Duni AB (publ)

Hello, and welcome to the DUNE Group first quarter interim report conference call. Through the call, all participants will be in a listen-only mode, and afterwards, there will be a question-and-answer session. Please note, this call is being recorded. Now, I would like to pass the call over to Robert. Please begin.

Thank you. Yeah, hi, and welcome to DUNE Group interim report for Q1 2024. The headline for the quarter is a stronger operating income and strategically niched acquisitions. Moving into the agenda, we'll run through some highlights, the market outlook, a summary of the total group for Q1, and then we're moving into more details into the two business areas, and then innovations and also looking into our sustainability targets and then deep dive into the financials and then we have a summary and then Q&A in the end. So if we move into the highlights, three things here. Improved operating income being the highest first quarter measured. Gross profits increased by 11.2% compared to the same period previous year. And continued expansion in the food packaging with strategically niched acquisitions. Those are the top three highlights we present here. If we look at the market outlook, our general market outlook has not really changed since last quarter. The Horeca market will continue to have a gradual and potentially volatile recovery short term and a stable recovery long term. Mixed signals and uncertainty for the coming quarters, as we all know. Dynigroup's complementary business areas, food packaging solutions and dining solutions with a device product portfolio provides resilience. The group's financial position enables addressing profitable long-term growth opportunities. And if we look a little bit on the graphs here, top right graph shows the German Horeca market and especially the red line here shows the number of visits versus 2019. And for 2024, it was projected that actually going up a little bit, but still 10% down versus 2019. And if we look at more real live data, so to say, shows the graph from OpenTable. and measuring versus last year, 2023, and it's a bit weaker German market than actually expected then from the top graph. So we can see that, yeah, the down here in both Jan, Feb, and March, and also a little bit in April, where actually the Eastern was hitting, of course. Left graph in the bottom there shows that the In most regions in Europe, actually, respondents share a more positive outlook than actually they did in December. And if we look more particularly into Europe, it's actually up from 22 to 38. And this is looking into the next coming six months. So that's the states on a little bit more macro levels. Short, the key financials, we had a net sales of 1.7 billion, a little bit more, which was a little bit down versus last year. The operating income, 140, which was up then, 10 million versus last year from 130. And our operating margin ended up at 8.1% in the quarter. And last year it was 6.9. So improved margin in the quarter versus last year. Looking in more into the Unigroup's Q1 on a higher level here, as I said, net sales is down, and it's down minus 7.5%. And the market data indicates a softer Q1 compared to the last year. And the drop, in a way, consists of three different parts. We have partial price decreases. The retail, you can, German – has a drop for us and maybe on low margin contracts. And also fewer invoicing days has negative facing impact. And in the quarter, we acquired a relevo in Husky, while already acquired a decent packaging was consolidated in February and relevo in March. And Husky will be in us from 1st of April. If we're looking at the profit level here, it was up plus 7.6%. We had an improved price and cost balance for raw material and the sea freight compared to the same period previous year. Lower cost for stock keeping, been more normalized now after the pandemic peak. And the customer mix improved with a higher share towards Horeca versus then retail compared to the period previous year. Inner cost has increased due to the investments in digital transformation, our innovation projects, and also market expansions outside of Europe. Now I'm handing over to Magnus, who will go into more details into the two business areas.

Thank you, Robert, and good morning, everyone. So, as usual, I will now go through our two business areas a little bit more in detail, and I start off with business area dining solutions that represents product for setting the table. So Q1 ended with lower sales versus the same period last year, down with approximately 8.8%, that equals 100 million. Operating income is slightly down from last year with 13 million, but as you can see, margin in percentage is kept and above 10%. So a little bit deeper look on the business area dining solutions. So as Robert said, The macro statistics looking on the Horeca in general and consumer spending indicate a softer demand. And this is especially noticeable in Germany. And that is our biggest market, as some of you might know. One of the reasons for challenging Horeca is that Germany has announced a return to VAT rate of 19% for restaurants and catering services. That is in effect from 1st of January this year. This is a move that follows the temporary reduction we had during the pandemic period down to 7%. So nonetheless, the decrease for a dining solution could be summarized into three main explanations as we touched upon. First, we have adapted the price on some of our tenders and commodity business. And this price decrease explains roughly one third of the drop. Second, we have lost some bigger retail contracts in UK and Germany. This also explains roughly one-third of the decrease. And finally, we clearly have fewer invoicing days in March as an Easter effect. For the quarter, this explains roughly two to three percentage points. So consequently, the volumes in the professional segment against restaurants and hotels is relatively flat, although we do see significant movements up and down when it comes to markets and products. And since we are vertically integrated in this business area, we have paper mill and converting units. We have an effect from less volumes, and that means lower cost absorptions. So naturally, we carefully try to evaluate every contract and how it contributes to the group's profits. We are a premium price, and that means that we sometimes move in and out of tender businesses. And it also means that we need to quickly adapt to temporary lower volumes. But I think for good cost control, we have managed to keep the margin above 10% and balance the price level versus the cost level. So if we look on our other business area, food packaging solutions, focusing on products with sustainable food packaging, we see a sales decrease of 5.5% in the quarter. However, we have strengthened the profit both in absolute terms as well as in the margin. So if we take a look a little bit more in the details, the slightly lower sales is fully explained by lower prices. And I think that reflects very much that sea freight has come down from the very high level we saw some one and a half year ago. And the volume continued to be positive outside of Europe. although we do see a somewhat weaker development compared to previous quarters, especially in Australia, which had experienced a high growth over the years. In Europe, volumes continue to fall behind high levels that was boosted during the pandemic period. In parallel, also with dining solutions, the main part of the volume decline in Europe could be derived from these lost retail contracts in Germany and the U.K., I think for the business area, since two years back, we have worked hard to decrease the stock level that was built up during a period of very high costs connected to the sea freight. It has been a challenge to decrease the inventory since we lost competitiveness versus some competitors that didn't face the same issue or problem. However, I think now we are in a much better position to take on bigger tenders and defend our position. So I think we have mentioned before that we experience a very dynamic packaging market with many new companies offering different types of solutions for the future packaging. I think this reflects very much what is going on and the guidance we get from the European Union on how to manage single-use plastics and waste in general. I think we firmly believe that there is no one single answer to this or offer that can meet all the necessary requirements. And that is why we have in the last three years invested in both the companies, but also new business models with reusable solutions. But we have also invested in new assortment, new materials, new barriers that is in the forefront for this new regulation that is already here or on its way. So we can therefore support our customers with a complete offer. Doesn't matter if it's reusable, recyclable, combining the most circulable solutions for every occasion possible. And at the same time, having a very, have a convenience as a leading factor. So I think during the quarter, it has been an intense one for Juni Group when it comes to acquisitions. First, we have acquired a majority stake in Relevo as a leading company based in Germany, offering reusable solutions for the Horeca industry. So with this, our offer broadens and consequently we can and have a complete solution, solutions to provide for festivals, campus, or if it's just a single restaurant. Second, and as we press released at the end of the quarter, we acquired Husky. It's a market leader with innovative, sustainable dining solutions. They have a very special design on coffee, or if you like, teacups, and high-quality materials that utilize waste, a recycled material, to enable to a transition into a waste-free world. So that's what we're very happy about. The acquisition is done in Biopack Group, and that will be consolidated, as I said, from 1st of April in this business area, food packaging solutions. And finally, I think we already communicated, I know we communicated in the Q4 report, Decent Packaging was acquired also through the Biopack Group. Decent Packaging has a strong foothold in New Zealand, but also in UK. and offers a great selection of plant-based solutions to complement our offer we already have today. So all three companies will contribute to increase our relevance. It will accelerate our growth agenda, and they have an annual net sales of approximately 200 million, and the profitability is aligned with Dini Group.