Link Mobility Group Holding ASA

OSE:LINK

Earnings Call Transcript 2023-Q2

[Tom Rogn, executive]

Good morning, and welcome to the second quarter results presentation for LINK Mobility. I'm Tom Rogn, Head of Investor Relations. I'm joined by Thomas Berge, CEO; and Morten Edvardsen, CFO, who will present the results. [Operator Instructions] Thomas?

[Thomas Berge, executive]

Thank you, Tom. Welcome, everybody, to LINK's second quarter presentation. We're happy to report strong numbers for the second quarter with a good growth momentum reducing the leverage from 4.3x in the previous quarter to 4.0x in the current quarter.

Before going into the number in details, we start off as usual with a brief overview of LINK. LINK is the leading and largest CPaaS player in Europe. We started out more than 20 years ago in the Nordics and has been part of building the messaging market in the Nordics to one-off, if not the most advanced messaging market in the world. LINK is using this experience to fuel the development in the less penetrated markets in Europe and in the U.S. Our strategy is dedicated to providing digital communication products to the enterprise market for them to interact with our end customers. We approached the market through a strategy of local touch points with our clients. We have numerous sales reps, customer service and customer success employees on the ground winning new contracts and supporting existing clients in local language and culture.

This setup is creating a larger reach than many of our competitors who have a more regional or centralized approach to the market. LINK's 50,000 clients serviced by our 30 offices in 18 countries are a result of a successful implementation of this strategy over many years. Group revenue during the last 12 months was recorded at NOK 5.9 billion. LINK has grown significantly over the last years with a revenue CAGR of 20%. Profitability has always been a key priority. LINK is growing the business while generating profitability and net positive operating cash flow. Reported adjusted EBITDA has more than doubled over the last 4 years or a CAGR of 24%, which is higher than the revenue growth due to LINK's scalable business model. The growth comes from both organic growth and growth from M&A.

In the current quarter, adjusted EBITDA ended at NOK 726 million on an LTM basis, up from NOK 625 million end of last year. This is a growth of more than NOK 100 million in 6 months. As we will see later on, both the current quarter and H1 are positively impacted by currency movements, but we're also reporting a strong growth momentum underlying or on a fixed currency basis.

In the current quarter, revenues reported almost NOK 1.7 billion or an organic growth of 23% in fixed currency. The U.S. had a very good quarter with strong growth on Messaging Solutions with higher revenue streams from licenses and usage on both new and existing contracts. In Europe, the growth momentum has improved compared to the previous quarters due to more activity in the retail sector and higher volumes and revenue from implemented contract backlog.

Gross profit is reported at NOK 410 million or an organic growth of 15% in fixed currency. Adjusted EBITDA is reported at NOK 191 million or an organic growth of 32% in fixed currency. OpEx reductions contributed NOK 20 million in the quarter, which is above plan. Higher growth increases profitability and cash generation, which drives down the leverage from 4.3x last quarter to 4.0x in the current quarter. Net cash after CapEx and interest is reported at NOK 129 million for the quarter, bringing cash deposits to almost NOK 1.1 billion. The new cash depreciated compared to most other currencies with an impact in our P&L in the quarter. For clarity, in the table on the right, we separated out organic growth on a fixed currency basis and the currency effects for the main reporting lines.

In the second quarter, LINK reports strong organic growth, and the quarter was in the upper end of expectations also when we exclude currency effects. As usual, we're signing a significant number of new contracts in the current quarter with 715 new agreements. Over the last 3 quarters, we are observing a significant increase in gross profit on new contracts from both new and existing clients. During last year, LINK recalibrated the commercial approach and execution and the ramp-up of won contracts are taken as a sign that LINK's commercial efforts are on the right path.

LINK has been monitoring AI development for several years and see a huge potential with the new technology. LINK's chatbot, Xenioo was AI integrated a couple of years ago, and recently also added ChatGPT in concept phase. Medium term, LINK sees benefits from AI related to better supporting clients with fraud and SPAM issues and to reduce costs of goods sold by more intelligent routing of traffic between traditional MNOs and the new competing OTT platforms. AI could also support and increase the efficiency of LINK software development, which accounts for the most of the group's CapEx. The time line for full commercial adoption by clients is, however, more uncertain with key questions related to data protection and the regulatory framework still announced.

Gross profit grew organically 29% in reported currency and 15% on fixed currency basis. Both the U.S. and Europe are displaying solid growth momentum with a gross profit growth of NOK 21 million and NOK 18 million, respectively. Global Messaging performed strongly with NOK 7 million gross profit increase in the current quarter compared to the same quarter of last year. The U.S. generated significant gross profit growth in the current quarter with a strong momentum on Messaging Solutions. Messaging Solutions increased from $8.8 million in revenue up from $4.9 million same period last year.

Messaging Solutions in the current quarter is positively impacted by the high contract backlog into 2023 and the implemented customer base in December 2022. We closed several large agreements in H2 of last year. And as these agreements are implemented, revenue and gross profit are recorded in the P&L. We are seeing an increase on both license revenue and normal usage from the implemented contracts.

Professional service fees in the current quarter are more in line with same quarter last year. Critical event revenue is normally low in the second quarter and is reported at $100,000.

Europe reports a higher growth rate compared to previous periods as a result of implementation of new contracts from the buildup of contract backlog over the 3 previous quarters. We're also observing higher activity in the retail segment. The second quarter is the first quarter where the reported growth rate is equal to the underlying growth rate as the high comparable COVID volumes on testing and vaccinations are out of the comparison figures.

Global Messaging is reporting a growth rate of 38% on a fixed currency basis. The growth momentum is driven by scaling volumes of new clients as well as good growth momentum on existing contracts. We see that we have built a portfolio of routes that are in demand.

LINK reports significant improvements in new business wins over the near-term quarters based on the renewed focus and change in commercial execution during 2022. The graph on the top right shows the estimated annualized gross profit on new contracts signed for the last 6 quarters. The numbers are extracted from our CRM system and the estimations are based on contractual arrangements and specific dialogue with clients.

In the current quarter, gross profit from new contracts is 55% higher than the same period last year. These numbers only contain new agreements for Europe. The U.S. is not included. Historically, about 75% of the gross profit is recorded in the P&L after 12 months. So the company expects the higher contract backlog to benefit gross profit growth gradually during 2023. LINK has a healthy sales pipeline in addition to the higher number of new agreements won.

New contracts for more traditional A2P products grew with NOK 10 million on estimated annualized gross profit contribution year-over-year or a 52% growth. New contracts for CPaaS products are displaying an even higher growth rate of 71% compared to same quarter of last year on estimated gross profit contribution. For these advanced products, we observed longer lead times to scale and generate the estimated gross profit in the P&L.

LINK is in the forefront of the industry in RCS adoption, and we continue to onboard new large customers on RCS in selected markets. RCS, which is an evolution of SMS to compete with the new OTT channel like WhatsApp, is most mature in France, Italy and the U.K. RCS was developed by the MNOs together with Google and only works on handsets operated by Android. In France, 23 million end users now use RCS as their rich messaging application and more and more businesses are communicating to the end users on RCS.

With it's richer content, output on marketing campaigns are more than 4x better on RCS compared to SMS. This means significantly higher click-through rates and sales conversions for our clients, driving their ROI on the campaigns. Higher ROI for our clients translates also to better margins for LINK. The slide shows some examples of recent customer wins, utilizing RCS to boost their marketing efforts.

LINK has close to 50,000 customer accounts. In the current quarter, we have removed some inactive customer accounts that should have been corrected historically, which negatively impacts the net organic growth of new customer accounts. We have also acquired a small customer stock in Italy, which is already fully integrated in our existing business. Now OpEx increases has been incurred from the acquired customer stock. Our Italian team is operating the additional clients with existing resources.

Organic growth of new client accounts is reported at 1,306 accounts, or 3% growth, which increases to 8% accounting for the historical adjustments. Revenue churn is low. For this quarter reported at 2.1% of revenue, of which 0 percentage points (sic) [ 0.6 percentage points ] is explained by assured aggregator client within the Global Messaging segment. The Enterprise segment has a consistently low churn of approximately 1.5%.

LINK has signed 715 new contracts in the quarter, an increase of 25% year-over-year. The full year contract value on gross profit is estimated at NOK 36 million. We are reiterating our forward-looking statements. For a full year organic adjusted EBITDA growth of 12% to 15% in fixed currency. This translates into an EBITDA target for 2023, of between NOK 700 million and NOK 720 million, assuming stable currency from the 2022 starting point of NOK 625 million. H1 2023 delivered adjusted EBITDA growth in the high end of expectations with a 23% growth rate in fixed currency, which, of course, gives increased confidence in delivering on the full year targets. The strong underlying growth in H1 was supported by cost initiatives delivered ahead of plan and better commercial performance in Europe and in the U.S., especially when compared to a softer last year in percentage terms.

H2 of last year saw higher growth rates as the market experienced a catch-up from H1. H2 is also typically a seasonally stronger, partly driven by uncertain weather-related critical events revenue in the U.S. LINK is thus keeping its full year 2023 ambition in line with previous communication.

That was it for me. Handing over to Morten.

[Morten Edvardsen, executive]

Thank you, Thomas, and good morning to everyone on the call. I will now go through the second quarter financials for the group. LINK reports quarterly revenue of close to NOK 1.7 billion, a 40% growth year-on-year. Revenue growth in fixed currency is 23%, with healthy growth momentum across all regions. The Global Messaging segment contributed positively with strong revenue growth reported at 64% in stable currency with contributions from both new clients and existing portfolio.

As expected, we observed an improved growth momentum in the European enterprise segments, growing 12% year-on-year, driven by an improved retail segment versus last year. Strong COVID-traffic comparables out of figures and contribution from buildup of contract backlog since mid-2022. The U.S. business posted a 79% revenue growth in stable currency, driven by Messaging Solutions, while critical event revenue was limited as per normal seasonality. Total volume growth for the quarter was 21%, fairly in line with top line growth. Demand for channels with which a fee to set is increasing as clients realize the larger return on investments on such channels. In total, other messaging volumes constituted more than 10% of total volumes in the quarter.

Moving over to the next slide on gross profit. Gross profit is reported at NOK 410 million or a reported growth of 29%, with positive impact from currency effects of 14 percentage points, resulting in a gross profit growth in stable currency of 15%. As Thomas highlighted, we report significant gross profit growth in the U.S., contributing NOK 21 million total year-on-year growth of NOK 46 million in stable currency. We report an improved contribution from the European enterprise segments with NOK 18 million or 7% year-on-year growth in stable currency, as mentioned, supported by more retail activity and a higher contract backlog. Gross profit growth from Global Messaging was NOK 7 million in stable currency or 38% for the quarter.

In the lower graph, we bridged the development in gross margin year-on-year. The reported gross margin was 2.1 percentage points lower year-on-year at 24.8%, a margin dilution effect related to the low-margin Global Messaging segment representing a larger share of total group revenue was the main explanation. The Enterprise segment margin had a small negative 0.3 percentage points impact as a higher share of U.S. business with high margin nearly offset revenue mix effects in Central Europe related to further scaling of large global clients.

In the next slide, we touch on OpEx and cost initiatives. Total reported OpEx was NOK 219 million (sic) [ NOK 218 million ] or reported growth of 16%, impacted by currency effects of 14 percentage points, leaving an underlying growth of 2% in stable currency. The main contributors to higher OpEx year-on-year was the U.S. and costs related to group functions. In the U.S., the increase is related to commercial investments through 2022, and additional resources added to operate the customer base acquired late 2022.

OpEx in the European footprint declined in accordance with cost initiatives and the booking of an extraordinary telco tax of NOK 4 million in France, same quarter last year. Group OpEx expanded NOK 5 million year-on-year from general inflation and increased costs linked to annual incentive models compared to the same period last year and partly offset by cost initiatives. The cost initiatives are delivering ahead of plan with a total effect of NOK 27 million in the second quarter compared to run rate in Q2 2022, whereof NOK 20 million contribution from OpEx initiatives. The year-on-year positive P&L effect on OpEx was NOK 14 million in stable currency in the second quarter.

Then to the next slide on adjusted EBITDA. Adjusted EBITDA is reported at NOK 191 million or reported growth of 48% or 32% in stable currency from strong gross profit contribution from all regions and cost control measures. In stable currency, first half adjusted EBITDA growth was 23% in stable currency, supporting the full year guiding. The adjusted EBITDA margin expanded 0.6 percentage points to a reported margin of 11.6%. The lower gross margin was more than compensated for by the reduction in OpEx to revenue ratio. Adjusted EBITDA margin declined quarter-over-quarter, mainly due to our U.S. business revenue mix effect as high-margin professional services and critical event messaging constitute a lower share of total U.S. revenue this quarter.

Moving on to the P&L. In the previous slide, I have covered the development down to adjusted EBITDA. In the quarter, we reported nonrecurring cost of NOK 48 million, consisting of share option costs of NOK 40 million, restructuring cost of NOK 6 million linked to the cost initiatives and M&A cost of NOK 3 million. The materially higher cost per share options this quarter is largely related to a one-off following the AGM approval in May for a new incentive program. This quarter's cost include a total catch-up cost of NOK 15 million in addition to the normal quarterly cost of the LTI and RSU programs. We also recognized a social security tax component of NOK 5 million related to the programs.

The incentive programs had no cash effect in the second quarter. Cost of depreciation and amortization is reported at NOK 129 million, up from NOK 102 million last year, mainly from currency effects of NOK 13 million as well as a onetime effect of NOK 10 million related to projects in the U.S. with completion date back in time. Q-on-Q is similarly impacted by the effect in the U.S., but also currency effects and overall depreciations are expected to come down in the quarters going forward.

Net financial items are reported at negative NOK 43 million, impacted by a net currency loss of NOK 4 million, mainly related to the variance in U.S. dollar to NOK and euro to NOK rates. Net interest cost of NOK 38 million related to outstanding bond of EUR 370 million, including amortized transaction costs, partly offset by interest income on cash balances.

Then to the balance sheet. The balance sheet is obviously also impacted by FX movements, while we have limited contribution from M&A. Cash reserves reported at nearly NOK 1.1 billion or up NOK 125 million quarter-on-quarter from improved cash contribution from operations and NOK 15 million from positive currency impact. Receivables increased by NOK 366 million year-on-year, and payables increased by NOK 351 million. Balances are impacted by currency effects and organic growth as well as normal timing effects of working capital related to collection and payments. Net interest-bearing debt is reported just below NOK 3 billion calculated in accordance with our bond agreement and related mainly to the one outstanding bond fully maturing in December 2025 at an attractive fixed coupon of 3.375% with no maintenance covenants.

Then to the last slide in my section, showing an overview of cash flow. Net cash flow from operating activities, including nonrecurring costs for M&A and cost initiatives is reported at NOK 242 million for the quarter and NOK 598 million on an LTM basis with positive contribution from working capital of NOK 73 million in the quarter. Adjusted for nonrecurring costs, which were mainly related to M&A and the cost initiatives, the cash flow from operations was NOK 681 million on an LTM basis or a ratio of 94% compared to LTM adjusted EBITDA.

CapEx for the quarter was NOK 49 million and interest paid, NOK 73 million related to biannual interest payments on the bond loan. After payment of CapEx and interest, LINK generated free cash flow of NOK 368 million on an LTM basis or NOK 129 million in the quarter. Leverage or net debt to adjusted EBITDA cap in line with the bond agreement was reported at 4x, which is down from 4.3x in the previous quarter, demonstrating that we are on track to deleverage towards the financial policy of 3.5x.

That completes the financial section. Now over to Tom and Q&A.

[Tom Rogn, executive]

Thank you, Morten. We are then ready to start the Q&A. [Operator Instructions] Operator, can you please help us with the Q&A?

[Operator]

[Operator Instructions] As there are no questions on this call, I'll hand it back to the speakers for any written questions.

[Tom Rogn, executive]

We will then continue with posted questions. The first question is regarding the long-term incentive program, which was a new program in May. And how you should look at in the future, if this is the last new program or there will be more new programs coming?

[Thomas Berge, executive]

The LTIP program is a 3-year program that the General Assembly approved. I don't expect any new programs during this 3-year period, so that's it.

[Tom Rogn, executive]

Then we have a question regarding the organic growth numbers and how the customer base which was mentioned in Italy, how that impacts the organic figures.

[Morten Edvardsen, executive]

In the quarter, we -- this customer base was not consolidated in the second quarter numbers that will start from the 1st of July.

[Tom Rogn, executive]

Then we have a regulatory question in the U.S. that SMS and MMS messages will not be able to be sent from unregistered phone numbers from August 31.

[Thomas Berge, executive]

That's correct. That's not a big issue for LINK, because we're mainly using short codes in our U.S. business. So we are on top of it, and we don't foresee any negative impact or any impact at all for our business.

[Tom Rogn, executive]

There's been a good growth in new contract wins. How is the annual gross profit growth, if you look at it annually compared to the historical levels?

[Thomas Berge, executive]

The simple answer, if we continue the level on winning new contracts, as we've seen in the last 3 quarters, the impact should be somewhere between NOK 50 million and NOK 80 million per year when they are implemented. But please remember, there's a lag here. We use 12 months to implement around 75% of the estimated gross profit amounts.

[Tom Rogn, executive]

And then we have a specific question on the U.S. business and exposure to critical events, what they actually are?

[Thomas Berge, executive]

Critical events are mainly weather-related issues. It can be anything from blizzards, snowstorms, hurricanes. It can be drought or problems with the capacity of the power grid. The second half of the year is normally peak season for critical events, driven by blizzards around the Gulf of Mexico and also droughts and power shortage in California or in the Western part of the U.S. I just want to remind everybody that in Q1 also, we saw for the first time that we had critical events in the Northeast because we have won several new clients there due to blizzards and snowstorms.

[Tom Rogn, executive]

Another question on the U.S. and regarding the -- if there was any catch-up effects be explaining the strong growth, which was posted in the quarter.

[Thomas Berge, executive]

Not in the second quarter, we had that in the first quarter as we implemented a lot of new contracts that we won in the second half of 2022. So the revenue growth that you are seeing in Q2 is mainly related to licenses and usage from the implemented contracts. If you isolate professional service revenue, that is in line with what we reported same period last year. So that's sort of on a normalized basis.

[Tom Rogn, executive]

There's a question regarding Europe, where we mentioned in the report that we saw an improvement in the retail market and how we look at that into the second half of the year?

[Thomas Berge, executive]

Yes, we have said previously, the retail market is more volatile. We -- I would expect basically the same as we saw in last year. Third quarter might be a little bit lower than what we would have defined as normal. And then there's a catch-up effect in the fourth quarter as we get closer to the festive season to Christmas. That will be my best guess. But I wouldn't expect for the second half of this year that we would have a material deviation from what we would define as normal.

[Tom Rogn, executive]

Then there's a specific question on Central Europe and the margin development and if the hyperscaler specifically has anything to do with that.

[Morten Edvardsen, executive]

In Central Europe, we are scaling on several global clients, including the hyperscaler, where we have signed material number of new contracts on -- also products which are higher margin. We are working to implement that. But in general, overall, the scaling of the global clients in terms of more volume is impacting the margin. When it comes to nominal gross profit, our expectation is to grow that. That's escalation from management to grow that business. We can also mention that we have some mix effects within the region related to less -- Austria being a smaller share of the region. Typically, Austria had high margins, just 50% historically.

[Tom Rogn, executive]

Then we have a broad question on the different type of products or solutions that LINK offers. Is there a traction on the more advanced or is it still the more mature options that are preferred by the customers?

[Thomas Berge, executive]

Yes, I can take that one. As you see from the slide on the contract backlog, we have a NOK 10 million growth on more legacy products, while we foresee to have NOK 3 million, 71%. So we are able to land and secure new contracts also for the more advanced products. But my view on it is that the current market makes it a little bit more difficult with new products. Clients view them more as investments and the current economic environment businesses, some more stringent on accepting new investments. But as I said, we're still delivering and landing new CPaaS agreements as well.

[Tom Rogn, executive]

Then the question related to cost inflation in general and if the adjustment for salaries have been all included in Q2 or if there's more to come in the second half?

[Morten Edvardsen, executive]

We do most of the salary adjustments in -- from 1st of April, so that should be included in the second quarter figures.

[Tom Rogn, executive]

Then we have a question regarding the customer base in -- which was acquired in last year and how that impacts the organic growth to the same question as the other -- the Italian one I guess.

[Morten Edvardsen, executive]

Yes. The acquisition we did at the customer base in the U.S. is fully integrated into the U.S. entity. So we are not able to separate it accurately in the figures, so it's part of the organic growth. It's not a material part of the business.

[Tom Rogn, executive]

Then is a question regarding the churn, which was slightly higher this quarter. Are there any specific drivers behind that?

[Morten Edvardsen, executive]

Basically, the ramp up in churn compared to the first quarter was related to one specific client within the Global Messaging segment, which is more volatile in nature. So we don't see any sort of big worries about that. The enterprise churn remains low at around 1.5 percentage points.

[Thomas Berge, executive]

Yes. Just a side comment from me too. The churn on the Global Messaging segment was directed by us. We didn't want them as a customer anymore due to what we perceived as an increased bad debt risk. So that's the reason for why we have that for this quarter.

[Tom Rogn, executive]

Then we have a broad question on the margin development where we saw a slight contraction in the margin. How we should look at that going forward in the second half of the year?

[Morten Edvardsen, executive]

Yes. I think quarter-over-quarter, it's -- obviously, we have a contribution from the Global Messaging segment, which dilutes the margin but also usually, professional services and critical events messaging in the U.S. comes with a very high margin. And that is by -- as Thomas mentioned, we had a catch-up on professional services in the first quarter and by seasonality the critical events are low in the second quarter. So that representing a lower share of the revenue mix impacts the margin quarter-over-quarter.

[Tom Rogn, executive]

Then we have a couple of questions on the outlook. How we should read into the second half implied guiding given that there's an unchanged guiding and a strong growth in the first half?

[Thomas Berge, executive]

Yes. As I said, we were at the high end of expectations in the first half of this year with a 23% growth rate in fixed currency. We have not done any changes to the forward-looking statement. That doesn't reflect anything on H2. We don't see sort of any negative elements happening in the market so far, and we don't expect anything either. On critical event, the second half is normally peak season, as I said. We don't see any things indicating that we will not have a normal critical event season. If we have a normal critical event season, I would say that we will probably over deliver on the forward-looking statements, but we are not there where we want to do this commitment now due to the uncertainty around critical events.

[Tom Rogn, executive]

And there is one in general as well, if you have a specific policy on the outlook, if you do it annually and not obviously, we do that when the fingers change?

[Thomas Berge, executive]

Yes, the Board normally decides on the forward-looking statement in the beginning of each year in connection with the fourth quarter reporting. And then of course, we will update it if required. We don't have any policy other than that.

[Tom Rogn, executive]

There's a specific question on the number of employees has gone down and how that should impact the tax going forward?

[Morten Edvardsen, executive]

Yes. I think we commented on this in the previous quarter. There is some lag in that number because basically, there's a notice period. And technically, we report them as employees, even though they're in a notice period, and we don't incur any costs on them. So we are a bit ahead of the plan when it comes to termination. So the effect going forward on the OpEx side is more -- will be more marginal.

[Tom Rogn, executive]

Then we have a question on the net working capital development, and how we should look at that in the next couple of quarters?

[Thomas Berge, executive]

I think in general, we -- it can be a bit lumpy between the quarters. What we guidance specifically, is it going to be fairly stable over time and over the last few quarters. We're working on collections, obviously, so we were quite successful on that in the second quarter. I think over time, it will sort of be fairly stable. I think that's the best view on it as to this is related to timing effects on payments and also when the operators invoice us and cut off between the quarters.

[Tom Rogn, executive]

A longer-term question on the margin development and the top line growth. If you go back beyond 2023 and how LINK will work on that?

[Thomas Berge, executive]

I can start answering that question. First of all, it's going to depend a little bit on where we get the growth. Most of the gross profit variation is due to client mix effects as we are having a different gross profit in different regions and on different products. I would expect it to be fairly stable over time. It might be a small increase if we get a larger growth in the U.S. because the profitability there is higher compared to Europe. And also, it depends a little bit on the product mix. We see that the gross profit on the more advanced products, CPaaS products, it's higher. So if the market normalizes a little bit, and we're able to get some more growth momentum on the more advanced products, that should be beneficial to the total gross profit margins.

[Tom Rogn, executive]

There's a specific question on comparables for Q3 and Q4. Is there any special events or in figures, which should be aware of?

[Thomas Berge, executive]

No, not really. We had a normal critical event season in the U.S. in the second half of last year. If you want to go into the details, you could say that we had an elevated professional service revenue in the fourth quarter, but it's not a huge amount. We're probably talking about $800,000 in that neighborhood.

[Tom Rogn, executive]

Then, as mentioned in the reporting, the cost initiatives have been largely completed. Are there any scope for further optimizations?

[Morten Edvardsen, executive]

I think we are constantly reviewing the cost base and optimizing that. Right now, the program is delivered and more will be more sort of marginal improvements that we would do.

[Tom Rogn, executive]

Pertaining to that and the strong cash flow and the strong cash position obviously reduces the net debt if given the approach in 2025 and the EUR 370 million bond matures, do you need to refinance the whole? Or can you reduce the gross debt level?

[Thomas Berge, executive]

I wouldn't expect us to refinance the whole now. We are generating a lot of excess cash, and there is still more than 2 years until the new date of existing bonds. So I would expect us to refinance a lower amount than the gross amount.

[Tom Rogn, executive]

At the moment, we don't have any further questions. Please post any additional questions online. As there are no additional questions, we than all participants and conclude the Q&A.

[Thomas Berge, executive]

Thank you.

[Morten Edvardsen, executive]

Thank you.