Good morning. My name is Hans-Petter Mellerud. I am the CEO of Zalaris. Pleased to also welcome our CFO, Gunnar Manum, who is here with me today for this webcast of Zalaris Q1 2023 results. We are using Teams for this purpose and hope that we will deliver on your expectations. There is a Q&A function that you can use to ask questions that we will respond to at the end of the presentation. Please observe that the presentation is being recorded. You will find a link to the recording on the investor part of our website. Without further ado, let's move on to the presentation. Let's first look at some of the highlights of the quarter. In Q1 2023, Zalaris delivered the fourth consecutive quarter with all-time high revenues of NOK 261 million.
This represents 25% as reported and 17% in constant currency year-over-year growth. We are very well-positioned to deliver on our target of generating NOK 1 billion in revenue for 2023 as a whole. Adjusted EBIT when excluding investments in building up our Asia-Pacific entity, which I will cover in more detail later, was 8.2%, amounting to NOK 21 million for Q1. This was up from 7.1% and NOK 14.8 million in the same period last year. Our EBIT program, as announced in Q3 2022, is on track. We are targeting an annualized adjusted EBIT of NOK 100 million by the end of 2023. Our success in the market continued with the signings of new long-term customer contracts.
We are way ahead of delivering on our sales targets, supporting continued 10% growth, with closing 75% of the annual sales budget end of this first quarter, with three quarters to go. All our regions finish the quarter with a strong pipeline of projects. New and significant agreements are targeted signed during the next quarters. Our robust model was proven through securing another year of historic low churn. In the quarter, we raised a 5-year, EUR 40 million bond loan at the favorable terms with strong interest in the market as part of refinancing the soon to mature or the already matured EUR 35 million bond loan. Within managed services, which includes our software as a service and outsourcing division, delivered, as previously mentioned, considerably above aspirations for growth in the quarter. In the quarter, we sold another NOK 70 million of annual contract value.
This amounts to approximately 75% of our sales budget for the year, securing our growth path in the quarters to come. In addition to Siemens spin-out, Innomotics, which I will cover in more detail on my next slide, we signed a number of new agreements with significant upside during the quarter. For Powerpack spin-out, with the ambition of becoming a leading global battery player, we shall deliver a global payroll solution supporting an estimated 10K employees covering the 5+ countries where they will establish operations. For Ericsson, we are expanding our Nordic relationship to also covering Hungary and their 3,000+ employees there. Expanding existing relationships is an integrated part of our strategy, and we have significant upside, estimated at approximately 5 to 6x our existing served employee base in managed services for this.
Ericsson alone has more than 100,000 employees worldwide, all which we are serving approximately 20%. Adding Hungary is one step in the right direction. We worked long and hard with one of the leading global retailers, having more than 100,000 employees worldwide, in securing a master services agreement that puts the framework for [call offs] in countries where that is. For Denmark, where we shall deliver people and payroll as a SaaS solution, covering their approximately 3,000 employees. At the end of Q1, we had a backlog of approximately NOK 105 million in annual recurring revenue from signings yet to go live and be recognized as revenue. All our regions finish the quarter with a strong pipeline of projects that we hope will be signed in Q2 and following quarters.
For Siemens spin-out Innomotics, we shall implement a complete payroll and HR infrastructure and service for 16 K-plus employees, covering the 46 countries in which they operate. This includes complete people and functionality for time and attendance and payroll, including our AI-powered solution for chatbot and knowledge sharing, Zally, seamlessly integrated. Integrated full suite of SAP SuccessFactors solution for master data maintenance and talent management. Much the same that we have delivered for Siemens spin-out, Yunex, that we won last year and is in production in all majority now. This is just larger. We cover all large employee populations with our people and payroll functionality. Small tail end countries will be delivered by partner that is fully integrated into our people concept, allowing the customer to see a consolidated global overview of payroll at all times.
As a result of the deal, we will establish Zalaris solutions in new countries as the U.S., China, Czech, and Chile that give us substantial capability to win other large global agreements. Innomotics is a good example of the deals that we are now winning on the base of good and comprehensive user-friendly solution in combination with flexibility to adapt to customer needs. Add to this local presence, either with own operations or through in-country partners, and they will introduce that we now serve. Let us look at the segments. Managed services with 24% as reported. 20% in constant currency to NOK 186.7 million. New contracts, up sale and volume increases grew with 26.4%, while the volume of change orders with 38%. Managed services accounted for 71% of our total revenue for the quarter, actually 70% in the same quarter.
It's time for professional services practice. Professional services revenue grew 9% and 3.7% in constant currency to NOK 75 million. Our professional services capability has been key to win our recent contracts and is increasingly also used to implement managed contracts on the basis of PeopleHub and our standardized template-based solutions. Most of the growth in this segment came from U.K., who grew with massive. Germany had a reduction 0.5% as consulting resources, increasingly is being used to implement managed services projects. Second observation, I think several and associate consultants contributing to healthier cost levels. In addition, we have significant resources in our Indian delivery centers. This still has some short-term impact on our margins, but increasingly allow us to increase change order revenue and contribute to reducing the use of expensive external consultants, resulting in part in EBIT.
Again, let me remind you, in professional services, we see that application maintenance services or AMS, helping customers maintain their payroll and HR systems, mostly on long-term or subscription basis, continue generating around 54% of the total revenue. We are progressing well in developing global AMS services as a group-wide offering out of our Polish professional services practice under the branding Zalaris Care. Our customers continue being visited through 89% of our Q1 revenue in this segment, coming from customers that were also customers in Q1 last year. We are on track with our EBIT improvement program, as communicated in Q3 last year. The program target NOK 40 million-50 million improvements in EBIT by the end of 2023.
Key elements of the program include: improve customer margin in Northern Europe through full implementation of Zalaris 4.0 operating model and nearshoring by the end of 2023, resulting in about NOK 8-10 million analyzed cost savings. We are well on our way with this with more than 25 FTEs of work being moved offshore. We do not yet see much effect on the cost side as these are being realized over the next months. Implement Zalaris 4.0 operating model and nearshoring for our German operations. By the end of 2023, resulting in NOK 8-10 additional savings. The Nordic operations are close to our target operating model of using 50% near and offshore, Germans using close to 0. In Q1, we reorganized our German operations to Zalaris 4.0.
Short-term, this is increasing our cost somewhat and is according to our plan. Medium-term, over the next quarters, we expect to see what effects our work is moved out of Germany and the organization is right-sized. Utilize existing capacity to serve new customers and additional change orders resulting in about NOK 5 million-NOK 10 million annual savings. Our capacity utilization is increasingly improving as we have been able to take on new volume without increasing headcount correspondingly. Resources freed up in nearshoring will also be utilized for this when possible. As an example, we were able to onboard insurer with close to 3,000 employees in Norway in January without adding more people. Add contribution margin from customers to go live, net of non-renewals with an EBIT effect of NOK 20 million. Yes, we are on the way with that.
With a number of go lives already or in Q1, we see the effect of that and also more to come in Q2. We'll reduce the use of external consultants and replace with own employees with 20%-25% lower costs, resulting in approximately NOK 5 million annual savings. We are still using a high level of external consultants, particularly in Germany and Poland. In addition to recruiting experienced people in the market, we are focusing on building new capacity from inside through structured trainee programs and activities to retain critical talent. To date, we have let go approximately 10 external resources in Poland and replaced this with similar resources in our Indian shared services at a lower cost. In addition, with the improved resource utilization from organizing professional services as a global business unit. This was also now done in Q1.
We are reviewing our overhead costs, targeting, maintaining or slightly lower our existing levels, and thus maintaining the positive scaling effect of increased contribution from our operating entities to our overall EBIT margin. Even though we have grown significantly over the last year, our group costs remain relatively constant with no additional headcount added. The sum of the above initiatives amount to more than NOK 50 million. We are confident that we, with active management, will achieve target levels. Our cost and margin focus will not stop with this program.
We are seeing what our best competitors can generate margins almost twice those of us and are naturally challenged to match these through additional focus on productivity improvements, automation, offshoring, and exploring scale effects from our organization, which we previously have communicated is capable of handling at least twice our current revenue level in a stable situation. Let me remind you again of what company Zalaris has become. Our business model with long-term agreements and recurring revenue is favored among many investors. We have offered software as a service, business process as a service, and outsourcing delivery models since we were founded 23 years ago. To reiterate, more than 90% of revenue in managed services and around 50% of our revenue in professional services is recurring based on long-term agreements. Our historic churn is low, in the 2%-3% range.
Delivering payroll and HR services based on one common IP supported by resources has been key to our success and 23 years of growth. We are being seen as one of the leaders. From the outset, our goal was to help customers reduce their direct process cost by 20%-30% by outsourcing their payroll and HR processes to us. At the same time, enabling them to operate seamlessly across borders. Our approximately now 1,100 employees deliver services from 17 countries. In addition, we can deliver 250 companies through partners with our PeopleHub concept. Our short-term aim is to deliver services with own solutions in the economic area and G20 countries. We see large companies across the globe prioritize investments towards solutions for ethical purposes, digitization of workflows, reduction of costs, and securing business continuity.
Working from anywhere has been the new normal, driving the need for fully digitized people processes. Team Zalaris is extremely well-positioned with our innovative product and services portfolio that cover the whole payroll and HR value chain. Our services are built around our PeopleHub concept, enabling customers to manage their human capital across borders in one common cloud-based system solution with functionality covering the full employee life cycle. The solution is offered as software as a service with various additional layers of business process as a service and outsourcing, and can be integrated to all major Global HR solutions. Our organization is structured in two business units. Managed services deliver solutions and services based on PeopleHub, ranging from software as a service to comprehensive outsourcing solutions. We can integrate to whatever global HR solution a customer has, including SAP SuccessFactors, Workday, Oracle, Cornerstone, CatalystOne, and others.
Professional Services is an SAP partner focused advisory and implementation of services of the SAP human capital management solutions as SAP SuccessFactors and S/4HANA product portfolio. Professional Services is also responsible for implementing new managed services customers. Managed services accounted for 71% of our revenue in Q1. Professional services produces the corresponding 29%. Again, this is a slide that reminds me of what fantastic customer base we have. Typically, midsize and larger companies with more than 1,000 employees and operating in 2 or more countries. We have a diverse portfolio of customers in most industry segments, some of the leading brands in the regions where we operate. Many of these with a significant upside in supporting them in continuing digitizing their people processes, simplify work life, and achieve more.
With this, I hand over to our CFO, Gunnar Manum, who will take you through the financial part of the presentation.
Thank you, Astri. The first quarter was the fifth consecutive quarter with all-time high revenue. The revenue for the quarter of NOK 261 million was an increase of 25% year-on-year and an increase of 17% when measured in constant currency. In the first quarter, 78% of the total revenue was invoiced in currencies other than NOK, and the share of non-NOK denominated revenue is gradually increasing. Approximately 70% of the reported increase come from new customers and upsale and volume increases from existing customers relating to monthly recurring services in Managed Services. The remaining increase comes from an additional change orders from customers in Managed Services and additional consulting revenue in Professional Services. Revenue in Managed Services increased by 20%, while Professional Services had an increase of 4% in constant currency.
Professional Services resources, particularly in Germany, are still being utilized on the implementation of new customers and change orders within Managed Services, which reduces the external revenue generating capacity within that division. New contracts signed in Managed Services during the quarter was an all-time high with annual revenue approximately NOK 72 million, and Managed Services contracts signed, but that are yet to go live, have total annual revenue of around NOK 105 million. This slide shows how these new contracts in Managed Services that are yet to be implemented and totaling NOK 105 million will impact the revenue going forward. In the top graph, we show on the left the current annual recurring revenue for Managed Services of NOK 664 million based on the annualized revenue figures for the first quarter.
On top of that, we have NOK 105 million in additional annual revenue for contracts that will be implemented. The contracted annual recurring revenue going forward is NOK 769 million. There is no material churn at the end of the first quarter. The timing for this additional net amount of NOK 105 million in annual revenue is shown in the bottom graph, with a new EUR 5 million contract with Innomotics planned to be fully implemented by the end of next year. On top of the estimated recurring revenue of NOK 769 million with the managed services, we normally have change orders of approximately 10%, that is NOK 77 million, and revenue from professional services and APAC of NOK 248 million, based on the figure for the full year 2022.
This gives an estimated future annual revenue for Zalaris of approximately NOK 1.1 billion based on signed long-term managed services contract and calculated using the average exchange rate for the first quarter. This is 33% higher than the total revenue for 2022. The adjusted EBIT, excluding APAC for the first quarter, was NOK 21 million, an increase of 42% year-on-year. The APAC region had a negative EBIT of NOK 2.5 million. The adjusted EBIT margin, excluding APAC, was 8.2% compared to 7.1% last year. The EBIT for managed service was NOK 23.5 million, which was NOK 8.4 million higher than last year. While the EBIT for professional services was NOK 10.3 million, an increase of NOK 3.5 million.
Adjusted EBIT has improved both compared to last year and the three previous quarters, but margins are still negatively impacted by the rapid actual and expected growth in revenue. The positive EBIT impact for this revenue growth will gradually materialize through 2023, together with our other EBIT improvements initiative, as covered by Hans Petter earlier. Moving on to some of the other key P&L items. With increased revenue and ongoing transformation projects for new customers, the number of FTEs have increased by 145 year-on-year. This, together with a negative currency impact from having more than 80% of our personnel costs denominated in currencies other than NOK. A majority of the new FTEs has come from near decreased by 4.5% year-on-year when adjusted for consumer.
Expenses were also negatively impacted by the currency movements, as well as an increased number of externals, the use of payroll partners such as BDO on global payroll contracts, and increased travel. Adjusted EBIT was NOK 18.5 million for the quarter. The NOK 12.8 million are share-based payment cost of NOK 2.4 million, and the amortization of excess value on acquisitions of NOK 3.0 million. The net loss for vyble included in discontinued operation was NOK 3.5 million for the quarter. Cost for vyble will be significantly reduced in the second quarter through a cost-cutting program that has been implemented. Net finance expenses were NOK 37.9 million, includes a currency loss of EUR 26 million, mainly related to the euro-denominated bond. Profit for the period was less negative NOK 32.5 million for the quarter, compared to NOK 42 million last year.
We continue to have this cash balance of NOK 124 million. Operating cash flows were -NOK 4 million from working capital changes. Investment mainly in system development of NOK 4.8 million. The net effect of the refinancing on the bond loan during the quarter was an increase in cash of NOK 40 million. The new EUR 40 million bond loan expire in March 2028. Net interest-bearing debt at 31 March was NOK 333 million. That concludes the financial section. I'll now leave the word to Hans Petter to give you some of our markets and outlook.
Again, thank you, Gunnar. This time, I will use the opportunity to talk about our investments in building up our tech presence and show what we are doing in the area of sustainability before I sum up. As part of our geographic expansion strategy, we decided to start APAC operations headquartered in Sydney, Australia in Q1 last year. With Putin going into Ukraine right afterwards and focus rapidly moving from growth to profitability, this was probably not the optimal moment. However, we have access to a super experienced team that could jumpstart our operations and decided to go. Over the last months, this has developed into a good toehold with 18 colleagues covering four countries that we have won 15 fantastic new customers to date.
We have made significant advances in revenue development quarter by quarter and are currently left to make break-even in Q2, reaching more than NOK 6 million in clear revenue and are targeting a black zero EBIT for the year. Our total investment since inception to date is around NOK 8.4 million. The subject to us reaching our target revenue for the year, we have developed a business habit of delivering on our EBIT target for around 3x EBIT or 0.3x . We have established presence in a substantial market that is of strong interest to our European-headquartered buyers and a team that also is contributing positively to the development of our global business. We are excited to follow the development of this investment over the next months. Go, go, Team Zalaris APAC.
In 2021, we took an active step in establishing sustainability as a key element of the Zalaris strategy, targeting building sustainability thinking into all our products and services. In fact, we also realized that quite some investors looked at us as an attractive investment that would fit under the sustainability category as our environmental footprint was low, our recurring revenue stream profitability is strong, combined with our focus on maintaining good employee work conditions through exporting our Nordic values to near and offshore locations. That as a key stakeholder in supporting customers' people processes, we could be an active player in supporting people-related ESG initiatives.
Over the past 12 months, we have launched our first direct ESG and sustainability focus solutions as part of our product portfolio, including automated business travel CO2 calculation as part of our People Flow travel expense solution. My Carbon Footprint maps functionality tracking employee computing, and dashboards for easy reporting and monitoring of aspects related to diversity inclusion and equality to support our customers staying in compliance to the Norwegian Activity and Statement Act and EU reporting regulations in the coming. To us, this is just a start, also making sustainability a good business for Zalaris. You can find more information on our work in the area in our recently published sustainability report. Again, arriving at our last slide, let us sum up. We have had a super start of the year.
With all-time high revenue reported, we are well on our way to become a NOK 1 billion company in 2023. New contract wins in Q1 and our reported growth was to pass our communicated 10% growth target. Remember, growth is coming mainly from managed services, our long-term recurring revenue machine, providing payroll services that everyone needs to stay in business. Targeted at 15% annual growth, but currently growing at more than 20% year-on-year. As you have seen previously, we see almost exponential growth coming from outside the Nordic home market as we are increasingly better known and our global solutions truly appreciate. With the EBIT improvements that we are seeing the effect of in Q1 and expect the result of our improvement program to deliver NOK 40 million-NOK 50 million of annual improvements by the end of 2023.
We maintain our target of delivering 10% EBIT and becoming a NOK 100 million EBIT company. As you can see, we are maintaining groups our overhead and centrally provided IT infrastructure, operating the PeopleHub platform relatively stable. Subject to maintain the current growth, we believe we can scale our margins further. Despite the mixed macro picture, it is key to remember that we are operating a resilient business. In macro environments with recession and crisis-like tendencies, we have seen in the past that demands for outsourcing solutions has increased as customers are focusing on their core business, looking to reduce and variabilize costs. We see some costs, inflation and wage pressure that are well protected through contracted price indexation clauses in the majority of our agreements.
In addition, we still have sufficient room for margin improvements in our customer agreements through increased automation and use of lost near and offshore resource. This will help us maintain margins in the event salary increases surpasses indexation of prices. The team Zalaris are very proud of our and really optimistic about the future. Thank you. Questions.
Yes. We take a question. Now, in the last quarter, you showed that the EBIT in Germany was significantly lower than the rest of the countries. Could you tell us a little bit more about how they are performing in Germany?
From, say, competitive reasons, we will not be sharing all the details from our countries on an ongoing basis. As we also showed you last time, the EBIT by the rest of the group, with actions taken, we are on our way, but we are still far away from reaching our target. We see the improvements that we have both targeted and planned.
Yeah, now the pipeline in services.
Without going into very much detail, we have an all-time opportunities both in our Nordic home market with some really interesting deals, but still continue to see the strong also inflow in the regions outside the Nordic, both in Germany, we see some very substantial opportunities size-wise with those that we have closed in this quarter and the same in the U.K.
Will you pay a dividend for 2022? I think I can answer that. The board has decided not to pay a dividend for 2022 to ensure that we are well within the incurrence test for bond loan, which is partly driven by the currency movements since the end of the year and to date.
Thank you.
That, unless there are no further questions, that concludes the QA session.
Okay. If you have a questions or you would like to have set up a separate meeting with us, do not hesitate to contact us on ir@zalaris.com. Thank you for watching and have a great day. Thank you.