Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the NNIT Q1 2023 results. Throughout today's recorded presentation, all participants will be in a listen only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press star followed by one on your touch-tone telephone. Press the star key followed by zero for operator assistance. I would now like to turn the conference over to Pär Fors, CEO. Please go ahead.
Thank you very much and welcome all of you to this call about NNIT's results for the first quarter 2023, and a brief introduction to our focus business after completing the divestment of our infrastructure operation just last week. My name is Pär Fors, and with me today I have our CFO, Carsten Ringius, by my side. We are both really excited to cover the highlights of this quarter and finally being able to add some color on the new NNIT after months of working and waiting time. We also look forward to taking your questions after the presentation. Please turn to slide two and a high-level introduction of our new business. We have mentioned before that in 2022 was a truly transformational year for NNIT as we signed the deal to divest our infrastructure operation.
On April 28, we finally announced that the deal has been completed. We have now officially set out a new course and embarked on a new beginning for NNIT. This means that we have sharpened our focus and emerged as a leading provider of IT solutions to life science internationally and to the public and enterprise sectors in Denmark. These areas are our home turf, and we are building on almost 30 years of NNIT legacy as we pursue new and ambitious targets as a dedicated, people-centric, and an international consultancy. Please turn to slide number three for a few comments on our future of our company. When we look upon the future NNIT, we will be an industry-leading employer and a solution provider of specialized consulting services in international life science and in public sector Denmark.
We are a people company. It all starts with our people, where we need to continue to attract the best possible people and build upon the proud legacy of NNIT. We're going to be a leading international Life Sciences provider built upon the solution we already have today, where we are a full services providers to all the steps in the value chains of pharma's companies around the world. In parallel, we are gonna build even deeper specialization around public sector Denmark. This is a sector that NNIT has been in for many years, thanks to the great wins during the last couple of years in public sector, we have significantly strengthened our position, and we will continue to build upon that.
Of course, in parallel, we are also in Denmark delivering services to the enterprise sectors, which is industry agnostic, and we will continue to do that as well. From an industry perspective, we will continue to invest to build deep sector expertise within public sector and Life Sciences. The new NNIT will also be a truly more international company. For instance, Life Sciences business will have a large part of this business outside Denmark, and we really see a true avenue for growth. Of course, also the public sector will also be important, overall, we're gonna be a much more international company with a more international management team.
As a consulting company, we will be much more commercially savvy, as the sales of our services will be driven much more by our people than by a sales organization, and we will thereby simplify the way we operate our business, and we're gonna continue down the avenue where we are considered easy to do business with. Please, let's move to slide number four. Several conditions are in place to make us succeed in 2026. Sorry, no, it's slide... Yeah. succeed in 2026. First of all, we have the best possible foundation in our talented people, values, and culture. We are 1,700 skilled employees across our markets, and we are focused on offerings and industry mastery with a business-first approach to digital solution that really works.
This enabled us to further offer superior quality in all our solutions wrapped in an easy and efficient customer experience. Secondly, our markets are globally attractive. We're offering new business based on long-term macro trends that are relatively resistant to economic fluctuation, meaning Life Sciences Solutions and the public sector. Thirdly, our problem-solving skills and ability to navigate complexity are highly demanded by clients facing increasingly challenging environments and tough regulatory demand. Finally, we are ready to have a strong and satisfied customer base that allow us to aspire for more on a very solid foundation. All in all, these conditions form a solid starting point and enable us to build a great people company. Recognized as the best employer and digital partners to companies and organizations where the quality of life is at their heart. Let us briefly turn to slide number five, please.
If you look at NNIT world map after the divestment of our infrastructure business, we have a new world map in front of us. We want to build a truly international organization and follow our customers as they expand globally, as we have done in the past, where we have good base with activities and teams across Denmark, the rest of Europe, Asia, and the U.S. We are in the market where we like to be, from there, we will grow. Please turn to slide number six. Based on our roots in life science, we have established a clear competitive edge in industries characterized by strict regulatory demands and a high level of complexity. That is our DNA. This is why we have carefully selected three industries where our competencies can be put to good use and deliver great value to our customers.
The global life science market is a stronghold for NNIT. That's our cradle, and it offers great growth potential as the appetite for digitalization of our customers' value chain is constantly increasing. We are already well-positioned in this market, and we will continue to pursue growth with existing and new customers in a global context. We have successfully applied our special competencies and ability to navigate complex environments for several Danish customers in the public segment. The public market in Denmark offers a strong potential for NNIT and exciting assignments of crucial importance to the development of our society. We will sharpen our focus on this market and develop our position in the coming years.
Finally, we will also serve the Danish enterprise sector with particularly demanding IT needs by continuing and accelerating the positive development of SCALES and building on the strong brand value and their position. As our customers and their markets vary significantly, we will of course provide bespoke solutions based on the best-suited content technologies, drawing on vast experience and competencies available across our partner ecosystem. This snapshot of NNIT provides a high level of our aspirations, the assets available to us, and the arena in which we have chosen to compete. This is a true turning point for NNIT, and we are confident that we are on the right track to successfully pursue growth opportunity across our different markets. On that note, please turn to slide number seven and a summary of developments in Q1.
We delivered solid performance in Q1 2023. We are pleased to report a revenue growth of 16% with a good 11% organic growth. Revenue increased to DKK 430 million. It was the highest level for the last five quarters. While this is certainly encouraging, please do note that the first comparison quarter in 2022 was marked by rather slow sales. We note that the positive performance was driven by higher activity and a positive development in Life Sciences Solutions and Cloud & Digital Solutions, most notably the Danish public sector. This is important and serve to underline the good trajectory and potential across our business units.
We were also pleased to report positive development in earning and profitability for the quarter as operating profit and the margin before special items increased quite significantly on the back of higher activity and utilization levels. This was realized despite the negative impact of a higher cost base until the separation of infrastructure operation has been completed. Special items came to DKK 40 million this quarter, attributable primarily to earn-out payments related to acquisitions in earlier years. To sum it up, we did really well in the first quarter of 2023 and delivered solid results. We will continue on this track and face a lot of hard work to unlock the full potential of NNIT in the years to come. Let us now move to slide number eight and Carsten's brief review of the business unit performance.
Thank you, Pär. Our Life Science business continued the positive trajectory, with revenue picking up significantly from the beginning of 2022, which was relatively slow. Revenue grew by 14%, of which half was organic, and the rest can be ascribed to our addition of Trifork services in March 2022 and positive currency effects. Gross profit and earnings improved significantly, though, as the business benefited from a much higher capacity utilization on the back of higher activity in the quarter and capacity adjustments completed during 2022. The operating profit margin exceeded 10%. We see a continuation of the positive trajectory in the Life Science unit. It was encouraging to see the Life Science business win several extensions of current contracts as well as new long-term customer engagements during the quarter. This contributes to the strong foundation for Life Science in the quarters ahead.
Performance was particularly strong in R&D and manufacturing, and we look forward to continuing on this track. Please turn to slide nine and the Cloud & Digital Solutions business. Performance was strong in CDS, with very good progress being made in the public sector part of the business. The business unit delivered reported growth of 19% and organic growth of 16% as we delivered on a number of major public sector contracts won during 2022. The development in Q1 was a continuation of the positive trend seen over the course of the last couple of quarters, and revenue reached DKK 173 million. The solid growth and high activity level had a positive impact on earnings as well, and the operating profit margin came to 5.6%.
There is certainly still room for improvement, but we are on the right track and have great confidence in the expectations for the CDS business as a key pillar in the new and more focused NNIT. We also secured significant new contracts and renewals in CDS, where we closed a couple of public contracts which will have a positive impact on 2023 to 2025. Let's turn to slide 10 and some selected key figures for the last five quarters based on today's trading statement. Consolidated revenue grew by 16% to DKK 413 million based on organic growth of 11%, supplemented by acquisitions and positive currency effects. Gross profit improved significantly to DKK 64 million from a low base in Q1 2022, which was impacted by slow sales. The gross profit margin improved to 15.5%.
The operating profit improved significantly to DKK 20 million before special items corresponding to operating profit margin of 4.9%, following stable sales and marketing costs as well as administrative expenses. In addition to the quarterly figures, we have added a bit more color on the outcome of the divestment of the infrastructure operations in our trading update today. The purchase price for the divested operation is DKK 1.35 billion on a debt-free basis after EBITDA adjustments at closing. In line with expectations, the cash impact of the transaction adjusted for net debt and working capital, carve-out and separation costs, as well as tax and advisory fee is seen to amount to DKK 1.288 billion. This includes a vendor note of DKK 200 million, which will be repaid no later than six years after closing.
We have settled our revolving credit facility after receiving the proceeds and secured refinancing for an interim period until we have negotiated new long-term facilities. Please turn to slide nine for a 2023 outlook and closing remarks from Pär.
Thank you, Carsten. We are maintaining our revenue and earnings outlook for 2023 today and look forward to being able to leverage the sharpened focus in the two core business units with the ambition to significantly strengthen revenue and profitability of the common activities. We still see strong performance in custom application management and production with good effects on both business units, 2023 will still be impacted by transition costs. The second half of 2023 is expected to be less impacted by these costs and performance will improve in 2024. Revenue growth is still expected around 10%, assuming stable currencies and the aim for an operating profit margin before special items around 5%. As mentioned, profitability will be negatively impacted by stranded costs related to the carve-out.
We still expect costs of up to DKK 180 million in 2023 relating to carve-out and separation activities, earn-out payment by acquisition and restructuring costs to right-size the organization after closing. We now expect to book DKK 70 million of those costs as special items, with the remaining amount being reclassified as part of discontinued activities. The main part of these special items are expected to relate to earn-out payments in connection with completed acquisitions, while restructuring costs will be significantly lower. Please also note that we have appealed to the Danish Business Authority concerning our earn-out payments. Our prospects for profit growth in the coming years are unchanged. We look forward to improving performance once the transition of all support and back office assignment has been completed. Thank you very much for listening today. We look forward to taking your questions. Next slide, please.
Ladies and gentlemen, at this time, we will begin the question-and-answer session. Anyone who wishes to ask a question may press star followed by one on their touch tone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you are using speaker equipment today, please lift the handset before making your selection. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. The first question is from the line of Poul Jessen with Danske Bank. Please go ahead.
I have a number of questions which come randomly. I was just wondering, going forward, reporting structure, will that be the two business lines, or will you give sub-segments as you did in the past?
Going forward, once that we have fully completed the new commercial organization in our reporting structure, we will provide more details as to how we perform on a regional level.
Poul, we are now launching a new revised organization, where we will have four P&Ls based on a regional structure in Denmark, Europe, U.S. and Asia.
Yeah. You were in the media, I think two days ago, discussing the four regions. As I understand it, you have three regions which are covering the life science and then one covering CDS Denmark. I was just wondering how are the three regional gonna work together, both that you have three geographical regions, and then you have a number of companies below that. How are they gonna cooperate on larger wins, or are they going for local wins in each of their area?
No. If you look on the commercial level, how does it work in the organization from a business perspective. The vast majority of our deliveries are delivered in either China or Singapore, in the U.S. or Europe. There are not a large amount of deliveries that goes across the organization, but there are some. We have high ambitions to also be able to win the larger deals that goes across the regions. Therefore, we have two horizontal support functions. Firstly, coordinating our sales and account management, and secondly, also to coordinate that and make sure we do an efficient solution development, so we don't reinvent the wheel in the four different three regions. That's Life Sciences regions.
I think we found a right balance, how we would drive this with client proximity, where we align, say, sales delivery in the regions closest to the client, but while we still maintain the ambition to also go for the large deals.
Okay. If we take the proceeds of DKK 1.288 billion, and you say that the DKK 200 million loan facility to the acquire is included, I just want to be sure. You have DKK 1.088 billion available for yourself, and the rest will then be receivable or interest bearing asset on your balance sheet for the next six years.
Yes, that's correct.
That's correct, you said?
That's correct. We will have this vendor loan note up to six years in our balance sheet.
Okay. You put DKK 110 million from the restructuring which you had announced earlier, and you take those into discontinued operations, will there be any negative future cash impact from when they are being realized?
No.
That's included in DKK 1,288.
That is included in DKK 1,288. It's the net expected cash proceeds.
Is it then fair to assume that if we assume zero cash flow in Q1, we don't know. If we assume, then you will, when completion be having a gross cash position excluding the loan to acquire of about DKK 400 million and a net cash of about DKK 600 million because there's no debt.
I'm not gonna comment on the details of the balance sheet. That is not part of the trading statement. What I can say is that we have a positive position and that we have an interim financing in place until we negotiate our long-term credit facility.
Two more. You were also quoted in ITWatch that the growth potential in CDS is now seen at the same level at what you were looking for at LSS. Is that right communicated by the media?
Yeah. I mean, I think, Poul, if you look on the market outlook, now I'm not talking in the overall markets where we are operating. If you look on the, on the Danish market in term of where the growth rate is for the, you know, the coming 3-5 years, you have a CAGR or maybe 8-9%. While of course we have a very small market shares, so we have higher ambition. If you look on the global Life Sciences market that we are addressing, it is pretty much the same growth numbers. Even the whole, of course, our market share is even lower in that market. The markets are growing pretty much the same. And I think our ability to actually go to that market are fairly similar.
I think we have high ambition to grow, both business units at fairly the same pace. Even though if you should really differentiate, probably it's gonna be some slightly high growth Life Sciences. That's what we aim for.
Okay. If you look for no timing but just ahead, and look at many of other IT consultancy companies, then they operate at approximately 30% gross margins. You are below 20%. I was just wondering, to get there, if you ever get there, does that require acquisitions, or can that be done by organic growth and then just by having higher capacity utilization on existing and organic hire people?
I think we can definitely achieve that organically, even though that we will pursue further M&A activities on the on the longer term. What we are really focusing on now is getting our financial operating model in place aligned with this new commercial structure that we are rolling out as part of the strategy. That will give us the tool to work further with our gross margin across the different product areas and the regions that we have. Part of this is also, of course, focusing our business on the relevant solutions. This is part an important embedded part of our new strategy to actually increase the repeatability in our product offering.
This is one of the key elements for us also to drive up our, gross margins, across the regions.
Okay. Thank you. Let's see if there are others on the line.
Mm-hmm.
Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your telephone. We have a follow-up question with Poul Jessen from Danske Bank. Please go ahead.
Yeah. Thank you. A discussion about the current market conditions, you mentioned both in CDS and in life science that you, during the quarter, has signed a number and in some cases, significant contracts. Last year was quite soft for you. Can you comment on how you see the market currently? Is that improving? Are you becoming attractive, or is it you finally being more outbound in sales activities?
If you look at them separately and start with public sector, I mean, as you saw last year, we were actually having one of our best booking years in a very, very long time, not at least in the public sector. Those wins also constitute a good backlog for this year. We have a clearly better backlog in the Danish part of the business than we have had for quite some time. On those wins, which are long-term contracts, where we are to develop new applications and also maintain them for a very long period. On the backdrop of that, there's a lot of potential add-on sales, a new application, adjustment of existing applications where we are sitting in the front seat. That's actually what we've seen happening now in the first quarter.
There are no really big, three-digit new wins, but there are actually really healthy business with healthy margins on the backdrop of the win we did last year. Looking in the pipeline, there are a number of exciting opportunities coming up, especially versus the end of this year. I'm optimistic about that part of the business. On the other part of the Danish business, when we are on the enterprise sector, most notably where we work in Microsoft, within SCALES, but also in other solution, we also had a good quarter and are optimistic about the future. The lab sciences piece, it's also, I mean, we are not the player that deliver the big global program for the top five pharma companies.
We are working on all big pharma, but as a niche player. There we see continued growth with many smaller engagement. I think that's actually what we're gonna see. Not any huge deals that we maybe even read about in the papers, so to speak, but a lot of other consultancy-driven assignments, many based on the different partnerships that we are working with. Looking at actually how we see the first quarter, we see the growth well-distributed between Europe, U.S., and also in Asia, where both our Chinese operation and the operation in Singapore is really developing nicely.
Okay. The transformation or moving of people from China to Philippines, is that fully completed now?
That is 100% completed. What we have now in China is purely the kind of local business, meaning that we deliver consulting services to the local Chinese market, which in many cases can be the Chinese subsidiary of some of the large pharma companies. Like, of course, Novo Nordisk is most notably, but there are also other ones, but also Chinese pharma companies. Then, we have our offshore location or which is also very important strategic component that is solely now based in Manila, while we have our nearshore center in Prague. We have actually those two capabilities, which is extremely strategic importance to be able to be competitive, not the least on the larger opportunities.
Okay. That was all for me. Congratulations for the closing to both of you and to a good start of the year.
Thank you very much.
Enjoy your mini holiday.
Thank you very much, and have a nice day.
Once again, to register for a question, please press star and one on your telephone. There are no further questions at this time. I want to hand back to Pär Fors for closing comments. Thank you.
Okay. Thank you on behalf of Carsten and myself. Thank you very much for tuning in to this presentation, and I look forward to meet you again next quarter. Wish you all a great day and a great weekend. Thank you.