Earnings call transcript: AAK Q4 2024 sees profit growth, stock dips

AAK AB reported its Q4 2024 earnings, revealing a robust 11% growth in operating profit compared to the same quarter last year. Despite these strong financial results, the company’s stock fell by 6.72% in pre-market trading. The decline in stock price contrasts with the positive financial performance, indicating potential investor concerns about future growth or market conditions. According to InvestingPro data, AAK maintains excellent financial health with an Overall Score of 3.3/5, particularly strong in profit metrics (4.03/5) and price momentum (4.11/5).

Key Takeaways

• AAK’s Q4 2024 operating profit grew by 11%, building on a 47% increase in Q4 2023.
• The company proposed a SEK 5 per share dividend, a 35% increase from the previous year.
• AAK’s stock price decreased by 6.72% in pre-market trading following the earnings release.
• The company continues to see growth opportunities in reformulating chocolate products amid high cocoa prices.

Company Performance

AAK demonstrated strong performance in Q4 2024, with an 11% increase in operating profit, reaching SEK 1,356 million. This growth is on top of a significant 47% rise in the same period last year, showcasing the company’s ability to sustain momentum. The full-year 2024 results also highlighted a 19% growth in absolute EBIT, with a 2% increase in volumes. Trading at a PEG ratio of 0.66, the company appears attractively valued relative to its growth prospects. Despite challenges in the chocolate and confectionery market, AAK remains optimistic about future opportunities. Discover more valuable insights about AAK and 1,400+ other companies with InvestingPro’s comprehensive research reports.

Financial Highlights

• Operating Profit: SEK 1,356 million, up 11% YoY
• Return on Capital Employed (ROCE): 22.4%
• Net Debt to EBITDA: 0.29
• Proposed Dividend: SEK 5 per share, a 35% increase

Market Reaction

Following the earnings announcement, AAK’s stock price dropped by 6.72% in pre-market trading, closing at a value significantly lower than its 52-week high of 343.6. This decline may reflect investor concerns about market conditions or future growth prospects, despite the company’s strong financial performance. InvestingPro analysis shows that 2 analysts have recently revised their earnings upward for the upcoming period, with the stock currently trading near its Fair Value. The company has demonstrated impressive momentum with a 38.53% total return over the past year.

Outlook & Guidance

AAK has raised its 2030 profitability aspiration to more than SEK 3 per kilo, focusing on growing faster than end markets in specialty segments. The company remains cautiously optimistic about 2025, with plans for continued optimization and potential mergers and acquisitions or greenfield investments.

Executive Commentary

CEO Johan Westman emphasized the company’s commitment to its 2030 aspirations, stating, "We are fully committed to deliver on our 02/1930 aspiration." Westman also highlighted AAK’s strong customer relationships, noting, "We have a broad portfolio and we are very strong at helping customers reformulate." CFO Thomas Bergdahl added, "This is not just a price game. This is also functionality in the product."

Risks and Challenges

• High cocoa prices impacting the chocolate and confectionery market.
• Geographical demand variations, with softer demand in the Americas.
• Potential regulatory and tariff concerns affecting sourcing and pricing.
• Market saturation in plant-based oils and fats.
• Macroeconomic pressures that could influence consumer spending.

Q&A

During the earnings call, analysts inquired about the impact of high cocoa prices and volume decreases in specific segments. The management addressed potential regulatory and tariff concerns and clarified their M&A strategy and balance sheet flexibility, indicating a proactive approach to future challenges.

Full transcript - AAK AB (AAK) Q4 2024:

Conference Operator: Welcome to the AAK q four twenty twenty four report presentation. For the first part of the presentation, participants will be in listen only mode. During the questions and answer session, participants are able to ask questions by dialing hash five on their telephone keypad. Now I will hand the conference over to the speakers, CEO, Johan Westman and CFO, Thomas Bergdahl. Please go ahead.

Johan Westman, CEO, AAK: Good morning, everyone. Thank you for joining us here today, and thanks to all of you who joined us a few months ago also at our Capital Markets Day in Karlsson. We really appreciate interacting with our investors and analysts. Joining me today, as you heard, we are in Malmo at our headquarters. We’re going to review our fourth quarter financial results, and I have Thomas Bergendahl with me here today, our CFO.

With that, let’s turn to Page number two. Here is what we will cover today: the quarterly highlights, selected events, a business and financial update and then some concluding remarks from our side. And after that, we will have a Q and A session. With that, let’s move to Page number three. Just a few comments.

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 could be different. So just please keep that in mind when we are going over the material that we have in front of us. Please turn to page number four. Let’s start with the quarterly highlights for quarter four twenty twenty four.

We had a solid finish to what has been another strong year for AAK. In the quarter, volumes decreased by 1%, mainly driven by Food Ingredients. Our operating profit per kilo, our margin continued to increase, up by 16% year on year at fixed currencies. This was largely driven by our global optimization programs, which have improved our operations as well as continued favorable market conditions in chocolate and fats. As a result, our absolute operating profit increased by 11% or 14% at fixed FX.

This builds on the 47% growth we delivered in quarter four last year in 2023. So while we are seeing slightly softer volumes here in the fourth quarter, we have managed to maintain momentum and we delivered a very solid results driven by improved profitability. Moving on to cash flow. Operating cash flow amounted to SEK118 million. Our financial position remains strong.

Our net debt to EBITDA stands at SEK 0.29, which highlights our ability to maintain a healthy, strong balance sheet. This also gives us flexibility going forward. Our return on capital employed, our ROCE, came in at 22.4%. This is a reflection of the strong operating profit we have achieved and our ongoing focus on driving returns. We have proposed a dividend from the Board of Directors, which is at SEK 5 per share.

This corresponds to an increase of 35% compared to last year, so a nice increase also driven by our increased earnings. Overall, it’s been a solid finish to what has been a very strong year for us at AK. With that, let’s turn to the next slide. Before diving into the performance of each respective business areas, let us take a brief pause to reflect on a few events that shaped the fourth quarter. We have opened up a Biotechnology Innovation Center in Lund to support industries such as food, feed and cosmetics.

By bringing enzyme and fermentation research in house, we can improve efficiency, drive idea development and strengthen our expertise within the company. Lund, the city of Lund and the location was chosen for its active innovation environment with a mix of startups, established biotech firms and its proximity to academic institutions and research facilities offering opportunities for collaboration and knowledge sharing. I would also like to take a moment to highlight an important achievement, AK’s win at the Food Ingredients Europe, FIE twenty twenty four, with the Sustainability Innovation Award for our company. This recognition celebrates our efforts in empowering women in West Africa through our own program called Colona Faso and reducing emissions across the Xi supply chain. It’s a reminder of our ongoing commitment to sustainability and responsible sourcing across the industry.

A big thank you to everyone who contributed. This achievement continues to inspire our work at AK. And as briefly mentioned already, back in November, we hosted a well attended Capital Markets Day at our Carlsen facility in Sweden, where we raised our 2,030 profitability aspiration to Sec3 per kilo or above sec3 per kilo, reinforcing our belief in the future growth. For those who could not attend, I encourage you to watch the recordings available on our website to catch up on the insights shared during this event. Thomas, could you please give us an update on the Foodservice divestment that we also announced?

Thomas Bergdahl, CFO, AAK: Yes. Thank you, Jan, and good morning, everyone. As I’m sure most of you recall, we announced in October of twenty twenty four that we had entered into an agreement to divest our food service facility located in Hillside, New Jersey in The U. S. The transaction was finalized as scheduled on December 31, resulting in a onetime positive cash flow impact of SEK $646,000,000, which came in then the fourth quarter of twenty twenty four.

The impact on the P and L from the divestment was, as previously communicated, not material. We are confident that the new owners, together with all employees from the Hillside plant, will continue to develop the business, and we wish them all the best going forward. Meanwhile, our investments, as also announced, into our foodservice plant in Sweden as well as the upgrade to one of our foodservice plants in The UK are both progressing according to plan. With that, I’ll hand it back to you, Johan, to go through the different business areas.

Johan Westman, CEO, AAK: Thank you. So let’s move on to the next slide. Business area highlights, starting with food ingredients. Starting with volumes, we saw a year over year decrease of 4% in the quarter for food ingredients. This decline was primarily driven by lower sales of non specialty oils with lower margins as well as a decline in dairy.

Operating profit per kilo increased to SEK2.28, up from SEK1.96, representing a 16 growth in operating profit per kilo. Currency effects had a negative impact of 0.11 per kilo. The growth in operating profit per kilo was broad based with improvements across the major segments that we delivered. Bakery, in particular, led the way with strong performance. When we exclude currency effect, operating profit per kilo increased by 21%.

Operating profit increased to $767,000,000 compared to $685,000,000 last year. This represents a solid growth despite the headwind on negative currency translation effect amounting to a SEK 36,000,000. At fixed foreign exchange rates, operating profit increased by 17% in the quarter. So with that, let’s move into chocolate and confectionery fats on the next slide. We saw a modest increase of 1% year on year in chocolate and confectionery fats.

This growth was primarily driven by Europe, Asia and The Middle East and Africa. However, this was somewhat offset by weaker results in The Americas and a softer consumer demand for chocolate. On the profitability side, operating profit per kilo increased to 4.19, up from SEK3.91 last year, marking a 7% improvement. The currency translation effects were minimal with only a SEK0.01 per kilo impact. The primary drivers here were strong contributions from Europe and The Americas supported by favorable market conditions.

Our operating profit rose to SEK $520,000,000 compared to SEK $481,000,000 last year, an increase of 8% year on year. This reflects our ongoing ability to generate consistent and meaningful profit growth even in a mixed consumer demand environment. And with that, let’s move into the next page. Now some business area highlights for Technical Products and Feed. Let’s look at the results for Technical Products and Feed.

Volumes increased by 7% year on year with the growth coming from both Technical Products and Feed. Operating profit per kilo saw a healthy increase reaching SEK 0.86 per kilo, which represent a 9% improvement year on year. Operating profit for this segment totaled a SEK69 million, which is a 17% increase compared to the same period last year. With that, we have now covered the business area and I will hand it over to you, Thomas, to provide some further details to our financial results.

Thomas Bergdahl, CFO, AAK: Thank you. Please turn to Slide nine. Operating cash flow in the quarter amounted to SEK118 million, as Johan mentioned before, and was driven by earnings offset by an increase in working capital, mainly driven by inventory. Inventory increased by just over SEK1.4 billion made up of roughly SEK550 million related to inventory level increases from seasonality driven sourcing of primarily she and palm. This number also includes $200,000,000 from the previously communicated temporary ramp up of conventional raw material in preparation for the implementation of E UDR.

In addition, inventory values are up just above SEK850 million driven by an increase in raw material prices based on the six to nine months lag that we’ve mentioned before. The excess EUDR related inventory, now totaling just over SEK400 million at the end of twenty twenty four, which is conventional without EUDR related premiums, is temporary and will be rundown during the first half of twenty twenty five, primarily in Q1. Accounts receivable was slightly reduced in the quarter while payables remained relatively flat. CapEx amounted to just over SEK363 million in the quarter, slightly higher compared to the level in Q3. The total CapEx spend for the year was SEK 1,250,000,000.00, right in line with our communicated estimate.

As previously mentioned, the divestment of Hillside generated a positive cash flow in the quarter of SEK646 million. We have also, in the quarter, restructured two of our sourcing agreements, which is expected to deliver financial and operational benefits over the term of the agreements. However, with the one time negative operating capital impact negatively of roughly SEK 500,000,000 to SEK 600,000,000, which will come in, in the first quarter of twenty twenty five. Please turn to the next slide. Return on capital employed increased following the continued strong development of operating profit.

EBIT for the last twelve months was SEK4.9 billion, up roughly SEK130 million sequentially from Q3. Together with capital employed at SEK21.8 billion, the latter somewhat flat over the last few quarters, resulted in a return on capital employed of 22.4, which is up 0.3% from Q3 in 2024. Next (LON:NXT) slide, please. Driven by the strong operational earnings as well as a positive cash flow and the divestment of Hillside, net debt to EBITDA remains at a level that provides us with financial flexibility. At 0.29 in Q4, slightly down from 0.39 in Q3 and significantly down from the peak of about two in Q2 twenty twenty two.

With a strong balance sheet, the board is, as Johan mentioned before, proposing a dividend of SEK 5 per share for the financial year of 2024. Subject to approval at the AGM, it represents a 35% increase from the previous years compared to the 20% increase in EPS for the same period and an 82% increase compared to the dividend paid for the 2022 financial year. With that, I’ll hand it back to Johan for some concluding remarks and then some questions.

Johan Westman, CEO, AAK: Thank you. Let’s move into the slide on concluding remarks. We are wrapping up a strong year with a solid quarter four performance. We achieved 11% operating profit growth on top of last year’s 47% growth. Our return on capital employed stands at 22.4%, driven by a strong operating profit, reinforcing our financial resilience and efficiency.

Looking ahead, we have just raised our 02/1930 aspiration. Given our strong performance and early achievement of a key milestone, we now target a plus SEK3 per kilo margin going forward. Demonstrating our belief in future improvements and long term growth opportunities for AK. For 2025, we remain focused on continued progress while maintaining a prudent yet optimistic outlook for the year ahead. Above all, we stay dedicated to making better happen.

And with that, I will hand it back to the operator and we would love to get some questions from

Conference Operator: audience. The next question comes from Johan Fred from SEB. Please go ahead.

Johan Fred, Analyst, SEB: Good morning, Johan and Thomas. Thank you for taking my question. One per segment, if I may. So starting off on a question on Food Ingredients. Volumes were down 4% year over year while operating profit grew 12%.

You alluded a bit on this during the call, but could you elaborate on what drove the strong earnings development? Is this due to the optimization programs or mix? Or how should we think about the discrepancy between volume and operating profit? Thank you.

Johan Westman, CEO, AAK: All right. Thank you. So I think, yes, the optimization programs that we have has contributed. But if we look at volume and mix in this case, as I mentioned briefly, there was a lower sales of non specialty and that was specifically due to a large part of that was to lower sales of lower value added rapeseed solution. So call it lower sales on lower value added products and higher sales or good sales volumes on higher margin products.

So there was a positive mix effects mix effect for Food Ingredients while also being supported by our optimization program.

Johan Fred, Analyst, SEB: Great. Makes sense. And on CCF, I’m a little or how should we interpret the commentary around demand or market conditions? In the report, you state that volumes were negatively affected by reduced consumer demand for chocolate, while later you say that operating profit per kilo was driven by continued favorable market conditions. How should we interpret these two statements?

Johan Westman, CEO, AAK: Great question. Good opportunity to clarify. So when we look at the intel that we have on the chocolate and cofactual market as well, meaning the consumption by consumer, what is procured in retail, right? We have seen chocolate and confectionery producers be call it the market being down some 2%, three %, everything else equal. What we then supply, what is our addressable market?

We have built up a portfolio, a broad portfolio of plant based oils and fats ingredients to the chocolate and confectioners space where part of that is replacing cocoa butter, which is an important ingredient, with a cost efficient functional ingredient that we have. And that’s where you see the favorability in terms of market conditions because with high cocoa prices and so forth, we see customers being even more interested in trying to offset cost and achieve good functionality in their products, hence looking at some of the products that we have like cocoa butter equivalents. And we have seen a good growth within our portfolio on these products. So if that makes sense, you could see the end consumer market being slightly soft, but also positive trends within our addressable market with our solutions.

Thomas Bergdahl, CFO, AAK: And we can also add that within CCF, it still grows by 1% despite the market conditions that Johan talked about on the overall, we see CVEs doing well and growing more than the 1% we see for the segment in total.

Johan Fred, Analyst, SEB: Okay. Makes sense. And are you seeing this reduction in demand for chocolate globally? Or is it linked to any specific geographies that’s performing worse than others?

Johan Westman, CEO, AAK: Well, I think the I mean, we are certainly active. So our total shocker and confectionery business area is delivering to the global shocker and confectionery industry. We supply the big players in this industry. So everything that we sum up here is kind of the sum of the global trends. Then, of course, there could be regional differences within the industry.

We’ve seen Americas being slightly down and the others are growing. Again, we show 1%, so it’s around that. But more importantly, when we look at the chocolate and confectionery market as a whole, you have seen over many years that there is a positive trend around chocolate and confectionery. There’s still a great opportunity going forward with a large part of Asia consuming a lot less chocolate than in the rest of the world. So when I speak to experts or more colleagues in the industry, if you will, there is a positive view on a continued good development and growth for chocolate and confectionery products out there.

However, in the short term, we have seen this spike in cocoa prices having an impact on inflation. Of course, that could create short term reactions. But long term, we are positive to the total market growth in this sector.

Johan Fred, Analyst, SEB: Okay. And a final follow-up, if I may, there. So the volume growth was 1%, yet you state that CBEs grew faster than that. How should we think about sort of the volume development for the segment going into 2025?

Johan Westman, CEO, AAK: Well, it’s a sum of what we just discussed, I think. So we need to look for what is the end consumer demand, which drives the production of chocolate and confectionery products in total. And then also realizing or coming back to what I said before, within that, AK has a strong position on being able to replace cocoa butter. So that’s an opportunity given the certain market condition and we have a strong positions position for chocolate and cofactionary ingredient as a whole. So looking into 2025, keep an eye on consumer demand, how that develops and then knowing that AK has a strong position within the market.

Johan Fred, Analyst, SEB: Thank you so much for those answers. I’ll get back in the queue. Thank you.

Johan Westman, CEO, AAK: Thank you.

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

Benjamin Walstead, Analyst, ABGSC: Good morning. I would like to follow on the previous question on chocolate demand. You mentioned 2% to 3% lower chocolate volumes in the quarter. Could you specify if this is across both chocolate bars and chocolate snacks? Or are you talking about like chocolate as an ingredient here?

Or what is this metric?

Johan Westman, CEO, AAK: Thank you. So when we comment, we comment on the total chocolate and confectionery market, which includes chocolate bars, snack bars, etcetera. And we speak about when we said down, we mean the end consumer market. So in essence, consumers go into retail to buy snacks. When we then talk about our volumes

Oscar Lindstrom, Analyst, Danske Bank (CSE:DANSKE): Yes, perfect. And go ahead.

Benjamin Walstead, Analyst, ABGSC: Yes. So what I’m after is, I know your exposure to chocolate or your like total addressable market in chocolate bars and chocolate snacks differ quite a lot. And in perhaps tougher consumer times, it’s not unreasonable to think that consumers would open for like chocolate snacks, especially if cocoa prices are way up. So are there differences between categories in these lower 2% to 3% lower chocolate volumes is basically what I’m after?

Johan Westman, CEO, AAK: Yes. Great question, right. So it’s difficult for us to see the full granularity of that, and I don’t have that full data. But yes, there are differences and especially with regards to our addressable market. So keep in mind, if you see a chocolate product which says 100% cocoa and so forth, there is no AK ingredients inside.

However, when you go to an energy bar or a snack bar with different kinds of ingredients included, it could be fruits and nuts and filling layers and wafers and coating chocolate. That’s where our prime market is, where we have lots of solutions going into that, including the possibility with the CBs to also replace a bit of pure cocoa butter into a chocolate bar. So the combination of the chocolate demand plus the total market for snack bars, etcetera, is our addressable market. So yes, there are differences. And one should also keep in mind that we have been, call it, resilient or strong in scenarios in the past as well because within a downturn, upturn or inflationary environment, consumers might opt for what is called trading down, choosing something that is maybe less expensive on the shelf.

But in those products, there could be even more of the AK ingredient or address of market, if you will. So sometimes difficult to give you the precise answer on what’s moving up and down, but we have seen a strong resilience

Oscar Lindstrom, Analyst, Danske Bank: and a good play for AK

Benjamin Walstead, Analyst, ABGSC: in different environments. Perfect. That’s clear. And then another question. On or could we have another update on your views of the balance sheet as well, low leverage post Q4?

Can you share anything new on M and A? Or what are your thoughts on your balance sheet in general, please?

Johan Westman, CEO, AAK: Yes. I would have loved to comment on M and A, right? We have a strong balance sheet. We’re certainly capable of executing a good M and A. I say good M and A because we’re not going to throw good money after bad opportunities, if you will.

And I mentioned this before. Our market is not a fragmented market with lots of transactions ongoing in any time period. So we are active. We are searching for M and A. We’re looking at good investments for internal capacity improvements or efficiency improvements in our optimization program.

That’s the primary focus for our capital allocation. As we mentioned in the Capital Markets Day, if we are not executing M and A or organic growth investments and we still continue with a very strong balance sheet, we will consider other capital allocation mechanisms like dividend going forward. But for the time being, we have a strong balance sheet. We’re not nervous about that. We propose a strong good increase of the annual dividend and we’re still looking for M and A.

But again, it’s not a fragmented market, so we cannot just flip the switch, but we are active.

Benjamin Walstead, Analyst, ABGSC: Perfect. I think that’s about as much as you can say. That was all from me for now. Thank you.

Oscar Lindstrom, Analyst, Danske Bank: Thank you.

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

Priya Patel, Analyst, UBS: Hi. I’ve got two sorry, three questions. So firstly on Food Ingredients. Volumes were negative and part of that was due to weakness in the dairy business. Could you explain the dynamics that you’re seeing within like the Asian dairy market?

And just color on whether this weakness has continued into Q1?

Johan Westman, CEO, AAK: Thank you. First, I’ll take the latter part of the question. We do not give guidance on forecast, so I will not do that on there specifically within Food Ingredients either. In food ingredients, we have a broad portfolio where we sell to bakery, dairy, infant formula, plant based dairy, etcetera, right? So it’s quite a broad portfolio.

And we saw a bit of weakness in dairy, a bit of weakness in EMEA, which is Asia and Middle East and Africa. However, when you look at the volume decrease, again, that was primarily driven by low sales of some low value added non specialty rapeseed solutions. So in the Total (EPA:TTEF) Food Ingredients, quite confident we had a strong quarter. And that’s what you see on the margins as well that we had a good sale of of the products that we focus on.

Priya Patel, Analyst, UBS: Okay. And then just on the non specialty oils, are these products that you’ve removed from the portfolio as part of the internal optimization program?

Johan Westman, CEO, AAK: In this case, not. It’s rather active decisions on what we sell and what we don’t sell and so forth. But we have had during the course of the last couple of years active deselection of products that we don’t sell anymore or we reprice them to have a decent margin to continue them. So that’s part of the optimization program. But in this specific case, it was our choice not to sell these products in the market.

Priya Patel, Analyst, UBS: Okay. And then finally, just in the chocolate division. So you mentioned that CBEs grew more than 1% in the quarter. Just wondering if you can disclose what percentage of the overall chocolate volumes are CBEs?

Johan Westman, CEO, AAK: So thank you for the question. I fully understand it. This is where we draw a line in the sand, if you will, and not detailing that in order to keep confidentiality and our position in the market. We’re not alone. We have strong competitors even though we have a very, very strong product portfolio ourselves.

So I’m going to pass on that. But just to give a bit of color to it, When looking at CCF specifically, let’s not forget that we grew we have been growing 8% in chocolate and confectionery in 2024 as a whole compared to 2023. The growth was 1% in the quarter, but again with a very positive mix. So we’ve been able to continue to grow the cocoa butter equivalents, the high value added products, somewhat softer volumes on the other ingredients. So all in all, a very positive development and good momentum still for AKA in chocolate chip production.

Conference Operator: The next question comes from Alex Jones from Baffa. Please go ahead.

Alex Jones, Analyst, Baffa: Great. Thank you. I’ve got a couple, but I’ll start back on chocolate. You talked in response to one of the prior questions about this gap between the end market and your performance that is now a couple of percent. Do you think that’s the full effect of cocoa reformulation activity?

Or as customers continue to look at their products, do you think there’s potentially greater outperformance you can deliver versus the end market into 2025, especially in Q1 when some of the annual contracts reset in January?

Johan Westman, CEO, AAK: Thank you. Again, I will not comment specifically on Q1, but I’ll just repeat some of the dynamics in there. So do we believe that there is still reformulating activities ongoing? Yes, we do. Is there is the cocoa prices still high?

Yes, they are. The industry, our customers, they are certainly interested in better functionality, better cost efficiency in their ingredient list. So I forecast that to stay. There’s going to be a good demand for high quality ingredients that could help offset cost and be competitive versus cocoa bars and exam. Whether that has an impact on Q1, Q2 and so forth, it’s a combination, of course, the end consumer markets, who is reformulating what and when and also our ability to deliver to those volumes and our competitors’ behavior, right?

So it’s always that mix. I just want to repeat that. But from a long term perspective, again, we are positive to the development of the end market and we’re also positive to the development and opportunities that we see within our addressable market.

Alex Jones, Analyst, Baffa: Great. And then following up on the non specialty oils in food ingredients. Should we expect that type of volume optimization to continue to weigh on volume growth of the division going forward? Because I suppose at the Capital Markets Day it sounded like you are now a little bit more focused on driving volume growth. So just wanted to check if that is the case or if there’s still some of this optimization that we can expect in future quarters and years?

Johan Westman, CEO, AAK: Yes. Great question. There will always be tactical decisions one quarter to another. Overall, we maintain our strategy. We are fully committed to deliver on our 02/1930 aspiration.

That stands for food ingredients as well. There is more optimization to be done, but yes, we are also focusing on driving volume, again, for the products, the opportunities that we see. So I’m glad that we do not, as an organization, just give after on price and sell to any price just to get volume. That’s not the task for the organization. It is to really looking for that value to the volume and a healthy balance.

Now in this case, we’re addressing more of an active decision not to move volume and find other opportunities instead. And that’s not the systematic trend that one would extrapolate but could happen in a quarter, could happen in another quarter. If we see an opportunity to move volume to a decent price, we’ll sell it, but we will also be keep on being tactical and trying to always optimize the end result. And you see that. So in this case, it was a positive opportunity to drive margin versus lower margin volume.

Thomas Bergdahl, CFO, AAK: And these type of products are also more price sensitive than the more complex and high end products. And therefore, back to Johan’s statement before, that also allows us to make some judgment calls of what we want to take on or not quarter by quarter. And demand varies as well, of course, right, on these type of products.

Alex Jones, Analyst, Baffa: Yes, understood. One final question on the restructured sourcing agreements that you talked about. Could you just give a little more detail about sort of why there’s a negative impact initially and what the offsetting benefits might be in the longer term? Thank you.

Thomas Bergdahl, CFO, AAK: Well, as I mentioned, we do see in these new updated contracts that we have a financial and operational benefit. So primarily financial benefit is the end of it EBIT wise. But we also then see some negative impacts primarily in this case due to some transportation timing and also on the payable side. So we’ve adjusted our purchasing on these two contracts to enable us to have a better price versus the working capital effects mainly on payables.

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

Oscar Lindstrom, Analyst, Danske Bank: Good morning. A couple of questions from my side. First off on volumes, I mean you said you had sort of weaker volumes due to replacing simpler products with more complex products. Do these more complex products require more of your sort of capacity in the system? So what I’m trying to get at is, has this switch meant that you are have a higher or a lower or unchanged capacity utilization?

And where are you now in terms of capacity utilization and available capacity given the Q4 product mix? So that’s my first question. Should I take the other ones or?

Johan Westman, CEO, AAK: Again, we can start with this one. Just to sum if you look at it from an overall perspective, yes, there is a difference, right? So some of the higher margin products are higher margin products because we have refined them to that, we have blended them to that. So they can take longer time in some processes. They can also utilize more processes in the factory in order to get to the end ingredient with that specific functionality.

So yes, some of these solutions take more of the capacity, if you will. However, I also want to be clear that in food ingredients, this volume drop that we referred to on a less refined, low specialty rapeseed. It’s not a capacity free up or capacity drain. So that’s kind of excluded and that’s more like a tactical decision. So I wouldn’t call that I wouldn’t extract like that too much and there’s no drama in that.

Then when it comes to pure capacity, it’s also dependent on some of the chocolate solutions have specific processes, infant formula solutions to some extent are specific processes. So we need to go line by line in order to give you a statement on capacity. There’s no big change from today quarter four versus quarter three, quarter ’2 last year. We still have some headroom in many of the processes and there’s a bit tighter in others. And where it’s tighter, we have an ongoing deep bottlenecking agenda and investment agenda to keep on raising demand.

But quarter to quarter could obviously be that we sometimes hit the ceiling, but then we may be sure that we have an deep also connecting an investment agenda to increase capacity over time.

Oscar Lindstrom, Analyst, Danske Bank: Okay. Thank you. On CCF and the do you have any deeper understanding of the reasons for the weakness in The U. S. I presume chocolate market?

And is there any indication that it was driven meaningfully by a wider use of weight loss drugs? Or were there other factors behind the weakness in The U. S. Chocolate market demand?

Johan Westman, CEO, AAK: I do not want to speculate at all in relation to weight loss drugs and so forth. Our general I’ve had that question many times before, right? I personally do not think that that has a link to it at all. These drugs are there for reasons that others can comment. I think in the longer term, we are human beings.

We will continue to eat food. We will continue to snack. We hopefully will have a good balance on exercising and keeping our health, right? And with that, I hope that the population of the world will continue to be healthy and stay healthy and live longer, right? But when you break it down to Shoptit and Confectionery Americas, what we see is the end consumer market data.

We don’t have the full visibility and we don’t get the full transparency on that from our customers. What we have seen and you have all seen it is, of course, there is an inflation ongoing towards the shelf in retail with the increased cocoa prices. There’s no doubt about that. What is the exact impact in quarter four? Difficult to say whether it came from X or Y, but the inflation is there.

Again, we have seen positive trend for shoplifting and cofactualy for many years. Many of the industry representatives that I talk to are positive to the long term development for shoplifting and cofactualy and the markets total. And within that, AKA has a strong position with our solution for filling fats, etcetera, and last but not least, the kaukawa bactero alternatives that we have.

Oscar Lindstrom, Analyst, Danske Bank: My final question is on acquisitions versus greenfields. And for some time, I’ve been saying that you’re looking for acquisition targets. And I guess you’ve got some geographical white spots in Southern Europe and parts of The U. S. As well, I guess.

Could you opt for greenfield investments in these regions if you don’t find anything soon? Or is it not big enough of a problem that you can wait sort of several years to find suitable acquisition targets rather than go ahead with a greenfield?

Johan Westman, CEO, AAK: Yes. I rephrase the question to be more generic than Southern Europe or Americas. Would we opt for greenfield? Yes. That is exactly what we did in China and in Brazil.

We were looking for targets and didn’t find suitable acquisitions and we then decided to go greenfield in China and go greenfield in Brazil. We then added additional investments in China for infant formula production, which was a greenfield factory on the site that we already had. And we are certainly considering that in regions where we would like to grow. We made a brownfield, you could call it acquisition on the Southeast Coast Of India recently, where pretty much we bought an old factory that we are going to move into AK standards, if you will, in order to grow in India. That is like it’s a brownfield technically, right, but it’s greenfield investments going in there.

So that’s how we operate. So I would love to do a good M and A again. There’s not that many out there, so we need to just be patient and be ready. In the meantime, we evaluate any organic opportunity that we would see benefits AK.

Analyst: But it

Thomas Bergdahl, CFO, AAK: should also be said that if we do have good targets, but

Johan Fred, Analyst, SEB: we feel

Thomas Bergdahl, CFO, AAK: that takes some time to realize them, we will work that pipeline before making a decision on a greenfield given that it adds capacity and what in most places are mature markets.

Conference Operator: The next question comes from Joan Lim from BNP Paribas (OTC:BNPQY) Exane. Please go ahead.

Joan Lim, Analyst, BNP Paribas Exane: Hello. Just three questions from me, please. So one, you reiterated your ambition to outgrow end markets. Can you help us understand what is the end market growth you are seeing? I know you said for chocolate and confectionery fats, but what about food ingredients in areas like bakery, dairy and special nutrition?

And what are some of the drivers of volume growth that will help AAK outgrow end markets? This is my first question.

Johan Westman, CEO, AAK: Thank you. So over time, we’ve seen low single digit growth in plant based oils and fats across the board, right? So you look at food ingredients, a mix of bakery dairy, infant formula, plant based alternatives to meat and dairy and so forth, right? We’ve seen a low single digit growth. And we are saying that we’re going to target growing faster than that, but we add to the markets the segments where we that we address.

So we’re not saying that we’re going to grow faster than the commodity type market, but we’re going to try to grow faster on the specialty oils and fats market. What is it that will make AK successful? It’s to remain where we are. So we are a downstream, specialized, multi plant based oils and fats ingredient player. So we will remain focused on delivering functional fat ingredients, sustainable oils and fats ingredients and nutritious oils and fats ingredient that enable our customers to either shift from convenient animal based solution they have today or shift from cocoa butter to the cocoa butter equivalent, etcetera.

And that’s our focus. That is where we try to differentiate. If you raise above a bit and look at overall trends, there is no doubt that in order to really have an impact on climate, we in the world, we need to get food right. So to get food right, there’s no doubt that we need to optimize every single source of food that we have, be that the plant based source or animal based source. But long term, there is no doubt that we also need to look at the mix of what we eat, the diets.

And we have a quite positive fossil based ingredient in non food products, but also arriving to a more healthier, nutritious and sustainable diet or food plate over the week, there should be a positive impact on plant based oats and fats. And that’s where we focus our innovation to enable healthy, nutritious and affordable food ingredients based on, in our case, plant based oats and fats. So that’s a short term and a long term perspective.

Joan Lim, Analyst, BNP Paribas Exane: Okay. Thank you. That actually feeds quite nicely into my second question. So on RFK Jr, so if potentially if he gets appointed as Health Secretary, what impact would increased regulations on seed oils or on fats have on AK? And I guess a link to that on U.

S. Tariffs as well. AK sources about 25% of your palm oil from Latin America and Mexico is about 12% of group sales. Are you worried at all about the impact of U. S.

Tariffs?

Johan Westman, CEO, AAK: We obviously follow that just like everyone else is doing at the moment. I would like to be crystal clear on the majority of what AK sales in a region is also produced in the region. So if we look at from that perspective and we zoom in on The U. S, a majority of what we sell in The U. S, we also produce in one of the three plants that we have.

Now you bring up the raw materials, which is correct. Do we import raw materials into The U. S? Yes, we do. But this is where we then look at what we have been seeing over many, many years.

There is volatility in raw material markets. We’ve seen it under COVID and with disruptions in supply chains around the world. We are very capable to manage raw material fluctuations. So if you look at the raw material, if there is a tariff impact to raw material, at the end of the day, it will only impact the cost of the raw material and we are well equipped to manage that and also price our products to that. That would likely lead to inflation maybe on the shelf in retail in The U.

S, but that’s something that we have dealt with before. You’ve seen fluctuations on palm before, we’ve seen fluctuations on soy or coconut before. So no, not that worried about that. Back to the first part of the question, we do not speculate on anyone being elected or not and what that would have. Allow me to still answer the question on oils and fats ingredients.

I think, first of all, we have a broad portfolio. There will be a continued demand for food and food solutions within the oils and fats space. Whatever the regulation is, it could maybe shift demand towards X or Y. But we have a broad portfolio and we are very strong at helping customers reformulate. So let’s not speculate on what kind of regulation will come or not, but we’re very capable on reformulating and offering a very strong portfolio.

And maybe last but not least, I think we, in general, should be very careful on kind of black and white opinions on what is good or bad. It needs to be fact driven. I think it’s up to us as an industry to always put facts on the table, strive for healthy nutritious ingredients to affordable prices and that’s going to remain our focus going forward. So many of these kind of that would be seen as disruptions often turn out to be an opportunity for us.

Thomas Bergdahl, CFO, AAK: But I just want to be clear on the first point as well. Our operations in The U. S. Have almost no imports from any of the countries that The U. S.

Are now discussing tariffs on, right? Most of it sourced through Southeast Asia. What we source in Latin And South America is used for our production in Latin And South America such as Brazil, Mexico, but also in Colombia. So the impact of the tariffs as we look through our operations is minimal as it stands right now.

Joan Lim, Analyst, BNP Paribas Exane: Thank you. That’s very helpful. And my last question is just going back to your optimization program. At the end of twenty twenty three, you had said that AK successfully addressed about 60% of capacity across your five largest sites. And at that time, there was a remaining 40% to address across your smaller and medium units.

Can you provide more color on how much more is there to go on improving capacity in 2025?

Thomas Bergdahl, CFO, AAK: Yes. We’ve done a few more plants in the AK footprint. So we’re doing another three. We’re on the third one since we made that comment in addition to where we were then. So without having a number in my head, I think we’re sort of above 70, closer to 75% of the installed capacity.

And we still continue to find good improvements. But also mentioned during the CMD, we’re also making then a second run. We mentioned our facility in Port Newark as an example where we had one of the first deep dives. We’re now going back there again and doing a review on the opportunities that weren’t fulfilled in the first run. So it’s more of an iterative sort of process to find additional opportunities.

And we think there’s more to be gained also in a plant like Port Newark where we were a year and a half, two years ago with one of the first deep dives. So it’s ongoing. We’ve been through them, let’s say, above 70% of the installed capacity all in all. But we’re also going back to take a look at the plants we’ve been to with learnings from the later plants in the process, if you will.

Joan Lim, Analyst, BNP Paribas Exane: So you’re still confident on you had said you expect EBIT growth to grow 10% of which 70% will be led by optimization? We are still confident that this can help your EBIT growth ambition.

Thomas Bergdahl, CFO, AAK: We are still very confident in all the activities that we do internally such as the deep dives, also our procurement efficiency programs, the cost program that we also announced that we’re going through right now, we’re confident that that will contribute to our aspiration in 02/1930 of plus SEK3 per kilo. Yes.

Joan Lim, Analyst, BNP Paribas Exane: Okay. That’s very helpful. Thank you.

Thomas Bergdahl, CFO, AAK: Thank you.

Analyst: Thank you, operator. A couple of detailed follow-up questions. I’ll begin with chocolate. I was hoping that you could give us some color on how much of your CCF volumes are to relatively new customers, meaning those that have switched to you recently due to the high cocoa prices versus your existing customers?

Johan Westman, CEO, AAK: Okay. Thank you. Sorry, but we don’t disclose exactly that, but I can only confirm that, yes, we have received new customers on the back of that and we have received, call it, the opportunity to supply into existing customers but on new products where they have not used, for example, Kaokla Viter alternatives before. They have now addressed that and gave us an opportunity to reformulate into those products. So I can confirm that that’s a positive impact, but we will not disclose exactly how much.

Analyst: Okay. Fair enough. And a second question on chocolate. Could you say now with the high raw material prices and volatility also for palm oil, for instance, could you say how much cheaper your CDs are currently versus cocoa butter?

Johan Westman, CEO, AAK: Again, I fully understand the questions on why, but we refrain from if I did that, you wouldn’t exactly and I would offer our competitors the opportunity to back calculate our pricing. So I’ll not do that. There is still a gap, right? So the cocoa prices are much higher. The cocoa butter prices are much higher than the price in our products.

And we price our products against, our margin targets, as well as being forced to, of course, deal with the competitive landscape because we’re not alone. So what we sell our products for is a function of what we can deliver in terms of value to our customers, but also what our competitors offer. So that’s where it is, but it’s a big delta to cocoa butter prices versus call it the CB market price of today. But even before this spike that we saw, we had a good offering still at those levels where we were back then. So and then with regards to fluctuations like palm oil and others, I encourage you to look at some of the material from the Capital Markets Day and some of the trends for AK over the last five, six more years.

There has been ups and downs in raw material prices. We have a very strong organization that is used to and capable to manage fluctuations. And with that, still growing our margins and growing our earnings. You can backtrack the fluctuations in raw materials for five years and then you look at our overall trend in terms of earnings and you see that we’ve been able to fly through disruptions, if you will, with good stability.

Thomas Bergdahl, CFO, AAK: And we should also add and reiterate what we’ve said before. This is not just the price game. This is also functionality in the product. So we offer something else than what you can get from a cocoa butter. With our equivalent, we also add functionality in there and that’s also very important to our end, to our customers and to the end product.

Johan Westman, CEO, AAK: And when we invest in innovation and new product, product development, that’s what we target, longer shelf life, better functionality, taste, etcetera, nutrition, health, all of that we bring into our innovation pipeline also within Shopify (NYSE:SHOP) and Confection.

Analyst: That’s perfect. And a final question from me. On M and A, now that your profitability levels have moved higher, so you’ve expanded the gap versus smaller competitors profitability wise, Would you consider paying a bit more for your targets in order to perhaps get them over the finish line?

Johan Westman, CEO, AAK: That becomes a great question, but somewhat hypothetical. We would we are always assessing any opportunity and we are, of course, active. I’ve said that we are active in the market, so we’re obviously having dialogues. And we would make a call based on current market conditions, the what we see as an opportunity, synergies and etcetera. It’s not as easy to say we’re prepared to pay more.

But it’s always good with a strong balance sheet and a good currency.

Thomas Bergdahl, CFO, AAK: We wanna, of course, pay fair market value for any acquisition and try to avoid to pay for something that we add to the business after the acquisition because that’s our knowledge and know how and that’s how we and have in the past improved on the acquisitions that we’ve bought and built them into what AK is today.

Johan Westman, CEO, AAK: I should probably add to that question. I would like to send a signal that we’re very active and looking and we want to, but we also have a solid process and a solid team that avoids us making a decision which wouldn’t be beneficial for the company, right? So I will also send that signal and feel confident that we’re really trying to evaluate making throwing good money after good opportunities and all vice versa.

Thomas Bergdahl, CFO, AAK: Alright.

Conference Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Johan Westman, CEO, AAK: Thank you so much. Thank you again everyone for listening in. We have had a solid finish to a very strong 2024. For the year, volumes are up 2% and we have had an absolute EBIT growth of 19%. Thank you so much for listening.

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