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Welcome to the Q1 presentation of Atea results here in beautiful Oslo. But before we go to the numbers, I want to give you a personal statement. This quarter is better than we could have dreamt of. It simply is best ever. But it also marks a change to an almost 20 years partnership between Ib and me. He has been my mentor, but also my biggest resistance. We've simply been a perfect match. And for that, I want to thank you, Ib.
As I know that you will still be active, an active force in Atea, I will keep your spirit of positive approach alive for many years to come. And now to the numbers, as said, best ever.
Net revenue came in at NOK 8.7 billion, up almost 26%, simply the best ever. EBIT at NOK 250 million and net profit at NOK 175 million. But maybe the strongest of them all, the operating cash flow, which is up almost NOK 900 million. As always, I'll leave it to Robert to give you all the good news.
Thank you, Steinar. Q1 2023 was an outstanding quarter for our company. Atea delivered very strong results across all key metrics of our financial performance: growth, profitability and cash flow. Let's start by reviewing our income statement.
Revenue in the first quarter increased by 25.9% to NOK 8.7 billion. Adjusting for 2 small acquisitions and for a weaker Norwegian krona, organic sales growth in constant currency was 18.9%. Revenue grew rapidly across all lines of business.
Hardware revenue grew by 27.8%, driven by higher sales of data center and networking equipment. Sales volumes were impacted by higher demand and by an easing of supply constraints from last year. Software revenue increased by 37.8% with very strong sales of cloud subscriptions to the private sector.
Services revenue grew by 19.3%, driven by higher sales of consulting. Atea invested heavily in its consulting business during the past year, a topic which Steinar will return to later in the presentation. Gross profit was NOK 2.5 billion, up from NOK 2.1 billion last year. Gross margins fell slightly from last year due to mix and cost inflation, but have improved sequentially from Q3 and Q4, as pricing schedules were updated to reflect higher costs.
Total operating expenses were NOK 2.3 billion, up from NOK 1.9 billion last year. The increase was mostly due to an expansion of the workforce to support Atea's rapid growth. In addition, operating expenses were impacted by higher activity levels, general cost inflation and by the translation of foreign currency expenses into a weaker Norwegian krona. With strong growth across all lines of business, Atea's profits were up sharply from last year.
Atea's EBIT grew by 37% to NOK 250 million and net profit after tax grew by 33.7% to NOK 175 million. We'll now take a closer look at revenue and profit development across the countries in which we operate.
Atea's strong sales and EBIT performance were spread across all geographies during the first quarter of 2023. Atea continued to make steady progress in its turnaround in Denmark. And in every other country, Atea delivered record-high operating profit for the first quarter.
In Norway, revenue grew by 7% to NOK 1.9 billion, based on high demand for software and services. EBIT grew by 23% to NOK 55 million. In Sweden, revenue increased by 15% to SEK 3.2 billion, with strong sales across all lines of business. EBIT grew to SEK 173 million, up from SEK 151 million last year.
In Denmark, revenue increased by 29% based on rapid growth in sales of products. EBIT improved to DKK 10 million, up from a loss of DKK 12 million last year. This represents Atea Denmark's highest operating profit in the first quarter since 2016. In Finland, Revenue increased by 46%, driven by high demand for hardware for new frame agreements and from existing customers. In addition, sales of consulting services were also strong, following the acquisition of Gambit last year.
Based on very high growth in sales, EBIT increased by 49% to EUR 2.2 million. In the Baltics, revenue grew by 10% to EUR 33 million based on higher sales of software and services. EBIT increased by 11% to EUR 1.3 million.
Atea Group Functions, which includes shared services and group costs, was a net operating expense of NOK 27 million compared with NOK 16 million last year. The difference was mainly due to higher share-based compensation costs as a result of the appreciation of Atea's share price during the quarter.
Now Atea's EBIT growth in the first quarter was exceptionally strong, but this should be seen as a continuation of a long-term trend. In Q1 2023, Atea's EBIT during the last 12 months was nearly NOK 1.3 billion. This is up from NOK 663 million 3 years earlier, as you can see from this chart.
Since the restructuring of Denmark in the first quarter of 2020, Atea has steadily improved its EBIT almost every quarter with nearly all of the growth coming organically. Customer demand for IT infrastructure continues to grow, and our competitive strategy and operations are uniquely designed to take advantage of this market opportunity.
Now revenue and profit were not the only areas of strong performance last quarter. Cash flow was also very strong. Atea's cash flow from operations was an inflow of NOK 205 million in the first quarter, which was NOK 901 million higher than last year. This cash flow improvement was driven by solid growth in earnings and by a reduction in the working capital balance compared with last year.
Atea's inventory levels as a percentage of its hardware sales further normalized in Q1. Atea's actively reduced its buffer stocks of inventory as supply constraints in the electronics industry have used.
Moving on to our debt balance. Atea had a positive net financial position of NOK 535 million at the end of Q1, as defined by Atea's loan covenants. This corresponds to a net debt EBITDA ratio of negative 0.3. Atea's loan covenants require the company to maintain a net debt-EBITDA ratio of less than 2.5, which would mean that the maximum net debt balance allowed by Atea's loan covenants was NOK 4.7 billion at the end of Q1.
Atea's net debt balance was, therefore, NOK 5.3 billion less than the maximum allowed by its loan covenants at the end of Q1. The company has significant additional debt capacity before its loan covenants would be reached. And by the way, earlier today, we announced that we entered into a new loan agreement with the European Investment Bank. I just want to clarify that the loan covenants are identical to the loan covenants under the previous loan agreement, which I referred to when I talk about our gap between the net debt and the loan covenants. This will not be changed going forward.
That concludes the presentation of the first quarter financial results. I'll now hand the podium back over to Steinar to discuss how we're developing our business to capture new growth opportunities within Information Management.
Thank you, Robert. You enjoyed that, I can see. So as you have seen before, this is how we present the content, the product and services of the Atea strategy: information management, digital workplace and hybrid platform. I'll get back to the information management part of the business in a second.
But digital workplace is everything around you as a user, as a digital user. And hybrid platform, everything that we call enterprise or data center and cloud. In all these 3 areas, there are products, both hardware and software, and there are services, both consultants, technical and managed services.
If we dive into the information management, which is the newest area for Atea coming from being a reseller, we actually started this area formally in 2017. So new is maybe not the right word. This area consists of a lot of consultants. And ending Q1, there were about 650 of them in any and all of the 88 offices that we have in our 7 countries.
The total revenue in the area was about NOK 1.5 billion last year. A lot of what we do here is helping the customer on their digital journey. It's the customer's journey. We're helping them. There are products and there are services. There are managed services, just like our security offerings that we run from our data centers. This is as complex as the rest of the digital infrastructure.
And I mentioned security. Security is where we have the most people. But AI, as all of you know, is probably the hottest area right now. And maybe the very hardest is AI in security with the threats of today coming from anywhere and more and more professional sources, humans cannot overlook the digital infrastructure that are growing massively.
As I said, we are 650 people. And this is also the area that I have spoken about and answered when people are talking about where do you want to do acquisitions. Well, we have done several over the last years. Sherpa was a consultant company we bought in 2018 here in Norway. In Norway, we also bought [indiscernible] on the West Coast in 2019. Robert mentioned Gambit when he talked about the fantastic performance in Finland, and it really has helped us. And in Sweden last year, we bought 2 out of 3 of the Human companies on the West Coast and in the South. We are still looking for companies of this type to add to the family also this year. They're out there, and they can strengthen our offering in information management.
As I said, there are services also in the other 2 parts of the Atea family and strategy. And I'm sure that I'll come back to those in next quarterly presentations. That concludes the Q1 presentation of the best ever results of the Atea Group. And we will go to questions and answers.
Thank you, Robert and Steinar, for the presentation. First question here. You haven't really talked much about the supply chain issues and inventory. Can you make some comments on that, please?
Yes. We're actually -- that's a good question. We're actually talking less and less about it internally and externally, too.
In many ways, we believe and feel that we're back to what we could call normal. The customers have been a little bit more or better at looking into the future. That helps. But the constraints in the supply chain is for all practical purposes back to what we could call normal. And that also means that our inventory, as we have promised over the last couple of quarters, is back to almost normal.
In the last presentation, we said that we would sharply take inventory during second half of Q1. That's what we've done. That's one of the reasons why cash flow is so strong in this quarter. There is still a couple of hundred million to lower it with that will happen during this quarter. But both the supply chain and the inventory is more or less where we want it.
Another question here. How would you explain your relative performance compared to the rest of the industry right now?
Yes. It's going to be interesting when all is said and done and all the dust is settled after this quarter for everybody. But there are no doubt about it. We have taken market share, and we can see that in all the vendors numbers that have come out.
We believe this is Atea. This is the strength that we have. It's the structure that we have in how we've organized the company and with all the coverage we have from a geographical point of view. A lot of our customers and the customer mix gives us that strength. So there's a lot of them. There are about 26,000 customers that paid a bill to us last year. About 68% of it is public. The biggest customers we have is defense in all the countries, which probably are not going to stop buying any time soon. So it's the coverage, it's the customer mix, but it's also the mix of products, both hardware and software with the services that we have. So the way we look at it, the strategy is working. And we're not firing on all cylinders, but more than in a while.
Thank you. New question here. Was the strong Q1 growth driven by a flush of any project completions and hardware deliveries or just structurally higher demand?
So the backlog is 3% down from beginning of this quarter. So I wouldn't call that a flush. But as we have said, the backlog has to come down. If not, our saying of ease of supply chain issues wouldn't be true.
But this is not a flush. This is not a project or some projects. This is a constant that we've seen now actually over a long period. And as Robert showed in his slide on the 12 months rolling, it's actually a 3-year run here at least. So no, there is no one-offs either on costs or on revenue increase.
New question here. What level of organic growth do you think could be reasonable in 2023, given the tougher comparables in the coming quarters?
So we are not promising 26% growth in revenue in the quarters to come. And of course, the whole year will be influenced by a very good start. But as we have said, when we get through these cycles, high single-digit revenue growth is where we should be. It's where we think we will be. But as it looks right now, that's at least a quarter or 2 out.
I had a question here on -- you've accelerated the hiring in quarter-over-quarter to 129 new people. How should we think about the new hirings in the coming quarters and the OpEx growth in 2023?
So I'll take part of that, and then I'll leave it to Robert to comment. We have said over the last 6 months that we have prepared for a slower growth. Of course, that's not what we see. So 19.9% growth in services does not come only from scaling. We have to add some people. And we have about 4,500 engineers and consultants right now. So an increase of about 100 in that part of the business is just adding to the projects and the customer orders that we already have.
Looking forward, we are still planning to decrease the new hiring, not the number of people but the number of people that net taken in. But as long as orders are as strong as they are right now, we have to add people. I don't know if you want to add to that, Robert.
No. I think any time you look at year-over-year growth, you have to compare with the activity levels last year. Last year, when you look at items which were growing high year-over-year, items like travel costs and other forms of customer engagement are higher now than what it was a year ago. And now it's just simply due to the fact that there was still more at home work if we go back a year ago. It feels like a long time ago, but it's true. People are working more at home. There was less travel. There was less customer meetings.
So those areas of costs have actually gone up as well. That's going to ease up as we go forward, and we don't have the same year-on-year comparables. And then overall, salary inflation has been a topic. There has been less hiring in our industry. In fact, there has been many companies which have been reducing staff in our industry. That's easing up pressure on salary increases. And so this will also have an impact on our OpEx going forward.
Was the net working capital improvement only driven by inventory improvement or other receivables?
No, it was driven really across the board. If you take a look and you see the gap between the accounts payable and the accounts receivable that if we compare on a year-over-year basis is back to levels where it was a couple of years ago. So that's also into an important factor in it.
When we had the issues with the supply constraints, our natural balance of receivables and payables fell out of sync. We were buying goods, we were paying for the goods, and then we would have -- our jump in receivables, which takes place at the end of the quarter, was not matched by a jump in payables because we'd already paid for the goods. They had been sitting in inventory.
Now things are getting back to normal. And so the spread between our days sales of operation -- the day sales and the days payables is now getting to a normalized level compared with 2 years ago versus last year, has a big impact.
A final question here. You've touched on it. But with the outstanding performance over the last years, what should we be expecting for the future?
Yes. Thank you for the question. So as we've said, the growth rate that we have seen now over actually many quarters is not something we think is sustainable over the next couple of years. But at the same time, there are so many new loads, like AI, like security, like analytics, like customers who want to put parts of their whole infrastructure in our hands, either in our data centers or in the public cloud. There is so much going on when the customer is digitalizing their world, their business that we don't see any slowness.
But again, as we have said, if we can get back to a constant high single-digit revenue growth, that will actually benefit us in many ways. And the scaling is easier actually to take out than when you have 26% growth, which is actually not easy to manage because from one quarter to another with a company with almost 9,000 people. That is, believe it or not, tough. So we hope for a high single-digit growth in the years to come, and that will serve both us and the shareholders as well.
And with that, we conclude the Q1 presentation. Thank you.