Ladies and gentlemen, welcome to the Duni Q1 interim report. Today, I'm pleased to present President and CEO, Robert Dackeskog, and CFO, Magnus Carlsson. For the first part of this call, all participants will be in a listen-only mode. Afterwards, there will be a question and answer session. I want to hand over to Robert Dackeskog. Please go ahead.
Thank you. Welcome to this. Let's see here. I get some echo here. Let's see if we take out the Hello, everyone. I'm sorry. Hello? All right. I hope you can hear me. Welcome to Duni Q1 report. We'll start a little bit with the short highlights here. We'll come back to a lot of these things during the presentation. The highlights for Q1 is that we have the sales at record levels, the right broad market demand from the restaurant visits that have improved since last year, of course, with a lot of restrictions. We had volumes and efficiency gains in manufacturing, strengthened operating income. Cost compensation supports our sales growth and margin recovery.
Of course, it has been a historically strong Q1 result as also that we have this sustainability assortment that is meeting the consumption patterns in the market. Our operating cash flow has improved by over SEK 300 million in the quarter. The agenda for today is that, yeah, we're looking in a little bit to the market outlook, a little bit the summary of the Q1, moving into the two business areas, looking at the two innovations we are driving currently, and looking into our sustainability initiatives and targets, and then in the end, the financials, and then a Q&A. The market outlook, we have some data from market. It's always hard to get a lot of data from this market, but bookings has recovered really good for the restaurants.
When we look at the OpenTable graphs and so on from Q4. In general, the market volumes are a bit below 2019, and I think our sales is in line with the overall market development there. We can also see that some data for hotel booking indicating that bookings are still a little bit below the 2019 volumes. Moving on to the financials. We grew by 30%, which is SEK 434 million. The operating income ended up at SEK 130 million versus SEK 51 million last year. Our operating margin in the Q1 was 6.9% versus 3.6% last year. A little bit comments around the Q1, the net sales.
Of course, our net sales recovered from the previous year then, and came from cost compensation. Of course, the volume demand in the market. We have also had a good growth in BioPak outside Europe. The operating income improved significantly with, of course, volumes coming in and also working with a lot of efficiency improvement in manufacturing that has strengthened our operating income. It's a little bit slow down in the inflationary pressure, and that enables also compensating price adjust to better meet increased costs. It's a historically strong result in absolute money here, although, of course, the gross margin is still a little bit below the pre-pandemic levels. We're moving over to Magnus here, presenting the BA business first.
Thank you, Robert. Good morning, everyone. I will now, as Robert said, go through our two business areas in more detail. I'm starting off with BA Duni, representing our products for dining solutions like the napkins, table covers, and candles. Q2 showed a growth of almost more than SEK 300 million, and that is equal to 34% in comparable currencies, ending at slightly above SEK 1.1 billion for the first quarter. As you can see, profit also improved by SEK 100 million, and operating margin is now above 10%. Some more in-depth comments from Business Area Duni. Last year quarter was still impacted by COVID, if you might remember. The strong sales development is partly, of course, related to a normalization that we see in the HoReCa segment.
The sales development is broad and valid for almost all markets that we are present in, particularly strong for our napkins, the premium napkins. That is a trend that we also saw before the pandemic. Cost compensation measures have been initiated already last year, and this had a positive contribution to sales. Explaining more than half of the increase in sales, and this is also an important factor for the margin recovery in the quarter. As Robert said, the first quarter is historically strong for the business area in absolute terms. The growth margin has improved, and the significant part comes from operational leverage in the factories from the improved volumes, and in addition, high efficiency from lower share of indirect costs.
It's important to say that the inflationary pressure is still severe, although we do see trends of some raw materials decreasing from the peak levels that we saw in Q4. Energy, gas, and biofuel continues to be on very high level. In the quarter, we accelerated the launch of fossil free and fully compostable napkins, the Bio Dunisoft, and this is a crucial part of our sustainable target, not least to secure our target of being net zero 2030. To sum up, a historical strong first quarter with high sales and improved margins from efficiency measures and also cost compensation actions that has taken off. If we now move over to Business Area BioPak, selling products within sustainable food packaging, like takeaway trays, cups, and other fiber solutions for meal service.
We also here see a healthy growth of around 11% for the quarter. As you can also see, operating income is down to SEK 8 million, and that is equal to 1.1% for the quarter. If we take the next page area and look into some of the details, we can state that the growth comes from the business outside of Europe, especially strong in Australia. Volumes in Europe is down versus last year and partly explained by the boost from the pandemic that was still present, as mentioned. We're also accelerating the shift out plastic products to fiber-based solutions in Europe, and the remaining plastic usage goes down rapidly. Nevertheless, it is apparent that the underlying demand for more sustainable food packaging solutions in fiber is significant.
There is also high dynamics in trying to adapt to new business models for a more circular economy, focusing on the materials at first, naturally, but also recyclability, reusable options, and managing waste in a more efficient way. Although a healthy sales level, the margin is down to 1.1%, and a reduction from previous year on 4.8%. Spot prices on container costs, which had a significant impact on profitability last year, that has come down significantly in the quarter. Due to the lead times and the high inventory levels that we have in this business area, the positive effect from the lower container costs are delayed, which together with a higher storage cost explain actually the lower income.
I will now hand over to Robert again to inform you about our ambitions to strengthen our position of being the trusted sustainability leader. That means our sustainability targets as well activities involved in food innovation.
Thank you. Yeah, as we have a, our mission, our vision to be the trusted sustainability leader in our industry. We are starting to work on a lot of things of course, but we have two products that we are in a pre-launch phase. We have the IDUN project, which is focusing on circularity to close the loop in a, in a circular system and based on some subscription model and infrastructure around that. Of course, this is a pre-launch, this is testing and so on. This is a different, little bit different way of working here. Maybe we won't make money on a product. It's more a system and a transaction in that sense. Focusing really on circularity. The other project is called Unmo project.
Then we are focusing on a digital platform where actually restaurant owners and potential employees can meet. We want to be part of the solution and also provide a home for the young professionals who are seeking long-term career in the industry. These are two really interesting areas. We are putting some innovation thinking around and actually going back to the industry's main problems also that staffing is a big issue in the industry. Unmo is a really interesting project we are looking at. Moving over to our, yeah, decade of action, which we have said our sustainability initiatives and our targets, we want to become circular scale. Both these two initiatives are focusing on that of course.
We are also focusing on going net zero, looking at Scope 1 and 2 to become net zero in that. Also that we will be the change and become this trusted sustainability leader. We'll go then to a little bit what the activities have been in this quarter around this is that we are piloting the IDUN concept group for trying to find a system for reusable packaging. That's the first step in that, and then focusing also on single use in that. Also we're looking at recycled plastic in our packaging solutions. I'm really happy to say that now we are following the virgin plastic use for the single use items, and we are moving down now to an index 17 for Q1 2023.
That's a reduction by 30%, which is fantastic. Looking at the net zero target, the achievement this quarter is that we have submitted our science-based targets, and hopefully we'll get a positive response there later this year. We are also measuring, as we said before, the CO2 per ton self-produced product, and we progress at the moment is that we reached 38 index now in Q1 2023. Progress there as well. Leading the change is maybe to mention this quarter is that we got a EcoVadis score of 73, so gold rating this, yeah, last year, which is this year's. That's also fantastic. We are really working towards these three goals in everything we do, and really happy about the progress here.
Yeah, handing over yeah, the financials, Magnus.
Thank you. If we start with the income statement, looking into that. The improved volume situation together with price compensation measures to manage the inflationary pressure that we have talked about for quite some time now are the main explanation for both the margin improvement and the historical strong Q1 in absolute terms. Growth margin has improved but still slightly below pre-pandemic levels. If you look on the earnings per share, that's also improved from SEK 0.11 per share in the quarter to 1.55. As you can see in the last 12 months, we are now on 5.79 per share.
If I may comment a little bit on the business area, we see that the BA in Duni has improved significantly from previous year and now about 10% for the quarter and 10% for the last 12 months, meeting our financial targets for the group. As mentioned previously, we do see a more challenging situation in BioPak Europe, thereby from high cost pressure. We work diligently to come back, of course, to level seen before the pandemic up until basically one and a half year ago. Again, I think this also shows that Duni Group has benefited from having two business areas that is complementing each other and working a little bit of hedging versus the other.
We consider this as a strength also going forward, but naturally with the ambition to regain margin growth again in BioPak Europe. From if you look on quarter one from a cash flow perspective, this is normally a seasonal weak one with often a negative outcome and mainly due to stock build-up and outcome from strong numbers in Q4. However, this quarter, Q1, is positive exception with a positive operating cash flow and an improvement from with more than SEK 300 million versus the same period last year, which the numbers were very weak. We are now seeing a healthy level for our cash conversion with a positive operating cash flow of more than SEK 400 million for the last 12 months.
As you can see, the net debt, if you look on the financial position, has come down from last year and that's a result from the high profits of course, but also that the inventory is starting to decrease in the last two quarters, I would say. Although we have a significant growth and that means of course less stock days. With lower debt, we're now seeing an overall stronger financial position, stronger balance sheet with improved headroom. Finally, a Return on Capital Employed excluding goodwill continues to strengthen and now on 18%. Finally, as you can see, and as mentioned several times, we have now a very strong growth, as you can see to the left, explained by volume increase, price compensation measures, and I would say in general a so-solid market demand.
Unfortunately, not yet able to reach our margin of 10%, although the trend is positive and linked very much to the price compensation measures taken and with higher cost-efficiency production as well as for our indirect costs. Finally, our target to pay out at least 40% of our net profits in dividends, and as previously communicated, Duni board of directors recommended to AGM in May SEK 3 per share as dividend, and that would fulfill the third target and equal to 70%. With that, I thank you all for listening in, and I hand over to you, Robert, for final comments.
Yeah. Thank you for listening in. Yes, as a summary then, we have a historically strong Q1 result, and I think it's great to see that we are at more normalized levels in the market and the whole HoReCa industry has really recovered from the past years. It's been very tough years, of course, for Duni and the whole HoReCa industry. I think that we and the whole organization has done a fantastic hard job here to come back here. Yeah, it feels good in that sense. Thank you, and handing over to Q&A.
Thank you very much. If you would like to ask a question, please press star one one on your telephone keypad and wait for your name to be announced. That's star one one. Okay. Our first question comes from the line of Karri Rinta from Handelsbanken. Your line is now open. Please ask your question.
Yeah. Hi. I think it was me, Karri, Handelsbanken. I have a few questions.
All right.
Starting with the Duni division. I see that your sales are roughly 30% higher than what they were in first quarter of 2019, and, surely there's, some effects in there as well, but, is the rest pricing meaning that, have you raised prices by up to 20% compared to pre-pandemic levels in the Duni division? That's my first question.
Thank you for the question, Karri. That is correct. A rough estimate that we calculate then, backwards. The effect from price compensation should close to that number. Yes. Versus 2019. Hello?
Yeah. Sorry, I was on mute.
Oh, sorry.
Table-
Yeah.
Yeah. Table covers product category. It was the best quarterly sales since first quarter of 2020. Is there anything structural that is sort of boosting these numbers, or is it simply a recovery plus price increases?
Of course, we are seeing a strong comeback with table covers. Table covers being a very important segment for us with high margins, we are happy for that. Part of it, I think, is related to after the pandemic that we see a lot of conferences and people meeting up and traveling again. This is a product that is very much linked to that. Part of it I think is a good indication that we're out of the pandemic. I think we are a little bit careful of saying because we have had a negative trend in the last 10, 15 years in this product group, is this really the end?
I think it's a little bit too early to say that, but of course, we're happy to confirm that we're back with good numbers again in table covers. Yeah.
Yeah. Catering is an important customer segment for us in table covers. With them back, it's important to partner.
All right. Thanks. Moving over to BioPak. If we look at the declining sales in Europe in the first quarter, is that, in your opinion, purely about changing consumer behavior as restrictions were lifted and people could eat out instead of ordering? I guess the question is that are you expecting any impact from these tougher regulations on single serving food serving?
Yeah.
I mean, I'm re-referring to France and Germany that have imposed some new regulations on the single-use serving solutions.
Let's see. No, I think we that we are comparing by time onwards with the takeaway market, actually. That's maybe what we compare with the pandemic, and we have a shift to more dining in than dining solutions in when the people go to the restaurants. That's the major one, I would say. Of course, we have a couple of deals then maybe in Italy and Germany that has that isn't there anymore. I think that is what we're seeing. I think the whole takeaway trend with fiber packaging is still there and we are moving a lot of products into the sustainability area. I think it's more about the pandemic effect, what we can see now at least.
I would also like to add on to that we are shifting out. We have some assets left, and we are shifting out those products as well, and of course that has a negative impact in our volume as such. The higher share of fiber products that have, of course, a different long term. I would say no, we do not see any particular effects from the new legislation coming up in the. Also I think this is on the long term actually positive for us in finding new ways and opportunities.
Sure. Then the sequential decline in BioPak margins, I mean, there shouldn't be that much volume leverage because of the way that you run this business, so what are the main reasons for this sequential decline in BioPak margins?
Yes. I think the main reason is the material level, taken this period with a very high cost connected to the containers, but also in other raw materials. Of course, with the higher stock and the longer lead times we have on facing out this, at the same time, we see that the prices are going down a little bit in the market, of course, when the margin goes down. This is a challenge of course to manage this in the best way and to do this quickly. It's also a bit of a temporary problem.
Of course, we want to come back to the margins we see before this, one and a half year ago, as soon as possible.
A question related to that. Are we past the peak in terms of peak cost, in terms of what you have in in-inventory and peak cost in terms of freight? How should we think about this margin recovery going forward?
Yeah. It's a little bit difficult to answer because it depends on several parameters. Of course, the volume in itself, the higher volume, the first we use around. We'll say that we have a certain lead time on a container. They went down end of the of last quarter. There is a certain lead time on that. There is a certain lead time in the inventory connected in itself, which is quite high. Of course, the timing of that, I fully understand your question, is a little bit difficult because it's not only dependent on the inventory level itself, but also the volume. We do have a lot of activities to find new opportunities to get this out as soon as possible.
That is, of course, also depends on the price levels that we can do these deals on. We're doing our very best to make sure it's possible, that's for sure.
Okay. Final question on that, on that front. I mean, minority interest was quite high, so that should mean that BioPak Australia continues to have a very strong profitability. What kind of seasonality does that operation have, given that they have their so-called winter now? Do they typically have stronger earnings in Q3 and Q4 and then weaker in, sorry, Q4 and Q1 and weaker in Q2 and Q3, or is it pretty stable throughout the year?
It's relatively stable, both in Europe and Australia. Like you say, they have summer, we have winter, and the other way around. For stronger seasonally Q4, and for us, it's actually Q2 approaching summer, and it will go out to bring caps and trays and so on the go. That's the effect we see. It's a good complement to each other. They are not that different. They are relatively stable throughout the year.
The final question, the gross margin, that was 21% in the quarter, and, it was 25%, 26% before the pandemic. Is there any structural reason, i.e. BioPak now being a larger part of the group that would mean that those pre-pandemic levels are not realistic? Or should we still expect that at some point when cost inflation has eased and you have fully compensated, that we should see those gross margins again?
Yeah. I think, of course, in, in some ways, you can always look on history, although that is of no value. You know that the gross margin has been on a higher level, and that is, of course, the we work to get back to. It's also a very dynamic environment with both challenges and opportunities. Play it right, it can go quickly back and, and in a good way. I think the most important factor here is that we see, objectively, if you look on market data, that there is a strong demand for sustainable food packaging solutions. That can be in different forms. I think that is a good indicator that we should see a positive future ahead.
One final question. The given the inflation that we are seeing everywhere, are you starting to get any pushback from your customers in any segments about the price increases that you are implementing?
Yeah. Sorry about that. Yeah, I think that there is definitely talk now in that, I think we have taken the issue on that. I think we haven't really communicated everything as we said in the report that we're a bit lagging as well. We can see that the mouthpiece is still getting there, but still is higher than 2019. That, I think that's the, that's the year as well for us.
No real resistance at this point from any major customers in major segments?
I mean, this is all, I think we have shown that we're taking responsibility in the dialogue with the customers in a very difficult situation with enormous high inflation and pressure. Of course, we need to continue the tight dialogue with the customers. For sure, I think the strong brand that we have has proven that they are loyal, and but we do see that the costs are coming down, of course. That could lead to certain discussions. It's also stated we are still not back in the gross margin. So that it needs to be balanced and carefully.
All right, great. Those were my questions. Thank you very much.
Great. Thank you. A reminder that if you would like to ask a question, please press star one one on your telephone keypad and wait for your name to be announced. The next question comes from the line of Johan Fred from SEB. Your line is open. Please ask your question.
Hi. Johan Fred here from SEB. Thank you for taking my questions. Starting off just building on Karri's question here on price increases, do you feel that you have made all the necessary increases thus far, or are you continuing to raise prices in Q2? Building on your statement that some inputs such as energy, gas, and biofuels are continuing to increase. Thank you.
Thank you. Thank you. I think we have taking actions, but as we said, it's been a bit and we have chased this wagon, of course, we are not over with inflation. We still have some lag, but the main step is taken. I think that's where we are at the moment.
Okay, great. Just to follow up on the inventory situation in BioPak, do you mind providing some color on the situation? When do you assess that the inventory that you have acquired during or during 2022 at higher input prices will start to cycle through, and we will see a material impact from that?
Maybe just a 10-second background on that. It was built up during last year in a very turbulent market where we have to protect the labor to our customers. At the same time, we did a lot of a lot was demanded from the market to come through with good, improved sustainable food packaging solutions. It was a lot of things going on at the same time. Reviewing now, of course, we are in a situation where we had too high inventories, and those we want to take down as soon as possible. Not doing more than we used to do, so to say, of course, we still will be in a situation coming quarters where there may be too high inventory.
In addition, we're working very hard with extraordinary activity in the market to promote and get the product out. That could be for discounts, that could be for various actions. It's very good products, but they are too high. Not giving an exact answer on that because as I said before to Karri's question, it's dependent on several factors, not least volumes. I think we have passed the peak, and it's actually going down in these three, four months back. The trend is positive, and we want to accelerate that, of course.
Okay, perfect. I think, yeah, Karri covered the rest of my questions there. Thank you so much for taking my questions and time. Thank you.
Thank you.
Thank you.
Thank you very much. We have no further questions at this time. Please continue.
Okay, Problems here with the sound. Sorry. Yeah. Thank you for today then, and, yeah, look forward for the next quarter. Yeah, see you soon.
Thank you very much. That does conclude our conference call today. Thank you all for your participation. You may now disconnect.