Welcome to Sectra's financial report presentation with CEO Torbjörn Kronander and CFO Jessica Holmquist. My name is Helena Pettersson, Investor Relations Officer, and I will be moderator of the Q&A sessions that will be held after their presentations. The chat function is open from start, so please write your questions during presentations. With that, I hand over to you, Torbjörn.
Great. Thank you very much. This is our three-month report, quarter one, this fiscal year. I will start with the intro and some highlights of the quarter, and then Jessica will take over, talking about the financial developments. I'll talk a little about the way forward, and then we'll end up with the Q&A session. Again, you can chat questions, or you can email questions, during the presentation. The value Sectra creates for customers is in three areas. Actually, the Business Innovation is several. Imaging IT, which is our large part, where we do image management systems for hospitals. Images is an increasing part of the diagnostic and therapeutic process in hospitals, and we are experts in taking care of these images. We started with radiology only.
We added pathology, which is microscopy images, and we've added gradually more and more image types. Today, we can handle all images in hospital, and we are the only vendor who can handle all images in one single system. This is our, by far, largest business area. We have Secure Communications, which is very high-level encryption. I'll come back to that a little bit later. Business Innovation, which is our greenhouse area. We have new ventures, and we just added a new one in genomics, and I'll talk about that. New one highlights. Order bookings exceeded SEK 2 billion. That is a record. We've never had so much order bookings one quarter.
Now, these are over many years, and they are usage contracts, so high volume, very high volume, a lot of exams in these customers, and long contract times that results in a very large order value, of course. This is a contracted order value, so it is the promise we have from the customers is a little bit low. We do have significant quarterly variations. No one should expect that we have a continuous flow of SEK 2 billion order bookings per quarter now. These orders are very, very large, and they come in sometimes on unexpected times or they can bundle up. These are two major orders. So there's a lot of that, but not all. We also transforming the company to software as a service, which is a big change for us. We sold upfront licenses before.
We are now gradually moving over to selling usage and getting paid for usage instead, and I'll come back with impact of that later. The net sales anyways was plus 19%, up SEK 484 million. Profit per share was down. The profit was down, and that is based on increasing costs during the quarter. We have several reasons for that, both the new orders, these very large orders, we need to recruit resources and have people for that, and they cannot start generating revenue right away, so they are cost in the beginning. We also have a lot of built-up demand for marketing and sales activities. We have not been able to travel during pandemic, and one large exhibition was actually moved to July. It's normally February, March, and it's also substantial cost.
The cost was up. We don't see that as a major problem going forward. Recurring revenue was up, and that's important because that's where we really want to focus now. We want to transfer into software as a service company, and the recurring revenue was up, compared to last quarter by 23%. Financial targets for the Group were fulfilled. Our targets are stability, equity/assets ratio. That's a trust in the company. That should be about 30%. We are currently at 55%. Strong financial position. The second priority is profitability. The operating margin should be 15% or above, and we're above that as well. Growth of profits should be the main target when the other ones are fulfilled as thresholds.
EBIT per share should grow over a five-year period with 50% or more. We are substantially above that. We're at 73%. Secure Communications highlights. We see an increasing demand for cybersecurity all over the world, both because the society is getting more and more digital, and ransomware, et cetera, goes up tremendously, but we also see the crisis in Europe driving this demand. In focus for us right now is procurement and deliveries. We have a pent-up demand for delivery, so we've not been able to deliver much during the pandemic due to our systems needs to be delivered by courier. We can't ship them in a package. Now we can again travel, which is very good for that area.
We also have a new president, Magnus Skogberg, who takes on as president of this area from August first of August this year, and he has history in Saab mainly, and he is now getting warm in his clothes on this area. Impact of the Ukraine crisis, we see increase in demand for cybersecurity overall, secure communication, encryption products. Our products are approved both in EU but also NATO through our DUX subsidiary. That is very good because there's a huge demand for secure mobile workplaces and secure phones all over Europe right now. Business Innovation, our greenhouse area, there we have the focus there is increasing usage and recurrent revenue.
When you go into transition from a company that sells licenses into recurring revenue, you contemplate a lot about how much people use it. We're measuring this in all areas, how much usage, and we have a very healthy growth of usage both in medical education and orthopedics. We also added a new business unit for genomics IT, and I'll come back to that a little bit later. Genetic information is increasingly important in diagnostics and precision medicine, especially in cancer. In cancer, the new normal is that you sequence the cancer and the patient, and you adapt individualized medicines for cancer patients. In 25 years ago, you had the same treatment for all breast cancer, same treatment for all prostate cancers, et cetera.
Now you measure the cancer, and you measure the individual, and you have adapted treatment for these people. Genetic information is increasingly important, and it's growing. This has been done in the old days or before, now, I would say still, is done by research tools. The IT handling and the handling of this information is done by research tools. Research tools is not enough when it becomes clinical production. When things become conveyor belt medicine, or it is needed, when there's a lot of patients, the old ways of treating this information simply explodes, and it doesn't work, and that's where we come in. This is a project in close collaboration with a customer at University of Pennsylvania Health System in the U.S. It's one of the leading cancer hospitals in the U.S.
We have a collaboration we would develop, and if it comes out as planned, and we all believe it will be, they will take it into clinical use because they are in very high need of a information systems that is production-oriented, that goes in line with the pathology and radiology for integrated medicine, in integrated diagnostics environment. This has potential to significantly impact patient care because we speed up a very crucial part of cancer care. It's one more step towards integrated diagnostics as I said, and it fits also very well with the long-term ambitions for, from Sectra to be a leader in diagnostics IT. Imaging is one part of the diagnostics, but, genomics is not. That's not imaging. Everything else is the same.
The workflow is the same or similar, but we are now venturing into an area neighboring images, but it's not the images. Still a lot of data. We have a lot of benefits from knowing how to handle a lot of terabytes of data, as genomics is a huge data provider to hospitals, but it's not images. We are building this as a cloud solution. It will only be sold as a software as a service model. We will not sell this as a license model. In Business Innovation, the growth initiatives in orthopedics, we have a new technologies for implant movement analysis to see if a prosthesis that was put into a patient seven years ago, if that patient has pain, if it's stuck or if it needs a revision, reoperation.
We're very good at that. We have some very interesting scientific proof coming out that this actually works very well, and you can avoid revision operations, which are very expensive, takes a lot of time for hospitals, and it's also dangerous for the patients. A version of that can be used for studies of prosthesis, for clinical research, and then we sell our services to the prosthesis manufacturers who need an objective, very accurate tool for measuring if or if these, prosthesis move, during the research study. In medical education, we have transitioned. We had these huge tables, virtual dissection tables that we sold to universities all over the world. We have transitioned this very successfully into an environment where we are selling content.
We have built thousands and thousands of cases of medical examples that we now can use for teaching, and this is through the cloud. We actually yesterday with one click took in a new version of this, which will increase the benefits for the universities a lot, and that was done by one click. It's interesting. We upgraded 60 campuses with one click, and that's how the new cloud world looks. Both areas with significant growth in recurring revenue. Sectra One was introduced two years ago. That is actually the common framework where we sell software as a service, where one framework, so if a customer comes in with a radiology imaging contract, they can also within that contract begin using pathology, cardiology, orthopedic, whatever.
To this, we're now adding genomics, which will be another service in that Sectra One environment. We have a huge interest in this way of selling things now, as not the least from the United States. Imaging IT Solutions, our largest business area, substantial Sectra One contracts coming in. The recurring revenue increased by 23%. We have a big conversation on the software as a service and cloud deliveries. This will impact our earnings the next few years quite a lot, and I will come back at that in the very end. Growth initiatives within Imaging IT. New markets, we are selling to more countries also impact. We have gotten our first order from a installation of Radiology PACS in South America, where we have been not present before.
We are increasing the enterprise imaging part, extending our radiology footprint into pathology, cardiology, and the relatively new area of ophthalmology, which is another of the old man's diseases that are critical to treat because it's a large area and very complex actually. Ophthalmology is the eye, the disease of the eye, to clear that out. We are focusing on the U.S., it's the world's largest market. We are top customer satisfaction for nine years in a row, which is very important for us because we are not the biggest and most well-known company. The number one in this class is important that we have customers. We have a small market share, but it's growing. It's a very large market to grow into.
I'll leave the word to Jessica, who will talk about international developments.
Thank you, and good morning to everyone. Before we look at the financial development of the first quarter, we will just briefly look at the changes to the financial reporting that we announced in Q4. Sectra is changing business model and transitioning into selling software as a service with service delivery over time. As more and more customer contracts reflect the new business model, an increasing share of revenues will also be recognized over time. Therefore, we introduce new reporting measures in this report. The changes mean that we increase details around order intake. We do this during a transition period, and in two years from now, that is in Q1 2024, we will exclude order intake from our financial reports. We also increase the focus on recurring revenue.
As part of that, we introduce the new alternative performance metric called cloud recurring revenue. By that, we move on to look at the financials for the quarter. Contracted order bookings exceeded SEK 2.2 billion in the quarter. Guaranteed order intake was just above SEK 700 million. As mentioned before, we secured two significant multi-year contracts in Imaging IT, contributing strongly, of course, to the record high order intake. Net sales amounted to SEK 484 million, up 19% versus Q1 last year. A growing customer base increased sales to existing customers, as well as positive currency tailwind, particularly driven by the strong U.S. dollar, increased sales in the quarter. Looking at currency adjusted numbers, we grew sales by 11%.
Recurring revenue continued to increase during the quarter, now totaling 64% of total revenues. The part of revenue, recurring revenue, coming from cloud contracts also increased 19% and totaled SEK 50 million. Sales by business segment. All business segments showed sales increase versus Q1 last year. Majority of the increase is generated in Imaging IT, which increased sales by 20%. Again, increasing sales is a mix from new and existing customers, and also we have the positive currency impact this quarter. Secure Communications increased top line by 8%. We see an increased demand for cybersecurity and encryption solutions.
At the same time, the business faces both a strained labor market as well as shortage of components. In Business Innovation, we see a positive trend on recurring revenue and a sign of progress towards or in the shift towards the new business model also in this within these smaller businesses. Sales by geographic market. Also here we see that we had sales growth in all geographic markets where we are present. Adjusting for currency impact, we generated the highest sales increase in the U.S., the U.K., and in Sweden. Operating profit for the group was SEK 64 million, equal to an operating margin of 13%. Compared to the exceptionally strong Q1 last year, this is a decline of 29%.
The product mix impacted the gross margin positively in the quarter, but we had increased operating expenses due to an accumulated need for marketing activities, and also driven by the increases in our capacity to deliver. Operating profit by business segment. Imaging IT generated SEK 80 million in the quarter, and a margin of 18%. This is a good start to the year, considering both seasonal patterns and the ongoing transition to cloud deliveries. Secure Communications showed negative operating profit in the quarter. In this business line, we continue the development of new offerings, and also we focus on deliveries now and marketing and sales activities. Oh, there we go. That was one, two. Last slide from me, cash flow.
Following the very strong cash flow generation in Q4 with large advanced payments from customers, we now see a negative cash flow from operations, SEK -64 million, coming from settlement of short-term liabilities. The group continues to have a strong cash position. By that, I hand over to you again, Torbjörn.
Okay.
Thank you.
Thank you. We have some problems with the clicker. Let's see if we can get this to work. Our way forward, where are we going? High customer satisfaction is still a very important and will forever be a very important part for us. If we as a relatively small company still are gonna fight and compete with very large companies as we do, we can't outmarket them, but we can have higher customer satisfaction, and then the grapevine will work, and we've seen that very successfully in the U.S. In order to have high customer satisfaction, you need satisfied employees. You can't do that unless you have satisfied employees, and they need to work together, and a good company culture can nurture that.
Profitable growth, we don't want to grow faster than we actually can finance it, yet we need to have a good future, research and skate where the puck is going to be. I'll come back to that a little bit later. We sometimes get criticism because we only have a target of 15% profitability, but that will not change. The reason is that we need to invest in these future areas. Genomics will not be profitable in the beginning, but long term, we have a lot of hope for that. For instance, pathology was not profitable for seven years, and we're now one of the world leaders in digital pathology, which is growing very healthy.
We need to do those investments for the future and 15% is a healthy profit level that we keep as a target. Philosophy of shareholders, I'll start to repeat it. If you want shareholders to be happy, you start with a good position in growing markets. I'll come back to that a little later. If you have happy customers, happy employees, and reasonable cost control, and some stubbornness to that, shareholders will be happy. It will be very difficult to avoid. We are not even trying to avoid it, of course. This, we, I think we have proven over the years that this works. Good position and positioning in a growing market. Happy customers. For customers to be happy, you need happy employees.
You need to be a little stubborn and go on with what you do, and then having something in a nice shareholder trajectory over the last 10, 15 years. How do we build lasting competitive advantage? You went to business school. You might remember the four Ps of successful product launches and marketing. Product, you need a good product. Promotion, you need to tell people you have it. You need to sell it in the correct place, correct time, and price. You need a reasonable price. These are the four Ps conventionally taught at business school. We've added two to this. Process. If you work with a lot of people, they cannot act randomly. You need a process which is very important to follow.
The most important if you're gonna compete in a rapidly moving market is people. These are the six Ps of Sectra strategy and has been for a substantial time. You have these good people. We are very, very picky when we employ people. I still interview everyone myself though we employ quite a lot now. It's still one of the most important things we do. If you can employ the right people, and then get them a right good culture. We teach a very, very old saying at Sectra, the golden rule.
If we can get our people to treat others as they want to be treated themselves, the oldest rule humanity knows probably, and you can find it in almost all religions, and it's a little weird for a CEO to talk about, the oldest rule on the planet, but it still holds. If we can teach our people and get our people to treat our customers in the way they want to be treated, we'll be fine, and they will be fine. In medical, we have the growth areas of the age-related diseases. I've showed that many times that the curves of the demographics of the world is a little bit scary, and we need to treat the old man's disease primarily. That's neurodegenerative disease, cardiovascular disease, cancer disease, skeletal disease or musculoskeletal disease, and vision, hearing.
We are very strong in this area. We do medical imaging for all medicine, but we are kind of specialized, and so we're very good in these five areas. Sometimes with blue or around this area, it means that we partner with others to get special application. When it's green, we try to do all of it ourselves. In cancer, we just added genomics will be a very strong enhancer of our offering for cancer diagnostics for the future. It goes also very close to digital pathology and work close to the genetics people. In cybersecurity, demand for cybersecurity is increasing. Society and defense communication must function, and it must be secure. The security crisis in Europe drives demand. Increasing cyber threats also in other areas of society, not the least in healthcare.
We protect against criminals, but also against national actors and terrorism, and we see an increase in demand for that. We have increasing recurring revenues. This is for the last quarter of 2012, 56%, but I think Jessica just said in Q1 was 64%. This is increasing. We're measuring this very carefully now because it will be a several years transition period. Customers want to pay for software this, and long term it will be better for the provider as well. Four years will equal out the balance. The second one will dominate the future sales in medical IT. Transition of several years, as said. During that transition, the apparent revenue and profit growth will be smaller.
It will look like we are not growing as fast. The large growth in real usage will be very important because if you use a product a lot, you will not leave us. We are measuring all areas, the real usage of the products now, and that looks very positive. Long term, the financial effect will be strongly positive for a company that does recurring revenue, but it takes a few years to get there. We normally say, "Where others see a problem, we see opportunity." We especially have two niches that we concentrate in. That's when healthcare must scale up and become streamlined production. That's exactly what's happening in genomics right now. It goes to be.
They were able, the hospitals were able to use their research tools to handle the information on genetics and genomics. Now it's getting too much, and we see that from many countries. The genomics workload is increasing so rapidly. They need good production IT tools to handle it. When top-level security needs to go mobile, and we have seen that over the pandemic. We also see you need to have very high-level security, and you cannot isolate that to only one room, so as it was in the old days, and that's where we come in, cyber security. We have this saying that I do, when Wayne Gretzky, one of the best hockey players in the world, asked, "Well, how could you be so good?" His answer was, "I do not skate to where the puck is.
I skate to where the puck is going to be." We have that as a mantra at Sectra. We want to build the products now that will be demanded by the world three to four years from now because that's how long the development time will take. Examples, Imaging IT systems consolidate hospitals. There's a huge consolidation going on in healthcare in all, literally all countries. When they consolidate the hospital, they need IT systems that scale with it, and we are good at that. Enterprise imaging, you want fewer and fewer IT systems. Hospitals in a few years back perhaps had 200 IT systems. They all need to communicate, and the providers want fewer IT systems. We can handle all images in one single system, a huge cost saver and efficiency booster for hospitals.
We are adding to this Pixeleo, our new ologists. Pathology was one, ophthalmology, and now genomics, which is coming. Not really images, it's outside Imaging IT systems, but it will be sold as one system in the long-term. Cyber security, secure mobile workplaces. People want to move and work from home, but they still need to be very highly protection of the workplace because before they sat in an environment with few rooms with a table between them with a network. Now they want to do that from home. We are very good at providing mobile security, both as we used to do and still do a lot for mobile phones that are highly secure, but increasing with some data over these slides as well. High speed, high security network infrastructures.
We see an increasing demand, as I said before, due to the crisis all over Europe. In Business Innovation, the entire image-based orthopedics planning and follow-up process needs to be become more efficient and better precision. We can also determine if people are needs a revision operation or not, which saves a lot of time for hospitals if they can avoid without risking the patient. Lifelong education medical staff and also good education of students when the students want to sit at home. That had an explosion of interest during the pandemic where they the universities shut down, and we actually had tools to do teaching of students from their home instead.
Other medical areas that are not on the threshold of becoming industrialized, or that are on the threshold as genomics is. With post-quantum encryption systems, which is very interesting, NIST, which is the standards institute of the U.S., just standardized what will come after the current standards in the internet encryption world when quantum computers come around, and we are working on post-quantum encryption systems. Summing up what we do, if you start on the lower right, Imaging IT, by far our largest area. Digital pathology and intuitive diagnostics is a huge growth area. Of course, radiology as the basis. Secure Communications, we also do a little growth areas in IT for critical infrastructure. Business Innovation, medical education, orthopedics IT, genomics IT now.
We do research mainly in AI for medicine. We're well-positioned for profitable growth, that is much easier in growing market. Ideally, it's a market that is forced to grow by external factors. The demographic situation requires medicine to grow, so it's not a matter of good and bad times. It will have to grow because we are getting more and more old people. Cybersecurity will be the very, very sensitive society and people are moving more and more, and they want to work from remote. That's another area that will be growing despite if it's good or bad times. It will be forced to grow. Healthcare and cybersecurity are such markets. Genomics IT is an addition for clinical production. It adds to the growth opportunities.
It's a predicted market growth of 19% for the foreseeable future in genomics. We are now providing IT tools in collaboration with one of the best universities of the U.S. to help them out in handling all this information that is too much to handle manually anymore. I like to have quotes. The Sectra journey can describe by, "First they ignore you, then they laugh at you, then they fight you, then you win." Now that will conclude my presentation. The upcoming financial report and the AGM on September 8th, we have annual general meeting here in Linköping, Sweden. December 16th, we have a six-month report. With that, I would also like you to send feedback on these presentations. Are they good? Are they efficient enough? Do they provide the information you want?
Please let us know what you think. It's important for us that also you are happy with the presentation. The email is there, info.investor@sectra.com. Then I leave over the questions. If you follow online, please use the chat function. Helena will tell us what we get.
Yes. Thank you, Torbjörn and Jessica. We have a number of questions in the chat, and if you have any further questions, please write them, and we will handle them one by one. The first questions is about secure communication. Have your component problem in security eased somewhat now? Could we see that in sales development going forward?
I would say it is not as bad as it was. It's still a problem. We are not in a situation where it's an immediate crisis for components over the next year. Longer term, we need to do some redevelopment, but we know that well in the past.
We have some questions from Kristofer Liljeberg at Carnegie. The first one is how many years in the future could be included in contracted orders?
That varies a lot. The longest ones might be 10 years or even up to 15, but then it's more optional at the end. It can be that range of contracts. In the U.S. it's very seldom more than five.
The next one there, are part of the higher operating costs of temporary nature?
The costs are not of a temporary nature. We have employed people and we need to do the market activities, but if the revenue goes up, the margin will improve. We need people in order to deliver. It was a little pent-up demand for travel, so I would say it's a little higher than it could be a normal quarter. We will have increased costs for the people we need to deliver all these huge orders we have received.
We have a third question from Kristofer Liljeberg. Growth in recurring revenue accelerated to 15% from 11%-12% in the recent quarters. Is that explained by specific large contract kicking in or more the general trend with larger share of subscription?
It's just a general trend. We are moving there in all business areas, and we're doing it. We want to pass this transition period as fast as possible, and we have all business areas going into that area. New functionality we add is only service, software service, as I told you in genomics before.
We have a question from Carl Norén. Is it possible to comment on how large the renewal of the 10-year Sectra One contract you signed in Q1?
That's the thing, when it's not published we cannot say that publicly.
Carl Norén has another question. Will the genomics to some extent be sold in connection with digital pathology as there are some similarities between the two, especially in the future maybe?
Yes, that is correct observation. Now, as we sell sometimes digital pathology together with radiology, especially for cancer team, we can also sell genomics together with pathology, but we are more unique in genomics than we are in pathology. It's a very similar situation to pathology six years ago. We can also sell genomics isolated from pathology and digital radiology, so.
Going back to the first earlier question from Carl about the renewal contract, he says, "I know you don't guide, but I think we need to get some more information on how one should think regarding growth going forward. Sectra has been quite clear that sales growth should be somewhat lower when you now are transitioning into more SaaS revenues. Do you believe that this report is a fair representation of what we should expect going forward in terms of total sales growth and the growth of recurring revenues?
As we said before, we don't give guidance. We can tell you the general trends, and how much would be actually stepping over that line and give guidance. We cannot unfortunately give detailed replies to that question.
We have another question from Kristofer Liljeberg. Could you comment on the competitive situation? Seems pretty obvious it's you and Visage that gains share in the U.S., but they are growing even faster. What do you think is the reason for that?
They are very specialized. It's a good company. They are very, very specialized in radiology viewing, and we do wider things and more things than that. They are growing only in the U.S. We don't see them much outside of the U.S. It's a fight. We fight with them. That's good.
Okay. Thank you, Torbjörn and Jessica. We have no further questions in the chat.
All right, thank you very much for your attendance. Please remember to give us feedback on the presentations. We are trying to improve all the time. Thank you very much, and goodbye.
Thank you.