CEO statement
Increased investments for long-term growth
Although 2011 was somewhat weaker for Duni than the previous year in terms of sales, our main area, Professional, increased its sales measured at fixed exchange rates. At the same time, major investments were carried out to create conditions for future profitable growth.
Net sales amounted to SEK 3,807 m and the operating profit was SEK 404 m. Adjusted for exchange rate movements, net sales fell marginally by 0.8%, and income by 4.1%. The development reflects continued growth within the Professional business area, while the Retail and Tissue business areas lost sales during the year. However, profitability was maintained at satisfactory levels within all business areas thanks to continuous efficiency improvement work as well as price increases to compensate for higher costs for input materials.
Continued success within Professional
Within the Professional business area, the investments that have been made are beginning to yield results. Central Europe – Duni's largest market – enjoyed stable growth, as did northern Europe. Duni also demonstrated strong growth in Eastern Europe, particularly Russia, as well as parts of Southern Europe such as Italy and Spain, albeit from relatively low sales levels. It is also pleasing to report that the work on increasing the share of premium products has been successful, at the same time as packaging for the take-away market continued to enjoy growth during the year on most markets. The strategy of investments in all of these growth areas remains firmly in place.
As far as customers are concerned, we are witnessing structural changes within the restaurant industry, with chains that operate under a common brand growing faster than the market in general. This trend favors Duni's sales of customized concepts and, during the year, projects were initiated with a number of new customers in the sector.
Despite Professional's positive sales trend, operating income weakened to SEK 357 (384) m, mainly due to investments for increased growth. The operating margin reached 12.9% (13.8%).
The Retail business area's sales during the year were negatively affected by the loss of a major private label customer. Otherwise, sales were stable and Duni increased its market shares during the year in the UK and Benelux. Operating income was SEK 21 (32) m, entailing an operating margin of 3.4% (4.6%).
It is important that we increase the availability of our products to the consumer and market our brand in complementary distribution channels. Efforts focused on sales to end users took a step forward in 2011 when Duni opened its own web shop in Sweden, in addition to the web shop in Germany which has been operated by a third party for just over a year. In addition, towards the end of the year Duni commenced cooperation with a company which focuses on home party sales on the Swedish market.
The Tissue business area increased its deliveries internally, whereas external sales at the same time fell due to weaker demand within the hygiene products sector. We have also worked on broadening our external customer base and are now in the final phase of the qualification process for a couple of new customer contracts in which deliveries are expected to begin in 2012.
Successful projects were carried out during the year to increase efficiency and optimize production within Tissue. As a consequence, costs fell in 2011 and the positive effects are expected to carry over into 2012. Tissue's operating income increased thanks to improved efficiency as well as some price increases, and amounted to SEK 25 (18) m, entailing an operating margin of 5.9% (3.7%).
Investments in profitable growth
During 2011, Duni focused on measures to promote long-term profitable growth, and this work will continue to be a key theme going forward. Duni intensified its work on increasing sales on a number of prioritized growth markets in Eastern and Southern Europe. We have built up a new organization in Russia, strengthened our presence in Southern Europe – especially Italy – and have worked on developing sales platforms on new growth markets.
Duni's investment in new channels – as for example e-commerce – is long-term and will be further developed during 2012.
In the shorter term, however, perhaps the greatest potential is to be found on Duni's main markets. On those markets, over 80% of all tablecoverings used by restaurants and catering firms are made of textile. This is a market worth approx. SEK 15 billion, and many players on the market are seeking alternatives. Over the past few years, Duni has invested major resources in developing a new, unique material which matches linen in terms of both appearance and feel. A significant share of our capital expenditures have been devoted to this project, which was finalized end of 2011. The result is a revolutionary new tablecovering material – Evolin® – which combines the experience of the linen tablecovering with the advantages provided by single-use solutions. Evolin, which is Duni's largest launch in 25 years, will appeal to a market on which, until now, we have not been able to offer a truly satisfactory alternative, and which is many times greater than the market we currently cultivate.
Simultaneously with these efforts, we are continuing to further enhance efficiency in the Company through investments in more efficient production equipment, logistics, and systems. Among other things, during 2011 Duni bought back the premises in Germany, which gives us flexibility for further increasing efficiency within logistics. Towards the end of last year, we initiated a project to trim our costs even further. The project involves rationalization in the production in Poland, as well as a general improvement in organizational efficiency. In total, the measures are expected to generate a saving of SEK 25 m, with the full effect achieved during Q4, 2012.
Strong position
Duni is carrying out an activity program to increase growth and improve profitability. The introduction this spring of a more market-oriented organization to enhance focus on and resources for growth in the Company constitutes a step in this direction.
Thanks to these initiatives, combined with stable cash flows and a strong balance sheet, the Company is well-equipped for advancing its market positions, and for meeting a tougher economic climate. Our position as market leader within premium products, and our in-depth knowledge of materials and markets, constitute a stable foundation for Duni's future, and are important success factors for the launching of our revolutionary material, Evolin. We are facing an exciting 2012, with favorable conditions for continued successes to the benefit of our customers, employees, and shareholders.
Malmö, March 2012
Fredrik von Oelreich
President and CEO
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