Hi, and welcome to Norbit's first quarter presentation for 2023. I would like to welcome Per Jørgen, CEO, and Per Kristian, CFO, for today's presentation.
Thank you, Jeppe. Thank you for taking the time to follow our first quarter presentation. I'll give you some walkthrough of the numbers, then I'll leave it to Per Kristian to give you some more detailed insight. The first quarter for 2023 was another record for Norbit. We delivered a revenue growth of 60% compared to the same quarter in 2022. This is driven by strong demand in all three business segments. We improved the revenue. We also improved the margins, shows the operational leverage, which is inherited in the company.
It's for us working on a daily basis, and this is good to see that we were able to deliver more than NOK 100 million in EBITDA result, and the margin is at 28%. We think we're in a good track to reach our target for this year in delivering more than NOK 1.4 billion. Looking on this table showing all quarters from Q1 2020, you see there is some quarterly fluctuation, and that's part of the nature of our business, so that's expected also going forward. We think we're in a good trajectory to continue to grow. Going into the segments, so Oceans delivered a strong quarter, NOK 136 million in revenues with a 36% EBITDA margin.
This is mainly driven by increased sales of sonars. We'll give you some more insight to the revenue split afterwards. The composition of the revenues shows that the main in the business is two sonar families. The first sonar, which has the name iWBMS, and the second that we have had for a couple of years now, the WINGHEAD sonar. As you can see, the WINGHEAD has contributed highly to the growth, going from $18 million to $61 million in revenues. Still also, the iWBMS contributes to the growth, going from $43 million to $58 million. This is really what we're trying to do with these two families, to differentiate them and show that they continue independently of each other.
The strategy in Oceans remains that we want to broaden the product offering. We have a very strong market organization able to fuel more products. With these two sonar families, we are tailoring some special variants that fits the different use cases and the different users. During the last quarter, we released a couple of new versions, showing here one of them, which is the WINGHEAD, for deep sea applications. It's rated to be used down to 1,500 meters depth to be mounted on a ROV, and you see some example of a picture taken with the sonar. It's for some pipe survey. Going into Connectivity.
Connectivity has also a record quarter, having a growth going up from NOK 64 million in revenues to NOK 136. It's a steep growth. It's more than a doubling. We also get the margin improvement, so NOK 47 million in EBITDA result. I think in this quarter, we have seen that our new strategy, which started some years ago, migrating the On-Board Unit business, the toll tag business from a tendering business into a business-to-business sort of business, has yielded good results. It's a growth from NOK 15 million up to NOK 90 million. The remaining part has also been good. Also during the quarter, we have a record high order intake in Connectivity.
We announced in January, contract for from a European insurance company on On-Board Units for NOK 150 million to be delivered first half this year. That's already part of the numbers in Q1, and it's also with us in Q2. We announced more recently a new contract on NOK 270 million on On-Board Units to be delivered over a two-year period, starting in Q2, 2023. We have signed a new contract with the Norwegian company Fremtind Services, which is owned by the insurance company Fremtind. It's an undisclosed amount, and it's a good contract. Even it's by the nature of not disclosing it's much less than the others.
The latest announcement is a record for Norbit. It's the largest contract ever announced, where we announced to have a new contract with a estimated value of more than half a billion Norwegian kroner to be delivered from 2024 until 2029. It's been a very interesting quarter when it comes to getting new contracts into Connectivity. In Product Innovation & Realization, we've delivered revenues of 112 million NOK with a EBITDA margin of 16%. It's worth mentioning that the rate of reimbursement of extraordinary material cost has gone significantly down. During a very challenging component market, some extra cost that we had to pay to get certain material has been put on the table of the clients without any margin.
That yielded for NOK 14 million in 2022, down to NOK 4 million in 2023. We think that's a very good sign, showing that the component market is developing in the right direction. With that, I'll leave the table to Per Kristian to give us some more flavor into the financials.
Thank you, Per Jørgen. Revenues in the first quarter amounted to NOK 376.7 million, representing an increase of 60% from the corresponding period of last year. Segment Connectivity and Oceans delivered 114% and 68% growth, respectively, while segment PIR delivered 14% growth. EBITDA for the quarter was NOK 104.3 million, compared to NOK 43.9 million in the first quarter of 2022. This represents a margin of 28% and 19% respectively. Operating profit was NOK 78.5 million in the quarter, while net finance expenses was NOK 8.3 million. Of that number, NOK 6.4 million relates to net interest expenses. Tax expenses were NOK 18.3 million, while net income in the period was NOK 51.9 million.
In the first quarter, all three segments delivered result improvement compared to the corresponding quarter of last year. Segment Oceans reported 68% increase in revenues on the back of strong sonar sales. Gross margin was 71% in the quarter, a slight decrease from the corresponding quarter of last year. However, the margin was higher than what we have reported in recent quarters due to lower share of commission sales, as well as a favorable product mix. The increase in gross profit was partly offset by an increase in operating expenses, mostly due to an increasing strengthening of the organization. In Connectivity, revenues more than doubled on the back of strong On-Board Unit sales, supported by the recent NOK 150 million contract awarded, as Per Jørgen mentioned.
Gross profit increased largely due to revenue effects, as gross margin declined 9 percentage points on revenue mix with DSRC sales representing an increasing share of the total revenues in the quarter. The EBITDA ended at NOK 47 million, representing a margin of 35%. In segment PIR, revenues were up 14% year-over-year. However, adjusting for customer reimbursement of extraordinary material cost, revenue growth was 28%. Gross margins remained more or less on par with out of last year, adjusting for this effect, which led to an increase in EBITDA, although partly offset by an increase in operating expenses as a result of higher payroll cost, maintenance expenses, and warranty provisions. Property plant and equipment decreased NOK 3.8 million in the quarter as depreciation offsetted investments in machinery and equipment. Intangible assets increased NOK 20 million to NOK 278.8 million.
Of that increase, NOK 16.2 million relates to the acquisition of CPS, mostly due to fair value adjustments. Inventories increased NOK 29.3 million in the quarter, while trade receivables decreased NOK 13.3 million and explained by more receivables sold under the non-recourse factoring facility. Trade payables was NOK 158.7 million in the quarter, up from NOK 132.6 million at the end of the year. Net interest bearing debt stood at NOK 217.4 million at the end of March, a decrease from NOK 295.6 million at the end of December due to free cash flow generation. Our equity ratio was 53% at quarter end. In the first quarter, our net interest-bearing debt to EBITDA ratio decreased to 0.8x from 1.4x at the end of December.
Our balance sheet remains strong. We have a solid liquidity buffer of NOK 520 million to support our organic growth ambitions, pursue strategic acquisitions, as well as distribute dividends to our shareholders. Lastly, the cash flow for the quarter. Cash flow from operations was NOK 109.9 million, explained by an EBITDA of NOK 104.3 million, a net decrease of NOK 20.9 million in the working capital, NOK 8.3 million in net finance expenses, and NOK 7 million in taxes paid. We invested NOK 24.1 million in the quarter, primarily explained by NOK 15.8 million in R&D investments, NOK 5.8 million in investments in machinery and equipment, and NOK 2.4 million in net cash outflow from the acquisition of CPS.
For 2023, we continue to expect that we will invest between NOK 60 million and NOK 70 million in R&D, primarily allocating capital to the Oceans and Connectivity segments. Investments in fixed asset are anticipated to still be between NOK 35 million and NOK 45 million for the year as a whole. Cash outflow from financing activities was NOK 86 million in the quarter and is explained by repayment of debt and leases. I will give the floor back to Per Jørgen for his outlook remarks.
Thank you. Looking in the short-term outlook first, we have delivered a very strong Q1 in Oceans. We're quite confident that our target of delivering revenues in second quarter on the same level as second quarter last year, which was the best quarter that year. That's our guidance for Oceans. In Connectivity, I showed you the strong order intake, which is really a good basis for the continued development of Connectivity. We expect to deliver revenues in the range between NOK 150 million and NOK 160 million in second quarter from Connectivity. The demand for manufacturing of electronics is still high.
It's a lot of companies now are eager to manufacture in Europe and in Norway and with Norbit. We see a good basis for growth. We expect in second quarter to deliver between NOK 90 million and NOK 100 million in revenues compared to NOK 78 million in the corresponding quarter in 2022. These numbers adjusted for customer reimbursements. In the long-term targets we announced in Q2 2021, a target for 2024 to be in excess of NOK 1.5 billion and with the EBITDA margin of 25%. Last year, we started the year with a guiding of NOK 1 billion, and we increased that during the year and delivered nearly NOK 1.2 billion.
We today reiterate our target for this year to be in excess of NOK 1.4 billion in revenues and to take steps towards the margin target announced for 2024 to be in excess of 25%. This is organic targets. In addition to this, we continue to be searching for good opportunities to do inorganic growth, which would be in addition to this.
Yeah. We have received a couple of questions. Also like to remind you that you can still ask questions on the right side of the webcast. We'll wait for a couple of more. I can just start with my questions. If you look at Q1 for the Oceans segment, it's usually a pretty weak quarter. You had a significant increase in sonar sales. What's the driver of this?
Looking into this, we see that the nature of the sonar business is quite low volumes, and one system has a quite high price tag. It might be some systems that slipped from Q4 into Q1. And we see that some of the recent announced units, like the deep water system presented today, has had good sales. It's some of these elements which explains that we have a very strong Q1.
Yeah. If you look at the WINGHEAD
Is it any danger of that cannibalism or steal sales from other sonar products?
there is always, some risk of that. Until today, we see that we've been able also to continue to grow the iWBMS. I mean, if someone chooses to buy a WINGHEAD instead of iWBMS, we can live with that. It's a higher price and equally good margins.
Yeah. If you look at monitoring and security, it's been highlighted at least in Q4 that demand was strong in the quarter. If you look at this quarter, we saw a decrease in the security segment within the Oceans. What's the driver of the decline?
I think when you look into the security, this is a business that we've just started with. We have been delivering on some of the very first projects, building up references to ensure to be relevant in this field. We see a lot of interest, but the selling time is very different from the sonars. This is more, it's much more solutions that is very much tailored for installation in different parts. I think a lot of the clients that has shown interest for this are a little bit uncertain what they should have and how to work on this. We still expect this to be a good add-on on the growth, but it takes some time.
We can expect improved growth in the quarters coming?
We're working hard every day to get all these good leads transformed into orders.
Yeah. If you look at profitability and the margin improvement within the segment, is that driven by product mix or price adjustments or anything else?
Generally, as I commented, on the financials, it's primarily related to a much higher share of the sales being done directly where we don't have a commission. It's like also to remind you that the audience that we have a go-to-market model where a substantial share of the sonars we sell are done through distributors and partners, and they earn a commission on that. In Q1, more of the sales was done directly where there's no commission. Also, the product mix was quite favorable, so we were able to sell more high-margin sonars, compared to the average of what we have done in recent quarters. Those two effects explain most of that positively.
Can we expect more direct sales going forward too?
That's really difficult to say. I mean, it will certainly fluctuate between quarters. In April now, we made an announcement where we have acquired our distributor and reseller in North America for the sonar business. That's partly a strategy that we've had that we would like to invest more in that part of the value chain. Obviously once we own that part of the value chain, that will also help in terms of profitability because we then will sell directly rather than to that distributor.
Okay.
You will probably see some effect of that over time. But generally it's difficult to guide on how that will fluctuate throughout the different quarters.
Yeah. If you move over to Connectivity, you had a steep sales growth of more than 100%. Most of it was through the On-Board Units. Could you elaborate on how the business have changed to more insurance customers?
I think as mentioned, the nature of this business used to be very much public tendering. We see in several European countries that it's now more privatized and insurance companies enters the arena. I think their reason for doing this is that they are working very hard on strategies going beyond insurance. They have a very large client base, and they want to be relevant for the clients, not only sending a invoice on the insurance policy. Issuing the toll tags, collecting the tolls is a step in that direction. For Norbit, it's very attractive.
Through this, being their partner, delivering the DSRC On-Board Units, we establish a relation that could form base for Norbit to, in the Connectivity space, to be a relevant technology partner also in other domains in the long term. That's very interesting. The DSRC is then for us an enabler to broaden the segment.
Most of the sales are within Europe. Do you expect maybe countries outside Europe to follow suit?
It's the Connectivity business is very European. We do have some sales in some other countries, but this has very much to do with the standards you need to comply to. This is European standards. There is some countries in South America and in Asia also applying the European standards for this use. As of today, our main focus is on Europe, and it will remain that for a period. That's. We're very much set up to do that. The Oceans is quite different. That's a very global business, and will remain very global.
How is effects affecting sales and margins?
Well, I mean, a strong dollar and euro towards Norwegian krone as a company that exports 80% of our products and services is obviously a quite good position to be in for the moment. Generally, we are long euros and short dollars. That has an effect of obviously how much we purchase of the components and how much we sell. In Q1 now, of the 60% of the revenue growth that you saw in the quarter, roughly 10-15 percentage points of that growth was due to FX.
As again I said, that I would like to remind you that we also have increasing costs, because we buy components in foreign currencies as well.
How is the component market? How is the development in that market, and are you still following the strategy you introduced last year?
I think, as shown in the Product Innovation & Realization segment, the customer reimbursement on extraordinary material cost is coming down. I think that's a good indicator. Our strategy of keeping security stocks is now being adapted. We will continue to have security stocks to ensure that we both can safeguard the supply on existing contracts, but also I think, if you look on the contract announced 2nd of January, NOK 150 million in revenues first half, if we were to start to secure material, the day after announcing this, it would be impossible to deliver on that.
On the high margin products with Norbit branding to an end market, we will continue to have security stock to enable that we can jump on opportunities when they are mature. We will adjust some of the parameters in the strategy to see that we could over time reduce the working capital.
Good. We have a few questions from the web, too. Could you please elaborate on the guidance for 2023? How do you expect the first half of the year to be compared to second half?
Well, I think We haven't moved into to the specific other than the short-term outlook that we have provided. I think that was quite clear in the section that Per Jørgen addressed. You should expect some that to be in line with the guidance that we are providing in the short term. Then we have provided a guidance for the full year. We haven't said too much about H2 yet, but implicitly we have from the guidance that we have given. I leave it up to each individual to assess the outcome of H2.
Yeah. Looking at last 12 months, you already above NOK 1.3 billion in top line. Yeah. From Knut-Erik Løvstad, could management elaborate on what seems like vertical integration of both sales and suppliers in the Norbit ecosystem, potential for economic of scale shared with customers in a win-win relationship?
I think this has been part of the Norbit DNA always. I mean, it started back in 2009 when we acquired our Røros factory, which before 2009 was a Kitron entity. I think one thing is to have better control in the value chain and have some more of the margins in this, but it has very much to do with the belief that to be able to make something very relevant for your clients, if the R&D top-notch engineers works very closely with production process engineers and that someone in the market with the Norbit logo on the T-shirt brings relevant domain knowledge. If you could bring all this together, we're better set up to be relevant. Of course, it's more complex, but it's worth the complexity.
Yeah. Good answer. Could management elaborate on how they increase profitability or know probability that unique Norbit culture scales well with the scaling of the business in general?
Yeah, that's a, that's a very interesting question. We have it very high on the agenda. In the risk assessment process we'll always keep red, the fear of diluting the culture because we think the Explore More culture with, we deliver in the DNA has been so important for us. We're very humble that this is not easy to maintain with growth. Probably that's the best way of trying to keep it.
From Kenneth Sivertsen, Pareto Securities. I guess you touched on this, but could you please provide some brief comments on FX impact on margins? Any segments affected more than others?
I think I gave sort of the bigger picture when in the last questions that came. If you look on the different segments, you have Oceans, which is a dollar and euro denominated business, but mostly dollars. It's a dollar-exposed segment. Obviously it benefits from a strong dollar versus the Norwegian krone. Connectivity is has top line revenues of in EUR for the most parts, but also source components in EUR and USD. Generally a strong EUR would be beneficial in Connectivity. In PIR we base our income mostly in EUR and Norwegian krone, but we source a lot of components in USD.
In that regards, a strong dollar is not positive. But for the group as a total, we obviously monitor the euro/dollar quite heavily, and that has developed quite well over the recent year or so. Numbers are impacted to a certain extent by FX, but mostly on the top line and partly on the margins.
Yeah. Another one from Kenneth, regarding change in net working capital. Could we expect more relief in Q2 and H2, or would revenue growth take its toll?
The different components to the working capital, when it comes to inventory, I think it's important to remind everyone that we have now been in a quite distressed component market for the last close to 2.5 years. Now we see that over the last months that that market has normalized a bit more, there are still issues in the value chains concerning certain semiconductor components going into the automotive market. The component market is healthier, but it's not, it's not green lights yet, which means that we will still maintain inventory stock.
Our goal is over time, as we translate that into higher turnover of the inventory, we'll gradually reduce the inventory, and that's part of the strategy as well. That will take time to flush out, because when we order components, we did that six to nine months ago, so things will gradually evolve over time.
Also linked of or in the different segments, also linked of inventory stock or component stock?
That depends. Well, that certainly varies. I don't want to go into too much details around that, but generally we see potential of reducing the inventory. Our ambition over time is to gradually increase that inventory turnover and optimize the working capital.
We have received a couple of questions on the revenue ambition or target. Isn't 2024 revenue of NOK 1.5 billion overly conservative? Why so cautious on year-over-year growth?
I think when we announced this target, Q1 2021, showing a doubling, a lot of the comments was, "Isn't that quite ambitious?" I think, as of today, we've reiterated our ambition for this year, and when we have a new ambition for next year, we will announce that.
Yeah.
Yeah.
Sounds fair enough.
Yeah. Yeah.
Are there any new products being added or in the pipeline to the Oceans portfolio?
I think, we're continuously working on broadening the product offering, and, we're investing time on our brilliant engineers, so, every day. That's really how we grow, so to expand the addressable market rather than fighting for market share.
Good. We have a last questionnaire from Audun. Is it possible to elaborate on the market position in Oceans, competitive landscape, and more?
Yeah. As I think, for the sonar part, if, which is the main part still, the main competitors is Kongsberg, it's the Teledyne-owned company RESON, and a U.S.-based company called R2Sonic. I think what we've done these years we've been in this market is that we're really trying to find ways of tailoring solutions, opening up that new users in new use cases, can take benefit from using this multibeam sonar technology, and rather doing that than trying to compete via a price war with the other competitors. That's been working good, so we continue to do that.
Yeah. Good. I think that's all the question for today.
Yeah.
Thank you so much.
Thank you.