Welcome to Midsona Q1 report 2023. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing Star five on their telephone keypad. Now I will hand the conference over to CEO Peter Åsberg and CFO Max Bokander. Please go ahead.
Dear all, thank you all for attending this call. This is Peter Åsberg speaking, I'm happy to start the presentation by saying that we now see signs of a more stable situation and that the measures that we have taken to turn around the Midsona are working. Before we begin to the main presentation, I would just like to state that it might contain certain forward-looking statements, and those are associated with risk. We have just recently published a new annual report, there you can go through the full risk map. Let's jump straight into the business and the overall summary of Q1 2023. As said overall, we are happy with the performance that we have and the steps that we're taking. We are clearly taking steps in the right direction.
We started to see signs that things are turning around in the quarter. As you know, since the invasion of Ukraine in February 2022, we have faced increased prices for raw materials, transportation, other inputs, challenging exchange rates, and this has been a challenge to us, but also to the whole industry. We believe that the development in quarter one is a turning point. Looking more closely at Midsona, we delivered slight improvement at sales, and this is despite the fact that we had terminated a distribution agreement for SEK 31 million. We're quite proud of the net sales performance. We saw continued very strong demand for private label. It was up 19% year-over-year.
Most importantly, we have renegotiated a lot of contracts, and we have thereby improved margins, and we have also terminated quite a few loss-making contracts. We're selling a better and more profitable mix of private label. Gainomax delivered double-digit growth. Organic products, a little bit of a mixed bag, but overall, a much more stable situation also for organic products. The price increases that were announced already and last year took effect gradually during the quarter. It should be said, because this is important, that many of them took place in February and March, so the full effect of the price increases we will not see until the second quarter. In quarter one, the gross margin improved versus last year, but we're still not at 2020 and 2021 levels.
We still have some way to go here, and I will come back to how that will happen. We are also proud about the strong cash flow that we delivered. SEK 76 million free cash flow in Q1, net debt was further reduced because of that. This is actually the second quarter in a row we have a record strong cash flow, so we are naturally very proud of our working capital management. A little bit more in detail, what are the things that we have done? What are the actions that we have taken to improve the situation and thereby to turn around the business? First and foremost, price increases. The main issue that we had last year was the eroded gross margin. Our price increases can certainly be justified, and they have been very well-received by the trade.
I would say that for the moment, we don't see any major new price increases. Rather, we see the full implementation of the current price increases and having the full effect of them, which will come in quarter 2, in combination with successively lower cost for input goods, should be enough to restore our historical gross margins. Now what this means is that in the coming quarters, we should see a clearly improved gross margins versus last year, but it wasn't really until the second quarter in 2022 that we saw the real negative effect of the war in Ukraine. We have two cost-cutting programs running, but also a general cost consciousness, of course, and we are on track to deliver the committed SEK 60 million during 2023. The supply chain has stabilized. The overall delivery situation is much better.
That said, we had challenges in our factory in Spain, where we produce our plant-based meal alternatives, and we incurred significant extra cost in quarter one. As of quarter 2, that situation has been resolved. Finally, we continue to strengthen our balance sheet. We have had a very active working capital management, this has reduced our debt further. It might be verified to take a closer look at pricing, and this is actually quite a busy chart. If you start at the bottom, left-hand bottom part of the chart, you can see that in quarter two 2022, our gross profit margin was down 4.7 percentage points, -3.9% in quarter three, -1.3% in quarter four, and we now have a positive gross profit margin development in quarter 1.
This is something that we think we'll think and are very sure that it will continue. As I talked about before, we are still behind historical levels. Considering the recent media debate about cost inflation, we want to state that the price increases that we have taken, they are justified and they are needed. It's also our judgment that all else equal, we should be able to restore our previous levels by cost reductions that we'll get from expected lower market prices for key raw materials. We're also now in a process where we're out negotiating with a lot of our suppliers. If we dive into the science side of the business, you can see that organic products grew by a little bit more than 2%.
As I said, it's a little bit of a mixed bag. Overall, we saw a stabilization of our own brands and then very heavy demand for private label. It's continued to be a strong business driver for us because there is pent-up consumer and customer demand as consumers are trying to find somewhat lower price alternatives. What we have done here also is that we have better margin for the private label contracts. That was one of the main issues that we had last year that had eroded private label margins, but now they are at much healthier levels. If you look at our health food portfolio, it grew by 4%.
We had a very strong growth for Gainomax but did yet, but a little bit more of challenges for our sports nutrition brand, but overall, some pretty decent growth. Consumer health prices are down, that is what is hampering our growth. What this constitutes is the fact that we grow our own brands, but we have a decline that is completely related to a discontinued licensed brand. As I said earlier, that brand or brand portfolio means that we have a minus of 31 million Swedish krona in quarter one compared to last year. Overall, I would say that we have still decent growth considering the circumstances that we're facing. Going forward, we have a number of key projects that we're working on.
The first one is to maintain our current pricing. As I talked about earlier, they can be fully justified. Considering the media debate about inflation, we see currently that our prices are very justified and there is no room for price decreases. We also, all else equal, don't see the need for major price increases going forward. This means that we might have some discussion with the trade, but we feel very confident that we can explain our need to maintain our current pricing. It's a challenge for us, but it's also a challenge for the whole industry v olumes. Volumes are generally going down as consumers are changing their spending patterns. They simply have less money in their wallet. We will do what we can to keep up volumes.
We will activate our brands, and we will focus on the high profit items. We are working on a lot of new business opportunities for our core brands. It's new listings with current customers. Also, we are trying to attract new customers across Europe, and we are starting to see quite some progress in that area. Private label is booming, and we will continue to leverage the opportunities that we have there, but of course, only at the right margins. As discussed earlier, we have actually declined quite a few private label contracts or terminated them because margins were simply too low. While we are a growth-driven company, and we will continue to drive for growth as our volume focus indicates, our current focus is EBITDA and cash before net sales.
We are in the midst of a complex cost reduction project, and we have plans to discontinue both non-performing brands and products. It's our judgment that this will have a positive both short and long-term effect on our EBITDA. We will come back to talk more about that in the quarter 2 call. Over the year, we will continue to drive our inventory down. I should however say that now we are in the period of the year where we have to build up for the summer and even for some autumn sales. That mean that most probably we will increase our inventory slightly in quarter 2, but the objective is still to be down at the end of the year. Again, EBITDA and cash is at the top of our priority.
I'm leaving to CFO Max Bokander. Please, Max.
Thank you, Peter. In the financial summary, as you can see on the screen, the net sales looks flat. As Peter explained, it is partly explained by the negative effect from the discontinued distribution agreement. Otherwise, we would have seen a growth. The gross margin, however, improved with 0.2 % points. The EBITDA came down with SEK 2 million versus last year. The net result landed on minus SEK 6 million impacted by restructuring costs and higher financing costs. Additionally, the net result was negatively impacted by higher tax costs than last year. This deviation was driven by a decision to not activate taxable losses for certain entities. Finally, on this page, again, I would like to highlight that we delivered a strong record cash flow for quarter 1. The organic growth landed on 3.4%.
Again, excluding discontinued distribution agreement, the organic growth would have been calculated to some small growth. Private label continued to grow strong in the quarter, licensed brands would also have shown a growth if we were to exclude the discontinued distribution agreement. Our own brands, however, showed a mixed bag with good growth, for example, given Friggs, while some of the organic brands developed weaker. The EBITDA development compared to last year was impacted negatively by the organic sales, or in this case, labeled as volume, resulted in SEK 10 million lower contribution. This was to a large extent compensated by an improved gross margin and lower sales and admin expenses. The improved gross margin was driven by corrective pricing, which had a gradual positive effect during the quarter.
Despite improving the private label business, the private label has a negative mixed effect when it outperform our own brands. We also, during the quarter, continued to run with temporary high production expenses in Spain. As a summary, I would say the gross margin improved despite these, some, you could call it almost one-off negatives, which we are actually quite proud of. As a summary, the EBITDA landed on SEK 60 million for the quarter, which is then SEK 2 million lower than last year, but SEK 15 million better than Q4. Our cost focus has been mostly in sales and marketing and admin expenses, and we continue to see positive effects from the restructuring program, where the labor reduced with SEK 5 million compared to last year, despite having some salary inflations.
We also had some temporary high costs for external expertise, mainly in South Europe. Additionally, the strict cost control reduced other costs, which, however, was offset by slightly higher investments in marketing of own brands. The free cash flow landed on SEK 76 million, as mentioned. This is compared to -SEK 50 million last year, and this is, again, a record cash flow for Q1, partly driven by continued good inventory management, and the inventory ended the quarter at approximately SEK 120 million lower than March 2022. We ended the quarter with SEK 740 million in available cash, and we reduced the net debt further with SEK 53 million, which also improved our leverage ratio. With that, I hand over to you, Peter, again.
Thank you, Max. I would just like to make a short summary before we open up for questions. We are reaching higher in 2023, and as stated, we are starting to see some light at the end of the tunnel. Assuming stable macroeconomic environment, we are currently positive on the future and outlook for 2023. To summarize this, we have implemented price increases according to plan in quarter 1, and this is a major and very important step. We get the full effect of those price increases in quarter 2. We do see a stabilization of raw material prices and energy, and we are also working with key suppliers to have them lower the prices, and we think that we will have some good progress in that also during quarter 2.
We continue to be cost-conscious and driving our cost savings agenda, including the cost-saving programs that we have announced earlier. We are having a brand focus to focus on our iconic brands and to drive them in an environment where volume is a little bit tougher. At the same time, we will continue to reduce complexity, especially in the portfolio. And I said this is something that we will work on in quarter 2, and I'm sure that we will come back to more information on that when we present quarter 2 figures. That said, our overall and overarching goal for 2023 is to improve our EBITDA and cash situation. I think we're making some good progress in quarter 1, and then we should continue to reap the benefits in the coming quarter.
Thank you, thereby I open up for questions.
If you wish to ask a question, please dial Star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial Star five again on your telephone keypad. The next question comes from Nikola Kalanoski from ABG Sundal Collier. Please go ahead.
Thanks for the presentation, Peter Åsberg and Max Bokander. Just a few questions from my side. You mentioned that you will review your product portfolio and potentially discontinue brands and products that are not sufficiently profitable. If you could perhaps be more specific, is there any particular type of products or brands that would be of significant interest to discontinue or divest?
I will not mention specific brands, but it's exactly the type of product that you were talking about brands or products that are sub profit and or non-profitable, where we see no way to get them profitable. I mean, it should be brands or products that we take out which will actually help us to improve our profitability long term.
Yeah. Thanks. If I could just follow up a bit, when you mentioned the word discontinue, did that also include divest potentially? Is there a potential to divest something, or would it only be a discontinuation in terms of just, well, discontinuing the product or brand itself?
We are looking at both when it comes to potentially discontinued brands. I mean, of course, that's something that we have to come back to if and when we have such a deal. I would say that the main focus is rather to clean and discontinue the current portfolio to get it more efficient so that we can improve our profitability that way, but also over time improve our working capital management and also the utilization of our plants. It is of course, smaller products, smaller brands with less good perspectives.
All right. Understood. Thank you. If we look forward a bit, would you assess that potential price increases could be welcome again, say when the next price change window opens? Obviously, we don't know what inflation will look like then, and there are many moving factors, but given present circumstances, do you think that is something that could be considered still?
I would say that margin management and thereby price management is of course still at the top of our agenda. I mean, there have been a lot of pressure now from politicians, from the trade, to get the inflation down, which is of course very understandable. As I said earlier, I mean, our price increases are very well justified, and they have been well received by the trade. We will continue to monitor the situation and, first of all, the focus will be to maintain the current price level because we need that to get back to historical levels. We are also working with suppliers so that we can close the gap that we still have versus historical levels. I think that will be the main focus for the upcoming future.
Of course, we are clearly monitoring the macroeconomic situation, including the development of raw material prices, transports, energy and of course FX, which can have potentially a big effect, both positive and negative, depending on the trend on our business.
All right. Perfect. Thanks. Just a final, question. I understand there has been some hoarding behavior back in Q1 2022, especially in the North segment, I suppose related to the, to the war. Could you perhaps estimate how large that effect would be? Or would you say that the effect is only marginal, if we could call it that?
I would say that it was quite a big effect, and it was specifically big in Northern Europe, I would say. I mean, we might have seen some effects also in other countries. It was a significant effect. To elaborate on that further, we are just a couple of million below last year result. I think if I should elaborate on the reasons for that, because of course we wanted to improve. The number one reason is the hoarding that we cycled in Division North by Germany, and then also the extra production related costs that we have had mainly in Spain. Those were the two effects, and I would call them one-off effects in the sense that we will not cycle those effects in quarter 2.
Perfect. Thank you for that elaboration. That's all for me. Thank you very much.
Thank you.
There are no more questions at this time. I hand the conference back to the speakers for any closing comments.
Thank you so much for attending. As I've stated, we do start to see the light at the end of the tunnel. The measures that we are taking are biting better and better. We look forward to talk to you again in quarter two, when we report quarter two figures. Thank you so much.