Duni AB (publ) ($DUNI)

Hello, and welcome to the Duni Group Q1 Interim Report 2026.[Operator Instructions] I will now hand over to Robert Dackeskog, 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 we go 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, I come back to that, but it was minus 7% last quarter. Now it's improved even if it's a little bit negative still. There is a price-focused 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 Packaging Solutions quarter, more balanced performance this quarter. I'm 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 then the data from Germany on the top there. And then, yes, lately, I think it has crushed the consumer confidence here and it dropped significantly in the bottom right there in May and March because, of course, of the Iran war. And of course, real revenues continue to decline in market and extending this multiyear downturn that we had. Of course, cost and inflation is a pressure for the market and especially in labor. And there is a purchasing behavior stays a bit cautious with a lot of focus, of course, on 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 has 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. But it's still very low if you compare to the pre-COVID. And these 2 slides then is the 5 big markets in Europe. And there are some other markets, of course, in Northern Europe here that are -- has come back better actually than the top 5 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 a little bit to food and so on, healthy 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, Duni can offer a lot of things in the different areas. Delivery, we have our packaging part and especially Duniform. We'll come back to a little bit what we've done there. And of course, the socialing part at the end there, that is where we actually are our core, where we create atmosphere with our napkins and table covers and lights in the restaurants and also, of course, in all areas of the HoReCa sector. All right. Top line here then Q1 financial. If we look at the total net sales then amount to SEK 1.764 billion, which was lower than the last year, but in line if you look at the same currency. Operating income, SEK 10 million less than last year. And operating margin, 5.7%, which is 0.2% lower than last year. And the main things here then if we comment on the net sales, I think it's important then to look at the in fixed currencies, of course, it's a lot of currencies going up and down here in the world. And there, we are in line with last year. So 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, so demand for that at the moment, but still selling a lot of premium products and our main products like Dunisoft and Dunilin are the main ones there that we're really focusing on there. And of course, the Middle East instability affected Dining Solutions a lot in the quarter as well. We'll come back to that in a minute here. And Food Packaging Solutions, sustained growth in local currency this quarter, which was positive. The operating income declined with SEK 10 million, as I said, mainly because of our favorable mix, but also 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 during the quarter. We have done some -- which we announced last year, cost reduction initiatives. So that helped us during the year, but we got some higher cost in energy, logistics and IT costs during the quarter. And of course, there's a lot of currency fluctuations and that was positive impact of SEK 5 million compared to last year. So that was a little bit high level, and Magnus will 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 2 business areas and starting off with Dining Solutions. So sales declined by SEK 68 million, mainly driven by currency effects, but also a continued weak HoReCa market. Operating profit decreased from SEK 102 million to SEK 82 million, a decline of SEK 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 7.8% compared to 9.1% last year. So if we jump to the next one. So in comparable exchange rates, sales declined by roughly 1% -- so we do not yet have full market statistics for Q1, but our assessment is that this performance is broadly in line with the HoReCa 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 are 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 full-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 and 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 Velviq. This provides smart value for effortless professional table settings. So 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% 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 SEK 20 million is try to summarize is mainly explained by 3 factors. First, the negative mix 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 the creating atmosphere around eating and drinking and not least our 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, I must say. But the key challenge remains the declining share of branded sales, which continues to pressure gross margins. 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 declined by 4%. That is fully driven by negative currency effects. In comparable currencies, actually a slight increase. Operating profit improved from last year, increasing from SEK 7 million to SEK 18 million, and that corresponds to a margin of 2.5%. As mentioned, currency is the main driver on sales. It's been also a quite volatile period for currencies lately. This primarily is to the stronger SEK versus the Euro, but also versus the Australian Dollar, which averaged in Q1 this year, SEK 635 compared to SEK 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 9 months or so has reduced storage costs, especially in markets outside Europe. But this remains a key focus area and given the continued supply chain uncertainty driven by the geopolitical situation. We experienced a notable cost pressure in logistics and oil and gas-related inputs linked to the situation in Middle East, of course. Price compensation measures have been initiated, although the short-term impact is more pronounced in food packaging, particularly so in Europe, where plastic 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 crises 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 -- ByGreen in Australia continue to develop well and strengthen the overall offer. And in Q1 this year, we also signed the acquisition of Solserv. That's a small acquisition, around SEK 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 the integration will start 1st of April for Solserv. 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 BioPak Group during the quarter. Long term, a strong Australian dollar versus the U.S. dollar is positive, but just to be clear. To summarize, Q1 is a seasonally 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 reduced the sales by almost 5% in the quarter. Organic growth improved significantly from the weak previous quarter, now close to 0, minus 1%. So although we are defending our market position by offering more affordable alternatives, -- the negative mix effect, and we said that a couple of times now, continues to put pressure on the profitability. So gross margin remains resilient, and that is supported by 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 cost 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 SEK 20 million in the 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 rates from the leasing contract in our new warehouse, explaining the main difference we see now between '26 and '25. If we jump to the business areas financials. Dining Solutions, if you look on the last 12 months, just below 10% margin, which is, you can say, relatively strength given the market environment. Food Packaging improved slightly to 3.3% looking on the rolling 12 months again. But I would say both business areas 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 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 BioPak 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 industry challenges over the last 2, 2.5 years that 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 SEK 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 delivery performance with this warehouse for many years. And as stated earlier, we expect to generate annual savings of around SEK 35 million to SEK 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 of 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 HoReCa 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 also you can see, it is below our 10% target. The Board proposes a dividend of SEK 5 per share. That's unchanged from last year and corresponds to a payout ratio of 75%. That is above our target of 50%. We also have updated our sustainability target 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 incidents 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 the 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. Yes. And a little bit final remarks here. There are 2 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 focused on transforming our go-to-market model in terms of both marketing and the sales force have done a big job during last year, and that is starting now to get in place. And as Magnus 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 are working a lot now with quite a big change here in the years with the whole logistic move, of course, [Indiscernible] 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 turnaround in the quarter. And it's a good and important balance for Duni compared to many years ago actually that we have 2 business areas that actually complement each other and also that packaging actually taps into megatrends in the society, especially with Duniform here that we are investing in and see a good momentum in. Yes, that was a little bit short summary and recap. And now we're moving over to questions.

Thank you. And your first question comes from the line of Erik Sandstedt with Kepler Cheuvreux.

Erik Sandstedt here with Kepler Cheuvreux. 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?

Yes. Yes, I can start here. It's, of course, a bit of a hard question depending on the mix, how we sell. And of course, it's important for us to sell Dunilin and Dunisoft, which are the premium in order to reach that margin actually because if we sell then let's say, 1-ply, 2-ply, 3-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 -- yes, as I said, with the sales force, everything is focused on driving the premium and which is the core.

Yes. 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. Can you still raise prices on your premium products? Or is there a risk that, that kind of reaccelerate the trend towards cheaper products?

Yes. I think -- I mean, it's always a risk, of course, especially with the restaurant situation. I think certain prices when you see now 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's role in the restaurant, it's a very little part of the whole expenses in a way. But of course, when 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.

Yes. Yes. 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 sustainable products either? I'm thinking a little bit about the upcoming PPWR regulation and whether this can be a competitive advantage for you and how to think about the price proposition in relation to that regulation?

Yes, I think that's like a 2-edge word here in a way because you have -- I think if you look at all the research and we see also the data here that, I mean, sustainability that yes, the willingness to pay isn't really there. Actually, I think it's like 2% 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 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 term ahead. I would say, I mean, what we've done with airlaid now moving into this BioBinder, I think that's something that is really important, and we were the first one in the world with that. PFAS on packaging. We were also the first. We moved early there. And then you can say, yes, we're early. But I think, yes, we moved because we know that regulation would come in a way. So I think, yes, long term, that would be a winner. I'm definitely sure of that. But short term, of course, the pressure on restaurants, yes, they're looking into, everything they can cut from meat 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 then 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 and especially LED light, and that is also something we see a big potential here 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. I don't know long answer here, but...

Yes. No, that's great. That's helpful. Then also, maybe I came on the call a little bit late, so maybe you have talked about this already, but how should we think about higher input costs on the back of the high oil price and geopolitical tensions and so forth? Is that impacting you? And if so, can you offset it through efficiency measures or pricing?

Yes, it is impacting us. We see that already in the second part of the quarter, especially on -- from the forward logistics costs, but also on the energy. Of course, it's very uncertain how it will play out. But as Robert was into, I think the cost increase is there. It's visible. We are taking initiatives and the mindset for the customers to accept this. They also read the newspapers. I think it's better when you have these clear signals to adapt and to also accept certain price compensation measures. Yes. So energy logistics, some parts of our products also indirect impact that we source 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 can also have an impact.

Yes. Sure. Just finally from me, I think you mentioned it towards the end of the call here, but the financial expenses, did I understand it correctly that there was a leasing impact on the financial costs in the quarter? Or basically, my question is more how to -- what's a normalized kind of cost of debt for you right now?

Yes. That's correct. And if you look -- if you compare it to last year, the last year was very low for a certain positive revaluation effects. I think it's -- everything else the same that this leasing impact is around SEK 7 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 can, of course, move up and down going forward as well.

Yes. But SEK 7 million in leases in this quarter...

Correct and also going forward.

And our next question comes from the line of Johan Fred with SEB.

I apologize if the question has been answered during the call. I was a little late here. But just trying to understand the dynamics here and especially the discrepancy between gross margins and operating margins. Gross margins were stable. Volumes were roughly flat. but still, the operating margin was down significantly. Could you just explain the dynamics here and also what needs to happen for the operating margin to improve in 2026?

Yes. As I understand -- Johan, I understand the question, the difference between the gross margin and the operating margin, which declined 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 profit, you will see it there. But sales and marketing is impacting positively on the indirect cost, the difference between gross margin and operating margin. However, we have taken some costs. Some are mainly related to IT, the change in ERP systems and digital solutions there. Some of them are temporary in '26, part in '27, 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 -- both positive and negative impact in the quarter.

But just so I get this straight, sales mix was negative. You're losing share in branded products. which I assume have higher gross margins, but still gross margins are relatively stable while you're gaining volume in sort of private label and commodity products. Wouldn't that sort of be beneficial for operational leverage in Dining Solutions? Or am I getting this wrong?

No. I think, as you say, 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 that we're taking out cost, especially so in production, and that supports the gross margin. So in order to, from a sales perspective, improve the gross margin, then, of course, we need higher share of brand sales. So it's protected -- the gross margin is protected by very much cost out.

I'm showing no further questions at this time. I would like to turn it back to Robert Dackeskog for closing remarks.

Yes. Thank you for listening in and great questions. Thank you. And yes, 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.