Note 38 – Business acquisitions

BioPak Pty Ltd

On October 15, 2018, Duni acquired 75% of the shares and votes in BioPak Pty Ltd in Australia. BioPak is a leading supplier of sustainable disposable packaging for the food service industry in Australia and New Zealand. The company was established in 2006 and has 26 employees. Its sales are approximately SEK 385 m and its operating margin is well in line with Duni’s financial targets. BioPak boasts a strong rate of growth and annual historic growth of over 20%. BioPak Pty Ltd has three subsidiaries and was consolidated in the New Markets business area as of mid October.

For the period from October 15 to December 31, 2018, BioPak contributed SEK 115 m to the Group’s net sales and SEK 1.4 m in net income after tax and amortization of customer relationships. If BioPak had been consolidated as of January 1, 2018, Duni’s income statement would show additional revenue of SEK 334 m along with SEK 8.4 m in net income after tax including amortization of customer relationships.

The consideration was approximately SEK 411 m and is accommodated within the current loan facility. The purchase was charged to Duni’s net debt in the amount of SEK 430 m. Acquisition costs of SEK 9.3 m were charged to Q4 under the Other expenses line item. In accordance with RFR2, the Parent Company recognizes these expenses as financial assets.

There is a put option and a call option both parties can opt to exercise within two years amounting to approximately SEK 24 m for an additional 5% of the shares. Duni also has an obligation to acquire the remaining 20% of the shares within five years.One of the minority shareholders of BioPak Pty Ltd thus has a put option during the period from October 2023 to April 2024, whereby the redemption price is determined by the future income. As a consequence of the option, Duni will recognize the acquisition of the shares in Kindtoo Ltd as if the company had been fully consolidated, and will recognize a liability equivalent to the discounted expected redemption price of the option, which is calculated using a profit multiple at par with that used in the initial transaction. The liability is recognized as a derivative instrument and included in the Other long-term liabilities line item. This liability to minority shareholders was measured at SEK 336 m at year-end. The value of this option will change depending on the company’s growth and profitability in the coming five years.

The difference between the cash consideration paid, the value of the options and the net assets acquired will essentially consist of goodwill, trademarks and customer relationships, with no part of these acquisition-related items estimated to be deductible for tax purposes.The goodwill is primarily attributable to Duni gaining a strong position in sustainable disposable packaging in the Australian and New Zealand markets. The acquisition analysis is still preliminary and the distribution between intangible assets and goodwill is still being calculated.

Kindtoo Ltd, Biopac UK Ltd

In conjunction with the acquisition of BioPak Pty Ltd in Australia, Duni AB sold its shares in Kindtoo Limited to BioPak Pty Ltd at market value on October 15, 2018. The intention is for the company to be a part of the BioPak group from a strictly organizational standpoint but continue to belong to and be consolidated in the Meal Service business area in organizational terms because the company operates in the European market.

On February 8, 2018, Duni acquired 75% of the shares and votes in Kindtoo Ltd, which is marketed under the name Biopac UK Ltd. Biopac is a leading supplier of sustainable disposable packaging for food and beverages in the UK. The company was consolidated in the Meal Service business area as of February.

Biopac UK Ltd was established in 2002 and has 12 employees. They specialize in food packaging and service products made from sustainable materials. Based on its capacity to customize food and beverage packaging according to the customer’s brand, with a clear focus on sustainable, environmentally-sound products, Biopac has gained market share in the UK. The company has annual sales of approximately SEK 55 m, with an operating margin well in line with Duni’s Meal Service business area.

For the period from February 1 to December 31, 2018, BioPak UK Ltd contributed SEK 70 m to the Group’s net sales and SEK 3 m in net income after tax and amortization of customer relationships. If BioPak UK Ltd had been consolidated as of January 1, 2018, Duni’s income statement would show additional revenue of SEK 3.9 m along with SEK 0.3 m in net income after tax including amortization of customer relationships.

The consideration of SEK 23 m was paid in cash in conjunction with the takeover. The purchase was charged to Duni’s net debt in the amount of SEK 26 m, which is accommodated within the current loan facility. The acquisition costs were charged to income for the year under “Other operating expenses” and totaled SEK 2.1 m. In accordance with RFR2, the Parent Company recognizes these expenses as financial assets.

Duni has an obligation to acquire the remaining 25 % of the shares. The minority owners of Kindtoo Ltd have a put option during the period from August 2020 to March 2021, whereby the redemption price is determined by the future income. As a consequence of the option, Duni recognizes the acquisition of the shares in Kindtoo Ltd as if the company had been fully consolidated, and recognizes a liability equivalent to the discounted expected redemption price of the options. The difference between the liability for the option and the non-controlling interest to which the option is related will be recognized directly against equity.

The fair value of 100% of the net assets amounts to SEK 30 m. Intangible assets primarily comprise customer contracts. The goodwill is related to Duni’s access to an existing distribution model in the capital region and Meal Service gaining a footing in the UK market. Duni has not previously been established with these types of products in this market. No part of the reported goodwill or intangible assets is expected to be deductible in conjunction with income taxation.

Sharp Serviettes

On May 3, 2017, Duni acquired a total of 80% of the shares of New Zealand company United Corporation Limited, which is traded under the name Sharp Serviettes. Sharp Serviettes is a leading manufacturer and supplier of napkins as well as food hygiene and serving products in New Zealand. The company is consolidated in the New Markets business area as from and including May 2017.

Sharp Serviettes has 45 employees and has its production unit in western Auckland with distribution across New Zealand. The company is a leading supplier of table setting products and was also already a Duni product distributor before the acquisition. Sharp Serviettes is a well-reputed partner in the HoReCa industry and retail sector in New Zealand. The company offers a wide range of quality products that can be adapted to customer requirements. Sharp Serviettes values short lead times and manufactures to order, to maintain high delivery performance.

The purchase price of SEK 59 m was paid in cash in connection with the takeover, and SEK 47 m of the purchase price was for the shares in the company, while SEK 12 m was to redeem loans. The purchase was charged to Duni’s net debt in the amount of SEK 59 m, which is accommodated within the current loan facility. The acquisition costs were charged to the 2017 income for the year under “Other operating expenses” and totaled SEK 1.7 m. In accordance with RFR2, the Parent Company recognizes these expenses as financial assets.

Duni has an obligation to acquire the remaining 20 % of the shares. The minority owners of United Corporation Limited have a put option for the April-June period in 2019, 2020 and 2021. In the event that the option is exercised, the consideration will be based on the Company’s normalized average financial performance for the two closed financial years preceding the date the option is exercised. As a result of the option, Duni recognizes a non-controlling interest and allocates the interest’s share of the income to the interest. The Group also recognizes a liability corresponding to the discounted expected redemption price for the options with elimination of the non-controlling interest attributable to the option. The difference between the liability for the option and the non-controlling interest to which the option related is recognized directly in equity and separated from other changes in equity.

The fair value of 100 % of the net assets amounts to SEK 59 m. Intangible assets primarily comprise customer contracts. Goodwill corresponds to the synergy effects within purchasing and access to another production unit and thus a stronger platform for Duni in Asia and Oceania. No part of the reported goodwill or intangible assets is expected to be deductible in conjunction with income taxation.

For the period from May 1 to December 31, 2017, Sharp Serviettes contributed SEK 39 m to the Group’s net sales and SEK 2 m in net income after tax and amortization of customer relationships. If Sharp Serviettes had been consolidated as of January 1, 2017, Duni’s income statement would show additional revenue of SEK 17 m along with SEK 1 m in net income after tax including amortization of customer relationships.