously, when you launch a new -- I mean, the biggest launch ever on Epicelline and NIVEA plus a range of 6 or 7 SKUs of deo in September, you cannot continue the same momentum for the next 3 months. So you will have -- the pipeline effect will be, I would say, September, October. And then you have the sellout. So this is why we have indeed planned the growth with the full success of those launches, but a core business, which will not improve dramatically. So that's the assumption of the Q4. This is why we wanted to come with a more realistic assumption for Q4, which is, by the way, consistent with what all of you thought. On the rebalancing, no, I mean, the reason why we came with Q2 and we decided to change the guidance on EBIT moving from plus 50 basis points to plus 20 basis points is simply because we knew that those big launches were coming in Q4, and we knew that it would have been a shame not to support them just because we wanted to deliver in a kind of dogmatic way the first guidance we gave on EBIT. So the 20 basis points that we -- the 30 basis points that we decided to allocate to marketing budget are exactly the money we're going to spend in Q4, and we have the biggest ever spending on the face care launch on NIVEA and the biggest ever spending on the deo launch on NIVEA on top of, of course, continuing to support the launch of all the launches and the activity of Derma and the bigger mission in China with 11/11. So no change in the media strategy, just using the 30 basis points that we freed in the Q2 to support those big launches in the weeks to come. Christopher Sheldon: The next question is from like Ulrike Dauer from Dow Jones. Ulrike Dauer: I hope you can hear me. I don't have much of a voice today. Sorry. I'd like to ask a question about the U.S. import tariffs after the failed tariff deal between Switzerland and U.S., the import tariffs are now 39%, which are affecting La Prairie. And I was just wondering, will you be able to pass on the additional cost to customers? How much more expensive will be even already expensive products deal? And is that still not enough for a strategy change? Or do you consider maybe producing more in the U.S. now like many other companies more or less voluntarily are planning to do? Also, the overall import tariff exposure, you said that a lot of the products for the U.S. market are produced in Mexico or other countries. Can you quantify additional costs related to those new import tariffs by quarter, by full year? Is there any additional information you might be able to provide? I have some other question about Kering. Maybe you can answer that question later. Vincent Warnery: Your question about La Prairie. So yes, indeed, the Swiss government has not yet been able to negotiate a reduced tax level tariff increase with the U.S. So we have indeed this extremely difficult situation. We have been, of course, anticipating the change of service. So we are covered, I would say, in terms of stocks in the U.S. For the time being, we are waiting -- wait and see in a way. We do not believe today that it will be wise to implement immediately the tariff increase on the La Prairie prices, which, as you mentioned, are already very high. You imagine that in percentage is high, but in absolute value, it's extremely high for La Prairie. So we are not planning to do that. You can imagine that we have anyway a gross margin, which is pretty comfortable on La Prairie. We will see the way other competitors are acting. What is absolutely out of the question is to produce in the U.S. because the strength of La Prairie is made in Switzerland. That's the story of the brand. So we'll absolutely not produce in the U.S. We'll continue to produce in Switzerland. On your second question, you rightly mentioned that we are in a way, lucky because we have one -- a big part of the production that we are selling in the U.S. is produced in the U.S. and the other big part is in Mexico, where there was no additional tariffs. So we have today an economic equation, which is pretty good for our business. Yes, we have a few products produced in Europe. So they will be affected by the 15% tariff increase, but it's really a minor, minor part of the range, and we'll be able to absorb that either through small price increases or just by managing value engineering projects. So all in all, yes, La Prairie is an issue, but it's a small part of the business in the U.S. The rest of the range is in a way, protected. Ulrike Dauer: May I ask one more question about the Kering brands that were up for sale. Have you looked at them and considered or don't they really match your portfolio strategy? Vincent Warnery: Ulrike, we are good in 1 category, which is skin care, skin care, skin care, and we are lucky enough that this is by far the biggest beauty category in the world. We have no expertise in perfume. So it would have been a mistake to enter this field without any expertise, so we did not even look at the project. Christopher Sheldon: And the next question is from Bernadette Hogg of Reuters. Bernadette Hogg: I'm sorry. I was still in mute. So it's a bit of a recap question on the slowdown of the market -- in the emerging markets for skin care. So do you see these factors as temporary? Or is it more structural? And how long do you anticipate it lasting? And what are the major causes of the slowdown? Vincent Warnery: A clear deceleration. We used to have an emerging markets, skin care growing double digit. We end up to a level which is close to low single digit, even negative in some countries. There are a few phenomenons which are taking place. Obviously, Latin America is hit by the -- not only the political uncertainties, but also all the discussions about U.S. tariffs, not U.S. tariffs and Mexico is a country where obviously, we -- the market was suffering with that. We see in other countries, the development of simplified routines. People -- this is what they call the skinimalism trend where people are buying less product and some of that cheaper. So the only solution, and this is what we are doing pretty successfully with Derma is to come with innovation. In fact, the worst market dynamics in emerging market is the derma market, and we are growing extremely high with double-digit growth in each and every market. We gained market share everywhere. So the recipe that we have been using successfully with Eucerin, we are using it now with NIVEA with also some changes and some rebalancing. For example, I mentioned already the fact that we -- it's the first time we are launching the same global product Epicelline with 2 different packaging proposal, so one allowing us to sell it at below EUR 22 in emerging markets, and that's much cheaper than the EUR 29 we have in Europe. We are also putting a lot of focus on products like NIVEA Soft in India, which is a fantastic accessible product, but also Facial in Brazil, which has a 30% market share in skin care. We are rebalancing our investment also on deo. I mentioned Derma Control, which is a global launch that we are launching everywhere. So we are not optimistic on the development of the emerging market dynamics. We'll see what happens. But clearly, we are coming with a much stronger innovation portfolio and -- I would say, much more -- much better adapted launch portfolio to emerging markets. So we hope to see some good figures in the months to come. Christopher Sheldon: The next question is from Anna Westkämper of Handelsblatt. Anna Westkämper: I have 2 questions regarding tesa. First of all, how dependent are you on the recovery of the automotive sector here? And second of all, are you looking into expanding into other industries like defense with tesa? Astrid Hermann: Thank you so much, Anna, for your questions. So look, automotive is a big part of the tesa business. Between automotive and electronics, they're really the pillars of what tesa has established. The nice thing about tesa is that they continue to make progress in each of the industries, in automotive as well. So while the market certainly was challenged in Europe and North America, the projects it gained, particularly in Asia Pacific, have really helped kind of balance that impact. so again, not an easy market and certainly not a huge growth driver for tesa year-to-date, but 1 that is also not a huge drag, which is very, very helpful. And yes, tesa has really invested if you followed some of our commentary also in previous calls. They've really invested over the last few years significantly into innovation and business development, and that is really to go beyond these 2 industries as well and significantly drive more business in other industries. Christopher Sheldon: And the next question is from Olivier Nicolai of Goldman Sachs. Jean-Olivier Nicolai: Just very 2 quick follow-ups. First, on NIVEA Epicelline, you obviously have it in Europe and a few other countries. But are you planning to roll this brand out across your whole geographic footprint in next year? And then secondly, on tesa, just a quick follow-up. In the context of obviously what we just discussed about the automotive market, should we expect most of the growth for tesa for next year to come from Electronics? Vincent Warnery: Thanks for your question. Yes, absolutely, NIVEA Epicelline will be launched and is launched absolutely everywhere. So obviously, not yet in China because we are focusing all our energies in Thiamidol. But this is -- the objective is to launch it in most of our NIVEA countries in the next 6 months. We have already covered Europe. We are starting now in Q4 to launch it in some emerging markets, but this is clearly a very big priority for NIVEA globally. On tesa, Astrid? Astrid Hermann: Yes. Thank you for your question on tesa. Look, we -- the tesa business absolutely wants to continue to grow in electronics. As you know, a lot of the Electronics business is a project business. So we need to win projects every single year, for example, also with the big device manufacturer. So absolutely, we continue to look for growth in the electronics business as well. Christopher Sheldon: Next question is from Mikheil Omanadze from BNP Paribas. Mikheil Omanadze: The first one would be on NIVEA. So if September was so strong, it would imply quite a sluggish delivery in July, August. Would you please be able to provide some color by categories within NIVEA, which were particularly weak in July, August? And my second question is on Chantecaille and Coppertone. How did both brands do in Q3? Vincent Warnery: On your question about the NIVEA, yes, July, August was well low also because, obviously, we had 0 launches at the time. We had also no effect on any price increase. So we did a minus single digit, I think, on NIVEA, if I remember well, on July, August, compensated by the figures of September, I was just sharing. You have also to keep in mind that's important also to mention that, that the Chinese relaunch has changed -- has obviously impacted strongly the development of NIVEA. If you look at the first 9 months, if we didn't have that this revamping of the Chinese business, NIVEA will be growing plus 1.3%. So that's also something which obviously we decided to do. We are hoping at the time to have a better NIVEA business, but it has obviously impacted the situation. The second question, Mikheil was? Mikheil Omanadze: It was on Coppertone, Chantecaille. Vincent Warnery: Coppertone, Chantecaille, yes. Coppertone, the only good news on Coppertone is that we finally found our way. We clearly have tried a lot of things with Coppertone, trying to launch in face care, trying to launch in spray, trying to develop the brand in a lot of directions. If you know a little bit the U.S. market, we have refocused on sport. We took a very famous rugby -- female rugby player. We are gaining market share on sport. It's not enough to compensate the loss of the rest of the categories. But at least we will continue to support that. We'll focus all our investment on sport, which is the legacy, the origin of the brand and try to gain market share in this category. Chantecaille, we had a very good first semester with also the launch of China, which impacted the figures. Q3 was a little bit more difficult because we suffered from the slow development of the U.S. luxury market, and we are very dependent on the luxury market. And we have not yet been able to open the stores we wanted to open. They are more coming in the fourth quarter and the first quarter. So all in all, we grow at 7%, 6.8%, which is good, but I was hoping to do better. And we'll see really the way the Chinese business, but also the Indian market, and we are launching in India will also complement hopefully, a better U.S. business in the months to come. Christopher Sheldon: And then we have Tom Sykes next in line. Tom Sykes: Just, I guess, some -- a couple of follow-ups on questions already been asked. But in terms of the rollout or level of innovation in full year '26, excluding the sort of country rollouts of Epicelline, then what's the level of that in full year '26 compared to '25? Because you obviously had theoretically a large upgrade of many products in NIVEA? And how would you view that being phased H1 versus H2? And just on pricing, I don't know whether you've given the -- I don't think you've given the commentary on sort of pricing versus volume at all at the moment. But any view on commentary you can give on that? And to what degree do you need to push price to maintain gross margins given that FX has moved from where we were, please? Vincent Warnery: Tom, on the rollout, yes, absolutely. We have a better launch plan for next year, better in 2 directions. First, balance between H1 and H2. I mean, one of the difficulties that we had this year was the fact that we had almost no launches on NIVEA in the first semester. One of the reasons being that I didn't want to launch NIVEA Epicelline too early after the launch of Eucerin Epicelline. So it has clearly created a first semester with a very low level of innovation. Next year, we have a big plan in the first semester, where clearly it's really 50-50 in terms of new launches, H1 versus H2. The second difference also it's also a wider plan in the sense that most of the initiatives in 2025 were in face care and Derma Control deo at the end of the year. We have next year some very good launches on body, on deo, on lip, on sun care. And on face care, which is interesting, not only the, I would say, the usual suspects, the premium product, Epicelline and Thiamidol, but also a very big ambition also on some more accessible offer, NIVEA Q10, NIVEA Soft, facial in Brazil in order to be sure that also in face care, we maintain this good value for money dimension. On pricing, I always say that the objective is clearly to have a dynamic which is more 2/3 volume, 1/3 price. What I find interesting in the third quarter is, in fact, this is a quarter which is purely driven by volumes. And this is the first time because obviously, the price effect was in Q1 and Q2, which I find interesting because it proved that this is one of the best performance in volume we had since a lot of quarter. We are able to regain this volume growth and also to recruit new consumers. So next year, will be surgical. We'll not do price increase over the board. We'll be surgical. We'll do it only when we are obliged indeed to do it because we want to protect the gross margin. And we are also willing to be much more demanding in terms of cost of goods increase. We are challenging our suppliers. We are moving also from a high dependency on single sourcing to a much better multi-sourcing in order to make some negotiation on the cost of goods. And we'll show that we do price increase where we have to protect the gross margin and/or where we are coming with an innovation or innovation was a true added value in the eyes of retailers, but also in the eyes of consumers. So the level of price increase will be strongly, dramatically below the one we had in the years before. Christopher Sheldon: And it looks like we have one follow-up question from Celine. Celine Pannuti: What China did in the third quarter, it seems that it was negative for NIVEA. But overall, if you can talk about how comfortable you feel about the reacceleration in the fourth quarter? And if you could comment as well on La Prairie. Vincent Warnery: I must say, Celine, I feel well with China. Let me start with the absolutely obvious success. We have Eucerin, which is growing 83% in Northeast Asia, which means that we are growing 150% in China. We have the anti-pigment serum of Eucerin, which is today the #1 anti-pigment serum in China. So we are beating not only the global competitors, but also local competitors. And the first 11/11 figures, so it's only 30% of the time, but we are growing in sell-out by 83% versus last year. So pretty, pretty happy with Eucerin. We have a great story. We have this unique ingredient, which is exactly what you need to succeed in China. So more to come, but an outstanding performance in 2025 and 2026. The second element, which is making us optimistic is La Prairie. I mentioned the fact that we are growing in net sales by 3%. But if you look at sellout, we are growing at 10% and with e-commerce growing at 30%, and that's really something that we did not experience in China since a long time. So La Prairie, good dynamics, compensating -- more than compensating the difficulty of Hainan, which was always small for us. I think the job which has been done by the new CEO and the team is starting to pay off. And the fact that we discovered late, but clearly, with a great execution, e-commerce is doing well. Last but not least, NIVEA, this is a question. What I can tell you that when you look at the face care business over the last quarter, we have been growing step by step. If you look at sellout quarter 2 plus 18%, quarter 3 plus 36%. Again, if I look at my 11/11 first figures, again, 30% of the time, we are growing plus 30%. I also believe that this Thiamidol story with, of course, a better price is an asset for NIVEA. And again, we are also using Eucerin to make some -- to create some awareness on Thiamidol. So I would not open champagne, but I think when I look at the 3 major brands in China, we have pretty good signals and more to come in Q4, which will be extremely strong for China. Christopher Sheldon: Thank you. That was the last question. This concludes our conference call. Beiersdorf's next Investor Relations event will be the release of our full year results on March 3, 2026. We appreciate your interest in Beiersdorf and look forward to seeing you back here again in the new year. Thank you very much. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.