Vow ASA (VOW) Earnings Call Transcript & Summary

Welcome to Vow's Capital Markets Update. My name is Henrik Badin. I'm the CEO of Vow ASA. Today, we have a very interesting program, where we will start with a brief trading update to reconfirm the numbers we presented to the market the 29th of October. We will have a following up financial update with our CFO, Tina Tonnessen. And Jonny Hansen, our Chief Operating, will also shed some light on the numbers behind the third quarter and also to give some flavor on our controlled and profitable growth plan going forward. Then, exciting, we will have a business deep dive where we will have guest speakers from Outokumpu, Timo Huhtala, who is the General Manager of Biocoke project at Outokumpu; Cecilie Jonassen from -- the CEO in Vow Green Metals, who will give an update on Vow Green Metals. There's a lot of lately events in Vow Green Metals that she will tell us about. And then we will move over to another section materials recovery and renewable energy, where David Duren from Circon Energy will give an update on the stock exchange notice this morning, exciting. And also, I will give some updates on the end-of-life tire vertical. And last, also the interesting opportunity with valorization of sludge and eliminating the PFAS, also the -- connecting that to the front-end engineering design contract we received earlier this quarter, and then concluding remarks. So a lot of interesting things this morning. As we provided to the market in our last update, we delivered year-to-date third quarter NOK 703 million of revenues. And it's a result of an increased demand for Vow technology from several markets. We do experience inflation and higher cost in the supply chain for some of our projects that, all in all, provided an EBITDA of NOK 14.1 million accumulated for the quarter. EBITDA margin in the Industrial Solutions started to improve as activity picked up. We have earlier communicated that we have a larger capacity to do more business within that Industrial Solutions segment. But for the third quarter, we are profitable. Maritime Solutions impacted by reassessed cost prognosis. We will go more detail into that. And Aftersales continues to grow with expanding installed base. Order backlog was NOK 1.1 billion at the end of third quarter and Vow's main market remains strong. In addition to this firm order backlog, we have optional contracts worth NOK 932 million that are likely future revenues in the Maritime Solutions side. Strong momentum across our business. These are examples of stock exchange notices' news that we have provided to the market from the summer on. We started in July with the firming of the contract in U.S., Quonset Soil Solutions Green Development. We have received new contracts within the cruise industry space both within retrofit, upgrading existing fleets, and newbuilds. We have momentum within C.H. Evensen, the heat treatment part of our business. We received also an order to double the production for Vow Green Metals at Follum, and Cecilie will talk more about that when she enters the stage later on. And also activities within food safety side of the business. So all in all, there's a good momentum in the business. Going back into sort of the 3 reporting areas, the business segments: the Industrial Solutions, the Maritime and Aftersales. 37% of our business is now Industrial Solutions. We are now getting into sort of profitable numbers for the quarter. I'll give you some more detail behind those numbers. Also, the Cruise 44% is also where we get the hit for the third quarter. And Aftersales, progressing very good, 19% of our revenues and 13.7% EBITDA margin. Looking at Industrial Solutions. We have several contracts confirmed. Capacity utilization is significantly improved, converting into higher revenues and margins. I would say that we have for the year-to-date NOK 258 million, NOK 259 million and an EBITDA of NOK 2.2 million. If we would increase our revenue within that particular area with 50%, we would obtain an EBITDA margin of 15%. So this is solely a result of the capacity we have within the business area. And as we bring more revenue into that business area, we will -- the bottom line, the EBITDA margin will increase. High activity with our heat treatment solutions for C.H. Evensen and a strong demand on that. I have a couple of slides to give more insight into what's happening in C.H. Evensen that we acquired last year. The FEED contract, I also would like to talk about. We announced that earlier in the quarter. And it's a very interesting FEED. It's confirming our relevance for processing sewage sludge and to eliminate PFAS. I have a separate slide in the business deep dive to explain more about this interesting opportunity for Vow in the coming years. The heat treatment solutions, C.H. Evensen has been a very successful acquisition for Vow. It has a long-lasting relationship with blue-chip companies, helping them to -- in their high-temperature processes. You see the development within that business unit from 2021, NOK 59 million, to the estimate for this year, NOK 125 million. And the drivers for this business, regulators and capital markets drive transition to nonfossil solutions. It creates a strong interest for the technology portfolio we have within C.H. Evensen. And I think also the Scandinavian heritage signals a deep insight and experience, which attracts continental Europe. And if you look at the prospect list, the hit within heat treatment solutions, lately of now around NOK 1 billion of opportunities within that business area. 72% of these opportunities are companies in Europe that transitions from fossil towards renewables, electrifying their heating processes. 21% is repeating clients that goes back and buys more of these systems. And still, we also deliver heat treatment based on natural gas. But you see the tendency and the driver for this business. More and more clients trying to phase out fossil energy and go electric or renewable gas. All in all, it's been a very successful acquisition and it will be an instrumental part of Vow in the coming years. Looking at the cruise industry, we continue to deliver on a strong pipeline. We have a high activity and we are, in these days, delivering a lot of projects to the market. The picture on the right is Icon of the Seas, where we have all the systems onboard within waste management, advanced pyrolysis systems onboard and wastewater purification. This ship was added over to Royal Caribbean yesterday from [indiscernible]. EBITDA within this business segment was impacted by a reassessed cost prognosis, but we expect now for the full year 2023 that the EBITDA margin is slightly above the margin year-to-date. And we do see that the shipowners are investing. They're investing in their existing fleets, renewable programs, and they are confirming their newbuilds. NOK 308 million of revenues year-to-date, up from last year, but of course, we get a short-term hit on the inflation. But it's in -- we have a high momentum in that market space. Today, we are continuing to deliver on a strong order backlog of 32 confirmed ships. We have following 15 optional contracts. The graph there shows when the ship is entering service. So we have then delivered equipment up to 2 years prior. And you see also the gray is the number of ships that we are tendering. So it's a very good momentum for us. And also another important development we do see is that traditionally we have delivered waste management with incineration. The industry is moving more and more towards waste valorization where our unique pyrolysis technology is becoming more and more relevant. An example of that is the Icon of the Seas that was handed over yesterday that features the MAP technology, the first pyrolysis technology that we developed in the company before we acquired Etia. But now more and more ships are requesting a larger capacity system. And the acquisition we made back in 2019, buying Etia, gave us technology now to implement on the cruise ships to go with this type of waste management. So we expect in the coming years, there will be more and more waste valorization technology with pyrolysis in the cruise industry space and this will drive the revenue for Vow. Aftersales has a strong development. Year-to-date, NOK 136.6 million. Our best year before the pandemic. We were at NOK 126 million for the full year. So it's a growing installed base. And we have a good EBITDA margin but this will grow. And it's closely related to the number of ships, the installed base of Vow. The more ships coming out -- and this year, we're delivering 11 cruise ships to the market, and that will drive the Aftersales for us, the provision of service, spare parts and chemicals, operating consumables of our systems, so has a very good development. With that, Tina, why don't you give us sort of some background on the financials? Then I will be back afterwards.

Thank you. So let's look at some numbers for the group. As we said in the beginning, we delivered NOK 703 million in revenues for the group year-to-date, Q3. This is up 18% compared to the same period last year, mainly driven by Maritime and Aftersales. And we received, as also we said, a hit on the gross margin during the quarter. This is due to inflation and higher supply chain costs in Maritime. And we have, during Q3, done a thorough review of our project portfolio. This resulted in a reassessed cost prognosis and a hit of NOK 35 million. During the review, we've seen that all of the projects are progressing well and the quality of our backlog remains good. Including this effect and also the buildup of capacity during -- in the Industrial space, we end at an EBITDA of NOK 14 million year-to-date. We have initiated a comprehensive cost reduction program to secure margins and cash flow going forward. And we will go into more details about this later on in the presentation, and we expect this to have effect during the second half of 2024. Moving over to the balance sheet. There is 4 movements that we would like to comment on: first, the increase in intangible assets and goodwill compared to year-end is due to investments in new technology, mainly related to the Industrial segment and also currency effects. We have, during the quarter, experienced continued high activity, which has led to an increase in working capital. At the end of July, we secured a refinancing, which is included in the Q3 balance sheet. This consisted of NOK 620 million green financing. We use the proceeds to repay our existing term loan, RCF and parts of our overdraft. And total drawn debt being refinanced was NOK 313 million and net proceeds of NOK 65 million. Our equity ratio at the end of the quarter ended at 30.4%, down from 35.4% at the end of Q2. The decrease is due to the negative results we've had and also currency effects on the balance sheet. We do have a higher leverage due to the development in EBITDA that we've seen in the last 2 quarters. We would like to emphasize that we are comfortable that we can service the debt, but we expect leverage to remain high during the first half of 2024. We are in a dialogue with our bank for resetting covenants and we expect this to be settled before year-end 2023. Moving over to the cash flow. Our operating cash flow for the period is impacted by our buildup in working capital and also the negative results that we've had. Investments year-to-date amount to NOK 66 million and relate mostly to investments in new technology for the Industrial segment. We expect a lower overall investment level for the full year of 2023 and also a lower investment level going forward. Net cash from financing includes the refinancing that we've done and also interest and lease payments. The net cash flow for Q3 was NOK 12 million and cash ended at NOK 28.7 million. Available liquidity for the group as of today is above NOK 80 million, and we expect this to slightly increase going forward towards year-end 2023. And I would now like to invite Jonny to talk some more about Q3 and our initiatives.

Thank you, Tina. Good morning, everyone. I would like to talk a little bit about the effects that we had to take in the Q3 numbers and why that happened? What is the 3 key factors? Which is, of course the inflation, some of the global supply chain effects that we've seen and also, of course, the implementation of new technology and new delivery models. As for the inflation, most of our production capacity is in Poland, has -- had a high inflation from December '22 -- December '21 to December '22 at about 16.6%. This, of course, has also affected us when we purchased a lot of the components and materials going into our projects in last fall. Supply chain has had a global impact where we see that there's a lot of latency in key components that goes into our supply, such as POCs, electrical components, mainly, motors. So we had to push our deliveries without these components and therefore had to do carryover work at the ship, which of course is more expensive, that also contributed to the cost increase. New technology, of course, is something that you enter into unforeseen cost structure. And this is, of course, a nature of -- when you implement new technology. And also going into new market segments, that pushes forward other delivery models than we previously had. Looking at our delivery model for cruise, it has been based on standardization of equipment that goes into a complete system, working hard on standardization just to have a scalable model where we can configure to order as opposed to engineer to order, reducing the engineering efforts that we need to do per project. Obviously, as new technology comes in, this renders that model a bit and we have to adjust and we have to adapt. And also looking at the new projects on the Industrial side, which is of a much larger scale, it brings another element of engineering into the picture, the integration of plant into a facility, which is something on the cruise side, the yard has been doing for us. So this drives our development of how we deliver projects going forward. So why did we not see this coming? And why did we have to take this hit? It's not a single event or a single reason behind this. It's a combination of several factors. Anyone that has implemented a new ERP system knows that it's painful, especially from the go-live date until you start getting everything in order and the numbers are getting visible. So we lost a bit of visibility into the key data in this period, making it hard to realize the extent of the cost increase. This, in combination with the high activity level that we saw last fall where everything was -- and also tied into the global supply chain situation, it was an extremely high focus on getting things delivered despite all the delays that we saw. Because you just have -- you have a win opportunity to deliver goods to a ship. If you're not there, the ship will close and it's going to be a much, much more expensive operation to get it in there. At the same time, we also faced the normal growth pains when we are increasing our project portfolio with many new hires and, of course, also the onboarding process with procedures that did not adequately match this growth, also touched into that. So this in combination forced us to reassess -- when we know this, to reassess the cost structure in our project portfolio, meaning that when you take this -- when you see these costs at a later stage, you have to reassess and say, okay, what does this look going forward on all the other projects? So it's kind of like a reset of the cost structure. And now we have a much better confidence into the cost and we have a much better insight into the numbers because we have a good tool in the ERP system that is now tuned to a better level. Because of this and, of course, also as a natural process of improving, we have launched a comprehensive program now to ensure that we have a controlled growth. We have a complete mapping of working processes program ongoing, goes from -- all the way from bid to handover of a system. And this includes improved routines and more frequent project reviews so that you don't end up in a situation that we came from in Q3. In that process, we include also purchasing and sales so that we're able to close the loop immediately if we see some deviations. And when you see deviations, it's also easier to mitigate not only that specific case, but also things going forward. We have a close dialogue and we have an intense supplier program that is going -- has been ongoing since September. All the largest suppliers are being invited. We are discussing and we are -- we have a good dialogue. And I have to say that I'm impressed by our suppliers, that are really helping out in this process, giving us discounts so that the forward margins will improve. We are also planning for in-sourcing of production as we see that Poland is no longer, from a cost side, a preferred location to produce, especially on some key components. So we're planning to in-source production by expanding capacity at C.H. Evensen and also utilizing available capacity in the near future. We are also working on the streamlining operation setup, and by doing that, extracting more synergies out of the past acquisitions. And then as I touched into in the previous slide, we are evaluating both the delivery models that we have on cruise but also developing delivery models towards these larger-scale projects that we see are coming. That is, of course evaluating at all times what should we keep in-house on a fixed cost base and what should we have on a variable cost base per project. And it will be an evaluation continuously. And lastly but not least, we have, and we are still reviewing our investments to reduce the capital expenditures. So we are working both with COGS -- to reduce COGS and also OpEx. And of course, there are a lot of details and a lot of points going into this plan, and every point has a trigger point. So if something happens on the positive side, we don't have to do anything because we need that capacity. Right, Tina?

Yes. In the stock announcement that we released at end of October, we set out some targets for the full year 2023, and we target group revenues of above NOK 900 million for the year and also an EBITDA margin at 2% to 4%. With the initiatives that we've now gone through, we expect to have a full effect from this during the second half of 2024 and are targeting also a normalized EBITDA margin of 15% during the second half of next year.

Tina and Jonny, thank you so much. You will be available in the last section in the Q&A. So let's move on to the business deep dive and outlook. As I said previously that we -- in this presentation, we'll focus on 2 areas where we also have guest speakers: first is the metallurgic industry, a strategic area for Vow. And so pleased to have Outokumpu to give a voice, the voice of one of the industry giants. This is Europe's largest stainless steel producer that has initiatives to replace their use of fossil coke with biocarbon, where our technology is relevant. So Timo will say some words. And also Cecilie that is relevant for Vow technology, Vow expansions going forward in their quest to increase the production capacity of biocarbon into this space. First, Outokumpu, I really would endorse that company. It's really taking a position, have an ambition to reduce their CO2 emissions by 42% by 2030. And their plan, among other initiatives, is to replace fossil coke with biocoke and is considered key for them. We have been working with Outokumpu for the last 2 years, evaluating our technology, and we have had commercial discussions. And Outokumpu will provide some of their strategic plans where we see there has been a natural progress, where they have been not only considering the procurement of biocarbon, but also partnerships and also a plan for them to themselves build up capacity to produce biocarbon, everything relevant actually for Vow. What's also important to pay attention to, a part of that strategy, is that they 2 weeks ago announced that they've invested in Envigas in Sweden, which today produces biocarbon using Vow technology, When we acquired Etia back in 2019, they had already an agreement with Envigas. So we have been working with Envigas for a long period, more than 5 years. Outokumpu will invest NOK 9.9 million and take an ownership in Envigas, and that also gives Outokumpu the right, an option to buy 50% of their forward production capacity. And Envigas aims to increase their production capacity until 2026 by 25,000 tonnes. So let's hear Timo Huhtala's words from Outokumpu. [Presentation]

Ladies and gentlemen, I feel thankful to have an opportunity to bring Outokumpu greetings to Vow Capital Markets Day. The shown video stated it, but the main message is Outokumpu take seriously the climate change and act on it. Let's spend a couple of minutes to have a closer look at this. Outokumpu was the first and is still the only stainless steel producer committed to SBTi initiative to limit the global warming to 1.5 degrees, and this is by 2030. We help customers to reduce emissions. Alone in '22, we helped our customers to avoid over 10 million tonnes of carbon dioxide emissions. How do we do that? We do that because we have 75% lower emissions compared to the industry average when looking at all scopes. Let's spend a few minutes to look at the figures a little bit closer. Outokumpu emissions of 1.7 tonnes of carbon dioxide per stainless steel. This compares to European peers average of 2.8 tonnes, industry mean of 7.0 tonnes, not even to mention China and Indonesia of 8.8 tonnes. Good to also mention that Outokumpu has developed a circular green product where the emissions are 93% lower than the industry average. So are we happy with this? No. We have set targets approved by SBTi to reduce our emissions of all scopes by 42% by 2030 compared to the set baseline of 2016. What does it mean? When we look at the Scope 3, which is around 70% of the total emissions, the focus is on the highest share of the recycled materials, which is practically scrap, low emission primary raw materials and altogether supply chain optimization. In Scope 2, mostly green electricity, but then also very importantly, we need to look at also energy efficiency. And then Scope 1, which is closest to Vow's operating environment, we need to replace fossil-based raw materials with fuels -- and fuels with bio-based. And my slide, which is here showing the 3 ingredients, this concentrates on the Scope 1, and there specifically the coke where my project is making investigations. We use around 300 kilo tonnes of fossil coke annually. Our primary use is in ferrochrome furnaces, where carbon is used to capture oxygen from the chrome and iron included in the ore. Since it is often asked, it's good to mention that contrary to carbon steel industry, there's no technical readiness to make chrome reduction with hydrogen in industrial scale due to very high temperature requirements. Thus, the remaining current option is to replace the fossil sources with renewable. And here comes to biocarbon and biocoke into play. Our aim is to utilize forest and wood industry side streams, otherwise burned to produce energy and give the -- to the biomass higher-value use. To make it happen, we have a strategy where we work on all shown 3 swim lanes. External sourcing would put us into a position where we would need to trust that the market would do the biocarbon and biocoke for us and others in coming years. Do we trust to that one? No, we need to act. We do not have time to wait, and that is why Outokumpu has taken active role to seek opportunities to produce the biocoke alone or through partnership. Envigas deal which was disclosed a couple of weeks ago is a perfect example about this. It's the middle lane, building capacity through partnerships. In the end, we need to act now. I visited last week in Oberhausen exhibition of The Fragile Paradise. The exhibition was quite stopping with all examples and photos, human kind has increasingly overconsuming the global resources. Please join to the movement and let's work towards the world that lasts forever together. Thank you.

Thank Timo Huhtala from Outokumpu that shed some lights on this strategic area for Vow, the metallurgic industry. And next, I would like to welcome Cecilie Jonassen, the CEO of Vow Green Metals. The floor is yours.

Thank you. So nice to be here today. We've had some busy weeks, so looking forward to give you some updates, and please ask some questions later on. As you heard, Timo in Outokumpu say, building partnerships together is important to achieve what we are needing to achieve for the future. So this is the technical and operational team at Vow Green Metals at Envigas site 2.5 weeks ago, a couple of days before the announcement from Outokumpu where they invest in Envigas and taking a leading role when they are making offtake agreements with that project. Very important for us of course then, that this is maturing several of metallurgical verticals, not only for silicon industry which I've been talking a lot about in the past, but also several others that needs biocarbon to be able to decarbonize. So very importantly, of course, I'm here on the Vow day, and you can see in the picture here the Vow technology. This is the exact same technology that we are going to use at Follum, the large-scale facility, but not only at the large case facility but also on the early production line. So very excited and announced a couple of minutes ago. On a cold evening, last Thursday, a lot of our engineers were at Follum. And even though we were not set up like this, there were someone making pictures. So this happened. [Presentation]

Sorry for the sound, sorry for all the cheering and the selfies and everything. So this is it. It's the [ half ] commissioning and of course, it is a ramping up phase and everything. But to be able to produce biocarbon at the same quality that we know that Envigas is doing is, of course, very important for us to show. Making 80 kilograms, in the future making several thousand tonnes -- hundred thousand tonnes, of course, this is the start of it. So even though in this -- I mean, it's a jam jar, but still having that in hand is a big -- it was a big happening for us, especially for the engineer in me. So that's what's happening at the early production line. But of course, let's get back to some old news because this was today's news. But we have some old news, they are from last week. We had 2 announcements in the last -- I mean, it's 8 days. So it's been quite busy. One of them being Siva which is investing in the buildings and the infrastructure at our first production plant at Follum. We're up to NOK 252 million -- close to NOK 252 million. And to be honest, it is very exciting to be a part of this saying -- with Jan Christian Vestre saying, "This is the starting point of scaling a new green industry." not just having it in overboard, but actually doing it. The infrastructure work here, you can see that in picture to the left, nearly finished. And there are some pictures on the right side here from the infrastructure work. Yesterday, we had another announcement where Vardar, which is an energy company and they are also located at Honefoss and Treklyngen with Vardar Varme, which is the local heating company. They will invest close to 100 -- it's not close to, it's actually NOK 100 million in Vow Green Metals, first, with a loan to Vow Green Metals and having the possibility then to have a stock option and use that in kind to convert it to stocks at a premium at today's share price. Additionally, at the signing of an offtake agreement for that facility, they will invest another NOK 15 million in the Follum plants. And you can see here, they are also already invested in the pipes and maybe not to everyone noticed that this is local heating pipes. But this is something that Vardar already did last autumn -- early this autumn. So this is the model that we've been talking about in May. So back in May, we presented this, showing how we are expanding our industry. We have a project portfolio of close to 600,000 tonnes of biocarbon and we're able to have speed and scale that. This is the model that we're doing it with. So the example with Siva and Vardar investing in the plants means that we are looking for investors in the projects that we are developing. The Vow Green Metals role in this will be, of course, organize projects but also establishing production almost like a franchise agreements with the factories, having the metallurgical engineers in Vow Green Metals developing products for the metallurgical industries but also other industries. Yes. And also, of course, very important is the sourcing of feedstock and securing the offtake agreements. Having the competence in Vow Green Metals and locking in all the knowledge from all of these plants will be very important to be able to scale business going forward. I think that was about it. But hopefully, you have some questions later on.

Thank you so much, Cecilie. So great to see. We have been working in this space for many years. As I said in the introduction, we have more than 5 years working together with Envigas. We listed Vow Green Metals on the [ year-next ] growth 2.5 years ago. We have been working with Outokumpu for 2 years. Now things are really moving. So really happy to give you this insight and to demonstrate the relevance for Vow technology and to substantiate the business opportunity for Vow in the coming years. So both Timo and Cecilie, thank you so much. Okay. Moving into the next section, materials recovery and renewable energy, circular solution. This morning, we announced a very exciting news. And David Duren will be the next guest speaker. But before that, I would like to give an introduction of joining forces for carbon recycling. 18 months ago, David Duren called me from Texas, and he said that he had been working to find technology into their projects, pyrolysis technology. And we started a very interesting cooperation. They've been in Norway multiple times to evaluate our technology, and we have been working together with them to integrate some of our pyrolysis technologies into their design. So now we announced this morning that we have signed a long-term cooperation agreement with Circon Energy, Houston-based, a long-term equipment supply agreement, that we will be the exclusive provider for large-scale Carbon Refinery, it's a trademark they have, the Carbon Refinery plants. And it's actually projects expected to break ground in the Caribbean in 2024 already, according to Circon Energy's plans. The further confirms multiple projects under advanced development. And this first project, they are giving some visibility into, will comprehend up to 19 lines of Vow pyrolysis equipment. This illustration shows a 6-line system. You can imagine the dimensions of these solutions from Vow integrated into their refineries. And this refinery would process multiple feedstocks: biogenic materials from municipal solid waste, plastics, end-of-life tires, storm debris, agriculture waste and convert that into low-carbon fuels; biochar; RCB, recovered carbon black; and other coproducts. So let's hear the words of the visionary, David Duren, in Circon Energy.

Hello, I'm David Duren, Founder, CEO and Chairman of Circon Energy. We are truly excited to announce our engagement with Vow as an impactful partner to bring relevant scale and significant commercial execution of solutions that will fundamentally change how the world thinks about waste resources, renewable energy and decarbonization to secure a sustainable future. Many thanks to Henrik, his incredible team and the Board of Directors for their support and commitment to advance our mutual objective. The industrial revolution of the 1700s introduced a focus on productivity, innovation and addressed improving performance through machines instead of our hands. Agricultural improvements, iron production and the advent of steam engines fundamentally changed every aspect of life. Innovation accelerated through the discovery of oil and gas, the advancement of electronics, computers and nuclear energy. The access to knowledge through the Internet, connectivity of the information age continues to drive productivity at a scale of exponential speed. But they have also provided transparency into the challenging consequences of all this growth. Energy transition is touted as the answer. But to fully address global needs, we need to holistically examine our methods, reconsider our accomplishments and our consequences and rethink what is possible. The world is emphasizing sustainability, the world is demanding responsibility and we are leading the carbon revolution. As global population, industrialization and electrification increase, we need to rethink the value of resources in our world. The lifespan of goods and materials has never been shorter, and yet just because something has expired its useful life to some, that doesn't mean that the resources aren't valuable to others. Waste valorization has long been a tenant to Vow's fundamental day-to-day practice. As the name of our company implies, the circular economy is a fundamental commitment to maximizing the value of such resources beyond single product outputs and offtake agreements. Circon isn't just another low-carbon fuel producer, but we produce multiple outputs including baseload renewable electricity, which underwrites the capital investments of our entire facility. We also generate excess LCF fuel derivatives, agricultural bio-supplements, biochar, recovered carbon black and valuable environmental credits from our carbon-negative life cycle analysis facilities. Over the last 5.5 years, Circon has worked diligently to execute our business model, securing solid offtake agreements in strategic locations that maximize success and reduce the risk of execution while providing long-term financial strength. A key tenet to this objective was to identify a partner who not only sources commercially off-the-shelf equipment to simplify our process, but who is knowledgeable and committed as an expert in the space. Without question, Vow has proven to be the global leader through demonstrated commercialized results, expertise in processing feedstocks into valuable offtakes, the most flexible designs for scalability, and the most important aspect, the professional and engaging team committed to culture and focused on their objectives. The pictures you see on the screen represent this facility as a world-class manufacturing facility. No special processes are involved, but because logistics is the most significant process challenge, a clean, managed and controlled environment ensures the quality of the delivered products. Circon integrates over 50-plus years of experience in large power and infrastructure development on a global basis with the equivalent of over 22,000 megawatts of engaged solutions, [ another ] $20 billion in implemented capital. Our project contracts are secure, and we are excited about the execution of our work with Vow. So why is Circon different? And why is this relationship with Vow so significant? Our signed and executed offtake contracts in the Caribbean are long-term renewable electricity commitments at attractive rates. Our permits are included in our concession allocations, and the picture shown are indicative of the design and scale of the overall facility our EPC contractor will execute. We supply our tested low-carbon fuels internally without stringent fuel specifications in a very flexible operating application. We have executed agreements between 6 to 8x the required feedstocks from end-of-life tires, waste plastics, MSW, wood, paper, cardboard and storm debris. Some of our feedstocks produce up to 7 different revenue streams from electricity to physical supply chain commodities to numerous environmental credits reducing our financial risk. Our designs are simple and flexible to effectively use any feedstock source. Our projects will produce some of the largest decarbonization results to date. Circon has multiple projects under advanced developments within the Caribbean, the first of which will deploy 19 lines of Vow's equipment to process feedstocks without any direct emissions. Subject to the completion of final engineering and design, we anticipate executing a purchase order with Vow in the first quarter of 2024. We are excited about our strategic alignment with Vow and look forward to success as we execute these impactful projects. Thank you for your time this morning.

Thank you so much, David. This is a very exciting opportunity to Vow. We have been working with them for quite a while, as I said. It's also interesting, these are large facilities in the Caribbean. We also see some potential synergies with the cruise industry as these plants will produce fuel, renewable fuel. So all in all -- we will now continue our work with Circon Energy and [indiscernible], the other company in that structure, and hopefully provide more visibility into this opportunity in the coming months. Moving on to another vertical that we have been speaking about for a while. If we go back, we announced in December last year an MOU with a large player with ambitions within end-of-life tires to convert end-of-life tires into recovered carbon black. That was also based on our long-term cooperation with Vow, going back 7 years. That led to the buildup of a plant in U.K. in Lakenheath for Murfitts Industries to demonstrate our technology and to produce carbon -- recovered carbon black for the tire industry. That plant and the business model of Murfitts and Murfitts Industries, attracted ITOCHU, a large cooperation in Japan that is really building momentum within the tire industry. They are today one of the biggest distributor of natural rubber, and they are taking a large position within end-of-life tires. They -- in Europe, through their vehicle, ETEL, has Stapleton and Kwik Fit controlling of the collections of end-of-life tires in U.K. They have activities in the Netherlands, building up capacity there, and they are also in Italy. The interesting thing here is that they want to -- they have evaluated also over time, technology. And we, for them, have become relevant. That's why we ended -- that we concluded with the MOU last December. We have this year been working a lot to finalize process engineering on this type of factories. And we have been working also with what I call the financial engineering to demonstrate the viability of the business model. It's very important. They have access to the feedstock. They control the feedstock. This is all about producing high-grade recovered carbon black. And the big tire manufacturers have been, over time, evaluating that product from the Lakenheath facility. In addition, it's pyrolytic oils that will be used as additives -- recycled additives into fuels, petroleum products, and also is the energy coming out from the process. Feasibility studies, we've been working on several. But now it's for a plant in Great Britain. They have multiple projects in their planned pipeline. ETEL is also in discussions now with major -- one of the major companies in the tire industry for offtake. And according to our expectation, that during the first half of next year, they will place an order for the first factory module delivered by Vow, approximately a EUR 20 million contract to process up to 25,000 tonnes of tires into recovered carbon black. And the objective is for them to deliver factories scaling up that with a factor of 10, up to 250 tonnes per year end-of-life tires. So this is all we can say at the moment. They're working on concrete projects. And the visibility we have now is that we expect this to materialize into contracts during the first half of next year. Last year -- sorry, last presentation, the first half 2023, we had -- we gave more insight into other areas of interest, strategic areas for us. And [ Per Carlsson ] from Vow explained the relevance for our technology as a way to process sewage sludge -- to find an end-of-waste for sewage sludge and to mitigate the problems related to PFAS, the forever chemicals. To share some more light on that is where we, in September, we announced a front-end engineering design contract outside Norway -- the only thing I can say now, it's outside Norway, for NOK 10 million. We're working on a plant that will have the capacity of 100,000 tonnes a year feedstock, including 4 lines of the C.H. Evensen [ big reactor ]. And we truly believe that this is also a very interesting area for Vow that will generate growth in the coming years. So that concludes the industry deep dive. I hope it was interesting for you, the voices from the industry to substantiate this opportunity for Vow. So let's conclude. We run through the numbers, NOK 703 million. It still demonstrates the relevance for our technology, the demand for our technology. I would say that we expected higher revenue. I told you about the time line. It takes time to develop this. If you look at our history within the metallurgic industry space, now it's really moving forward. When you see other initiatives that we have been working with for a long time within the circular solution, now things are moving forward. We cannot control the time line. But we, from our side, are doing whatever we can to demonstrate technology, verify our solutions and do our part, what it takes to reach the final investment decision. But things are really moving. Of course, we have a short-term hit that initiates programs to make us more leaner. And what we basically are doing is that we are preparing us for a larger growth. We're not cutting costs because we see that we need to downscale in any shape or form. We're doing it to do it better going forward, to have, as we said, a controlled and profitable growth. And we have significant achievements announced from partners and potential customers, as you've seen today. So with this, I would like to thank you so much for the attention, and we will open up for some Q&As.

From the audience, I'd like to remind the audience online, we have a pretty great crowd out there watching the program today, that you can also log your questions or type your questions on the screen. And we can do -- try to answer them as well afterwards. But first, some questions from the audience here in the room.

Perhaps Tina and Jonny, if you want to join, and even it could be questions for Cecilie as well.

Gard from Pareto. I have some questions on the financials first. So you said that you were in discussions with banks over covenants. Could you give us some more insights? Are these on the equity ratio which is now down to 30%? Or is it a leverage covenant? And what type of communication are you having? Will there be any payments involved into waiving some covenants? Or how will that structure look like?

In terms of the covenant structure, I would like to repeat what we said in the stock exchange notice when we did the refinancing, that at similar terms to what we had before in terms of covenants. We are in a dialogue now. So we would like to not comment that much on that, and we will let you know when we have something to share.

Okay. You also commented on the working capital buildup now that you are moving into delivering on more projects. Could you tell us more about prepayment structures, et cetera, for projects to come? I mean, looking at the significant build you had now, and yes, you have more liquidity than your cash on your balance sheet states, but yes, to give us some more comfort on potential prepayment levels in the future or how you structure those deals to give you a bit more headroom?

Yes. What I can say, first of all, is that we have collected a significant amount of payment since the 30th of September. When it comes to the contract structures, we're aiming towards getting more prepayments and working with milestone structure of that. Please add if you have any...

No, it's -- I think it's part of the commercial discussions we have on these large projects going forward, that we want to make sure that we are minimum neutral cash-wise. But it's based on significant prepayments. So it's based that we will not finance the deliver technology. The projects and the customers are financed for it.

Okay. And then touching a bit upon the cost assessment and a 2-part question. You commented a bit on it, but more insight and color will be helpful. So the backlog is reassessed. So we can expect also from what's in the backlog on contracts you've already entered into that those margins are on sort of historical levels. And maybe you can comment on your thoughts on having passed through on input materials and components and how those type of structures are in your delivery model?

Yes. As I said, components going into production has been sourced traditionally from Norway and shipped out to the different manufacturers that we have at different sites. Due to VAT issues, transferring components across borders and then being sold off to a third party has proven difficult. So we are transitioning that sourcing to our manufacturers. So they are sourcing on our agreements to ease up on that logistics. I don't know if that answers your question.

Yes, that gives me a better understanding on the pass-through. But yes -- and the backlog is also reassessed and the hit you take now is also reflecting that, I guess? Yes.

Yes.

I have a lot of questions, if that's okay. So the lower investment level going forward, does that mean that you're happy with your technology and your offering now? I mean, keeping up a good R&D level is, of course, important in delivering new type of technologies. But I take that as you are happy going forward?

I would say that we have done major investments over the years and those steps have been important for us and one of the reasons why we have these opportunities in front of us. We do see that investment is coming down, yes. So it's a natural reduction.

And then moving into these new opportunities. So in terms of the Circon agreement, 19 lines, I mean, that's huge for you. Can you comment a bit on how a contract structure within that will be? Is that just the first phase? Or what's the scope here, potential order value, et cetera?

We are developing sort of the commercial structure between the parties. They have multiple projects but the first project, they're targeting here and they provide visibility into -- is the pyrolysis system from Vow is part of the total configuration. There will be a significant amount of technology upstream because of the various feedstocks and there will be significant amount of technology downstream, the way they want to valorize the gas, valorize the liquid fuels and the char of the biocarbon coming out of the processes. The initial process -- that's the initial plan is for us to deliver our pyrolysis reactors. And of course, we're discussing the scope, how much more we're going to deliver to that. So it's -- the way we see it, there are -- they come across as very competent. We have been working with -- there's a broad experience in the Circon team and they're also working closely with [indiscernible] in the U.S., very close with [indiscernible] University in Houston. So we will -- it feels more sort of safe for us to deliver our core technology into this larger configuration. Size of it, just to throw out some numbers, those lines could be for -- from the -- around the NOK 40 million per line. And then you add depending on how much of the downstream and upstream we will have and, of course, how much engineering we would provide into the process. But the projects are very large.

Thomas from SpareBank 1 Markets. I think maybe I'll also start on the financial side. Just in terms of receivables, you have more than 150 days outstanding. Could you give us a more insight on kind of what customers, what project are because, I mean, NOK 400 million almost is a large number? Could we get some more insight into what projects and what customers are yet to pay?

Yes. We would not like to go on specific outstanding with our clients. But what we can say and also what I told previously is that we have collected a significant amount since the 30th of September. And as we've also said previous quarters is that we are a project organization, meaning that we will receive large, bulks of payments that will cause fluctuations in working capital. But this is something we're monitoring closely to ensure that we have a good cash flow.

And just on the margin, you guided kind of a normalized 15% margin in the second half of 2024. Is that also kind of what you expect in a normalized margin moving forward? Seeing that Cruise historically has been 20% land-based, Henrik said today is expected to be 15%, and Aftersales kind of around the 12%...

We wouldn't limit ourselves to 15%. Wouldn't we?

No. But that's the target to give some visibility on when we expect to return.

Okay. Does Circon have financing secured?

Circon is -- they have to -- this is sort of -- they are working on that for sure. And according to our understanding, they are in a very good process of doing that. And I think that's also are giving this type of visibility into the timing of contracts.

Okay. In terms of the ETEL collaboration, I think it was during the Q2 presentation, you seem very confident that kind of a contract was soon to materialize, I think, was the wording. Could you give us some more insight on kind of what has delayed that process somewhat?

Yes. When we anticipated -- and I think it also explains some of the revenue buildup this year is that we expected actually the first order for a factory within 2023. That didn't happen. These are decisions out of our control. But the way we see it, it's -- I think it's the time line of the discussions between the off-takers to fully secure the financing of the -- of that first factory. So it might be that we have underestimated sort of the timing of that for sure.

Any further questions from the audience in the auditorium? Seems not anything from the web? Okay. Everything clear then.

Great. And no questions for you, Cecilie.

There's 1 more.

Okay. Do you have any news about the Repsol?

Yes. We -- there has been some communication from Repsol on the matter. We commissioned the first plant, demonstration plant at one of their facilities. We did that earlier this month. It's part of this Horizon 2020 project. According to our understanding, they will move forward with a larger plant than the test facility. They talked about going from the capacity there up to one of the larger bio-greens. We -- according to us, it's moving forward. So it's actually a great milestone that when the startup of the first site there was a very good handover. And Repsol decided to promote it on their media platforms.

[indiscernible] something?

What this is -- it started -- actually development. They started with a municipal solid waste recycling into recycled fuels and to use the energy to replace natural gas. And then this project was specifically plastic into olefins. And Repsol is a large player within the petrochemical industry. They are also known for licensing out technology within the petrochemical industry. And to recycle olefins from plastics into producing new products with recycled content is definitely a strategy for Repsol. And doing that and us being, in a way, exclusive the technology, provides an opportunity for Vow in the coming years.

I have a question for Cecilie. What is -- are you now fully financed on your project with the last developments concerning the investments by Vardar and also -- yes?

For the first phase, the process equipment is fully financed. And now we're closing in on fully financing in the first phase of the project. Of course, for the extension, we will still look for equity partners.

Still intend to take FID on a 20,000 tonne per annum facility this year? Or is that pending your full financing?

It's pending for financing, but we hope to make it this year. Of course, there are dialogues going at the moment. So we hope to do that. But, of course, not promising anything.

Would you prefer additional partners on a project level? Or would you also kind of prefer funding on the top co level?

We would prefer it at the project level. We think it's important to show the project model and the company structure even more and discuss it with further partners, especially because we are making those portfolios, making it a possibility to invest in more than 1 plant. So making it an opportunity not to just go in to evaluate 1 project, but actually evaluate an industry. So we would prefer to show someone and kind of make them -- give them the possibility to get in real close at the first project.

Will the full 20,000 tonne per annum plant, would that be kind of 1 holdco? Or is that 2 10,000 holdcos?

Yes, it is 1 holdco.

Okay. And you're now giving away 25% so you kind of seek to bring in a partner and then reduce your ownership stake further or...

Maybe. Can I just -- I'm not sure, make a question for myself? But I think it's important when you're mentioning a plant of 20 -- I mean, it's above 200,000 tonnes. But what Outokumpu has been doing with Envigas is a real important step. They're actually making offtake agreement for a plant -- plants. They're doing that because Envigas has been producing biocarbon for some years. We've just started. This is showing how eager the metallurgical industry is actually getting into this. So what we have seen in the last couple of weeks is an increased interest in our products and in our industry. So being willing to actually understand, okay, to be able to grab the biocarbon volumes that we are creating, they need to get in now.

[indiscernible]

It's actually close to what we are able to produce at the early production line at about 2,000 tonnes per year, maybe. Yes. So it is quite small. It's not at an industrial level yet because it needs to be more than that to be able to supply to Elkem, for instance.

What was the ownership that they got for the EUR 10 million?

20%. So 20% for a company that has -- yes, has the capacity that is close to our early production line at Follum, and then also to get that offtake agreement for 12,500 tonnes of biocarbon.

Do you -- or was there provided any insight on the terms of that offtake agreement, pricing points or how that's structured? Is it cost plus model? Or is it...

No. But what we see is a pricing where fixed carbon -- per fixed carbon is at least USD 12 -- USD 12 per fixed carbon, which is something you have to look up to calculate. But still that is pricing levels that we've been hearing in the last couple of weeks. Not getting that information from Envigas or Outokumpu, of course, but that's price levels that we've heard being discussed.

Any further questions from the podium?

I'm making a question for myself. I increased the questions...

I think then we're ready to round off.

Yes, we are. Thank you so much for participating, both here in the audience and live.