Duni AB (publ)

Ladies and gentlemen, welcome to the Duny Group third quarter interim report 2024. Through all 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. I would now like to hand the conference over to our speaker today, Robert, President and CEO of Duny Group. Please go ahead. Thank you.

Yeah, hi and welcome to our interim report Q3 2024. Strong quarter meets high comparison numbers. Look at the agenda today. First short highlights and then talk a little bit around the market and then overview of the Q3 summary. And then we'll go into the two business areas. We have dining solutions and food packing solutions. Then we'll talk a little bit around the innovations and sustainability and then at the end financials and summary and then you will have the opportunity to ask some questions to us. All right. Great. Our highlights for this quarter is that we have a strong quarter facing historically high comparison numbers. The revenue is the second best third quarter in history. We have a continued low net depth and strong financial position. We made acquisition of Slovenian company SETI during the quarter which we are very happy to further strengthen our position in Europe and with SETI mainly in the southeast of Europe. We also announced partnership investment to modernize our logistic setup in Germany and together with SEWA Logistics we will set up a new center in Germany and this means that we can consolidate nine warehouses into one. What's the highlights? Going into a little bit the market outlook, it's still very volatile and at the moment the Horeca market is declining, especially in Germany. If we're looking into numbers versus 2019, the turnover in Horeca Germany is still lower. Looking at the latest data down right from April to June, the market in volume, real, there is down 10 to 15%, but nominal positive then of course. We are down around 5% organically. The main thing about the price increases, of course, is that VAT in Germany is one driver, as well as the inflation in the past years. Also, a number of visits in Germany have not recovered yet since the pandemic. So people are not yet really back into the restaurants. Jone Peter Reistadt, Looking at the open table the bookings top right graph here and that's also down for the year versus 2023 but actually showing some less deviation in the last weeks and better booking numbers. Jone Peter Reistadt, During the group is in a good position to address the long term opportunities in the market which will stabilize and continue to grow in the long term. Jone Peter Reistadt, Looking in on the key financials the group. Net sales amounted to 1.9 billion versus 1.910 and then versus 9.935 versus last year. And this is actually representing the second best in third quarter in the group's history. It's a decline with 1.3% and organically it's minus 5%. Operating income comparing with an exceptionally high 2023, but strong versus historical numbers for Q3. Accordingly, operating margin ended up at 7.9%. And then going into a little bit more details around the quarter. So the total sales decrease, as I said, was 1.3 in fixed currencies. During the quarter, we acquired companies. The acquired companies, Decent Packaging and Husky and Septic contributed with 73 million. So that means that organic growth is at minus 5%. The group's net sales representing the second best in the third quarter in group's history. Primarily, we see good progress driven by the expansion of Biopac Group and its acquisitions carried out in the Pacific region during 2024. The lower figure for organic net sales should be seen against the backdrop of exceptionally high comparative figures following the easing of the pandemic restrictions. as well as a lower demand throughout 2024 with weaker purchasing power among customers. And in Germany, the restaurant market, as I said, is developing more weekly than in the rest of Europe, and growth has been negative during the first nine months of the year. And as I said before, the VAT is a contributing factor on meats in Germany, has now then returned to 19% after having been temporarily reduced to 7% for several years as part of the pandemic support. Jone Peter Reistadler, Looking at operating income amounted to 151 million versus 225 last year and the morning at 7.9 and then operating morning was impacted primarily by lower sales volumes, as well as high cost of raw materials and see phrase compared to last year. Also, pulp prices have gone up with 30% compared with the comparative period last year, and the cost of sea freight has increased gradually in the last 10 months due to increased geopolitical unrest. Now, I'm handing over to Magnus here to move into the two business areas.

Thank you for that, Robert, and good morning, everyone. So, I now provide a little bit more detailed overview of our two business areas, starting, as usual, with dining solutions, which covers our table setting products so looking at the numbers sales have decreased by 87 million compared to last year and that represents a 7.7 percent drop operating income has declined from 170 million last year to 125 million with a margin of 11.3 percent so we observe a similar trend for dining solution as we have seen throughout the year with sales down by approximately six to eight percent this decline is partly due to price reductions in the highly competitive retail segment so despite maintaining and even improving volumes in the third quarter this has led to a negative mix effect as retail sales is now accounting for a larger share compared to last year Market demand remains weak, as Robert said, in the professional segment of ECA, with a notable decrease in customer visits across Europe, particularly so in Germany and the DACH region, with decreases in volume that is even worse than we experience in our numbers. Raw material cost has been highly volatile over the past few years, rising through the end of 2022. Then we saw decreasing, slightly decreasing a year ago, and then climbing back again at the end of last year. And now we see a stabilization at historical high levels in the third quarter. So while the inflation has slowed, wage increases remain historically high. We mitigated some of these cost pressures through effective cost control in production. But towards the end of the quarter, we have introduced price compensation measures reflect rising costs over the past year however i think the most critical factor remains and that is the low volumes and as robert showed earlier the number of issues continue to be significantly below the pre-pandemic levels however we continue to invest in being in the forefront of offering sustainable solutions to our customers and one example is our paper mill celebrating 15 years of the fsc certified pulp sourcing This is a key milestone in ensuring sustainable forest management, promising and promotes biodiversity. If we move on to business area food packaging solutions, focusing on sustainable food packaging, we see a 9% sales increase this quarter, and that is primarily driven by acquisitions. However, the profit has decreased to 27 million from 55 million last year. Looking more closely at the quarter, as I said, sales rose 9%. Again, if we exclude acquisitions made in the first half of the year, things are more in line with last year's performance. Volume growth remains strong outside Europe, particularly in the APAC region, with Australia as our largest market. We have secured several major customers in the past year. However, for product portfolio adjustments, we have significantly higher inventory levels compared to previous year, and that has resulted in higher storage costs. And this is the main factor in declining profitability this quarter, which remains below pre-pandemic levels. And especially sea freight cost volatility has impacted pricing and the pricing is below last year's levels. If we look in Europe, the demand remains weak with lower volumes compared to previous year, and this is due to the what we haven't mentioned the overall weaker consumer demand and ongoing transformation, as we see also in the food packaging industry. which faces increasing regulation at both regional and national levels, and making it challenging for customers and producers to navigate. Despite this, we remain confident in the long-term outlook for sustainable solutions, particularly so on the fiber-based products, and we continue to invest in new solutions and materials through partnerships, in-house innovations, and close collaboration with suppliers and customers. During the quarter, as mentioned, Dyni acquired a 70% stake in Ceti, that is a Slovenia-based company that produces napkins, coasters, and other tabletop products made from tissue and air-laid materials. This acquisition expands Dyni Group's reach and footprint in Southeast Europe. Ceti has an annual sales of approximately 100 million and profitability in line with Danny groups, dining solution business area, and it has been consolidated in the group since 1st of September.

All right. Yeah. If we're looking into, we are continuing our investments, uh, on our journey to become the trusted sustainability leader in our industry. And, uh, to mention here is that cooperation with Nucla continues with our plastic free, uh, food packaging made from crop paperboard coated with natural seaweed. which has been very positive from the market. We also decided in the quarter to consolidate our activities within reusable to reliable in the quarter. So still moving on that path. Looking into our decade of action here, our sustainability initiatives, we have three becoming circular at scale, going net zero and living the change. And if we look into a little bit more details and a lot of activities going on, and i just want to highlight the main things in the quarter is as my my suspension here is the implementation of the drying system that will improve energy efficiency in reccel paper mill also the decisions to invest in the new logistic solution will contribute to our net zero goal and this will decrease our co2 emission with around 700 tons and the logistic solution will be co2 neutral so great investments from many aspects Now we're moving to the financials.

Thank you, Robert. So if we look, start with the income statement. As you can see, it shows a significant drop in the gross margin. This is attributed to 125 million in restructuring costs related to the relocation of our warehouse to Meppen. And that is about 70 kilometers from our main factory in Germany. This move is A critical step in securing future storage capacity in a very cost efficient and automated way and also supports our journey towards net zero 2030. So by partnering with SEVA, a logistic provider, we've been able to consolidate our satellite warehouses as mentioned earlier. But excluding these restructuring costs, the gross margin stands at 23.7%. Despite lower volumes and rising costs over the past 12 months, the gross margin has remained stable due to strong cost discipline and efficient production adaptations. As seen in the breakdown of our business area, the profit is down in similar proportions, I would say, although the margins are holding up about 10% in dining solutions, although we see a weak or weaker market. Profitability for food packaging is Fed impacted by high storage cost in APAC region and the continuous weak demand in Europe. Year to date, we are on 7.7% versus last year of 9.1%. That's a drop of 1.4 percentage points, derivate again from the low volumes in Horeca, but also higher cost levels during 2024 versus 23. Looking on the operating cash flow year to date is 238 million and 626 million in the last 12 months and that indicates that the fourth quarter was strong last year from a cash flow perspective but this is also historically the seasonal strongest one. We have in the quarter a positive development in the inventory levels seen in the end of the quarter and this is aligned with a positive development we see in APAC that comes from the high levels that we built up, especially so in the beginning of the year. Our financial position remains strong with net debt reduced and now on par with previous year, although we have done four acquisitions in 2024 and dividends during the first nine months. Net debt is close to one versus EBITDA and consequently continuous with significant headroom for investments in growth and growing the company. And finally, some comments on our financial targets. Organic growth stands at minus 5.6%, largely due to two factors. The first is continuous weak consumption across all our markets, particularly so in the DAF region. And I think the prolonged inflation has led to hesitation among customers when it comes to dining out. We saw that consumer confidence in the euro area, the numbers published yesterday, that's a very important leading indicator for many industries, including ours, increased slightly by 0.4 points to minus 12.5% in October 2024. It is the highest since February 2022, although it remains clearly below long-term average and very low in Germany and continues to be so. The second factor for the organic growth is selected pricing reductions we implemented over the past nine to 12 months to remain competitive in certain areas. Again, at the end of the quarter, we announced Price increases to compensate for higher costs from inflation and raw materials we have seen recently. Our operating margin is at 8.2% on rolling 12-month basis. That is slightly below our 10% target. And finally, the dividend is set to 5 SEC, exceeding our target of distributing more than 40% of our net income. So thank you for this. I'm listening and I hand over now to Robert for his final comment.

yeah short summer here i think we have a strong quarter versus historical numbers also a strong quarter where we invested to strengthen our position in europe with the acquisition of safety and also the new logistical setup in germany and then we operate in a in a in a market the eureka market that long term will grow so we see positive on the long term horizon all right thank you then we move to questions

Thank you, management.

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well there are no questions on the line at the moment I'll ask conference call back to the management all right thank you yeah be today today with a lot of reports so yeah so if new questions yeah i want to thank you for listening in and yeah we're coming back in the next quarter thank you this now concludes today's presentation thank you all for attending you may now disconnect