Ladies and gentlemen, welcome and thank you for joining TAKKT earnings call for the first quarter of 2023. Throughout this recorded presentation, all participants will be listening in mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press Star followed by 1 on your platform telephone. Press the star key followed by 0 for operator assistance. I would now like to turn the conference over to Maria Zesch. Please go ahead.
Welcome, welcome to our earnings call for the first quarter, 2023. I'm here together with Lars Bolscho, our CFO. I will start the call with an overview about the main developments and the key topics. Lars will give you more insights into our financials. Before the Q&A, I will provide an update on what we are currently seeing and what we expect from the rest of the year. Let me start with an overall summary. Overall, the development in the first three months was very much in line with our expectations. The weak economy in our markets was already visible in Q4, and that has continued now in Q1. Sales decreased by 2% year-over-year. Considering currency adjustments, this is a decline of 3% compared to prior year.
First quarter 2022 was still a very good quarter with double-digit organic growth, also a more challenging comparison base that we are running against. We have expected this, a more challenging environment, and we prepared ourselves and our business accordingly. We focused on gross profit margin, focusing cost management and on cash. By renegotiation of purchasing conditions with our suppliers, but also managing customer discounts and continuing to pass on price increases, we improved our gross margin to 39.7% to 40% compared to 39.7% from last year. Compared to Q4 2022, it is even a stronger increase. Looking at cost positions, we adjusted our marketing spend to the lower demand, and we continue with the implementation of our more integrated structure.
There were some cost increases in personnel and other costs due to the continuation of our transformation, but also due to inflation. From a cash perspective, we continue to reduce our inventory, and which helped improve free cash flow substantially from EUR 10 million to EUR 18 million. Last but not least, with our strategy, we made further progress in implementing goals from TAKKT and Caring in Q1. The main topics here were the integration of back-end functions in FoodService, and of course, we continued the rollout of cross-selling in Industrial & Packaging and in FoodService, which is within Central. We see very promising results in both divisions. We also made good progress with our smart pricing initiative, where we have developed sales-orientated pricing targets for different product categories in IMP, so in Industrial & Packaging.
Tests have delivered very promising results in Q1 with a positive impact on sales as well as in gross margin. In 2023, we will further work on automation of price adjustments to scale the more advanced pricing across the whole assortment. Last but not least, we have improved our NKT tape share in order intake. Last year, December, we ended up with 20%. Now in March, we see that 24, 4% revenues are coming from NKT products. With that, we continue to make our assortment more climate friendly and offer more sustainable product options to our customers. Let me give you another update. As you know, we are continuously working on bringing our brands in Europe closer together and integrating the organization further. As part of this, we have decided to discontinue our sales brand Certeo.
The business did not meet our growth and earning conditions. Last year, Certeo generated around EUR 20 million in sales but was not profitable. This decision allow us now to focus our marketing efforts on less brands and become more efficient. That was the short overview from my side, and I will hand over to Lars now for the details in the financials.
Thank you, Maria, for the introduction to our call and for your overview. Hello, everybody. Let's have a look at our financial numbers for the first quarter 2023, starting with overall subgroups and starting with the sales development. We have seen the expected headwinds out of economic environment. That's all pretty much within our expectations. You might remember that we already indicated a soft start into 2023 in our last reports. This was now confirmed also by weak market indicators such as the Purchasing Managers' Index or also the GDP growth updates. Overall, our sales declined slightly from EUR 328.4 million to EUR 321.8 million, a decline of -2.0%.
In the first quarter, we still benefited from currency exchange, especially the US dollar, with +1.3 percentage points. Our organic growth was at -3.3% for the first quarter. Looking at our three divisions, we saw some differences in the organic sales development, showing our diversification in terms of regions and also in terms of the types of work we are focused on. FoodService, we continue to grow with 2.5%, a nice development after having been already our strongest division concerning growth in the fourth quarter of 2022. Market circumstances in the other two divisions were more challenging, and we were facing negative growth with -4% at Industrial & Packaging and then -6% at Office Furniture & Displays. Let's continue on the right-hand side of this slide with our profit development.
We generated in the first quarter 2023 an EBITDA of EUR 13.2 million, which was below our EBITDA in the first quarter 2022, at that point, EUR 32.7 million. Our profitability in percentage of sales decreased from 10.0% to 9.4%. As Maria has already mentioned, we focus in this economically challenging environment, especially on our gross margin development, on managing our costs and our cash flow. On gross margin, I am happy to report a 40.0% margin for the first quarter, which is, as you know, back on our target level of 40%. This despite the fact that we were suffering some negative impact out of the mix of our business. Last year in the first quarter, we have been below this level of gross margin with 39.7%.
Also in the fourth quarter 2022, we have been clearly below the 30% level. Good improvement and success here. A bit more detail to follow regarding gross margin on the next slide. On the cost side, we significantly adjusted our marketing spend to the slower demand, especially in the online marketing area, where we continuously adjust to the market circumstances. We were strict on managing our personnel, our FTE, where we are below the level of last year for the first quarter. Anyhow, on other costs and personnel costs, we saw slight increases. First of all, we were feeling inflationary pressure on our costs, as already expected. We also continue to invest into the transformation with increased spending on technology and growth projects and, for example, the integration of the FoodService division.
In addition to these two topics, there is also some impact of non-recurring operational items in the first quarter. The one-time expenses for transformation were in both quarters, so in the first quarter 2022, but also in the first quarter 2023 on moderate levels with EUR 1 million this quarter and EUR 2 million in quarter 1 of last year. This year, so in 2023, those one-time expenses were mainly due to organizational changes related to the integration of our division FoodService. In total, a slight increase in profits, driven mainly by the lower top line and less scale on our infrastructure. We expect our profitability to improve compared to this first quarter 2022 in the course of the year due to better scaling, in line with the expected sales growth upswing we expect for the second half of this year.
The second quarter still could be a softer sales development, and there is also a bit more challenging in terms of profit. Very important to us, we are also prepared to switch to even more restrictive approach with cost management if the top-line development should noticeably be below our expectations. Let's look a bit into the details of our gross margin development. As already mentioned, the development from first quarter 2022, 39.7%, to the first quarter 2023 with a 40.0%. You see first on that slide that we suffer from our business mix, what we call structural effect, with a negative impact of -0.4 percentage points, so our business with structurally lower margins growing stronger.
Looking at the development within our divisions, we focus a lot on managing all components of our gross margin, such as our purchasing costs, our list prices, our discounts with larger customers, and also our food costs. We continued as last year to pass on cost increases to our customers. With this, we achieved improvement in gross margin, very light at RMP, plus 0.8 percentage points, and at OFMP with a plus of 1.7 percentage points. At the division FoodService, the gross margin decreased by minus 1.3 percentage points. The reason for this is that we are still managing the reduction of our significant overstocked Central, which leads to more aggressive pricing, but of course, all still in profitable areas. As mentioned before, this is a temporary impact until we have adjusted our inventories at Central.
We still expect impacts here for this year. This also of course helps in reducing inventories and there is improving cash flow. On the work model of FoodService at Hubert, we had a negative impact out of the mix of our business, doing more business with larger projects and lower margins, hurting our margin in percentage of sales, but helping on the gross profit side in terms of absolute US dollars. Overall, some challenges for FoodService, but overall with the increases at I&P and OF&D, a very nice development compared to the first quarter of 2022, but also to the fourth quarter of 2022, where we were at a level of 39.3%. Let me look at the division I&P now.
On sales, we had a decrease of sales from EUR 189.7 million to EUR 180.1 million, which is a decrease of -5.1% or organically a decrease of -4.2%. Within our activities in I&P, we saw some differences in growth rates. Our strongest activities in the first quarter were at I&P Northwest, so Western Europe and our Scandinavian business, and also at I&P East, which is Austria and Eastern Europe. Both with increases in sales compared to prior year. On the weaker ends of our sales development within I&P, we had Certeo and also our U.K. business with more challenging markets, but also with some internal challenges where we have already talked about our decision around Certeo.
On the other hand side, on the positive side, many of the other regions within I&P, for example, our core market I&P in Germany, were more towards the prior year level in sales or close to it. On the profit side, we were able to even keep EBITDA stable at EUR 26.9 million versus EUR 27 million last year, with an increase of profitability of 0.7 percentage points to now 14.9%. The increase in gross margin of 0.8 percentage points, I already mentioned, helped significantly here, and is of course, the high focus topic for us, especially in the challenging environment we are in right now. The marketing costs and also personal costs, we were able to adjust our costs to the lower level of demand and activities.
Concerning one-time expenses, this year we had no one-time expenses than last year. We still had approximately EUR 1 million at I&P, and at that time, this was including the exit of the Russian market. Overall at I&P, solid profit development despite a slightly decrease in turnover. Let's look at the development of the first quarter of our division OF&D now, starting with sales. Our sales declined slightly from EUR 74.4 million to EUR 73.2 million, a decrease of -1.6%. The US dollar currency relation to the euro still helped here with positive impact of 4.2 percentage points. Our organic development was at approximately -5.8%.
Looking into our business units of OF&D, the Pieces to go brand was stronger, especially towards the beginning of the year 2023, leading to a slight load for the first quarter there. We had what we feel more difficult market circumstances from the beginning of the first quarter already. Important to state for NDX that we were also benefiting last year from good conversion of open orders into sales. This is creating our sales compared to the previous prior year a bit now in the first quarter. Let's look at the profit then for OF&D, right-hand side of this slide. As you can see, the EBITDA declined from EUR 6.4 million to EUR 5.4 million, which leads to an EBITDA profitability of 7.4%.
OF&D was able, as already explained, to manage its gross margin upwards again by 1.7 percentage points. A nice development making benefits from some positive cost development, especially in print costs. On marketing costs, we adjusted to the weaker market position and kept our marketing cost ratio almost stable. On the side of personal costs and other costs, we had, as expected, an increase of cost. The increase was amongst other, due to inflation and cost increases, and we also had some costs that are impacting the first quarter 2023, which we would not expect to return in the next quarters. Overall, this leads to a lower profitability in the division OF&D in the first quarter 2023 compared to last year.
For the whole group, we expect the sales volume to pick up and with this get better scale again and increase the profitability compared to this first quarter. Let's continue with our third division, FS, with the sales development. As mentioned already in the chapter overview, we were able to increase our sales despite the challenging economic environment in this division. Making sales from EUR 64.3 million to EUR 68.5 million, which leads to a sales growth of 6.5%. Even after the currency impact of a stronger US dollar, the organic growth is positive at 2.5% for FS. We benefited from a reduction of orders in hand, especially at the Central business, while our Central activities were still slightly below last year.
Our Hubert brand was developing quite strongly with a high single-digit growth rate and nice developments in selling now especially larger equipment to our customers. On the profit side, we have to report on an EBITDA reduction from EUR 4.3 million to EUR 2.6 million in terms of profitability, a decrease to 3.8% profit margin. One reason for the lower profitability is the gross margin. I've talked about it earlier. We decreased the gross margin by 1.3 percentage points due to the trade-down of overstocks and the negative mix impact out of having more product business. On the cost side also, at FS, we were able to manage our advertising costs. At FS, the advertising cost ratio was a bit better than prior year.
On personal costs and other costs, we were higher than prior year, especially at FoodService, where we are investing into the transformation of our business, the integration of the business into one division. Besides these costs, this also led to some one-time effects. One-time impact on FoodService out of organizational changes has been reduced to almost EUR 1 million impact this year. Also here, with the expected upswing in volume and the better scale, we expect to improve the profit margin again over the course of the year. Let's look at cash flow for TAKKT now. As you know, one of our priorities for this year. Starting with the tax cash flow, there is nothing special to report on it. Our tax cash flow is following mainly our EBITDA development.
In addition, the financial result was a bit more negative due to increased interest rates with our US dollar debt. Overall, a decrease of tax cash flow from EUR 28.9 million to EUR 23.9 million. In net working capital, you can now see the focus with the settling credits here. While last year we've been reinvesting into our working capital, EUR 15.5 million, we have now invested only EUR 4.3 million, and this is mainly to the fact that we have been very successful to further decrease our inventories by more than EUR 9 million in the first quarter 2023. Liquidity, which is highly prioritized in our businesses and which will also continue over the course of 2023.
With CapEx doing similar level as last year, this development then leads to free tax cash flow being at EUR 17.8 million and leads to a very nice increase of +EUR 8 million, right above the prior year level. We continue with a short look on the balance sheet. No big news or surprises here, as I can still present a very strong balance sheet. Our net financial liability has decreased due to the already presented strong cash flow by EUR 60 million to EUR 100.6 million, thereof EUR 60.4 million are lease liabilities. Our equity ratio has further increased to 64.2%. This is still above our internal target corridor of 40%-60%, showing the potential we have for dividend payments as well as for investments into M&As.
Having mentioned dividends, just a quick reminder about our dividend policy and our share buyback. The share buyback program continues as planned. Out of the maximum potential of EUR 25 million, we still have spent EUR 7 million. Our strong cash generation allows us, in addition, to propose a dividend payment of EUR 1 per share. In total, EUR 0.60 base dividend and EUR 0.40 special dividend. Before I hand over back to Maria for the outlook, let me summarize the first quarter from the financial perspective. As expected, we have been in a challenging economic environment, and with this we have to accept a slight decrease of our top line.
In such economically challenging times, it was important for us to focus and to succeed on our gross margin, showing the health of our commercial position and on our profit and especially our free cash flow, which is the strength of our business model and key focus for 2023. Overall, so far we developed well within our expectations. Maria will now comment on how we look at the rest of this year.
Thank you, Lars. It seems economic uncertainty seems here to stay. At least currently, we don't see a clear trend, but instead a volatile environment. This is also reflected in the sentiment indicators which fluctuate from month to month currently. Overall, we expect the volatility to grow in our targeted markets. We expect that inflation remains an important topic. We also believe that the labor markets will continue to be tight. That's what we expect. If some of the downside risks materialize, we could also see a deeper recession or be in a situation where we have to wait longer for the economy to pick up speed. That is not currently our assumption. For us, what does it mean now in terms of our priorities? We have to stay flexible. We have to adjust spending according to the changing demands.
We have done that in Q1, and we will continue to do so. We will focus on the strict cost management, but also we will be prepared for a better environment in the second half. We will focus on gross profit margin and cash, so that will remain our key priorities in 2023. We want to build on the success we saw in the first quarter, and definitely, we would like to continue on this path. That means on the forecast for the key financials, no change in the full year forecast for our key financials. I am so much driven by strong focus on our customers and unlocking our growth potential. Rest assured, we are pushing ourselves and the organization to realize any additional potential that are out there and deliver on the top line.
The same goes for EBITDA, where we are keeping the balance between cost management, permanently adjusting to the inflation environment, but also not losing speed with the transformation. I think we are on track here after Q1. Cash flow already saw a good increase in Q1. I'm very sure that we can realize additional potential for us and further improve our net working capital management. That's the outlook from our side. Let me remind you on our investment thesis. We have a huge growth potential because we operate in a large and very fragmented market. We have a very diversified position within our activities in Europe and the U.S. This has helped us in the past, and will also be important in the future.
We have a clear vision and a strategy to bring new worlds of work to life together with our customers. We have a very good financial track record. We execute it. We deliver on our financial goals also in difficult times. Last but not least, even in the current uncertain times, we have the advantage to operate from a position of financial strength and stability. With a strong balance sheet, we generate substantial free cash flow, and we are committed to pay dividends to our shareholders. I thought we could give you a good overview about Q1. We are looking now forward to your questions.
Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. Anyone with a question may press star then one at this time. As a reminder, for any questions, please press star on one. The first question comes from the line of Ronald Cohn from Warburg Research. Please go ahead.
Yes, thanks for taking my questions, coming to the Q1 figures. I have two questions. The first one would be on the depreciation where we saw a decrease of roughly EUR 1 million. Is this only effect of currencies, or is this the EUR 9.3 million more or less a runway for the next quarters? The second question would be on the discontinuation of the brand Certeo. Could you please elaborate a bit if there are any financial implications, so impairment or something like that we have to build more models for the next quarters? Thank you.
Yeah. Thank you for your questions. Let's start with the impact of Certeo into our numbers. First of all, no further impact like on our balance sheet, so no amortization or things like that. Of course, like in terms of sales, we then expect a negative impact on our growth rate of around 1 percentage point in 2023. For you like the rest of the year, possibly on the sales growth impacted by 1.5 percentage points. For closing down the activities now, we expect also a slight negative EBITDA impact with a low single-digit EUR million amount. From 2024 onwards and beyond, it will be positive. was not meeting our targets and was not profitable.
Please keep in mind that the two business, like in terms of numbers, was a rather small part of I&P and especially of TAKKT with minor impact overall on our numbers. And then on the question around the depreciation. Yes, that's more or less the new one rate we have at the moment. We have some special impact that out of PPA depreciation last year and then some other depreciation going away. What we see right now is more or less what we would expect then for the upcoming months. You've also seen like on the CapEx level, we are also more or less on a normal regular base. No bigger topics we have to be expected for the upcoming month or quarters.
Okay, thank you. The next question comes from Kent Biel from Jefferies World. Please go ahead. Sorry, your line's open. Probably your line changed. Looks like we don't have Mr. Biel. There are no more questions at this time. We have a question from Christian Bruhn from Ortega. Please go ahead.
Christian Bruhn from Ortega. I just want to ask if you could give us a little bit more color on your M&A strategy and in which markets you see potential in the current environment to increase your existing businesses. Would it be another...
If I understood the question correct, where our M&A activities and where do we focus on? As I said already in March, we have increased the focus on our M&A activities. What we see that there are potential attractive targets in the pipeline. No specific news to share, to be honest. What I can repeat, it's what I said in March, we have a focus in Europe and U.S. We have a focus for integration of assets into our three divisions. What we're looking for are solid financials, high organic growth potential. That's the target we're looking for. Hopefully, Christian, this is answering your question.
There is one priority maybe of your existing divisions, but you are looking at each division, and as you have already a short list of companies, I understand.
We're looking in Europe and U.S. As I said, the priority is definitely with the focus on the division to have more and not only going for additional divisions. That's the focus.
Okay. Okay. That's clear. Okay. Sounds good. Thanks.
Thank you. Thank you, Christian.
I have a follow-up question from Roland Kohn from Bank of America. Please go ahead.
Thanks for taking my question. Again, just a short reaction on the share buyback program. It seems that you're buying back shares at least to the share price of EUR 40. Could we assume that after the annual general meeting and after the dividend is paid and the share price theoretically is deductively everything EUR 1 of dividend payment, you will start again to buy back shares?
Thanks for your question, Roland. Yes, you can see, like, out of our weekly announcement that we have, like, a certain threshold. We are acting that there's no decision or anything on what will happen around the annual general meeting. If like the dividend is hit, which I think could be the case, impact like the share price positively, but no guidance or decision on that here to share.
Okay, thank you.
The last question comes from Tom DeGriff from Maxiv. Please go ahead.
Yes. Hi, can you hear me?
Yes. We can hear you.
Perfect. Perfect. Only one question left on my side. On current trading, the concept clearly return the second quarter of this year. Would it be a realistic assumption to see at least some low single-digit growth in the second quarter of this year and some thoughts on profitability in the second quarter would be helpful as well?
Thank you, Tom. On the current trading, as I said before, there are some volatility in the market and changes in consumer behavior on a weekly basis. Some markets have improved, like FoodService in the U.S. Other markets are more challenging. Overall, we don't expect a real trend shift in Q2, so we also don't see it in our numbers now. From what we are seeing currently, Q2 could be similar to Q1 in terms of growth. Hopefully that answers your question, Tom.
Okay. Perfect. Also the same in terms of the segments. With the FoodService and maybe slightly stronger compared to the RMP segment and also to the sales segment, or is there anything going to change in the second quarter in terms of momentum for the different segments?
As I said, what we see is that we have improved also KPI figures from FoodService, so that's definitely a strong development so far in April. Other markets, as I said, are more challenging, region for region differently.
Okay. Perfect. That answers my question. Thanks a lot.
The next question comes from Henry Peer from Capra Global. Please go ahead. Sir, your line is open.
Can you hear me now?
Yes, we can hear you, sir. Please proceed.
Okay. Now, I have 2 last questions. Sorry. You talked about already about the margin, but do you see, like, any increase in margin pressure?
I'll just take both actually. You're referring to gross margin or to profitability, profit margin? Okay. Thanks. Thank you. The answer. I assume the question is on gross margin. On gross margin, of course, there is in certain areas still pressure on the cost line or on the cost items, but also that is going backwards again. As I said before, we are really focusing now on all elements of our gross margin to improve that. No, there's not a big further increasing pressure on that. Of course, it's always the balance for us to balance gross margin now with other targets we have, which is safe growth, which is also the cash flow.
We feel very comfortable and good with the 40%, which is, like, our target for the TAKKT Group, and that's, you know, what we're heading for and what we also expect for the upcoming quarters.
There are no further questions at this time. I hand back to Maria Zesch for closing comments. Please go ahead.
Thanks a lot for your interest in our Q1 figures. We will publish our half year results on the 27th of July, and we're looking forward to talking to you again. See you soon.