Welcome to the Midsona Q4 2023 report. 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 pound key five on their telephone keypad. Now, I will hand the conference over to the speaker, CEO Peter Åsberg, and CFO Max Bokander. Please go ahead.
Dear all, this is Peter speaking, and thank you so much for attending this call. As a top-line summary, I would say that we are step-by-step executing our plan, and we have seen accelerated progress during 2023, quarter by quarter. We see clear results of our efforts, especially in improved margins and a record-strong free cash flow. Before we jump into the actual presentation, I would just like to make you aware that this presentation might contain forward-looking statements, and that such statements are subject to risk and uncertainty.
Before we go into the specifics of the fourth quarter, 2023, I would just like to take some time to reflect on the full year performance that we had in 2023. Going into this year, we knew that it would be a tough one, continuing inflationary pressure and potentially depressed consumer demand. I'm therefore very happy about the progress that we have made. We have relentlessly implemented actions that step-by-step have strengthened the business. We are improving EBITDA.
One key focus has been working capital, and we have done that mainly via complexity reduction as a way to lower inventory. I would say that our performance has been excellent. We have significantly lowered the amount of capital tied up in inventory, and as a result, we can report a record-strong cash flow for the year. This, in turn, has resulted in a significant reduction in net debt, meaning that we're much better prepared going into 2024 in terms of our balance sheet. We have also had successes with our product portfolio. The market for organic product, which stands for about 50% of our sales, has been, and to some extent still is, depressed.
We don't yet have the full year figures for our main markets, but the statistic that we have suggests that there has been a decline in all major markets during 2023. Still, by consumer-relevant marketing and actively hunting for new customer listings and distribution opportunities, we have managed to grow our organic franchise, which we are very proud of. Our organic brand, Friggs, continued to grow strongly in 2023 and recorded another year with all-time high sales. Last but not least, we have worked on complexity reduction, and we have a much, much more streamlined portfolio going into 2024. Let's move over to quarter four, more in specifics. We are very happy about the progress in quarter four.
For those of you attending the quarter two and quarter three calls, you might remember that we said that we would give priority to EBITDA and cash flow before net sales, and this is exactly what we have done. During the quarter, we are improving EBITDA before one-off items by 33%, and this is despite higher-than-normal investment in our brands. We also delivered a record-strong cash flow for one single quarter, and importantly, also, this followed on a very strong quarter three cash flow. We do see slightly declining sales, the main reason being discontinued licensing agreements, and the effect of those agreements have drawn down sales by a total of 50%, and if we adjust for that, sales is increasing by 2%. The positive story on organic food continued in quarter four.
We grew our organic food franchise by approximately 5%, and this was still in a somewhat weak market. In the quarter, we continued to launch a new innovative communication concept for our organic brands. As you might remember, we launched Kung Markatta in Sweden in quarter three, and we then rolled out the concept for Urtekram in Denmark in quarter four. We have seen positive effect on sales because of this. We also saw overall quite good demand for summer recreational brands. Friggs was the shining star with a strong double-digit growth. The gross margin improved to 25.4%, up from 22.6%, the same quarter last year. This is driven by implementation of price increases and also the rationalization of the product portfolio, the complexity reduction that I discussed earlier.
So what we have done is that we have phased out a number of unprofitable products and brand lines, and we have also ended quite a few unfavorable third-party contracts. We have also renegotiated a number of contracts on the private label side, giving us more favorable terms for 2024. We are improving EBITDA for the third quarter in a row, and we have thereby broken the negative spiral that we had been in, and we really see this as a sign of a turnaround. We are clearly taking steps in the right direction, but we want and really expect more for the future. It might be very fine to take a look at our gross margin development over the year. This was a major issue in 2022, and it was a challenge going into 2023.
We managed to turn around and get slightly ahead in quarter one, and then, as you can see, we have had very good progress on the gross margin development quarter by quarter. And these are really good steps in the right direction, but still we are somewhat behind historical levels. The main reason being negative currency effects, and here, the recent strengthening of the Swedish and Norwegian krona should help us going forward. Looking at the portfolio, as said, we did continue to grow our organic franchise by 5% in quarter four. Private label also grew again after the launch of a new communication program. Here, we see in Norway a good growth. And what we're especially happy about is the strong growth that we saw for brand Davert in Germany.
Davert recorded a very strong double-digit growth in the quarter, and this was really helped by new customer contracts that we signed. Our conventional food brand, healthy brand, that declined slightly. Friggs is the shining star, double-digit growth. But the main reason for negative growth is that we stopped a number of unprofitable private label contracts, and we also had certain supply issues for our sport nutrition brands. And then in consumer health products, we had a decline, and this is totally driven by the discontinued licensed brands. Important to mention and notice here is that the main discontinued contract will not cycle anymore as of January 2024. Looking at the divisions. Division Nordics stay strong. It's working very well, and it's performing very well. EBITDA before one-off items is increasing, and this is despite the discontinued licensing agreements.
Our conventional brands are doing well, and for the organic brands, we did see a positive development. The gross profit has improved, but it's still somewhat behind target due to still remaining unfavorable FX effects. Division North, which is the DACH region, started to improve. Sales grew by a solid 9%, in quite a challenging market, should you say. And the main reason was the progress that we saw on brand Davert, but we also saw good development in our private label business. In the region South, we had slight net sales growth, and it mainly came from private label. And of course, here still our results are far behind the desired levels. We are improving in France, but we still have some production-related issues in Spain that we are now working hard to address.
In quarter three, I talked about the rollout of the new communication concept for Kung Markatta. We are using the same concept for the Urtekram brand, and here you see some of the visuals in terms of what we have rolled out. Clearly, the health of people and planet could be better, and choosing organic alternatives is one way to make it better. So we are really convinced about our organic brands, and that the long-term prospects remain positive for those brands. Now we are investing quite heavily, both in Kung Markatta and Urtekram , to actually improve sales, and we see signs that this is now starting to work quite well. I will get back to the end of the presentation and summarize, but now I would like to leave over to CFO, Max Bokander.
Thank you, Peter. As the financial summary for the quarter, the net sales was down 2.3%, but the gross margin improved with 2.8 percentage points, and the EBITDA improved with 33%. The net sales landed on +SEK 3 million and breaking a negative trend of six consecutive quarters with negative result before. The net result included SEK 9 million of restructuring costs and SEK 6 million in profit from divesting non-strategic brand, both classified as items affecting comparability. As already mentioned, the free cash flow for the quarter and the full year were both records, which led to a significant reduction in net debt to SEK 496 million. Looking at the net sales development for the quarter, the organic growth landed on -4.4%, which was fully explained by the discontinued distribution agreements.
Excluding these, we would have seen a small organic growth. Own brands as a total was down, but several of our key brands demonstrated strong growth, while some of the health food brands declined, mainly due to supply issues. Additionally, the less profitable branch of sales to restaurants, industries, and bakeries continued to decline, partly due to our own decision to not deliver at too, from our view, low margins. Licensed brands were down 25.2%, but excluding the discontinued distribution agreement, the organic development would have been calculated positive +15%. Private label still shows good momentum with an organic growth of 5%, driven by North and South Europe, while Nordic still have lower sales of a discontinued contracts at low or negative margins.
Now explaining the EBITDA development compared to last year, the negative organic sales growth, or in this case, labeled as volume, resulted in SEK 12 million less of contribution. This, however, was more than compensated by the improved gross margin that generated SEK 29 million higher contribution. The improved gross margin was mainly driven by better price management and the focus of improving margins for private label contracts. The sales and admin expenses increased versus last year due to investing in marketing expenses, more marketing expenses, I should say, inflation and temporary overlapping personnel. The FX development at the end of the quarter led to a small positive revaluation effect, but compared to last year, where we had a very negative effect, the total revaluation and translation effect improved the EBITDA with SEK 6 million compared to last year.
As a summary, the EBITDA landed on SEK 60 million, 33% better than last year. Now focusing more on the sales and admin expenses development. The net cost for our own employees increased versus last year due to inflation, which was partly offset by restructuring savings. As mentioned during the quarter, we had an overlap in personnel in certain countries due to changes of senior positions, and we additionally had SEK 2 million of severance cost in the quarter. Also, in this quarter, we invested SEK 5 million more in marketing compared to last year, and this was also partly offset by lower volumes and savings, resulting in lower costs on freight versus last year. Additionally, during quarter, we had an increased provision for bad debts compared to last year with SEK 3 million.
As a summary, the expenses level landed higher than last year, but mainly driven by temporary activities. Moving over to cash flow. The free cash flow landed on a new quarterly record at SEK 151 million, compared to last year, SEK 120 million. Both years driven by a good working capital management, and a high focus on the inventory optimization has improved the days in inventory with 10 days during the year, from 105 to 95 days. Finally, our cash and debt situation.
We ended the quarter with SEK 650 million in available cash, which represents 17% of the last twelve months sales, and the net debt was reduced compared to previous quarter with SEK 182 million, thanks to the strong cash flow and stronger SEK compared to the end of quarter three. This led to the lowest leverage level we have had since 2015. With that, from my view, positive news, I would like to hand back to you, Peter.
Thank you so much, and I would just like to give a short summary and also present focus areas for 2024 before we go into the question and answer sessions. One key focus will be to continue to drive our core brands. As I've discussed, volume has been a challenge, and consumers are changing their spending patterns, but we now start to see some light at the end of the tunnel, and we are working very actively to keep up volumes. What we're doing is that we are explaining our brands. We focus on high-profit items. One example is the new campaign materials that we have for organic brands.
We are working relentlessly to find new business opportunities for our core brands via listings, new customers, and we have done so very successfully, especially in the German market. On a separate note, private label is booming, and we will leverage this demand, but only at the right margins. We continue our SKUs reduction project. We have seen this simplification project really bearing fruit during 2023. We have a more streamlined portfolio and a more profitable portfolio, and this work will continue. Going into 2024, volume and net sales will be important, but we still will prioritize EBITDA and cash before net sales. And we will look over the cost. We will accelerate our complexity reduction project.
We will be very picky on private label and food service contracts, but if there is demand and the demands are right, we will of course act on those opportunities. But the main focus would be then to grow our brands in a way to grow EBITDA, while still keeping cash under control. We are at the forefront of sustainability in our industry, and we will continue to drive our sustainability agenda. And to summarize, I'm steadfast in my belief that people want to eat both healthy and sustainable food. We have a strategy and a business concept, the passion for healthy, natural, and sustainable food.
This is really an integral part of our business. as we're implementing our programs, as hopefully inflation subsides, and as interest rate cuts are implemented, I'm very confident that the more affluent consumer will continue, and even buy more sustainable, healthy, and organic food, food in the future. Therefore, and thereby, I'm overall cautiously optimistic about the general market situation and external prospects in 2024. Thank you.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Nikola Kalanoski from ABG Sundal Collier. Please go ahead.
Thanks for the presentation, Peter and Max. A couple of questions from my end. I was expecting discontinuations of brands rather than divestments in Q4, but you seem indeed to have divested two brands. With that in mind, would you say that divestments of non-strategic brands are more likely than discontinuations in 2024?
I would say that we would work on both ends to discontinue brands and/or product lines that are not contributing to our overall profits, but we will also look at divestment opportunities. We have still quite a broad brand portfolio and product portfolio, and there might be other brands that we would be or non-strategic brands that we would be willing to sell.
Yep, that sounds fair. You currently have a net debt to EBITDA ratio of 2.7x . Could you perhaps elaborate on what level you would like to reach in order to gain comfort in exploring M&A alternatives or other capital allocation initiatives?
I would say that we are comfortable with the levels that we have right now. If we look into 2024, I didn't mention M&A in my focus areas, and I would still say that our main focus would be by far to work on our current business and to improve that further. I said we have made improvements, but we still think that we can do better in the future, and that will be our main focus. That said, I've talked before about this very fragmented European market for health and wellness products, and that market still remains.
I would say that profits have come down for a lot of companies, but might be at the bottom level right now, and multiples have also come down. So it might be a good opportunity now in the next, well, I would say 12-24 months to look at opportunities. But as I said, still our focus is mainly or almost solely on improving our current business.
Yep. Thanks for that. And, once again, you've released meaningful amounts of working capital, as you explained. I believe the last time we spoke, which was Q3, you said that you've picked all the low-hanging fruit that was available, but that more could be done. Would it be fair to say now that you've reached a working capital level during the last 12 months that you're satisfied with from a longer-term perspective, or is there still more to be done?
Yeah, you have a good memory. We actually overachieved our own plan, when it came to quarter four. I think our focus on inventory has paid off. I said 95 days we have come down to, but the level we have in quarter four, if we would keep on that level, we would be significantly lower than 95 days because it's a lagging indicator. Still, the data are indicating that there could be room for improvements, but after having taken this big step we have, over the last two years, we cannot expect that working capital will be the contributor for our continued cash flow into 2024. It will come from improved margins, margins more than from working capital.
Yep, that sounds healthy. Perfect. That's all for me. Thank you very much.
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Then I would just like to thank you for your attendance, and let's see you again in the quarter one call. Thank you so much. Bye.