Duni AB (publ)

Hello and welcome to the DUNY Group Q2 Intern Report 2024. Throughout 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. Today I am pleased to present Mr. Robert Dacascope. Please begin your meeting.

Thank you. First, I have to apologize that the report came out late. The board meeting took longer than expected this morning and the practical reasons delayed it. So sorry for any inconvenience. And thanks for calling in. And now we kick off. So the agenda for today is the highlights and market outlook. We do a Q2 summary of the group and the business areas, innovations and also sustainability targets, and then financials at the end and then finishing off with the Q&A. Top highlights for the quarter. So regarding the market, it's still a bit of a soft market, but with mixed development signals. Net sales and profit is the second best Q2 in the company history, next to the particular high Q2 last year. And the third highlight is that we are in a strong financial position. If we look a little bit on the market outlook, we still see that the Horeca market is volatile. There are some mixed signals. The left graph shows open table Germany and reports increases in bookings, but still volatile and a bit bumpy, as you can see. Bottom right is the Horeca trend versus 2023 and Q1 2024 versus 2023. So where the start of the year has been tough with minus 12.9% and the gas debt then has minus 14, which is an important segment for us. And then top right, we see the consumer confidence. And that shows that after a very steep increase in 2023, it went down end of 2023, but now starting to increase again. So there seems to be a turn upwards and with interest rates and inflation on food coming down, we believe in a stable recovery. And we also have two business areas that provides resilience and a good financial position that enable us to address long-term growth opportunities. Looking high level on the key financial, net sales ended up at 1.875 billion SEK, which is 61 million SEK less than last year. Our operating income ended up at 135, which is 35 million less than last year. And our margin at 7.2% versus 8.8% last year in the quarter. We'll come back to the details more later on as well. So Q2 comment here, net sales dropped 3%. So the main reason for sales drop is that there has been a general decrease in most markets and product categories as sales reached record levels in conversion periods last year. And the biggest drop is coming from Germany and also Benelux. More positive is Nordics and Poland. We have done some price decreases last year that actually decreased the sales this year. And also a bit of a negative mix effect between retail and Horeca in the quarter. So a bit softer market and volatile market with some negative signals such as bankruptcy increases 10 times versus last year in Germany. Looking at the operating income, it is the second highest quarter in history, but lower than last year. Coming from a last year government support for electricity of 20 million SEK, also price decreases and a lower turnover within business area dining solutions. After turning down, we are seeing increasing raw material and cost for sea freight, which puts further pressure on the result in the quarter. And newly acquired decent packaging and Husky contributes with positive results to the operating income while innovative startup relevo lowers student groups results. So now I'm handing it over to Magnus to look deeper into the business areas.

Thank you, Robert. And good afternoon, everyone. So as Robert said, I will now go through our two business areas a little bit more in detail. And as usual, I start with business area dining solutions, which represents our products for setting the table. So a quick look at the numbers. Sales is down with 80 million SEK versus previous year. And that equals 8% roughly. Operating income is also down from the previous year of 134 million to 93 million. And that is a margin of 8.7%. So if we look a little bit more in detail, we can confirm what we do see a similar development as in the first quarter. We see an effect from the weak market consumption in lower volumes in the Horeca sector, explaining roughly half of the decrease in the quarter. And it is especially noticeable in Duff region, where Germany, our most important market, is struggling. But there are also positive exceptions. Napkins, our biggest product group, continue to be strong. And we have seen that the smart lightning with lead lamps, some of you might have seen on the restaurant tables, has been very well received in the market and growing strong. So in addition to the slightly lower volumes, we have also made selective price decreases starting already last year when we saw the raw materials were bought out exactly a year ago, summer 2023, from very high levels in the second half of 22. So the decrease is mainly directed to tenders and certain customer segments that is in scope for this, I would say, fierce price competition. And it's for us to secure our relevance in some of these areas. However, we also focus very much on our gross margin, meaning that we deliberately step out from some volume contracts if the margin has been deemed too low. So this has resulted in a positive mix effect and contributed to the gross margin. So nevertheless, the last year, as you might hear, has been very volatile when it comes to cost increases, pulp, energy costs, freight, and not least inflation in general, although we heard some positive news this morning, at least from Sweden, it's going down. But consequently, I think the need to work with our operational excellence is crucial, and we also need to stay close to our customers and manage competition, which is in some markets have increased sharply when the volume is going down. So this means that the customer contracts are continuously evaluated, as we said, in some areas. Sometimes we need to be more aggressive. Sometimes we are stepping out. What is crystal clear is that we need both our premium offer with high margins, but also healthy levels of volumes to secure a good utilization in production, which has been suffering in the second quarter when the volumes are down. If we move to food packaging solutions, focusing on products with sustainable food packaging, we can see that the sales has increased with 2% in the quarter. The profit has improved from 36 million to 42 million. That's a 5.1% margin. So if we look a little bit more in the details and the developments, so if we start focusing on the sales, we do see that both volumes in the APAC area as well also the acquisitions we have done in the previous quarters that contributes to the growth in the quarter. However, contrary, we can also confirm that volumes in Europe continues to be a challenge and falls behind last year. And similar to the situation in Dining Solutions, we have also made selected price decreases when the sea freight fell back from the extreme levels, also at the end of 2022. But we have in the quarter seen a sharp increase again. They are up with two to 300% versus a year ago. It's still slightly below the extreme levels we saw end of 2022, but still quite dramatic. So again, I think this puts some emphasis that we are in an environment where we need to follow this closely, and we are trying to be very agile in this volatile environment. But the profit improvement in the quarter comes from lower stock levels. we have seen in Europe and significant improvement in the inventory costs and I would say higher quality with less write downs. However, a bit unfortunately we have in the APA region and Australia also seen a sharp increase since the year end with higher storage costs. So I think we are rapidly trying to shift the portfolio to stay well ahead of competition when it comes to the best products, not least from a sustainability perspective. We have the non-PFAS adder products that we have been launching in the last quarter is one example. Another example is Liplid. Robert will talk about it more soon, where we replace single-use plastics with fiber. So I think all these innovations and changes come with high demand in planning and managing rapidly shifting customer demands or changes in the legislation that is also a factor here. But we do see a competitive advantage in doing this better than our peers. So I hand over to Robert again.