Release Date: July 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Duni AB (LTS:0HR3, Financial) reported the second-best Q2 in company history, despite a challenging market environment.
- The company maintains a strong financial position with net debt down by SEK220 million from Q2 last year.
- Innovations such as the smart LED lamps and the renewable coffee cup lid have been well received in the market.
- The gross margin has strengthened compared to last year, showing positive development over the last 12 months.
- Sustainability initiatives are progressing well, with significant reductions in the use of virgin fossil plastic and carbon intensity.
Negative Points
- Net sales dropped by 3% compared to last year, with significant declines in Germany and Benelux.
- Operating income decreased by SEK35 million from last year, impacted by lower turnover and increased raw material and sea freight costs.
- The HoReCa market remains volatile, with mixed signals and a 12.9% decline in the start of the year.
- Selective price decreases and lower volumes in the HoReCa sector have negatively impacted sales and margins.
- The European market for food packaging continues to be sluggish, with volumes behind last year.
Q & A Highlights
Q: Germany performed quite poorly despite the European Championship and positive restaurant bookings. Can you quantify the impact from the euros in the quarter?
A: The Euro impacts pubs significantly, where people eat and drink. However, during big events, people tend to consume fast food products instead of dining out, making it hard to quantify the exact impact.
Q: The gross margin has improved year-over-year. How should we think about this trend going forward, and when will it translate into a higher operating margin?
A: The focus on gross margin will continue to be important. Balancing cost, price, and volumes is crucial. Higher volumes will lead to better cost absorption, positively affecting operating income.
Q: What is the underlying margin potential for dining solutions in a normalized market climate with normalized volume?
A: Historically, we have been higher than our 10% target. With good utilization, a healthy product mix, and staying at the forefront of innovation, we should be clearly above the 10% target.
Q: Given the significant reversal in input prices, will you start raising prices again during the quarter? When will we see the effects of these increases?
A: We continuously monitor market conditions and act accordingly. There might be some lag in adjusting prices, typically around three to six months for the majority of our portfolio.
Q: How should we think about pricing dynamics going into Q3? Will prices continue to impact sales and margins?
A: We follow raw material prices closely and adjust as necessary. There is generally good customer understanding when there are dramatic shifts in underlying costs like pulp and energy.
Q: What is a realistic growth rate for food packaging if markets were to normalize?
A: Food packaging is a growing market, with expected growth rates between 5% to 10%, depending on the segment.
Q: Can you elaborate on the impact of selective price decreases on your financial performance?
A: Selective price decreases were made to stay relevant in certain areas when energy and pulp prices fell. This had a negative effect on sales but was necessary to maintain competitiveness.
Q: What are the key factors contributing to the improvement in food packaging solutions' profit margin?
A: The profit improvement comes from lower stock levels in Europe, significant improvement in material costs, and higher quality with fewer write-downs.
Q: How are you addressing the challenges in the HoReCa sector, particularly in Germany?
A: We are focusing on maintaining a strong product mix and stepping out of low-margin volume contracts. Additionally, we are working on operational excellence and staying close to our customers.
Q: What are your expectations for consumer confidence and its impact on future consumption?
A: Consumer confidence has improved during the quarter, which is a positive sign for increased consumption in the future. However, it is still at low levels compared to historical data.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
