PJL-22

Tissue is part of the food service concept at Duni

One of the biggest and best known producers of table napkins, Duni has in recent years worked hard to reposition the company as a food service provider. Non-core businesses have been sold off while a new line of products is being rolled out, taking advantage of the company’s depth of knowledge in both the paper and plastic sides of the food service business. President and CEO Bengt Engström explains where Duni is now and where it is going.

Hugh O’Brian


Bengt Engström, 51 years old, has been CEO and president of Duni since last year. He joined the company in 2001 after many years with the white goods supplier, Whirlpool, where he had been President of Whirlpool Europe, Middle East and Africa. In addition to running Duni he is also a board member on another company owned by EQT, the Swedish private equity investment company which owns Duni.

Perini Journal recently visited him at Duni’s unassuming corporate headquarters in Stockholm. In a wide ranging interview, he discussed numerous issues including the present focus of the company, the ownership question, new product developments and the outlook for future growth.


PJL: HOW DO YOU DESCRIBE DUNI TODAY AND HOW HAVE YOU DEVELOPED THE COMPANY IN RECENT YEARS?

Engström: Today, I think we are best described as a food service company. We are aiming to be a solution provider for every eating or drinking occasion. This can be at a restaurant, hospital, at home or on an airplane, as well as take out-meals. From an organizational point, we have three business lines. These lines are Professional including food service for the HoReCa branch; Travel, which is mainly airlines; and Retail. We are primarily operating in three different regions: Europe, North America and Asia.

The company has gone through an enormous transformation in recent years. Duni had been a very fragmented company, but now we have worked hard to focus more clearly on the three areas of food service, travel and retail. We have also sold off non-core operations and at the same time sought to extract synergies from our three business lines to help them learn from each other. This is very important as we generate new products to fuel our growth for the future.


PJL: WHAT IS THE SPLIT BETWEEN PRODUCTS BASED ON PAPER AND THOSE BASED ON PLASTIC?

Engström: We are traditionally best known for paper or tissue products, but plastics are today growing faster for us and this is part of our growth strategy. One can roughly say that in terms of raw material, paper now accounts for about 60% and plastics are about 40%. We think our strength lies in adding value by combining the two types of materials for our customers. We have vast experience in the tissue side as well as the plastic side and we are leveraging that knowledge to offer customers unique solutions by combining plastic and tissue. By offering complete solutions we give value to the customer as well as simplicity with One-Stop Shopping.


PJL: CAN YOU GIVE SOME EXAMPLES OF THAT CONCEPT?

Engström: If you look at the travel side of the business, we are about four times bigger than our largest competitor.

Essentially all of the world’s major airlines are among our customers. At some of the biggest airlines, as part of our one-stop shopping efforts, we are providing everything on the meal tray besides the food. This includes the napkins, cutlery, coffee cups, drink glasses, serving dishes and even things like salt, pepper and toothpicks, which we buy from someone else but supply to the airlines as part of the package. Also we supply many of the comfort items such as pillows, blankets, headrest covers, toilet articles and amenities bags to almost all of the big airlines. We have a very strong position in this sector as our nearest competitors are a number of small companies in the trading business. Unfortunately the airline business has been in a very difficult situation in recent years but things seem to getting better and we feel that this year will be an improvement over 2003.


PJL: WHAT IS THE RELATIVE IMPORTANCE OF THE THREE DIVISIONS OF THE COMPANY?

Engström: In general terms we can say that about 60% of our business is the professional/HoReCa sector which includes food service and home meal replacements. The rest of the business is split between the other two sectors, with travel making up about 20% and retail accounting for 20%.

Our real strength as a company is with the traditional restaurants and hotels and our major stronghold is in Germany and the Nordic countries. We are also growing in America as well. As the traditional restaurants in Europe are now developing rapidly towards more casual dining, we are working with new products and solutions to grow there. We want to be able to have solutions for all occasions, from high-level catering through to very casual paper plates, plastic glasses, or even eating out of a paper or plastic box. A very important growth segment for us is what is called Home Meal Replacement, where you are buying your meal pre-cooked from a supermarket or a deli. We offer numerous packaging solutions for this sector which give a good function, as well as excellent design and appearance.


PJL: WHERE ARE DUNI’S MAIN PRODUCTION FACILITIES LOCATED?

Engström: On the tissue paper side we have two airlaid lines and one wet laid tissue mill in the Dalsland area of Sweden. Total capacity is around 65,000 tons per year with the majority being wet laid of about 40,000 tons. Air laid is approximately 35% or 22,000 tons.

We had a second tissue mill in Sweden at Kisa, which we sold to LPC in 2002. This mill was more focused on specialty tissue for absorbent hygiene products. Thus it did not fit our core business of table top settings so we sold it to allow us to concentrate on the core business. We also had two candle production facilities in Sweden and Finland which we sold for the same reasons.

For converting we have plants in Sweden, Germany, Poland, USA and Thailand making the traditional Duni products such as table napkins, table covers and place mats. For our plastics products, we are operating plants in Sweden, Belgium, the USA and Thailand.


PJL: WHAT IS THE THINKING BEHIND THE NEW SOFTER TISSUE NAPKINS THAT YOU ARE INTRODUCING?

Engström: In 2003 we prepared a lot of new solutions that we are now launching on the market. One of these examples is the new softer tissue for our napkins. This is similar to the developments we have seen in kitchen rolls and toilet paper, where softer is perceived as higher quality. We thought we should bring it to the napkin market as well.

At our tissue mill in Skåpafors we have made significant investments, including installation of a new calender and rewinding equipment, to get better bulk and softness. It just feels better and is perceived as a better product. So far it has been very well appreciated by the customers.


PJL: WHAT ABOUT AIRLAID TISSUE VERSUS CONVENTIONAL WET LAID TISSUE?

Engström: We have developed our brand Dunilin airlaid product, which we have positioned as a replacement for linen. We are also now introducing a softer airlaid napkin which you roll around the cutlery. This is especially applicable to the airlines, where they roll the eating utensils in the napkin. So Dunilin can be used instead of linen napkins, with the customer getting textile-like properties in business class service.

We are also selling this as a HoReCa product where we are taking it from business class on the airline to a business class upscale catering like a prestigious sporting event, such as the Derby in England. The soft airlaid will help us grow in the airline sector, where it is more affordable than the heavier, higher-quality air laid. This is a price sensitive market and we must offer value in our products. The whole point with air laid versus linen is the bigger variety we can provide, instead of simply white like most linen. This is under launch now, and we are certainly not unique with this offering, but we expect it will generate higher volumes. This is another example of taking knowledge that we have to move into new growth areas.


PJL: HOW DO YOU SEE THE COMPETITION OF BRANDS VERSUS PRIVATE LABELS?

Engström: We want to work mainly with our brands, as we have a high level of brand equity in the Duni name as well as the other brands we are producing. We, of course, are providing private label products if customers are asking for them but this is only about 10% of our business. So we would like to provide private label in the context of brands, where we work with retail customers to provide them with a complete program of products, both private label and brands.


PJL: SOUTHERN EUROPE IS A WHITE SPOT ON THE MAP. ARE YOU WORKING TO IMPROVE YOUR COVERAGE THERE?

Engström: We are clearly taking a more active approach to Southern Europe, an area that had never really been a focus for us before. In the past we had mainly worked with agents there and had not tried to customize our products for that market. For example, in napkins we had mainly made 1 or 3-ply products, while Southern Europe is mostly 2-ply. Now we are conforming more to the market and making products for specific regions to help us move out of the North Europe zone. We have historically been focused on an area north of the line from Paris to Munich, but that is changing. To do this we are now setting up our own operations and starting this year we will be much more active there. We are also working more closely with the big French retailers which will help us get into Iberia as well and even Italy.


PJL: HOW HAS THE CORPORATE PERFORMANCE OF DUNI BEEN IN RECENT YEARS?

Engström: Our operating result improved very well from 2001 to 2002, while 2003 is slightly down from 2002 due to the tough year for the airlines with the Iraq war, as well as problems with the German economy. Overall we are improving as a company.

If you look at revenues, we are doing well at growing in our core areas. We have sold off several non-core businesses, and the underlying, continuing businesses are quite stable for us. Revenues will be just under SEK 6 billion or about USD 800 million for 2003, which we feel is very good.


PJL: CAN YOU COMMENT ON THE EQT OWNERSHIP ARRANGEMENT AND STRATEGY?

Engström: As is well known, EQT bought 50% of Duni in 1997 and the remaining 50% in 2001. The group tends to hold properties for 4-7 years and the idea is to transform the company into something better and then change ownership. EQT is a very professional private equity company, giving us very good support from our board. They are all professionals with excellent experience in a wide range of areas.

The idea is to use their knowledge and experience in an active manner to improve companies. So the people in the board are actively providing advice on their own specialty areas, based on our specific requirements. With private equity, you typically take an underutilized division of a company or a mature company that cannot prosper in the current environment and try to improve it. If you take a company off the stock market you can really do a major reshuffling like we have been doing at Duni, without pressure for quarterly earnings. We have gone through a big cost reduction process, and an asset reduction process in working capital, and now we are in a growth phase. There is a lot of focus on new markets, new concepts, new products. So we are absolutely in a growth phase, which is the objective.


PJL: WHAT ADVANTAGES DO YOU HAVE VERSUS YOUR COMPETITORS?

Engström: Generally I don’t like to comment on the competitors as far as our position versus theirs in the market. Actually, it is quite hard to comment on our competitors because they are such a disperse group of companies. On the paper side, there are some very big guys such as SCA and GP, which are enormous companies that control the whole chain, including their own forests. Then we also have the small specialized companies such as Caspari, IHR and Paper & Design for the table napkins. We are in the middle of the range. On the plastics side it is fairly similar, as we are about the same size as Huhtamaki, but much bigger than a lot of local players.

So you can look at our position in two ways: A negative person might say we are stuck in the middle but a positive person would say we have a fantastic position to grow from. I feel we have a very solid middle position that does provide us a good growth opportunity. We are certainly more nimble than the giant multinationals with their big overhead and bureaucracy. We are only 3,600 employees in a very decentralized group with a flat management organization.


PJL: HOW DO YOU SEE YOUR ROLE IN DUNI TODAY?

Engström: The management team which I lead is focused on putting this ship in good shape. That is our immediate job. Then it is up to the owners to decide what they want to do. Specifically, I see four tasks that we are trying to accomplish, which are: improving profits, cleaning up the balance sheet, generating growth of the business, and changing the image or perception of the company.

In the past few years we have improved our costs dramatically and also improved cash flow. Now we are prepared for growth and if we get the whole story together we can improve our perception in the capital markets. We want to position ourselves as a food service company and we are making good progress in that direction. •

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