AAK AB (PUBL) 1
Interim Report
Third quarter, 2017Acting CEO's comments
All-time high operating profitOur determined, focused and hard work based upon our clear strategy is continuing to yield good results. For the 27th consecutive quarter, a record-high operating profit was achieved.
The Group reported a double-digit year-on- year improvement for the third quarter.
Operating profit reached SEK 475 million (431 excluding acquisition costs), an improvement of 10 percent compared to the corresponding quarter in 2016.
The currency translation impact was negative SEK 14 million of which SEK 9 million was related to Food Ingredients and SEK 5 million to Chocolate & Confectionery Fats. Operating profit at fixed foreign exchange rates and excluding acquisition costs improved by 13 percent.
Food Ingredients reported another quarter with double-digit profit growth driven by a continued improved product mix, including a higher portion of customer co-developed solutions.
Chocolate & Confectionery Fats has seen a stronger than projected growth in demand, combined with some production disruptions in Aarhus, Denmark, which have resulted in increased production and supply chain costs. This will gradually start to improve towards the end of the fourth quarter. Despite these challenges the profit growth was solid with a strong single-digit volume growth. The mix continued to improve with strong growth for both speciality and semi-speciality products.
Ramp-up costs for our new factories in Brazil and China have, according to plan, been absorbed in the reported profit for the two above-mentioned business areas.
Technical Products & Feed was back to stable growth in operating profit after some challenging quarters. The raw material prices in our fatty acids business have been back to more normal levels for several months.
Total volumes continued to grow nicely and increased by 8 percent (11). Organic volume growth was 4 percent (4). The demand for speciality and semi-speciality products continued to be strong and generated organic volume growth of 4 percent (5).
Business area operating profit:
Food Ingredients improved by 15 percent, reaching SEK 288 million (251). At fixed foreign exchange rates operating profit was up 18 percent.
Chocolate & Confectionery Fats reported a result of SEK 198 million (190), an improvement of 4 percent. At fixed foreign exchange rates operating profit was up 7 percent.
Technical Products & Feed reached SEK 25 million (24), an improvement by 4 percent.
Operating profit per kilo reached SEK 0.87 (0.85 excluding acquisition costs). The currency translation impact was negative SEK
At fixed foreign exchange rates operating profit per kilo was up 6 percent.
Operating profit per kilo for Food Ingredients improved to SEK 0.79 (0.75), mainly as a consequence of the improved product mix, offset by ramp-up costs in Brazil and China and two months' dilution from our acquisition in 2016. At fixed foreign exchange rates operating profit per kilo improved by 9 percent.
Operating profit per kilo for Chocolate & Confectionery Fats reached SEK 1.80 (1.88). There was continued strong organic volume growth for both speciality and semi-speciality products, offset by the above-mentioned production disruptions and ramp-up costs. At fixed foreign exchange rates operating profit per kilo declined by 2 percent.
Technical Products & Feed reported a solid operating profit per kilo, SEK 0.36 (0.35).
Earnings per share increased by 20 percent, to SEK 7.21 (6.00).
Sales amounted to SEK 6,553 million (5,678). The increase was mainly due to higher raw material prices, a positive product mix, organic volume growth, and the effect of the acquisition in 2016. This was partly offset by a negative currency translation impact of SEK 200 million.
Food IngredientsThe demand for speciality and semi-speciality products was good, generating organic volume growth of 3 percent (2). The picture between the different segments was mixed though.
The Bakery segment had another challenging
quarter, particularly within the European market. The development in North Latin America and the US continued to be weak. However, there was good growth in Asia, the Nordics and South Latin America.
The Dairy segment continued the strong trend from 2016 and once again reported high double-digit organic volume growth. All regions showed very strong growth except the Nordics where the development was modest.
Special Nutrition, comprised of Infant, Senior and Medical Nutrition, reported high double- digit volume growth with a significantly better product mix compared to the corresponding quarter last year. This was driven by a double- digit 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, also showed double-digit volume growth in the quarter.
Foodservice reported declining volumes in the quarter. This was mainly due to continued challenging market conditions in the Nordics.
Chocolate & Confectionery FatsThe organic volume growth for the business area increased by 9 percent (15). There was continued strong organic volume growth for both speciality and semi-speciality products, with several showing exceptional volume growth - in mature as well as in emerging markets.
Cash flowOperating cash flow including changes in working capital amounted to SEK 492 million (negative 135). Cash flow from working capital amounted to SEK 156 million (negative 467).
Strong inventory management combined with some positive impact from lower raw material prices have impacted cash flow favorably.
However, this was partly offset by a continued strong organic volume growth and working capital tied up for our new factories in Brazil and China.
There has been a decrease in raw material prices since mid-first quarter which will have a positive impact on cash flow with a time lag of 6-9 months. However, we have started to see a modest increase in raw material prices since some months.
Return on Capital Employed (ROCE)Calculated on a rolling 12 months basis,
Return on Capital Employed (ROCE) was 15.4 percent (15.8 at December 31, 2016). ROCE declined due to increased raw material prices, investments in Brazil and China, and the acquisition in 2016. The ROCE for the third quarter was 15.3 percent compared to 13.9 percent for the corresponding quarter 2016.
New factoriesThe ramp-up of our new factories in Brazil and China is progressing according to plan with volumes increasing quarter by quarter. The official inauguration of our new factory in Zhangjiagang, China was held in the beginning of September with more than 200 customers and distributors participating.
The AAK WayThe key focus of our company program The AAK Way 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. The implementation of the program is developing according to plan.
CEO and President Arne Frank has passed awayIt was with great grief we received this sad notification in July. Arne's hope for a positive outcome of his ongoing cancer treatment could unfortunately not be realized. Arne Frank joined AAK as CEO and President in 2010.
With very great success he developed AAK into a world-leading player in the market for value-adding vegetable oils and fats. Arne will be deeply missed within AAK, both on a personal and professional level.
In this unfortunate situation, AAK's Management has, together with its teams, very professionally continued to execute on the company's strategy.
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 a continued improvement in Chocolate & Confectionery Fats.
Fredrik Nilsson
Chief Financial Officer and acting CEO
Financial highlights and key ratios
SEK million (unless otherwise stated)
Q3 2017
Q3 2016
%
Q1-3 2017
Q1-3 2016
%
Full year
2016
Income statement
Volumes ('000 MT)
543
505
+8
1,579
1,442
+10
1,966
Operating profit excluding non-recurring items Operating profit including non-recurring items
475
475
4311)
4161)
+10
+14
1,315
1,315
1,1801)
1,1651)
+11
+13
1,6152)
1,6152)
Net profit
315
263
+20
863
753
+15
1,040
Financial position
Total assets
16,535
16,091
-
16,535
16,091
-
17,184
Equity
7,406
7,087
-
7,406
7,087
-
7,576
Working capital
4,346
4,047
-
4,346
4,047
-
3,604
Net interest-bearing debt
3,233
3,165
-
3,233
3,165
-
2,620
Cash flow
EBITDA
Cash flow from operating activities
595
492
530
-135
+12
-
1,680
255
1,505
369
+12
-
2,079
1,213
Cash flow from investing activities
-175
-708
-
-519
-1,094
-
-1,421
Free cash flow
317
-843
-
-264
-725
-
-208
Earnings per share
Earnings per share, SEK
7.21
6.00
+20
19.93
17.03
+17
23.71
Key figures
Volume growth, %
+8
+11
-
+10
+7
-
+7
Operating profit per kilo (excl. non-recurring items), SEK
0.87
0.85
+2
0.83
0.82
+1
0.82
Return on Capital Employed (R12 months), %
15.4
15.7
-2
15.4
15.7
-2
15.8
Net debt / EBITDA, multiple
1.43
1.59
-10
1.43
1.59
-10
1.26
Acquisition costs of SEK 15 million related to California Oils Corporation have been recorded during the third quarter 2016.
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.
AAK Group - Volume
AAK Group - Operating profit
650
2 200
500
1 800
600
2 100
450
1 700
550
2 000
400
1 600
500
1 900
350
1 500
450
1 800
1 400
400
1 700
300
1 300
350
1 600
250
1 200
300
1 500
200
1 100
250
1 400
150
1 000
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
13 13 14 14 14 14 15 15 15 15 16 16 16 16 17 17 17
13 13 14 14 14 14 15 15 15 15 16 16 16 16 17 17 17
Quarter Rolling 12 months
Quarter Rolling 12 months
1,00
0,95
0,90
Quarter, SEK/kilo
0,85
0,80
0,75
0,70
0,65
0,60
Quarter, '000 MT
AAK Group - Operating profit per kiloQ3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
1,00
0,95
0,90
0,85
0,80
0,75
0,70
0,65
0,60
18%
16%
14%
12%
10%
Rolling 12 months, SEK million
Rolling 12 months, '000 MT
Quarter, SEK million
Return on Capital Employed - Rolling 12 monthsQ3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
13 13 14 14 14 14 15 15 15 15 16 16 16 16 17 17 17
Quarter Rolling 12 months
Rolling 12 months, SEK/kilo
13 13
14 14
14 14 15
15 15 15
16 16 16 16
17 17 17
AAK AB published this content on 26 October 2017 and is solely responsible for the information contained herein.
Distributed by Public, unedited and unaltered, on 26 October 2017 06:43:05 UTC.
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