Good day, and thank you for standing by. Welcome to the INVISIO second quarter 2022 webcast. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be the question and answer session. To ask a question during the session, you will need to press star and one on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our speaker today, Lars Højgård Hansen. Please go ahead.
Thank you very much, and welcome everybody to our second quarter and half year report for 2022. The summary headline we have chosen this time is a continued record high order book in an increasingly active market. That pretty well summarizes what we have seen so far for the first six months. If we turn to page two, there are a couple of highlights that we would like to address during this call. First of all, as I said, we see a continued positive market development. There is a lot of activity in all parts of the world within our markets.
Of course driven by the, let's say delays that we saw during the pandemic, but also partly driven by the war in Ukraine and the activities around that is now unfolding in many countries that we will get back to. Our order book is the strongest ever in the history of the company. At the end of the quarter, it was about 180% higher than last year at the same time. We also however still see issues with deliveries, component shortages, and logistics, and we will come back to that, so that is impacting our ability to invoice and our revenues. During the quarter, in the early part of the quarter, we had a new contract with the UK MOD.
As I said, due to the unrest and war in Ukraine, we have seen many countries announce larger defense budgets and more soldiers that will, without a doubt, increase military spending over the coming years. Last but not least, we acquired Racal Acoustics in the early part of 2021, and we can now say that we have finalized the full integration of Racal Acoustics functions into INVISIO Group. We are now truly operating as one company under two product brands. In connection with this, we have our first CEO of Racal Acoustics, James Ewing, is retiring now at the end of July.
We would take the opportunity here also to thank James for his great participation and contribution to both Racal and to INVISIO all the way up to his decision to retire. Let's go to the next page. The financial result for Q2 and the first half year. Our revenue for the second quarter was more or less the same as last year. As usual, our revenues are also guided somewhat by customer wishes and requirements. For the first six months, we are also more or less in line with last year. We would of course have hoped for an increase as usual and growth, but as we will get back to, we have been somewhat impeded in doing that.
Our gross margin is a little lower than last year and also as usual, this relates to the product mix. We have some of our new products that have really good and high gross margins, but they are not selling in large volumes yet. Some of our legacy products have a little lower gross margin. It is a little bit a broader picture of the product mix. We have also in the quarter, as in the previous quarter, been or decided to pay a little extra to get certain components quicker. Even though there are component shortages, we can still get certain components if we agree to pay a premium somewhere in the spot market.
We only pay the premium if we think the customer wants us to deliver at a certain time. Otherwise, this is money that we don't think we would like to spend until absolutely necessary. It is not a great amount, but we do buy some components in the spot market when needed. Our EBITDA and our operating margin is of course not satisfactory at this point. We have deliberately for quite a long time during the pandemic, I would say, continued to follow our plan and that is to grow the market, continue to develop fantastic new products and get them into the market.
Now that we have a full line of new products in all of our areas, including new control units and headsets, new solutions for mounted vehicles, new solutions for the intercom, then of course, we need to get them out into the hands of customers and spend resources selling these products. That's why we continue to expand and also see the increases in our operating expenses that we do. The order intake finally from the financial results is a little lower than last year. That also varies a little bit due to timings and so forth with customers.
I think we can see that the sort of level is quite consistent now for a couple of quarters, where we are around SEK 150 million without larger orders. This is also a development we have seen that we are less dependent on large orders, but the summary of small and medium-sized orders makes it up to, as we see this time, around SEK 158 million. There are potential other larger orders on top. We have then. That's a small typo I can see in the presentation. We are now at an order book of SEK 480 million for at the end of Q2.
That is the highest in the history of the company and about 180% higher than last year. If we turn to the next page, the order book and order intake, this is our usual curves here. We can see that the development in order intake has been positive for a number of quarters now, especially when you look at on a rolling twelve months average, we are seeing a good development for the order intake. We do believe that this will continue into the second half of 2022 for the many reasons that I mentioned, including our many new products and the sort of delay from the COVID pandemic that we are now seeing being released, and then also the war in Ukraine.
We have good hopes for the second half of 2022 regarding a continued strong order intake. That will, of course, also then impact the order book that we have seen have a good positive development for a number of quarters now. Part of this is, of course, also the Racal Acoustics acquisition. If we turn to the next page five, there are some various time perspectives that needs to be taken into perspective when we talk about the order book.
Our INVISIO branded products are normally delivered within two-six months, pending the current component situation, whereas products under the Racal Acoustics brand are sometimes a little further out because they are related to deliveries of vehicles, and therefore it is customary that the first part delivery are within the first six months, and then following deliveries are somewhere between 1-3 years, depending on the deliveries of vehicles. Going to the next page, as we said, the component shortages and logistical challenges are continuing to impact us. I think all in all, we are hearing that the situation is getting better in many areas. It is now less and less products that are impacting us or components that are impacting us.
They are to some extent available if we are willing to pay the spot market premium for them. It's just a decision and sometimes combined with customer wishes that decides whether we would like to pay the premium to get them quicker or whether we would delay the revenues a little bit. Sales per quarter and rolling twelve months have, of course, a slower development that we would normally want and expect for all the reasons already explained. The gross profit here the same, a little bit impacted by the extra money we sometimes pay for these spot market components.
We are still convinced that our target of a gross margin between 60%-65% is something we can do within a reasonable amount of time. That is our realistic target going forward. Page number seven. Yes, the activity level has been very, very high. Among other things, we participated in the Eurosatory trade show in France in June, one of the largest ones globally, and definitely the biggest ones in Europe. Our impression is that it was, if not record high number of visitors, it was close, and also the number of exhibitors were very, very high.
The activity level was high, and we heard about a number of, I would say also short-term, buys being concluded at the trade fair, including many countries looking at vehicles and other types of military defense systems that were agreed upon at the trade show. For INVISIO, the trade shows are normally not the place where we get orders. It's a place where we have discussions and meetings and presentations with many of our existing but also new customers. It's very important for us to be there. Then there's a lot of follow-up. We have been traveling and meeting with customers at a pace that I have not seen for a very long time, so that is encouraging, and there are a number of good opportunities out there.
Unfortunately, traveling costs have also gone up quite dramatically, and remains to be seen whether that will stay. We can see that everything from especially flight tickets and hotels, and so on is at a much higher level than just some quarters ago. That has impacted our OPEX during the quarter. We have a SEK 5 million, which we regard as a one-time cost related to the final integration of Racal into the INVISIO Group to work as I described, as one company with two product brands. We are done now. We have a fully functional organization in all areas.
We have a set up also in our sales teams, where we are focused on our customer areas of the dismounted soldiers, the mounted soldiers in vehicles, the intercom systems, and the law enforcement areas. We have four well-defined customer areas that we are now addressing with a very strong sales force. We believe that the investments we have been making in the organizations over a long period of time, including the pandemic, we have prepared ourselves for the market opening that we see now, and we are absolutely ready to take advantage of the many market opportunities we see ahead of us with our fantastic products and our great organization. Yes, I don't think I wanna say much more about that.
We are of course, not happy to see red figures anywhere, but we are all in agreement in management and the board that this is the right thing to do. We have continued to expand and invest during the pandemic. As I said, we are now better than ever prepared for the market that unfolds ahead of us. Going to page eight, in the early part of the quarter, we received a new contract with the UK MOD, a so-called in-service support contract that has been renewed with three years and an option for another two years.
This is a very important contract for us because it's a renewal of a contract that we received back in 2017, and that has so far provided us with orders for SEK 80 million. We believe that this new contract will continue to provide us with good orders over the coming three-five years. All in all, I would say also that we have a very, very strong market position in the U.K., of course, also due to our own company, Racal Acoustics, that per tradition is strong in the U.K. Turning to next page, everyone is of course aware of what is going on in Ukraine.
I think you've also all heard about the massive announcements regarding further investments in defense budgets from many NATO countries. This is not only massive investments in equipment, it is also investments in more soldiers. The investment in equipment is of course short term to support Ukraine, but it is also building up capabilities in the many NATO countries in Europe. It is also helping Ukraine at some point in time rebuilding their defense capabilities. We believe that the money going into our area over the coming years is going to increase significantly. It will take time.
In many countries, we can see that the increasing up to the agreed NATO spending of 2% GDP will take time, just for logistical reasons and for operating reasons. There's no doubt that this will play a huge role also for INVISIO because the need for modern communication equipment with hearing protection is great in many countries. We think that the fact that more money is now becoming available will also allow countries to roll out faster and invest quicker in some of the things that we can help with. We can also see as I said, from Eurosatory that there are many investments going into new vehicles.
This is of course where our Racal Acoustics portfolio and our intercom system is very well positioned to take advantage. In summary, on the next page, we continue to have a very positive view on INVISIO in general and also for 2022. There's no doubt that the supply and delivery situation in the first half has been very challenging, but we have seen a very positive pickup in business and in the order intake. We are still confident that we will see a gradual return to more normal conditions in the second half of the year and a continued strong intake of orders.
We do believe, and I also, when I read the news, can see from other companies in tech industries, that the component situation is slowly but surely returning to something more normal. We will continue to follow our plan, focus on marketing and sales of our many new product solutions, including our generation two control units, our new T7 headset, our RA5100 headset, the RA4000 Magna for vehicles, the new intercom systems, and many solutions we have for law enforcement. We will also resume our geographical penetration and expansion, especially in selected countries in Asia that has been on hold during the pandemic.
Now we can see a gradual opening here as well and some of the things we were working on prior to the pandemic are now starting to come back. In summary, INVISIO is very well positioned to benefit from the increasing defense investments we are seeing in many parts of the world. We believe that we will see a good start already in the second half of 2022 and in the years to follow. That concludes my short presentation of second quarter and first half year. Operator, we are ready to take questions please.
Thank you Lars. Dear participants, as a reminder to ask a question, you will need to press star and one on your telephone and wait for a name to be announced. Please stand by while we compile the Q&A queue. This will take a few moments. Thank you. Now we are taking our first question. The question comes through line of Jiewei Zhou from SEB. Please ask your question.
Hi Lars. Thank you for taking my question. I have a couple questions here on my side. I'll do one at a time. Firstly, you sound quite confident in the sales deliveries in the second half. Could you maybe put more color on the supply situation right now? Any early signs or improvements you are seeing?
Yes, we are confident at least, with the information we have today that the second half looks better than the first half. That is of course based on the orders we have and the inventory that we have already, but also the confirmed delivery of certain components that we can see during the second half of the year. All of those things together is making us confident that the revenue looks better for the second half of the year than for the first half of the year. I will not go into more details, but we think it looks better. It is starting to improve as I said. Then it's a matter of do we want it to improve even more?
Well then we can decide to buy more components in the spot market at a higher price. We won't do that if it's not necessary.
Okay great. Very clear. I guess the inventories also in the quarter increased to more than SEK 140 million. Is there any other indication, or apart from the?
That is of course, some of it is of course in to support certain orders we already have. Some of it is also what we do in anticipation of orders that we think we will get shortly, and therefore we are already trying to secure components and make certain products for it early, so we are ready. Once we get the order. Sometimes we have to remember that an order to a customer can consist of maybe 10 different products, and cannot ship until we have all 10 products in stock. For a certain period of time, we might stock seven of the products, and then, when we have the last three, then we can start shipping.
It's a combination of things, but it's a good indication that we are starting to see better access to components.
Okay great. A third question here is on OpEx. It's bigger ramp up in the quarter. Could you maybe just give some indication for the second half?
Yeah.
I believe it's like SEK 5 million non-recurring costs.
Yeah.
And, and-
Yeah. I would say that what we see right now is an organization which is fully functional and integrated in all areas. We are about 200 people in the group right now, and we think that we can handle a much larger revenue with this organization. We are, I would say, where we should be. There might still be one or two people here and there that we need to look at as the revenue starts to increase. We are not looking at massive increases in the organization. We have increased quite a lot.
I think that the uncertainty regarding OPEX right now is more related to the activity level as we see here, that it is difficult to estimate exactly, as we've seen in Q2, that the travel costs and other costs have been quite significantly higher than what we've seen in the past. But there shouldn't be any major deviations.
Okay, great. Thank you. I'll jump back to the queue.
Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star and one on your telephone keypad. Please stand by. We are going to take our next question from Guy from Pi Funds. Please ask your question.
Yeah. Hi. Excuse me. Hi Lars. How are you?
Hello.
Sorry. Excuse me. I just wanted to ask on the OpEx. If we step back a bit and look at INVISIO's OpEx sort of pre-Racal and COVID and then look at it now, you know, taking out some of the one-offs maybe, as a percentage of sales, where do you think you are, you know, sort of roughly. Just to give us an idea of what the sort of, you know, what your sustainable margins could be. Because obviously with Racal and all the new product development, some of that will roll off on the new products expenses. You know, Racal is now fully integrated. Just can you give me a sort of better idea of sort of your.
What do you think your margins will be and the OPEX spend going forward now compared to maybe what it was pre-Racal and pre-COVID? Thanks.
Yeah. I think that as I've said, the main challenge we have is getting our revenues up. There's no question about that. I think we will see strong order intakes. We will see a very good development in the business. We need to get our revenues up short-term and longer term. That is doable as soon as the component situation starts to improve. Of course, we still have our financial targets that we stand by, which is a growth of revenue of about 20% on average and with an EBIT margin not below 15%.
We are fully aware that we are deviating from that right now, but we've also done that on purpose because we are firm believers we are doing the right thing and we are preparing ourselves for, as I said, market conditions that are different from what they were, and there are many opportunities out there. We need to get back to those target levels. We should be able to do that.
Do you think it's with Racal with just higher travel expenses now, which maybe will be lasting, but you sort of need to do a little bit better on the leverage, operating leverage side than you might have had to before given a slightly higher maybe cost base?
Uh, yeah-
As a percentage, you know.
Yeah, I'm not sure how to answer that correctly. To me, I think again it's a mix of many different components here. It might also well be that the current expense levels we are seeing for travel and everything else will go back to more normal levels in a not too distant future when everyone is flying close to normal. I think, yeah. Our main issue again is to make sure we get the revenue up, really try to benefit from all the good products we now have to show to customers. We have not seen the large revenue numbers from Intercom yet, and we expect. We also see.
Yeah.
A great growth opportunities for the Racal portfolio with many new vehicles coming into the market that would be well suited for Racal. The law enforcement increasing very good everywhere. Our main focus is really to-
Yeah.
Get the revenue up.
Yeah. No, no, I totally understand it. It may gonna be mainly a function of revenues coming through. I'm just trying to work out, you know, is your cost base as a percentage of sales structurally higher now a bit than it was three years ago?
Yeah -
Yeah. Yes. It is.
Yeah. Yeah, yeah. Okay. All right. Thanks.
Thank you. The speaker that are on for the questions, please continue.
I'm sorry, I didn't get that. Is there no further questions?
No further questions at this moment.
All right. Thank you everyone for calling in, and hopefully talk to you again after Q3. Wish you all a continued great summer. Thank you. Bye for now.
That does conclude our conference for today. Thank you for participating. You may all now disconnect. Speakers, please stand by.