Good morning, welcome to Sectra's financial report presentation with CEO Torbjörn Kronander and CFO Jessica Holmquist. My name is Helena Pettersson, investor relations officer, I will be the moderator of the Q&A session. Management will address your questions after their presentation. The chat function is already open, don't hesitate to write your questions. With that, I hand over to you, Torbjörn.
All right. Welcome to our Q3 report 2022/2023. I will begin with the interim highlights from the quarter and the financial development, which begun by Jessica. We'll talk a little brief about Sectra way forward, and then we'll have a Q&A session in the end, and you can also do chat all the way as Helena said. The main business lines of Sectra, just to repeat what we're doing, is Imaging IT Solutions. We manage all images in hospitals and healthcare providers. We are the only provider in the world who can do both radiology, pathology, cardiology, ophthalmology, all the different type of images in one single system.
Other vendors, by acquisitions type of things, have done that, so they can have solutions for instance, pathology and radiology at the same time, but we are the only one who can do it in one system. That's important for caregivers because it saves a lot of money and staff on their side. We have IT security solutions, which does very high-level encryption systems and communications, secure communication systems, which is about a tenth of the company. We have our greenhouse with medical education, IT providing systems for training on medical staff, both basic training, university level, but increasingly also clinical continued training on people who are already experts. We are also seeing some interest from veterinary medicine there.
Orthopedics IT specialize in the special tools and things that orthopedics doctors need, which is based on the PACS for Imaging IT, which is kind of the system for providing image management, but special functions for orthopedics and musculoskeletal radiology. We have a research division mainly doing research within things we are going to take commercial within 5 years -7 years forward. They're mainly AI. Then within the two main areas, we have IT security and critical infrastructure, so a little growth opportunity there. Imaging IT, we have digital pathology and Integrated Diagnostics, which is almost becoming a normal business line together with radiology products in the IT. We added last year also Genomics IT, which is an area that needs to be industrialized, and industrialized in a positive sense.
Healthcare cannot have manual handling of everything when the number of patients grow. Genomics and new generational sequencing of especially cancer care is growing very rapidly, and they need now industrialized systems that can manage that increasing flow of patients. We're doing that together with University of Pennsylvania in the United States, and we have come quite a long way in development. The aim is to have a ready product that will then integrate into digital pathology and radiology by somewhere early in 2024. Highlights from the quarter. We have all-time high contracted order bookings. Note please that we are increasing and seeing larger and larger orders. Very large chain hospitals and hospital healthcare organizations are placing orders with us, especially in the U.S. They also, the term are increasing. They're long-term.
If we get such a product, which is not a software as a service booking, it's another one, this is on-prem bookings or a part of the long-term SaaS or SaaS bookings, it means we get very large values, but the long term of the contracts increase the order values. We had two substantial Sectra One, our software as a service, contracts coming in over the period. Please note that we have significant quarterly variations due to large individual orders for instance, on-prem solutions at Sectra. The variation is very large. It's decreasing with the software as a service, but it's still very large. Net sales has grown by 25%. Profit per share has grown by 9%. Recurring revenue has increased by 23%.
We should also note that we have had a substantial currency tailwind here, so we've been helped with the strong U.S. dollars and euros, and British pound compared to Swedish krona. A recurring revenue as we are transferring to software as a company, software as a service company, that's an important thing to mention going forward. Our financial targets are fulfilled. First priority one is equity/assets ratio, that is financial stability of the company. That should be above 30%. It's well above that, at 50%. Second in priority is profitability, operating margin. That should be above 15%. That is currently at 18%.
The third priority target, which is actually the highest importance, but we need to fulfill the two first as hygiene factors, is growth of profits per share over a 5-year period, that should be above 50%. It's currently almost double that at 94%. In Secure Communications, we see a real change because we have had problems there. It has not been as profitable as we wanted. It still has some way to go, but we have a positive trend that is significant in that. Partly helped out by the security situation in Europe, partly that we have had long-term investments that are now coming to an end, and we begin to deliver first of these products that we've been delivering or developing for several years. In Business Innovation, we see rapidly increasing recurring revenue.
Orthopedics and musculoskeletal functions are very synergistic with radiology. It's actually sold through Imaging IT to a very large proportion, and that also helps our PACS business. In new medical education portal, we see dramatically increased usage and very good order intake in medical education. We have Genomics IT, as said before, but that's not yet delivering any revenue. Today, it's mainly cost for development. Imaging IT Solutions, our biggest area, we have grown order bookings in all markets, notably mostly in the United States, where we are growing rapidly. We have transitioned to SaaS and cloud deliveries, and this transition goes even faster than we expected.
Most of the orders we have today, we don't see it so much in the figures till today, but we will see it next year in the coming years, as this is growing even faster than we believe. The cloud recurring revenue has so consequently increased by 39% in Imaging IT, and it will increase even more going forward. We also are very proud that we, for the 10th year in a row, got the KLAS award. That means that we have the happiest customers in U.S. large hospitals for our products. We are also. That was for the 10th year in a row. We have the happiest customer in small hospitals in the United States, in Canada, and in Asia Oceania.
In Europe and in pathology, we're number two, and we would like to get up to number one, but we didn't make that this year. We're extremely happy and proud to have the happiest customers in the United States for the 10th year in a row, and that's a lot of work to achieve, and I can only thank our staff and personnel all over the world who accomplished this. I will leave the word to Jessica, who will tell you a little about the financial development.
Thank you. Good morning. Before presenting the financial development, I will quickly repeat the changes that we're making to our financial reporting this year. Driven by the shift in our business model towards service delivery over time, we are implementing the following changes. The first one concerns order intake. We provide more details around order intake during a two-year timeframe. In five quarters from now, we will stop reporting order intake. We have increased the focus on recurring revenue, as growth in recurring revenue will be essential for understanding our business going forward. We have also implemented cloud recurring revenue, a subset of recurring revenue, which serves as an indicator for how we are progressing in the transition to cloud deliveries.
We have announced earlier during the year that we will also complement the reporting with a new alternative performance measure for recurring revenue churn, and that will be in our Q4 report. You can read more about these changes in the report that we just published. Like Torbjörn said, our contracted order bookings are historically high this year. They are year to date at SEK 3.4 billion, of which SEK 1.8 is guaranteed order intake. Apart from the two large multi-year contracts that we secured during Q1, smaller and mid-sized orders have continued. The inflow has continued to be healthy during the nine-month period, resulting in a book-to-bill ratio of 2 on a rolling 12-month basis.
In the third quarter, we highlight the orders for our digital pathology solution in France and Belgium, as well as orders from the Swedish authorities for secure mobile communication solutions. We also won our first Sectra One Cloud in Canada. There is stable growth in our net sales. For the nine-month period, sales amounted to SEK 1.6 billion, an increase of 25%. Again, we repeat, we do have strong currency tailwind with substantial impact on sales. Adjusting for currency impact, sales grew by 16%. The underlying sales development is driven by a growing customer base and also increased sales to existing customers. The transition to SaaS has contributed to an increase in recurring revenue of 23% for the nine-month period.
The share of recurring revenue out of total revenue, which varies from quarter to quarter, is currently at 61%, which is in line with last year. Yeah. All business segments show an increase in sales versus last year. Imaging, the majority of growth is generated by Imaging & IT in absolute terms. Secure Communications, however, increased top line by 29%. This is, we see this as a sign, of course, of a market situation that is gradually normalized, although we still have challenges remaining. Business Innovation increased sales by 15% versus the comparable period with a strong positive trend in cloud recurring revenue. All six geographic markets where we are present increased sales versus the comparable period. There is no change in the pattern from previous reporting periods.
We see this highest growth in the U.S., Sweden, and the U.K.. In Europe and what we call rest of the world, we had the highest sales increase in Denmark, Norway, and Australia. Operating profit increased by 7% to SEK 259 million, equal to a margin of 16%. The margin is above target, but lower than last year as we continue to invest in cloud deliveries, and we also have a higher spend on customer events and travel than we had during the pandemic years. The operating profit in the third quarter increased by 27% to SEK 87 million, with a margin of 15%.
Adjusting for currency impact, the margin in the third quarter increased by 9%, whereas the operating profit for the nine-month period decreased by 12%. In Business Line Imaging & IT, we see stable profitability, and they have year-to-date generated SEK 280 million at a margin of 19%. The ramp-up of the organization and the higher cost for marketing activities has reduced the margin versus last year. Secure Communications has year-to-date generated an operating profit of SEK 1.9 million. We saw a positive development in earnings during the quarter, resulting in an operating profit of SEK 8.5 Million in the third quarter alone.
Here the focus remains on deliveries, marketing, and sales, which will lead to increased profitability over time. We also have a positive trend in Business Innovation, which from relatively seen small numbers have almost doubled the operating profit versus the comparable period. We have positive cash flow from operations both in the quarter and in the period. Compared to last year, we have lower cash flow as it is impacted by increased tied-up capital in current receivables. The overall cash position remains strong with cash and cash equivalents of SEK 602 million. With that, I hand over to you again, Torbjörn.
All right. Our way forward. Where are we going? We have a capital market day in January. If you're interested to more details, we recommend you to see that as well. It's available on our webpage. The priorities at Sectra is customer satisfaction first. In order to get higher customer satisfaction, you need to have happy employees, otherwise it won't work. That will lead to profitable growth. We also say we want to skate to where the puck is going to be, that we have been quite good at over the years. We see trends early on, and we have been able to design products and services that are, when they are mature, the customers want you to buy them. Pathology in the radiology system is very good example. We started development eight years ago. No one else did it.
We are now ahead of the market in that situation. We have both pathology and radiology in the very same system, forcing competition to acquire other companies, which means they don't have the same system. We've been good at this, and we keep going in this trend as well. The increasing recurring revenue will continue. It's very large interest in pay for usage. People, not the least in the United States, they want to pay for the usage to have our software instead of a very hefty license up front. This, of course, changes our way of doing business very much. It will be good long term, but it will hit us, our growth or, you know, at least obvious growth, in the beginning of this transition.
We haven't seen so much of it yet. We have seen some, and that has been partly compensated for by the tailwind in currency, we'll see more of it going forward. I'll come back to that later. Long term, the financial effects will be strongly positive from this, it takes a few years initially to compensate for the change in the streams of revenue. I would like to show it like this. This is the old type we did business, upfront license, and then we add more service income, the blue staples there over a long period. In the new world, we will have the orange staples instead from early on.
Of course, that first year, that's a major difference in recognized revenue, but over long term, it will be profitable compared to selling initial license. An example might look like this, and typically it's 5 years - 6 years before break even. Long term, you see that the software service model will be grossly positive for our shareholders and the company. The interesting thing is perceived as very positive also for customers, despite that they actually pay more. They get a different type of service. When we do this in the cloud, they don't need to have on-premise installations, no computers on-prem, et cetera. That is perceived as a very good situation for customers.
That is also why it's going so fast, right? There will be an increasing impact of this over the next year to come. It's important that we realize that. We will have a more significant impact starting from next year than we've had before of this kind of moving revenues and profits forward. We think we are very well positioned and in the kind of combined diagnostics. We were recently, early this week actually, invited to present at the U.S. National Academy of Sciences. They had a special symposium, Integrated Diagnostics in Precision Medicine of Cancer Treatment. We were only PACS company invited, that shows that we are perceived now as leader of the technology in this area. That might be a very important thing to have going forward. Why should you invest in Sectra?
We are positioned in markets that are forced to grow. Both cybersecurity and medical must grow, despite if there's a background in societies at all, because we still get sick, and cybersecurity is of course increasing as a threat all the time, not the least in Europe now with the crisis in Ukraine. We have high customer satisfaction, all areas. We cannot present that in communications, but we do measure it also for Secure Communications. We have high employee satisfaction with a strong corporate culture, which is needed to have that high customer satisfaction. We have strong brands in markets where trust is critical. If our system stops, the entire hospital stop. If it's a 25 hospital system that we do have in some more, some areas, if our system go down, 25 hospitals more or less come to grinding halt.
We have heard from several customers that we are the single most important IT system they have in the hospital for maintaining running business. The EMR, the medical records systems, are also very, very important, but they're not as acutely important as we are. Brand is very important. Of course, in brands, if a nation should trust the most important secrets to our systems, we need to have a strong brand also. That trust is critical. We are both medicine and communications. We are trust-based. People trust us, and therefore, they pay a premium when we sell to them. We're profitable, we have a strong cash flow, and a solid balance sheet, but we also have a rapidly increasing recurring revenue, where we're very low churn.
Starting from next quarter, as Jessica said, we will start to report churn. That is how many of these customers we lose. I can give you an early signal that it's very low for a software service. Yet, we have sustainable investments in very exciting R&D with exciting future opportunities. What we do can all become very, very large. Over the years, we have taken few of these products. We have shut them down because they didn't work out. Some we have sold. We sold digital mammography many years back. Some we have integrated into the other business areas. Some might grow to their own business unit, which then should approach the other ones in size after a while.
All management Sectra owns shares, thing that we think is important. All the management here should be shareholders to give that feeling of actually it's our own money that we manage. In that kind of concludes the presentation. 2023 upcoming financial events is June 2nd, year-end report. September 7th, we have the annual general meeting here in Linköping, Sweden. That will be on site unless something kind of re-emerging or the pandemic, something happens, but we hope that will not happen, so then we will have it all in person here in Linköping. Your feedback is important. These meetings should be productive and good for you. We try to change them with the feedback we get.
If you have any feedback on this meeting and these presentations, please send an email to info.investor@sectra.com and tell me what you think we should change. If you think it's good, that's also a nice like to have some of that. With that, we're open for questions. If you follow online, please use the chat function. I'm ready to reply. Let's go.
Yes, we will start with a few questions from Kristofer Liljeberg, analyst at Carnegie. The first question is, can you please explain the strong sequential growth for recurring revenues in K3 explained by a new contract that started to generate revenue?
That question I didn't perfectly understand.
No. The last part, is it explained by a new contract that started to generate revenue?
Yes.
Yes.
Next question.
Oh.
Oh, yeah.
Okay, that was the answer.
The answer is we have got a new business that are starting to now pay in. Even though it's not a major part of what we did, we are have seen some effect already now.
The next question is connected to the capital markets day and what you said there, because you said that the transition to a subscription-based revenue model would have a larger negative impact on sales next fiscal year. However, based on orders to be delivered within 12 months, plus recurring revenues, it seems sales will likely remain up in double digits. Can you please explain what you mean with the previous comment?
The proportion of the new business we will get next year will increase from the recurring revenue. We would probably, or we don't know, we don't do prognosis, but if we grow next year, the proportion of recurring revenue would be larger than this year, clearly so.
Next question is, can you please explain the reason for the large increase in receivables?
We are in a startup phase of a couple of large projects that impact the balance sheets. I'd say it's a timing question.
Another question from Kristofer is, are there temporary effects causing the increase of external costs?
Yes. We have some very large products and some hardware refreshments we need to do. We sometimes, in a few products, we own also the hardware, which we kind of sell to or lease out to the customer, and we get paid for it. We have, sometimes we need to upgrade that hardware, and that will affect some business as well. Then we are increasing marketing and people. We have some very interesting, contracts coming, we think will come our way, and we are growing, and we need to have people to deliver that.
We have one question from the chat function. Can you please elaborate on the competitive landscape and the win rates across markets?
It varies very much market to market. We don't see any strong competition in all our markets that we see, a company that we see in all markets at the same time. We do have strong competition, by local players, not the least in the United States, where there is one other company and we who seems to be growing right now, and of course, we compete with them.
If you have any further questions, please write them in the chat function. It seems that you've answered all the questions.
All right. Okay, we thank you for listening to us and look forward to see you again in June at the year-end's report. Thank you very much, and goodbye.
Thank you.