Duni AB (publ) (DUNI) Earnings Call Transcript & Summary

Hello, and welcome to the Duni Group Second Quarter Interim Report 2026. [Operator Instructions] Please note this call is being recorded. Today, I am pleased to present Nebraska. You may begin.

Thank you. Hi, and welcome to June group's report for Q2. The headline is it's been a challenging quarter, impacted by the ongoing logistics transition, and we'll come back to that, of course. If we look at the agenda, we'll go through some highlights and then the key activities in Q2, what we have been doing, a little bit around the market outlook. . And of course, the financial performance within both business areas and looking into our sustainability and our long-term targets as a company and then at the end, a little bit more deeper dive into the financials. -- the summary and the Q&A at the end. So if we take the headlines here in Q2, of course, logistics transition is a big, big thing, of course, impacting our sales and operating income in the quarter. And of course, we've done a lot of work here and try to stabilize, of course, during the quarter. We'll come back to that. Positive was that Germany remained stable, and they were unaffected by the transition. We haven't moved those volumes yet to the new warehouse. And we continue to work on our strategic priorities with especially uniform and lighting in focus. So transition here and a little bit of background, what we have done here is that -- we are creating a new modern logistics setup. Yes, before we have 10 warehouses, now we're moving to 1 warehouse. It's a state-of-the-art distribution center in Matan and we have chosen an outsourced operation with a logistic partner there. And of course, it will be expected improved scalability here and, of course, reduce the long-term cost for us yes thinking around going from 10 to 1 warehouses, of course. And of course, we had some delivery disruptions in the beginning, especially the outbound, inbound has worked very well. And of course, this has resulted in lost sales and increased costs in the form of dual inventories and more expensive transport solutions in the quarter. We have delayed the German volumes, which are still delivered them from our old warehouse, and it's been working very well, and we see that we've got good traction in the German market this quarter. And the situation has gradually improved during the first -- end of June, but also the first day here of July, of course, not fully normalized yet. But the reduction of our outstanding back orders now is contributing positively to the earnings and helps offset the remaining in its in question efficiency, that continues to affect the operation. So if we look in a little bit what kind of activities we have done in the quarter to stabilize. -- is that, of course, as I mentioned, we postponed the German transition. We worked a lot with improved the capacity and efficiency work in the warehouse and the delivery flows done some small changes that has actually had a great impact now on getting delivery performance up. And we are working really tight with our partner here in order to stabilize the operation, which is working at the moment. So that is positive. And yes, we will come back to this later on in the Q&A here, of course, in the financial run through. a little bit also. We haven't just worked with this in the quarter, and there are some other activities, of course, focusing on 1 of our strategic areas is that we want to expand our offering through innovation and selective growth initiatives. And there, we have completed acquisition of Sulzer to the concept uniform, which then adds service and machines to our concept, which is really great and also some new launches in packaging products that are really interesting for the market. And we had a big launch of Duni solutions that was introduced here in Milan and Copenhagen in big fairs. -- and that will now be launched in September, the first step of the student lighting. And the 1 being milestone is also that we've been for to actually serve a plastic recap then in a lot of major events in Europe. So that's also great achievements in terms of innovation. Other really interesting areas that we mentioned before, of course, is that -- we're working really hard to turn in, of course, sustainability into scalable solutions, and we have actually completed our phase out of the PFAS in added PPAs in all products. We launched the carbon footprint calculator. That is a big help for our customers, the big ones, especially. And we have now launched a reuse in the market in unique town. And it's really interesting project now and really a good investment from the municipality in and a lot of other municipalities is looking into this in Germany. So we'll see how that works, but it looks very interesting and of course, also working with composting and which we have done at wine-rack festivals and better on ton bicycle events in Sweden, which also is very interesting where napkins and packaging turn into composting and soil in the end, really great concept. If we look a little bit on the market development, of course, it's been a weak year and and we had anticipated a little bit stronger year this year, more visits actually from -- before the year started. But with everything that happens here, of course, in the Middle East, it's dampened a bit the market. And especially, I think it's interesting to look at the bottom graph on the right side, where you have the restaurants and hotels and markets and where actually the conclusion from those numbers is that the VAT now has yes, come down then from 19% to 7%, but it looks like maybe the restaurant hasn't lowered the full scale. So there's the difference between minus 5.5% and almost 2% in nominal terms, value them. So that's a little interesting. In a way, that's pretty good for us in Duni because we want to have restaurants that actually earn money and actually can buy quality products, that's the positive thing, of course. But still, of course, it's a bit of a challenging market, as we know, in most countries in Europe. And if we just look at the other slide here, the dynamics overall, the data we get is for the big 5 markets in Europe, -- and of course, it's less visits than anticipated, as I said, in those 5 markets so far this year, in the first 6 months. which then happens. We believe it was supposed to be 1% plus up, but it's minus 1%. So that's maybe the same trend that we've seen in the past quarters now in Europe. And hopefully, of course, it looked a little bit better here with DRAM or we thought it was ending on our back again and -- of course, that's danced a bit and creates a lot of uncertainty again. So that's maybe the conclusions of that. If we look at the top financial, we'll come back to this, we were building down on net sales. And of course, we had a big profit drop of $58 million in operating income, come back to the logistics that affected that. And the margin was, of course, lower than versus last year, $2.6 million. Going in more into comments. And of course, as net sales and operating income are affected by the same things. I mean sales was down 2% in fixed currencies. And of course, the the whole transition where we moved the warehouse in Germany to a new place and started up has really caused problems, of course, and affected both operating income and the net sales. And actually on the positive side then actually the German volumes, they stayed in the old warehouse, which we pursue the move. And there, we've seen a really stable sales. So that's positive in that sense. That actually then the problems are logistic in the sales that sales markets that are affected. And of course, the Middle East is putting pressure also. And we always saw some light there, actually. But then, of course, the last week here has dampened that as well. And we have some higher IT and costs in the -- affecting the operating income, but also we are offsetting that by savings in sales and marketing. Positive is the food packaging turnaround here and Australia grew slightly, and the income development was more positive than and creating better margins. That's the highlight. And now Magnus will go into a little bit more deeper.

Thank you, Robert, and good morning. So as usual, I will take you through our business areas in more detail and starting off with dining Solutions, our table setting offer. So the net sales amounted to $1.045 billion compared to $1.138 billion last year, and that is a decline of $93 million -- and the single largest explanation is the temporary constrained delivery capacity that we have talked about during the scale-up of our new external logistics setup in mean -- and that meant that we could not fully serve the demand that was actually there. Operating income decreased from $99 million to $31 million and the operating margin declined to 3% compared to 8.7% last year. I will talk you through the drivers on the next slide. So in fixed currencies, sales declined by 6.2%. And I want to be clear about the nature of this decline. Again, it is primarily a delivery issue, not a demand issue. The limited outbound capacity during the warehouse transition meant we could not fully meet demand during this period. And the clearest evidence of this, as we have mentioned, is Germany. German distribution has not yet moved to the new logistics setup and Germany delivered a stable development last year in both sales and earnings in an otherwise weak market, we must say, as we saw on the previous page. And that contrast with the rest of Europe underlines that the shortfall is transition related rather than a loss of market position. The Beyond Logistics, which has dominated, of course, this quarter I think 3 factors shaped the quarter. First, we have the mix shift and that continued. A higher share of sales come from lower-priced products and our customers' own brands within Horeca that weighs on the sales value and gross margin. Second, we have the Middle East and that declined sharply due to the geopolitical situation and the reduced travel. We saw some stabilization towards the end of the quarter. Let's see what will happen in the future. And third, on the cost side, we carry double warehouse structures and more expensive transport solutions during the transition, in addition to higher energy costs and rising input prices. So to summarize dining solutions, it is a quarter dominated by a temporary transition-related delivery constraint with an underlying market position that Germany shows remains intact. So the negative effect remains at the start of Q3, but are expected to decrease now gradually as the operations stabilize and consequently, clearly lower negative impact versus outcome in Q2. So turning now to Food Packaging Solutions, our sustainable food packaging offer. So here, the net sales amounted to close to SEK 80 million compared to SEK 746 million last year. Operating income improved from SEK 22 million to SEK 34 million and operating margin strengthened to 4.3% compared to 3% last year. So a quarter of clear profit improvement despite the European logistics headwind as we also see here. We'll look a little bit more on the details. Sales grew by 4.3% in fixed currencies, driven by contributions from recently acquired companies. and a continued positive development in BioPak Group. So in Australia, we see slightly positive organic growth that is supported by a regulatory tailwind from more stricter plastic restrictions but also increased sales to new customers. Europe was negatively impacted by the logistics transition in the same way as signing solutions. However, uniform showed a relatively more resilient development and that is in line with the previous quarters, where we believe very much in this concept. On profitability, margins improved in both Europe and BioPak PipeGroup. In Europe, lower volumes were more than offset by improved margins and a continued focus on profitability. BioPak delivers a strong gross contribution supported by both the sales growth and improved margins, but also higher indirect costs absorbed part of that effect. But all in all, the net impact on earnings was clearly positive. And as Robert mentioned, during the quarter, we also completed the acquisition of Silcoff consolidated from first of April. As a company, we at around SEK 50 million in annual revenue. And that strengthens the uniform offering with machines, service capacity and of course, an established customer base, and that takes to inform a clear step into the Industrial segment in Sweden but also in Nordics. So if we summarize Food Packaging Solutions, continued top line growth, improved margins and a strengthened platform through Solso -- the rolling 12 months profitability trend continues to move in the right direction. With that, I hand back to Robert.

All right. Yes. And yes, just to remind ourselves here is that despite all the struggles with the logistics at the moment, we have and aim for the future emission to become a trusted sustainability leader. And I think the main thing for doing here is that we are enabling people to enjoy good food and actually meet in restaurants and to get to their houses and help that today. And of course, the generations to come. That's the main thing. And we have 3 strategies. And I think going into them is that expanding innovation is important. And there as Magnus was on to talk about uniform here and lighting are the 2 ones we are really focusing on now for the coming months here and the years coming. Of course, the strengthening our market position in Europe and Asia has been our focus geographic areas. And of course, Asia Pacific has been a bit struggling, of course, especially the Middle East and what that does to Thailand and so on. But that is, in the long run, we really believe in that and the middle class in Asia Pacific is growing a lot. So that's a very interesting market. And of course, what we're working on and why we do the logistic movies that we need to enhance our efficiency, operational efficiency. And we're doing, yes, shorter things there and long-term things. And of course, our ESG agenda then adds to this. And we have 7 targets that we measure. And if we take the next slide, how it looks at the moment. And -- of course, if we comment on sales growth, which we know is it's been a negative sales development over the past 12 months. And of course, that is explained as we talked about quite a lot recently in general weak market. And of course, now with the logistics situation that has even further taken that number down, of course. And I can mention, and of course, operating margin goes in line with that. And I can mention that the climate target, actually, we have reached that actually already and are down 62% versus the target of minus SEK 37 million versus SEK 19 million which is great. We have a little bit of a higher index now this quarter because we are using a little bit more LPG gas in Skapafors, our mill. And also great that we have a good traction in suppliers who have signed a code of business conduct and increasing that and that is actually coming from buyback groups that have signed more or contact on track with us. So that's good progress on those. All right. Moving into financials.

Thank you, Robert. So if we start with the income statement here. Net sales declined by 3.2% in the period and by 2% in fixed currencies. -- and organic growth was minus 3%. And as we said, the delivery constraint from the logistics transition is a single largest factor for this. If we look on the gross margin, it declined to 20.9% from 23.1%. However, the operating gross margin was 21.9% closer to last year. But there is a pressure, and that comes from lower volumes, the negative mix effect we talked about and of course, the transition cost that sits in cost of the goods sold, as mentioned previously. On indirect costs, the pattern from previous quarter continues selling expenses are contained by the realization of previously announced cost savings in sales and marketing while we see administrative expenses increased, that is IT costs linked to our ongoing digital investments, including the ERP program, as we also have mentioned previously. Energy cost also developed negatively in the quarter. Reported EBITDA of SEK 70 million includes a restructuring cost of SEK 33 million. There are 2 items on this cost for the unutilized part of the new external warehouse in Metal. We haven't moved everything, as mentioned. But there's also an effective efficiency program within sales and admin costs with an expected annual savings of around SEK 30 million full effect and that will be from the fourth quarter. The restructuring is excluded from operating income and reported items affecting comparability together with acquisition-related amortization just to be clear. The financial net was minus SEK 27 million compared to minus SEK 24 million last year, 2 effects to be aware of several interest rate swaps of favorable levels matured during the period. And then we have the new Metals Terasen annual interest costs of around SEK 28 million. At the end, if you also look on the tax -- the year-to-date effective rate is 48.8%. That, of course, looks very high, and it is closer to 30%, excluding prior year adjustments. So the mechanics are straightforward in periods where group profit before tax is close to 0. And when the BioPak group's share of profit becomes proportionately larger, that left the blended rate of tax. I think we touched upon this a couple of times before. Net income for the quarter was minus SEK 15 million and earnings per share to the parent company was minus compared to SEK 1.25 last year. If we move over to the business areas. The slight summaries that what we have covered, I think, for the first half year, Dining Solutions at 5.4% operating margin, that is a decline from 8.9%. Food Packaging solution improves to 3.4%. And the group is at 4.6%. On a rolling 12 months basis, it is now to 6.6%. And the gap to our 10% target remains primarily as a function of volumes that is still a challenge in tough times and also the branded share of sales, not the structurally weak gross margins or excess indirect costs. So with volume recovery, operational leverage will support margins clearly. And in the meantime, we continue to adapt the cost base. with new efficiency programs that should underline this. If we look a little bit on the cash flow. Operating cash flow in the quarter was positive at SEK 90 million compared to SEK 150 million last year. I think that's a resilient outcome during the earnings dip supported by working capital release of SEK 43 million in the quarter, higher accounts payable and other working capital more than offset bill in the receivables. For the first half, operating cash flow was minus SEK 7 million compared to SEK 43 million last year. The deviation is explained by 2 factors, lower EBITDA of SEK 245 million versus SEK 307 million and a higher capital expenditure of SEK 107 million. So I want to highlight the inventory discipline that has been a concern actually for us since the pandemic. So despite carrying double stock structures during this transition period, the inventory build year-to-date was contained at SEK 32 million, and that's an optimization work from the last year and that I think will -- is now paying off. On a rolling 12-month basis, operating cash flow was SEK 362 million compared to SEK 446 million for the full year 2025 a level we expect to recover as the transition cost subside and earnings normalize. We take the last slide on the financial position. Think the balance sheet reflects 2 distinct things in the quarter, 1 structural and 1 temporary and the structural item in January, we gained access to the new logistics facility in methane which is recognized as a financial lease of approximately SEK 600 million over 15 years, and this is the dominant driver of the increased net debt to SEK 2.5 billion from 1.6% last year at year-end. And it's not an increase in traditional interest-bearing debt and it reflects the long-term capacity commitment that secures our delivery structure for many years, very important for us. The temporary part is the working capital build and weakening earnings in the quarter, which we expect to normalize again, as mentioned, when the logistics situation stabilized. On financing, I can comment a little bit on that. We have strengthened the structure during the period. In March, I think, already communicated, we signed a new long-term revolving credit facility, EUR 200 million with a 3 plus 1 plus 1 year tenure. And as of now end of the quarter, the facility sustainability as well. In June, we also converted the existing SEK 200 million loan with export into a 3-year facility of EUR 25 million. So together, I think this gives us a robust and also diversified financing platform throughout the transition period. Finally, I can just mention return on capital employed is going down. We focus very much on this year. And of course, the -- reflects the earnings dip. And again, a figure we expect to recover when the logistics situation normalizes. So to summarize the financial position, the balance sheet has absorbed a major structural investment in our logistics capacity and the temporary operational disturbances in the same quarter. The financing is secured. Working capital remains controlled, I must say, outside the transition effect and the leverage increase is explained and should be understood and expected to reverse direction as earnings recover. So thank you for listening, going through the numbers, and I'll now hand back to Robert for some concluding remarks.

For a short summary then concluding here that, of course, the quarter has dominated about the logistics transition and the performance there. There's been a lot of measures taken in the quarter that actually have supported now a good gradual stabilization and we've seen the backlog really dropped here in July as well, which is great and following the plan. So the implementation of the measures has been positive. We have actually also worked a lot with the strategic initiatives and despite all these parts around this and doing progress in special lighting and runup, which is great. And then, of course, all focus remains on the improved profit and the cash flow and our competiveness in the market with our products. All right. Then we open up for Q&A

[Operator Instructions] Your first question is from Johan Fred from SAB.

Thank you obtain -- starting off with a question on the warehouse transition. You state that the situation is or essentially gradually improved during July, but still, of course, has not normalized. When do you expect the outbound capacity to be fully normalized? And is there a risk of the sort of excess logistics costs extending into Q4 and offset the potential efficiency savings that you've guided for in the same quarter?

Yes. Thank you, question. Yes. Regarding the state there is that the plan is that the backlog then will end here in end of July. And then in a way, it will be a normal position. And then next phase in that is our German volumes, yes. And those, of course, we want to move as soon as possible, but we will not move them until we are 100% sure that we have stabilized warehouse and operation. So that's the plan and for that. And Yes. Regarding cost, of course, there will be some extra costs here going into Q3 because of -- we haven't moved all the volumes from Brassathat will prolong. Then, of course, it depends on when we move the German volumes. That's the key. And we -- yes, and the aim is to move it as soon as possible. So if we get the right answers here in July now and beginning yes, the KPIs are right, and then we can stabilize that maybe a few weeks, then it will go pretty fast. And on the other hand, you never know -- so then it could take a bit longer. But yes, that's I think

Yes. So base case is that the German volumes will be moved during Q3, though. .

Yes, that's the base case and maybe more mid-end because we are already in, of course, mid-July here, yes. So that's the best case. And then yes.

Got it. Got it. And a follow-up on the same topic. You stated that the overall financial impact in Q3 is expected to be significantly less than in how large was the impact from the logistics disruption, specifically in Q2? And how much is significantly less here, sort of using the Q2 number as a reference point?

Yes, Magnus here. Valid questions. And as we indicated, the deviation we had in Q2 was SEK 50 million versus last year and SEK 50 million to SEK 70 million. And we stated that the majority comes from the logistics cost. I think there are 2 components in the logistics, the services. One is the direct cost where it's more easy to quantify this. We measure it and log every single item here. And then, of course, you can say it was roughly more than half of the deviation from last year, the direct costs -- the other component in logistics is the loss of revenue. Part of it is more temporary, we move it forward backlog and then it comes back. Part of it is lost. So talking about the number for Q2 and Q3, of course, it is closer to to the lower part of what we indicated on the deviation in Q2. And when we say significantly less in Q3, we talked about maybe 1/3 or something like that, 20% to 30% of the cost as we see now mid-July versus Q2. So that gives you a little bit of the span of the costs we're talking about. And hopefully, regarding the revenue, once we stabilize the situation, we will also not have an issue with loss of revenue. So that will disappear and that's super important.

That's very helpful, Magnus. And a final question on the sort of mix shift towards lower-priced product here. It's been an ongoing headwind and from what I gather, also an effect in Q2. Firstly, could you, by any chance, quantify the impact from negative mix on organic growth in the quarter? And then secondly, -- do you see this as a cyclical trade down that potentially could reverse as consumer confidence improve? Or is this more sort of a permanent repricing of the category in your opinion?

I can start with the last question here. I think historically, I think we talked around this before, but I think we also went out actually we've done some surveys with our customers. and especially some who actually have changed then from higher quality to lower. And most of them say that they will go back when times are getting better. So I think that's something we really believe in. I think historically, that has been the case as well when it's been downturns that we really believe in. And also, more from our side than everything we do now in our sales force, everything is focusing really hard to help the customers and also really push profile print, for example, with the high premium quality there is often in there. in order to, yes, get the customers actually to trade back as well. So we have a big focus with our sales force on that as well to help the customers coming back maybe sooner than later.