Benchmark Holdings PLC

LSE:BMK

Earnings Call Analysis

Earnings Call Transcript 2023-Q4

[Trond Williksen, executive]

[ Time ] is here. So I think we are ready to start. So, good morning to all of you, and welcome to this year-end presentation from Benchmark Holdings. I am Trond Williksen; I'm the CEO of the Group. And as usual, I'm here with our CFO, Septima Maguire. And we are going to go through our financial and operational results from the full year, financial year '23, but also cover the last leg of that year, Q4 that ended on the 30th of September this year. We're going to take you through our normal program, starting with highlights, going a little bit more into granularity on the business areas [Audio Gap], and also on the financials by Septima, before we are ending the presentation with sharing our views on the outlooks for the period that we have now entered into -- and into the New Year. Of course, this year also we're going to have an opening for a Q&A at the end of the session.Let me just start off with the highlights of the year that we have just completed, a year that we think that we have landed in a good way [Audio Gap] the way that we have been able to handle them and to continue to bring the Group forward.Looking at the main financial figures, they're also reflecting good progress during the financial year. Revenues are up 7% compared to last financial year, ending at GBP 169.5 million. Adjusted EBITDA, excluding fair value adjustments, which is the measure that we are using on our adjusted EBITDA, are up even more, 15% to GBP 35.6 million. And our adjusted operating profit, excluding fair value movements, grew even more, 61% to GBP 14.7 million during the financial year.As Septima will go through later in the presentation, if you look at all the key financial metrics of the group, we have improved all of them during last financial years. Given the market conditions that we have been through during the year, we are satisfied with progress we have been able to achieve. It's a continuation of our journey that we have been on over the last 3 years since we did the restructure of the group in 2020.Since then, we have been consistently been able to improve our operational performance and financial performance, increasing in that period -- we are talking about a 3-year period, increasing our revenues with 60% in the period, but more importantly for us, improving our earnings from operations, our adjusted EBITDA with 145% during the period. This is a journey that we intend to continue.And looking back at last financial year, financial year '23, we think it's possible. The group's performance in the financial year comes on the back of good contributions from all the 3 business areas, despite the fact that we've had significant market headwinds, especially in our Advanced Nutrition business, which is the biggest part of the group.We have also taken steps to make sure that the group is better positioned and more efficient going forward. Both our activities towards the salmon industry -- all our activities in the salmon industry, but also all our activities towards our -- the shrimp industry are now gathered and consolidated under common leadership. So we have one leadership for salmon activities and one leadership for shrimp activities. They are the 2 biggest markets for us.So they are coordinated, and this enables us to combine our offerings, utilizing our market infrastructure, but also our operational infrastructure and administrative resources better, taking out synergies going forward. And this is definitely on our agenda going forward.In the financial year, we have also been able to advance our main growth vectors, and I will come back to them. At the same time, as we have taken honest actions where we have concluded that there is lack of potential. An example of the last is what we've done with tilapia. We have taken out our tilapia breeding activity, discontinued that because we didn't see the potential to develop that as a sustainable profitable activity. At the same time, as we are precise enough to keep the genetics services towards tilapia, where we see the potential to have a profitable business going forward.Lastly, on the highlights for the financial year. I would like to [ hold ] up the way that the organization has been responding during last financial year. The results we show is a result based on the contribution from the whole organization. I'm grateful for that.We have an organization that has shown ability to adapt to the market conditions and to execute on operational changes needed to improve our performance. That is a great asset. If you have an organization like that, it's a great asset for any business, and it's a great asset for Benchmark.Moving over to Q4, a few words on the performance that we had on the last leg of the financial year. If you look at that quarter, we are satisfied with the underlying operational performance of the group. It has enabled us to land the year and to land the quarter within our expectations.Having said this, if you look at the numbers, the quarter reflects the market conditions that we've been in during that quarter as the top line and EBITDA are down compared to similar quarter 1 year ago.Over in genetics, we've had a good quarter in salmon genetics, which is the core of our genetics activity, even if we did not get the same exceptional uptick that we did in Q4 in '22. The situation in Q4 '22 was that our competitor had fell out of the market and we got extraordinary demand directed towards us. So we've got an exceptional uptick on salmon genetics in Q4 '22, which we, of course, did not replicate in Q4 last year, but still a solid quarter for salmon genetics.In our Advanced Nutrition business or INVE, which is the brand name, we have been doing well in the quarter, given the current challenging market conditions that we have been facing in the shrimp market.Again, I mentioned this in the last quarterly presentation. The demand for shrimp as an end product has been decreasing, has been going down 20% to 30% in the main markets, the U.S. and the EU during last years. And that causes a reduction of production, reduction in stocking and that, of course, are affecting our demand. But despite this, INVE has been holding up very well. We have a very strong organization in INVE and that utilizes all opportunities in the market and are very well positioned when the market again is turning.In Health, the last quarter was somewhat a disappointment as the demand for the main product [ group ], Ectosan Vet and CleanTreat, occurred later this year than what we saw last year. The impact on our numbers in the quarter is, therefore, significant compared to last year, despite the fact that we saw an increase in the other offering that we have in our Health business area, Salmosan, that was partly offsetting the effect during the quarter.The good news is that demand has showed up again for Ectosan Vet and CleanTreat after we entered into the first quarter of our financial year '24.All in all, if you look at Q4, we ended the quarter we think decently with an adjusted EBITDA at GBP 9.2 million compared to GBP 10.2 million in last year's or in Q4 in '22. And I should remind you, this year we have faced significant headwinds in the market, especially Advanced Nutrition. Q4 in '22 we were facing tailwinds in all our business areas. So it needs to be looked upon in that perspective.Moving into more granularity on the business areas, and starting out with genetics, where we have had seen revenues growing by 14% during financial year '23. It has been driven by salmon egg sales and our core -- or the core -- the main part of our genetics business, which is the salmon egg business.In total, salmon egg volumes increased by 15% during the year to a record of 334 million salmon eggs sold globally. We have never sold more eggs in a year than that amount. The main driver in our salmon egg business is our activities out of Norway and Iceland. When it comes to Chile, which is a growth vector within salmon genetics, it has had our special attention during the year and I think they have been feeling that as we see that as an absolute priority to get this part of the salmon genetics business to become a profitable contributor to the genetics business, but also to the group.We have made good progress during the year in Chile, doubling our sales, but we are still not where we aim to be in Chile. But the good news is that the positive commercial progress continues into the new financial year, which will eventually bring us closer to the target, making this a profitable part of the business.We have also been progressing our activities within shrimp genetics. Even if you look at the numbers, and I'll come back to them, they more reflect a commercial [ pause ] during the year. Focusing this year, and we have repeated that in the earlier presentation, is to reset our genetics based on experience from the first round of commercial launch and do the necessary reorganization of that business to make it more commercially viable.But we've also done -- with the reference to what I started saying, what we've also done is to align that business with the other businesses that we have towards the shrimp. So it's under [Audio Gap] [ Patrick Waty] who is the leader of Advanced Nutrition, who has special competence needed in the shrimp market.Both the restructuring and the reset of the genetics are things that we expect will have effects that are starting to make impact in the time to come.A glimpse to the financial figures -- for the full year reveals that despite the strong development on the top line, we are kind of flat year-on-year on adjusted EBITDA, excluding fair value movements for the genetics business in total. This is due to the effects from the 2 growth vectors that I just commented.Both have our full attention, I can assure you about that, and we are doing what we can in order to make sure that the negative adjusted EBITDA effects on the growth vectors are minimized and eventually are turning to become positives.As I referred to -- we have referred to in at least one quarterly presentation before, during the year we have experienced inflationary pressure affecting our production costs as well as margins in genetics during the year. I think that's something that everybody has encountered during '23.This has, for us, in particular, been related to the cost of our harvested fish. What we see for the full year, if you look at the full year, that effect on production costs and margins have been mitigated in part with good cost control on OpEx and R&D.A key priority for us during last financial year was the ramp-up of our capability on new reproductive technologies in salmon and eventually other species. This is a deliberate strategy from our side, making sure that we are staying in the forefront of technology development, enabling us to bring forward genetics to our customers that could significantly enhance efficiency, animal health and wealth for our customers.For us, it's also a clear target to embed technologies into our genetic solutions that enhances our ability to increase the value of genetics. It's no secret. And this is a topic that the value of -- we get as a genetics specialist provider. The value that we are able to take out of the production solutions are less than the real value that they contribute to the players, as well as they are a small portion of the total production costs, especially in the salmon industry.And the route to get out of that is to make sure that we embed new technologies into our genetics that more clearly justifies a higher value. To this end, we have strengthened our genetics teams significantly under the leadership of Ross Houston. We are also advancing our programs for reproductive technologies on sterility and gene editing that I mentioned in earlier presentations.Under the highlights of genetics, just to mention, it was previously announced that we bought the last 10.52% minority share out of Benchmark Genetics on Iceland. As it was announced at that time, we do that to have full ownership, full control on the key salmon genetics operation that we are lucky to have on Iceland.This brings me to the slide where we show the breakdown of the contribution of the different parts of the genetics business. This is a slide that we introduced some quarters ago in order to be transparent on how this is looking so you can understand where we are in our progress in a different part of the genetics business.Not surprisingly, you can see from these figures that we have a strong performance in our core genetics business. At the same time, we see the negative contribution from the 2 growth vectors that we have, Chile, reducing its negative impact during the full year, while the shrimp genetics business have widened the gap from where it should be.And as I've been focusing on earlier in the presentation, we are really on both those growth vectors. Shrimp genetics restructured and also adjusted genetics, and we are expecting to see effects of those when we are moving forward from here.Moving over to the next business area, Advanced Nutrition, which is our biggest business area, which has had, I would say a strong year given the market situation that business area has been facing during the year.Top-line margins and adjusted EBITDA are slightly down compared to last year, but overall, the business area is keeping its position from a very strong financial year '22. And again, the results we see in '23 is on the back of a very challenging year in terms of market conditions in the main market, shrimp.We have a very strong team in INVE, and a team that I'm very proud of. They have really been on all the opportunities in the market and made the most out of it. And they, during the year, strengthened their market positions and market shares in key markets.The team has also shown a great ability to adjust to reality, adjusting the organization throughout the year, but also showing great cost discipline. Both elements are reflected in the numbers that you see for the full year.When we have been talking about INVE and Advanced Nutrition, we've been focusing a lot on the shrimp market and the difficult conditions in the shrimp market. I should remind you all that INVE also has a very strong market position in -- for its products in Marine fish throughout the whole world, the biggest segment there being the sea bass, sea bream industry around Mediterranean.Here we are doing well, not because the market has been particularly good, because it really hasn't, but also here because of the efforts, the relevance of our products and the timing of the sales that we have done in the market.All in all, I think that we have utilized financial year '23 in a good way for our Advanced Nutrition business. Besides running the business, we also strengthened the R&D efforts with new technologies coming online. One of them is based on artificial intelligence, and new important R&D collaborations, both in Ecuador and Singapore.Together with the strong organization we have in the area, we feel that we are very well placed to take advantage of the situation when the market again turns, and it will turn.At last, a few words on the Health business area, which is the smallest business area, but an area where we have spent considerable time and effort over the last 3 years and we are now starting to see some effects of that.If you look at the full financial year '23, revenues are up 27% compared to '22. And adjusted EBITDA margin has reached 19%. This is a result of an increased adoption of the new solution, Ectosan Vet and CleanTreat, but more so a consequence of the combined portfolio we have between Ectosan Vet and CleanTreat, but also Salmosan, which is the other offering that we have in that business area.Because in parallel with what we have done in order to increase adoption of Ectosan Vet and CleanTreat in the market, we have also achieved changes to the marketing label of Salmosan that has made this solution more relevant as an effective treatment against this. So this has been playing in and contributed to our results in the year.As I mentioned in my general go-through of the highlights from Q4, Q4 was a disappointment in terms of capacity utilization of CleanTreat and Ectosan in the Norwegian market compared to what we experienced in Q2 -- Q4 in '22. This is due to a delayed peak in the demand for the solution compared to last year.As of now, moving into first quarter of our new financial year, we have 2 CleanTreat systems in good operations with good capacity utilization and better visibility for the period.As I've been talking consistently on over for more than 1 year, a key focus for us has been and it still is to make the Ectosan, CleanTreat solution more adaptable to our customers and less capital intensive for us. This work has been progressing throughout the financial year and it's still progressing. The aim is to get the CleanTreat system integrated into the customer infrastructure, being the future [ well boats ]. That's the end game we are seeking.We could continue to work on that. We have the partnership now with MMC and Salt that is working very well. And we still are aiming to sign the first contracts making this solution come through over time.But in the meantime, we also look at other solutions that take down the exposure we have, holding CleanTreat in periods with low capacity utilization. Based on last 2 years' experience, and we are starting to get some experience on this now, the low season will likely occur again in Q3 and Q4 when we are moving into this year we are in now.So this is why we are looking at other solutions to make us less vulnerable in this period when we have less capacity utilization. So this is a key focus for us now and things that we're working on right now.Lastly, as you probably have noticed over the last period, the issues around sea lice, fish health and fish welfare is not becoming less these days. You see it from Norway. You see it from Iceland. You see it also -- [ I ] just visited Chile. The fact that we are a leading provider of the medicinal solution of sea lice in Norway and other markets makes our portfolio of solutions more relevant.We should be very well positioned, especially since fish welfare is very much in essence and medicinal treatments are the most gentle and caretaking for the fish health.So with that comment, I end my go-through of the business areas and leave the floor to you, Septima, to go through the financials in more granularity.

[Septima Maguire, executive]

Thank you, Trond. So, as it's the end of the year, it's always a nice opportunity to reflect back on where we've come from and where we're trying to get to. And back in May 2022, we put out some medium-term objectives for the business to show how we were planning to progress and move the business forward. And as you can see, we -- it's been really pleasing that we've been able to move those metrics forward within this financial year. As Trond referenced, we have had good revenue growth in the context of the markets in which we're trading at the moment, delivering growth at 7%.But we are still really committed to the medium-term objectives that we have in place. That revenue growth, though still allowed us to maintain our adjusted EBITDA margin at 21%, moving us or holding us towards that target of 25% to 30%.And then, of course, most pleasing for everybody who knows me is the cash conversion progression, where we've got cash conversion at 56% for the business, moving it towards our 70% to 80% target.And then, of course, the next lever is what do we do with that cash conversion, and have we been able to keep it in the business. And very pleasingly, we've been able to move our free cash flow as a percentage of sales from being a negative figure of minus [ 8% ] to be a positive figure.For -- quite honestly, I think maybe the first time in the history of Benchmark, moving us towards what we have from our medium to long-term targets of 10% to 15%.So moving on to have a quick glance at the income statement, and we'll look at some of these in more detail as we go through the presentation. So as you can see, from a revenue perspective, we had the revenue growth at 7%. But then moving down, what have we done with that?From a gross profit point of view, we've grown it at an absolute level. And as Trond alluded to, we've absorbed some inflationary pressure within that. But that then has also been offset by good cost efficiencies that we've seen coming through from nutrition, where they've adjusted their cost base to reflect the markets in which they trade. And then, of course, we can also see within that figure the progress that we've made within our Health business area.From an R&D and OpEx point of view, we'll look at these in slightly more detail in a few minutes. But fundamentally, the focus within these areas has been get the most out of the money that we spend.Then, from an adjusted EBITDA perspective, it has grown by 9% versus last year. But more importantly, when we move down and look at it from a quality of earnings point of view, adjusted EBITDA, excluding the fair value uplift, grew 15% in the period, a much more relevant measure as it again translates down into what have we done with the money -- with the business and the money that we generate from that.Then, from an exceptional cost point of view, we have a very chunky exceptional cost number this year. But the majority of that is associated with the move to Oslo. But in addition to that, there is also some exceptional costs associated with restructuring our businesses to make them right for the market in which we trade to move our businesses in Nutrition, to be the right size for the shrimp markets at the moment, but also to help amalgamate our salmon businesses under our new leadership.And of course, the loss for the period, it's moving in the right direction. It's shrinking down from the GBP 28.7 million to the GBP 16.1 million. But we're not done yet. So it's one of the areas that we will always continue to focus on as we move into the future.So looking at slightly more granularity at the consolidated revenue piece, Benchmark has been on a journey since I joined back at the end of financial year '19. And it's been really pleasing to me that we've taken the business that was GBP 105 million of a revenue business and grown it 61% in those 4 years, up to a GBP 169 million of revenue.And as you can see, that's revenue growth in all of our business areas. As we've moved the business areas towards being much more commercially focused, we've been able to translate that into real results.Then, similarly, when we look at it from an adjusted EBITDA level, we've grown adjusted EBITDA from the GBP 12 million at the start of that period up to the GBP 36 million that we have in our business at the moment and also all whilst maintaining a relatively moderate corporate cost base.If you look at the business, Health is contributing to a much more significant degree than the negative figure it used to have. Genetics has moved forward. Nutrition has also moved forward. So this is a business moving with momentum and the momentum has gathered pace over the last number of years.From an operation cost and R&D perspective, so operating costs have grown. We have grown the business. We have grown the size of the infrastructure that we use to build the business, but ultimately, operating cost as a percentage of our sales. A really important metric, are we growing our operating cost base faster or slower than our business.But quite clearly, you can see that we're growing our business faster than our operating costs, a very, very important metric at the moment. And we've also been able to, from an inflationary cost point of view, moderate the inflationary impact from our -- within our operating costs within the business. And this is an excellent one because one of the things that we pride ourselves on in Benchmark is [ cutting ] our cloth accordingly. It's an English phrase.But what it means is if you don't make it, you can't spend it. And this has been a year where the businesses have been very reactive and very good from a cost control point of view, and that's very pleasing for me as a CFO.Then, from an R&D perspective, we have had 2 alternating tempos within our R&D this year. We've had excellent cost efficiencies coming through as we were able to use the money that we're spending in R&D more effectively by bringing some of the skills in-house, so therefore, creating better cost efficiencies.But on the other hand, we've also been increasing investment in people to progress some of the very important projects that we have within Genetics and Nutrition. And as you can see, as we've moved away from being an R&D-focused organization and much more commercialized, the overall amount that we've been investing in the totality of R&D has, of course, changed over the evolution of that life cycle.Then, moving to cash generation. So, as you can see, everything has been moving in the right direction. We've moved from back in 2019 being a business that had negative operating cash flow and had a lot of pulls on the cash generation that we had, moving all towards the right to this year where we've got net cash generated from operations of GBP 20 million, would ultimately -- bringing us towards a free cash flow, which is a positive number. And that has always been what we've been working towards in Benchmark, making Benchmark profitable and cash generative.Then, when we look at our working capital, working capital is a very important part of the whole Benchmark balance sheet. As you can see, we're a relatively capital-intensive business from a working capital perspective. Within our Genetics business, the majority of our working capital relates to our biomass, our fish in the sea or on land.And then similarly, in terms of our working capital within our Nutrition business, a lot of that is built in inventory with our Artemia contracts. But this is an area where we have gains to make in the future from a cash point of view. And that's a big focus for financial year '24 to try and control the working capital. We've done an okay job this year, but we can do better. And as you can see, from Health, we've managed from a working capital point of view to do relatively a lot on a relatively low working capital investment.Then, looking at our net financial expenses. As you can see, we have had a GBP 2.2 million increase in our real interest cost, and that is due to the fact that we've had our revolving credit facility drawn during the year. And of course, we've got a higher coupon honored on the underlying debt that we have. This was offset by credits associated with our hedges, whereby we hedge the currency and the interest rates on our debt and also some foreign exchange movements in the period.And then, of course, the cash flow. As I noted earlier, we have the positive cash generated from operations, which starts at the GBP 29.6 million. But then ultimately, we have a much more moderate investment this year in working capital of GBP 1.1 million. And of course, then after the taxes brings us to [ GBP 8.5 million ]. That brings us down to the GBP 20 million.During this financial year, we also had much more moderate CapEx within the business, of the GBP 6.8 million. Relative to previous years it's much more moderate and is within the range that we guided to at the start of the year. And there were also some one-offs during the year, which will not reoccur.We had proceeds from a disposal of the subsidiary. It's a deferred consideration payment on a subsidiary that we divested back in 2020 and it is the final payment on that divestment.We also had the equity raise of GBP 10.9 million associated with our Oslo listing. And as Trond noted earlier, the GBP 8 million associated with the purchase of the minority interest in Iceland. But ultimately, our net debt at the end of the year is in a much better position than it was at the start.And of course, just to pause briefly on our actual debt structure itself. So we have within our debt structure our NOK bond of NOK 750 million, which is [ repayable ] in 2025. We have our RCF, which I noted was drawn at GBP 7.75 million. And we also have the debt associated with the Salten facility from the Nordea Bank.But with having a very strong balance sheet and cash of GBP 29 million as at the start of this week, we are still really well positioned to move the business forward into the future as we work towards more growth and more cash generation.And back to you, Trond.

[Trond Williksen, executive]

Thank you, Septima. And moving over to the OpEx in the quarter that we have just emerged into and the year that we are -- have started on now. I think it's fair to say that after a couple of quarters where we really have felt the effects of quite considerable headwinds in the market. We sensed that we are moving into a landscape that is more positive in terms of the market sentiments.And we have started the year in a good way, I would say, in all -- with high activity in all the 3 business areas. In Genetics -- just to take the 3 different business areas, we have good visibility of egg sales as usual for the coming quarter, but also for the year. We are selling on contracts that goes throughout the year.We expect to have a good year, looking at a good volume. But it should be taken into account that, again, in Q4 '22 and in Q1 '23, we had a special effect, extraordinary demand, because our main competitor just fell out of the market and everybody come running, buying eggs from us. And we had special [ effects ] both in Q4 and Q1 that will not recur this year.But if you look at the underlying development of our Genetics business -- salmon genetics business, we are looking at a good development. As I've been [ in ] on earlier at the start, we see good progress in Chile. We have a very strong management down there, a newly recruited leader, Berta Contreras, who is really a good recruitment for us and very well positioned in the industry.I was there last week. And I must say that I'm more optimistic than ever. Gladly, we are coming online in Chile. And over time, that will add to our egg volumes that we are selling in the periods to come. We are getting there. We were not where we are supposed to be at the end of financial year '23, but we are getting there gradually.And I would say the strategic impact for Benchmark to not only be in Iceland and Norway and cover the European and land-based part of the industry, but also have a significant position in Chile, will have, in my mind, a strategic impact on the positioning of Benchmark and it's an important step forward for us.On our SPR shrimp activity, which I also commented earlier in the presentation, we have now a more right-sized organization, and we have an organization [ under ] leadership of Patrick Waty, which is, I will say, one of the leading experts of commercial activities towards shrimp industry globally, aligning that business towards the resources we have in INVE, that are already working with all the customers within the shrimp industry.So the combined effect of the reset of the organization, the reset of the genetics, but also aligning it with the total organization, we expect that, that will start to pay off in the periods to come. Again, it's a growth vector. It's something that takes time to get right. But I'm sure that we are on the right direction.Both Chile and SPR shrimp, our shrimp genetics program is very much on -- really in the forefront of [ overhead ], really a focus for the management. We have a very stringent system in following up the areas where we want to have progress. And those are really at the forefront of overhead and have a very tight follow-up from us as a Group.In Nutrition, we face still challenging market conditions in the shrimp markets. This is nothing that is rectifying overnight. But due to the strong efforts by the team in INVE, I must say that we start to see some signs of recovery.And if you just jump out from what we see and relate to what the objective [ analysts ] say, to be honest, not to offend anybody, but the leading analyst on the shrimp market is Rabobank. And if you look at their analysis, they are confirming the dump that we've been in, in the market in '23, but they also are pointing to that they expect a rebound in the market in '24.And given how we've been tackling '23, how we are tackling the situation now, as I said earlier in the presentation, we think that we are in a very well way -- very well positioned in order to take advantage of the market when it ticks up again and it will tick up.In Health, we have a good visibility on capacity utilization of Ectosan Vet and CleanTreat in Q1. As I mentioned, we continue to work on changing the business model to make the solution more adaptable to our clients and less capital intensive for us. It's an important work stream and we aim to move this to a better place over time. This is a key in what we are doing at the moment.At the same time, as we are looking at ways to take down the financial exposure in periods with lower capacity utilization, which is really the [ killers ] of the current setup, we expect a lower capacity utilization when we're coming into Q3 and Q4. And this is why we are very focused now on looking at ways to take down our exposure when we are coming to that period, but keep the capability that we have in that area.Salmosan are moving well. We haven't used much time on Salmosan in previous presentation, but I think it's time to lift it a little bit more up based on the experience and based on the development that we have seen over the last year. It forms a combined portfolio with Ectosan Vet and CleanTreat, that I think will have even more relevance going forward.Again, related back to what I mentioned, the challenge is the industry, not only in Norway, but other places are facing in terms of sea lice, fish health and fish welfare.Moving to the last slide, and you've seen this before, but I cannot avoid just repeating why I think Benchmark is such a unique company, defining ourselves as a market-leading aquaculture biotechnology company. Aquaculture because we are in a fantastic industry, a young industry providing growth driven by megatrends, providing growth to those companies who are well positioned, and Benchmark is really well positioned in the wider aquaculture industry.i We were not [ home ] [ based ] only on salmon, but we are -- have a footprint that is relative or relevant for the whole aquaculture industry. Biotech because we have 3 strong business areas where we are -- have market-leading positions in what we are doing.We are only in the areas where we are market leading or are convinced that we have the capabilities of becoming market leading, providing highly specialized -- no commodities, highly specialized products. All products are mission-critical. All products have an objective to drive sustainability in the industry through farming efficiency, animal growth and animal health and welfare.And we are distributing the products globally. We have our own organization in place in 26 countries. We are selling to customers in more than 70 countries every day, truly an international company, truly a company with a very relevant footprint into the global aquaculture industry.So with those words, which you probably have heard before, we end the presentation. Thank you, and open up for questions.

[Unknown Executive]

Okay. Starting with questions in the room, is there any? No, okay. So the first question is regarding R&D costs. Given the genetics that has expanded its team with the focus on reproductive technologies, should we expect higher R&D costs going forward? And how quickly could we expect to see the improvements come through in the quality and performance of genetics?

[Trond Williksen, executive]

You saw the graph on how we have been developing the R&D costs in the group, and [ out there ] it seems to be an understanding that the more money you put into something, the more you get out. It's not a direct relation. What we see -- what we have done over the last years is to make sure that we have enough money put into our R&D activities. But we are also looking at how to take out efficiency in the way that we organize those activities in order to make sure that we are getting something out in the other end. And what we see here, and I have the same experience from other companies that I've been running, is that there is no direct relationship with a number of NOK or dollars or pounds that goes in and what you get out.What we see here is that we are getting more effect out of the pounds and dollars and NOKs that we're putting into the R&D than we did when we had a higher number. Will we see an increased cost, moderate -- in case it will be moderate. So again, it's down to the efficiency in how we are organizing the R&D efforts in order to get the most out of the money that we are spending, and Septima is extremely focused on that, that we are getting the most out of their money. And I really support that and we see the effect of that.When do we see effects of what we are doing on the genetics side? I think for us, we already see effects of that because we are getting our ducks in a row. It's a much bigger extent than before, and we are taking small incremental steps and all the things.On the bigger things like sterility program, reproductive technologies on genetics, that is more long-term. That is not something that will come online this year. But we hope over the coming years that we will see effects of that, that will bring us benefits to the company and position the company where it should be really in the forefront of technology development within genetics.

[Unknown Executive]

Next question. Can you elaborate on some of the ways that you can reduce financial exposure to low capacity utilization of CleanTreat?

[Trond Williksen, executive]

I expected that question. No -- the setup we have now, we have 2 CleanTreat vessels out there that provides capacity to the industry to do sea lice treatment with Ectosan. And that works very well in months and in periods of the year, I would say Q1, Q2 when you have quite good demand, strong demand for the solution, the main sea lice season. So then we have a profitable cash-generating business. And then as soon as you are getting into periods where you don't have the same demand, we have less capacity utilization of those vessels. And those vessels are costly. They are costly platform.So we have had a tendency -- and just to be transparent about that, we have had a tendency and this is the experience over 2 years we've been operating this, that we are making money in the period, and then we are eating money in other periods. And we see that, that's not sustainable. That's why we are working long-term to change the business model towards getting away from the exposure we have on the CleanTreat vessel integrated into the infrastructure of the farmers. That will take time.So what we are looking at now is ways -- less costly solutions for CleanTreat, less costly platform. And we are working on different kind of vectors or opportunities there in order to position. So we still can take the peaks. But we are getting out of the situation where we are so exposed when we don't have big capacity utilization.I have a long experience from the fishing industry. It's the same thing. You have seasons and you have non-seasons. The trick about fishing, and this is the same thing, is that you have big capacity when you have the main season and then you take all the exposure in the losses. And that's what we are working on now, just to illustrate what we are working on.

[Unknown Executive]

Another few questions on CleanTreat. Is progress being made with the discussions to integrate CleanTreat into new well boats? What are the major hurdles as you see it? And can we expect some form of update with signed contracts in 2024?

[Trond Williksen, executive]

The last question, I would say, yes, I will be very disappointed if we don't get that in place in '24. Yes, we have made good progress. The key for us has been the relationship that we have formed with MMC and Salt. Salt is the leading ship designer of well boats globally, and MMC is a leading technology provider for the interior of well boats. And we have already a design developed to make this integrated into future well boats that are coming in. So that's ready. The hurdle is that we are not buying well boats, because if we were buying well boats, it will be easy, we just bought a well boat. But that will form a big exposure for us. So we are trying to avoid that.So that's due to the farmers and to the well boat owners to buy these new well boats with the integrated system in. So that's the big hurdle. I would say, right now if you look at the well boat market, we know that there will be quite a few new well boats coming in the future.I think a hurdle right now is that the cost of building vessels have gone up significantly. So that probably makes the farmers think twice before they [ were ] [ citing ] on. So that's the -- that's probably the main hurdle we are meeting right now.But we are progressing well. We are in dialogue on several areas and hope to progress that. And I will be disappointed if we don't get any results of that during financial year '24.

[Unknown Executive]

So bearing in mind your comments on the Health business area and pressure on Marine health in general and being mindful with the current COP meetings are underway, would you as a group foresee any effect from extreme climate conditions, such as through extended seasonal trends, et cetera?

[Trond Williksen, executive]

I think we, as any other group, any other business, any other individual in the world, should be concerned about climate change. It goes without saying. I think it will be gradual development that we would see impacting our business. It's difficult to me to point to that we have seen any big effects of that so far. We see that the temperature around the Norwegian coast has been higher this year. We see El Nino. But those are [ fundaments ] that have been there for a while. So I don't see that we have something going on now.My comments on the industry and related to our relevance is more like on the -- what has been very much in the media over the last months in terms of the fish health, welfare in Norway, but also on Iceland.I also know that in Chile, there are challenges around fish welfare that needs to be solved. What I was pointing to is that those issues need to be solved. It's not sufficient for the industry just to tackle media. The fundamental things around it needs to be solved, and those needs to be solved with the means that are at hand.And I'm pointing to that we are a leading provider of medicinal treatments for sea lice, which is the main catalyst in all this -- to all these issues. And medicinal treatments are the most gentle to the fish. So I was pointing to that, our relevance should be increasing going forward rather than decreasing. That was my point or my comment.

[Unknown Executive]

On the new salmon tax or the resource tax being applied in Norway, is this having a material impact on profitability? Or is it of any consequence in terms of capital allocation?

[Trond Williksen, executive]

Not for us, I would say, and I think we've been clear on that from the very start. We were focusing a little bit on the breeding licenses that we have. We have -- but they are exempt from the tax regime. So it should not have too much effect on that. And what we are providing is mission-critical solutions to the industry goes into OpEx. I don't see that we are too much impacted. If we [ had ] been an Aqua group or another vendor to the industry based on large investments, I think the effects would have been very much on our side also, but we don't see the same effects in Benchmark.

[Unknown Executive]

On the shrimp market, I understand that some analysts are expecting a recovery. But you're going a bit further than that, flagging early indication of market improvement. Can you give some more color?

[Trond Williksen, executive]

I was trying to be careful about that. I was trying to be careful about it. And I referred also to Rabobank because Rabobank is the leading analyst on this, and they are predicting that we will have a rebound in the production, a rectification of the shrimp market during financial year '24. And I believe that too. What I was pointing to is that we've been tackling a very difficult year, '23. The demand in the main market of shrimp has gone 20% to 30% down. The effect of that on production and the stocking and the demand for our products is quite considerable.Despite that, we have been holding up so well. So my optimism is more on we are looking forward to a rebound in the market. And we will be very well positioned when that occurs with the organization we now have in place in INVE and in Advanced Nutrition, which I'm very proud of what they've done during financial year '23.

[Unknown Executive]

Just checking to see if there are any questions from the room? Okay. There is one final question left on the web. It's been [ coined ] as a slightly left field question. But there are alarming reports around the scale of water loss in Great Salt Lake, including an estimate that it's on track to disappear in a little less 5 years. Would you have a comment on that situation and whether you will need to mitigate Artemia supply risk?

[Trond Williksen, executive]

Well, we are monitoring the situation in Salt Lake City very closely and we've been doing that not only now, but for all the years that me and Septima have been here and probably before we came into the -- because it's a significant part of the Advanced Nutrition business. The situation in Salt Lake City, Salt Lake has been -- if you look back 2, 3 years, and even last year, it was going -- the water levels were going down last winter and last fall, and now the water supply to the lake due to the winter conditions and due to wet water conditions in the area has increased again.So if I were worried, I were worried 1 year ago or 2 years ago. I'm less worried now. And I think everybody is less worried now because we see that the Lake is starting to rectify.

[Unknown Executive]

Great, thank you. That concludes the Q&A session.

[Trond Williksen, executive]

Thank you.