Duni AB/ADR (DUNNF) Q1 2026 Earnings Call Transcript

Hello and welcome to the Duny Group Q1 Interim Report 2026. There will be a question and answer session at the end of the presentation. Questions will be taken by phone only. I will now hand over to Robert Dacuskog, President and CEO. Please begin your meeting.

Thank you. Yes, hi and welcome to the Interim Report for Q1 2026. And the headline for this quarter is Stabilized Development in a Challenging Market. and if we look at a little bit on the agenda here during the presentation a little bit highlights in the beginning and then some market outlook and market insights and then we have the Q1 summary and then we're moving into more details within the two business areas and then at the end financials and our long-term targets at the end and then a summary and then to Q&A via telephone All right, so if we move into the highlights. The quarter came in, the net sales is broadly in line with last year, if you look at the same currency as last year. And that is, of course, it's been a quite challenging and volatile market environment here lately as well, as we know. And if we look at the organic sales trend that improved quarter on quarter, come back to that, but it was minus seven last quarter and now it's improved even if it's a little bit negative still there is a price focus demand continuing in the market so with the mix rather than volumes being the main challenge for us in the restaurant market and then positive in the quarter was food package solution support for more balanced performance this quarter and coming back to that as well. So if we look a little bit on the market, of course, the market remains subdued across the Horeca sector, especially if we look at Germany, as we looked at, and the data from Germany on the top there. And then, yeah, lately here, I think yesterday was published the Consumer Confidence here, and it dropped significantly in the bottom right here in March, because of course of the Iran war and of course real revenues continue to decline in market and extending this multi-year downturn that we had. Of course cost and inflation is a pressure for the market and especially in labor and then there is a purchasing behavior stays a bit cautious with a lot of focus of course some cost and efficiency all over the market. If we look a little bit on the higher level here the European food service market how that looks now and the projections for 2026 is that the visits have continued to further decreasing in the market 2025 was actually down and predicted maybe when we went into 2025 that it was supposed to increase and but it's still very low if you compare to the pre-covid and these two slides then is the five big markets in Europe and there are some other markets of course in Northern Europe here that has come back better actually than the top five countries in Europe. If we go into the main growth drivers in Europe at the moment is that of course delivery offers is one part where it's driving growth area and then of course digital ordering is a big thing as well and how you order and the behavior around that and when it comes to a little bit to food and so on health indulgence is a big trend as well we also see that breakfast is growing in many parts of europe and bakeries and so on and of course it's a lot of focus on price value and promos in general in the horeca sector and then one thing that is very important now is socializing experience when you go out and eat it's more maybe about that than actually about the food in a way so getting to socialize getting atmosphere and i think here dune can offer a lot of things in the different areas delivery we have our packaging art and especially dune form apart we'll come back to a little bit what we've done there and and of course uh the social part at the end there that is where we actually are our core where we create atmosphere with our napkins and then table covers and lights in the restaurants and also of course in all areas of the oreca sector. All right top line here then Q1 financial if we look at the total net sales then it might be 1.764 billion sec which was lower than the last year but in line if you look at the same currency operating income 10 million less than last year and operating more 5.7 which is 0.2 lower than last year and the main things here then if we comment on the net sales and i think it's important then to look at them in fixed currencies of course it's a lot of currencies going up and down here in in the world and there we are in line with last year's, that's positive then versus last quarter where we were down. Organic growth then was also a positive trend compared to Q4 then. We have a negative mix effect in dining solutions where we have selling less premium napkins. There's a demand for that at the moment but still selling a lot of premium products and our main products like Dunesoft and Dunelin are the main ones there that we're really focusing on there. And of course the Middle East instability affected dining solution a lot in the quarter as well. We'll come back to that in a minute here. And food package loosened sustained growth in local currency this quarter which was positive. The operating income decline with 10 minutes as I said, mainly because of our favorite mix but also it result from a little bit demand and from lower priced products. Of course also affected the sales was the geopolitical tensions outside and especially then in the Middle East here and Asia where we have some business. The cost development through the quarter we have done some which we announced last year cost reduction initiatives that helped us during this, but we got some higher cost in energy, logistics and IT cost during the quarter. And of course there's a lot of currency implications and that was positive impact of five million compared to last year. So that was a little bit high level and we might as well move into dining solutions.

Thank you for that Robert and good morning everyone. So as usual I start with a more detailed review of our two business areas and starting off with dining solutions so sales declined by 68 million mainly driven by currency effects but also a continued weak market operating profit decreased from 102 million to 82 million a decline of 20 million this is mainly explained by the negative mix effect which i will come back to shortly but in addition we also experienced cost pressure on variable costs like energy and logistics during the quarter as a result the operating margin declined to seven point eight percent compared to nine point one last year so if we jump to the next one so incomparable exchange rate sales declined by roughly one percent so we do not yet have full market statistics for Q1 but our assessment is that this performance is broadly in line with the Eureka market overall. But if we look on the volumes measured in pallets and pieces, we actually see a positive development. And this allows us to conclude that in several segments, we're actually flat or even gaining market share. However, the challenge is clearly the sales mix, as mentioned already. We are losing share in branded premium products, which carry higher margins, while gaining volume in private label and commodity products with significantly lower gross margins regarding germany and the reduced vat for restaurants we mentioned that before we do not yet see any clear trend shift in visits to food service restaurants anyhow such measures are important to support fundamentals and make eating out more affordable but it is the fact that inflation over the recent years has been significantly higher for restaurants than for consumers in general. As Robert mentioned geopolitical uncertainty remains very high, consumer confidence is still at historical low levels, you maybe saw that on the previous slide, and cautious continues to dominate spending behavior and this is not yet supporting a recovery unfortunately in the Horeca segment. Against this backdrop we have increased our initiatives and adapted to the new reality of customers having less financial room. So during the quarter we launched mid-segment offerings in napkins and table covers, Softic and Velvic. This provides smart value for effortless professional table settings. It's still a bit early days but the reception from the industry has so far been positive and these products will play an important role in protecting sales momentum during these challenging times. So over the last year we have also worked hard to increase efficiency and reduce costs both back end and front end. So despite having fewer resources in the field we have increased end customer visits by 27 percent year on year. This is of course a very important leading indicator for long-term growth and supports the loyalty among restaurants and hotels so but the result decline of 20 million is try to summarize is mainly explained by three factors first the negative mixed effect that is the most dominating one we mentioned that this is a challenge in tough times but we firmly believe that customers value what our brand stands for and the role we play in creating atmosphere around eating and drinking and not least the initiatives in sustainability solutions. We are well positioned. However, our focus is not to wait for better times, but to actively shift this curve already now. Second, we saw clear cost pressure, mainly related to energy and logistics, partly driven by the geopolitical disturbances. And finally, third point, we had a positive currency effect versus last year. That supported the result, but not enough to offset the weak market and the lower share of premium sales so to summarize q1 a recovery in organic growth compared to a weak q4 must say but the key challenge remains the declining share of branded sales which continues to pressure gross margins positively positively again we are growing in pieces sold indicating that we are defending and in some cases growing our market share despite severe headwinds. So moving over to food packaging solutions focusing on sustainable food packaging. Sales decline by 4% that is fully driven by negative currency effects. Incomparable currencies actually a slight increase. Operating profit improved from last year increasing from 7 to 80 million and that corresponds to a margin of 2.5 percent as mentioned currency is the main driver on sales it's been also quite volatile period for currencies lately this primarily is to the stronger seat versus the euro but also versus the australian dollar which averaged in q1 this year 635 compared to 690 last year but at the same time the australian dollar has strengthened versus the u.s dollar which has supported the gross profit in australia inventory levels always very important are now significantly more optimized compared to a year ago i think diligent work in the last nine months or so has reduced the storage cost especially in markets outside europe but this remains a key focus area and and given the continued supply chain uncertainty driven by the geopolitical situation we experience a notable cost pressure in logistics and oil and gas related inputs linked to the situation in the Middle East of course price compensation measures have been initiated although the short-term impact that impact is more pronounced in food packaging particularly so in Europe where plastic products products are still part of our portfolio but a positive aspect of this is that the vast majority of our products and especially so outside europe are fiber-based and these products have historically been more expensive than plastic alternatives and this now creates an opportunity to accelerate the shift towards fiber solutions experience from previous crisis shows that close customer dialogue and reliable delivery are critical to gain market share and staying ahead of smaller and more optimistic competitors which of course will always be there. Our recent strategic focused acquisitions Linepack in Europe, in Finland and by Green in Australia continue to develop well and strengthen the overall offer and in Q1 this year we also signed the acquisition of Seulserv that's a small acquisition around 50 million or so in revenue but that has a very meaningful impact on Duniform offering in Sweden but also in the Nordics. Duniform is Duni Group's sustainable food packaging concept and then the integration will start 1st of April for Seulserv. we continue to see foreign exchange volatility so while we see a stronger Australian dollar that supports the gross profit we also saw some negative revaluation effects in Biopank group during the quarter long term a strong Australian dollar versus the US dollar is positive but just to be clear to summarize Q1 is a seasonal weak one and margins remain below normalized levels However, as shown by the rolling 12-month trend to the right, profitability has slowly but steadily improved since Q2 last year. If we now jump in a little bit more to the financials, starting off with the income statement. So as mentioned, we have FX effects that reduce the sales by almost 5% in the quarter. organic growth improved significantly from the week previous quarter and now close to zero minus one percent so although we are defending our market position by offering more affordable alternatives the negative mix effect that we said a couple of times now continues to put pressure on the profitability so gross margin remains resilient and that is supported by dedicated dedicated cost reduction initiatives that we have done, especially so in our production facilities, but also in the front end. Also price compensation measures were implemented or at least initiated to mitigate these costs increases seen especially so in the second half of the first quarter. As communicated earlier, we are seeing higher costs also related to digital investments. That includes an ERP replacement project. But adjusted for the inflation and higher IT costs, that is roughly 20 million a quarter, all in all, we've also taken out costs of almost the same. And that is in line with our previous guidance. Financial net last year was positively impacted by currency translation effects and therefore was exceptionally low. This year we also have an effect on interest rate from the leasing contract in our new warehouse, explaining the the main difference we see now between 26 and 25. If we jump to the business areas financials and dining solutions if you look on the last 12 months just below 10% margin which is you could say relatively strength given the market environment food packaging improves slightly to 3.3% and looking on the rolling 12 months again. But I would say both business area remain 3 to 4% below targeted levels, primarily due to the low volumes and pressure on the branded sales. And that's more so than the structurally weak gross margins or any excessive indirect costs. So with improved volumes, we know from experience that operational leverage will support margins going forward indirect costs are therefore adapted to press the pressure on sales levels and during the last year we have reduced the cost particularly so in sales and marketing and in production okay if we look on the operating cash flow it's typically negative in q1 also this year in line with prior years however there are some slightly differences inventory increased significantly last year, as you can see, particularly so in Biopac Group in Australia, and that had negatively impacted both cash flow, but also the profit we worked hard to reduce in 2025. In Q1, this year, inventory development improved clearly with only a normal seasonal increase. So the negative deviation mainly reflects lower accounts payable. That is partly a timing effect, partly lower purchase volumes. Okay, moving on to the financial position. I would say the prolonged recession and the industry challenges over the last two, two and a half years have started to reflect a little bit in our financial position. Working capital remains stable, both in value and in days. Net debt has increased versus year-end and that is fully explained by our long-term logistic partnership and the related lease liability we have of approximately 600 million. So this is not an increase in traditional interest-bearing debt and does not influence the covenant, just to be clear. So the solution secures our delivered performance with this warehouse for many years and I stated earlier we expect to generate annual savings of around 35 to 45 million starting at the end of 2026 once the warehouse reallocation from Bramsche where it is now to Meppen is completed and stabilized I would say. Finally we have reached the slide to the group targets and as previously communicated we have updated our both financial and sustainability targets effective from 1st January. So we now target total growth above 6% in comparable currencies. Currently we are below this level as you can see mainly due to the weak of Eka market. M&A has contributed until quite recently but had a marginal impact in the quarter. The operating margin closed at 7.3% stable I would say versus the last quarter or quarters but as it also you can see it is below our 10% target. The board proposes a dividend of 5.6 per share that's unchanged from last year and corresponds to a payout ratio of 75% that is above our target for 50%. We also have updated our sustainability targets to 2030 to lead and secure our role as being the trusted sustainability leader. First, we should have at least 90% share of circular input materials, renewable or recyclable, and that ended on 87% of the first quarter. Second, our way to net zero should be reduced by 57% versus 2019. Here we ended at minus 58%. And third one, we should be a great and safe place to work in. And we measure this by being below 10 lost time injuries per 1,000 employees. Here we ended at 16. we continue to invest heavily in our production to ensure we gradually reach our targets and finally supplier responsibility 100% should have signed Duny Group's business partner code of conduct by 2030 and here we are at 83% and we work diligently to reach that so thank you for listening and I will now hand over to Robert for his concluding remarks Thank you Magnus yeah and a little bit final remarks here and two topics of course our sales net sales and trends there and what we're doing there and I think as Magnus

mentioned a bit we have been focusing on transforming our go-to-market model in terms of both marketing and the sales force and done a big job during last year and that is starting now to get in place and as much as mentioned we get more visits plus 27% also in order to drive more growth and find new type of segments and customers is that we're launching a mid segment table cover and napkin assortment for especially the south part of Europe in order to hit Those type of trends in those restaurants and segments and on if we look at the profitability there Of course, we look working a lot now with quite a big Change here in the years with the whole logistic move of course as a big thing and also Internally on IT and so on in order to be more efficient going forward in both end of 26 and 27 here And also looking into I think food packaging a good a good turnaround in the quarter. And it's a very good and important balance for Dune if you compare it to many years ago, actually, that we have two business area that actually complement each other. And also the packaging actually taps into mega trends in the society, especially with Duneiform here that we are investing in and see a good momentum in. Yeah, that was a little bit short summary and recap. And then I will move you over to questions. Thank you.

Thank you. And we will now begin the question and answer session. If you do wish to ask an audio question, please press star 1 on your telephone keypad. If you wish to withdraw your question, you may do so by pressing star 2 to cancel. One moment, please, for your first question. And your first question comes from the line of Eric Sandstedt with Kepler-Shipru. Please go ahead.

Hi there. Thanks. Yeah. Eric Sandstedt here with Kepler-Chevre. A few questions, please. I want to start off with the organic sales growth and how we should think about that relating to margins. It's organic sales growth is improving in the quarter, but it's still negative.

So do you think you can improve operating margins this year, even if organic sales growth were to be negative? yeah uh yeah i can start here it's of course a bit of a hard question depending on the mix how we sell and and of course it's important for us to to sell dunilin and udisov which are the premium in order to reach the margin actually because if we sell then let's say one ply two ply three ply napkins then of course that's a lower value on those so that could be tough but i think our main focus is really to to to yeah as i said with the sales force everything everything is focused

on on driving the premium and which is the core yeah yeah but but i'm a bit curious how much pricing power you have now given the pretty tough consumer backdrop and the fact that consumers are trading down um can you still raise prices on your premium products or is there a risk that Does that kind of re-accelerate the trend towards cheaper products?

Yeah, I think, I mean, it's always a risk, of course, especially with the restaurant situation. I think certain prices, when you see inflation coming in and so on, it's a little bit easier maybe to adapt to that. And I think going back a little bit to the napkin role in the restaurant, it's a very, you know, little part of the whole expenses in a way. But of course, when the restaurants are under pressure, it's tougher. But I think that speaks for it, that we can actually take out the increased inflation on the premium. Also, it's important for us to actually charge the right price, of course, on the lower products.

That's an important part. yeah yeah that makes sense and on that topic and on the back of your comments that you see consumers trading down to cheaper products does that mean they are not willing to pay a premium for for sustainable products either and i'm thinking a little bit about the upcoming ppwr regulation and whether this can be a competitive advantage for you and and how to think about the price proposition in in relation to that regulation yeah i think that's like a two edge sword here in a way because you have uh i think uh if you look at the world the research

and we see also we've got data here that i mean sustainability that yeah the the willingness to pay isn't really there actually i think it's like two percent are choosing restaurants because of own sustainability it's quite a tough measure so in a way but that is so it's a very low number of people actually yeah choosing the restaurant for that on the other hand i think as you're on to with all regulations coming in i think we are ahead there i think that's very important and we are long from ahead i would say i mean what we've done with the airline now moving into this bio binder i think that's something that is really important and we were the first one in the world with that we you know ppfas on packaging we were also the first we moved early there and then you can say yeah well early but i think yeah we moved because we know that regulation would come in a way so i think yeah yeah long term that would be a winner i'm i'm definitely sure of that but short term of course the pressure on restaurants yeah they're looking into yeah everything that can cut you know from meat or or detergent in the dishwasher everything they look into everything so if the restaurants now hopefully like in Germany if they get a little bit better maybe financial with the VAT maybe if that moves we haven't seen that yet but if that comes of course they get a little bit more and maybe the napkin is a very small part of it so that could actually make a big change in the restaurant if you have a little bit creating atmosphere and that's one of the things we've seen in the research also that atmosphere is important for the restaurants because people come there to socialize maybe more than eat nowadays actually so that part we are really on to and i think we also i mean putting a lot of efforts into light now especially live light and that is also something we see a big potential here in in long term because you can see that when you're out now atmosphere is so important for the restaurants to actually get people in so i don't know long long answer here but yeah no no that's great that's helpful um then also um maybe i came on the call a little bit late so maybe you have talked about this already but but hi how should we think about

higher input costs on the back of the high oil price and geopolitical tensions and so forth is is that is that impacting you and if so can you offset it through efficiency measures or or pricing uh yes it is impacting us we see that already in the second part of of the quarter especially on on uh from the forwards logistics cross but also the energy of course it's very uncertain how it will play out but as robert was into i think the cost increases there it's visible we are taking initiatives and the mindset for the customers to accept these they also read the newspapers i think it's better when you have these clear signals to uh to adapt and to also accept a certain price compensation measures yeah so energy uh logistics some parts of our products also indirectly impacted that resource from asia that is one part the other part is if we see disturbances in the supply chain we haven't seen that so far yet but that's also a risk blocking certain routes in the world that that can also have an impact yeah sure just finally uh from me i think you mentioned it towards the end of the call here but but the financial expenses did i understand it correctly that there was an uh a leasing impact on the financially on the financial a cost in the quarter or basically my question is more how to what's the normalized kind of cost of debt for you right now yeah um that's that's correct and if you look on if you compare to last year the last year was very low for for certain positive revaluation effects i think it's fair or everything else the same that this leasing impact is around seven million per quarter just to give you an idea higher. So it's not that big difference we should expect going forward and of course then there are a lot of components in that financial net so it it can of course move up and down going forward as well.

Yeah but seven million in leases in in this quarter. Correct and also going forward. Yeah, perfect. Thank you so much. Yeah, thank you.

And once again, if you would like to ask a question, simply press a star one on your telephone keypad. And our next question comes from the line of Johan Fred with SEB. Please go ahead.

Yes. Good morning, guys. Thanks for taking my question. I apologize if the question has been answered during the call. I was a bit late here. but just trying to understand that the dynamics here and the especially the discrepancy between gross margins and operating margins gross margins were stable volumes were roughly flat but but still the the operating margin was down significantly could you just explain the dynamics here and also what needs to happen for for uh for the operating margin to to improve in 2026 Thank you.

Yeah. As I understand the question, the difference between the gross margin and operating margin, which declines slightly the operating margin in the quarter. Yes, we have taken out costs that should contribute, and it is, especially so in production. That impacts gross profits, you won't see there, but sales and marketing is impacting positively on the indirect cost, the difference between gross margin and operating margin. We have taken some costs, some are mainly related to IT, the change in ERP system, so digital solutions there. Some of them are temporary in 26, part in 27, and it should be reduced going forward. We also have some other costs we've seen related to M&A and so on.

So that's explained a little bit the dynamics in the indirect cost. so we're both positive and negative impacts in the quarter but just so i get get this straight sales mix was was negative you're losing sharing brand products which i assume have higher gross margins but still gross margins are relatively stable while you're gaining volume and sort of private label and commodity products wouldn't that sort of be beneficial for for operational operational leverage in dining solution or am i getting this wrong no i think as you said the gross margins are relatively stable although we have a severe negative impact selling less brand

sales so the reason why it is stable is the hard work we're taking out cost especially so in production and that supports the gross margin um so in order to to from a sales perspective improve the gross margin then then of course we need higher share of brand sales so it's protected the gross margin is protected by very much cost out okay got it thank you so much for taking my questions thank you all right thank you i'm showing no further questions at this time i would like to turn it back to robert darkest cup for closing remarks yeah thank you for listening in and great questions thank you and yeah we'll see you in the next quarter thank you bye-bye

thank you presenters and ladies and gentlemen this now concludes our presentation thank you all for attending you may now disconnect