Good day. Thank you for standing by. Welcome to the Össur Q1 2023 Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and- answer session. To ask a question during the session, you will need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Alternatively, you may submit your questions via the webcast. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sveinn Sölvason, President and CEO. Please go ahead.
Thank you very much. I would like to welcome you all to the Össur Investor Conference Call, where we will cover the results for the first quarter. My name is Sveinn Sölvason, and I'm the President and CEO. With me here today is Arna Sveinsdottir , our CFO. We will begin by going through some of the highlights here in quarter one and ending with our guidance for 2023. A question and answer session will then follow. If you go to next slide, please. Yes. Go through some of the main topics. This is the first quarter where we are reporting according to our new sales segmentation, which includes three business segments: Prosthetics, Bracing & Supports, and Patient Care.
Sales were strong across all regions and business segments here in the beginning of the year. The growth was largely driven by volume growth in Prosthetics and implementation of price increases for both Prosthetics and Bracing & Supports products, as well as a favorable solution mix and growth in Patient Care business. Reported sales were $8 million lower in the quarter due to changes in FX rates when comparing to quarter one last year. Despite these FX headwinds and inflation-driven OPEX growth in the quarter, we see a healthy development in our operating profit. We are focused on normalizing our working capital investments, which have during the last six quarters impacted cash flow negatively.
We are currently over-invested in inventory as we have prioritized sourcing raw material and building safety stock through the global supply chain challenges in the past year. We've now started to reduce safety stock and have built up inventory of most components needed for our bionic manufacturing, which is a key element of driving growth. The leverage is at 3.2x at the end of the quarter. We expect to be within the target range of two to 3x here in 2023. If you go to the next slide, please. Here is an overview of the growth in our three regions and business segments for the quarter. This is a very good start to the year. Sales amounted to $181 million, which corresponds to 9% organic growth.
When including the impact from the acquisitions we made last year, growth amounted to 11%. As previously mentioned, growth was very strong in all regions, including double-digit growth in APAC. The comparison quarter was slow in key APAC markets, Australia and China. Remember, quarter one last year also included sales to Russia until 24th of February 2022, which were suspended due to the ongoing war in Ukraine. If we now go to the next slide and cover the segments in more details. Here you see the quarterly development in sales and growth in Prosthetics. In quarter one, Prosthetic sales, including internal product sales, increased by 13% organic. Prosthetic sales were strong across all regions.
In addition to implemented price increases, across all our main markets, growth was mainly attributed to volume growth. Bionics accounted for 21% of prosthetics component sales in quarter one, compared to 20% in the comparable period. We are now able to manufacture the Power Knee according to demand, and as previously mentioned, we have built up stock of most components to secure our bionic manufacturing. Our pipeline is strong. In April, we launched the new waterproof Proprio Foot in all regions. Before year-end, we estimate to launch in next generation RHEO KNEE. We move on to bracing. The growth in the quarter was mainly attributed to price increases.
We implemented price increases in line with regional development in reimbursement levels, and patient volumes in key markets are up from same period last year. The OA segment performed well in both Americas and EMEA. We continue to execute in line with our Bracing Simplified strategy. Then to round up with a few comments on Patient Care, we are happy to be presenting Patient Care as a separate business segment here for the first time. Here you see the quarterly development over the past year, as on the previous slides. This is in line with our announcement also to the market on the 29th of March. We saw patient volumes grow across all regions after a somewhat slow start to the year.
Patient Care in Americas had a strong quarter one with a good growth, especially towards the end of the quarter, and also good growth contribution from our other main Patient Care businesses in Scandinavia and primarily France, driving growth on the EMEA side. Note also that the historical figures for Patient Care show a comparison to quarters in 2021 that included sales to the Department of Defense in the U.S., but that outsourcing contract was discontinued towards the end of 2021, as we have communicated multiple times. Reimbursement increases vary between regions. In some areas, reimbursement is following inflation, while in others, reimbursement is lagging behind. It remains our view that we will these markets will catch up on reimbursement increases going forward. Over to you, Arna.
Thank you, Sveinn. I will go through the P&L highlights for quarter one. Organic growth was 9% as previously stated. Reported growth was 10% in the quarter. Reported sales were $8 million lower in the quarter due to changes in FX when comparing to quarter one last year, which correspond to around 4 percentage point negative effect on the reported growth rate. The gross profit margin was 62% in the quarter. Following years with supply chain challenges, we are working towards normalizing our productivity and cost levels. We are incurring higher inflation related cost unit, including higher labor cost. Freight cost is declining, driven by lower rates and reduced volume shipped from Asia, but offset somewhat by continued air freight for some raw materials. EBITDA amounted to $28 million or 16% of sales.
Despite FX headwinds and inflation-related OpEx growth, we grew EBITDA. OpEx growth was mainly due to higher labor cost, partly offset by cost saving initiatives announced in quarter three, 2022. The effective tax rate was 24%. Net profit amounted to $10 million or 6% of sales. Go to the next slide, please. Here we have historical trends for the last five quarters. Cash flow continues to be impacted by working capital changes. We are currently over-invested in inventory while still low on some items, which has caused us to use more expensive means of freight as mentioned before.
In quarter one, inventory buildup amounted to $7 million since year-end 2022, mainly consisting of bionic components to secure our bionic production. The overinvestment in inventory has been mainly caused by inventory buildup of prosthetic and an imbalance in production of our high volume, low-cost bracing and support products in Asia in the last two years, that we were impacted by supply chain challenges. We are working on improving our inventory levels and have started to reduce our safety stock. Accounts receivable and payables are in line with historical averages.
Net interest-bearing debt amounted to $450 million at quarter end, and net interest-bearing debt to EBITDA was 3.2x , which is above the range of 2-3x . Net interest-bearing debt increased by $11 million from year-end, partly due to translation effects of euro-denominated debt as the euro strengthened against US dollars in Q1 2023, as mentioned earlier. We do expect the levels to go back within our target range in 2023. In line with our capital structure and capital allocation policy, we continue to pause share buybacks. Back to you, Sveinn.
Thank you, Arna. No changes have been made to our financial guidance for 2023. The organic sales growth outlook for 23 is expected to be in the range of 4%-8%. The key factors implementing sales growth will be effect from price increases, stability in product supply, impact from new product launches, and successful execution in emerging markets. The EBITDA margin before special items is expected to be in the range of 17%-20% for the full year. By applying the current FX rate, the EBITDA margin is expected to be largely unaffected in 23 when comparing to 22. CapEx is expected to be in the range of 3%-4% of sales. Based on the current mix of taxable income, the expectation is that the 2023 effective tax rate will be in the range of 23%-24%. That concludes our review here of the Q1 results. Let's now go to the Q&A session, please.
Thank you. To ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. If you wish to ask a question via the webcast, please type it into the box and click submit. Once again, if you would like to ask a question via the telephone, please press star one and one. We will now go to your first question. One moment, please. Your first question comes from the line of Christian Ryom from Danske Bank. Please go ahead. Your line is open.
Good morning, and thank you for taking my questions. I have three, please. The first is on the market development here in Q1. We've heard some of the larger orthopedics players talk about b etter than expected market activity, here in the first quarter. I would like to hear your comment on how you've seen the market and, also if I'm understanding your commentary correctly, that the market appears to have improved towards the end of the quarter. That's the first question.
Hi, Christian. Thanks for your questions. On the market development, I think the answer to that is on average, yes, there's good momentum across virtually all regions and segments. But I wouldn't say necessarily that changed towards the end of the quarter. I mean, we've had this good progress from the beginning of the year. It is one quarter, and we've been just very happy to see the momentum here in the beginning of the year.
Okay, great. Thank you. Then second question. Can you give us some flavor on the, on the size of the contribution from pricing? I noticed that, on Bracing & Supports, you said that the organic growth of around 5% has more or less been driven by pricing alone. Is it fair to assume that the pricing component for the, group as a whole has been around the same level, or how should we think about that?
I mean, Yes. I mean, the, of the five. If you just look at Bracing & Supports, the 5% organic growth, the majority there was pricing, but that still means that volume growth is roughly in line with what we estimate the underlying volume growth to be in that market, 2%-3%. On the, on the Prosthetics side, We've had higher price increases than the 2%, 2.5% we did in the beginning of 2022. The vast majority of the organic growth we're posting in Prosthetics is driven by volume.
Okay, great. That makes sense. Final question. How should we think about y ou've alluded a bit to this in your presentation, but can you give us some sense of how to think about the development in net working capital over the next quarter? Basically, should we expect this, say, combined level in net working capital to begin coming down already from Q2? Or is that more of a, say, second half prospect, if at all?
Yes. If I speak to that, we do expect to see some improvement in Q one, but mainly.
Q2.
Q2, but mainly in the latter end of the year. Starting to come down, but the main change will be later in the year. We are working towards managing the inventory closely. It is a focus area of ours to improve the imbalance in inventory, where we still have some high inventory for some components and raw materials, but lower in other products. Hope that answers your question.
Okay, great.
Can I just add maybe?
Yeah, it does.
That is, if you look at the working capital, it is, as Arna mentioned, principally an inventory topic. I mean, if you look at the other working capital items, I mean, they're largely in line with historical averages. We are still working through the supply chain complications on the inventory side and are confident that we will see that move in the right direction here in the remainder of the year.
Great. Thank you very much.
Thanks, Christian.
Thank you. Once again, if you would like to ask a question via the telephone, please press star one one on your telephone keypad. If you'd like to ask a question via the webcast, please type it into the box and click submit. We will now go to our next question. One moment, please. Your next question comes from the line of Yiwei Zhou from SEB. Please go ahead. Your line is open.
Good morning, thank you for taking my question. I also have three questions here. I'll do one at a time. Firstly, a question on the Patient Care. I understand this segment has been rather stable, with low single-digit growth. The 80% organic growth in Q1, I'm trying to understand. You mentioned here it's driven by patient volume growth. I mean, what's the main driver here for the 80%? It seems much higher than the previous years. Also, is it possible to disclose the same clinic growth?
Hi Wei, thanks for your question. Yes. I mean, on the Patient Care side, we, the growth here in quarter one is mainly volume driven, partly mix driven, in terms of what solutions are being created in our Patient Care business. If we look over the last couple of years, the activity levels and our productivity has been impacted by these external challenges. What we see towards the latter half of last year is better productivity on average, more activity on the Patient Care side. That is principally what is driving growth here over the last couple of quarters.
It's also just worth remembering that if you look at the comparison or let's say the quarterly growth development over last year, we were always comparing two quarters from 2021, where we also had the Walter Reed or let's say the Department of Defense business in the U.S. which we stopped or basically that business ended end of year 2021. We've had very unfavorable comparison through all our last year, but that is now behind us. With the exception we did actually have some remainder of that year in Q1 2022, so we're comparing to a quarter where we had some of that business. That is just worth keeping that in mind also. I hope that adds a little color.
Could you, if you maybe confirm that the launch of this Össur Legs solution has been the main driver here.
No, I wouldn't say that is a main, that the Össur Legs solution is for one, a productivity to principally driving more productivity in how legs are fit, that is one thing. it's also helped us with capturing more componentry, let's say, or bigger markets here of each leg being produced. Yes, we are pushing the Össur Legs solution in our that way of working in some of our own clinics. That is a more productivity driver rather than anything else. still pulling some product sales, but not really impacting the growth in the Patient Care segment, I would say.
Okay, thanks. Okay. My next question is regarding the China reopening. Was there any impact from the reopening? If yes, could you make a comment on the impact on the A monthly basis?
We are. Yeah. If you look at our growth in the APAC region, we have very strong growth as we're comparing to a period where both Australia was very much COVID-restricted and also the closed towns in China. What we see here in quarter one is that our business in China, which is principally just based on wholesale of components to our independent clinical customers, and the activity levels are getting back into gear and we see just good and perhaps a little bit of pent-up demand as such.
With that though being said, there's also reports of lower, let's say, amputation rates due to this lower activity and less trauma-related amputations because that is a proportionately higher proportion of all amputations are related to trauma than we compared to maybe some of the other markets where we have a big part of our business.
Okay. Understand. My last question is regarding the backorders. You, you comment in the previous quarters, there were still some backorders. Could you give us an update, at the end of Q1?
we are largely producing to demand. I mean, we. Backorders is largely in line with historical averages. Maybe, we still have a few items here and there, but it's not really impacting our growth as it did last time. We're
Okay.
Back on track.
Yeah. Okay, thanks.
Thank you. Once again, if you would like to ask a question via the telephone, please press star one one on your telephone keypad and wait for your name to be announced. If you wish to ask a question via the webcast, please type it into the box and click submit. I will hand over for any web questions. There are currently no further phone questions. I will hand the call to the room for any potential webcast questions. Once again, if you'd like to ask a question via the telephone, please press star one one. There are currently no phone questions. I will hand back to you.
Well, thanks everyone for your participation and thanks for your questions. Please reach out to our investor relations team if you would like to follow up on any particular comments or topics. I just, yeah, thanks for this time and wish you all a good day.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.