Hello, and welcome to the H+H International A/S Interim Financial Report for Q1 2022. For the first part of this call, all participants will be in a listen-only mode, and afterwards, there will be a question- and- answer session. Today, I'm pleased to present your speakers. Please begin the meeting.
Thank you, good morning and welcome to H+H's conference call for the first quarter of 2022. My name is Andreas Holkjær, Head of Investor Relations and Treasury. Joining me on this morning's call is our CEO, Michael T. Andersen, and our CFO, Peter Klovgaard-Jørgensen. On Friday last week, the interim financial report and supporting documents, including the presentation for this call, were published and uploaded to our investor relations website. During today's call, management will present the interim financial report, after which there will be a Q&A session. Please note that this conference call is being recorded and will be made available on our investor relations website after the call. Before handing over the call to Michael and Peter, I would like to direct your attention to the disclaimer on Page 2.
During this call, management may make certain forward-looking statements regarding various matters related to our business and company that are not historical facts. Such statements are based upon the current expectations and assumptions and are therefore subject to certain risks and uncertainties. Many factors could cause actual results to differ materially. For further information about the risk factors, please see the annual report for 2021. With that, I will now turn over the call to Michael.
Thank you, Andreas, and good morning to everyone participating in this call. Today, I will briefly go over a few highlights from the quarter before providing an update on our key markets. Peter will then provide additional color on the financial performance for the quarter, as well as on our upgraded financial expectations for the full- year of 2022. First, please turn to Page 3. The first quarter showed solid financial performance with the highest ever quarterly revenue and strong organic growth of 29%. These results underpin the successful implementation of sales price increases to counter the inflationary pressure on production costs. This pressure adversely impacted our gross margin, which declined to 28% compared to 29% in Q1 2021. We continue to demonstrate excellent cost resilience, which drove a solid EBIT margin of 13% compared to 10% in Q1 2021.
Return on invested capital remained high at 21% compared to 16% in Q1 2021. Free cash flow was -DKK 63 million, mainly due to seasonal net working capital developments. Finally, financial gearing was 4.7x net debt- to- EBITDA at the end of the quarter, compared to 4.6x at the end of 2021. Next, I will go over our core markets, starting with the central Western Europe region on Page 4. Generally, the underlying trends of a continued undersupply of housing, demographic growth, and urbanization are still expected to drive further growth of the European housing markets. The positive trends seen during 2021 have continued into 2022, further supported by a relatively mild winter, which allowed for continued high activity.
However, while the underlying demand remains strong, the current geopolitical situation has adversely impacted growth visibility and driven inflation rates within the construction industry to exceptionally high levels. Continuation of such increases in inflation rates may adversely impact future customer demand. If we move to the individual markets, starting with Germany, underlying housing demand remains high due to continued shortage of housing, especially in the larger cities. However, current geopolitical events have led to increased uncertainties in the German markets for the remainder of 2022. As is the case in all markets, the continued high inflationary pressure has led to the announcement of large sales price increases to counter the negative impact on earnings margins. H+H has recently announced further sales price increases, which will come into effect in late quarter two.
The upgrade of the Feuchtwangen factory and preparation of the upgrade of the Wittenborn factory have caused certain production inefficiencies at the two plants. These have caused a relatively high usage of raw materials and a lower production in the first quarter. The German construction backlog remains significant, but the inflationary pressure and current geopolitical uncertainties are adversely impacting visibility. Moving to the Nordics, economic outlooks and expectations for the construction industry are relatively more negative due to high inflation and shortages of labor and materials. However, the largest house builders report strong forward sales for the remainder of 2022, which support a continued positive demand outlook for the region. Finally, in both Switzerland and the Benelux countries, uncertainties from current geopolitical events have resulted in relatively softer outlook for the economic growth in 2022. Turning now to the U.K. market on Page 5.
Leading market indicators point to a continued strong demand and price growth, but the sharp rises in energy costs and general inflation have caused a slowdown in economic growth compared to previous expectations. Construction activity remains high, and customers are reporting strong forward sales for the remainder of the year. The continued strong demand has supported the implementation of significant sales price increases in the U.K. market to counter the growing inflation. As the prices for raw materials and energy continue to rise, H+H has notified customers of further sales price increases with effect from May 2022. In line with the increasing focus on modern methods of construction, H+H sees growing interest in and demand for element-based products. The nature of the demand for element-based products remains highly project-related, but H+H will continue to closely monitor this trend.
Before turning the call over to Peter, please turn to Page 6 for an update on the Polish market. Demand remains high, which has supported the trend of significant sales price increases for both AAC and CSU products seen over the past 12 months. It is expected that AAC sales prices and volumes will stabilize in line with market demand over the coming months due to relatively low activity among individual investors. In the CSU business, further price increases are expected due to newly negotiated contracts coming into effect later in the year. In addition, potential market-driven price upsides may be seen towards the end of the year. While activity within the CSU segment may also slow down, volumes remain supported by our order backlog and a current under-supply of rental housing.
Additional capacity was added to the Polish CSU market during the first quarter, but there are currently no indications that this will impact market pricing. This concludes my prepared remarks, and I will now turn the call over to Peter for a review of our financial performance.
Thank you, Michael, and welcome to this morning's call from me as well. Please allow me to take you through the financials for Q1 2022, starting with the revenue on Page 7. Total revenue for the quarter increased by 36% to DKK 874 million, compared to DKK 642 million in Q1 2021. Organic growth for the quarter was 29%, mainly driven by the successful implementation of significant sales price increases, as well as higher sales volumes in Central Western Europe and Poland. Both markets were highly affected by the particularly harsh winter in Q1 2021, which adversely impacted sales volume in the quarter last year. Revenue in Central Western Europe increased by 36% to DKK 396 million, compared to DKK 292 million in Q1 2021.
Organic growth in the region was 22% for the quarter. In both product segments, sales volumes and sales prices were higher than last year, but the main drivers behind the strong organic growth were higher aircrete sales volumes and higher CSU sales prices. In the U.K., revenue increased by 22% to DKK 239 million, compared to DKK 196 million in Q1 2021. Organic growth in the U.K. was 17% driven by higher sales prices. Revenue in Poland increased by 55% to DKK 239 million, compared to DKK 154 million in Q1 2021. Organic growth was 58% for the quarter, driven by higher sales prices and, to a lesser extent, higher sales volumes in both product segments. Moving now to a review of our quarterly earnings on Page 8.
Firstly, production costs remains impacted by increasing prices on raw materials as well as higher transport prices in the U.K. from a continued high demand pressure. In addition, as Michael mentioned, H+H has, during the first quarter of 2022, continued with the upgrade of the newly acquired factory in Wittenborn. Cash flow from operations was negative DKK 21 million, mainly due to normal seasonal working capital development, driven by an increased level of trade debtors as a result of the relatively high market activity. Capital expenditures amounted to DKK 42 million, resulting in a negative free cash flow of DKK 63 million. Next, please turn to Page 10 for a review of our net debt in the first quarter.
At the end of the quarter, net interest-bearing debt included leasing totaled 462 million kroner, corresponding to an increase of DKK 102 million since the end of 2021. This was primarily driven by developments in net working capital expenditures, and the purchase of treasury shares in connection with the ongoing share buyback program. While net debt increased, our financial gearing remained low and stood at 0.7 x net interest bearing debt- to- EBITDA before special items. This level remained comfortably below our long-term financial target of 1x to 2x EBITDA before special items. Now please turn to Page 11 for a brief update on the ongoing share buyback program announced earlier this year. First of all, please note that the approved reduction of the company share capital has been registered with the Danish Business Authority.
The share capital has been reduced by a nominal DKK 4,833,650 to now being DKK 175 million. Following the reduction, the company share capital is divided into a total of 17.5 million shares, each with a nominal value of DKK 10. Regarding the ongoing share buyback program, as May 6th, a total of 199,300 shares, corresponding to approximately 1.1% of the current share capital, have been bought back under the program for a total purchase price of DKK 36 million. As a reminder, the total value of the share buyback program is up to DKK 150 million, and it is expected that the program will be carried out over a 12-month period.
Now, before handing back the call back to Michael for closing remarks, please turn to Page 12 for an update on our full- year 2022 financial expectations. We have been off to a good start for the year, which highlights our ability to pass on cost increases. While the current geopolitical events are bringing increased uncertainty, we remain confident with the demand outlook and upgrade our financial expectations for the full- year. As a result of the price increases implemented, we now expect organic growth to be in the range of 15%-20% compared to previous guidance of 10% to 15%. Further, EBIT before special items is now expected to be in the range of DKK 440 million to DKK 520 million.
This compares to the previous guidance of DKK 420 million to DKK 500 million. The upgraded financial expectations are based on the assumption that foreign exchange rates, primarily the British pound, the euro and the Polish zloty, to remain at end April 2022 levels. Further, we assume that energy costs are to remain at end April 2022 levels. Finally, while we assume that raw material costs continue to be impacted by modest inflation from end April levels. This concludes my prepared remarks, and I will now turn the call back to Michael for closing statements.
Thank you, Peter. Please turn to Page 13. To summarize, we have had a strong start to the year with solid organic growth of 29% and a record high EBIT before special items for the first quarter. Looking ahead, we will continue with the efforts to integrate the Stotternheim factory into the German production network to benefit from the added production capacity. We have also commenced the upgrade of the Wittenborn factory, with expected completion in Q3 2022. We remain watchful of the continued high inflationary pressure, and we have implemented significant sales price increases to counter the increasing cost of energy, raw materials, and transport.
We expect this pressure to remain for the short to medium term, and we are ready to announce further sales price increases to the market. Finally, underlying demand remains strong, and while the current geopolitical events are bringing increased uncertainty, we remain confident with the demand outlook and upgrade our financial expectations for the full- year. With that, we are now ready to take questions. Operator, please go ahead.
Thank you. If you do wish to ask a question, please press zero one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero two to cancel. We have a question from the line of Kristian Johansen from SEB. Please go ahead.
Thank you. I have a couple of questions. First one on your gross margin. As I recall it, you have previously said we should expect the most pressure on gross margin in the beginning of the year due to the phasing of your sales price increases. Considering sort of the recent acceleration of inflation, would you say that still holds or is the pressure sort of prolonged a bit more into Q2?
Thank you, Kristian. In general, you can say that we historically have been passing on price increases in more or less specific times during the year. That also meant that typically price increases came in during the first quarter and beginning of Q2, and that has also been the case this year. Of course, given the inflationary pressure, as also mentioned in the report, we are announcing further price increases, which is non-typical for us, you could say. Therefore, we are adapting to the increasing cost pressure but also with a certain delay. Also to support that, typically when we provide quotes for projects, in particular on CSU projects, it does take some time to fully materialize into our revenue line. It is traditionally that the sales price increases does take some time to implement.
Great. That makes sense. To your sort of comments on concerns or visibility for a slowdown in demand. I guess it's not to a large extent something which will impact 2022, which is obviously what you primarily communicate around. Have you seen any sort of tangible signs of such slowdown, or is it still more of a concern based on the geopolitical situation?
If you take our guidance, then there is a range of 15% to 20% organic growth. You can say the high point of the guidance is more full implementation of price increases leading us to the higher case. Whereas the lower case is more of, as the background also indicates, for the rest of the year, do not as such see significant volume drops. Our guidance also allows for certain either slowdowns or sort of falling in the output capacity.
Understood. Maybe just to follow up. It was my impression that at least your previous guidance had sort of a buffer or some cautiousness in the low end concerning your Wittenborn upgrades. Is this still the case with the new range?
I would say when you do such a project, there is always a risk, of course. We have now started here at beginning of May, so we now have a current timeline. As mentioned, there is always a certain risk in such projects and a certain risk is also included in this forecast.
Understand. My last question is obviously the geopolitical situation has an obvious impact on your share price valuation. Just to your M&A strategy, does it open any doors in potential talks with targets? Are you becoming more cautious in engaging in dialogue? Can you update us a bit on the development on M&A?
Well, from an overall point of view, we remain interested in making certain optimization activities also this year, if they are becoming available. I think we have experienced that there's a higher level of openness from targets now compared to last year. It's not as if this development kind of spurs an interest for other participants to get out. I think that is to do with the fact that the ownership of the companies we are talking to, and Germany is still a focus for us, is family-driven, family-owned business that has been going through different phases historically, and do not easily say change behavior based on such sudden market developments, so to speak.
We think that what will drive interest in potentially joining us is more a matter of the long-term challenges of smaller businesses in enough space in terms of living up to the rising demands for ESG, in terms of being able to develop new applications and new products, more modern, and then also takes into account the newer combinations of raw materials, in combination with also the increasing, how we say, that size matters and especially brand and leverage towards sales teams matter. We have reached a level now in Germany where we have a good footprint, and I think that the focus for us, at least in very short term, is to make sure that we get the best out of that.
Therefore our focus right now is very much on the projects that are running in Germany. Certainly if opportunities arise towards, they will be ready to take.
Very clear. Thank you so much. That was all my questions.
Just as a reminder, if you do wish to ask a question, please press zero one on your telephone keypad now. There seems to be no further questions, so I'll hand it back to the speakers.
Okay. Thank you for listening in, and thank you for your questions. We are looking forward to meeting some of you on the road over the coming weeks. I wish you all a nice day. Thank you very much.