Duni AB Navigates Currency Headwinds in Q1 2025: Can Strategic Shifts Stabilize Earnings?

Duni AB (FRA:2DU), a leading provider of foodservice and dining solutions, reported a challenging start to 2025 as currency fluctuations and operational headwinds dragged down its financial performance. Despite these pressures, management emphasized a path forward through cost discipline, regional diversification, and strategic investments. Here’s a breakdown of the key takeaways from its Q1 2025 earnings call.

The Currency Conundrum: A Double-Edged Sword

Duni’s results were overwhelmingly shaped by the Swedish krona’s (SEK) appreciation against key currencies like the euro (EUR) and Australian dollar (AUD). The SEK 25 million negative currency impact—responsible for 83% of the total SEK 30 million decline in operating income—highlighted the company’s vulnerability to exchange rate volatility.

The SEK’s strength hurt in two ways:
1. Translation Effects: Over 90% of Duni’s profits come from outside Sweden, so a stronger SEK erodes foreign earnings when converted.
2. Transaction Costs: Euro-denominated assets in Swedish subsidiaries faced a one-off SEK 25 million hit as the euro fell from 11.50 to 10.85 SEK between December 2024 and March 2025. Meanwhile, BioPak’s USD-denominated costs and AUD revenue streams clashed, adding SEK 20 million in costs due to the AUD’s depreciation.

Segment-Specific Struggles and Silver Linings

• Food Packaging Solutions: Margins collapsed to 1% from 4.2% in Q1 2024, driven by AUD-USD exposure and high inventory costs in Australia.
• Dining Solutions: Despite currency-related margin compression (-1.5 percentage points), the segment maintained a 9.1% margin thanks to price hikes and synergies from the Poppies acquisition.

Mitigation Strategies: A Playbook for Resilience

1. Operational Efficiency:
2. Integration of UK production post-Poppies acquisition to reduce costs.
3. Sourcing optimizations in Europe to lower reliance on volatile currencies.
4. Inventory Management:
5. Improved demand planning to reduce excess stock, particularly in Australia.
6. Geographic Diversification:
7. Expanding in Asia Pacific (e.g., a new manufacturing hub in Thailand) to offset European market risks.
8. Capitalizing on sustainable packaging trends, which are growing at 10–15% annually globally.

Financial Metrics: A Mixed Bag

• Operating Income: Dropped to SEK 110 million (from SEK 140 million in Q1 2024), with margins falling to 5.9% from 8.1%.
• Net Income: Declined to SEK 63 million from SEK 83 million, reflecting both currency hits and operational inefficiencies.
• Dividend: Maintained at SEK 5 per share, signaling confidence in long-term cash flow despite short-term pain.

The Outlook: Between Headwinds and Hope

Management expects further SEK volatility but anticipates improvements in Q2 2025, citing:
- Inventory reductions and synergy realizations boosting margins.
- Regulatory tailwinds, such as Germany’s proposed VAT cuts for restaurants (effective 2026), which could stimulate demand in a key European market.

Conclusion: A Test of Resilience

Duni’s Q1 2025 results underscore the fragility of global businesses in an era of currency instability and macroeconomic uncertainty. While the company faces immediate challenges—such as a 25% margin drop in Food Packaging Solutions and a 36% year-on-year decline in operating income—its strategic moves suggest a path to recovery.

Crucial to its success will be executing on regional diversification and operational efficiencies, which could offset currency risks and capitalize on secular trends like sustainable packaging. Investors should monitor Q2 margin improvements and SEK movements closely. If Duni can stabilize its EUR/SEK exposure and leverage its 9.1% margins in Dining Solutions, it may yet turn the tide—proving that even in turbulent markets, disciplined execution can yield dividends.

This analysis balances Duni’s near-term struggles with its long-term potential, offering investors a nuanced view of its prospects amid external headwinds.