AAK AB (PUBL) 1
Interim Report
Fourth quarter and Year-end report, 2016Chief Executive's comments
Again - all-time high operating profit and strong cash flowWe are happy and proud to see that our determined, targeted and hard work based upon the clear strategy is yielding good results. For both the quarter and the full year AAK achieved again a record-high operating profit. The double-digit year-on-year improvement for the Group continued, a trend since 2010. This is despite parts of the world markets experiencing material challenges.
Operating profit, excluding non-recurring items, reached SEK 435 million (388), an improvement of 12 percent compared to the corresponding quarter in 2015. The currency translation impact was negative SEK 8 million, mainly related to Food Ingredients. Operating profit, at fixed foreign exchange rates and including non-recurring items, improved by 23 percent.
Food Ingredients reported a strong quarter with high single-digit profit growth due to a continued improved product mix, including a higher portion of customer co-developed solutions. Ramp-up costs in Brazil have, according to plan, been absorbed in the reported profit.
Chocolate & Confectionery Fats reported an impressive quarter with strong double-digit organic volume growth and profit growth.
Technical Products & Feed was in line with the previous two quarters but had a more challenging development compared to the exceptionally strong corresponding quarter in 2015.
Total volumes continued to grow nicely and were up 7 percent (6). Organic volume growth was 2 percent (1), despite continued declining commodity volumes in Food Ingredients where the growth in 2015 was exceptional. However, the demand for speciality and semi-speciality products continued to be strong, generating organic volume growth of 5 percent (0).
Business Area operating profit:
Food Ingredients improved by 8 percent, reaching SEK 278 million (257).
Chocolate & Confectionery Fats reported a result of SEK 169 million (135), an improvement of 25 percent.
Technical Products & Feed reached SEK 24 million (32).
Operating profit per kilo, excluding non-recurring items, reached SEK
(0.79), an improvement of 5 percent. The currency translation impact was negative SEK 0.02.
Operating profit per kilo for Food Ingredients increased to SEK 0.79 (0.77). This was due to an improved product mix, offset by a negative currency translation impact and ramp-up costs related to greenfield investments. At fixed foreign exchange rates, operating profit per kilo improved by 5 percent.
Operating profit per kilo for Chocolate & Confectionery Fats improved strongly and reached SEK 1.69 (1.57), an improvement of 8 percent. There was continued organic volume growth for both speciality and semi-speciality products in the quarter with the latter being particularly strong. Ramp-up costs related to greenfield investments have had a negative impact on operating profit per kilo.
Operating profit per kilo for Technical Products
& Feed decreased, reaching SEK 0.34 (0.45).
Earnings per share increased by 18 percent, to SEK 6.69 (5.65). This is despite increased financial costs due to extended borrowings in high-interest rate countries (Brazil, China and India) and increased earnings in countries with high tax rates.
Sales amounted to SEK 6,326 million (5,266). The increase was mainly due to the positive product mix, increased raw material prices and acquisitions, partly offset by a negative translation impact of SEK 96 million.
Food IngredientsThe demand for speciality and semi-speciality products was stable, generating organic volume growth of 1 percent (1). The picture between the segments was mixed though.
The Bakery segment had another challenging quarter, particularly in Western Europe. In other regions, however, we are starting to see some improvements.
The Dairy segment continued the trend from previous quarters and reported solid organic
volume growth. Several regions and markets showed strong growth. Milk fat prices have been at a very low level for several quarters but have increased since the summer.
Special Nutrition, comprised of Infant, Senior and Medical Nutrition, reported double-digit volume growth. This was driven by an extraordinary volume growth for our Infant Nutrition product range Akonino®. Our other Infant Nutrition product range InFat®, sold through Advanced Lipids AB, a joint venture of AAK and Enzymotec, had a more challenging quarter after relatively strong volume growth last year. However, the product mix was significantly better.
Foodservice reported organic volume growth with good development particularly in the UK and the US.
Commodity products showed negative volume development after exceptional growth in 2015.
Chocolate & Confectionery FatsTotal volumes increased by 16 percent (2). Organic volume growth in the quarter was 16 percent (negative 2).
There was continued organic volume growth for both high-end and low-end products in the quarter with the latter showing particularly strong growth for the second consecutive quarter.
After two years of severely deteriorating market conditions in Russia and Ukraine, the strong growth during the first three quarters continued, but still from low levels.
Strong cash flowOperating cash flow including changes in working capital amounted to SEK 843 million (661). Cash flow from working capital was positive, amounting to SEK 426 million (292). The strong cash flow was due to increased accounts payables and reduced accounts receivables, this despite organic volume growth. Increased raw material prices and working capital tied up for the greenfield investments continued to have a negative impact on the cash flow.
Return on Capital Employed (ROCE) Calculated on a rolling 12 months basis, Return on Capital Employed (ROCE) was 15.8 percent (15.7 at December 31, 2015). This is despite the negative effect of higher workingcapital due to increased raw material prices, greenfield investments and acquisitions.
Greenfield investmentsOur greenfield project in Brazil is progressing according to plan and volumes are increasing quarter by quarter.
Our China greenfield project also continues according to plan. The first limited volumes will be delivered during the first quarter 2017.
To be able to deliver the whole product range from the factories, the gradual ramp-ups will continue during 2017.
AAKtionOur company program for 2014-2016, "AAKtion", has been completed during the quarter. The overall implementation of the program has progressed well over its three years.
New company program and management ambitionOur new company program, The AAK Way, will guide us up through 2019. Our key focus with the program is to enable the company to continue to deliver strong organic growth. This will be achieved by focusing on five priority areas: Go to Market, Operational Excellence, Special Focus Areas, Innovation, and People.
In parallel to our new company program we have established a new management ambition for the coming years. We expect, on average, a 10 percent year-on-year improvement in operating profit which will support a good and consistent improvement in earnings per share. The ambition will be achieved through organic growth, innovation, a continued improved product mix, and improved efficiency.
Concluding remarksBased on AAK's customer value propositions for health and reduced costs, and our customer product co-development and solutions approach, we continue to remain prudently optimistic about the future.
The main drivers are the continued positive underlying development in Food Ingredients and the continued improvement in Chocolate & Confectionery Fats.
Arne Frank
Chief Executive Office
Financial highlights and key ratios
SEK million (unless otherwise stated)
Q4 2016
Q4 2015
%
Full year
2016
Full year
2015
%
Income statement
Volumes ('000 MT)
524
491
+7
1,966
1,833
+7
Operating profit excluding non-recurring items
4351)
3882)
+12
1,6153)
1,4114)
+14
Operating profit including non-recurring items
4501)
3732)
+21
1,6153)
1,4094)
+15
Net profit
287
245
+17
1,040
945
+10
Financial position
Total assets
17,184
13,896
-
17,184
13,896
-
Equity
7,576
6,650
-
7,576
6,650
-
Net working capital
3,604
3,087
-
3,604
3,087
-
Net interest-bearing debt
2,620
2,083
-
2,620
2,083
-
Cash flow
EBITDA
574
490
+17
2,079
1,840
+13
Cash flow from operating activities
843
661
-
1,213
1,736
-
Cash flow from investing activities
-327
-549
-
-1,421
-1,016
-
Free cash flow
516
112
-
-208
720
-
Earnings per share
Earnings per share before dilution, SEK
6.69
5.65
+18
23.71
22.17
+7
Earnings per share after dilution, SEK
6.69
5.64
+19
23.71
22.12
+7
Key figures
Volume growth, %
+7
+6
-
+7
+8
-
Operating profit per kilo (excl. non-recurring items), SEK
0.83
0.79
+5
0.82
0.77
+6
Return on Capital Employed (R12 months)
15.8
15.7
+1
15.8
15.7
+1
Net debt / EBITDA, multiple
1.26
1.13
+12
1.26
1.13
+12
Non-recurring items for the fourth quarter 2016 amounted to SEK 15 million and consist of a reassessment of the preliminary negative goodwill relating to the acquisition of California Oils Corporation.
Non-recurring items for the fourth quarter 2015 consist of acquisition costs of SEK 15 million related to Kamani Oil Industries Pvt. and TLC.
Non-recurring items for the full year 2016 amounted to SEK 0 million and consist of acquisition costs of SEK 15 million and a net positive impact of SEK 15 million related to the acquisition of California Oils Corporation.
Rolling 12 months, '000 MT
Non-recurring items for the full year 2015 amounted to negative SEK 2 million and consist of acquisition costs of SEK 15 million and SEK 45 million in net profit as a result of the sale of the company's office building in M.P. Bruuns Gade, Aarhus, Denmark. An assessment of previously made non-recurring provisions has resulted in increased provisions of SEK 32 million.
600
550
Quarter, '000 MT
500
450
400
350
300
250
AAK Group - VolumeQ4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 12 13 13 13 13 14 14 14 14 15 15 15 15 16 16 16 16
Quarter Rolling 12 months
2 000
1 800
1 600
1 400
1 200
550
500
Quarter, SEK million
450
400
350
300
250
200
150
AAK Group - Operating profitQ4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 12 13 13 13 13 14 14 14 14 15 15 15 15 16 16 16 16
Quarter Rolling 12 months
1 700
Rolling 12 months, SEK million
1 600
1 500
1 400
1 300
1 200
1 100
1 000
900
800
0,90
0,80
Quarter, SEK/kilo
0,70
0,60
0,50
0,40
0,30
AAK Group - Operating profit per kiloQ4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
0,90
0,80
0,70
0,60
0,50
0,40
0,30
18%
Rolling 12 months, SEK/kilo
16%
14%
12%
10%
Return on Capital Employed - Rolling 12 monthsQ4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
12 13 13 13 13 14 14 14 14 15 15 15 15 16 16 16 16
Quarter Rolling 12 months
12 13
13 13 13
14 14
14 14 15
15 15
15 16
16 16 16
AAK AB published this content on 03 February 2017 and is solely responsible for the information contained herein.
Distributed by Public, unedited and unaltered, on 03 February 2017 06:56:01 UTC.
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