Hello, and welcome to the Duni Group Interim Q1 Report 2025 conference call. 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 Dackeskog, President and CEO. Please begin your meeting.
Yes, hello, hi everyone, and welcome to the Duni Group Interim Report for Q1 2025. Headline here: Growth despite subdued demand and negative currency effects impacted the quarter. Looking into the agenda, we have some highlights, and then look into a little bit market status and outlook. We have some new market data that came in last week. Q1 summary, business areas in both areas, will Magnus go through, looking into our sustainability initiatives and a little bit looking on our strategy ahead. At the end, financials and the summary, and then a Q&A at the end. All right, if we move into the highlights for the quarter, the group achieved growth in the first quarter despite continued weak demand in the European market. The number of visits to restaurants is still lower versus 2019.
We'll come back to that a bit later in the presentation. Both acquisitions and organic growth contributed to this positive development, and the operating income was impacted by negative revaluation effects due to strengthening of the Swedish krona against the euro. We have currency effects amounted to -SEK 50 million compared to +SEK 10 million in the first quarter 2024. There is a difference of SEK 25 million , and that explains the main part of the SEK 30 million difference versus last year in Q1. Even after the acquisition of Poppies in the first quarter, we maintained a strong financial position. Also, what we've done in Q1, we have initiated a transformation of the sales and marketing organization, where we established now a dedicated and specialized sales team within each business area, aiming to improve our efficiency and strengthen customer focus.
Yeah, looking at the market status for 2024, we just received a market research covering the Big 5 countries regarding the state of the European food service market in 2024. All markets are still down strongly against pre-COVID visit levels. Great Britain and Germany with the biggest gap versus 2019. For Germany, the government now proposed a VAT cut from 19% to 7%, and it is planned then from 1st of January 2026 in order to boost the food service market. If we look at visits, it decreased compared to 2023 by 1%, but stabilizing then in most countries if you compare to the past years. Of course, life changes through the COVID and the economic situation keep visits down in the markets, remaining 10% on average below 2019 visits.
Most countries are suffering from visit declines, and the spend increases and are solely a function of growing ET checks, of course, driven by the inflation in the past years. The main driver of lost visits in Europe is work and education situations, but also meals out in restaurants and leisure has lost a lot of visits. Meals out, for example, has lost 877 million visits since 2019 in these five countries. Not surprisingly, home meals is the consumer situation that is growing. Ready prepared meals are bought via delivery service, takeout, and retail. If we then look a little bit more specific on the German hospitality data, that shows also still slow recovery from 2024 versus 2023. This is still a big gap as we talked around before versus 2019 for the German hospitality and restaurant industry.
If we look at the left on the slide here on the OpenTable numbers, it's still a bit hard to interpret these and also reflects maybe a trend that people book more and more online, which because it shows a little bit more positive than the general data. It might be a city also reflects that people book more in cities and so on. All in all, business sentiment continues to be affected by the overall macroeconomic uncertainty in the world. Key financials, as I said, growth in the quarter driven by acquisitions and also organic growth. Operating income main effect is coming from the EUR 25 million of currency effect. Margin therefore lower and the DAC but 5.9% versus 8.1% last year. If we're moving a little bit more into the details here on the next slide here.
The first quarter was characterized primarily by growth despite continued subdued demand in the European market. This is driven primarily by acquisitions, but also organically from BioPak in Australia, while volumes are slightly lower in Europe. Net sales increased by SEK 128 million- SEK 1,863 million, which corresponds to a growth of 7.7% at fixed exchange rates. If we look a little bit on the operating income side, it is good given that the comparative quarter in 2024 was the strongest ever Q1 in the history of Duni Group. Operating income amounted to SEK 110 million versus SEK 140 million last year, corresponding to 5.9%.
The two main drivers of that in the quarter were affected first by revaluation effects from the stronger Swedish krona with the currency effect of -SEK 15 million, as I said in the beginning, compared with +SEK 10 million last year in the first quarter of 2024, with a difference then of SEK 25 million. The second, we're also seeing an increase in cost in Food Packaging Solutions linked to the high inventory levels in Australia, which burdens the income figure by approximately SEK 20 million compared with previous year. Now we're moving in a little bit more in details to the two areas. I'll hand over to Magnus.
Thank you for that, Robert, and good morning everyone. I will now provide, as Robert said, a little bit more detailed overview of the two business areas. I'll start with Dining Solutions, which covers our table-setting products. If we look at the numbers, sales increased versus previous year and closing at SEK 1.1 billion, mainly driven by acquisition, as I said. Operating income almost on par with previous year from SEK 109 million to SEK 102 million, and that results in a margin of 9.1%. Diving into the numbers a little bit more, we saw a slight decline in volumes compared to last year, continuing the trend we observed over the past few quarters. As Robert mentioned earlier, the broader market continues to be affected by high geopolitical uncertainty, which is clearly impacting consumer confidence.
People are more hesitant to spend money on food and drinks, and we're seeing that reflected in our segment as well. That said, despite these headwinds, there are still several bright spots. We're seeing a strong momentum outside of Europe and continued growth in areas like premium napkins, LED lighting, and in specific markets such as Italy and Switzerland. We are also particularly pleased with the positive response to our more sustainable product offerings like the Bio Duni soft. It's clear that there's a genuine demand for the environmental-friendly alternatives, which aligns well with our strategic focus. However, the overall market situation remains tough. It is highly competitive with players fighting over smaller volumes. There's also a notable trend of consumers trading down in some parts of the assortment. We have gradually implemented our price increases. It hasn't been without challenges.
In some areas, particularly retail and private label commodities, price sensitivity has led to delays or exceptions. However, we remain disciplined in pushing these changes through, even if it temporarily affects volumes, since protecting our margins is critical. It is a careful balance that we continuously evaluate on a market-to-market basis. We are working hard on two fronts, implementing price compensation measures and driving internal efficiency improvements. As mentioned earlier, currency effects have also impacted our performance. The stronger SEK at the end of the quarter had a negative effect, particularly from the revaluation of working capital that is denominated in euro within Duni AB. These alone explain roughly 1.5 percentage points of the margin decline this quarter. I will come back to this in a little bit more detail shortly. Finally, we are already seeing positive effects from the Poppies acquisition, which was closed and integrated in February.
We're now preparing and adapting the U.K. production facility to insource volumes from other sites across Europe. At the same time, we're working to leverage the high-quality tissue and airlaid materials from our paper mill in Sweden, which will help us optimize cost and quality across the board. Thanks to this setup, we expect to start realizing synergies already from the second quarter with a more comprehensive plan in place to drive additional efficiencies over the long term. If we move over to Food Packaging Solutions, which focuses on sustainable food packaging, we record a 6% sales increase this quarter, reaching SEK 745 million. However, we have seen a challenging quarter where profit dropped to SEK 7 million from the SEK 30 million. That is equal to a 1% margin.
If we look closer on the quarter, and as mentioned, it has been a challenging start to the year from a profit perspective. There are two main drivers behind this. First, inventory levels outside of Europe have been too high in relation to sales, and this has led to elevated OpEx. Second, we continue to see a decline in volumes within the takeaway segment in Europe, and this is driven partly by intense competition, partly due to the dynamic and uncertain regulatory landscape related to packaging, sustainability, and waste management. In parallel with our dining solution business, we began implementing price compensation measures toward the end of the quarter. While the U.S. dollar had weakened during the quarter, the Australian dollar has depreciated even further over the last six months. This has placed additional pressure on gross margins in Australia.
Another contributing factor is substantial investments over recent years to deliver superior and substantial solutions. These not only meet the highest current standards across our markets, but also are designed to stay ahead of upcoming legislation, such as bans on PFAS-based barrier products. While these investments strengthen our long-term position, it has put some short-term pressure on our operating margins. We also invested heavily to ensure we can deliver full product range with a short lead time to all customers. While this is a strong value position, it has also contributed to higher costs. If we're looking ahead, we're focusing on improving demand planning. We will do that by supporting from better systems and closer collaboration with our customers. Since a large share of our elevated cost is tied to high inventory levels, we expect costs to come down as inventory is reduced.
In fact, we are already starting to see this positive trend in the second half of the quarter, and we anticipate further acceleration going forward. We remain optimistic about the plastic-to-fiber shift, which continues to support our solution and is aligned with our evolving customer behavior. While we currently face temporary profitable challenges, we strongly believe in the long-term growth potential of these driving forces, which we expect to outpace general economic growth. We are a niche player with a relatively small market share in the packaging industry. However, we are also seeing competition increase as others recognize the same opportunities that we have been focusing on in the last years. During the quarter, we accelerated efforts to address the issue of food waste. One highlight is our Dunif orm system. It is Duni Group's Premium Food Packaging Solutions for takeaway and ready-to-eat meals.
This area now represents about 30% of our sales in Europe, and we see strong growth here. We are committed to further accelerate our efforts in this segment in what still is a highly fragmented niche, and we believe we offer a unique solution here. Dunif orm will play a critical role in driving the future growth of the entire business area. One very recent example is the cooperation we have with foodora, where the focus is to reduce food waste and enable sustainable growth. This is a segment we expect to become more regulated over time, where we are well positioned to take a leading role. I will now hand over back to Robert.
Thank you, Magnus. Yeah, and if we look at our decade of action, where we have our sustainability initiatives, we have three initiatives. We are becoming circular at scale, going net zero, and living the change. I can mention here that we have started a review of these current KPIs after now four or five years, yeah. We'll come back maybe to next year here to look into the more details of these. If we look into the three, what has happened in the quarter is that becoming circular at scale, we're working on napkins and launched napkins made from unbleached paper fiber. We launched during the quarter. If we look at going net zero, scope three has been done calculation for the 2024 completed, which also is important now. We have the target on scope one and two today.
This is something we're looking into as well. At Living the Change, we got the EcoVadis result for 2024 and increased to a score of 79, which then keeps our gold level, where we have a target of getting platinum for next year. Looking ahead, we have a strategy for growth, which for us means a strategy of profitable growth and value creation. Based on our market position, our strategy is to become the trusted sustainability leader in our industry. In order to achieve that, we have three strategic priorities. The first one is to increase innovative offering to customers and consumers. Here, we of course need to revitalize our core business with innovative materials, designs, solutions, and by expanding our business into related high-growth categories. Examples here are that we can potentially expand our LED lighting portfolio.
Also, as Magnus mentioned, Dunif orm is one initiative that we're looking into for the future, and it's a growth enabler. If we look into our second one, growth position in Europe and Asia-Pacific. This is by consolidating our core in our strategic home market, Europe, and also by expanding further in Asia for Dining Solutions and also in the South Pacific for Food Packaging Solutions. Examples here are that we are building a manufacturing hub in Bangkok, Thailand, to support our expansion in Asia. Also, the acquisition in the U.K. and Slovenia will help us grow in our core European markets. Number three then, enhance operational efficiency and at the same time enable regional differentiation. Here, for example, we are investing in a more efficient logistics solution in Germany, Meppen and that's a good example of that.
With our strategic priorities here and sustainability initiatives combined, we can also act as this trusted speaking partner to the rest of us, especially as Magnus mentioned here with all changing in legislation and other things. All right, we move into the financials, Magnus.
Thank you, Robert. Maybe before we dive into the financials, I'd like to take a few minutes to explain our exposure to currency movements during the first quarter. We have mentioned it before, and maybe how these might affect us moving forward. I think there are two main reasons for this. First, currency effects accounted for a significant part of the drop in earnings this quarter, EUR 25 million out of the total EUR 30 million decline. Last year, we saw a positive currency impact. This year, they turned negative. Second, the ongoing geopolitical uncertainty is likely to continue, causing high volatility in foreign exchange markets. Depending on how currencies move, the impact on Duni Group will vary. If we start with the translation effects, this of course refers to the impact of converting the financial statements of our foreign operations into SEK.
Since more than 90% of our profit is generated outside of Sweden, a stronger SEK will negatively affect our reported results. In Q1, the average exchange rate did not differ that much from last year, actually. The translation impact was minor. However, if we look ahead, and as you can see yourself, the Swedish krona is now noticeably stronger than most other currencies, which could lead to more pronounced effects. The second, and maybe a little bit more complex area, is the transaction effects. This relates to how we manage our revenues and costs in different currencies. If we take one example, we buy pulp in SEK for our paper mill. Since pulp is priced in U.S. dollars, a weaker dollar will benefit us. However, when we then sell the finished raw material primarily to Euro-based markets, we are exposed to a negative SEK-Euro impact.
For Duni Group, the U.S. dollar versus the euro exchange rate is often more relevant than the U.S. dollar versus the SEK. When we analyze our broader currency exposure, the U.S. dollar versus the Australian dollar relationship is actually the most critical. It's a bit special maybe for a Swedish-based company, but that is related to BioPak. Most of BioPak's costs are in U.S. dollars, while nearly all the revenue is in Australian dollars. Another important currency pair for us is the euro versus the British pound and the SEK versus the dollar, but these also have an impact on the franc and the NOK and so on. Generally speaking, a weak U.S. dollar compared to other currencies will benefit Duni Group, but not just in relation to SEK.
Unfortunately, the Australian dollar has recently weakened more than the U.S. dollar, which has offset some of these benefits. In Q1, this transaction effect was relatively minor, slightly negative. However, there is a second transaction effect we have seen come from the revaluation of Euro-denominated assets in our Swedish entities, working capital. One example, at the year-end, the Euro-SEK rate was 11.50%. By the end of March, it dropped sharply to around 10.85%. This change alone explains the SEK 50 million impact in the quarter. It is a one-off effect tied solely to the end-of-month exchange rate. I apologize for the technical aspects here. Hopefully, it will give some clarity. Otherwise, feel free to ask more questions later on. If we move on to the income statement and summarize the key drivers behind the development this quarter.
Although we saw top-line growth, operating income decreased from SEK 140 million to SEK 110 million. I think there are three main reasons if we summarize it. First, the revaluation of the euro-denominated assets had a significant negative impact this year, this quarter, compared to a positive effect last year. Second, our Food Packaging Solution segment saw a noticeable drop, SEK 23 million. This was mainly driven by higher operating expenses linked to increased inventory levels and lower volumes in the European takeaway segment. Third, I think relevant across the board in both business areas, the HoReCa segment market remains challenged. With the lower consumer spending, a few of this. Also, as you can see, net income declined from SEK 83 million to SEK 63 million, which is reflected in earnings per share.
While this is by no means an excuse, I think it is worth noting that Q1 last year was our all-time high for Q1, making this quarter a particularly tough comparison. If we take the next slide. If we're looking at the breakdown of the business areas, I believe most points have been covered. I'd just like to highlight the weak start for food packaging. In contrast, I think Dining Solutions performed more in line with expectations, maintaining a margin close to 10%, which is a normal level for this season. If we take the next slide, operating cash flow in the first quarter is seasonally negative, and that is largely due to stock buildup from low levels at year-end. This year is no exception. However, as said before, the increase early in the quarter was clearly higher than what the volumes would justify.
This was partly due to the changes in our portfolio and onboarding of new customers, but also a result, I think, of suboptimal processes in a rather complex supply chain. This has a direct link to the weak profitability in food packaging. We're now fully focused on bringing the inventory levels down quickly. Currently, we see improvements already by the end of the quarter, as I said before. While the market remains soft, we still see significant potential to reduce the stock days further. That will impact our P&L and cash flow moving forward. We take the financial position. It remains robust, although we experienced an increase of the net debt that comes from the acquisition of Poppies. Inventory asset has increased versus a year ago. I think there's potential to reduce this, as said, and optimize stocks.
Lastly, return on capital employed, excluding goodwill, has unfortunately been reduced from levels close to 30%, very strong, now on 21%. This is something we focus on, of course, to come back to numbers we've seen before. Finally, maybe just some short comments on the financial targets. Organic growth landed on - 1% for the last 12 months, primarily driven by weak consumption across all markets, most notably so in the last 12 months in the DACH region. As Robert mentioned earlier, the official macro numbers for the HoReCa sector in Europe have worsened. That said, we've been able to partially offset this decline through growth in selected areas in Europe, even more so outside of Europe, particularly so in Australia and Asia. Looking ahead, key drivers for improved customer confidence remained very focused on lower interest rates, increased disposable income, and a more stable geopolitical environment.
However, these factors now seem to have made a little bit further out of reach than just a few months ago, though there are some positive signs. One example, as Robert mentioned, is the government support measure taken to reduce the VAT in Germany. Our rolling 12-month operating margin currently stands at 7.4%. That is below our target of 10%. Closing this gap will require continued focus on improving gross margin and reducing the share of indirect costs. Lastly, the Board has proposed a dividend of SEK 5 per share to be decided at the AGM in May. This corresponds to 66% of net income adjusted for construction costs, and that exceeds our target. Thank you all for listening. I'll now hand over to Robert for concluding remarks.
Yeah, I'll do a quick summary here. For Q1 2025, we achieved growth with almost 8% in the first quarter despite the continued weak demand in the European market. It was both acquisitions and organic growth that contributed to this positive development in Q1. If we look at the result, it was impacted by significant negative currency effects, as we talked a lot here. Magnus also went into some details on that. That, of course, is due to the strengthening of the Swedish krona against the euro mainly. I think in this uncertainty and challenging times and conditions, we have the advantage of our broad geographically presence, where actually we have two business areas that complement each other and help us become less vulnerable. This gives us a solid foundation on which we can build. Thank you. Now moving on to Q&A.
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Thank you. Yeah, we must be crystal clear today. A lot of information. Yeah, thank you for listening in. Yeah, see you in the next quarter. Thank you.
Thank you, presenters. Ladies and gentlemen, this now concludes today's presentation. Thank you all for attending. You may now disconnect.