Hello, and welcome to Midsona Audiocast with Teleconference Q1 2022. Today, I'm pleased to present CEO Peter Åsberg and CFO Max Bokander. 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. I'll now hand you over to Peter. Please begin.
Thank you so much, and thank you all for attending this call. We can move to page number two. Before we start the actual presentation, we want to make you aware that this presentation may contain certain forward-looking statements, and that there is risk and uncertainty associated with those statements, especially in the turbulent times that we are facing currently. For a view on risk and opportunities, we refer to the recently published annual report. With that, we move into the actual presentation, and we go to page number three, which is the summary page. Although results as expected were behind last year, we still think that we have done some good progress in the quarter.
The first round of price increases, which we talked about already in the Q4 call, has been fully implemented and also somewhat ahead of time, most of it beginning March and all of it by April. That said, came the war in Ukraine, and we saw a new round of cost inflation, which means that we have already initiated a second round of price increases, which will have full effect from quarter three. I will come back and talk more about that, of course. The quarter started okay. We had a relatively weak February, but then a very strong sales month in March. Actually, March 2022 was the strongest sales month that we have had since October 2020.
October 2020 was a lockdown month, so we're quite encouraged by the sales result that we saw in March this year. If you have read the report, you have seen that this trend has also continued in April. We have good sales so far in April. During the quarter, we have done some very successful product innovations, and those innovations have also given support to sales and volume. We've expanded the plant-based meat alternatives in our facility in Castellcir. That said, we're still facing a challenging situation, and because of that, we have announced and initiated a cost savings program, and the target is to lower cost by approximately SEK 40 million, fully implemented by mid-2023, but most of it by beginning 2023.
We're also very happy and proud that we have been recognized as a CDP engagement leader, so this is a clear proof that we are continuing to drive also sustainability agenda, although the somewhat challenging times that we're facing. Let's move to page number four. Cost inflation and price increases are, of course, subjects on everyone's mind and top of mind for you most probably. I should say that we started to see cost inflation already in quarter four, as you probably know. This was mainly related to raw materials and crops, and that's what we priced for in the first quarter. Then came the war in Ukraine, and principally, we have no trading with Ukraine and Russia, so we have no or very limited direct effect, but there have been significant indirect effects.
Many raw materials as well as transport, energy, prices have skyrocketed. On top of that, we have had some unfavorable exchange rates, the strengthening of the euro, but also the strengthening of the US dollar against most currency. On the positive side, I should say that we have limited exposure to increasing fertilizer prices. 50% of our sales is organic, and of course, in organic products we use no fertilizers or chemical fertilizers, which is currently a positive. Potentially, we could see a certain closing of the gap between commercial prices of organic product and conventional product. I should also say that 20% of our products are consumer health products, and also there we have no exposure against the chemical fertilizers, so this is actually a positive for us.
What does this mean to us? Well, first of all, the first round of planned price increases have been fully implemented as of April 1, 2022. Relatively speaking, they have been well received by both the customers and the consumers. The second round of price increases are now under implementation, and we are confident that we will be as successful in the second round as we were with the first round. We move to page number five. The financial summary. Max will talk more about the numbers, so I won't dwell on them too long. I would just conclude that our big challenge is the eroded gross margin, which still is down versus last year, although we have made some price increases. Simply said, if we fix the gross margin, we are a long way towards profit recovery.
I would like to take the opportunity to look at Gross Margin in some more detail and we move to the next page, where we compare EBITDA quarter one 2022 versus quarter four 2021, so to see the effect from quarter to quarter. As you can see, we do have a negative volume effect, which is kind of expected because seasonally, the first quarter is a lower quarter compared to the fourth quarter. On the positive side, we're improving the gross margin by 2.2 percentage point versus quarter four last year. This is first and foremost an effect of our price increases. It's also important to remember that this effect was gradual. Principally, we had no effect, no positive gross margin effect in January.
We had some effect in February, and most of the effect came in March, and the full effect actually in as of beginning April. The rolling effect is bigger. That said, and as already mentioned, cost inflation has continued, and therefore we're already planning for new price increases. We move to page seven. I would like to highlight that we are, of course, not only working on price increases and managing cost inflation, but we also work very hard on continuing to move the business forward. We have made a number of launches that we're quite excited about in the first quarter. The one that I think that you should pay specific attention to is the launch of Corn Cake Taco, the Friggs, new Friggs variant. It has performed very well so far. Of course, it's early days.
We launched it mid quarter one. To date, it's our best-selling recent launch, and it's acted better than Friggs Popcorn, which was the best-selling corn cake variant for Friggs before we did the taco launch. We're actually moving ahead of that variant right now. So far it has been launched in Sweden, but we of course also plan to launch it in the other Nordic countries where we're present. We've also launched a number of products under organic brands, and you see a few examples here. To continue to drive our innovations hard will be an important part in terms of increasing net sales over time. We move to page number eight, which is also about our product and assortment. As you know, probably a major focus of ours is our plant-based meal alternatives.
We have expanded our facility in Castellcir, Spain in 2021, and it's now fully operational. In quarter one, we have made first deliveries to the big retailer, Mercadona, in Spain. However, the big volumes from Mercadona will start to roll out in quarter two when they do a full rollout in the national retail system. We've also done a lot of insourcing, which will strengthen our margin over time. Most importantly, we're step-by-step able to offer an exciting and innovative product pipeline. Page number nine and the action plan. We are, of course, not happy with our performance and the fact that we are not improving versus same quarter last year.
While it's very hard to give forecast or prediction in this very turbulent environment, I would like to state the ambitions that we're having and the ambitions that we are very committed to delivering on. The most important thing for us now is to restore the gross margin, and we're very committed to doing so. Most of it should be done by Q3 2022. Beginning 2022, the situation should look a lot better. This means that we should get back to historical gross margins that we had before we saw the sharp cost increases. We expect to be fully back by the beginning of 2023.
What takes a little bit longer is that we do have some private label and food service contracts that run on a yearly basis, and those will take a little bit longer to renegotiate. We are currently in dialogue with all major customers, and we feel confident that we will successfully implement the second round of price increases just as we did with the first round. That said, we are aware that we might face further cost shocks, but I would say that in this case, we are prepared to manage them. Considering the uncertain situation, we're also launching a cost savings program. Our ambition is to save SEK 40 million on a yearly basis. There will be a restructuring fee associated with the program. This one is still to be announced.
We are working on that, but the program will definitely have a good payout. Finally, we're highly focused on increasing sales, especially the brand part, because that's where we have the highest margin and makes the most money. As stated already earlier, March was a good month and also April looks good so far. We are of course helped to some extent by the price increases, but we also have specific plans for our three main commercial areas and more on that on the next page. We move to page number ten, where we have the three commercial focus areas. We have three big building blocks that makes up the vast majority of the generated profit in the company. It's organic portfolio, it's our conventional brands, conventional health food brands, and it's our consumer health portfolio.
We are taking action in all three areas to improve performance. For organic brands, the brands are local, but increasingly will have the same platform in terms of product packaging and communication, and this will create strength and synergy, and we're also working on a joint innovation platform for those brands right now. Our Nordic conventional brands, such as Friggs, Earth Control, and Gainomax already show good growth, and we're working on increasing and turning into Nordic brands to get the full potential out of those brands in the Nordic countries. Lastly, in the quarter, we have reorganized and created a separate organization for our consumer health portfolio. This makes a lot of sense because we're targeting a different customer and also a different consumer.
With those three building blocks, as said, we cover the vast majority of our profits and, as such, they're great profit levers. With that, I hand over to Max who will take you through the financial numbers in some more detail. Please, Max.
Thank you, Peter. I would like you to go to page 12, where I will start walking through the net sales development during the quarter. In the left graph, I would like to highlight the structural growth and the currency translation effect. The structural growth is represented by Vitality adding SEK 34 million to the quarter. The currency translation effect was positive and adding additionally SEK 28 million. When it comes to the negative organic growth of 5.6%, I would like you to look at the graph to the right. As you can see in this graph, we face a different consumption pattern in the society compared to Q1 last year, where a large part of the European area still were in a lockdown situation resulting in more home consumption and better sales of our type of products through the grocery trade channels.
Regarding the strong growth of food service during the quarter and what you cannot see in the graph, I would like to mention that the sales do not only grow versus last year, but also versus quarter one, 2019. With this, I would like to conclude that also compared to periods with similar consumption pattern, the sales through food service are growing, which we see as a strength. Now please turn to page 13, where I will explain the EBITDA development compared to last year. In the left graph, you can see the EBITDA for quarter one that landed on SEK 94 million in last year. When including pro forma for Vitality, the comparable EBITDA was SEK 98 million. Now to the explanation for the variances.
In the first bar, after the pro forma EBITDA, you can see that the variance from the organic sales decline and assuming constant pro forma gross margin, the gross profit was reduced with SEK 60 million. Additionally, due to the timing of our price increases, just explained by Peter and high inflation, the gross margin came in weaker than last year, which resulted in further SEK 26 million lower gross profit. However, our profit protection plans resulted in a net saving of SEK 10 million in selling and administration expenses during the quarter. Compared to last year, this FX translation and revaluation effect had a total negative impact on SEK 4 million. This, despite the translation effect, had a positive of SEK 1.5 million, since these were offset by negative revaluation effects which were actually positive last year.
All together, these summarize to SEK 62 million EBITDA for the quarter, and as already mentioned by Peter, this is a small improvement versus previous quarter. I now ask you to move to page 14 and the free cash flow. Here I would like you to start looking at the graph to the right, where you can see that quarter one historically has been a seasonal weak quarter when it comes to free cash flow. However, following last year, when we increased inventory levels quite materially, we had initially planned, and I think we just mentioned when we released the quarter four report that we had assumed to release some cash from inventory during this quarter. But as you can see in the graph to the left, we did not do so.
This has been a conscious decision following the Ukraine crisis, where we saw what changed priorities for certain raw materials and prioritized to secure long-term or longer term needs rather than the short-term needs. With that, I would like you to move to my final page number 15. On this slide, we present our available cash situation and where we ended the quarter with SEK 406 million available, representing 30% of our last 12 months net sales. Finally, if you missed any slides that I presented before, you will find them in the file that we have uploaded on our home page. With that, I would like to hand back to you, Peter Åsberg.
Thank you. We turn to the last slide of the presentation before we open for questions and answers, which is the priorities for 2022. We are of course not happy with the recent results. Yes, we have been pressed by all the factors, but we definitely want to reach higher. To summarize, price increases is of course high on our agenda. Remember the price increases that we did in the first quarter will have full effect in the second quarter. Considering continued cost inflation, we are now implementing new price increases, and we're very committed and confident that we will do so, and those will have full effect as of quarter three. As also stated, it's our ambition to step-by-step get back to the gross margins that we had before this cost inflation spiral started.
We have a high focus on creating growth in our three prioritized areas, organic food products or conventional products, and also the consumer health leg of our business. Plant-based meat alternatives is also an important growth lever for us, and we will step-by-step expand the assortment in plant-based meat alternatives. Considering the challenging situation, we are implementing a cost savings program with the target to save SEK 40 million on a yearly basis. Finally, our times are tough. We need to continue to focus on sustainability and thereby to contribute to health of both the people and the planet. Again, we are committed to step-by-step improvement and feel confident that we will deliver. By that, I open up for questions.
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 Johan Brown from ABG. Please go ahead.
Thank you. Hi, Peter and Max. I have quite a few questions, actually. Starting with the current trading environment here, you're mentioning a nice growth rate in April, I believe. Are we talking organic growth here or total growth?
What I would say here is that we are talking growth for sure, and growth including, I mean, or pro forma growth. The exact effect of changes we haven't calculated yet, but we are talking growth for sure.
Thank you. Regarding the price hikes here, I know you have a couple of stages here, but and we've had some larger competitors of yours being out and talking about maybe even double-digit price hikes. Is it possible to get some sort of a feeling for the magnitude here?
I would say that it varies very much by segment. We are talking about quite dramatic price increases. For sure in certain segments or part of the business, we are talking about double-digit price increases, yes. It's a mix really. Where we have the highest price increases are with certain commodities, where we see major cost inflation, and then there might be some other segments with a little bit less cost inflation. Yes, we are talking quite significant price increases.
Great. Regarding your talk about a restored gross margin. During the last years, we've obviously seen quite a lot of variations in the gross margin, coupled with you doing some M&A with different cost structures. What would you say is a satisfactory gross margin level that you aim to restore to?
If you look at the historical gross margin before the cost crisis hit us, I would say that it would be around 28%. Of course, over time, this is something that we would like to increase further by setting a better mix. Restoring the gross margin would be adding another few percentage points to the gross margin that we delivered in the first quarter.
Great.
And then, and then-
Oh, sorry.
Sorry, Johan. I should also say that of course there is a variation during the year, so this would be an average over the year. I mean, there are some quarters that are stronger gross margin-wise and some that are just a little bit weaker due to the mix that you're selling.
Yeah. Yeah. Got it. The savings program, are we talking cost of goods sold or OPEX?
That program is, I would say, related to operating expense.
Great. Two quick ones left here. The profitability level here and sort of getting a feel for the underlying development, I guess, you had some help from the initial price hike starting in February and then, the war came and sort of clouded the picture. Where are we in terms of the current trading here in March, April, until the next price hikes come in? Is it possible to say something about where we are in terms of the current trading here in March, April, until the next price hikes come in?
Well, I would say that it's quite a turbulent situation. All else equal, we would have restored the gross margin by beginning quarter two, but now there have been a number of quite hefty price increases on raw materials, transport and on energy. I will look at a prediction of that more than to say that it's our aim that we should have taken a big step when we start quarter three. Quarter two will be a little bit of a mix depending on when we deplete our stocks with lower prices. Of course, some of the cost increases like energy and transports, they strike almost immediately.
I will not give an estimate in terms of where the margin will land, but it's for sure is key for us to restore the margin step by step here.
I understand. Then a last question from me as well. Yeah, the profitability level in current trading is obviously hard to comment. But yeah, we're looking at a Q1 with a similar profitability level as in Q4. The leverage is now up to above 5x. How confident do you feel with the current balance sheet given these factors?
We feel confident with the balance sheet and we have full support of our banks in this.
Great. Those are all of my questions. Thank you very much.
There are no further questions. I'll hand it back to the speakers.
Okay. We thank you so much for your attention, and we look forward to talk to you again or meet again when we have the next call after quarter two. Thank you so much.
This concludes our conference call. Thank you all for attending. You may now disconnect your lines.