Note 3 – Segment reporting

Accounting principles

Operating segments

Company management has established operating segments based on the information which is addressed by the strategic decision-making group and used for making strategic decisions. The steering committee constitutes the Group Management which decides on the allocation of resources within the Group and evaluates the results of operations. The strategic decision-making group addresses and evaluates operations based on lines of business, or operating segments, to which the same risks and opportunities apply-. Sales between the business areas take place on market terms.

As of January 1, 2021, the two former tube segments Duni and BioPak will be reported as full business areas. They have a clear responsibility, and each business area will have full responsibility for its respective value chain. The change from 2020 did not change the external segment reporting. Sales and operating results are divided into Duni and BioPak. Business Area Managers are responsible for their entire business areas, including cash flow. Marketing also takes place in each business area. The Sales Directors for each region report directly to the Group CEO. Staff functions are “HR & Sustainability” (which during the year changed its name to People & Culture and Sustainability), “Strategic Development, IT and Communication” and “Group Finance, Mergers & Acquisitions”. All of production will be in the Duni business area. Logistics and other support functions will largely be shared by the business areas, and costs will be allocated with a weighted ratio based on sales and indirect costs per segment.

Duni business area: stands for what the Group’s traditional associations: innovative solutions for the table setting, mainly napkins, tablecloths and candles. The business area’s products and services are sold under the Duni brand. Its customers are primarily hotels and restaurants, the HoReCa market, with sales largely made via wholesalers, but grocery retail chains are also a key customer group, along with other channels such as various types of specialty stores.

BioPak business area: offers environmentally sound concepts for meal packaging and serving products for applications including take-away, ready-to-eat meals, and various types of catering. The business area’s customers are various types of restaurants with take-away concepts and companies that are active in the health care and care sectors. Stores and other food producers are also a major customer group. The segment’s products and services are currently sold under both the Duni and BioPak brands but the goal is for the segment to primarily represent the BioPak brand.

Organizational structure

Products are sold via a consolidated commercial organization divided into six regions. Each region is responsible for local sales and marketing of both brands, Duni and BioPak, to all customers.

The regions are:

– NorthEast Northern and Eastern Europe including Russia.

– Central: Germany, Austria and Switzerland

– West: The Netherlands, Belgium, Luxemburg, the UK and Ireland

– South: France, Spain and Italy.

– Rest of World: All sales outside Europe with Australia accounting for over 50%, New Zealand and Thailand each at 10–15% and Singapore at just over 5%.

– Other Sales: External sales of tissue and airlaid materials from the Skåpafors factory and external sales of finance and accounting services from the finance function in Poznan are included in the Duni segment.

The Group also has a central marketing department responsible for branding strategy, marketing communications, product development and innovation. Group-wide functions are largely shared by the business areas and the expenses for these are allocated with a weighted ratio based on sales and indirect costs for each business area, Duni and BioPak.

Group management, which is the highest executive and decision-making body, decides on the allocation of resources within the Group and evaluates the results of operations. Group Management manages the performance of the business through the business areas on the basis of sales and operating income after shared costs have been allocated to each business areas.

The Group has a vertically integrated business model for its paper-based products, such as napkins and table covers. This means that the entire production and delivery chain is owned and controlled by the Group, from material manufacture and concept development to conversion and distribution. Because in-house-produced napkins and table covers fall under the Duni segment, this segment is responsible for all expenses for production and conversion. By contrast, the BioPak segment’s products are largely produced by external production units. There is a large procurement organization here, and it is a major part of the business.

Revenue recognition

Revenue includes the fair value of what has been, or will be, received for sold goods in the Group’s operating activities. Revenue is recognized exclusive of value added tax, returns and discounts and after elimination of intra-Group sales. Duni Group also has service revenue in the form of sales of financial and administrative services from the Group’s accounting center. This revenue is not of a substantial amount and is unallocated as part of revenue in the income statement.

Revenue is recognized when control over the goods is transferred, which occurs when the goods are delivered to the customer or wholesaler and there are not any unfulfilled obligations that could impact approval of the goods. Delivery occurs when the goods have been transported to the specific location, the risk of obsolete or lost goods has been transferred to the customer or wholesaler and they have accepted the goods in accordance with the contract, the deadline for complaints against the contract has expired or there is objective evidence that all criteria for acceptance have been met.

Revenue from customer contracts is divided into different categories. Duni Group has identified each segment as two different category types. Within these, sales by region and by product group are specified in order to reflect the nature of the sales. The Group’s goods and services are transferred at the same time, and income is received in the same month as the goods are delivered to the customer or the service is rendered.

Significant estimates and judgments

Breakdown by segment

The operating segments use shared IT solutions and logistics. When recognizing the shared assets by operating segment, they have been allocated based on a weighting of each operating segment’s business volume and share of indirect costs; this is deemed to constitute a reasonable basis for allocation since the utilization of the asset by each operating segment is proven. Corresponding allocations have also been made when allocating Group-wide expenses.

With the implementation of IFRS, allocation of the Group’s goodwill items has taken place through allocation ratios. In addition, goodwill on acquisition has been allocated to the cash-generating units and operating segments based on a judgment of which units will benefit from the synergies, etc. created by the business combination. Part of the goodwill comprises SEK 1,199 million for the old organization before Duni Group was listed, and this is allocated to the Duni segment. The remaining goodwill is goodwill on acquisition that arose when various companies were acquired. These companies have been allocated to a segment based on what products they sell. The companies that manufacture napkins have been allocated to the Duni segment. More detailed disclosures on the allocation of goodwill can be found in Note 21 – Intangible assets.

However, interest income and interest expenses are not allocated per segment since they are affected by measures taken by the central treasury function, which manages the Group’s cash liquidity.

Returned goods

In those cases where products are sold with volume discounts and the customers are entitled to return defective products, the sales revenues are recognized based on the price stated in the sales contract, net of estimated volume discounts and returns at the time of the sale. Accumulated experience is used to assess and make provision for discounts and returns. The assessment of volume discounts is based on expected annual purchases. Revenue is recognized only to the extent it is highly probable that no substantial reversal will occur. A liability is recognized for expected volume discounts in relation to sales until the balance sheet date. Given that the magnitude of returns has been stable in the past years, it is highly probable that there will not be any substantial reversal of recognized revenue. The validity of customer agreements, entitlement to discounts, customer bonuses and returns, and the estimated quantity of returns or customer bonuses is reassessed at each balance sheet date. No financial component is deemed to be established since the sale takes place with an average credit period of 45 days, which is in accordance with market practice. Returned goods are recognized as their gross amounts in the balance sheet. Estimated returned goods are recognized as a provision and the cost of sold goods with respect to the recognized returned goods increases inventories.