Earnings call transcript: AAK Q2 2025 sees profit rise, stock dips

AAK AB reported its second-quarter earnings for 2025, revealing a 16% increase in operating profit at fixed exchange rates despite a 2% decline in volumes. The company’s stock fell 0.56% in the latest trading session to $25.97, reflecting mixed market reactions to the results amid challenging market conditions. According to InvestingPro analysis, AAK is currently trading near its 52-week low of $25.20, suggesting potential value opportunity based on the platform’s Fair Value calculations.

Key Takeaways

• Operating profit rose by 16% at fixed exchange rates.
• Volumes declined by 2% in Q2 2025.
• Stock price decreased by 0.56% following the earnings release.
• The company launched a cost-saving program targeting SEK 300 million in annual savings.
• AAK remains committed to achieving SEK 3+ per kilo profitability by 2030.

Company Performance

AAK AB demonstrated resilience in Q2 2025 with a 16% increase in operating profit at fixed exchange rates, despite a 2% drop in volumes. The company has been focusing on specialty solutions and optimizing its product portfolio. However, softer demand in the bakery and chocolate segments, coupled with challenging market conditions, has impacted overall performance.

Financial Highlights

• Operating profit: Increased by 16% at fixed exchange rates.
• Operating cash flow: SEK 524 million.
• Return on capital employed: 21.9% (excluding restructuring costs).
• Net debt to EBITDA ratio: 0.63.

Outlook & Guidance

AAK has outlined its commitment to achieving a profitability target of SEK 3+ per kilo by 2030. The company plans to drive volume growth through commercial execution and continue its optimization programs. AAK is also open to mergers and acquisitions, expecting further benefits from its ongoing "Deep Dive" and other optimization initiatives.

Executive Commentary

CEO Johan Westman expressed a "prudently optimistic" outlook for AAK’s long-term potential, emphasizing the company’s commitment to driving earnings growth. He highlighted the importance of the company’s culture program in shaping AAK’s future operational strategies.

Risks and Challenges

• High inflation and softer demand in key segments may affect revenue growth.
• Market volatility, particularly in cocoa prices, could impact cost structures.
• The planned headcount reduction and restructuring may pose operational risks.
• Tariff impacts and geopolitical tensions could disrupt supply chains.
• The need to balance decentralization with increased alignment poses strategic challenges.

Q&A

During the earnings call, analysts questioned AAK’s strategic decisions regarding contract pricing and its approach to centralization versus decentralization. The company also addressed concerns about potential tariff impacts and the challenges in the Food Ingredients and Chocolate segments.

Full transcript - AAK AB (AAK) Q2 2025:

Conference Operator: Welcome to the AAK Q2 2025 report presentation. For the first part of the presentation, participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing 5 on their telephone keypad. Now I will hand the conference over to the speakers, CEO Johan Westman and CFO Tomas Bergendahl. Please go ahead.

Johan Westman, CEO, AAK: Thank you. Good morning everyone. Thank you for joining us and thank you for your interest in with me here today to review our second quarter results. As you heard is Tomas Bergendahl, our CFO. Please turn to slide number two. This is what we will cover today: quarterly highlights, selected events, business and financial update, followed by some concluding remarks from myself. The presentation is scheduled for around 45 minutes in total including a Q&A session at the end. With that, please turn to slide number three. Just a reminder, this presentation includes forward-looking statements that come with risks and uncertainties. These are our views on future events and financial performance, but actual results may differ, so please keep that in mind when going over the material. Now over to page or slide number four.

Starting with quarterly highlights, let’s look at the overview of our financial performance or performance in the second quarter of 2025. As you have seen in the report published earlier this morning, we delivered strong operating profit growth despite a slight decline in volumes. Operating profit increased by 16% at fixed exchange rates. This excludes the earlier communicated Hillside divestment as well as the SEK 250 million restructuring cost that we took in the quarter related to our Fit to Win program. Tomas will talk more about that later in this presentation. Volumes declined by 2% in the second quarter compared to the same period last year. This excludes the Hillside divestment. As a reminder, the Hillside divestment refers to last year’s sale of our North American food service business.

This business represented around 5% of AAK AB’s total volumes and is therefore weighing in on the reported year-over-year volume development in the second quarter. This will continue and will persist throughout 2025. Turning to the underlying volume, while performance fell short of our long-term aspiration, it was relatively resilient given the current market conditions. Overall volumes declined by 2% with a mixed performance across categories. As an example, Dairy delivered good growth, whereas volumes in Bakery and Chocolate and Confectionery Fats declined. The profitability was strong, however, with operating profit per kilo reaching SEK 2.37 in the quarter. This represented an increase of 8% or even 18% at fixed exchange rates and excluding the restructuring cost on the Hillside divestment.

I earlier talked about this improvement was partly driven by continued internal optimization, including productivity and procurement enhancements at our oil refining plants, and partly by better portfolio and price management with continued higher sales of specialty solutions. We’ve also seen favorable market conditions for cocoa butter alternatives as well as a positive product mix, which further supported our second quarter profitability. If we turn to cash flow, operating cash flow was positive at SEK 524 million as the impact of raw material price changes tapered off. Net debt to EBITDA stands at 0.63 following the annual dividend payment in quarter two, while return on capital employed reached a solid 21.9% excluding the restructuring cost.

All in all, a strong second quarter result with underlying absolute growth in operating profit of 6%, building on a 27% increase in the same period last year, including a significant headwind from negative translation effects regarding FX due to the appreciation of the Swedish krona. With that, please turn to next page. A few selected events to highlight before we move on. First of all, our Annual General Meeting was held on May 8th in Malmö, Sweden, with shareholders representing 75% of the total votes. A strong turnout with thoughtful questions from investors both ahead of and during the meeting. We highly value the dialogue with our engaged shareholders and will continue to welcome further constructive exchange going forward. Secondly, we recently published our Principal Adverse Impacts (PAI) report for 2025.

It outlines AAK’s ESG performance through a set of standardized metrics, helping to increase transparency and making it easier for investors to assess our progress. This marks the third year in a row that we are releasing the PAI report following positive feedback from the investment community. The report is also part of our broader effort to help investors better understand our overall sustainability approach. The full report is available on our website. I’m also pleased to announce that Neshe Tagma has been appointed President, Sourcing, Trading and Sustainability. Neshe brings extensive international experience from the agri-food sector, having held senior roles across sourcing, trading and general management in markets such as France, Turkey, Romania, Belgium and the Netherlands. She succeeds Tim Stephenson, who is retiring after a long and successful career with AAK.

We all thank Tim for his outstanding contributions and wish him all the best in his well-earned retirement. Lastly, I want to briefly address the fire that occurred at our Khalsam site on the night of June 19. The incident affected two external tanks at the fatty acid plant, which is used for non-food production. Fortunately, the fire was quickly extinguished and the situation was very well managed. No one was injured and the damage was limited to the insulation on the tanks. All other operations at the site continued as normal and there was no material impact on our financial performance for the second quarter. Any disruption to volumes was limited and an investigation into the root cause is currently ongoing. Please turn to the next page to review our performance per business area on page or slide 6. We head into Food Ingredients.

Volumes excluding Hillside were down 3% year on year, mainly due to lower sales in bakery. Including Hillside, volumes declined 11% year on year. Despite the volume decline, the business delivered a strong margin performance. Operating profit per kilo increased to SEK 2.47, up from SEK 2.30 in the second quarter last year, again excluding the Hillside divestment. This came despite the currency headwind of SEK 0.23. At fixed exchange rates and excluding Hillside, operating profit per kilo grew by 18%. In absolute terms, operating profit excluding Hillside increased by 4% to SEK 764 million despite a negative currency translation effect of SEK 72 million. At fixed exchange rates and excluding the Hillside divestment, operating profit increased by 14% year on year. Overall, despite the softer volumes in bakery, the business area continued to perform well through a strong margin delivery.

If we turn to the next page, we go into Chocolate and Confectionery Fats. Volumes in the quarter were down 7% year on year following a strong 14% growth in the second quarter of last year. This decline was primarily driven by Asia, the Middle East and Africa, and Europe, while the performance in the Americas was roughly flat. Within the Americas, we had a really good performance, a good growth in Latin America. Operating profit per kilo was strong, increasing to SEK 3.95 despite the currency headwind of SEK 0.32 per kilo. At fixed exchange rates, operating profit per kilo increased by 20%. In summary, the business in Chocolate and Confectionery Fats continues to demonstrate resilience and strong profitability even in a challenging market environment where chocolate consumption remains subdued due to the impact of high cocoa prices. Next slide please.

Technical Products and Feed volumes grew by 18% compared to the same period in 2024. This was driven by higher sales in feed, while technical products remained flat. The strong year-over-year performance or growth reflects low comparison due to a production disruption last year. It was last year that was low. Call it a bit more back to normal. Operating profit per kilo reached SEK 0.37. Absolute operating profit came in at SEK 25 million. With that, we have now covered the three business areas and I will hand it over to Tomas to provide an update on the optimization programs as well as further details on the second quarter financial results. Over to you, Tomas.

Tomas Bergendahl, CFO, AAK: Thank you, Johan. Good morning, everyone. Please turn to Slide 9. As many of you recall, we presented our updated 2030 aspiration at last year’s Capital Markets Day in Kholzum with a clear focus of reaching profitability of 3+ SEK per kilo and outgrowing the underlying market on volumes. The roadmap to achieve this remains largely unchanged and is centered around six key programs: 1. Production Process Optimization, 2. Portfolio and Price Management, 3. Procurement Excellence, and 4. Cash to Grow. In addition, to ensure we stay on track to deliver on our aspiration, we also introduced two additional programs at the CMD: number five, Cost Performance, and number six, Commercial & Innovation Excellence, as announced. In connection with the Q1 2025 results, we have launched the Cost Performance program called Fit to Win.

Before diving into Fit to Win, I’d like to provide a brief update on the current status of the broader program portfolio, starting with Production Process Optimization, or Deep Dives as we call them internally. We’re now in the final stages of completing Deep Dive number nine, which is in China, and we now cover a total of 73% of the current production volume. The local team in China, together with the Central Expertise team, expects to present their findings and conclusions by middle August. The next step will be to develop a prioritization matrix to rank all of AAK sites and identify where there’s still potential for cost and capacity optimization.

Based on this, we’ll decide which site to focus on next, which could mean revisiting a site that has already gone through the Deep Dive process to focus on identified but not yet realized opportunities, or moving on to a new site, depending upon the estimated potential. We expect this to be a reiterative process. As previously communicated, the Portfolio and Price Management program has successfully concluded its project phase, and while efforts to optimize our portfolio mix and pricing will continue, the tools and processes have now been implemented across all relevant sites, and the focus is now to maintain the achieved structure and drive results. Procurement is now in the second phase of its rollout. In June, we moved accountability for the operational performance of procurement to the decentralized regional teams while continuing to provide global support through the development of category management for key spend areas.

Recent milestones on this program include rolling out our Global Supplier Code of Conduct and aligning our systems for the Source to Pay process. Next, we will complete the implementation of our Procurement Spend Analysis tool to further strengthen decision-making performance and follow-up. The Cash to Grow initiative is now entering completion from a project perspective, with the most recent workshop held in China in June of this year. We expect to finalize the project phase during the second half of 2025. By then, all major sites will have been reached and key initiatives launched to structurally improve working capital. That said, the work continues at local levels to realize the identified actions as effective. Working capital management remains an ongoing priority, and we have yet to see the full impact of the program materialize in our numbers.

Commercial & Innovation Excellence: At the start of 2025, we began rolling out our global CRM system as part of the Commercial Excellence Journey. With one unified tool, we’re connecting application experts with local sales and customer innovation teams. This is improving both the speed and quality of our customer interactions, helping them to innovate and drive efficiencies with AAK Solutions. The feedback from customers supports our strategy of building a more differentiated specialty-based portfolio that as a result enables our customers to make their products better. Please turn to the next slide. Turning to our Cost Performance program, I will provide a brief update on our Fit to Win program. I am very pleased to report that we’re on track to deliver on our target of approximately SEK 300 million annual savings for 2025.

Specifically, we expect, as previously announced, to realize around SEK 50 million of the SEK 300 million, with the full run rate of the SEK 300 million anticipated by mid-2026. A small part of the SEK 50 million was reflected in our second quarter results, with a larger portion impact expected over the remainder of the year. As previously communicated, this process is being driven by a combination of organizational simplification, efficiency improvements, and targeted initiatives across the business, as well as a headcount reduction of up to 5% in the second quarter. We recognized a one-time restructuring cost of SEK 250 million related to the program, which is in the upper range of what we guided during the introduction of the program in April. This has been booked under group functions and reflects our commitment to make the necessary changes to position AAK for long term success.

As illustrated on the left side of the slide, the transformation is centered around moving towards a future that is more aligned and performance driven while maintaining our decentralized model. This journey will enable us to realize both cost efficiency and capacity improvements. Next slide please. Operating cash flow in the quarter amounted to a positive SEK 524 million. Working capital increased slightly and had a negative impact on cash flow in the quarter. Accounts receivable increased and were impacted by higher sales and an increase in overdues. Inventory increased slightly in the quarter as well, mainly driven by a mix effect impacted by higher levels of palm inventory. Overall inventory levels by volume were down. Account payables increased in the quarter, partly driven by timing of sourcing activities. Excluding these activities, account payables still increased in the quarter. Paid taxes increased, largely attributable to timing effects between quarters.

Other working capital was negative by close to SEK 350 million, mainly driven by changes in accrued and prepaid expenses, partly related to taxes and lease costs. CapEx amounted to SEK 376 million in the quarter, comprised as in previous quarters, mainly of investments related to maintenance, productivity improvements, capacity increases and debottlenecking. For the full year we expect CapEx of around SEK 1.25 billion. Free cash flows you can see amounted to a positive SEK 157 million. Please turn to the next slide. Return on capital employed is in line with the last few quarters following the continued strong development of operating profit and the level of capital employed that remained fairly stable throughout the quarter. This resulted in a return on capital employed of 21.9% adjusted for the one time restructuring cost and at par with Q1 excluding or including items affecting comparability, the IAC.

The SEK 250 million return on capital employed was 20.9%. Please turn to the next slide. The net debt to EBITDA ratio increased to 0.63 excluding the IAC, up from 0.43 at the end of Q1. The increase was mainly driven by the SEK 1.3 billion dividend paid in May of this year. The ratio remains at a level that provides us with continued stability and financial flexibility, including the IAC of SEK 250 million. The net debt to EBITDA ratio was 0.66. With that, I will hand it back to Johan for some concluding remarks before we open up for questions. Johan, go ahead.

Johan Westman, CEO, AAK: Thank you Tomas for those details and clarifications to our performance. Now just to wrap it up on the last page before we move into Q and A, our operating profit increased by 16% at fixed exchange rates excluding the Hillside divestment and the one-time restructuring costs related to our Fit to Win program that Tomas just explained to us. This was delivered despite a 2% decline in volumes, also excluding the impact from Hillside. Profitability remains solid with operating profit per kilo excluding the restructuring cost reaching SEK 2.3. Even in a more challenging market environment where global trade dynamics and softer demand continue to impact parts of our business, we are seeing clear resilience in our financials as we look ahead. We remain prudently optimistic about AAK’s long-term potential. We are committed to delivering on our 2030 aspiration.

At the same time, we continue to focus on driving volume growth through stronger commercial execution and deeper customer engagement. All in all, a strong quarter from AAK. With this, we hand it over to the operator and we are happy to take questions from the audience.

Conference Operator: If you wish to ask a question, please dial key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial 6 on your telephone keypad. The next question comes from Johan. Fredrik from SEB, please go ahead.

Yes, good morning Ivan and Tomas. Thank you for taking my questions. A first one on the volume development in Food Ingredients. It’s a difficult question, I know, but do you have any feel for the underlying market volume development in the segment during the quarter? To what extent do you think that your volume decline reflects market softness versus sort of company specific factors?

Johan Westman, CEO, AAK: Thank you, Johan. If we dig into Food Ingredients, I think firstly Food Ingredients, as you know, is built up by many sub-segments and this is again where we see the strength of AAK. We stand on many legs. It’s bakery, it’s dairy, it’s infant nutrition, special nutrition, health-related ingredients, plant-based ingredients, et cetera. That is all within Food Ingredients. When we look at the bigger volume markets, it’s around bakery and dairy. Bakery was down as you saw, while the performance in dairy delivered growth. When we click a level down on that, it’s partly driven by market and partly driven by our own decisions within bakery. We know that we already last year, and we have commented this before, pretty much said no to some contracts due to the profitability of those contracts and that impacts volume negatively.

It’s partly driven by our own actions to focus on the high value-added products in our portfolio, as we have commented, aligned with strategy and partly driven by softer market conditions. Obviously, there is a bit of competition. You win and you lose over time. We are absolutely committed to turning bakery into long-term growth.

Tomas Bergendahl, CFO, AAK: Okay, thank you.

I know in Q1 you quantified the sort of decline to 50, 50. That is, half of it was attributed to a soft end market and 50% of talking about the decline in bakery here was towards your shift towards more value-added specialty solutions. Could you say that the development in Q2 is fairly similar to that of Q1?

Johan Westman, CEO, AAK: Yes, it is. It’s fairly similar.

Okay, got it, thank you. The second or maybe third at this point, if I may, on CCF volumes declined by 7% against a tough comp, of course, and Q2 being typically a seasonally smaller quarter for chocolate. Could you give us any color on what you’re seeing in terms of your customer behavior? Is the decline primarily driven by a weaker consumer demand, or is it inventory destocking from customers, or something else? What are you seeing?

There are a few things in the mix and I think everything you mentioned is there. We still see, of course, in the total market, we still see or have had high inflation in this market due to higher cocoa prices and other ingredients also for that matter. There’s no doubt that we have seen inflation hitting the shelf in retail and obviously impacting consumer and consumer behaviors. There’s quite a lot of dynamics in that. We have a broad portfolio. What we see from a customer lens is that we see increased activity due to this and to make sure our customers focus on how can they best manage this.

That is both focus and cost avoidance, which can lead to shifting to our type of ingredients, but also being focused on the cost and price of those ingredients, of course, but also seeing increased innovation and reformulation into trying to drive categories within Chocolate and Confectionery Fats. There’s quite a lot of moving parts here where we again focus on being there for our customers, really focusing on how we can improve their products, help them reformulate and or offer a cost efficient solution while also protecting and optimizing our portfolio. I think you have all of that within this mix. Dynamic market volumes are down. You can see that in parts of the segment. At the same time, AAK AB has a broad portfolio and also we are relevant in many markets as we mentioned here, a bit softer in Europe and U.S.

and EMEA, but on the other hand strong in Latin America where we have a very strong position.

Thank you for your answer, Johan. I’ll stop there and get back in the queue.

Thank you.

Thank you.

Conference Operator: The next question comes from Benjamin Walstedt from ABGSC. Please go ahead.

Good morning. Perhaps following on Johan’s first question there, your volume development improved compared to the previous quarter in Food Ingredients? I assume Easter, although perhaps not an event that’s celebrated globally, of course gives fewer delivery days. For example, would you say it’s a sign of better underlying markets or too early to say.

Johan Westman, CEO, AAK: I think I need to go with it. Too early to say. To some extent I often remind about business to business as our demand signal is to production of food or Chocolate and Confectionery Fats or Technical Products and Feed. Right. We deliver to factories, so yes, the number of days we can produce and deliver has an impact to us just like many others where Easter fall has a bit of an impact. Remember, our deliveries linked to these festivities or volume up or volume down is always earlier. Our deliveries for Christmas come much earlier than Christmas because it is delivering to a factory that will produce for Christmas and likewise for Easter. It has an impact. It’s not as easy to say that with Easter in Q2 or Q1 or one day more or less in production is the main explanation.

I think we need to look at that in more detail. I would say it’s a bit dynamic in Q1 and it’s a bit more st.

All right, thank you. You also spoke about the Deep Dives Task Force presenting a prioritization matrix in August to move forward with Deep Dives, as I understood it. I was wondering, have you found incremental learnings while doing the Deep Dives?

That means all plants will be visited.

Do you think, or should we expect limited sort of incremental impact from these Deep Dives from here?

Thank you, Tomas.

Tomas Bergendahl, CFO, AAK: Thank you for the question. I think of course we started with the larger units, going for the biggest production volumes first and then rolling down the different facilities. I expect this program to continue to deliver throughout 2025 and 2026. The matrix is there basically as a prioritization to not just continue with the remaining 10 sites, but take a look back as we mentioned before as well. When we do one of these Deep Dives, we identify 20, 30, 40, 50 different initiatives, but not something that we can focus all at once on. We pick the ones with the highest impact. With this matrix, the review is to go back to also look at the ones where we’ve been to see if we have bigger potential in a unit with already identified actions not fulfilled than we do with going into a unit where we haven’t been.

That’s the prioritization to make the good choice, if you will. I do expect it to continue to generate good positive gains throughout 2025 and 2026. We’ll take a look from there.

Johan Westman, CEO, AAK: There may be to add to it. We come from an AAK which was very decentralized and with local operations reporting into local P&L sheets, which we still have. With these programs we are, one, finding opportunities, but we’re also building a muscle around operational excellence. We are at the moment investing in that both from a new person leading our global operations team. We are building best practices across the globe. We’re moving into a more structured, continuous improvement way of working that many companies have had before us. We came from a very decentralized structure. Back to this picture of alignment, I also expected to continue to deliver value, but maybe more as a continuous improvement value creation.

Tomas Bergendahl, CFO, AAK: This also of course then improves quality at the site and service levels.

Johan Westman, CEO, AAK: Right.

Tomas Bergendahl, CFO, AAK: It is not just finding cost reductions, it is also doing better in production as a whole.

One follow up, if I may, at the CMD you spoke about, I believe it was a 50% improvement in EBITDA per kilo from doing these Deep Dives. Would you dare sort of guess or estimate the improvement potential from here through 2026, for example?

I would say that was the calculation on the to date, if you will, at the CMD to get us from the 1 to 2 SEK per kilo. Looking forward, as I said, I think my belief is that we’ll see continuous benefits and contribution, but I’m not going to put a number on it. That’s part of the matrix evaluation that we’re doing now. It’s also a bit of a fluid situation. Of course, we don’t know exactly what we’re going to find when we go into a new site or go back to look at identified opportunities that need to be evaluated. Positive contribution but difficult to put a number on it.

Johan Westman, CEO, AAK: Absolutely. I mean our formula or the ingredient list, as we have said before, to reach our SEK 3 per kilo aspiration, it is linked to continued focus on innovation and portfolio management. It’s absolutely also continued optimization of costs, including procurement, including the Fit to Win and including continued Deep Dive activities. All of them are included in the ingredient list for SEK 3 per kilo.

Perfect. Thank you very much.

Conference Operator: The next question comes from Matthew Yates from Bank of America. Please go ahead.

Hey, good morning gentlemen. I’d like to talk a little bit about the chocolate business and unpack the numbers in the quarter because your volumes are arguably broadly down in line with the end market and you talk about a favorable environment for CBEs and we can obviously see in your margin that I’m guessing mix is beneficial. Can you help me understand a couple of things? Why is the environment leading you to capture value but not necessarily volume and of the sort of incremental profit growth which is very, very impressive? How much of that comes from the broader group wide measures that Tomas was outlining around all the initiatives and productivity and costs etc versus what’s actually happening in the chocolate market and what you’re doing for customers around innovation and reformulation. If that makes sense.

Thank you so much.

Johan Westman, CEO, AAK: It makes a lot of sense and includes the full call. It is strapped in and execution for our business area Chocolate and Confectionery Fats. Very, very good. I’ll try to break it down as far as we can. When we say favorable, yes, we are relating that to high inflation. Cocoa prices are high. Our portfolio is in essence targeting a replacement of cocoa butter one way or the other over time and it has been, so we have the cocoa butter equivalents but also our filling fats, coating fats, etc. have over time been introduced into the chocolate and confectionery market replacing cocoa butter. With a sharp increase, that is what we mean by favorable market condition, meaning there is a need for our customers to manage costs looking at their portfolio.

Also a need, as I mentioned before, to focus on innovation, finding new products to put on the shelf in retail where they need support from a strong company like AAK to see what can be done with ingredients, what can we do to create these new products and what is the formulation needed for those to be successful. Back to your question. Why are our volumes not better then? We still live in a competitive environment with others also being able to deliver and the volumes are absolute per se. What we do is that we see a positive development in the ask for, for example, CBEs, cocoa butter equivalents, but we also have a broad portfolio next to the cocoa butter equivalents with filling fats and coating fats, etc.

We pretty much follow the chocolate market then with opportunities to perform better than that as we’ve seen over time. We were up 40% last year, now lower. It is also an optimization play within AAK. Back to what we have commented broadly, we look at the total portfolio within Chocolate and Confectionery Fats. We try to strategize around where we want to win, where we are bidding for a deal to win it and where we might leave a deal if the prices are not where we like them to be in terms of our portfolio mix. This is a mix of a lot of tactical, strategic, and business decisions at the end of the day. We can be slightly better or lower than the market in a given quarter.

We are always, always trying to focus on getting the best out of our portfolio and optimize our usage of our assets, if you will. That’s how we also try to take advantage of the market conditions that we see, if that makes sense.

Tomas Bergendahl, CFO, AAK: My view is still it’s a very price competitive market out there, right? The gains that we have made, I see those as going back to the programs that we just outlined and the continued development of those including Portfolio and Price Management, but specifically also what we do in Procurement, what we do in the Deep Dives and so forth. The program focus is very important to our continued profitability improvement. We’ve also seen a bit of a shift in the market, at least from our perspective. We don’t have full insight, but we see that some of the larger producers maybe are struggling a bit more than the regional ones on the big global brands, that due to inflation and so forth. That is a move that we’re also following very closely and we are adjusting to that as a supplier in the market as well.

Thanks.

When you look into the second half, obviously customers don’t reformulate or launch new products instantly. When you think about the sort of activity levels and the extent to which that’s in your order book or backlog, have we already seen the benefit of this cocoa inflation play out in your numbers, or is there still more to come through over the coming quarters?

Johan Westman, CEO, AAK: Obviously the situation, if you will, is here. Everyone knows about cocoa prices being sharply up, and although coming down a bit, still high at a historical level. That is here. Have we seen the end of reformulation, the end of innovation with new? I don’t think so. There’s always going to be, just like we are optimizing our portfolio and optimizing the way we deliver our customers, the big global companies as well as local companies in Chocolate and Confectionery. I believe we’ll continue to use innovation, product development to drive the market and drive consumption, if you will. That opens up opportunities, and at the same time with these cost levels there is still a benefit to look at the cost per ingredient list, and with that comes opportunities.

At the same time, as Tomas said, we’re also in a market where there is competition for the absolute volume at the end of the day. I don’t think it’s over with reformulation. No, but you know, how much is there to get question maybe to add to it.

Conference Operator: The next question comes from Setu Sharda from Barclays, please go ahead.

Yeah, hi, good morning. I have three questions. The first one I think has been partially answered, but on the CCF volume outlook, you had -7% in Q2. What was the growth of CCF in that and how much was the impact of the weaker end market, and how would you expect this to evolve in H2? The second question would be on the CBE. Can you talk about the pricing trend in CBE? Your EBIT per kg CCF is up nicely despite volume decline. Are you increasing pricing of CBE given increased demand? Does the pullback in cocoa butter prices have any implication here on the outlook on this front? The third question would be on Food Ingredients, specifically on the Special Nutrition where you continue to see decline. This is somewhat odd to what other ingredient companies are seeing.

There is some growth in infant formula and they have seen some recovery over the past six months on better birth rates in China. Do you think you are losing share over here?

Johan Westman, CEO, AAK: Thank you. I’ll take, since the first question was on CCF, I’ll just add a comment to the question before. Also, when we look ahead, we do have a positive view on chocolate and confectionery indulgence over time in a global perspective. I just want to mention that. Also, back to your questions on the CCE within CCF and CB. There was a decline in CB driven by the end volume in the market. CB did better in relation to that, better than other segments within. With regards to the pricing trend, we do not comment on that. That is things we keep close to our chest. We do try to optimize our portfolio always and be differentiated depending on market and specific products. With regards to special nutrition development, a large portion of our special nutrition is indeed infant nutrition.

There is a dynamic here where we supply both to, call it, non-Chinese players where the volume goes into Europe, the Americas, but a lot of it still goes in to compete in China. There you have competition from international players into China competing with the Chinese local players. We then operate as an ingredient player selling both to the production in Europe and elsewhere and to production in China. We have seen the Chinese players for consumer products to be strong and we’ve also seen that local ingredient players perform well in China. There is a competitive landscape where we lose a bit of market share to international players, if you will, or their share into China and then we compete on the local market. All of that plays into the mix.

Just to follow up, like the cocoa crisis has come down quite a bit. Does this have any implication here on your outlook, like on cocoa butter equivalents?

think it absolutely has an impact. I think what I personally think is the most important piece is that with a bit of relief on the cocoa prices we get a relief on the inflation, if you will. I think that’s positive from a consumption point of view and for that, you know, should be positive for our customers. There is still an opportunity to use our ingredients, which is replacing cocoa butter, but as you know by legislation you can’t replace all of the cocoa butter with alternatives. Cocoa butter will be an important ingredient within the total mix of chocolate and confectionery. If you have a bit of a price relief there, I think that is positive for the cost of goods with our customers and with that helping them to perform in retail, if you will. I think that should be, if anything, positive.

I don’t think we have reached anywhere close to the point where it wouldn’t be a cost efficient play to use cocoa butter equivalents and other ingredients to offset the price of cocoa.

Thank you. I will be back in the queue.

Thank.

Tomas Bergendahl, CFO, AAK: You.

Conference Operator: The next question comes from Priya Patel from UBS. Please go ahead.

Hi, thanks for taking my question. I just had one. In the press release you mentioned that you’re actively working to initiate volume growth through stronger commercial execution and deeper customer engagement. Could you please walk us through the details of this and when we could see an impact on volumes from this?

Johan Westman, CEO, AAK: Thank you. Great question. The way we operate in AAK is that we’re a global company, we have a fantastic organization, a decentralized structure with passionate colleagues operating, you know, we really operate locally if you will. We have a global play in a few segments, but we absolutely act locally with a decentralized structure and that has a lot of benefits. We have shown that through resilience, through market dynamics disturbances over the last five years if you will, and we have still been able to execute. I think that is a real strength of AAK. It also comes down to how do we then execute tactically and strategically given certain market dynamics.

This is one example where we are now enhancing the capability in the organization to allow the go to market teams to be equipped with better tools, better knowledge if you will, on how to price in the market and how to derive or land into a best optimal play for a local market around a local factory. To take a few examples of that, we are implementing a CRM system to have across the globe the same system dealing with local and global customers and the insights and knowledge and learnings we get from that. That is called equipping the go to market team with better tools than what we’ve had in the past. We’re also trying to educate the go to market teams on how does a factory work. This is linked to the Deep Dives and the optimization plans that we’re running.

It’s not all about the cost and the pricing. It’s about how we load a plant and get leverage over the variable cost given the certain fixed cost structure in a certain plant or a certain market. We’re getting into much more tactical decision making where we maybe in the past have been a bit more operating by a calculation model for pricing if you will, trying to link it more to the cross section or go to market operations, our supply chain to find the best way possible to win volumes that at the end of the day will be accretive to our margin. That hasn’t always been the case. In the past there’s been quite local execution with a bit cost plus type models into our system. In essence, we are strengthening AAK, making better happen in our go to market playbook without going lengthy.

That is what we mean.

Tomas Bergendahl, CFO, AAK: This goes towards, of course, our aspirations faster than the underlying market. This is part of that drive, if you will. Back to your second part of the question.

Johan Westman, CEO, AAK: Last but not least, we’re also investing more now in our commercial development and innovation, both functional area. We are structuring that. We’re building a strength in that organization to get more outside-in insights. We’re launching more products now than we’ve done before, and we continue now to invest more in innovation. That is not something that will have an impact in Q3.

Tomas Bergendahl, CFO, AAK: Right.

Johan Westman, CEO, AAK: Something that again helps drive towards the 2030 aspiration.

Okay, great. Thank you.

Conference Operator: The next question comes from Victor Hansen from DNB Carnegie. Please go ahead.

Hi gentlemen. Victor Ernst and B. Carnegie here. A couple of follow ups to many previous great questions. I’ll start off with a big picture question first. You run out the centralized model, local production in all regions, a model which has benefited you and many other Swedish companies historically. Now you’re talking about becoming more aligned and I’m curious, for instance, you mentioned here a bit more regional activities rather than local, possibly implementing sign offs and larger contracts, etc. My question is how do you want to balance the centralization aspects versus the control aspects?

Johan Westman, CEO, AAK: That’s a great question. This is actually in the heart of what we drive in the company. We are driving a culture program which is about how do we want to operate AAK going forward. We are absolutely clear that we want to keep a decentralized model. In order to maximize how we leverage opportunities in the world, we also see the opportunities of being more aligned on how we tactically execute. For example, running operational excellence. Why wouldn’t we take best practices from different plants that have a similar setup to run them better? That is not about centralizing, that is about sharing best practices and doing what’s best for AAK. Maybe Tomas, you can add a bit to this, but this is absolutely something we work hard on. Keep the decentralization but benefit from our global structure.

Tomas Bergendahl, CFO, AAK: Yeah. To me the answer is very carefully. We’re trying to find that balance. I would say to us and the culture and the company and how we move forward on that journey is, to me, it’s a lot about how we do this, not necessarily where we end up exactly on the decentralized centralized scale, if you will. It’s how we do it where we give the local teams a lot of the sort of support, but they are responsible to come up with the improvements, to drive those actions, to deliver on those actions. There is no transfer of responsibility at any point in this. It’s more of a coaching mentality and bringing from the front the local talent on these items, and putting some structure into it. The absolute responsibility is always with the local teams.

Yeah.

Johan Westman, CEO, AAK: We’re adding a much more focus on the performance culture. It’s holding people accountable, expecting performance, but also enabling that performance with what we said, optimization, better tools, best practices across the globe, but absolutely local execution.

Tomas Bergendahl, CFO, AAK: With my sort of four years in the company, what I’ve never heard in AAK is someone raising their hand and saying, you know what, I don’t know why this is going wrong. It’s not my responsibility. I’ve never heard that. You always hear, yes, it’s our responsibility. Thank you. We’ll take on the best practices, the structure and everything, and we will deliver. I think that’s the aim in my mind, right, to stay with that mentality. Always the local responsibility, never pushing the buck to someone else, but always taking charge.

Okay, perfect. Thanks for that answer. A couple of more questions. We’ve had lots of chocolate questions already, but just a brief follow-up. It seems like the Latin American market has fared better for you, and I was hoping that you could talk a bit about your development here. Did you manage to grow in Latin America, and was it due to your initiatives or more related to the market? Is there anything here that you can use, that you have that is specific for Latin America that you can use to support other regions?

Johan Westman, CEO, AAK: Thank you. Yes, put some more color to it without going into our strategic playbook, if you will, but we have a strong portfolio, first of all, which is a global portfolio for Chocolate and Confectionery Fats. Then it’s about the different local markets and who is there, what kind of customers, what kind of needs. We have a strong setup in Latin America, especially in the southern parts of Latin America, and a strong position and a strong value proposition to our customers. We are performing well over time and we have done really well recently. Yes, we are growing in that part, while as we mentioned, we have seen the volume decline being in other markets. We’ve done well there.

We absolutely cross sharing experiences and what are we executing, what is part of portfolio, what is part of our position, what is part of how we manage our customer base and try to cross leverage that. Part of that customer base is, of course, a global customer base where we have the same customer in Latin America as we have in the U.S. and Europe and Asia. Part of it is also local customers where we learn from how we can execute. Absolutely things to learn from and a strong execution.

Tomas Bergendahl, CFO, AAK: To me this is a great example in AAK of the organization taking the local responsibility and taking charge of their own preconditions in the market and trying to differentiate themselves versus competition. I think that’s where we see the big positive play in Uruguay, in Brazil, and in Argentina.

Johan Westman, CEO, AAK: We have invested, as you know, since some years now. Building on that, we invested in a greenfield plant in Brazil. We have a strong setup in Uruguay, and the combination of the two makes a case strong in that region.

Okay, perfect. Another question from your leverage remains low. Is M&A still your preferred way to allocate capital, and have you made any changes in how you approach M&A in the last couple of years since we haven’t seen that many deals?

Thank you. I think short answer is confirming. Yes, balance sheet is strong. M&A a preferred option. Yes. We haven’t changed our approach. We remain positive to use capital for M&A and we are active in the market. As I said before, there are not that many deals that are up for play in our market. We are active, we are nurturing that, we are active meeting with potential partners for an M&A or a joint venture or a corporation one way or the other. Let’s see what we have. We’re absolutely positive to that, and nothing has changed over the last couple of years.

Tomas Bergendahl, CFO, AAK: More than that, we’re getting more professional and structured in the process, I think. That’s a big difference over the last few years, I would say.

Perfect. A final one for me. Tariffs, you say no tariff effect. I’m wondering, is it already or could it help drive reformulations, and yeah, would that be negative or positive in your eyes?

Johan Westman, CEO, AAK: Obviously difficult to forecast what kind of change would happen. It all depends on where the tariffs land and what impact it would have to certain raw materials. I try to simplify it as much as possible. Number one, what we sell in the U.S., we produce in the U.S., it’s almost all of it, right, and that is the starting point. The raw materials that would potentially get a tariff, that we import, the market has to import them. There is no one-to-one replacement in the U.S., if you will. The whole market, our competitors, will have to import the same type of ingredient with the same tariff. In essence, that would most likely then lead to higher cost for the material coming into the U.S., and it leads to something we need to forward to customers and into retail eventually.

Of course, if you have different tariff levels between different countries from where we source raw materials, it might lead to needing to optimize sourcing more from one country than the other. You start getting into a lot of scenario play, right. We are good at these things. We are well positioned in the way we source, and I think we’re capable to move with this. That is in general why we don’t expect a material impact to our business. We have been dealing with volatile raw material markets for a long time, and we’re used to dealing with that in the food industry. If we then look at reformulate, yeah, there could be.

If certain raw materials are cheaper than others, of course there could be a reformulation play with our customers where they say that, okay, can we reformulate out of this raw material using another ingredient where the cost position would be different. That typically leads to opportunities, and that’s where we are very strong now. It could be that a competitor sits with a better supply chain on a certain raw material than we do. Then it would be negative. In general, I would argue that with our strength around ingredients, the understanding of food and food applications, we typically can benefit from reformulations in any of the food segments.

Okay, thank you, gentlemen. All for me.

Conference Operator: The next question comes from Oscar Lindstrom from Danske Bank. Please go ahead.

Yes, good morning. Two questions from my side. First on pricing, I mean you have seen or said that you have lost some market share potentially in the bakery segment due to what I interpret as mispricing. The overall weak volume that I guess everyone in the market is experiencing is typically a situation where people become a little bit more aggressive on pricing. Should we expect pricing to come down for you and be a negative impact on overall organic growth for you, say in the second half of this year? That’s my first question. Should I go ahead with the second question as well?

Johan Westman, CEO, AAK: Maybe we can take the first question. That is not how we operate. Right. We focus on driving EBIT growth in absolute terms. That’s our number one financial target. With that comes the need for trying to optimize our portfolio, trying to develop our playbook. I wouldn’t call our bakery volume loss due to kind of mispricing or sort of. It’s always a decision we need to make at any given point in time. If we feel that a certain deal that is on the table and the customer is asking for XYZ and there might be a competitor coming in with a low price and we don’t feel that that volume is worth that price, we would say no. Right. Vice versa, in other cases we win it. That is always a day-to-day tactical decision we try to make.

That’s where we’re trying to again improve, improve the way we go to market and improve the tools that we equip our go to market teams with so that we can even be more tactical in that. I wouldn’t call it mispricing, it was active decisions and that’s how we will continue to operate going forward. When we try to win in the market, we are going to of course look at pricing in terms of what it needs to win volume. We’re also always going to calculate what does that mean for our absolute earnings at the end of the day. With that we remain committed to driving earnings growth in absolute terms and margin growth. That has to be a tactical playbook, industry by industry and plant by plant.

Right, thank you. My second question is on volumes, so down 3% like for like in Food Ingredients and 7% in Chocolate and Confectionery Fats. Are you able to say sort of how much of that is due to destocking, which is likely to be temporary, and how much of it reflects sort of a shift in underlying consumption?

Tomas Bergendahl, CFO, AAK: Now I think, as we said before, our visibility is somewhat limited in this. My take on it is it’s not destocking that we see at the moment, it’s underlying demand in most segments driven by higher inflation and similar things. That would be the primary driver as I see it, what we have.

Johan Westman, CEO, AAK: We do feel that customers have been, with the whole inflationary environment, you have seen more activity and with that a bit shorter times in terms of how long you lock in the contract. A bit shorter contracting times, and you can maybe argue that that could be a bit of destocking behind that, that you don’t want to sit on too much stock, want to buy too much stock at high prices too early. It’s very difficult to say whether that was really destocking or not. What we do know is that there are more frequent conversations about where things are moving and not moving, a bit shorter in terms of how you contract in order to continue to optimize and hope. I’m thinking, you know, hoping for prices to come down a bit, so a bit more active. I couldn’t say that it’s absolutely stocking, probably a bit.

When we first saw the tariff, we saw a bit of stop and hold a bit, and that led to a bit of destocking. I’m not sure. Is there stocking today in quarter two? No.

Maybe if I could just follow up on that. We’ve seen the cocoa price come down quite a bit, at least from recent highs. It’s still up significantly where it was in 2023. Is that having any impact on customer behaviors and willingness to place orders?

Tomas Bergendahl, CFO, AAK: Yeah, it depends. I mean, there is a lag in this. Right. We saw that when the cocoa price went up as well. Our view or our understanding is that most of our customers, they don’t buy cocoa spot, if you will. Right. They have longer supplier agreements, so any change to price, it takes a while to funnel into their reality, if you will. It did that on the way up, and it will likely do so if price now is coming down to some extent, as Johan said. I mean, we have seen earlier in the year, at least the way we saw it, we saw a bit more hesitant customer behavior going a bit more short term.

That seems to be stabilizing a bit now, and let’s see during the second half if there is a tendency to go a bit longer from our customer perspective, if you will, when it comes to ordering and putting framework agreements in place and so forth.

Johan Westman, CEO, AAK: Also, maybe staying on Baker, I mean we’ve seen, we talked about walking away from a few contracts, but with the same customer we also have been able to win back volume in next quotation and so forth. Yeah, we’re in there all the time, and we are one of the important players in this market, always trying to optimize and win business at a relevant module level.

All right, thank you. Those were my questions. Thank you, Oscar.

Conference Operator: This was the last question at this time, so I hand the conference back to the speakers for any closing comments.

Johan Westman, CEO, AAK: Thank you again, thank you for listening, and absolutely thank you for a very engaging conversation, question and answers in the last session of this. We conclude a strong Quarter 2 2025. Thank you for listening.

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