Earnings call transcript: AAK sees 16% profit rise, stock surges in Q2 2025

AAK AB reported a strong financial performance for the second quarter of 2025, with a 16% increase in operating profit at fixed exchange rates. Despite a slight decline in volume, the company’s stock surged by 11.66% in early trading. The positive results were driven by strategic initiatives and cost-saving measures, positioning AAK favorably in challenging market conditions. According to InvestingPro data, AAK maintains a "GOOD" overall financial health score and stands as a prominent player in the Food Products industry.

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Key Takeaways

• Operating profit increased by 16% at fixed exchange rates.
• Stock price surged 11.66% following the earnings announcement.
• Implementation of cost-saving measures targeting SEK 300 million annually.
• Strong performance in Latin America amid challenging global market conditions.
• Continued focus on innovation and specialty solutions.

Company Performance

AAK demonstrated resilience in a challenging market environment, with a notable increase in operating profit despite a 2% decline in volume year-on-year. The company’s focus on high-value specialty solutions and adaptability in local markets, particularly in Latin America, contributed to its robust performance. However, softer demand in bakery and chocolate segments and high cocoa prices posed challenges.

Financial Highlights

• Operating profit per kilo: SEK 2.37
• Operating cash flow: SEK 524 million
• Net debt to EBITDA ratio: 0.63
• Return on Capital Employed (ROCE): 21.9%

Market Reaction

Following the earnings release, AAK’s stock price increased by 11.66%, reflecting investor confidence in the company’s strategic direction and financial health. The stock’s last close was at SEK 241.8, with the latest price reaching SEK 270, moving closer to its 52-week high of SEK 343.6. InvestingPro data reveals that AAK has maintained dividend payments for 20 consecutive years, with an impressive 35.14% dividend growth in the last twelve months.

Outlook & Guidance

AAK remains committed to achieving its 2030 goal of SEK 3+ per kilo profitability. The company aims to outgrow underlying market volumes, driven by continued investments in commercial excellence and innovation. The full realization of cost savings from the "Fit to Win" program is expected by mid-2026. According to InvestingPro analysis, analysts maintain a moderate buy consensus, with targets suggesting potential upside of 20%.

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Executive Commentary

Johan Westman, CEO, emphasized the company’s resilience, stating, "We are seeing clear resilience in our financials." He highlighted the focus on innovation and portfolio management as key drivers for achieving AAK’s profitability aspirations. CFO Thomas Bergendahl added, "It’s our responsibility. We’ll take on the best practices, the structure, and everything, and we will deliver."

Risks and Challenges

• Softer demand in bakery and chocolate segments could impact future growth.
• High cocoa prices may alter consumer behavior and affect sales.
• Inflationary pressures continue to challenge the food ingredient markets.
• Potential tariff impacts on raw materials could affect cost structures.
• Restructuring efforts, including a 5% headcount reduction, may pose operational risks.

Q&A

During the earnings call, analysts focused on volume challenges in the bakery and chocolate segments. AAK’s strategic approach to pricing and contract selection was also discussed, along with potential tariff impacts on raw materials. The company’s balance between centralization and decentralization was another key topic of interest.

Full transcript - AAK AB (AAK) Q2 2025:

Conference Operator: Welcome to the AAK Q2 twenty twenty five 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 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 AAK. With me here today to review our second quarter results, as you heard, is Thomas 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 forty five minutes in total, including a Q and A session at the end. And 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 four, starting with quarterly highlights. Let’s look at the overview of our financial performance or performance in the second quarter of twenty twenty five. 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 $250,000,000 restructuring costs that we took in the quarter related to our Fit to Win program. Thomas 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 foodservice business.

This business represented around 5% of AAK’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 declined. The profitability was strong, however, with operating profit per kilo reaching SEK2.37 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 condition for cocoa butter alternatives as well as a positive product mix, further supported which further supported our second quarter profitability.

If we turn to cash flow. Operating cash flow was positive at SEK $524,000,000 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 ROCE 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 8 in Malmo, 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 we’ll continue to welcome further constructive exchange going forward. Secondly, we recently published our Principal Adverse Impacts or PIE 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 PIE 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 Nesje Tagma has been appointed President, Sourcing, Trading and Sustainability. Nesje 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 Steveson, who is retiring after a long and successful career with AK. 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 Carlsom site on the night of June 19. The incident affected two external tanks at the fatty acid plant, which is used for nonfood 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. So with that, please turn to the next page to review our performance per business area. On Page or Slide six, 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 2.3 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 $764,000,000 despite a negative currency translation effect of SEK 72,000,000. At fixed foreign exchange rates and excluding the Hillside divestment, operating profit increased by 14% year on year. So overall, despite the softer volumes in bakery, the business area continued to perform well through a strong margin delivery. With that, if we turn to 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. But within The Americas, we had a really good performance, a good growth in Latin America. Operating profit per kilo was strong, increasing to SEK3.95 despite the currency headwind of SEK0.32 per kilo. At fixed foreign exchange rates, operating profit per kilo increased by 20%.

So in summary, the business in CCF 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. So 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 25,000,000. With that, we have now covered the three business areas, and I will hand it over to Thomas to provide an update on the optimization programs as well as further details on the second quarter financial results.

Over to you, Thomas.

Thomas Bergendahl, CFO, AAK: Thank you, Johan. Good morning, everyone. Please turn to Slide nine. As many of you recall, we presented our updated 2030 aspiration at last year’s Capital Markets Day in Carlsson with a clear focus of reaching profitability of SEK 3 plus per kilo and, outgrowing the underlying market on volumes. The road map to achieve this remains largely unchanged and is centered around six key programs.

One, production process optimization two, portfolio and price management three, procurement excellence and four, cash to grow. In addition, and 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 and innovation excellence. As announced in connection with the Q1 twenty twenty five 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 mid August. The next step will be to develop a prioritization matrix to rank all of AEK 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, 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 includes 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. We expect to finalize, the project phase during the second half of twenty twenty five.

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 AEK 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 and 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 SEK300 million in annual savings. For 2025 specifically, we expect, as previously announced, to realize around SEK50 million of the SEK300 million, with the full run rate of the SEK 300,000,000 anticipated by mid-twenty twenty six. A small part of the SEK 50,000,000 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 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 AK 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 five twenty four 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 SEK350 million, mainly driven by changes in accrued and prepaid expenses, partly related to taxes and lease costs. CapEx amounted to $376,000,000 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 1,250,000,000.00.

Free cash flow, as you can see, amounted to a positive SEK 157,000,000. 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 onetime restructuring costs and at par with Q1. Excluding or including items affecting comparability, the IEC, the 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 SEK1.3 billion dividend paid in May. The ratio remains at a level that provides us with continued stability and financial flexibility. Including the IAC of €250,000,000 the net debt to EBITDA ratio was 0.66.

And 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, Thomas, for those details and clarifications to our performance. And 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 onetime restructuring costs related to our Fit to Win program that Thomas just explained to us. This was delivered despite a 2% decline in volumes, also excluding the impact from Hillside. So profitability remains solid with operating profit per kilo, excluding the restructuring cost, reaching SEK 2.37.

So 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 and 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. And with this, we hand it over to the operator, and we are happy to take questions from

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

Johan Fred, Analyst, SEB: Yes. Good morning, Johan and Thomas. 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? And 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, Jo Anne. If we’ll dig into, food ingredients, I think, firstly, food ingredients, as you know, is built up by many subsegments. And this is again where we see the, 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, etcetera. So that is, all within food ingredients. When we look at the bigger volume markets, it’s around bakery and dairy. And 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, right? So 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. And then obviously, there is a bit of competition. You win and you lose over time.

But we are absolutely committed to turning Bakery into long term growth.

Johan Fred, Analyst, SEB: Okay. Thank you. I know in Q1, you quantified the sort of decline to fifty-fifty, I. E, 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. Is 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.

Johan Fred, Analyst, SEB: Okay, got it. Thank you. And the second or maybe further 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. But 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?

Johan Westman, CEO, AAK: There are a few things in the mix. And I think everything you mentioned is there, right? 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. So 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.

But again, we have a broad portfolio. So what we see in the customer 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. And that is both focus on 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. So 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. And I think you have all of that within this mix.

So dynamic market volumes are down. You can see that in parts of the segment. But at the same time, AEK 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.

Johan Fred, Analyst, SEB: Thank you for your answer, Johan. I’ll stop there and get

Sattusharda, Analyst, Barclays: back into queue. Thank you.

Johan Westman, CEO, AAK: Thank you.

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

Benjamin Wallstadt, Analyst, ABGSC: Good morning. So perhaps following on John’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 we I think I need to go with it too early to say to some extent. We I often remind about business to business is our demand signal is to production of food or chocolate and confectionery or technique product, right? So 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. But remember, our deliveries linked to these, festivities or volume up or volume down is always earlier.

So our deliveries for Christmas comes much earlier than Christmas because it is delivering through a factory that will produce for Christmas and wise and likewise for Easter. So it has an impact, but 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. But I would say it’s it was a bit dynamic in Q1 and it’s a bit more stable at the moment.

Benjamin Wallstadt, Analyst, ABGSC: Alright. Thank you. You also spoke about the deep dive task force presenting a prioritization matrix in August to move forward with, deep dives, as I understood it. And I was wondering, have you found incremental learnings doing while doing the deep dives that mean all plants will be visited again, you think? Or should we expect limited sort of incremental impact from these deep dives from here?

Johan Westman, CEO, AAK: Thank you. Thomas?

Thomas Bergendahl, CFO, AAK: Yes. No, thank you for the question. I think, of course, we started with the larger units, right, going for the biggest production volumes first and then rolling down the different facilities. I expect this program to continue to deliver throughout ’25 and ’26. The the matrix is there basically as a prioritization to not just continue with the remaining, 10 sites, but take a look back as we’ve mentioned before as well.

When we do one of these deep dives, we identify, you know, twenty, thirty, 40, 50 different initiatives, but not something that we can focus all at once on. So we pick the ones with the highest impact. But with this matrix and the review is to go back to also look at the ones where we’ve been to see, do 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. So that’s the prioritization to make the the good choice, if you will. But I do expect it to continue to generate good positive gains throughout 2025 and 2026, and then we’ll take a look from there.

Johan Westman, CEO, AAK: Maybe to add to it, we come from an AAK, which was very decentralized and with local operations reporting into local P and L sheets, which we still have. But with these programs, we are, one, finding opportunities, but we’re also building a muscle around operational excellence. And 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. So we’re moving into a more structured continuous improvement way of working that many companies have had before us, but we came from a very decentralized structure.

So back to this picture of alignment. I also expect it to continue to deliver value, but maybe more as on a continuous improvement value creation.

Thomas Bergendahl, CFO, AAK: And this also, of course, then improves quality at the site and service levels, right? So it’s not just finding cost reductions, it’s also doing better in production as a whole.

Benjamin Wallstadt, Analyst, ABGSC: And one follow-up, if I may. At the CMD, you spoke about, I believe it was a order improvement in EBIT per kilo from from doing these deep dives. Would you dare sort of guess or estimate the improvement potential from here through 2026, for example?

Thomas Bergendahl, CFO, AAK: I would say that was the the calculation on on the to date, if you will, at the CMD to get us from the one to two sec per kilo. Looking forward, as I said, I I think my belief is that we’ll see continuous, benefits and contribution, but I’m not gonna put a number on it. That’s part of the matrix evaluation that we’re doing now. And then it’s also a bit of a fluid situation. Of course, we don’t know exactly what we we’re gonna find when we go into a new site or go back to look at identified opportunities that needs to be evaluated.

So positive contribution, but difficult to put a number on it.

Johan Westman, CEO, AAK: And absolutely. I mean, our formula or the ingredient list, as we have said before, to reach our 3 SEK per kilo aspiration. It is linked to continued focus on innovation and portfolio management, but it’s absolutely also a continued optimization of our costs, including procurement, including the fit to win and including continued deep dive activities. All of them, are included in the ingredient list for three separate kill.

Benjamin Wallstadt, Analyst, ABGSC: Perfect. Thank you very much.

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

Matthew Yates, Analyst, Bank of America: 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 and you talk about a favorable environment for CVEs, and we can obviously see in your margin that that I’m guessing mix is beneficial. Can can you just 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 that Thomas was outlining, around all the the initiatives and productivity and costs, etcetera, versus what’s actually happening in the chocolate market and and 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, strategy and execution for our business area, Shopkite and ConfectionFat. So 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 butter equivalents, but also our filling fats, coating fats, etcetera, has over time been introduced into the shop and confectionery market, replacing cocoa butter. So with a sharp increase, that is what we mean favorable market condition, meaning there are 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 AK 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. So, why back to your question. So why are our volumes not better then?

Well, we still live in a competitive environment with others also being able to deliver, and the volumes are absolute per se, right? What we do, do is that we see a positive development in the ask for, for example, CBs, cocoa butter equivalents. But we also have a broad portfolio, next to the cocoa butter equivalents with filling fats and coating fats, etcetera. So we pretty much follow the chocolate market. Then with opportunities to perform better than that, as we’ve seen in over time, we were up 40% last year, now lower.

But it’s also a optimization play within AK, back to what we have commented broadly. We look at the total portfolio within Schottett and Confectionery. 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. So this is a mix of a lot of tactical, strategic and business decision at the end of the day. So we can be slightly better or lower than the market in a given quarter, but 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.

And that’s how we also try to to take advantage of the market conditions that we see, if that makes sense. So

Thomas Bergendahl, CFO, AAK: And and my view is still it’s a very price competitive, market out there. Right? The 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, price and portfolio management, but specifically also what we do in procurement, what we do in the deep dives and so forth. So 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 on the big global brands that that, due to inflation and and so forth. And that is a move that we’re also following very closely, we are adjusting to that as a supplier in the market as well.

Matthew Yates, Analyst, Bank of America: Thanks. And when you look into the second half, obviously, 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 your 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. No everyone knows about cocoa prices being sharply up and although coming down a bit, still high in a historical level. So that is here. But 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.

And that opens up opportunities. And at the same time, with these cost levels, there is still a benefit for them to look at the cost per ingredients list. And with that comes opportunities. And at the same time, as Thomas said, we’re also in a market where there is competition, right, for the absolute volume at the end of the day. So, I don’t think it’s I don’t think it’s over with reformulation.

No. But, you know, how much is there to give? Question. Maybe to add to it,

Conference Operator: next question comes from Sattusharda from Barclays. Please go ahead.

Sattusharda, Analyst, Barclays: Yeah. Hi. Good morning. I have three questions. So the first one, I think, has been partially answered.

But, like, like, on the CNCF volume outlook, like, you had minus 7% in q two. So what was the growth of CV in that? And how much was the impact of the weaker end market? And how would you expect this to evolve in H2? And the second question would be, like, on the CVE, can you talk the pricing trend in CVE?

Like, your EBIT per kg in CCF is up nicely despite volume decline. So are you, like, increasing pricing of CV given increased demand? Or and and secondly, does the pullback in cocoa butter prices have any implication here on the outlook on this? Right? And the third question would be on, like, food ingredients, specifically on the special nutrition, where you continue to see decline, but this is somewhat odd to what other ingredient companies are seeing like.

There there is some growth in fine formula and they had seen some recovery over the past six months on better birth rates in China. So do you think are you losing share over here? Yes, three questions.

Johan Westman, CEO, AAK: Thank you. And I’ll take since the first question was on CCF, I’ll just add a comment to the question before. I think also, when we look ahead, we do have a positive view on chocolate and confectionery indulgence over time in a global perspective. So just want to mention that also. Back to your questions on the CCE, within CCF and CB.

So was it declining in CB driven by the end volume in the market, but but 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 and be differentiated, depending on market and and specific products. With regards to special nutrition development, a large portion of our special nutrition is indeed infant nutrition.

And, yes, 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 into compete in China. And so 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. And 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.

So there is a competitive landscape where we lose a bit of market share in to international players, if you will, or their share into China. And then we compete on the local markets. So all of that plays into the mix.

Sattusharda, Analyst, Barclays: So, just a follow-up, like, say, like the cocoa prices So does this have any implication here on your outlook like on CVEs?

Johan Westman, CEO, AAK: I 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. And I think that’s positive from a consumption point of view. And for that, it 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. So cocoa butter will be an important ingredient within the total mix of chocolate and confectionery. So 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. So 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.

Sattusharda, Analyst, Barclays: Thank you. I be back in the queue.

Benjamin Wallstadt, Analyst, ABGSC: Thank you.

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

Priya Patel, Analyst, UBS: Hi. Thanks for taking my question. I just had one. So 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. This is so the way we operate in AK is that we I mean, we’re a global company. We’re a fantastic organization, a decentralized structure with passionate colleagues operating you know, we we really operate globally, 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. And 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. And I think that is a real strength of AK. But it also comes down to how do we then execute tactically, strategically given certain market dynamics. And 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 a market and how to derive or land into a best optimal play for a local market around a local factory.

So to take a few examples of that, we are implementing a CRM system to have a across the globe same system dealing with local and global customers and the insights and knowledge and learnings we get from that. So that is, call it, 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 costs, given the certain fixed cost structure in a certain plant or a certain market. So 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 of go to market operations, our supply chain to find the best way possible to to win volumes that, at the end of the day, will be accretive to our margin. And 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. So in essence, we are strengthening AK, making better happen in our go to market playbook.

Without going lengthy, that is what we mean.

Thomas Bergendahl, CFO, AAK: And then this goes towards, of course, our aspiration to go faster than the underlying market. And this is part of that drive, if you will, back to your second part of the question.

Johan Westman, CEO, AAK: Yeah. And then last but not least, we’re also investing more now in, in our commercial development and innovation, both functional area. We’re in and we are structuring that. We’re building a strength in that organization to get more in, 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 q three, right, but something that, again, helps drive towards the 2030 aspiration.

Priya Patel, Analyst, UBS: Okay. Great. Thank you.

Johan Fred, Analyst, SEB: The

Conference Operator: next question comes from Victor Hansen from DNB. Carnegie. Go ahead.

Victor Hansen, Analyst, DNB Carnegie: Gentlemen. Victor Hansen, DNB Carnegie here. A couple of follow ups to many previous great questions. I’ll start off with a big picture question first. So you run a decentralized model, local production in all regions, a model which has benefited you and many other Swedish companies historically.

Now you are 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 on larger contracts, etcetera. My question is how do you want to balance centralization aspect versus the control aspect?

Johan Westman, CEO, AAK: That’s a great question, something we 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 AK going forward. And then we are absolutely clear that we want to keep a decentralized model. But 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 and doing, what’s best for AK. And maybe, Thomas, you can add a bit to this, but this is absolutely some something we work hard on. Keep a decentralization, but benefit from our global structure.

Thomas Bergendahl, CFO, AAK: Yeah. And to me, the answer is very carefully, right, where we’re trying to find that balance. But I would say to us and the culture and the company and how we move forward on that journey is, it’s to me, it’s a lot about how we do this, not not necessarily where we end up exactly on the decentralized, centralized scale, if you will. Right? It’s how we do it, where we give the 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.

Right? So there is no transfer of responsibility at any point in this. It’s more of a coaching mentality and bringing from foreign from the local talent on these items, right, and putting some structure into it. But the absolute responsibility is always with the local teams.

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

Thomas Bergendahl, CFO, AAK: And with my sort of four years in the company, what I’ve never heard in AK is someone raising their hands and saying, you know what? I 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 we’ll take on the best practices, the the structure, and everything, and we will deliver. And I I think as 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.

Victor Hansen, Analyst, DNB Carnegie: Okay. Perfect. Thanks for that answer. A couple couple of more questions. We’ve had lots of chocolate questions already, but just a 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? And is there anything here that you can use that you have that is specific for Latin America that you can use to support the other regions?

Johan Westman, CEO, AAK: Thank you. Yes, I’ll 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. And then it’s about the local, different local markets and and who is there, what kind of customers, what kind of needs. We have a strong setup in in Latin America, especially in the Southern parts of Latin America, and a strong position and a strong value proposition to our customers.

So we are performing well over time, and we have done really well recently. And yes, we are growing in that part, while as we mentioned, we have seen the volume decline being in other markets. So we’ve done well there. We’re absolutely cross sharing experiences and what is what are we executing well, 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 US and and and Europe and and Asia.

But part of it is also local customers where we, learn from how we can execute. So absolutely things to learn from, and a strong execution. But I

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

Johan Westman, CEO, AAK: Yes. And 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 AK strong in that region.

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

Johan Westman, CEO, AAK: Thank you. I think short answer is confirming, yes, balance sheet is strong. M and A, a preferred option, yes. We haven’t changed our approach. We remain positive to use capital for M and A.

We are active in the market. But as I said before, there are not that many deals that are up for, for play in in our market. So we are active. We are nurturing that. We are active meeting with potential partners for an m and a or a joint venture or a corporation one way or the other.

So let’s see, what we have. But we are absolutely positive to that, and and nothing has changed over the last couple of years.

Thomas Bergendahl, CFO, AAK: No. More than that, we’re getting more professional structured in the process, I think. Right? That that’s a big difference, over the last few years, I would say.

Victor Hansen, Analyst, DNB Carnegie: Perfect. A final one for me. Tariffs, the you said you said no tariff effect, But I’m wondering here, is it already? Or could it help drive reformulations? And yes, would that be negative or positive in your eyes?

Johan Westman, CEO, AAK: Yes. Obviously, difficult to forecast what kind of change would happen. It all depends on where the tariffs lands and what impact it would have to certain raw materials. If we try to 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. Then 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. So the whole market, our competitors will have to import the same type of ingredient with the same type of tariff. So in essence, that would most likely then lead to a higher cost for the material coming into The U. S.

And then it leads to something we need to forward to customers and into retail eventually. Then of course, if you have different tariff levels between different countries from where we source raw materials, then it might lead to needing to optimize sourcing more from one country than the other, and then 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. Speaking of so that is, call it, 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 reforming, yes, 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. But 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 in any in any of the food segments.

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

Oscar Lindstrom, Analyst, Danske Bank: Good morning. Two questions from my side. First on pricing, I mean, you’ve seen or said that you have lost some market share potentially in the bakery segment due to what I interpret as mispricing and the overall weak volumes 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, let’s say, 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. Again, that is not how we operate, right? So we focus on driving EBIT growth in absolute terms. That’s our number one financial target. And with that comes the need for trying to optimize our portfolio, trying to develop our playbook.

And I wouldn’t call our bakery volume loss due to kind of mispricing or so. It’s always a decision we need to make at any given point in time. And 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? And vice versa, in other cases, we win it. That is always a day to day tactical decision we try to make, and that’s where we’re trying to, again, 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.

But I wouldn’t call it mispricing, it was active decisions. And that’s how we will continue to operate going forward. So 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, but we’re also always going to calculate what does that mean for our absolute earnings at the end of the day. And with that, we remain committed to driving earnings growth in absolute terms and margin growth. But again, that has to be a tactical playbook industry by industry and plant by plant.

Oscar Lindstrom, Analyst, Danske Bank: All right. Thank you. My second question is on volumes. So down 3% like for like in Food Ingredients and 7% in CCF. 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?

Thomas Bergendahl, CFO, AAK: No. I think our our as we said before, our visibility is somewhat limited in this. We, my take on is it not destocking that we see at the moment. It’s underlying demand in most segments driven by higher inflation and similar things, right? So that would be the primary driver, as I see it.

Johan Westman, CEO, AAK: What we have seen, though, I mean, 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 do you lock in the contract, so 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 and you don’t want to buy too much stock at high prices too early. But it’s very difficult to say whether that was really destocking or not. What we do know is that there is more frequent conversations about where are things moving and not moving a bit shorter in terms of how you contract in order to continue to optimize and and hope I I I’m thinking, you know, hoping for, you know, prices to come down a bit.

So a bit more active, but I I couldn’t say that it’s absolute destocking. Probably a bit when we first heard saw the tariff impact and so forth. We saw a bit of like stop and hold a bit, and that led to a bit of destocking, but I’m not sure it’s destocking today in quarter two.

Oscar Lindstrom, Analyst, Danske Bank: Maybe if I could, just a follow-up on that. I mean, we’ve seen the cocoa price come down quite a bit, at least from recent highs. It’s still up significantly where it was sort of 2023. Is that having any impact on on customer behaviors and and willingness to place orders?

Thomas Bergendahl, CFO, AAK: Yeah. It depend 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 to their reality, if you will. Right? 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 we have seen earlier in the year, at least, the 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 if there is a tendency to go a bit longer from 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: Yes. And 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 the next quotation and so forth. So yes, we’re in there all the time, and we are one of the important players in this market.

So always trying to optimize win business at a relevant margin level.

Oscar Lindstrom, Analyst, Danske Bank: All right. Thank you. Those were my questions.

Johan Westman, CEO, AAK: 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 two twenty twenty five. Thank you for listening.

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