CEO’s comments

A STRONGER AND MORE SUSTAINABLE DUNI

In 2016, Duni took important initiatives within the prioritized areas of growth, attractiveness and efficiency. A significant acquisition in Southeast Asia strengthens the Group’s position on growth markets outside Europe. Investments in increasing capacity at the Rexcell paper mill and implementing methods to understand customer needs in an improved manner, are also creating value both in the short and long-term.

Overall, we find ourselves in an extremely exciting period in which megatrends such as globalization, urbanization and, not least, digitalization, are having an ever stronger impact on our market. Customer power is increasing, as are demands regarding improved lead times, quality, and product availability. Awareness surrounding food consumption and its impact on the environment is also becoming increasingly noticeable and affects our industry, which must be prepared to meet a new generation with modern methods and innovations.

MARKET DEVELOPMENT IN 2016

Duni’s sales are divided between the HoReCa market and the consumer market. Our competitiveness, and thereby also our market share, is generally higher in those markets that are located closer to our converting plants in Germany and Poland. On markets at a greater distance from our production sites, our market share is lower but also has a clearer premium position.

Central Europe has experienced weak growth in recent years. Our market has generally followed GNP growth in each country, resulting in annual industry growth of a few percent. At the same time, we have witnessed significantly stronger growth in southern Europe and on our non-European markets. Growth is driven primarily by a higher pace of investment and increased tourism volumes.

Duni’s sales in 2016 amounted to SEK 4,271 m, representing an increase of 1.7% compared with the preceding year. Excluding acquisitions and currency effects, organic growth was 1.2%. Thus, we fell short of our target of 5% organic growth, but the trend on the main markets follows the market in general. On other markets, we have strengthened our market shares throughout. A factor which has stood out during the year has been the weakened pound sterling and its adverse impact on both sales and operating income.

Following an initially weak start to the year, the business area Table Top grew by 1.5%, while Consumer declined compared with last year. Business area Meal Service, which delivers concepts for take-away and ready meals, continued to outstrip general market growth. Business area New Markets, which is responsible for sales outside Europe, also demonstrated growth. It is a positive sign that we have a flexible business model capable of responding quickly to market changes.

NEW STRUCTURE IN TABLE TOP

One of the effects of the weaker market growth in Central Europe is that Duni’s largest business area, Table Top, failed to achieve its sales targets. Following a weak start to the year, several significant measures were taken aimed at strengthening the position on the central European market. A new organization is in place and new methods have been developed to better identify customer structure and needs. The end to the year shows that these measures have delivered the desired effect.

INCREASED PRESENCE IN SOUTH-EAST ASIA

Another important event in 2016 was that Duni became the majority shareholder in Terinex Siam, a leading manufacturer of primarily napkins in Thailand. This is our second acquisition in Southeast Asia, which is a market of great strategic importance to us. Although several Asian markets are considered immature when consindering Duni’s premium solutions, we see a rapid growth in the establishment of new hotels and restaurants. Through the acquisition, we are strengthening our product offering and geographic presence, thereby paving the way for long-term growth in the region. We are also improving efficiency in our sales channels on neighboring markets, such as Australia.

A UNIQUE PAPER MILL

Duni’s market offering is based on the unique materials developed in-house which are produced at the Rexcell paper mill. During the year, Rexcell completed an extensive restructuring program that has been underway since 2013. The program has involved, among other things, an end to the production of hygiene product materials and relocation of all remaining production to the plant unit in Skåpafors. After three years of restructuring, we are now focusing on development. Therefore, in 2015 a decision was taken to invest SEK 110 m in our paper machinery with the aim of increasing capacity and also preparing the way for future materials development. Upgrades were carried out incrementally in 2016 with good results. It is our clear ambition to remain the leader in material development, with an obvious focus on more sustainable paper production.

MATERIALS OF THE FUTURE

We are constantly reviewing how we can modify our materials and create greater customer value. During 2016, among other things we have continued to develop our environmentally profiled ecoecho® range. Demand for these types of materials is increasing continuously and it is also here that we are concentrating most of our development resources. Future relevance and competitiveness are strongly linked to the ability to develop products in line with the times.

IMPROVED LOGISTICS AND CUSTOMER SERVICE

Being an attractive partner for our customers means, of course, that the entire chain must be functional. Towards the end of 2016, we failed to live up to our own expectations, and those of our customers, when it comes to delivery performance. As soon as this became apparent, we set in place measures to ensure our logistics flows. We have decided to invest in new warehousing capacity at the central warehouse in Germany and we are increasing the pace of digitalization and development of our customer service function. As result of the measures, the service level will be improved in 2017.

EMPLOYEES – OUR MOST IMPORTANT RESOURCE

Success in attracting and retaining skilled employees constitutes a further prerequisite for continued growth. Three new companies have been acquired in recent years and we are now more than 2,200 employees spread over approximately 30 geographic markets. My aim is that everyone will regard Duni as a great company to work for, irrespective of country or position in the Company. In order to achieve this, a few years ago a more structured HR process are now available to all employees in Duni Group. Talent development programs and internal management training courses are other important features that are being widely implemented. We are also actively engaged in encouraging employees to take on new challenges in the Company.

To summarize, 2016 was a year in which extensive structural improvements and continued expansion outside Europe set the tone. We have strengthened our focus by concentrating on customer improvement activities and the development of sustainable and innovative product solutions. In addition, we are continuing to focus on organic growth, complemented by value-enhancing acquisitions. It is in this manner that we create an imroved Duni long-term.

Malmö, March 2017

Thomas Gustafsson
President and CEO