Cambi ASA

OSE:CAMBI

Earnings Call Transcript 2023-Q4

[Operator]

Dear attendees, welcome to this presentation of Cambi's Fourth Quarter and Full Year 2023 Results. In the next few minutes, you will be hearing from our Cambi CEO, Eirik Fadnes; and Cambi CFO, Mats Tristan Tjemsland. They will walk you through the developments that took place in the last quarter of 2023. [Operator Instructions]As a reminder, this meeting is being recorded and a recording will be available for replay at Cambi's homepage shortly following this presentation.Before we proceed, please note that in this presentation, we may make forward-looking statements. These statements are subject to risks and uncertainties that could potentially result in material differences between our actual results and expressed and implied information.Now [ with ] further ado, it's my pleasure to turn the call over to Cambi CEO, Eirik Fadnes.

[Eirik Fadnes, executive]

Thank you, Ashish and good morning, everyone and thank you for tuning in for this presentation of Cambi's fourth quarter 2023 results. I'm joined here by our CFO, Mats Tristan, who will take you through the financials in more detail a bit later. But let me start by reviewing our significant operational achievements last year and how they've taken Cambi to new ground. We look at how we invest in our people. I'll give you an update on our strategic initiatives and briefly go through the outlook.Last year was fantastic for Cambi and we ended it on a high note. Operating income was the highest ever by quite a margin, ending at NOK 294 million. High operating income and high operating leverage translated into a solid quarterly EBITDA of NOK 59 million.There were no new projects awards in the fourth quarter, but the order backlog ended the year at more than NOK 1.5 billion, providing good financial visibility for the coming years. For the full year, operating income stopped just short of NOK 1 billion, again, a top result in our history.EBITDA ended just short of NOK 250 million, also a Cambi record. In 2023, we signed contracts for a staggering NOK 1.5 billion, smashing our earlier order intake estimate of NOK 1.2 billion for the 2 years 2023 and 2024 combined. I'm immensely proud of our results and even more so of our development as an organization.First, I'm proud that Cambi has long been and successfully remains an attractive employer for experienced professionals and talented young graduates in Norway, but also abroad. In 2023, we grew the organization welcoming many new Cambians across various departments. The increase ensures our capacity to deliver on Cambi's promise of impeccable project execution for all new contracts. It also utilizes our high operational leverage to strengthen sales, marketing and services, laying the ground for realizing our potential for long-term organic growth.Martine Sunde joined us as our Chief People and Culture last year and we have launched several initiatives to enhance the onboarding experience, develop new training and continuous learning programs for our diverse skill pool and improve collaboration efficiency between geographies and departments.At Cambi, we treasure our diversity of backgrounds, age groups and cultures, welcoming people based on their qualifications irrespective of any dimensions of personal, social or roll identity. A key priority for Cambi is to continue improving our gender balance. As of the end of 2023, 1/4 of our employees are female. That is up from 23% in 2022 and 21% in 2021. On the Board of Directors, 3 of Cambian's 5 Board members are women. Cambi's focus on employee wellbeing extends beyond our organization.In 2023, we marked a significant achievement as our headquarters received the ISO 45001 certification for health and safety, underscoring our unwavering commitment to the wellbeing of our employees and contractors. These accomplishments and our record of 0 reportable incidents highlight our dedication to maintaining a safe and healthy work environment.All employees and third-party representatives receive regular training and ethical dilemmas are discussed as they arise, supporting everyone in navigating any situation. Beyond our internal practices, we emphasize integrity in every aspect of our business from technology development to sourcing and manufacturing.This year, we took an important step towards greater corporate transparency and ethical responsibility by releasing a Transparency and Modern Slavery Act statement for the first time. This initiative is part of our broader commitment to sustainable development, ensuring that our supply chain reflects our core values of sustainability, transparency and respect for human rights.At Cambi, sustainability is the cornerstone of our operations. It's guiding our technological innovations and corporate practices, realizing our bold vision of enabling all cities to adopt circular economies for wastewater solids through reliable, financially sustainable technology and solutions require discipline and perseverance.In 2023, Cambi defined 5 strategic initiatives to cement our position as the market leader in our market niche and made strides in each. The first strategic initiative ensures Cambi's continued recognition as the global industry benchmark for wastewater solid treatment solutions.Innovation is not just a buzzword at Cambi. It's the very fabric of our existence. Over the past 3 decades, we've continuously invested in R&D, underscoring our unwavering dedication to improving the thermal hydrolysis process for new and existing clients.Since our IPO 3 years ago, we've launched 3 new THP models in response to market demand, all already under delivery to new clients, which is demonstrating our commitment to technological excellence for maximum energy efficiency and reduced maintenance. We've improved our smallest product, the B2 system and launched plug-and-go, a modular sludge pretreatment solution based on the B2.And we have successfully trialed our THP process with Sasol for converting industrial solids into valuable hydrocarbon fuels and chemicals, significantly reducing waste and emissions. With ingenuity, patience and teamwork, Cambi continues to set industry standards and drive meaningful change.In 2023, Cambi's sustainable sludge treatment solutions have seen significant global traction, marked by sustained tender activity throughout the year and the evaluation of our solutions in more than 90 projects worldwide. We entered 2 new markets, New Zealand and Israel and we secured 7 new contracts across North America, Europe, Asia, Australia and Oceania, which is demonstrating our technology's universal appeal and effectiveness.These contracts from the Morris Forman plant in Kentucky, USA, to the Moa Point plant in New Zealand showcased Cambi's thermal hydrolysis process as a versatile and future-proof solution for wastewater treatment challenges. Our technology is being adopted for its ability to enhance circular economies, reduce biosolids volume, cut energy costs and comply with new legislation among other benefits.The diverse applications of THP from increasing incineration feedstock quality in Singapore's trust plant to reducing landfill biosolids by 80% in New Zealand's Moa Point, highlight its flexibility and capacity to meet a wide range of sludge management strategies. With Cambi's technology, cities worldwide recognized the potential for more sustainable, efficient and cost-effective ways for the treatment solutions.In our industry, where trust is paramount, our third strategic initiative is to ensure well-functioning THP systems throughout our installed base and keep our clients happy. Our long-standing history in the conservative water business is a testament to the trust we have cultivated for decades. We continuously reaffirm our position as a respected industry partner by acting with transparency and integrity, listening to customers' needs, bringing innovative solutions to the market and maintaining high-quality standards attested by ISO certifications.Over the past year, our unwavering dedication to excellence has been evident in all areas from engineering and manufacturing to project execution, cost control and site commissioning. By constantly striving to deliver on time and within budget and by supporting our clients to maximize the value creation from their Cambi assets through a wide range of services, we prioritize customer satisfaction and the robustness of the installed base aiming to keep the world's leading water utilities as Cambi ambassadors.Our strategic initiative to proactively support clients through value-added services and solutions is taking a new dimension with the increased global adoption of our THP systems. Our service team continues to grow to support our growing client base, facilitating closer contact and better support across all geographies.Cambi regularly supports many clients with advice, annual maintenance by providing spare parts, which has considerable benefits for identifying and assessing the business case for upgrades in close collaboration with each client. With an increasing number of systems nearing the end of their useful life or maximum capacity, we're witnessing a heightened demand for equipment replacements and upgrades to enhance energy efficiency, increase capacity or improve operational performance.Let me give you a few examples from the past year. The Ringsend comprehensive upgrade project stands out in Dublin for a significant THP capacity increase and effective integration with the new digesters and sludge line equipment. Once completed later this year, the modernized THP will allow Irish water to nearly double the sludge throughput within the existing installation, eliminating the need for additional space while increasing energy efficiency and reducing greenhouse gas emissions per unit of processed sludge.In Athens, the Psyttalia project delivered last summer, illustrates an incremental approach to introducing thermal hydrolysis at large sites. Operating under constrained investment capacity, the plant initially adopted our THP technology for half of its secondary sludge. The savings from this investment later enabled the facility to invest in one more THP system for the remaining half.At smaller cities, such as Hengelo in the Netherlands, expansion can be achieved by adding one or more reactors to the same system. A significant milestone in the fourth quarter was the adoption of Cambi PLUS by one of our clients for the first time as part of a construction project. PLUS, our digital platform for remote process monitoring, diagnostics and optimization support is maturing and already bringing valuable insights about the process to both users and Cambi. These efforts underscore our commitment to advancing alongside our clients, providing expertise and solutions needed to meet their evolving requirements.Finally, the fifth strategic initiative covers Gronn Vekst, our solar recycling company. Gronn Vekst is leading the charge in Norway in recycling wastewater solids, garden waste and stone meal from quarries into high-quality and sustainable soil products. By leveraging innovative technologies and sustainable practices, Gronn Vekst drives positive environmental change while meeting the growing demand for eco-friendly solutions.Gronn Vekst had a good year in 2023 within the biosolids handling tender in Trondheim. They opened Norway's first peat-free soil packaging facility in Kristiansand and preparing the opening of new soil production facilities this year.Their R&D team has been busy creating 4 peat-free soil products and making them ready for retail at the start of 2024. We believe peat-free soil is the future and are proud to spearhead the Norwegian market to the delight of a growing number of environmentally conscious customers. With our full support, we're excited to see Gronn Vekst grow this market in the coming years.We kicked off this year with an outstanding achievement, securing a major contract for the project in Hawaii. The project will integrate Cambi's THP technology to optimize solids processing capacity and biogas production, eliminating the need for additional digesters while significantly reducing the volume and increasing the quality of biosolids for safe reuse. The contract was Cambi's 12th in the U.S., while commissioning is scheduled for 2027.Following closely on the heels of our January success, February brought us another reason to celebrate. The award of the Veas contract, one of Norway's main biosolids handling contracts covering the Oslo area to Gronn Vekst. The Veas contract is a pivotal project highlighting Cambi's capabilities in delivering the full spectrum of sustainable solutions for wastewater solids treatment and reuse while enabling wastewater utility companies to boost urban circular economies and the health of local ecosystems.Having started 2024 with a solid order backlog of NOK 1.5 billion and the recently signed major contract in Hawaii, we anticipate another profitable year. Our track record of delivery also gives us confidence in our ability to capitalize on new opportunities that may come in during the year.The increasing demand for our solutions, driven by tighter environmental regulations, is expanding our project pipeline and boosting interest in peat-free soil products. At the same time, we remain mindful of the financial risks of currency fluctuations and the potential impact of geopolitical tensions on our supply chain and operations. Cambi actively monitors these risks and strategies to mitigate their efforts.In 2024, we continued to utilize our high operational leverage to invest in sales, marketing and services, laying the foundation for future organic growth. For example, we are participating in over 80 trade shows and conferences worldwide and increasing our digital marketing efforts to improve our reach and deepen customer engagements.In line with our dividend policy, I'm happy to share that the Board will propose a dividend of NOK 1 per share to the Annual General Meeting in May. By comparison, Cambi paid total dividends of NOK 0.75 per share in 2023. This dividend reflects our strong financial position and underscores our commitment to delivering shareholder returns.Cambi's strategy is focused on organic growth while exploring strategic acquisitions to complement our existing technologies and business areas, ensuring we continue to lead and innovate in our sector.In 2023, we demonstrated strong performance, achieving significant milestones. Looking ahead, I'm confident in Cambi's continued success underpinned by good progress in delivering on our strategic initiatives for profitable growth.And with this, I will hand it over to Mats Tristan, who will walk you through the financials in more detail.

[Mats Tjemsl, executive]

Thank you, Eirik. And good morning, everyone. I am pleased that we yet again can put another solid quarter behind us and we continue to deliver strong operational and financial results. To summarize, we have reported an all-time high operating income. We continue to have a robust EBITDA performance. We have high cash flow generation from our operations and our financial position remains very solid.A dividend of NOK 0.60 per share was paid during the quarter. And for year 2023, the Board has proposed a dividend of NOK 1 per share, subject to approval by the Annual General Meeting on 2nd of May.I will now walk through our financial results for the quarter in more detail. Let's take a look at the financials for the consolidated group. I'm pleased to report an all-time high operating income of NOK 294 million this quarter. The operating income level is almost 2x compared to the same quarter last year and this performance is mainly driven by solid progress made on a high number of ongoing construction projects in the Technology segment.Gross margins were reported above 50% for the quarter, slightly up from the previous quarter. The margin as a result of the segment mix and there are differences in the margin expected between the 2 segments. The size and the scope of the Cambi organization is growing, increasing our payroll costs.The recruitment level is high across the group and we welcomed many new colleagues during the last year. In addition, payroll costs in Q4 were influenced by a bonus accrual made related for the full year 2023, which I will comment on later. But still, Cambi's operational leverage is unlocking profitability when the activity level is high, which is demonstrated by yet another quarter with a solid EBITDA of NOK 59 million.Now let's zoom out and also have a look at the full year 2023 compared to the last 5 years and we can truly see what a remarkable year it has been for Cambi. We have delivered operating income levels just shy of NOK 1 billion, higher than ever recorded before and more than 2x the previous year. It's no secret that the currency impact from a weak Norwegian krone has provided an additional uplift for Cambi.Between '22 and '23, the NOK depreciated 10% and 13% towards USD and euro, 2 currencies where the majority of project income is coming from. Overall, we were able to maintain a solid gross margin of 54% for the full year. And this is a testament of how we monitor and review the financial aspects of our construction projects in alignment with our quality system standards. We delivered an EBITDA of NOK 249 million and an EBITDA margin of 25%. And this is something that we are very proud of.So let's take a closer look at the performance of our business segments. The activity in the Technology segment is mainly related to construction projects. The segment makes out around 75% of the total operating income for the quarter. And operating income was reported at NOK 221 million in Q4, which is more than 2x the same quarter in the previous year. The solid performance is mainly driven by good progress made on many construction projects which are under delivery. At the end of the quarter, there were 15 ongoing construction projects in various stages of completion.Gross margins were reported at 53% and are in line with our previous quarter. And the ongoing projects are a mix of projects with different delivery scopes impacting the gross margins. Now this ranges from EPC projects, where we are the main contractor, to projects where we only deliver the THP equipment. EPC projects, where we source deliveries from other sub-suppliers, will naturally have a different margin compared to pure THP equipment deliveries. And as of the end of 2023, Cambi had 3 ongoing EPC projects, 2 in Norway and 1 in Denmark.Now let's zoom out again to look at the long-term development for this segment. The segment has delivered an all-time high performance, both on operating income and EBITDA. The operating income was NOK 719 million for '23, an increase of 3x versus the previous year. Gross margins remained stable and EBITDA margins were a record high 26%. This is illustrating our operational leverage in the segment.Now let's take a look at the Solutions segment. The segment is covering our services and our recycling company, Gronn Vekst. It forms a solid base of recurring income. The share of operating income was 25% and operating income was reported at NOK 74 million in Q4, which is up from NOK 53 million in the same quarter in the previous year.The segment had one ongoing construction project at the end of the quarter and the mix of operating income has a wider range than for the Technology segment. And it is ranging from biosolids handling contracts to subsequent THP equipment deliveries to existing clients. This naturally influences the reported gross margin from quarter-to-quarter.The EBITDA was NOK 18 million, up from NOK 15 million in the same quarter previous year and EBITDA margin was 24%, slightly down versus the same period in the previous year. Now there will be variations from quarter-to-quarter, but when we zoom out to see the full year, it's a stable and predictable segment.So as you can see, it is forming an attractive base of recurring profits for Cambi. Operating income reached NOK 258 million in 2023, which is up from NOK 202 million in 2022. There was an increase in activity across the line with more sales of spare parts, more upgrade projects, higher bulk soil sales and more biosolids handling. The EBITDA was NOK 60 million, up from NOK 47 million in the previous year. And the EBITDA margin was 23%, in line with the previous year.And as more and more construction projects are delivered, we expect to contribute -- we expect it to contribute positively to the development of this segment. In addition, the peat-free soil packing facility for retail customers had a start of the year during '23 and we expect growth in this area for '24. In parallel, we seek to proactively support clients through value-added services and solutions.Let's move over to the order intakes. Following an all-time high order intake in Q3, there were no notable contract awards during the quarter. A strong look at the end of the fourth quarter compared to the third quarter caused a currency effect on the value of the order backlog. Net currency effect is estimated to be around NOK 18 million, mainly related to the Technology segment.The order intake is determined as a calculation of the operating income plus changes in the order backlog, including currency effects. The order intake for the full year of '23 was an all-time high of NOK 1.5 billion, up from NOK 1 billion in the previous year.Our order intake targets for the 2-year period '23 and '24 was met already during Q3 '23. And we are still confident about the long-term potential for more projects in the future, but we know from experience that it is very difficult in this industry to predict the timing of contract awards. And due to this, we have decided to not continue to guide on the order intake.Let's move over to the order backlog. The order backlog was NOK 1.5 billion by the end of the year, down from NOK 1.8 billion by the end of the Q3. And the backlog is most related to construction projects within the Technology segment, but also includes some services projects and biosolids handling contracts for Gronn Vekst.The substantial order backlog provides good financial visibility for the future activity of Cambi and is a solid financial foundation for us. Looking at the order backlog development over the last years, we can see how significant the current order backlog is in a long-term context. It is now more than triple the size from the end of 2021. And following Q4, we have announced a major construction contract in Hawaii and an important biosolids handling contract in Norway, which both will provide further comfort regarding future activity levels for Cambi.Now let's have a look at the backlog distribution and the breakdown. We have indicated the order backlog distribution by execution year on the left-hand side. And we estimate that around 80% of the order backlog will be converted to operating income over the next 2 years. On the right-hand side, we have provided a breakdown of the order backlog by currency. 1/3 of the backlog is in NOK, while the rest is mainly euros and dollars.And looking back at the recent years, the NOK share in the current backlog is relatively high due to the ongoing EPC projects in Norway, as I mentioned earlier. So going forward, we expect that foreign currencies will dominate dollar backlog composition. So this will increase our exposure to fluctuations in FX, which poses a risk to future financial performance.Now let's have a quick look at the P&L. I would like to remind everyone that our financial statements are prepared in accordance with end GAAP, which means that payroll costs related to the manufacturing of our products are not included in the definition of COGS, but it's a part of OpEx. The reported payroll this quarter is impacted by a variable remuneration accrual of NOK 17 million related to the full year of 2023 as a part of a new remuneration policy implemented during 2023 for all Cambi employees.And Cambi has, for many years, invested in innovation and R&D and I'd like to mention that we expense these costs in the P&L when they incur, meaning that they are not activated as intangible assets on our balance sheet. Depreciation and amortization, mainly related to the acquired Veolia technology portfolio and this is estimated to be concluded medium 2025.The reported net financial items was mainly due to interest received from bank deposits and money market funds. And Cambi reports a profit before tax of NOK 57 million for the quarter and NOK 229 million for 2023. The tax losses carried forward was NOK 238 million in 2022 and has now been reduced to NOK 217 million by the end of 2023. Profits from many ongoing construction projects have been recognized in the P&L, but these profits are not taxable before the projects are completed.This has led to an increase in temporary differences related to tax on construction projects. Our tax expense of NOK 44 million is reported, which is mainly related to changes in deferred tax from the mentioned temporary differences.Let's take a look at the balance sheet. The change in deferred tax has led to the removal of NOK 31 million in deferred tax assets, which is a part of intangible assets and an increase of NOK 11 million related to deferred tax, part of current liabilities. Bank deposits and financial assets, mainly money market funds were at a total of NOK 348 million and the group has no long-term debt. So Cambi has a very strong balance sheet and it serves as a solid financial foundation for us going forward.Now let's move over to the cash flow statement. We had solid operational cash flow generation of NOK 58 million in Q4 and NOK 212 million for 2023. This corresponds to a cash conversion of 85% from the EBITDA. There are limited investments in 2023 and it's mainly limited to the Gronn Vekst packing facility located in Southern Norway. Dividend payments of NOK 96 million made during Q4 and for 2023, the total dividend payments were NOK 120 million, which is NOK 0.75 per share. And the cash and the cash equivalents does not include financial assets.The Board has proposed distributing shareholder dividends of NOK 1 per share for the fiscal year of 2023. The dividend is subject to approval by the Annual General Meeting on the 2nd of May. We reiterate our ambition to pay out dividends of 60% to 80% of the net profits for the fiscal year 2024.So with this, we are ready to move over to the Q&A session.

[Eirik Fadnes, executive]

Okay, Ashish, have we received any questions?

[Operator]

Yes. We have quite a few questions that have come in. I'll start with the first question.The extra NOK 17 million in payroll expenses, is this a Q4 effect? Or will we see it in every quarter going forward?

[Mats Tjemsl, executive]

Okay. I think I can answer that one. So I think you're referring to the bonus accrual of NOK 17 million. So this is due to a remuneration policy that was introduced in '23. So that's why it was an effect affecting -- or an effect that was reported in Q4. Going forward, we will accrue for this type of expenses on a quarterly basis. So we will not see this effect like we saw in the Q4 numbers this time.

[Operator]

Next question. Do you still expect the gross margin to decrease going forward?

[Mats Tjemsl, executive]

I think it's fair to say that we do see pressure on the gross margins. It's, of course, depending on the mix between the segments. The Solutions segment will, on a permanent basis, have lower gross margin than the Technology segment.So depending on those 2 segments, also within the Technology segment, it is affecting the type of project, as I mentioned earlier. EPC projects, typically, where we do source from other subcontractors, we do expect a lower margin. So if you look at the mix in the future and there are less EPC projects, is, of course, will have a good impact on the gross margin.But generally as well, we do seek to not increase our fixed cost base too much. So we are considering also outsourcing parts of our manufacturing. So that is something that we're doing now as well to -- that could affect the gross margins going forward.

[Operator]

Next question. How much do you expect payroll and other expenses to increase in 2024?

[Mats Tjemsl, executive]

It's difficult to be precise on answering that question. We have welcomed many new colleagues during 2023. So that, of course, they have been recruited throughout the year. We will have a full year impact of those recruitments going forward. I think we are still also recruiting a lot in '24 and those who are following us see that. So it's fair to say that those costs will -- are expected to increase going forward.And in terms of the other OpEx, it is reflecting our ambition to invest more in marketing and sales activities. Also what I mentioned regarding outsourcing could also impact there. So I think also given the activity level, we also foresee some increase in other OpEx.

[Operator]

Next question. Can you comment on the increase in OpEx over the quarter? How much of this came from increase in head count?

[Mats Tjemsl, executive]

Yes. I think if you're referring to Q4 versus Q4 the previous year, I think the payroll increase is a quite large explanation of that increase. If you do adjust for that NOK 17 million and spread it out over the 4 quarters, I think you will see a quite stable development in both our payroll costs and our OpEx -- general OpEx costs, which would be a better -- which would give you a better picture and understanding of the development of our cost base.

[Operator]

Next question. How easy it is for you to recruit qualified personnel when scaling up?

[Eirik Fadnes, executive]

Perhaps I can do that one. Well, some functions are more difficult to fill than others. It takes time. We see that both in Norway and abroad. But it's not -- it's partially because of the market, I would say, but also because we're taking our time to make sure that we grow in a smart way, that we find the right people for the long run.And in the meantime, we are basing our resource need on hiring personnel, both on direct hours and indirect hours. And as Mats Tristan mentioned earlier, we are outsourcing some of the scope on some projects. But yes, it takes time to recruit and to find the right people that fits our culture and that's the best in class, which Cambi wants.

[Operator]

Next question. How much further OpEx increase is expected on the back of further head count increases? Should we expect revenues and activities to increase along with the cost ahead?

[Mats Tjemsl, executive]

Yes. I think I already answered the first part there. When it comes to the increase in costs versus the revenue growth, I would say we do have a high operational leverage. So we do not expect the OpEx cost base to follow the development in revenues, which is both positive when there's high activity as it is now. But of course, if there would be lower activity, we are trying to limit the increase in our fixed cost base. So I would say that's not as linked as, for instance, the COGS, of course.

[Operator]

Next question. What is the status of the Be'er Sheva project? Has there been any impact from the geopolitical situation in Israel?

[Eirik Fadnes, executive]

For the Be'er Sheva project, that project is scheduled to deliver the equipment to site in 2025. Most of the scope in the project in early phase up until then is done in Norway and in the U.K. So that's progressing through engineering and manufacturing as planned.But we do see a risk of delays of the work at site, whether it's linked to the geopolitical situation or normal changes in the project schedule as we see in most projects, it's hard to say for sure as of today. But we do expect some delay in the deliveries, but still within the same year in 2025.

[Operator]

Next question. Have you seen a decreased willingness to buy your product due to the increased interest rates and worsening economics of municipalities?

[Eirik Fadnes, executive]

I think the short answer to that is no. Most of the projects that we are securing or have secured so far and the ones we're working on in the pipeline for the next years have been in the planning for many years already for these critical infrastructure projects. Of course, we have experienced delays when it comes to budgets in certain municipalities, but there's also incentives in place to push these through both because of the projects being critical, but also because of the environmental impact it has, not only Cambi's delivery, but the project as a whole. So there are some green loans to kind of group it in one basket that we see several places globally.

[Operator]

Next question. Could you please elaborate on how your contracts in both Technology and Solutions segments are structured? Are there differences in terms of risk, ownership set up across the different markets?

[Mats Tjemsl, executive]

You want to take that one? Or should I take it?

[Eirik Fadnes, executive]

Well, in the Technology segment, we have construction contracts, where we contract with a main contractor that's in between us and the municipality most often. In services, we either contract with an operator or the end customer, but it's smaller orders, spare parts orders.And then the upgrades and other kind of asset replacement orders in the Solutions segment resembles the technology-type construction contracts in terms of risk profile in the contracts.

[Operator]

Next question. Could you elaborate on the taxes paid during the year?

[Mats Tjemsl, executive]

Yes, sure. We -- the tax expense that is recorded is related to a change in the deferred tax. So if you look in the note of the report, it's -- tax payable is around NOK 3 million. And as of the end of '23, we do have a tax loss carried forward of around NOK 217 million, which will offset future payments on tax. So that's the comment on the tax expense.

[Operator]

There are no more further questions from the audience. Thank you.

[Eirik Fadnes, executive]

Okay. And if there's no further questions, then we can wrap up. I want to thank everyone for joining us today. And if you have any more questions, we're happy to answer those provide -- send it to the same e-mail or give Mats Tristan or me a call. Thank you.