Good morning. I'm Hans-Petter Mellerud, the CEO and Founder of Zalaris. Joining me today for this webcast presentation of Zalaris 2026 Q1 results is our CFO, Gunnar Manum. Please note that the presentation is being recorded, and you can access the recording in the investor section of our website. In today's presentation, I will first walk you through the key highlights of the quarter. Gunnar will then provide a detailed review of the financial performance, and after that I'll return to discuss the outlook for our business before we conclude our regular Q&A session, where you can submit questions through the chat function. Let's start with the highlights. We are seeing continued strength in Managed Services, while Consulting slowed temporarily this quarter. That Consulting slowdown is the main driver behind the lower EBIT and margin versus last year.
Managed Services revenue was NOK 296 million, up 8% year-on-year in constant currency, and now maintains its revenue share of 80% from last quarter. Adjusted EBIT was NOK 42.3 million with an 11.4% margin. We are focused on restoring Consulting's utilization as activity normalizes. We also signed new long-term Managed Services contracts in Q1 totaling approximately NOK 75 million in annual recurring revenue. We continue to strengthen the balance sheet. Operating cash flow was NOK 11.5 million, and net interest-bearing debt is down NOK 26 million quarter-on-quarter to NOK 191 million. In Q1, we signed deals that increased ARR, as mentioned, with NOK 75 million, and we are delivering on the sales target required to sustain 15% growth in Managed Services.
Momentum is improving because customers are prioritizing digital transformation, increasing focus on core activities and cost reduction, exactly where our managed offerings create measurable value. We also have strong confidence signal from the pipeline. Agreements are in contracting and signing phase. We are seeing more deals with targeted signature within the next three months. We have a clear proof points from some of the larger wins we secured in the quarter. NAV Public Sector SaaS payroll and HR for 24,000 employees in Norway. U.K. headquartered customer with multi-country outsourced payroll for 6,000 employees across EMEA. Swiss MedTech, five-year outsourced payroll for 6,000 employees in Switzerland and Germany. A German carve-out, five-year global payroll, time and absence, travel expenses and HR for 1,200 employees. Next, we will convert the near-term pipeline, deliver these contracts and build ARR consistently throughout the year.
On the 13th of March, we announced a voluntary cash offer for Zalaris. The offer was launched on 15th of April, and the offer period runs from 16th of April to the 30th of April, that is this Thursday. The Board of Directors has unanimously recommended the offer. The key terms are NOK 100 per share with a minimum acceptance condition of more than 90% of the outstanding shares. As a result of the offer, the Board intends to propose that no dividend is paid for the financial year 2025. Shareholders should refer to the offer documentation and related stock exchange releases for full details. If you have not received information directly, then you will find a link to the offer and a description on how to accept it on the Zalaris website. That is the IR pages, ir.zalaris.com.
We will continue to keep the market updated as the process progresses. Those were the highlights. Let's have Gunnar going through our financials.
Thank you, Hans-Petter Mellerud. Our Managed Services revenue grew by 6.5% year-over-year, reaching NOK 300 million and accounting for 80% of our total revenue. When adjusted for currency effect, the growth was 8%. We achieved a Net Revenue Retention of 104% year-on-year in constant currency. And we saw good growth in all regions, with Germany growing by 9%, Northern Europe by 5%, and U.K. and Ireland by 57% in local currency. Managed Services Adjusted EBIT for the quarter was NOK 48.8 million down NOK 5.9 million from last year. Mainly due to higher business development costs, including sales commission from securing NOK 75 million in annual recurring revenue in the first quarter, expanding market presence into BeNelux and other growth initiatives.
Zalaris Consulting had a weak quarter, with revenue down 18% year-on-year and 15% in constant currency. This revenue reflects lower activity in Germany and Poland following the completion of several large projects last year. With lower volume, Adjusted EBIT was slightly negative at NOK -0.7 million, also impacted by the continued business development investments that we are maintaining to support the pipeline and ensure future growth. Zalaris Consulting continues to support Managed Services growth, especially in Germany, and most regions are experiencing high utilizations since reduced revenue has been offset by relying less on external consultants. The condensed profit and loss slide provides a detailed overview of our financial performance, highlighting our key cost components. The increase in license cost is attributed to higher revenue from our payroll and HR solutions, which incurs license costs, including SAP SuccessFactors.
The increase in personnel costs was mainly due to annual pay increases from July last year, less cost capitalized to customer projects of NOK 5.6 million, and a small increase of 12 FTEs. Other operating expenses decreased by NOK 8 million and was mainly due to less use of external consultants in Zalaris Consulting. The EBIT was NOK 29.3 million for the quarter compared to NOK 41.7 million last year. Net financial expenses were NOK 3.6 million, which included a currency gain of NOK 9 million. Interest expenses were reduced by NOK 5 million year-on-year, mainly due to the improved terms after refinancing in Q4. Net profit for the period was NOK 25.8 million compared to NOK 25.5 million last year.
Our net operating cash flow was NOK 11.5 million for the first quarter, which was approximately in line with the figure last year. During the quarter, we reduced the amount drawn on the revolving credit facility, which replaced the bond loan in the fourth quarter last year by NOK 34 million. The net interest-bearing debt as of 31 March decreased by NOK 26 million during the quarter to NOK 191 million, which converts to a leverage ratio measured by the interest-bearing debt divided by the Adjusted EBITDA of 0.7, down from 0.8 the previous quarter. Now that concludes the financial section, and I hand over to Hans-Petter to present the outlook.
Thank you again, Gunnar. Let's now turn to our positive outlook for Zalaris. We continue with strong revenue visibility for 2026 and onwards. These graphs show our expected Managed Services revenue growth based on signed contracts under implementation, excluding known churn with strong visibility and a projected increase of more than 6% versus fiscal year 2025. The gross ARR effect from new agreements under implementation is NOK 119 million. Due to a large customer's scope reduction referenced in our Q3 2024 report, the net effect is an ARR increase of NOK 53 million. On top of recurring Managed Services revenue, change orders are approximately 12% of recurring revenue. Zalaris Consulting delivered NOK 337 million in revenue over the last 12 months, supporting an estimated minimum future annual revenue of NOK 1.59 billion.
Looking ahead, there is an upside from higher Zalaris Consulting revenue versus 2025 and additional new contract signings in Managed Services in the coming months. Our communicated target is 10% organic growth, driven by Managed Services of 15% and Consulting 5%. That takes us to about NOK 2 billion in annualized revenue by end of 2028, with an EBIT margin of 13%-15%. As we scaled, Managed Services increased from roughly 80% of revenue today to around 85%. Growth won't necessarily be linear because contract sizes vary. Based on our track record and our constantly improving market position, supported by industry analysts' coverage, we see this trajectory as both realistic and beatable.
Our strategy remains anchored in three pillars: multi-country payroll for the mid-market and enterprise customers. HR services and our global capability center offering. And a full suite of SAP consulting run as a global business unit with a strong base of recurring and recurring revenue from application maintenance services. To deliver, we're balancing new logo wins with account expansion while extending into new geographies. Our ambition is a footprint across all G20 countries with full Western European coverage as the first milestone. Setting up our business in BeNelux in this quarter is another step in this direction. On the financial path, 2025 revenue landed at NOK 1.5 billion and around NOK 100 million is already secured for 2026. Combined with expected net additions beyond contracted churn for 2027 and a strong pipeline, we believe the target is well within reach.
We did experience project execution challenges and cost overruns in APAC in Q4. Corrective measures are in place now in Q1, and we're back on plan with additional improvements in the coming. Looking ahead, margin improvement is driven by AI and automation, continued execution and scale. Hitting 13%-15% EBIT implies NOK 260 million-NOK 300 million by 2028. As I'll outline next, our ambitions go beyond that range. For 2026-2028, we are targeting 10% annual productivity improvements driven by digitization, process standardization, and a structured AI deployment across our delivery model. We have already started adjusting capacity in parts of the organization to reflect this trajectory. These efficiency gains are expected to more than offset the incremental cost of migrating our SAP infrastructure to SAP Cloud.
Our objective remains clear to deliver profitability within our communicated 13%-15% EBIT margin target, with potential for margin expansion beyond this range over time as productivity and operating leverage continue to build. To execute, we have launched a company-wide program to make AI a daily productivity tool, supported by mandatory training and clear governance under our CTO. In Managed Services, all core processes are under review for AI-enabled automation, with several already digitized and partially automated. AI is being applied across sales, support, software development, and project execution. Our shared services model lets us leverage AI investments across a multi-customer base, increasingly positioning our delivery model as SaaS. All initiatives are governed by defined business cases and strict oversight. And we operate fully within GDPR and EU AI Act frameworks with data governance and security embedded by design.
Finally, we benefit from SAP's embedded AI in SuccessFactors and S/4HANA, allowing us to capture ecosystem innovation with efficient allocation of capital. Let me conclude with the key takeaways for Q1 2026. First, we had an all-time high Q1, maintaining Managed Services momentum. With Consulting temporarily under-delivering on revenue and margin, the overall result was on the lower end of our target. Managed Services revenue was NOK 296 million and represented 80% of quarterly revenue, underlining the strength of our recurring model. Second, our commercial momentum and visibility continue to improve, with new long-term Managed Services contracts adding NOK 75 million ARR, securing NOK 53 million increase in ARR after no churn when fully implemented.
Third, we remain firmly execution-focused with AI deployment supporting our 10% annual productivity target, and we are working toward the ambition of a NOK 2 billion run rate revenue and adjusted EBIT of 13%-15% by Q4 2028. We do, of course, remain attentive to the Zalaris Consulting slowdown that hit revenue and EBIT this quarter, and we will continue to bring that back on track. Lastly, we have exciting days ahead with a voluntary cash offer of 100 NOK per share, which is concluding on Thursday the 30th this week. With that, I will stop here and open for the Q&A. Gunnar, do we have any questions?
We do not have any questions, Hans-Petter Mellerud, so maybe you could just, on the final note, just remind everyone of the details around the voluntary cash offer.
I think the key element is you should all read the offer material that you'll find on our website, unless you have received it. If you like the offer, you should be sure to read how to accept it. If you're an investor located in Norway, there's also a link on our website that will make it easy for you to accept in a digital process. I think with that, thank you for your attention and have a great day. Thank you.