Duni AB (publ)

Hello and welcome to the DUNY Group Q3 Interim Report 2025. 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 Robert Dakishkog, President and CEO. Please begin your meeting.

Hi everyone and welcome to this Q3 report for 2025. The headline for this quarter is improved operating profit despite continued challenging market conditions. And if we move into the agenda today, as always we go through the highlights, the market and the outlook and the summary of Q3 and then we'll go into our two business areas a little more deeper. and then we're looking in at our sustainability targets for 2025 and then we will go through our updated targets for 2026 both for the financial and sustainability targets and then at the end we'll finish off with a q a as always so um highlights for q3 um our operating profit improved by just over 10 percent during the quarter And this was despite continued challenging market conditions. Net sales grew by 7.9% during the period in fixed currencies and in variable currency, 3.3%. And the acquired companies in the UK and Slovenia continued to contribute positively, and they were driving both our top line, the net sales, and operating profits. And now we're halfway through our decade of action and we are updating the targets for the financial and sustainability targets. We'll come back to that later on in the presentation. So if we look at the market, yeah, the market remains weak. It's a persistent inflation and the challenging consumer climate in the world and Europe. We have a general decline in the hotel and restaurant sector. where price increases haven't offset reduced volumes. And if we look on the right bottom corner, you can see the German numbers here for the restaurant industry. And in volume, which is the real number for the quarter two there, it's very red. And in our main area, gastronomy, it's minus 3.5%. and actually struggling also in nominal terms. As we all know, the European economic sentiment is pretty tough, and the employment expectation, as you see on the left graph, is lower, going downwards. So it's a challenging time, of course. But there is an uneven recovery in the European food service. So some countries show signs of rebound, others continue to lag, making pan-European growth difficult to sustain then. And you can see that a little bit UK struggles, Germany on the other hand is emerging with growth prospects and expects with numbers from SICARNA, expects to have a 1.6% increased visits for 2026 and hopefully then Germany has bottomed out. And lowering the VAT from January in Germany should hopefully help the German restaurants industry in 2026 and going forward. Italy and Spain has been more stable last year and has a moderate decline last year. They depend more on tourists, which has probably been quite good for those countries. And if we look a little bit ahead, it's a muted growth outlook. So the European food service sector faces a slow and uneven recovery, shaped by economic caution and shifting consumer priorities. Looking at the key financials, we have a net sales of 1.972 million SEK. And the net sales amounted last year to 1.910 billion, so an increase. And operating income ended up at 168 million versus 158 last year. And the operating margin was up from 7.9 to 8.5%. So a little bit summary there. Moving a little bit more into the details then on the comments here. Net sales then increased 3.3%, but we had an increase of almost 8% in fixed currencies, mainly driven then from the acquired companies like poppies in the UK and also price increases. The organic growth is flat, and comparing, for example, to the German restaurant market, where that market is down 3-4%, it seems that we are taking some shares in the market. We see the trend of focus on cost, of course, in the market environment, and where maybe restaurants are choosing a little bit less premium products, so there's a mixed change there. We have a gradual impact of price increase in Europe, and in Australia, buy-back groups continue to grow in local currency, so weak Aussie dollar is impacting the translation to the SEC here. If we look at the operating income, it ended up at 8.5%, and our acquired companies are driving the operating income in the quarter. We have some lower volumes, and mixed effects continue to have a little bit negative impact on the result but with good cost control and efficiency improvements has a positive impact mitigating. Also the actions in our sales and marketing cost resulted in lower levels and our change now to focus specialized sales teams for each business area has been implemented. If we look at the inventory level, it has decreased in beer pack, but we have some higher indirect costs, and the weak Aussie dollar has had a negative impact in Australia. And then I will move into the business area, which Magnus will come into.

Thank you, Robert, and good morning, everyone. So as usual, I will now provide a little bit more detailed overview of the two business areas. Start off with dining solutions, which includes our table-setting products. Despite currency headwinds, sales increased by 120 million compared to previous year Q3, reaching 1.22 billion SEC. And this growth was primarily driven, as Robert said, by acquisitions completed earlier this year and at the end of last year. Profit improved year over year, slightly improved margin of to 11.5%. So as we touched on earlier, the market continues to face challenges. Based on the macroeconomic data and what we're seeing across our own markets, it appears we reached a floor in the Horeca segment with some signs of stabilization, maybe an improvement compared to last year. The retail segment, however, remains more volatile. For us, it's largely influenced by tenders, whether won or lost. And in the third quarter, we saw a slightly negative development in retail, while Horeca showed modest improvement. We continue to observe a general trend of down trading with lower prioritization of premium products. This isn't unusual in tougher economic times, but it does put pressure on us to meet demand while being even more cost conscious and efficient in our production processes. So pricing, we've seen a positive effect from price increases of around 1.5%. While this is below our initial expectations, it's still a step in the right direction. On the cost side, pulp and some other raw materials remain below last year's levels. However, we're seeing significantly higher inflationary effects in logistics and also on indirect costs, particularly salaries, which have increased well above historical norms. So these cost types now have greater impact than pulp alone. Outside Europe, growth has been a key driver for both business areas. During 2025, that growth has clearly slowed. Some markets are significantly down, while others continue to show strong performance. But what's common across all of them is the increased presence of low-cost Chinese products flooding the market, especially as the US has essentially closed its doors through high tariffs. So despite these headwinds in the quarter, we managed to grow during the quarter and improve our results, thanks in part to our recent acquisitions. We're also beginning to see healthy synergies gradually taking effect. So turning to the business area food packaging solutions, which focuses on sustainable food packaging, sales declined by 7%. And as for the previous quarter, the main reason is significant FX effects from the weak Australian dollar versus the Swedish SEC. Profit was stable at 27 million SEC. And that means slightly better margin ending on 3.7%. There are essentially two main reasons behind the weak sales performance this quarter. First, we adjust for the negative currency effects. Sales were actually on par with previous year. Looking at our business in Europe, volumes are slightly down. However, we're seeing growth in areas where we believe we can build a competitive advantage. We have mentioned before that Uniform is a good example. It focuses on food packaging solutions that help customers reduce food waste and costs while still maintaining superior sustainable offering. But the challenge in terms of volume and one reason for continued pressure on our margin is the takeaway segment. And this market continues to attract many new players, often offering plastic-based, lower-cost alternatives So while there has been a lot of regulation in recent years, we welcome the increased focus on sustainable solutions and strongly encourage stricter follow-up and enforcement of these systems. Second, Biopack Group continues to show improvement. Inventory levels, as Robert said, have come down, already starting in the second quarter, and now we're further optimizing in the third quarter. Gross margin improved, although some of the gains were offset by temporary higher indirect costs. Finally, during the quarter, we made a small but strategically important acquisition through BuyGreen, which is based in Australia. And this moves, strengthens, and complements our fiber-based product offering in what is currently our most important market for this business area. So I hand over to Robert again.

Thank you, Magnus. If we look in first here, I will go through our current sustainability goals and then present an updated financial and sustainability goals for 2026 and onwards. And these are valid through 2025 now, and we have becoming circular scale governance here and living the change. And if we look into a little bit what we've done in these during the quarter, what we achieved here is what kind of activities. We have launched a reliable circular system in Sweden on reusable products. And in going at zero, we have quarterly reporting of climate data includes poppies now, which is great. And we have been nominated for German Sustainability Award. So these have served us very well during the past year. And we have KPIs on the different one and really working towards that. But from 2026 we have updated the targets or the DUNE Group Board has decided to update the DUNE Group's strategic targets effective then from January 26 and the decision marks the halfway point in our decade of action. So if we look at the financial targets first, the financial targets have been adjusted to reflect Dune Group's growth ambitions and profitability focus, while maintaining a balanced approach between organic development and acquisitions. The targets provide a clear direction for the group's business development going forward. So regarding growth and sales growth, at least 6% total annual sales growth compared to the previous target of 5% organic growth. The new target includes both organic growth and growth through acquisitions. And there we have the ambition to approximately half of the growth will come from organic. If we look at the dividend, the new target will be over 50% compared to the previous target of 40% dividend of the net profit. And the operating market, the target of minimum 10% operating market remains unchanged. If we look at the sustainability targets, they have been updated now to more clearly support the long-term strategy we have developed through 2030. And the focus is on four overarching areas. It's climate, circularity, supply responsibility and work environment. And for the climate, targets for Scope 1, 2 and 3 remain unchanged. Emissions in Scope 1 and 2 are to be reduced by 57% and Scope 3 by 46% by 2030. in line with our science-based targets and proclimate targets. The Scope 3 target will be reviewed in 2026 to better reflect growth ambitions. The net zero target includes interim goals for 2030 and a final goal on net zero emissions by 2050, which includes the Scope 3. Regarding circularity, at least 90% renewable or recycled input materials. This replaces the previous target related to the fossil-based plastic and introduces a broader, more business-relevant definition. Next target, supply responsibility. 100% of the group supplies must have signed in the group's business protocol conduct. And looking at work environment, less than 10 work-related injuries with absence, so lost time incidents per 1,000 employees is the target as well. And all group targets will be reported quarterly, with the exception of scope 3, which is reported annually. All right, so if we look into the financials, Magnus.

Thank you, Robert. Yeah, let's now turn to the income statement and summarize the key drivers behind this quarter's performance. So as mentioned, organic growth was close to zero. However, acquisitions contributed positively, adding nearly 8% to the top line. At the same time, a stronger Swedish krona had a negative impact of almost 5%. So taken together, total sales increased by 3.2%. It's important to highlight a key factor when looking at the gross margin here. In the third quarter last year, we had a one-time negative impact of 125 million SEK, and that was related to restructuring costs for a new warehouse solution. So when we adjust for that, last year's gross margin was 23.7%, meaning we've still achieved an improvement of roughly 1.5 percentage points this quarter. Admin costs were elevated during the quarter, partly driven by activities outside Europe. Some of these costs are linked to IT investments and changes in our ERP systems. Others are considered temporarily high and being actively addressed. So EBIT for the quarter came in at 151 million SEC. This is an increase of 50 million SEC, nearly 10% when adjusted for last year's restructuring cost, as said. So operating income is now running on 576 million SEC on a rolling 12-month basis, with EBIT slightly above 500 million SEC. So if we look a little bit more in the business areas, dining solution is now rolling above our 10% target, which is a positive milestone. On the other hand, food packaging is clearly below. And both areas show potential when coming back to historical levels and improving these figures remains a key focus for us. Dime solution is currently challenged by lower volumes and underutilized production capacity. However, there is clear potential for operational leverage with higher volumes. Food packaging has faced significant headwinds over the past three years. The industry has undergone major changes. Regulatory volatility has created, as we have said many times, a dynamic and competitive business climate. We see many new players enter the market, which has added complexity, but also brought innovation. So we welcome and we are inspired by these innovations and new entrants. With that said, it's worth noting that of the roughly 300 startups in the reusable segment that emerged three, four years ago, very few remain active today. But we are here for the long run. We continue to actively engage in material development, innovation, and exploring new revenue models to ensure we stay ahead and deliver long-term value. So looking around operating cash flow in the third quarter continued to be positive and aligned with last year. Operating cash flow is slightly above EBITDA indicating a very healthy cash conversion and inventory continues down and contributes to the quarter. CapEx, as you see, is slightly above last year, also for the rolling 12 months versus 2024. That's explained by both investments in our factories, but also in IT. We take a little bit of a look on the financial position. It remains robust. Net debt has increased compared to previous year. It is primarily driven by recent acquisition. As mentioned before, inventories are going down and optimized throughout the group. So return on capital employed has declined a little bit year over year, but stabilized now around 24, 25% excluding goodwill. This is not an external target as we just talked about, but it is an important internal metric that we actively monitor. So we're committed to improving it through careful evaluation and optimizing of our capital allocation decisions. Finally, we look on the financial targets valid for the whole of 2025. Organic growth is close to zero for the last 12 months. And as we have said now many times, driven by weak consumer demand, basically on all markets. We do see pockets of growth, which mitigates the overall very weak Dash area and the numbers we have seen in the last two to three years. Operating margins remains at 7.4%. That's same as previous quarter. But again, it is below our target of 10%. And finally, as I said in the AGM meeting in May, a dividend of 5 SEK per share was approved. This corresponds to 66% of net income when we adjust for these restructuring costs. And that exceeds our target of distributing at least 40% of net income, now going to 50% from 2026. So thanks for listening. I hand over now to Robert.

Yeah, just a short summary here. We had had a solid quarter despite the challenging market conditions. I think that can sum up the quarter. And we are the trusted sustainability leader in our industry. We're actually here 365 days every day. We are there. We're a stable company that can deliver. And I think halfway now through the decade of action, we are updating our targets. So, yeah, thanks for listening in. And we move over to Thank you.

And if you do wish to ask an audio question, please press the star one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing star two to cancel. Once again, please press the star one to register for a question. There will be a brief pause while questions are being registered. And our first question comes from the line of Erik Sandstedt with Kepler Chevreux. Please go ahead.

Thank you. Erik Sandstedt here with Kepler Chevreux. Got a few questions. Firstly, on the new financial targets, you're raising the dividend policy, but also allude to perhaps making more acquisitions as part of that sales growth target. Wondering a little bit how we should think about the balance here. Is there room for both and what would you prioritize and so forth?

Yeah, thank you for the question. Yeah. Yeah, I think it's a room for both. Absolutely. And I think that's important as well that we have both of these. And I think we have proven that historically as well that we... It's important with acquisitions actually for us. I think this new target more reflects Dooney and what's Dooney going to be in the future.

Yeah, thanks. And also on the M&A side, in terms of that sales growth target, should we think about the potential M&A contribution as you're making sort of several smaller acquisitions every year to come up to that three percent target in addition to organic sales growth or will it be much more ad hoc where you could do sort of bigger ones occasionally obviously depending on what's available and so forth yeah i think it's it's the latter maybe it's actually depends on a little bit we

We know the market. If you look at maybe the core of it, you know, with the napkins and everything there, we have pretty good idea. There are smaller companies. There are a few bigger, maybe not huge, huge. But yes, I think it's a little bit both. Actually, it's a bit in that sense, depending on what's available in the market.

Yeah, thanks. And finally, in terms of the financial targets, you previously had a target of 5% organic growth, and now it should be around half of that 6%, so 3% implied. Is it simply because there is tougher markets to do sort of 5% organic growth, was there more pricing in the previous target? Could you maybe just elaborate a little bit on that mix within that target?

Thank you, Erik. No, I think 5%, as we historically have and still have organically, I think it's quite ambitious in our industry. And also reflecting that over the last 10 years, acquisition has been very important for us. So that's also reflecting that we consider this continuously important. Of course, the ambition is always a little bit higher, but I think this is a more balanced view of where we're coming from and also indicating where we're going. So that's a little bit how we see it.

Yeah, that makes sense. Then finally, just a couple of questions on the actual Q3 results here, maybe on the detailed side, but financial expenses were quite low or basically in line with Q3 last year despite much more debt on the balance sheet right now. Was there anything extraordinary in there or is that level sort of a good run rate also going forward?

No, I would say there's always a bit of a mix in that. So I would not say it was something else sticking out. It sometimes goes up and down.

Yeah, but I mean you have much more debt now after the acquisitions you've made and still financial expenses were I think even one million lower than in the same period last year. Yeah, that's on the detailed side but still struck me as being quite low in relation to debt levels.

Yeah, that's correct. Everything else the same, that normally the interest rate goes up when you have higher debt. And this is the situation for acquisitions. But again, there are other items in that that sometimes explains why we have a little bit up or a little bit down. But also the interest rate has come down a little bit as well.

Yeah, yeah. Thanks. And then just finally, could you say anything about the development throughout the quarter in terms of organic sales growth?

Yeah, you could say the European market then, as we stated, is challenging in terms of volume then, of course. And of course, we're trying to work with the mix and sell the right things as well. But it's volume. And I think it reflects the number of visits actually in the restaurants that hasn't returned really to the European market. You can see, especially like UK and some other markets, Germany has maybe still 15 to 20 percent less visits than versus 2019. So, of course, for us who are selling napkins, it's one napkin per visit anyway. And that is maybe the challenge we have in terms of the organic growth. in the market. I think there are, I mean, we see that it's a challenging time for many companies actually. So there are things happening in the market as well. And there, of course, we are here, as I said, we are here 360 days per year. We can deliver every day. We're a stable company. So I think in these times, we have a really good benefit of that actually towards our customers that actually they can rely on us in that. And that's...

maybe i can just add on if if the question was if we see some patterns over the quarter specifically uh there it is a bit challenged to get real-time data specifically on restaurant development it's normally lagging uh you need to to rely on other types of data consumer confidence and so on um however i would be surprised that we should see some dramatic changes from q2 i think we all have reached some kind of a floor when it comes to the to the health of the consumer, and hopefully we will see some kind of improvement going forward. I don't think it will be dramatic, bearing in mind the uncertainty we're still facing on high level.

Yeah, perfect. Thank you very much.

Thank you.

Thank you. And once again, if you would like to ask a question, please press the star and wind to register a question. And I'm showing no further questions at this time. I would like to turn the call back to Robert Bakerskog for closing remarks.

Yeah, thank you for listening in and for the questions. And yeah, we see each other next quarter. Have a nice day and weekend. Thank you.

Thank you, ladies and gentlemen. This now concludes our presentation. Thank you all for attending. You may now disconnect.