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Ladies and gentlemen, welcome to the Össur First Quarter Results 2022. Today, I am pleased to present Sveinn Sölvason. [Operator Instructions]
Mr. Sölvason, please go ahead.
Thank you very much. I would like to welcome you to the Össur investor conference call here for quarter 1. My name is Sveinn Sölvason, and I am the President and CEO. And with me here in the room is also Edda Lara, our Director of IR. We will begin by going through the highlights for the quarter and then go through our guidance for the year, and then we'll go to Q&A at the end.
Now sales amounted to $170 million in the first quarter, which corresponds to 6% organic growth. The quarter started out slow with COVID-19 impacting volumes and activity levels. However, there was a positive trend throughout the quarter, and our sales in EMEA and the main European markets were particularly strong, which was a very positive sign here in quarter 1. At the end of February, we suspended sales to Russia due to the ongoing war. Sales to Russia amounted to approximately 1% of sales in 2021.
Now on the supply chain side, we foresee higher cost increases than we had anticipated in the beginning of the year and expect supply chain cost increases to be about $13 million in 2022, let's say, from the pre-pandemic levels in 1919-- 2019. The previous estimate for the full year was $9 million. So this -- so yes, with higher freight costs and higher raw material costs, we expect the supply chain cost increase to be a little bit higher.
Now we implemented price increases effective approximately mid quarter 1 of approximately 2.5% that are estimated to largely absorb the before-mentioned cost increases. EBITDA amounted to $27 million or 16% of sales, and I will elaborate on that further when we go through the financials.
If you go to the next slide, please, if we now look at the growth metrics here, both by segment and geographies. Prosthetics sales increased by 6% organic and were strong in all key markets virtually, with the exception of China and Australia where COVID impact is still impacting our performance. Now sales of bionic products were strong and accounted for 20% of prosthetic component sales here in quarter 1. And our Power Knee has now been successfully launched in all regions and has received excellent feedback.
Bracing & Supports sales increased by 5% organically, primarily driven by growth in EMEA. Bracing & Supports sales were slow, especially in the first part of the quarter in Americas mainly due to, again, COVID impacting elective surgeries and staffing levels with primarily hospitals and orthopedic surgery centers.
Now if we look at the sort of geographic split, sales were, as I mentioned earlier, very strong in EMEA. And that is again a strong sign, and we have good contribution across all major markets and product lines. And previously, the European markets have been a bit further in sort of recovery from the impact of the pandemic. So this is a positive sign.
Sales in Americas are still slightly behind, while APAC was affected by primarily the pandemic-related impact in China and Australia, which we expect to diminish. But China will probably most likely be adversely impacted somewhat into quarter 2.
If you go to the next slide, please, a few comments on the P&L. 6% organic growth, as previously mentioned. Gross profit margin was 62% in the quarter, mainly affected by, we say, temporary increases in cost of goods sold due to, yes, higher freight costs and inflation in raw material prices. Remember also that we are comparing to quarter 1 last year where these price increases had not come into the system. And as I mentioned in the beginning, we are estimating the cost increase for the year to be higher than what we anticipated here when we reported our full year numbers back in the beginning of February.
Operating expenses increased by 5%. The main driver for higher OpEx in this quarter was higher R&D costs or increased investment in R&D and variable sales and marketing costs as we are driving more customer activities now as things are opening up. And again, we continue to invest in our emerging markets platform and digital initiatives, which are also items that are impacting our cost structure.
EBITDA amounted, yes, to $27 million or 16% of sales compared to $29 million or 18% of sales in quarter 1 last year. And also, I remind you that quarter 1 is seasonally weak for us margin-wise. The effective tax rate was 25% here in quarter 1, and net profit amounted to $9 million.
If you go to the next slide, please, here, we have some historical trends for the last 13 quarters, moving in the right direction on all parameters. As such, again, looking at the EBITDA margin which is, yes, seasonally low, you can see that when looking at the trend lines and impacted here in quarter 1 by the -- mainly by the previously mentioned supply chain cost increases.
Go to the next slide on free cash flow and net debt to EBITDA. Also, historically, cash flow is seasonally weak here in the first quarter. Free cash flow amounted to $5 million or 3% of sales. The cash flow was adversely affected by, yes, lower payables, but partly offset by less investment in inventory when we compare to same quarter last year. The movement on the payables side, I would say, is a timing aspect, and we'll see that reverse here in quarter 2.
The net interest-bearing debt amounted to $368 million at the end of the year. And the net interest-bearing debt over EBITDA was 2.5x, which is within the target range of 2 to 3x. In February, we commenced our share buyback program. The purpose of the program is to reduce the company's share capital and adjust the capital structure to -- yes, by distributing capital to our shareholders in line with our capital structure and capital allocation policy.
And now just finally a few words on the guidance. No guidance have -- or no changes have been made to the financial guidance for 2022. The financial guidance assumes that quarter 2, quarter 3 and quarter 4 will be largely unaffected by COVID-19. The organic sales growth outlook for '22 is expected to be in the range of 6% to 9%. The key factors that will impact...
[Technical Difficulty]
Ladies and gentlemen, please hold your lines while we reconnect our speakers. Thank you.
Dear speakers, please go ahead.
Are we coming through? Sorry, I had some turbulence on our connection. Are we coming through or...
Yes, please, you're open. Thank you.
Yes, if we can just please go to Q&A. Thank you.
[Operator Instructions] The first question comes from Benjamin Silverstone from ABG Sundal Collier.
I just have a quick question in terms of APAC and how you are seeing the current COVID situation pending out in China. And could you just please remind us how much China is in terms of your overall group sales?
And the same question is in regards to the full leg assembly that you have been doing in Orlando, if you could just give us a quick update on any progress here or how you see the future of that pending out as well.
Sure. Benjamin, let's say, China has been in lockdown now for quite some time. And our base of operation is out of Shanghai. Our warehouse is in Shanghai, and our offices are in Shanghai. And then our -- we've not been able to keep our warehouse open, but I expect this to be a temporary thing and that we will be back to normal as things open up in this important market for us. I mean China has been growing very, very well for us and is close to 1/3 of our APAC business. And we are committed to continuing to invest and grow this market.
Now with regards to the complete leg concept, this is also something that we've seen very good progress with over the last couple of years, and COVID has perhaps accelerated the adoption of this with this concept where we are offering our O&P clinical customers to basically outsource some of the fabrication that they do in-house and that they buy a complete leg from Össur then. And this is one of those initiatives that we are promoting and investing to further develop the technology and the interface that our customers have when ordering this product and this concept. So this is -- you'll hear more about this in the future.
Your next question comes from Niels Leth from Carnegie.
A question on your margin development and guidance as well, I guess. You mentioned in the report that you, in order to reach your guidance, would not want to see any material effect from COVID in the 3 remaining quarters. Yet, you also state that quarter 2 will be affected in China of the COVID pandemic. So are you not being a little too optimistic in terms of your guidance? Or is it just too early in the year for you to change the guidance?
And then secondly, perhaps you could provide a little bit of color as to your gross margin in the next quarter because it seems like most of the raw material and freight effect seems to be affecting your gross margin.
Yes. Thanks, Niels. Yes, you're right, when it comes to sort of the guidance for the full year, we've assumed that no material impact in our major markets from COVID. China, yes, will be impacted in quarter 2. But due to the sort of relatively low contribution to the overall sales, we still -- that will not necessarily change the big picture.
Although with that being said, what has changed since we issued the guidance on top line is -- or what has had the main impact is obviously the fact that we've stopped shipping products to Russia, which has accounted for about 1% of sales every year. And also China, it's something we did not know when we set our plan. So these 2 things have moved against us.
On the other hand, there's -- what we see here in quarter 1 is that our European business has moved further than what we had anticipated forward. So that has compensated somewhat. But yes, the changes from the beginning of the year is more on the headwind side than tailwind side, if that makes sense. But it's still only 3 months into the year, and we're still coming out of this COVID-impacted period. So we are still aiming for closing the year within these parameters.
And then on the second question, let's say, if we look at -- with regards to the gross profit margin, if we look at last year, and just to -- we did not have any of these price increases in the system. It started to come into the system second quarter last year a little bit, but a lot -- or mostly in quarter 3 and quarter 4. So I expect a slightly higher gross profit margin here in quarter 3. But overall, the margin contribution for the year will be somewhat back-end loaded. And also just to remind you that the price increases that we implemented were not effective in most markets until mid-ish quarter 1. So you will also see some more benefit of that in quarter 2.
Great. And just a couple of follow-ups. You mentioned that you have raised prices by 2.5 percentage points. Would that be at group level? Or is it only for specific products? And would you -- are you planning to additional price hikes during the remainder of this year? And then perhaps you could just follow up or comment on the effect from the Department of Defense change that took effect as -- I think it was 1st of January this year.
Yes. On the price increase, this is sort of a weighted average across our global portfolio. You'll have markets where we have price increases above this average, and you will have markets where it's below. At the end of the day, it's very much dependent on ultimately the prevailing reimbursement environment. For example, Medicare in the U.S., which is a big payer, ultimate payer of a lot of the products that we sell in the U.S., that is -- they increased price by 3%, which is one indicator of, let's say, what headroom there is to raise prices in that market.
In other markets in Europe, you'll have our customers having agreed with or having entered into government contracts for longer periods of time where there is no room for price increases. So it is very much a country-by-country, region-by-region approach, but I would also say that it's not once-a-year type of event. I think companies are generally, and that goes for us as well, we are looking to find the right balance and we will also look at adjusting prices and work with our customers to adjust prices also as we get further into the year.
And we feel that ourselves. Our vendors are also approaching this in the same manner. And this is just the environment that we're in today with high inflation and high movement in supply chain companies, and that is certainly the case for us as well. We will manage this, yes, week by week, month by month.
Sorry, and then on the DOD, let's say, the assumptions that we went into here are largely similar as we had communicated in the beginning of the year. So yes, consistent with that.
[Operator Instructions] Your next question comes from Yiwei Zhou from SEB.
I have a follow-up question on China. I understand the short-term lockdown impact. But given it is an out-of-pocket market and considering the economic uncertainties, do you see any down trade with your customers?
Yes, it is an out-of-pocket market. And yes, our warehouse is located in Shanghai, and we've not been able to ship products. I don't -- if I understood your question correctly, whether this will lead to some long-term negative impact, our assumption for the time being is no, that we are currently managing our customer relationships and will assume to be back to business soon. But this will just have a -- we've estimated that the full year effect from the COVID lockdown in Shanghai will be a couple of million dollars on our full year sales. But not, let's say, the long...
But do you see any trading down -- no?
Trading down? No, no, no. No, we've not sort of seen that, no.
Ladies and gentlemen, there are no further questions. I will now give back the floor to our speakers. Thank you very much.
Yes, thanks a lot for your questions. Apologies for the technical hiccup earlier, but thanks for staying on the line. And please reach out to our Investor Relations if you have -- if you would like a meeting or if you have any questions after this call.
Thanks a lot, and speak to you next time.