Good morning, and welcome to the presentation of Kongsberg's Q1 results 2022. The presentation today is a webcast only, and questions may be submitted through the webcast by following the link on your screen. The results today will be presented by our CEO and President, Geir Håøy, as well as Executive Vice President and Chief Financial Officer, Gyrid Skalleberg Ingerø. With that, I'll leave the floor to Geir Håøy.
Thank you, Jan Erik, and good morning, everyone, and welcome to the Q1 presentation. I'm pleased to announce that Kongsberg has performed well in the Q1 of this year. The positive trend from 2021 continues across all business areas. I will share some key figures with you a little bit later. There are, however, some dark clouds gathering that will again test our ability to adapt to rapidly changing conditions. The tragic and meaningless war in Ukraine following the invasion of Ukraine will inevitably impact us as a consequence spread through commerce, security, and other areas, and I will come back to this a little bit later. Let me start with some of the key highlights in the Q1 this year.
As you can see, the order intake was NOK 7.5 billion, the revenues were NOK 7 billion, and the EBITDA was just about NOK 800 million. Overall, the operating revenues for the group are up 11% compared to Q1 2021. We have had a revenue growth across the group and our overall order backlog is growing. Kongsberg Maritime's aftermarket performance was particularly good. We have delivered a solid operational performance in a time of adversity. We are coping with logistics challenges and shortage of some of the components that affect all business areas, and this has already impacted our Q1 results. While we are taking appropriate actions, we are prepared for that this situation will continue at least for 2022.
I'd just like to underline, Kongsberg supports and comply with the sanctions against Russia, even though we have lost business as a result and have needed to terminate several deliveries. Also, Kongsberg Maritime is affected by the sanctions against Russia, but we have prepared for that with a loss provision which Gyrid will come back to somewhat later. As I mentioned, all our business areas are performing well, and we have secured new contracts in the Q1 . Some of the important contracts are shown in this slide. Starting with Kongsberg Aviation Maintenance Services, which have entered into a contract with Leonardo for the maintenance service for the Norwegian fleet of the AW101 search and rescue helicopters in the period of 2022 to 2026.
Kongsberg Maritime will deliver innovative propulsion technology to VARD, to the two new Norwind Offshore commissioning service and operational vessels. Kongsberg Defence & Aerospace have signed an agreement to supply more air-to-air pylons for the F-35 program. I think this latest order confirms our capability as a key supplier and adds another three year of the production duration. Kongsberg Maritime will also provide propulsion and control system to Scandlines' new zero-emission RoRo vessel. Destined to be the world largest all-electric, double-ended freight ferry. This is currently under construction at the Cemre Shipyard in Turkey. Kongsberg Digital has secured some important contracts too. Notably, a fleet agreement with a large tanker operator to provide Vessel Insight to more than 100 vessels.
As some of you know, Vessel Insight is a SaaS-based solution that provides vessel-to-cloud data infrastructure, capturing and aggregating quality data in a cost-effective and secure way. I'm also pleased that Kongsberg Maritime have recently signed an engineering and procurement and construction agreement with the global offshore production contractor, Yinson. This is for the supply of an integrated suite of electrical and control equipment for a floating production storage and offloading vessel, and this is also currently under conversion. I think these awards underline the broad technology scope we offering and the strength that lies in our diversity. Turning to the business update for each of the business areas, this slide gives you an update as regards to Kongsberg Maritime. We continue to attract orders basically for all vessel types, for both new build and also in the after market.
The orders for tugs have been in particularly strong, making the Seaborne & Pax segment the dominant segment, but also featuring in the naval segment. Component shortage is an issue here and in other business areas as well. We are addressing this problem, which is not unique to Kongsberg. I would also like to mention that we now have once more expanded the HUGIN family of our autonomous underwater vehicles with the new HUGIN Edge. As for the Kongsberg Defence & Aerospace, KAMS is the second supplier certified outside the U.S. to take on repair and maintenance and overhauls for the engine of the F-35. KDA is also working with Navantia under an MOU to support and modernize the Norwegian frigates. Then Australia has committed to equip its destroyers and frigates with the Naval Strike Missiles. In connection with the.
conjunction with the Norwegian Defence Research Establishment, we are now developing new capability to conduct satellite-based maritime surveillance, where Kongsberg will invest in three small satellites in the next couple of years for the surveillance of the High North. Our KDA business area is also affected by the component shortage, especially in the Remote Weapon Station area. When it concerns Kongsberg Digital, I'm very pleased to confirm that KDI has secured a new strategic offshore wind partnership agreements to develop a digital twin for floating wind parks. The digital twin continue also to be rolled out and also expanded. As I mentioned, Vessel Insight agreement has been made with multiple operators, and we also expect to announce further ship owners in the near future.
KDI has also secured a strategic contract for digital twins with an additional oil major last month with additional four assets. As you may know, our president, Hege Skryseth, has accepted an offer from Equinor, and she will start as the EVP for Technology, Digitalization and Innovation. Of course, I expect that we will receive a lot of orders from Equinor going forward. Just let you know that the process of finding her successor has already started. With that, I will leave the floor to Gyrid. She will take us through the financial status.
Thank you, Geir. Just find the right slides here. Thank you. Good morning, and thanks for listening in to our Q1 presentation today. It's only three weeks before the Capital Markets Day, 2nd of June, so I really look forward to see you all at the Grand Hotel in Oslo at that time. Yes, just to summarize some headlines from this quarter. We continue to deliver double-digit revenue growth with 11% for the Q1 this year. Strong development in order intake from new builds on top of continued high activity on aftermarket. The challenging situation around components, shortage and logistics are, however, forcing to make priorities. This comes to deliveries when it comes to deliveries. This means that some customers are experiencing longer lead time with us compared to what they traditionally have been used to.
All three key areas in Digital delivers ahead of plan with 15% revenue growth and 33% growth in recurring revenue. Two new assets for digital twin in operation in Q1, and we have now 10 digital twins in operation with a total of four different customers. In addition, we have several proof of concepts. Quarterly cash conversion is affected this quarter by an increase in working capital due to increased activity in Maritime and no significant payments from customers during this quarter in Defense. Still, we deliver a return on average capital employed of 32.6%. In February, the board decided to propose a record high dividend to the AGM.
The proposed is 15.3 NOK per share, total of NOK 2.7 billion, in addition to another share buyback program up to NOK 500 million. This gives a total remuneration of some 18.1 NOK per share. The last day of trading including dividends is tomorrow, the eleventh of May. As you can see, the ex-date is the twelfth of May. Some highlights from Kongsberg in total. Order intake in Q1 is in line with Q1 last year, and a book-to-bill of 1.06. Looking into our business areas, there are large differences between them. The main driver for the order intake this quarter has been Kongsberg Maritime. Maritime grew in order intake by 46% compared to Q1 last year and had strong growth in all divisions, both new sales and in aftermarket.
Defence is NOK 2 billion below last year, mainly due to NOK 1.75 billion contract with Lockheed Martin in Q1 last year. No major orders were signed in Q1 this year on Defence. In Digital, SaaS revenue continues to grow but is not part of our backlog. Digital will continue also with this solid performance. Driven by strong order intake in Maritime, we increased the backlog to NOK 50 billion. Out of this, NOK 17 billion are to be delivered during the remaining of 2022. All business areas deliver growth. 11% revenue growth both year-on-year as well as rolling twelve months. Maritime drove the growth with 14% increased revenue growth year-on-year. With NOK 28.1 billion in revenue over the last twelve months and a positive trend, we steer towards the 2022 revenue target of NOK 30 billion.
The EBITDA ended NOK 54 million below Q1 last year. This includes NOK 113 million in extraordinary employee appreciation and NOK 69 million in provisions related to sanctions against Russia. Adjusting for these two effects, the EBITDA is adding up to NOK 1,011 million, with a margin of 14.3% compared to 13.9% Q1 last year. OpEx in Q1 increased year-on-year as our operations are normalizing after COVID. Looking into the main drivers, the OpEx increase are higher personnel cost due to increased number of OpEx FTEs, especially R&D resources in Maritime and Digital. Professional services such as IT and R&D consultants are also increasing. Travel cost has increased somewhat, but we can clearly see that lessons learned during COVID makes us able to travel less. Let’s look a bit into the investments.
Kongsberg CapEx have traditionally been relatively limited, as an extensive part of the R&D investments are funded by our customers. However, to be able to deliver on our extensive order backlog while preparing for upcoming opportunities, in particular the defense area, it's crucial to continue the investments in production facilities combined with modernizing our IT systems. In 2020, a new production facility for air defense system was up and running. Last year, we started constructing new facilities for the space activities in Kongsberg. The space facility will be finished this summer, and later this year we will also start construction of a new facility for missile production to be ready for the expected increasing volumes going forward. In addition, we are planning an expansion of our current location at Rygge.
This quarter, we have invested NOK 152 million in property, plant, and equipment, of which one-third is for the previously mentioned space facility. On intangible assets, the investments this quarter has been NOK 71 million, out of which the majority is development in Digital. On our Capital Markets Day, second of June, we will present our new targets going forward. As opposed to previous targets, we will now focus on the EBIT level. Let's look at Kongsberg Maritime. Kongsberg Maritime had an all-time high order intake this quarter. All divisions had strong order intake, and the business areas backlog increased by some NOK 1.5 billion, mainly on the back of a growing order intake from new sales.
5.9 billion order intake in Q1 and 30% increase last twelve months is a clear sign of our ability to monetize on a stronger market. All the divisions, both new sales and aftermarket, increased their order intake. The aftermarket order intake has increased more than 50% since the bottom of the cycle in Q3 2020, just after COVID, and is currently at an all-time high level. Out of Kongsberg Maritime's 14.5 billion backlog, 8.2 billion is for delivery in the remaining of 2022, approximately 1.2 billion more than we had for remaining of 2021 a year ago. In addition, the aftermarket is, as mentioned, stronger than ever, and most aftermarket orders are not reflected in the backlog. This means we have a solid foundation for continued growth also in Maritime.
That said, the current world is challenging. Raw material prices are hitting both directly, for example, with regards to production of propellers, as well as indirectly through our sub suppliers. This also increased the total cost for the vessel and could reduce overall demand for new vessels. There have been no clear signs of this so far, but it is something to keep in mind. We also see longer lead time, as you can see on the chart here. We increased the long backlog beyond 2022. Look, for example, at 2024. This is partly explained by the component situation where we have to plan for longer lead time for some deliveries. 14% year-on-year growth in Q1 and NOK 17 billion in revenue last twelve months confirms the solid trend we saw from the orders on the previous slide.
The revenue increase comes mainly from aftermarket, where Maritime has increased with 35% over the last year. The growth comes despite a challenging situation, both with regards to logistics and to component shortage in certain areas. As mentioned on the previous slide, the situation forces us to prioritize. That said, we turn every stone to deliver every day. Reported EBITDA is on par with EBITDA in Q1 last year. Adjusting for the employee appreciation as well as the provisions we took with regards to the sanction against Russia, we see a solid operational performance and an EBITDA margin close to 2 percentage points higher than Q1 last year for Maritime. Even though Maritime's direct exposure to raw materials are limited, we see the increased prices, especially on steel in certain areas. For example, when it comes to production of propellers that I already have mentioned.
This has and could also going forward put pressure on the margin. The situation around components and logistics could also impact profits. That said, with the current trend, Maritime has both when it comes to growth as well as operational efficiency. At the moment I'm still very positive going forward. We are monitoring the situation very close, and we are taking lots of precautions to offset the challenges. Let's look into the Defence area. The Defence market consists of relatively few, but typically when they come large orders. We have seen several examples of this over the past years, especially in Q3 and Q4 last year when we signed the submarine contract with Norway and Germany, as well as several missile contracts.
In Q1 this year, order intake has been more moderate, with a few smaller contracts such as the one for pylon to F-35 program that Geir mentioned. Major fluctuations in order intake are normal in the defense market, so a low book to bill in Q1 is no worry. Looking at our backlog, the prospects for growth both this year as well as going forward are strong. We would currently have some NOK 1.6 billion worth of orders more to deliver in the remaining of 2022 compared to what we had the same period last year for 2021. The large orders signed in 2021 have also increased our long-term visibility. On our Capital Markets Day in June, we will show you that the future prospects are stronger than ever.
In Q1, we saw challenges with regards to the component shortage that delayed our remote weapon station deliveries. However, keep in mind that this is not orders that disappears from the backlog, but delayed deliveries. If you now look at the revenue, despite the delayed revenues from the remote weapon stations, Defence managed to grow their revenues by 5.2% compared to Q1 last year. This really shows that the Defence business is stronger than ever. Our rolling twelve months revenue are now at NOK 10.2 billion, and we have NOK 1.6 billion extra backlog to deliver this year compared to 2021. Adjusting for the previously mentioned employee appreciation, KDA or Defence EBITDA margin is still at a very strong 20%.
All the largest divisions in Defense except from Land Systems are delivering EBITDA growth higher than or at the same growth level as revenue. This assures me that the current operations are very healthy and that Defense will continue to deliver strong results. Keep in mind what I mentioned on the last slide, the current situation is challenging. Last but not least, the Kongsberg Digital. Kongsberg has high ambition for Digital, and Digital's current business plan aims for revenue of NOK 2.8 billion in 2025, as you already know. The revenue growth this quarter is 15% with 33% growth in recurring revenue. Kognitwin and Vessel Insight with own and third-party applications will be the main driver for this growth. Significant investments are currently being made to roll out new solutions and applications with substantial scaling potential.
In 2021, Digital increased the number of employees by more than 25%. The scale-up is the key to success in both developing and rolling out the platforms and applications and are seen as necessary investments to achieve our ambitions. Therefore, Digital also acquired Interconsult Bulgaria, a software delivery house, late April this year. The acquisition is strategically important to secure the people and capacity we need to grow Digital according to plan. Digital will continue to deliver negative EBITDA also in 2022 as investments in products, application development, and people are fundamental for growing our market position and rolling out our leading digital products and solutions. The current most important KPI we follow in Digital is the development in recurring revenue. The KPI has constantly improved throughout 2021, and last year, the share of recurring revenue was 42%.
In this quarter, recurring revenue increases even more with 33% compared to Q1 last year. In 2022, we aim to increase the share of recurring revenue to 50% while also growing total revenues. With that, let's take a short look at the outlook before the Capital Markets Day in three weeks. Okay.
Thank you. Thank you, Gyrid. Again, the Q1 results just presented by Gyrid tells us that our performance is strong and that we have a solid financial situation, which I think is a very good starting point for the onward journey for 2022. The positive trends from 2021 continues, but we expect more uncertainties related to logistics and components shortage. We are experiencing longer lead times and difficulties in getting hold of some components. This has, for instance, as mentioned already, led to delays in deliveries for the remote weapon systems. We are monitoring the situation closely and continually implementing measures. The higher raw material prices may also affect the demand for new vessels. The challenging raw material logistics and components situation may result in some fluctuation in the revenue in the coming quarters.
However, that said, we expect to continue a sustainable growth. More than NOK 17 billion of our order backlog of almost NOK 50 billion is for delivery in 2022. This equals an order coverage that is actually NOK 2.7 billion higher than it was at the end of Q1 2021. In total, we expect to continue growth in our operating revenues and are on the schedule to achieve our ambition for 2022, despite the turmoil related to the pandemic and Ukraine. Just a kind reminder that I really hope to see all of you in the Capital Market Day 2022. We will then give you some more insights, and you will also hear from our business area leaders.
By that, I say thank you for listening in, and I will ask Gyrid to join me for the Q&A session.
We have received a few questions from the viewers. The first two questions comes from Kenneth Sivertsen, Pareto Securities. The cash flow from operation is negative and offsetted by net working capital. What was the main elements in this?
We have very high activity in Kongsberg Maritime this quarter, especially from customers, so that was the main increase, and we also have very high inventory at the end of last year. We also have no large payments from projects and customers in Defence this year. If you look into this year, we can of course not manipulate what we will have from the Defence customers, because that are milestone payments that comes when the projects are exceeding some milestones. Again, we will continue to have negative working capital from Defence. From the Maritime, it has been around 10%.
I think that will probably increase a bit if the activities continues on Maritime.
With regards to the working capital going forward, given the component shortage that we experience, how do you see this impacting the net working capital?
At the moment, it hasn't been impacting at all, but it's on top of our wish list that actually we could increase this working capital in terms of components. If we get components, we just say, "Just buy them," so we are sure that we can deliver. Hopefully we will increase the working capital, but it's a lack of components all over the world right now.
A question from Eirik Hjertaker. In general, could you comment if you are able to forward the majority of the cost increases currently ongoing to the customers to protect profits, and how this market position is differentiated in the different business areas?
On the Defence area, of course, we have contracts that we are able to protect the margin. Again, if you have sub-suppliers that have challenges, then you, of course, have to change supplier and that could impact. In the large picture, there's no worries around that one. For Maritime, on the after market, we are following all the purchases out to the customers and but if you see on the steel prices, it's quite challenging at the moment in terms of the area for propulsion and engine and also the areas for deck and machinery or integrated solutions.
A question around the same subject from Hans-Erik Jacobsen, Nordea. With regard to the cost increase and increased raw material costs, et cetera, on contracts already in the backlog, do you have any mechanisms to protect profits here?
Yes, we already have. If you see a lot of the orders in the backlog on the defense side have already been secured, but then you have the Maritime where you probably have to have some delays on the deliveries and then you also have to maybe increase some margins on the things that you purchase.
I think if I may add, I think you know this is always a negotiation also that we are doing with our suppliers and right now we are trying to you know search for suppliers wherever we can and of course we are also addressing this with our suppliers. What we can in addition do is to work on our delivery so to further do an effective project supply. We are always focusing on the margins, not only for the components prices.
At the moment we have not seen any large differences, but we see it comes.
A question from Lukas Dahl. What is driving the strength of the aftermarket sales in KM? Any particular vessel segment or classes standing out here?
No, I think it's general, I would say. There is more activities out there. It's basically in all segments we see that there is more activities. I think we have been in a period now for two years in the pandemic. We have had some delays in, you know, upgrades, maintenance, so I think it's a general, you know, situation that we see a lift of the restrictions and the restrictions. Meaning that we are now able to do maintenance in a more normal way, and also the upgrades. Of course, we see more on the offshore side coming online.
I will not point at any specific market, but in general it's a lot of activities out there, which has built up over the last two years for the pandemic.
We have actually three persons asking the same questions here, and that is regarding the delays you have seen on Remote Weapon Stations. First of all, does this affect your margins? Secondly, do the delayed deliveries or are there any penalties related to delaying deliveries here?
What we do is that we actually produce weapon stations as far as we can with the shortage of the components that we lack for. We have delayed in the revenue recognition, but in terms of margin, there are no changes on that. It will occur later on the top line, but at the moment it's a bit delayed.
There is no penalties.
No
On this at this stage. We are working very closely with the customers to, you know, to speed up the deliveries and as Gyrid mentioned, we are working with alternative suppliers to get hold of the components that we need to finalize this. I think it will not affect the margins. It will just affect the revenues stream coming from the-
We are still able to finalize a lot of the weapon station, but not ready for deliveries because we lack the last components.
Okay. Another question around defense from Lars- Daniel Westby, SpareBank 1 Markets. How has tendering activity within defense developed in 2022 with regards to the current situations that we see in the world? Has it increased?
I think it's, you know, the activities has been high also in 2022 and a lot of these programs that we are working on is long-lasting, let's say, exercises for us to conclude on the projects. I would say that the attention around, you know, defense area has, I would say, increased the last months. I would say that the activities on the quotation side has picked up somewhat.
Thank you. That concludes the questions from the webcast.
Okay. Thank you so much for listening in today. See you at the Capital Market Day. Have a good day.