Hello everyone, welcome to Polygiene Group's presentation of the first quarter 2023. I am Ulrika Björk and I'm the CEO of the company. Together with Niklas Blomstedt, who is the CFO, we will give you a overview of the first quarter. Niklas to have a financial overview, then I will present some highlights and some updates from the business, then we end with a Q&A as we used to do. Niklas to start.
An overview of the financial numbers, sales in Q1 2023 was below 2022 with 37.9%, including 2% FX impact. The gross margin was 76.4% versus 67.1%, very much driven by mix and also an FX effect. The external cost was 13.5 million SEK versus 12 million SEK last year. This has been driven by travel marketing and investments in sales consultants in U.S. Cost for personnel was down from SEK 8.9 million to SEK 8 million this year, this quarter. That's due to Q4 saving program that we started last year. EBITDA was -0.2 million SEK versus 9.3 million SEK last year. Cash flow -1.2 million SEK. Including the FX impact, it was -0.6 million SEK versus 1.4 million SEK last year. We still have a strong cash position of 47.6 million SEK versus SEK 54 million last year.
If we look on the share of sales for the different segments, we can see that freshness was down from 42%- 33% this quarter versus last quarter, while product protection was 67% versus 58% last year. Total sales was then, as we said, down with 37.9%, going from SEK 45.1 million to SEK 28 million. Of that sales drop around SEK 9 million is within freshness, while SEK 4 million is due to lower distributor sales and around SEK 5 million is due to lower sales to the brands. For product protection, we are down SEK 7 million versus a very strong Q1 in 2022. On top of the lower demand, we continue to see an inventory adjustment in the market driven by the global economy.
There are also some post-pandemic effects with better supply and transport lead time reduction that is also driving down the inventories in those supply chain. From this year, we have changed the regional reporting. Previously we allocated sales to distributors directly to the different regions as it, most cases was a fairly small and a stable number. During the last quarters, during last year, we did see that the numbers were increasing and a lot of fluctuation, so we decided to allocate it when sales has been done to our end customers then from 1st of January. We have also adjusted the last year numbers so we can compare the same numbers year-over-year.
To summarize, as we said, sales down from SEK 45.1- SEK 28, a strong margin from, going from 67.1% to 76.4%, operating costs going up with 3% from SEK 20.9- SEK 21.6, driven by the marketing travels and investment in the sales, also offset by the Q4 saving program. EBITDA of minus SEK 0.2 versus SEK 9.3, EBIT of minus SEK 2.8 versus SEK 3.8, cash flow minus SEK 1.2 million, whereof, cash with FX effect is SEK 0.6 million versus SEK 1.4 million last year. At the end of the period we had a cash of SEK 47.6 million.
Thank you Niklas. I will just collaborate little bit more about what you say about the challenges we have seen in the sales. The end of the year 2022, we saw the decrease in the demand. We also saw that the distributors didn't order because they didn't see orders coming in from the brands in the same path as before, and it has been continuing into the Q1. On the other hand, with a strong gross margin, we can see quite stable key figures, both the gross margin of course, but also we can see that the cash flow and the cost and all the other numbers actually made us end up almost at a break even on the EBITDA results.
I think that also shows that there is a scalability in this business and we will just continue to prepare for a lower cost base just in case we will see another quarter in this level in the sales. As Niklas said, there is still high stock levels out there, both in the distributors but also for us, customers and at retailers. We haven't seen an indication of a big change here in April. It's just been a couple of weeks in. But we see a better outlook for May and June. We have seen some small positive signals that it might change to the better in May and June, but as I said, it's important to keep track on our cost level and the cash flow, so that's why we are preparing for having a lower structure in cost also moving forward.
In the same time, there is high market activity to try to stimulate sales and develop new projects. We've been attending some trade shows on the textile side. We've been to Première Vision in Paris. It's a lifestyle fashion show. We've been to Colombiatex, Functional Fabric Fair, and Performance Days in the U.S. We try to keep this very, very slim. We don't invest too much money. We take care of how many people we send to this fair, but we need to have a presence in this to meet existing customers, but also to find new customers. We also participated in the Innovation Day that was organized by the organization SOFHT, and we also had a speech there about textile and workwear in these segments.
Then we had a small change in the Board that Rajesh Varma left the Board at the 9th of March. Now we go more into the business and to present to you some of the highlights in freshness and in product protection. First, I would like to just give you an update because the two different segments are quite different in the business models. Just to give you a reminder about the freshness, it's mainly our textile business that prevents odor and keep garments fresh to prolong lifetime of products. That is mainly the freshness business. The categories that we are big in is sports and outdoor, fashion, lifestyle, workwear, and home textiles. You can say that this is the old Polygiene business before the acquisition of Addmaster. We operate under a very high margin structure. It's almost around 80%.
We are building a brand, a brand driven, we try to get the consumer aware of the functionality and try to communicate that through the brands with helping them with marketing support and sell-through activities. That is why it's super important to have the direct relationship with the brands. Of course, this business model is more manpower intense because we need to keep this very, very close, and we have marketing people working very, very close to the marketing teams in the brands. Some updates on the freshness side. As Nitza said, we didn't sell any chemicals to the distributors. They are selling from their stock, and that is already sold to them. That's why you can see a very strong margin overall in the business total, it was 76.4%. Of that one, freshness is over, I think, almost 90% because it's mainly royalties and service fees.
There are mainly no chemicals because that is sold before. It was around SEK 4 million, the distributor sales last year. We can also see that sales decreases mainly in the existing customers in sports and outdoor, and that is because of these high stock levels. For instance, Adidas, which is a big customer, they didn't produce nothing with Polygiene during the first quarter compared to last year, and that takes a big hit on the numbers. More positive is to see that fashion and lifestyle, that was the only category that had a good growth this first quarter, about 33%, and that was mainly driven by PVH group, where we have a very strong presence in Tommy Hilfiger. That's very positive to see how they've been growing year by year from us.
There was, of course, some new customers coming on board. We are not press releasing this as we did before. Normally, we go out with a press release when we get a new customer on board. We mainly, we said we will just inform on these webinars instead of sending out press release because this is part of our daily business. Very good to see that we have new partners on board. We have Goldbergh. We've been working with them a little bit before, but now we saw quite good orders in the first quarter, and that is premium brand for mainly women's jackets and other garments. We are treating the linings inside these jackets. Then we made an agreement with a company called Storm Care. It's based in U.K.
This is a way for us to try to find new sales channels now when we see we have a slower demand on the core business. Storm is gonna launch a aftercare spray with OdorCrunch, and it will be out in the stores and online available from June. Let's see how that will how that business will be received in the market. We know there is a big demand for these kind of products. It fits perfect under Mindful Living and to prolong the lifetime of the products that already produced. They ordered the first batch, and we have seen very good samples of how it looks. Let's cross fingers that this will take off as we plan. We also had Target as a new customer. It's a retail chain in U.S. They have been launching or will launch a collection of training clothes for men.
We also saw some good business from STT. They were new since August last year, and of course, they will have an impact on the first quarter compared to last year. The North Face Korea is good to see. We have been very strong with The North Face in Japan. Now we try to get into the doors in Korea. It's a licensed business. They have their own team in Korea. That's good to see that we are growing there as well. Would like to take another example of a great brand that came on board now. It's new. It's the Korean premium brand Blackjack. They are gonna launch 170,000 Polygiene treated T-shirts this spring summer collection.
I just want to show you that this is a super good example when we do everything how we should do it by the book being an ingredient brand. We work very, very close together with them. We provide them with hang tags, with the permanent labels. You can see they have this sew-in label on the side of all the T-shirts. We're also gonna have these green stickers. They have a campaign they call Green Yak. They are very, very much into sustainability. They will have this small sticker on every T-shirt that is where Polygiene is present. We also delivered more than 300 flexi stands for the retail stores with the technology description and the benefits with Polygiene. This is the investment that Polygiene does, t hat is on us.
Blackjack also invest a huge amount of money, I think it's maybe SEK 2 million or something, just to promote the Polygiene product with Green Yak. I think that is really the strength when you work as an ingredient brand to have them also to pitch in money and drive this together. We're also gonna educate the staff in the retail stores, and we will also have technical descriptions. We will have labels online side by side by the products. This is a global brand. It's not only present in Korea. They have around 150 stores in China, that's a different sourcing department and different sourcing office. If we can get into China and further on to Europe as well, I think this is a really, really good example how we can grow together if we do the right things on the brand activation side.
Over to Product Protection, just to first remind you that this is a totally different business model, this business is mainly connected to the hard surfaces and the non-textile surfaces and materials. You can also say this is the business we acquired from Addmaster two years ago. The categories where we are strong, it's in water, paint and packaging, industrial, healthcare, hospitality, and transport. The margin structure is lower. It's around 52%. That is what we expect from 2023. Last year it was 47%, but that's also because we got higher prices on raw materials and our price increase to our customers didn't happen until October. We will see a higher margin than last year, but around 52%. If the Freshness side is driven by brand, the product protection is mainly driven by tech. We work with different formulations, bespoke formulations.
There are so many different materials, so that's why we need to have new formulations for every kind of customer and material. We are mainly selling to manufacturers and compounders who are producing products for somebody else. The end consumer, some end customer we don't know sometimes who it is because the, our customer is the manufacturer or compounder. In some case it could also be a distributor that is our customer, and the distributor is selling to the manufacturer who are selling to a company that place a product on the market. We can be very, very far away from the end product. In this case, we are working more as a B2B operation and it's very lean, it's very efficient. It's, it's not so driven by manpower in the same as the Freshness side, because we don't need to help the sell through.
We don't need to brand, we don't need to sell hang tags and do all these activations. It's a different model and I think in the end, on the bottom line, I think these are comparable, if you look at the bottom line all costs. Let's see what's happened in the Product Protection during Q1. Yes, we lost a substantial Scentmaster business. It's a customers who, during the polymer shortages a couple of years ago, we couldn't deliver to them because we couldn't find material. They found another supplier and they have unfortunately not coming back to us after that. They're still with us. We deliver other chemicals to them, but the Scentmaster has unfortunately dropped and that was quite a big business for us. We also see that the toilet manufacturers have a lower sales than last year, and it's also because the overall decline in demand.
Also some of the customers on the Product Protection side, they only order like twice a year, big lots twice a year. We can see that some of them didn't order the Q1, but we expect they will come in later this year. Maybe Q2, Q3. It's not that it's lost, it's just delayed. I will come back to that later. We have a lot of technologies in the product portfolio of protection side, and now we're trying to activate those to get the sales going. I will give you two examples after. Of course we have some good successes too in the protection side. We also could announce now that NIO, you know, we have been announcing before that the ET7 model, we are treating the seats, the steering wheel, and other panels inside the car.
Now we just found out that they will go for BioMaster in all their cars. Not only this model, but all their cars. That really good news and also show how we can add value and grow the business together. We have a new painting company on board called Stateport, antimicrobial painting. We also saw a big order from Dugdale, and they are doing PVC sheets. Here is an example of an antimicrobial shower hose for showers. Good customer, good business. Also we have these water dispensers that they treat with BioMaster on the top, on the sides, in these water machines. It's quite good to see the business is growing, but unfortunately we can't compensate for the downside of the Scentmaster business and for the toy manufacturers this time.
As I said, I would like to give you some example of the projects we are working on to show you the broad portfolio we have within these technologies. For instance, there is one called OdorMaster. This is a technology that was acquired when we bought Addmaster, and it was not one of the biggest one. We have the BioMaster and the Scentmaster and Verimaster, but this one have we brought to life again. It's a technology that is very effective of absorption of odors and other VOCs. Now we can see that regulatory changes in China, but also other countries, that they have mandatories to take recyclable plastics. Now it's said that you need to use at least 20% recycled plastic, and often recycled plastic have a very, very strong odor.
For people working in the factories, it's a very, very good technology. You go into the plastics, and then they can absorb the odor. All the ingredients are FDA and approved for food contact, that's very good. We have an ongoing project with a customer now with very good results of reducing these kind of smells, and I really hope that we can come back to you very soon about this business. There is another technology, or it's an umbrella of technologies that's called Masterpiece, and that could be whatever the customer has asked for. This is more like a tailor-made technologies for a company. Addmaster have developed a very interesting technologies in the geotextile range, and the geotextile is a huge market. It's expecting to grow around 6.6% from 2023 to 2030, and it's worth more than $7 billion last year.
We think there is a big potential to grow here and with this specific technology. We have some ongoing new products to take this technology to broader market. We have some customers working on it, but it's quite small compared to the potential, the future. It's very exciting. I also would like to just comment something on the product development. We have been announcing before that we are working really, really hard to get new products out in the market. We have a pipeline of several new products that will come to the market within this, the year-end of 2023. There are a lot of testing. We've done a lot of tests for see how, to build a database of the test results and both in lab, but you also do real-life production test to see if it's working or not. We see very good results.
We think we are very close to launch something. The regulatory is important. The registration's important. Different regions, different regulations. You also need to calculate the pricing structure, set up the distribution set up, and also, of course, the go-to-market strategy and prepare sales and marketing material. I think this is one of the key strategies to grow the business moving forward. We know there is a demand for bio-based antimicrobials in some regions, so we need to have a comprehensive and then complementary product for the silver technology. At last, I just want to again brief you about this investment case of Polygiene. We have a scalable model. The fixed costs are not increasing proportional with the sales.
We now have taken control of the cost structure to be able to deliver positive results, even if the sales are struggling at the moment. We're asset light. We don't have any production or lab or these things in-house, so we are very flexible when it comes to new technologies. On the other hand, it takes longer for us to go to market with new technologies because we need to rely on third parties. I mean, sometimes we need to have to book time in the labs or book time to do production scale because we don't have these machines ourselves. We have the high margins. We prove now that we operate on a very high margins, and that enables a profitable business. Cash flow, as you can see, it was almost zero.
We had a SEK -0.6, including the FX effect. It limits the financial risk. We are debt-free, so we have strong financial position. We have no debt. That's really good as the situation looks like it in the world today. Net cash, we have also money in the bank, which makes, we have resources if you want to invest, and we don't need external funding if we want to do investments. Established businesses, both Polygiene and Addmaster, been around for a long time. We have recurring customers. We've been over, together, 40 years in business. We believe that the recession now impact us short term, but in the long run, we will come over this and continue to show both sales growth and profitability again. Thank you. Now. Questions? Do we have any questions, Niklas?
Yeah, we got some here before the meeting started. Some is about Q2, what you think about the sales, the cost, and, also the inventories of our customers.
As I said, it's hard to predict because we are so dependent on our customers. We are just an ingredient in somebody else's production. If they cancel their productions or they cancel and terminate some of the orders, it's hard for us to sell because we are into their productions. As I said, we see small positive signals on the end of this quarter. It's really, really hard to predict. That's why we want to be sure that the cost not, like, take over. We keep it very, very tight now to be able to see how it's gonna develop.
We have another question which is about why it is so difficult to keep up the sales volumes to have a stable growth.
Yeah. It's almost the same question.
Yeah.
That it's hard because we don't have our own products. We can't activate our own products. We need to go into existing products that our customers. They are struggling now. Many in the textile sites are struggling really hard now of consumer demand decreasing and et cetera.
Now I have a question about SteriTouch, if you can clarify a little bit on the numbers versus last year?
SteriTouch was acquired one year ago. I think it was February that they came into the group. We had lot of expectations, but of course, as for the other business, it had been declining. It's far away from the expectations, but we had got some really good customers coming with acquisition, and we got a really good salesperson as well. The Dugdale business, for instance, that is a SteriTouch customers that we have been able to grow in now since we have a bigger organization and give better support. That's one good example. I think the acquisition was right to do, and as we didn't meet the expectations of the earn-out, we didn't pay for that.
Now I have a question. How would we attract new investors when we see the development of the shareholder value the last year?
I think the only thing we can do is to just continue to work hard to get the results and show good reports moving forward. I mean, invest in a lot of IR events and go out to present roadshows, I don't think that is for us now. We are in a position now where we just need to show we get back to growth again, and then I think the investors will come.
Yep. Then let's see if there are any questions coming in right now from the forum. No. There's no more questions right now.
No more questions? Okay. We will say thank you and goodbye and see you again the 27th of July. Thank you.
Thank you.