Deon M. Stander
President and Chief Operating Officer at Avery Dennison
Thanks, Mitch, and hello, everyone. As Mitch mentioned, our first half is being impacted by inventory reductions throughout label and apparel channels. Given the soft volume environment in the near term, we have activated countermeasures accordingly, focusing on minimizing the impact of lower volume on our bottom line during this period. We have initiated temporary cost reduction actions, ramped up restructuring initiatives and paid back capital investments in our base businesses, while protecting investments in our high-growth initiatives, particularly Intelligent Labels. I'll now provide more color on our segment performance. Materials Group sales were down 9% ex currency and on an organic basis, driven by a roughly 20% volume decline, partially offset by higher prices. Looking at label materials organic volume trends in the quarter by region, North America was down more than 20%.
Europe was down more than 25%. Overall, emerging markets were down low double digits with China volumes down low to mid-single digits, while the residual impact of exiting Russia lowered growth by three points in the quarter. It's now more clear that the scale of inventory built in the industry was greater than expected with higher levels at both our direct customers and end customers. As we've shared before, supply and demand imbalance led inventory levels to be built throughout the industry in 2021 and in 2022. As supply chain constraints began to ease and raw material inflation showed signs of moderating, inventories reduced swiftly beginning in November, a trend that continued through Q1 and now into Q2. We expect the inventory correction to be largely complete midyear and our volume to rebound to historic GDP plus growth trajectory. Adjusted EBITDA margin of 14.2% in Q1 was relatively strong, down one point compared to prior year as benefits from productivity and pricing net of raw material costs were more than offset by lower volume sequentially, adjusted EBITDA margin increased 140 basis points from Q4 despite higher inventory destocking.
We expect adjusted EBITDA margin to continue improving sequentially throughout 2023. Now turning to the Solutions Group. Sales were down 8% ex currency and 9% on an organic basis. High-value categories were up low single digits organically, more than offset by the base business being down roughly 20%. Adjusted EBITDA margin of 15.7% was down 340 basis points compared to prior year, driven by lower volume. We expect adjusted EBITDA margin to improve sequentially throughout 2023. As expected, apparel volumes in the quarter continued to be soft across channels, driven by both inventory corrections and retailers factoring muted sentiment into their near-term sourcing plans. We expect our apparel business to rebound in the second half of the year, and for the Solutions segment to additionally benefit from high-value category growth increasing throughout the year, in particular, our Intelligent Labels platform and in our external embellishment platform as well. As part of our portfolio shift to higher-value solutions, earlier this week, we signed an agreement to acquire Lion Brothers, a leading provider of external embellishments with roughly $65 million in annual revenue.
This acquisition expands our position in external embellishments, a key growth platform for the Solutions Group. Turning to Intelligent Labels. While we expect growth to accelerate for the year, enterprise-wide sales were up low single digits on an organic basis in the quarter. Non-apparel categories, including logistics, food and other category expansions, were up roughly 50% largely offset by a decline in apparel due to mature program destocking and lower retailer sentiment. Overall, the underlying momentum in this business continues to accelerate, and we are confident that this will be a $1 billion platform in 2023. Our solutions help solve challenging problems like supply chain and food waste, dealing with labor shortage and labor effectiveness helping provide visibility, traceability and enabling circularity of items and helping brands and consumers better connect. As such, we expect to drive further adoption, extend use cases and expand programs with major customers throughout the year. In Food, we continue with promising pilots in QSR and grocery. In general retail, a large discount retailer continues to expand beyond apparel to categories such as home and goods and toys.
In Logistics, a leading logistics solutions provider is rolling out broad adoption of our technology to improve miss loads, routing accuracy and productivity. We expect volume in the second half will be multiples of Q1 for this program. And in apparel, we continue to drive penetration with new customers and expand the use cases of our solutions. For example, Inditex, the owner of Zara recently shared that they will use our proprietary integrated RFID tags sewn into garments to eliminate hard tags and enhance the customer experience, including reducing the checkout time by up to 50%, increasing client autonomy as well as efficiency in online packing. We are proud to be the key RFID solution partner across these pioneering initiatives. Our strategies continue to pay off. And as the leader in ultrahigh frequency RFID, we are extremely well positioned to not only capture these new opportunities but create them, leading at the intersection of the physical and digital. Stepping back, as inventory levels normalize and the underlying momentum in our business accelerates throughout the year, we continue to expect a strong second half this year. Given the diversity of our end markets across the company, our strong competitive advantages and resilience as an organization to adjust course when needed, I'm confident in our ability to deliver against our objectives through a wide range of business cycles.
With that, I'll hand the call over to Greg.