Ladies and gentlemen, welcome to the Duni Q2 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 now hand over to Robert Dackeskog. Please, go ahead.
Thank you. Yes, hi, welcome to the Duni Group Q2 Report. Yeah, we're building a platform for sustainable growth, Duni Group. First, start with some highlights of the quarter. Sales continued to increase, and the market show resilience with healthy demand. People are out eating, traveling, and so on, in the same pace. Price conversations, measures were taken in 2022 and in the beginning of 2023 year. Together with high efficiency in our production, the gross margin has strengthened. I'll come back to that more as well. Historically strong Q2, the operating cap ended up at 170 million SEK, which is an increase of 87% versus Q2 2022.
Operating cash flow of SEK 354 million derived from inventory reduction and a good result. We'll look at the agenda for today. We'll run through a little bit around the market, Q2 summary, business areas, innovation parts for Duni Group, sustainability targets and the financials, and Q&A in the end. If we look a little bit on the market data, we don't yet have any new data for Q2 2023, so that's a bit lagging. Of course, there's a lot of uncertainty in the future still, we see a lot of resilience with the consumer during Q1 and what we see in Q2 as well, without getting the data, of course.
In the first quarter of 2023, the market was still in recovery in terms of volumes compared to 2019. If you look at the graph on the right, top right there, hotel reservation is still slightly below 2019 for most European countries. There are some U.K., Italy, are up, then the most, a little bit, below. As you know, the last 12 months has been normalized with no restrictions in the market. From Q2 last year, we went into a normal world without restrictions in the restaurant area. We're meeting Q2 where there were no restrictions last year, and we can see that there is a growth in the seating in the past months here, which is positive.
If you look at the short facts about the key financials in Q2, we were up net sales 12.3%, and then the operating income ended up SEK 170 million versus SEK 91 million last year. Operating margin ended up at 8.8%, which was versus 5.3% than last year. A little bit more details than in Q2 comments around the net sales. We had a significant growth in absolute terms. Currency and price adjustments were the main drivers of this growth. There is a solid underlying business with the normalized sales now to the restaurant segment. We are in a normalized world, as I said, meeting same normalized behavior as last year.
There is a little bit dampened demand for takeaway in Europe after the pandemic here, while growth outside of the Europeans continues mainly in Australia. The operating income then in the quarter went up +87%. This is a historically high operating income in absolute terms for Q2, which is good. There are normalized margins for the second quarter, almost 9%, that's what I said. There is a balance between cost increases and cost compensations is the main driver for our improved results. We will go move into the business areas, and I hand over to Magnus.
Thank you very much, Robert, and good afternoon, everyone. As Robert said, I will now go through our two business areas a little bit more in detail. I start with the business area Duni, since it represents our products for the dining solutions, like napkins and table covers and candles. Q2 showed a growth of SEK 175 million, and that is equal to 80%, ending on SEK 1.16 billion for the second quarter. Operating income almost doubled, ending at SEK 134 million, and that's a margin improvement of more than four percentage points and ending at 11.6%. Some more in-depth comments for business area Duni.
Second quarter last year was a quarter with no or very few restrictions, at least from a COVID perspective, and consequently, a comparison is possible without any of these effects, as Robert stated. It is clear that the HoReCa segment continues to show resilience, although we have some headwinds from macro perspective, with high inflation and higher interest rates, and that affects, of course, the disposable income for the consumer. Sales has also contributed with both favorable FX rates and price compensation measures. Corrected for this, we can see that the volumes are almost aligned with last year, slightly down for retail and slightly up for the professional part. Especially premium napkins continue to be strong, that is partly contributed with a well-received launch of our newly introduced Bio Dunisoft napkins.
We mentioned it last quarter, and that increased the whole relevance for the segment. As we have informed, and a very relevant topic in the last one and a half to two years, the price compensation measures taken last year, but also in the beginning of this year, has clearly contributed to the margin recovery. I think this, together with higher efficiency and lower costs per ton produced, has resulted in the operating margin of 11.6%. As you can see, a continuous positive rolling 12 months on the curve to the bottom right. We can also confirm in the quarter that the inflation has slowed down, and some of the raw materials are decreasing and aligned with last year, actually.
However, I think it's important to state that the production costs, as well as the inflation in general, not least the salary inflation, is significantly higher than we saw pre-pandemic. To sum up, a solid, second quarter with clear margin recovery and increasing sales. If we look on the business area, BioPak, focusing on products with, food packaging, like takeaway trays, cups, and other fiber products for meal service, we see a sales increase of 5% and an improvement of the operating income, as well as an improvement in the margin, ending at 4.6% from the last year of 2.7%. If we take the next page, then we can state that the growth pace is lower than seen in the last quarters, and especially versus the very strong, quarters during the pandemic.
Main explanation is slightly lower volumes on takeaway in Europe versus last year, which was very strong and boosted by contracts that was taken during the pandemic, when we were able to deliver in contrast to many other players. Unfortunately, we have not been able to keep all of these volumes. If you look on sales outside Europe, and especially Australia, continue to be to show positive development with a good momentum. Albeit a stock write-down in the quarter of just about SEK 20 million, we see that the margin strengthened, and the result in absolute term is also clearly better. Container costs, which we have talked about a lot as well in the last years, has imploded and significantly down.
This is something we will gradually benefit from, but also means that we need to adapt our prices to the lower cost level. Overall, we see a strong need for sustainable products in this segment of food packaging. One example is the newly launched cups with water-based barriers that gives a fantastic opportunity to shift out the plastic alternatives. I will now hand over to Robert Dackeskog again, to form a little bit our ambition to strengthen our position being the trusted sustainability leader.
Thank you, Magnus. Yeah, our aim is to become the trusted sustainability leader in our industry. We are engaging in a lot of different things around this and driving sustainable innovation projects. One part is what we call our lab part, where we have worked with the bio binder in our products, with the napkins, the Dunisoft, and also the table cover, Dunicel products, to change that. We have done that with the cooperation with OrganoClick, Swedish company. It's been a great development. Also, we are working with composting corporations for our napkins, with Biocycle Compost in France. Also, a interesting corporation.
We talked previously about the partnerships with Bumerang and Relevo, where we invested in these reusable companies who wants to create systems for circularity. Also, we have started to work on our own startups, Idun and Unmo. Idun is a circularity system where we're looking into both for single use and reuse products. Unmo is a platform and community for getting restaurants and potential employees to the restaurants to get together. If we look at that a little bit more, the Idun, which we presented in Almedalen here as a pilot, was launched with very great interest from the industry.
Of course, there are legal aspects coming in, and from first of January, there will be a demand on restaurants to have reuse as a in the restaurant for fast food chains, for example. An interesting area to look into, of course. The Unmo project, where we have started now to launch this digital community in Malmö, which is the first out here, and we're starting the pilot there. We would like to, of course, expand that more as well in the future. That's a little bit more about the innovation projects we are driving in order to become the sustainability leader in our industry. As previously, we have three big sustainability initiatives and targets.
It's becoming circular at scale, which some of the innovation projects I talked to here is solving them, and going net zero and living the change. If we look at these three, we in order to become circular at scale, we did a pilot test now in Visby, Almedalen here, as a first step. Also here, in terms of KPIs, we are measuring the use of early fossil index, and it's at 65%. We have an aim at 50% for 2025, so we have 15 to go there until 2025. We're going at zero.
We're doing a lot of activities, sometimes big ones, sometimes small one, this quarter is a little bit, a lot of things, but smaller things, like installation of charging post in the factory in Germany, and so on. Here we have a KPI target of reaching index 37 compared to 2019 then, and we are at 38 for the Q2 2023. A good way there as well. With the living the change also here, Idun is part of that, of course, to help that change. Here, we're measuring EcoVadis, which we got a score of 73, which was an increase from 2022, but aiming for platinum in 2025. Some good progress in all these three areas for us. Yeah, I'm handing over to Magnus for the financial.
Thank you so much. If we start with the income statement, we can see that we increased sales close to SEK 2 billion in the quarter, and the gross margin strengthened from 16.4% to 22.7%. The main reasons, I think, have been mentioned during this presentation, but again, very much related to the price compensation measures taken, and also the efficiency programs that we have been running. It is also noticeable that we are investing clearly more in 2023, as Robert just mentioned, to be in the forefront on relevant solutions to strengthen our existing portfolio around circularity, but also looking into new business models and technical platforms to offer solutions on broader scale to the HORECA segment. We see this as the true meaning of being the most trusted sustainability leader in the industry.
Margins at 8.8%, which is in line with levels we have seen in the second quarter, also in the years before the pandemic. If you look on the rolling 12 months, it's now on 8% on operating income, and net income equals now to 7 SEK per share. Commenting a little bit on the business areas, again, we see that the BA Duni has improved significantly from previous year, now above 10% for the quarter, but also year to date, as you can see. BioPak also recovers from the tough period of massive cost increases and a very difficult environment to navigate in the terms of supply chain and secure deliveries for quite some time. Now we have a positive trend in the operating income as well as the margin.
If you look on the quarter two from a cash flow perspective, it's very similar to the first quarter, with clear contributions from both the improved EBITDA, but also significant lower inventory. Most of the inventory reduction derives from BioPak, has been a clear ambition for us. Looking on the rolling 12 months, operational cash flow is more than SEK 700 million, which indicates a strong cash conversion, close to 100% versus EBITDA. As you can see on the next page showing our financial position, this strong cash conversion has led to net debt decrease with SEK 500 million versus a year ago, and of course, an overall stronger financial position with increased headroom going forward. Finally, the return on capital employed is now about 20%, excluding goodwill.
The last page here, as you can see, in our financial targets mentioned several times, we continue to see strong sales growth development, we're clearly above the 5% target, growing now 16.6%, thereby by price compensation measures, forex hedge, but also a solid market in general. Unfortunately, we are not yet able to reach our margin of 10%, although the trend is positive. We are now on 8%, that's an increase from the previous quarters. Finally, our target is to pay out at least 40% of our net profit, and as previously communicated, we paid out SEK 3 per dividend, and that fulfilled the target of at least 40%, actually 70%.
With this, I thank you all for listening, and I hand over to you, Robert, for final comments.
Yeah, thank you. I think, yeah, almost a good summary there. I think, yes, very short then. Yeah, Q2 then, continued good demand, historically strong result in Q2 in absolute numbers. Also, I think, a lot with the focus on the sustainability and circular solutions, we really want to help the restaurants and the fast food restaurants to be part of the circular economy going forward here. A lot of focus on that. I think that summarized the Q2 pretty good. Thank you.
Now some Q&A.
Thank you. Ladies and gentlemen, if you do wish to ask an audio question, please press star one one on your telephone keypad. The first question is coming from Karri Rinta at Handelsbanken.
Yeah, thanks, Karri from Handelsbanken. A few questions from me. Firstly, about the cash flow and the working capital. How much more cash do you think you can release from inventories, or do you now consider inventories to be at a more normal level? Then related to that, the inventory write down in BioPak. Was that an adjustment of inventory values, or did you actually scrap some materials? Let's start with those.
Yeah. Thank you very much, Karri. If I start with the first question, I still think that there are some potential in BioPak, if you're looking on the days. It should be, we have an ambition to further reduce it, to optimize it. The inventory for the BA Duni is, I think, is well managed and on a good level, but still some potential for BioPak. That's our ambition. When it comes to the scrap or write downs, yes, it's correct, and as mentioned, we did take some. Not that it's more related to slow mover provisions, so hopefully we are able to manage that in a good way. There are some, as always, adjustments that we need to take.
A little bit higher in the second quarter, but also to give potential to move out the stocks quite quickly. Yes, a little bit higher provisions taken in the second quarter for these type of adjustments.
All right. All right. Tax rate. Tax rate has been low now for the first and second quarter. Should we expect a higher tax rate for the remainder of the year, or is there something that sort of keeps the tax rate lower for the coming quarters as well?
You should expect basically the same tax rate. There are some quarterly adjustments from time to time, but over long time, long run, it's basically the same level. Around 23%.
All right. That's helpful. The demand picture. You're saying that the takeaway food was a bit weaker in Europe in the second quarter, but that was pretty much the, sort of the only clear area of weakness. For the second half, I guess, it's reasonable to be a bit more cautious also when it comes to the Duni division. Are there any geographies that you could single out either as positive or maybe getting a bit weaker? How should we think about that going forward?
Yeah, it's a hard question, of course. I think that's everyone is thinking around that. I mean, we've seen a pretty good demand in a lot of... As you know, people are out and eating and traveling a lot, and we see, I mean, with the data we see is that, for example, Italy and U.K. has really high demand in hotel bookings and so on, in the past. I think we see that Southern Europe has a lot of tourists now as well this quarter. Of course, the autumn will be interesting to see, but yeah, it's hard to say, actually. It is. If it will differ or not between any geographies, it's harder.
Maybe it depends also on the local economy and the local, yeah, consumers in that sense, and how hit, how badly hit they are from interest rates and energy, yeah, prices and so on. Yeah, it's hard to say.
I think just to add on to that, I think the, maybe we are a little bit happily surprised to see the resilience, although that the disposable income has been reduced in the last year, I would say. How long this will last and so we can only speculate, and I think if we see now also the interest rates sooner or later will go down. It's speculation. It's very difficult to say, but there is a good resilience, underlying resilience. People tend to prioritize going out to eat.
Then can you remind us of the lag or the, when do you see the impact from lower container prices and lower pulp prices? In container prices, do you have annual contracts, and then they start to coming gradually, or how should we think about that? The same question for pulp.
I think there's two effects when we start with containers. One is the contractual lead time, and that is, on an average level, maybe a quarter. You have, of course, a lead time related to shift out the inventory as well to benefit from this. As we now have worked down the inventory quite a lot, we're starting to see this gradually being positively impacting our cost. We are already now seeing that the cost is going down from the containers, and will continue to do so.
pulp?
Pulp is similar. We have contractual agreements, and we also have... Since we have a, when it comes to the days of the inventory, a lower level, it's a little bit quicker, and we are now seeing also that we're getting positive effects from the very high levels that we saw end of the last year. That is also gradually contributing.
The final question is related to the comment that you made about BioPak, that now that the container rates are coming down, that means that you will always also have to adjust your own prices. Is that specifically for BioPak? If I remember correctly, in the Duni division, it's been more so that it maybe takes some time to raise prices, but the prices are never lowered. Are the pricing dynamics different for BioPak?
Basically not. There are similarities between the two business areas. I think it should be worthwhile to again remind us that it's been two extreme years when it comes to the volatility in prices. We have tried to act very responsibly towards the customers with lower increases, but with higher frequency. We always had a lag, as we talked about in many quarters here. I think it's fair now to state that we are, of course, trying to. There is still an uncertainty on how it will develop, so we are very cautious of actively decreasing the prices. Of course, we're also looking into the volume situation. It's a balance that we are following very carefully.
I think that the dialogue we had with the customers being very close and also transparent, will also pay off going forward in these type of discussions.
All right, thanks. That's very helpful. Those were all my questions.
As a reminder, if you have a question for our speakers, please press star one one now to enter the queue. There seem to be no further question at the moment. For closing remarks, I will give back to the speakers.
Okay, great. Yeah, thank you, Per, for questions. Yeah, just saying have a nice summer, and thank you, and see you in Q3. Thank you.
Thank you.
This concludes today's call. Have a nice day.
Thank you.