Focus on increased growth
In 2010, the market trend turned positive in most parts of Europe, a factor which favored Duni. During the second half of the year in particular, Professional enjoyed increased growth with continued high margins. Retail lost sales, but increased its income on a very tough market, while Tissue experienced yet another difficult year.
Duni's sales amounted to SEK 3 971 m and operating income to SEK 435 m. The decline in sales is primarily attributable to the strong Swedish krona. In addition, raw materials costs increased sharply during the year, which had a negative impact on income. However, it was largely possible to offset the effects thanks to sound cost control, increased capacity utilization, and price increases. At fixed exchange rates, Duni's net sales and income increased by 0.3% and 11.2% respectively, which can be considered satisfactory in light of the overall market situation.
During 2010, we increased our focus on growth, with increased investments in prioritized markets as well as in product development.
Higher volumes in Professional
The Professional business area reported a healthy development for the year with increased volumes. During the year, we were forced to carry out price increases to compensate for steep increases in the costs of input materials. We can conclude that Duni increased its sales and gained market shares within the premium segment on most markets, both from competitors and due to the move away from table linen products. The strategy for all regions remains firm and the work to establish platforms for future growth is continuing, primarily in Eastern Europe, but also in the Middle East.
Within the Professional business area, growth is taking place in particular within Food Solutions, i.e. packaging for take-away. An increasing number of restaurant chains are springing up with clear concepts in response to the trend among today's customers, who demand good food fast and at reasonable prices. Duni is focusing on this growth segment by - in close cooperation with the restaurant chains - producing customized take-away packaging solutions that represent an important part of the offering provided by these types of restaurants.
Increased volumes, sound cost control, and price increases during the second half of the year resulted in an operating income of SEK 384 m. At fixed exchange rates, this represents an increase of 6.7%.
The weak market development within the non-food category in grocery retail, and the trade's continued focus on private labels, have been challenging for the Retail business area. Sales declined compared with last year, but income continued to improve. Thanks to lower costs combined with an improved customer and product mix, the operating margin strengthened to 4.6% and operating income amounted to SEK 32 m. This means that we have largely achieved the initial target of 5%.
In order to increase accessibility for consumers, Duni has taken its first steps within Internet sales. Our first efforts in the area are taking place in Germany, and the development there so far has been positive.
2010 was a turbulent year for the Tissue business area, with a weaker product mix and increasing input materials prices, which due to a time lag in price increases could not be offset in full. In particular, profitability within hygiene products developed negatively during the year. Measures have been initiated to rectify this.
In June, a fire broke out at one of the paper mills, resulting in damage to several critical parts of the operation and a loss of approximately 2 months' production. The negative impact on income was basically entirely covered by insurance compensation.
The biofuel boiler in which Duni invested in Skåpafors was brought into commission in August 2010, resulting in lower and more foreseeable energy costs, as well as a reduction in the use of fossil fuel.
Tissue's operating income improved somewhat and reached SEK 18 m, but is still not at a satisfactory level.
Investments in growth
Duni has a growth target of 5%, which is ambitious on a market that is growing by 2-3%. In light of this target and with a strong balance sheet, Duni increased its investments in the development of new premium products. This is a long-term project which will continue in 2011.
The product development work has intensified and several new projects are underway to produce even better qualities and to broaden the product range. As announced during the year, we have commenced major investments at our paper mill in order to develop the next generation of premium materials. At the same time, we are investing in the development of new concepts, particularly within the take-away area, where we have established an organization which offers innovative solutions to key customers.
Moreover, we increase our market investments in order to reach a higher rate of expansion on existing markets, primarily in Italy, Spain, and England. At the same time, we carry out a geographic expansion in steps on promising markets, such as Eastern Europe and the Middle East. Among other things, during the year we established a sales office in Moscow and we work intensively to further develop a sales and distribution network.
Focus on core values
During the year, Duni carried out a project concerning our core values which is aimed at strengthening Duni's culture and making our organization more efficient. In an internal process, some 100 managers and employees identified a number of principles for the operations in order to provide a specific Duni content to our core values. We also identified certain principles which, we agreed, need to be strengthened in order to achieve improved results within areas such as organizational efficiency, customer satisfaction, and profitable growth. The work is proceeding and I am convinced that it will contribute to creating an even more successful Duni.
Favorable conditions for growth
Despite potential problems on the horizon in certain European countries, we expect a positive market trend. This will create conditions for continued growth. At the same time, raw materials prices are at a historically high level, which can become challenging for Duni.
Our focus going forward will be on higher growth within our main area, Professional. With the efforts now being made, we perceive favorable opportunities to grow both geographically as well as within new products and concepts. There is no doubt that Duni has the financial strenghts and the position required to lead the development on the market.
Malmö, March 2011
Fredrik von Oelreich
President and CEO
Fredrik von Oelreich, President and CEO of Duni
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