Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- AAK AB (STU:6AA0, Financial) reported a 4% increase in volumes for Q2 2024, driven by strong performance in chocolate and confectionery fats and food ingredients.
- Operating profit per kilo increased by 21% at fixed currencies, attributed to global optimization programs and operational leverage from higher volumes.
- Overall operating profit rose by 26% at fixed currencies, supported by favorable market conditions.
- The company maintained a low leverage ratio of 0.41 in net debt-to-EBITDA and achieved a strong return on capital employed at 21.5%.
- AAK AB (STU:6AA0) successfully implemented bio boilers at the Aarhus site in Denmark, reducing CO2 emissions by over 90% and saving SEK100 million annually in costs.
Negative Points
- Volumes in the technical products and feed segment declined by 11% due to production challenges during the restart process after annual maintenance.
- Operating profit per kilo in the technical products and feed segment dropped to SEK0.15, with overall operating profit falling to SEK9 million, an 80% decrease.
- The company anticipates a temporary stock build-up due to EUDR compliance, expected to negatively impact cash flow by roughly SEK500 million in the second half of the year.
- Special nutrition volumes declined year-over-year, although EBIT per kilo grew, indicating ongoing challenges in this segment.
- Finance costs remained high due to increased interest rates, impacting overall financial performance.
Q & A Highlights
Highlights from AAK AB's Q2 2024 Earnings Call
Q: Can you explain the sequential development in food ingredients margin and whether we should expect further sequential deterioration into the second half?
A: Johan Westman, President and CEO: The sequential development is not a big drama. There are always movements between quarters, and Q2 is typically slightly softer. We don't see big movements, but there are always some movements in the mix and portfolio and between certain regions.
Q: How much benefit are you seeing from customers shifting recipes in response to higher cocoa prices, and how is the pipeline of such reformulation opportunities evolving into H2?
A: Johan Westman, President and CEO: We offer alternatives to cocoa butter, which bring functionality and cost-efficient solutions. With higher cocoa prices, there's an increased interest in alternatives. We have seen increased penetration for cocoa butter alternatives, and we believe there is a real opportunity for further penetration going forward.
Q: Does the high cocoa butter price give you license to raise your pricing on CBEs in 2025?
A: Johan Westman, President and CEO: We always win and lose against competition, so I wouldn't call it a license to price. However, increased demand and opportunity do support the industry dynamics and competitive landscape.
Q: Are the high returns in the vegetable oil processing industry sustainable, or could strong developments encourage more capacity from larger competitors over the medium term?
A: Johan Westman, President and CEO: We believe higher margins for companies producing oil and fats ingredients make sense given the value they bring. We see continued opportunities for optimization and portfolio management.
Q: Are you confident that your traceability to plantation would have prevented issues raised by Swedish Nature last year?
A: Tim Stephenson, VP, President Global Sourcing and Trading: Our traceability to plantation was 93% in 2023. While we can't rule out individual issues, we are confident that our traceability and actions are appropriate and industry-leading.
Q: Can you explain the dynamics behind the volume growth in bakery and the EBIT per kilo development in special nutrition?
A: Tomas Bergendahl, CFO: In food ingredients, there is some seasonality in Q2. Special nutrition volumes declined due to lower birth rates in China, but margins improved somewhat over time.
Q: What are the drivers of growth and premiumization within food ingredients, excluding special nutrition?
A: Johan Westman, President and CEO: We have structured optimization programs and focus on high-value-added ingredients. This includes internal improvements and challenging lower-profit products, driving better EBIT per kilo.
Q: How should we think about the reformulation opportunity in CCF for H2?
A: Johan Westman, President and CEO: The large players in the industry often have yearly tenders. We have seen some impact from higher cocoa prices, but we believe there is still more potential for penetration of our solutions.
Q: Can you provide an update on your M&A pipeline?
A: Johan Westman, President and CEO: We are still very interested and capable, but there are not many transactions in our market. We remain focused and relevant for any opportunities that arise.
Q: Could the cash-to-grow program mitigate some of the EUDR-driven additional working capital?
A: Tomas Bergendahl, CFO: The program is progressing well, with a seven-day working capital reduction in facilities that have gone through the process. We expect this effect to continue as we roll it out to remaining plants.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
