AAK Q1 2025 slides: operating profit rises 1% despite volume decline

Introduction & Market Context

AAK AB reported a modest 1% increase in operating profit for Q1 2025, despite a 10% decline in volumes, according to the company’s quarterly presentation released on April 24, 2025. The specialty oils and fats producer highlighted its resilience in challenging market conditions, though investors appeared unconvinced as the stock fell 3.3% to SEK 263.4 following the announcement.

The company attributed the volume decline primarily to the Hillside divestment and lower sales of non-specialty oils, while emphasizing improvements in operating profit per kilo, which increased by 11% year-over-year. This reflects AAK’s continued focus on higher-margin specialty products amid soft end markets across its business segments.

As shown in the following key facts and figures, AAK maintains a strong market position with a global footprint and solid financial performance:

Quarterly Performance Highlights

AAK’s Q1 2025 financial results showed mixed performance across key metrics. While the company achieved operating profit growth, volumes declined and cash flow turned negative, raising concerns among investors.

The financial highlights for the quarter include:

Operating profit reached SEK 1,261 million, up 1% year-over-year, while volumes declined to 503,000 MT, representing a 10% decrease (or 5% excluding the Hillside divestment). Operating profit per kilo improved to SEK 2.51, an 11% increase from the previous year. However, operating cash flow was negative at SEK 492 million, driven by higher raw material prices and restructuring of sourcing agreements.

The company maintained a strong balance sheet with net debt/EBITDA at 0.43 and return on capital employed (ROCE) at 22.0%.

Performance varied across AAK’s business segments:

The Food Ingredients segment, which represents AAK’s largest business area, saw volumes decline by 7% year-over-year to 297,000 MT, while operating profit remained flat at SEK 769 million. Operating profit per kilo improved by 7% to SEK 2.59, reflecting a more favorable product mix.

The Chocolate & Confectionery Fats segment demonstrated resilience with operating profit increasing by 4% to SEK 523 million, despite a 4% volume decline. Operating profit per kilo improved by 8% to SEK 4.09, highlighting the strong margins in this business area.

The Technical Products & Feed segment experienced a slight 1% volume decline with operating profit decreasing by 2% to SEK 52 million. Operating profit per kilo remained stable at SEK 0.67.

Strategic Initiatives

In response to challenging market conditions, AAK announced a significant cost optimization program expected to generate annual savings of approximately SEK 300 million. The initiative includes a workforce reduction of up to 5%, with estimated one-time restructuring costs between SEK 200-250 million.

This cost performance focus builds on the company’s ongoing transformation from a decentralized and unaligned organization to one that is decentralized but increasingly aligned. The company believes this approach will deliver improved operational efficiency while maintaining local market responsiveness.

As illustrated in the following slide, AAK has been making steady progress in this strategic transformation:

The company’s global production footprint has shown broad-based improvement in EBIT per kilo, though variances still exist among its 19 production sites. AAK continues to focus on optimizing its manufacturing operations to drive further margin expansion.

AAK’s approach to global trade dynamics emphasizes its decentralized model with localized production, which the company believes reduces complexity, lead times, and cross-border disruption risks. While some raw materials like palm oil must still be sourced internationally and may be subject to tariffs, AAK stated it does not anticipate any material impact on margins, as potential tariffs will be managed similar to raw material price fluctuations.

Forward-Looking Statements

Despite near-term challenges, AAK reaffirmed its 2030 aspiration to be "the first choice for plant-based oil ingredients" with a target of achieving profitability of SEK 3+ per kilo. The company aims to grow operating profit by an average of 10% per year over time.

The following slide outlines AAK’s long-term aspirations and financial targets:

AAK’s capital allocation strategy focuses on three main areas: investing for growth, strategic acquisitions, and returns to shareholders. The company maintains a dividend policy of 30-50% of net profit and has potential for distribution of excess cash. AAK noted it could leverage up to a net debt/EBITDA ratio of less than 3x to support transformational acquisitions and investments.

The company’s raw material strategy involves a diversified mix of plant-based oils and fats, with palm oil representing the largest component at 49% of the total mix. This diversification helps AAK manage supply chain risks and respond to changing market conditions.

CEO Johan Wessmann expressed confidence in AAK’s long-term potential despite current market challenges, stating, "We delivered a resilient operating profit despite somewhat soft end markets." He emphasized the company’s focus on what it can control: "optimizing mix, enhancing operational efficiency, and driving productivity improvements across the organization."

While AAK’s presentation highlighted its resilience and strategic initiatives, investors appeared concerned about declining volumes and negative cash flow. The company’s ability to execute its cost optimization program while maintaining growth momentum will be crucial for regaining investor confidence in the coming quarters.

Full presentation:

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