AKVA group ASA (AKVA) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning, and very much welcome to the Q4 presentation of AKVA Group. The agenda for this morning is that I will do the highlights and the outlook first, and then Ronny Meinkoehn, the CFO, will do the financial performance. And afterwards, we will do a Q&A session. For those following us virtually, please post any questions during the presentation, and our moderator will read the questions during the Q&A. Let's go straight to the highlights for Q4. We had a record high Sea Based order intake of NOK 823 million. And I have to say that I'm really pleased with that in light of the new proposed resource tax, which came 28th of September. So this was the first full quarter we had kind of a test period to see whether the market was working as normal. And what is behind the NOK 823 million is very much income from the Norwegian marketplace. So that was very good and very important to see that core products -- now I'm talking core products within Sea Based is working as per normal. Secondly, we also announced a few days ago that we were awarded a new RAS contract for NOAP, the project in China for a Phase 2 4,000 tonnes and the estimated contract value from that is EUR 40 million. The market for a post-smolt project in Norway is still on hold when it comes to signing new contracts, which is due to the resource tax. And we did see acceptable profitability within Sea Based and Digital, but still unacceptable and challenging margins within Land Based. And 70% of our cost-saving program of NOK 100 million is implemented by end of the year. Revenue for the quarter came in at NOK 779 million, which is somewhat down from a year before and EBITDA at a disappointing 27. If you look -- if you break down the 27 in 2 segments, you can see Sea Based with 49.7% at the same level as the year before, 49.4% and Digital at 4.7%, double of almost double of the year before 2.8%, whereby Land Based is, of course, the drag here with minus 27 for the quarter. And there are 3 problems there. First, as we have been explaining before, we still have a part of the current project portfolio being executed on historical old contracts at fixed prices. That is something we fixed 2 years ago with regards to go into new contracts, but we still are delivering on legacy contracts. So that's issue #1. Issue #2 is one particular postman project, which has been very unfavorable for us, which we ended in Q4. And the third one is that we are -- for the quarter, we are still higher on OpEx versus activity. So those are the 3 negative drivers. With regards to the full year, the turnover came in at almost NOK 3.4 billion, 3billion – 376 million, EBITDA at NOK 158 million and EBIT for the year NOK 56 million. If we then also break down to segments for EBITDA, Sea Based NOK 262 million for the year versus NOK 283 million a year before. Digital NOK 23 million versus NOK 14 million a year before, whereby land base has been subject to a lot of issues and restructuring, minus NOK 127 million, which is the root of the issue. Moving on to order intake. I said that I was very pleased to see that order intake for our Sea Based was on a good level. NOK 823 million is actually a record quarter for us over the years. And once again, the fact that, that came right after the announcement of the resource tax is somewhat comforting. So here we are talking about our traditional core Aqua products. It's patches, it's pens, it's net, feeding equipment, cameras et cetera. So that is working as normal. And actually, Norway is the driver behind. And order backlog after a bit too low level for Sea Based in Q3, we are back to a normal acceptable level by end of the year. And with regards to Land Based, this is by end of Q4. So certainly before the NOAP contract were announced in early February. And the value of that is EUR 40 million or around NOK 440 million. So if you consider the NOAP contract, the order backlog for Land Based is now NOK 1.1 billion. With regards to the cost -- announced cost-saving program, which we announced for Q3, we have a cost saving target overall of NOK 100 million. 70% of that is implemented and will have a positive effect as of 1stof first, whereby the remaining 20% will be implemented during 2023. A headcount production will end at 130 and the cost provision of NOK 98 million was already charged to the P&L by end of Q3. So actually, this is progressing as planned. Then I just want to rehearse quickly the restructuring we are doing. This is basically a repeat of what we talked about in Q3. But since it's a rather fundamental thing, I just want to repeat what we are doing and some comment on what is going on here. So first of all, of course, the financial performance of Land Based is below expectation and not acceptable. That goes without saying. We have -- we did a lot of work in the second half of the year to establish new principles and what we call our new blueprint organization which actually will be established at our headquarter outside Stavanger, and also recruitment campaigns have been initiated, and we are hiring new people there. We have, relatively speaking, good access to talents in that region, whether we talk about engineering resources. Also, we get some people with relevant AKVA culture experience, not all of them, but a critical mass of them. So that is the advantage of building up in that region. And also we have proximity to the rest of AKVA Group as well. And we will do a gradual down scaling of the organization in Denmark, also due to high turn of personnel in first half last year. However, we will still have some meaningful size back in Denmark, in particular, related to design and engineering. So the new organization will then be located by the main market places for a smart, which is Norway. And then with proximity in the same building as AKVA management, Sea Based and the Digital organization. And there is risk good. It's very meaningful to bring it together. Digital and Land Based is coming together, and there is also quite some good synergy between the different innovations' agenda. We have just extended our head office with 2,000 square meters. So we have space for building this center of excellence in that place. And already, everything related to the call the commercial related to Land Based is already moved over. So all new contracts, supply chain. And yes, the strategic agenda, the innovation agenda. All that is done from the office next to ourselves. And then also, we have done a so-called rightsizing and restructuring of our organization at Somna to go back to just focusing on products like fish tanks and fish handling. So on the cost side of it, we have a target of NOK 62 million, where 50% were executed during Q4 '22 and the last 50% during this year. So in essence, we are actually building a new company on the basis of the proven RAS technology, which is already developed over the years. So that's what we are doing -- then Aqua implication of the new resource tax. Well, that's a moving target these days. So it's a bit hard to comment. However, -- if the first statement is with regards to activity level, is that on Sea Based. -- at least based on the experience we did see in Q4, we see a normalized activity level because the standard and the core AKVA products within Sea Based is supporting core operation in the sea, and that is still, of course, a very meaningful thing to do for our customers and the salmon pharmas in Norway. So that's number one. Number two is that with regards to post-smolt, we consider that market as a kind of on hold for time being, in particular, there are a lot of activities going on with regards to preprojects with regards to bring it up to approval level for the various companies and their boats. But we do not expect hard contracts or signing of new deals within the post smolt segment in Norway before we have seen clarity on the resource tax issue. That's the guidance from our side. And then we don't know any more than anybody else. The proposition will be issued in March, that is said by the government. And then the voting about this proposition will take place likely in June. And then we will have a new normal, whatever that is going to look like, and then we will like to see. So that's basically what I wanted to say about the resource tax. Then just at high level how we see this market. And we have updated our 2030 view, and it is somewhat downgraded from what we used to talk about with a potential of NOK 4.6 million. We are now talking about a max potential of something like 4.2%. So if you look in the back mirror, last 10 years, from '12 to '22, the total supply came up with close to 1 million tonnes, 0.9 million, which is a CAGR of 3.7% in the last 10 years' window. And then -- with the demand supply of, let's say, close to 5%, you can calculate to 4.2%, but that's a bit theoretical because we think what you should look at is the dark line here, which is the expected supply development of or probably max 3% CAGR a year, which will bring you to 3.6%. And then we have just on a more generic way, we have some comments on what are driving supply here. And first of all, on the slight positive side, we think there could be technological advances or innovations to improve utilization of existing licenses. One clear example is, of course, a post small strategy for our company. We have -- there are different modeling there depending on what size of the post smolt. But if you go to something like 800 grams to a kilo, depending on where you are in Norway, which farming region. But 30% is very feasible to get us a license growth or growth under your current licenses, if you apply a post small strategy. So that is one example. We also very much believe in deep farming. I will give some more detailed update in a few minutes, but that could also in practice drive growth. Then as a matter of fact, like you guys, we see slow uptake and scale-up of new farming technologies, both on the and-based side and the offshore side, which is even lacking final regulations, et cetera, et cetera. So if you take the window for until '25, there will not be any significant volume from new technologies and the window from '25 to '30, there could be some, but far less than everybody, including myself and we self-thought a couple of years ago. But probably proof of concept within RAS ongoing could be 1 year later. That's what we believe. And the headwind or the drivers putting pressure on the volume growth is everything related to regulations, political headwinds, which is actually there to a big extent in many of the marketplaces. I just came out of Chile. I visit the Chile 1 week in January. And there is a lot of political headwind in Chile as well. One example is even -- they want to rewrite the entire Aquaculture law, and there is a lot of uncertainty what that's going to lead to. So we are aware of the issues in BC. And also, if you go bottom right here, the Norwegian resource tax, there will be some level of resource tax, we know that. And that was also bring down investment in innovation and new technologies. So the supply picture is a bit complicated, but there will really, really not be a lot of growth in the years to go. So that really calls for a very strong salmon price, as you know. Okay. This is -- this has been our innovation agenda for Land Based over the last 2 years, it's still the same. And just one update on Box #2. We are making good progress on our development projects with regards to everything outside the core RAS. The core RAS technology is very much developed over the years, but we also want to be a complete supplier for everything it takes to run such a facility like the heating, the fish tanks, fish handling, et cetera, et cetera. So our newly developed heating solution is part of Phase 1 for NOAP also Phase 2 of NOAP. So that is something we are now commercializing and we will move on with other commercial launches as well. Post smolt and the RAS concept there, we will say very clearly is very much validated. Proof of concept is there. In the last couple of years, we have done 3 major projects in Norway. It's Tytlandsvik, and we have been talking quite about that, and they have very good results, both in the facility itself, but also more importantly, what is happening with the fish in the sea. So I'm not going to repeat those biological results, but they are superb. Also, [ Sparaga Anne ] is projects we have been completed in the last couple of years. So I think there is a consensus in the marketplace that the post smolt project or concept is proven, but you need to do it right, of course. So we still expect a lot from this segment. Even though there is a standstill now because of the resource tax, we still believe that we will enter into new contracts after the summer and in the years to come, we firmly believe in that. And that's also why we are keeping up with higher capacity, more people than we need for the current -- to manage current projects. So -- and also there, important to mention that despite the resource tax, we are working sales pipeline, the number of prospects is better than before, much more solid than ever before. So there is a lot of interest for post smolt. Of course, I do not expect to sign contracts before after the summer, but we are working on 8 to 10 projects in Norway, and that's way more than we ever did before. So I think this will really happen when we have a new normal. Okay. This is our innovation agenda for Sea Based. To the left, you can see our traditional core products. That is what is behind the order intake of the NOK 823 million for the Q4. And we are constantly working on improving and innovating within our core. I will comment to Digital in a minute and also defaming I will go to a special slide for that one. We -- we have 3 different solutions for farming fish in the deep. And in the deep, we mean at least 20 meters below the surface, which is typically or normally under the sea lice belt. And so that's Nautilus, Tubenet and Atlantis. And in particular, Nautilus and still Tubenet has traction in the marketplace. Some of the context tariffs that we have seen excellent biological results with pharma in the mid of Norway, Sinkaberg Hansen and they harvested fish last fall, which had been in the deep all the way in more than 400 days. And that fish was without any size treatment. So that is not one small trial. This is commercial production over several sites. So that has been a little kind of trigger for other farmers to look into this. We just had a webinar on deep farming. And as many as 400 people follow that webinar, and of course, a lot of analysts, investors and consultants but also a long list with customers. And over the last couple of months, we have now signed 4 contracts which should be regarded as pilots with 3 of them are some of the large pharmas in Norway and 1 medium ones. And the typical development here is that everybody wants to -- this is a rather new way of farming fish. It comes with more operational protocols. There are different things you need to do differently, and it can be more challenging to do the farming. But it also comes with a big benefit, of course, and that's -- you can avoid the sea lice treatment. So that's the big reward the benefit there. So -- but the typical process is that maybe a big farmer saying, okay, we want to test this on one site. And then they want to run the site to harvest. And if they can repeat the same kind of results as, for instance, Sinkaberg, they will scale up. So what I'm saying here is that we have good traction. We have already 4 customers testing. We have 8 to 10 we are in dialogue with. And I expect that if everybody -- or if other pharmas will repeat what Sinkaberg has been doing, we will see a good scale up term probably in '24 because there are lead time here. If you are going to produce a cycle, it takes -- it's time. Right. Okay. Then just quickly about our current Digital solutions. First, AKVA Observe, which is about automated feeding. We are using advanced AI technology, artificial intelligence, and also self-learning. And in order to automate completely the feeding. This is already installed in 54 sites in the world, and we had 25 sites on new sites during '22. And this is based on a recurring business model. Fishtalk, you probably know, there we have a global market share of 60%. We are investing quite a lot in Fishtalk in order to be in front of development. Fishtalk is the base ERP system, it takes for pharma to do the farming. And then AKVA Connect which is about bringing together software and hacker the steering system. There, we have now 167 sites on our recurring revenue model and 125 during '22. So a lot happened during the year. And what does this mean financially? Okay. Full year revenue '22 came in at NOK 96 million, which was up 30% from the year before at 73%. And EBITDA came in at NOK 23 million for the year, which was up from 14% or 60% up. So still from a low starting point. But this is a business which is scalable. We have already invested. We have the cost base it takes to scale up to a much higher level. So everything which will be added now it's going to be, relatively speaking, very profitable because the cost is already there, and it's a scalable business. So my expectation is that the scaling of this business will happen over the next couple of years. And that brings me very much to the -- to my final slide, which is our medium-term target for that is the target we have installed for 2024 of NOK 4 billion in revenue and also with the profitability level of 8% and rows of 15%. So of course, one important disclaimer there is that -- we need to see a new normal for the post smolt market in Norway and be able to sign contracts in the second half in order to reach the NOK 4 billion. But that one, we still believe will happen, and that's why we are still behind this target. Right. Okay. That brings me to the end. And I'd like to hand over to Ronny, please Ronny.

Okay. Then I will give you some more details on the financial performance during the quarter and also on the financial position to the company at year-end. Sorry... Yes. I will start with the consolidated income statement, both for the quarter and the full year of 2022. So the revenue came in at NOK 779 million. That's NOK 53 million below Q4 last year, and the reduction is all related to the Sea Based business. As we discussed during the Q3 presentation, we had a somewhat low order intake in based in Q3, and that's partly affected the revenue level in Q4. So we are very pleased that this drop in order intake in Q3 was temporary, as we could report a record-high order intake in Sea Based now in Q4. So for the total year at the full year, the revenue came in at NOK 3.4 billion. That's a NOK 250 million above NOK 21 million. That's 8% increase. However, if we exclude the revenue from the Aqua Marine Service business in '21, that NOK 70 million and also take into the consideration the loss of the Russian market in '22. On a like-for-like basis, we have an increase in revenue of 14% in 2022. So the profitability in the quarter is, of course, poor EBITDA of NOK 27 million and EBIT negative of NOK 14 million. That's NOK 33 million below Q4 last year. And as Knut explained, the lower profitability, that's related to the high cost base in Land Based also some challenging project margins, including closing of one particular unfavorable project during the quarter. So also the profitability for the full year is, of course, very disappointing with a negative EBIT of NOK 56 million. We reported the restructuring provisions in Q3, the NOK 98 million. And also during the first half year, we reported NOK 67 million related to high-cost inflations and also the NOK 65 million on onetime provisions on certain land-based and sea-based projects. So we reported record high revenue levels, both in Q2 and Q3 last year. In Q4, the revenue came down by 6% and partly due to this temporary drop in order intake levels in Sea Based in Q3. So the book-to-bill ratio, that's, again, about 100%, which, of course, is very important for us. And the strong order intake in Sea Based in Q4 should indicate a decent activity level start of this year 2023. Looking at the markets, comparing Q4 '22 with Q4 '21, we see that the reduced activity level. That's mainly related to the Nordic market, with a reduction of 15% or NOK 71 million. Europe, Middle East, it was reduced by 18%. That's all related to the situation in Russia. While we still have this positive momentum in Americas with increase in revenue of 24% quarter-on-quarter. Looking at the segments, the Sea Based is still the main part of our revenue, 76%. The Sea Based revenue decreased by 9% quarter-on-quarter, and we see still this positive development in Digital with an increase in revenue of 14% compared to Q4 last year. The financial performance is slow. It's poor due to the high cost base in Land Based compared with the current activity level and also the lower profit margins from some of the ongoing projects. I will comment a bit more on this when we talk specific about Land Based later in my presentation. So EBITDA ended at NOK 27 million, while EBIT ended at minus NOK 14 million in the quarter. That NOK 33 million below last year. So taking into account the reduced activity level in Sea Based compared to Q4 last year, we think the profitability is acceptable, both in Sea Based and in Digital in Q4. And with regards to the cost saving programs, we have achieved what we promised the 70%, the NOK 70 million of the total target of NOK 100 million by the end of Q4. This had very limited impact on the numbers in Q4, but will improve the profitability in Q1 and onwards this year. Then on the financial position. We consider the poor financial performance in Q4. We are pleased with the situation regarding available cash was a reduction of NOK 58 million in the quarter. So at the end of the quarter, we had NOK 735 million in available cash, which also includes the available credit facilities with DNB. And we are very satisfied that we managed to keep the low net working capital levels from Q3. So we ended at 6% in Q4. Looking back in the mirror, this is a very low level compared to the history. So we have implemented several initiatives, improvement initiatives to reduce our net working capital, and we are starting to see effects from several of these initiatives. Inventory levels is one example. We had an increase close to NOK 100 million during the first half year. And then looking at the second half year, we managed to reduce inventory levels by NOK 50 million. However, we still expect some challenging supply chain situation, so you should also expect some fluctuations on the net working capital going forward. Also, we informed you during our Q3 presentation that we received a waiver from DNB on the covenant. So the EBITDA we used to calculate this. This covenant is adjusted for nonrecurring costs of NOK 138 million in agreement with DNB. So due to the slow financial performance in Q4 and also the increase in net interest-bearing debt of NOK 94 million. The covenant increased from NOK 2.71 million to NOK 3.33 million in Q4, still a comfortable headroom compared to the threshold of NOK 4.5 million. So the increase in net interest-bearing debt, that's mainly related to ordinary CapEx activities in the quarter of the NOK 44 million and also new IFRS 16 liability, the NOK 34 million, where the main part of this increase is related to the extension of the office lease at our headquarter, as Knut mentioned. So for the full year of 2022, we have an increase in net interest-bearing debt of NOK 54 million. And we are satisfied that we have managed to increase or improve the cash flow in our projects and also at our production facilities and achieved a reduction in net working capital close to NOK 160 million during the year. Then on CapEx, NOK 44 million in the quarter, where we classify NOK 33 million out of the NOK 44 million as growth initiatives. And the main part of the NOK 33 million, NOK 26 million, that's related to investments in our 3 innovation agendas, one for Sea Based; one for the Land Based and one for Digital. Full year CapEx, that's NOK 168 million. We're close to 75%. This is related to growth initiatives Then, of course, due to the slow financial performance, it does not make much sense to talk about the current return on capital employed. But as Knut told you, we still believe in our medium-term target of 15% by the end of 2024. But also I need to repeat the same message, an important assumption to this is that postmark market is not significant postponed because that's an important part of our organic growth strategy for Land Based. And due to this slow financial performance, with the company decided not to pay any dividend for the first half year of '23, and we will make a new assessment for the second half year as a part of our Q2 preparations. And then some more details on the financial performance in the various business segments during Q4, starting with Sea Based. Overall, revenue decreased by 9%, and the reduction is mainly in the Nordic region. We had this high order intake, the NOK 823 million. That's an increase of 18% compared to Q4 last year. EBITDA margin of 8.4% compared to 7.6% last year. We think this is acceptable considering a revenue level of NOK 590 million. Please note that this business is scalable. We have more or less a fixed overhead cost base. So meaning that an additional NOK 60 million in revenue, the same level, the NOK 650 million level we had last year would have an EBITDA impact of NOK 12 million to NOK 15 million. And then an overall EBITDA margin closer to 10% -- so the Nordic region experienced reduced revenue of 18% in the quarter. On the positive side, we had a strong increase in order intake of 43% quarter-on-quarter. Also in the region of Americas, revenue increased by 26%, and we also have a positive development in order intake with plus 17%. Europe, Middle East, the reduced revenue. That's related to the situation in Russia, as already mentioned. While the order intake reduction, that's mainly related to our business in Turkey, which had a very strong Q4 last year. The market is still strong in Turkey, so this is more about timing. And the 12 months trend, both on revenue and order intake illustrates what we just talked about. The drop in revenue in Q4 is linked to the lower order intake in Q3. But as you can see, we are back on track again in Q4 and the order backlog of NOK 902 million, that's NOK 50 million higher than a year ago. Also on the recurring revenue, the OpEx-based revenue, a positive development during the quarter. In total, it represented 39.2% of the total Sea Based revenue. That's NOK 28 million higher than Q4 '21, which is an increase of 14%. And also, there is high activity during the quarter on all the server stations in Norway with a 10% higher revenue compared to last year. And then Land Based technology. The order intake is NOK 34 million in the quarter compared to NOK 21 million last year. And of course, the newly announced RAS contract with NOAP, the EUR 40 million contract is of course, very positive and welcomed and will be added to the order backlog in Q1 this year. The revenue in the quarter was more or less at the same level as in Q4 '21. However, the poor financial performance is with a negative EBITDA of NOK 27 million in Q4. So first, we have discussed and mentioned that the current activity level, which is too low compared to the current cost base, the number of employees in the Land Based organization. So we ramped up the Land Based organization significantly from Q1 -- Q2 '21 to Q2 '22 to take our share of the full grow-out market and also the increasing market and the post smolt in Norway. So as you know, financing of new full projects has been difficult for the time being and also the announced resource tax has put investments on hold in Norway. So the consequence is that we have a too high cost base compared to the current activity level, and we have taken measures as reported, we have achieved the 50% cost saving target for Land Based, approximately NOK 30 million in annual cost savings that's achieved by the end of Q4. And the remaining 50%, NOK 30 million, is to be achieved gradually during this year. And the second part, that's a significant part of the revenue in the quarter is related to projects with lower profit margins, including closing of one unfavorable project in the quarter. So after order backlog, the NOK 682 million, approximately 40% of this order backlog, that's related to all the contracts, older contracts without the mechanism for price escalation, meaning that we are not allowed to pass on cost increases to customers. So as you remember from Q2 and Q3 last year, we wrote down the project margins quite significantly in this portfolio. And the rest, the remaining part of this revenue of the projects, will be completed during 2023. And then we have the other part of the order backlog, the 60%, which is based on contracts entered into '21, 2022 with mechanism for price escalation, and they have also normal profit margins in the quarter. So in summary, we expect gradually improved profitability in Land Based going forward. We have completed part 1 of the cost saving program. Secondly, the effect we have from the old contracts without price regulation mechanism will be less going forward but will still influence on the 2023 financial performance. And then on the trending for order intake and revenue, we see a positive development, but it has leveled off the last quarters and the newly announced contract with Nordic Aqua Partners will, of course, contribute, but the final outcome of the resource tax will maybe have a big impact on how this development will be going forward. And last, about Digital. We have a steady and positive development in digital. We have a revenue increase of 14% this quarter compared to last quarter and a decent EBITDA margin of 19.7%. We have a strong increase in the revenue overall for the business segment during 2022 and the margin, EBITDA margin increased from 19.4% in 21% to 24% in 2022. So the 12 months rolling, both order intake and revenue that confirms the positive momentum we have in the digital business area. And as Knut presented, we achieved important milestones with regards to new sales in 2022, and we will, for sure, continue to invest in our digital capabilities to support further growth for this business area. Okay. Thank you. Knut will now continue with the outlook.

Okay. Thank you, Ronny. Just to conclude the presentation is that the order backlog is on and forms a good foundation to execute our strategy and also taking into account the newly entered into contract with NOAP. Salmon prices expected to remain strong, driven by reduced supply. So meaning that the customers -- they will absolutely have our cash flow to support the core business and activity even regardless the resource tax. The implication from this proposed new resource tax is, of course, uncertain. We have said what we believe with regards to timing, which is in line with consensus and -- so far, so good with regards to the Sea Based market that is still working as normal, but post small market, everything is kind of on hold for time being. Okay. We also retain our medium financial term -- sorry, target with a minimum of NOK 4 billion turnover in '24 and corresponding EBIT margin of 8%. Our annual cost saving program of NOK 100 million is being implemented, whereby 30% of it will be implemented during 2023. And certainly, we believe in the future, both for Sea Based, Land Based and Digital. So we are not changing anything with regards to our investments and our innovation agenda. That is still full steam ahead. So I think we'll leave it there, and let's start with the Q&A. So any questions from the audience, let's start there.

[ Xander from Pareto ] here. I was just wondering, I think you mentioned it, but how much of the total backlog is on, call it, legacy fixed price contracts? And what's the total lead time on those?

Yes. Okay. On sea price, everything should be normal, if I can put it that way. I mean, normalized margins. There is nothing to talk about with regards to Sea Based -- of course, not digital leader. But are a few things to talk about with regards to Land Based. And if you look at the order balance as per order backlog as per end of year was NOK 682 million. And what we are saying is that 40% of the NOK 682 million is what we said, old contracts with fixed prices without price escalation. All the 40% of the NOK 682 million will be concluded in 2023. The 60% has been -- is projects which is entered into in the last 2 years, during '21 and '22, and we changed our contract principle centrums as of '21. So they should be perfectly normal. But -- and also, of course, the new NOAP contract. The Phase I newer contract is part of the 40%, if you understand -- so that's a legacy contract entered into all the way back 2018. That's a fixed price contract. The new contract is, of course, on very different terms. So that's more the nature of our cost plus with some target price mechanism and full price escalation. So the new contract is a very different animal. So what we are saying now, the NOK 682 million plus to NOK 440 million, that's NOK 1.1 billion. So we have something to still was true in '23, and that will hamper the gross margin somewhat. We have earlier said that the Phase 1 NOAP contract is low single-digit gross margin, whereby it should be in the mid-20s. So that's the impact of the 40% to give some visibility on it -- so -- but that means that into '20 -- and then some more guidance there, we expect the activity level for '23 to be in the line of '21 and '22. '21, we had roughly NOK 500 million in turnover and last year, around NOK 590 million. You correct me if I say something wrong. That's... And then we will probably be in between '23. So it's still a too low activity level. We still have some higher cost because we are not done with all the restructuring, and we have some impact from old contracts in '23 to 40% of the NOK 682 million. Meaning that if you translate that into '24, we have NOK 600 million to talk about as activity-based plus whatever we secure during this year. We will have a fresh cost base or our restructured cost base and we will have good margins. So the trouble with this business is that if you have a wrong contract, you are suffering for, let's say, 3 years typically. So it's not a quick fix. But we think we are really turning the page now and we are looking ahead.

Quick question here, [indiscernible]. There's a lot of talk about some new licenses in Norway, the so-called [indiscernible]. Can you say something about how you are positioning yourself towards that? Or are you doing anything with, let's say, real closed systems in the sea?

So we -- currently, we don't have a real innovation agenda for closed system. What we are doing, we are monitoring other emerging technologies. But we see that as still a slow development in order to have breakthrough and it really cost a lot of money to run that innovation agenda. We have been mapping somewhere between '25 and '30 different innovation projects, either semi or fully closed. And we think quite a number of those projects will have some headwind with regards to financing following the resource tax. So we are more studying what's going on. We still truly believe in more kind of simple technologies like deepwater. We really see a nice and good results from that, and that is our focus. We also -- we really believe that all kind of technologies, also simple technologies, which can bring down the sea lice problem should be part of the definition with regards to what you are talking about. And we had several discussions with the politics in order to try to understand the line of thinking, but we're not certain about where this is going yet. But we have a strong view that also simple focused technologies very pretty easily scalable should be part of the scope.

[indiscernible], DNB Markets to pick up on the Land Based contract. So if I understand it correctly, I have price escalation, but will it also be a price de-escalation if commodity prices decline? And how are you addressing FX in all of this? Is that header...

Yes. FX is back to back. So we are -- we are on... No currency risk. No currency risk. That's a simple way of saying -- all right. And if you see a price -- the contracts are neutral on price. So there are price escalation and the other way around as well. So it's back to back on the price mechanism.

Yes. Perfect. And on Deep farming, can you sort of comment on what you see as a market potential in '24? Or is it still early days?

It's -- I don't have a target to disclose, but I can just explain with Sinkaberg, -- we have now -- I think it's close to 30 cages delivered, at least in the high 20s. So that is -- and they are a medium-sized pharma. Now we have 3 out of the 5 biggest they are running pilots with us. And if they are scaling on this one, it will be a huge number of cages. Then you will talk about more than 100 cases into next year. So the potential is great.