Interim Report Third quarter 2019 - AAK · Lecithin is a critical ingredient with key functionalities for customers within most of AAK’s core segments – in particular Chocolate

The Co-Development Company

Interim Report Third quarter

2019

Johan Westman, CEOFredrik Nilsson, CFO

The Co-Development Company23/10/20192

Agenda

1

2

3

4

Third quarter 2019

Business area information

Key strategic activities

Q&A


Highlights Q3Continued profit growth on the back of a strong Food Ingredients performance

3

Limited organic volumegrowthAll-time high operating profit for a third quarter Reported tax costs reduced to 25 percent (27)Earnings per share increased by 10 percent Cash flow impacted by sourcing of strategic raw materialsStrong trend and improved mix in Food IngredientsAs expected, the lower yield in our CCF business continued with higher than normal production costsAcquisition of 80 percent of Soya International (Europe) Ltd. expands ingredient portfolio

GROWTH & RETURNSHIGHLIGHTS

Q3 19

23/10/2019

Volume571,000 MT

(up 1% y/y)

Adjusted operating profitSEK 569 million(up 8% y/y, up 4% y/y*)

ROCE 15.1%**

Adjusted operating profit

per kiloSEK 1.00

(up 8% y/y, up 2% y/y*)

* Fixed FX ** Rolling 12 months incl. IFRS 16 effect


Operating profit for Q3 2019 – the trend continued

178164

231251

204 196

246265

220 211

273

242 244

303328331 343

321 326

376368

431 435431409

475 471460 454

526 516509 518

569

0

100

200

300

400

500

600

381

Q2Q1 Q3 Q4

287 281 292

388

20192010–2018


Soya International, our latest acquisition, is a true global lecithin player with a scalable platform which AAK can leverage

Processing partner in Rotterdam

Operates out of Hale

Comprehensive lecithin product range sourced from a broad supplier base

Est. in 1996, headquartered in the UK with ~10 employees

Global presence with ~€15 million of sales to more than 40 markets

Focus on non-GMO speciality lecithin

Soya International –

strategicrationale

Increase customer proximity within key segments

One of the closest adjacent ingredients to O&Fs

Scalable platform with a solid track record

Lecithin is a critical ingredient with key functionalities for customers within most of AAK’s core segments – in particular Chocolate & Confectionery Fats.

Similar industry dynamics will increase synergy potential and simplify integration with AAK’s existing operations, including sourcing and go-to-market approach

There is a clear segment for speciality/semi-speciality lecithin.

Strong market growth on the back of global trendsThe speciality/semi-speciality lecithin market is benefiting from strong underlying trends such as non-GMO, clean label, organic, sustainability/traceability, and health

Soya International has been active in the market for 20+ years and has experienced strong financial development with an asset light approach set for further scaling


FX exposure – translation impact positive in the quarter

Averagerate 2018

Averagerate YTD

2019

Movement vs SEK

Spot rate Sep

USD 8.71 9.40 9.83

EUR 10.26 10.55 10.72

GBP 11.58 11.95 12.10

MXN 0.45 0.48 0.50


Working capital days up four days since year-end

Inventory+1

Receivables+1

Payables-3

Working capital days, rolling 12 months Development YTD

Other WCFlat

30

35

40

45

50

55

60

65

70

75

Q2 2019Q3 2018Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2019Q4 2018 Q1 2019

Acc. PayInventory Acc. Rec Tot Net WC


Good EBITDA improvement but Q3 cash flow was impacted by sourcing of strategic raw materials

Cash flow Q3 2019 Comments

664

735

-303

552

161

Paid interest and taxes

225

208

EBITDA 2018 EBITDA Changes WC CAPEX and acquisitions

108

Other non-cash items

FCF-433

+11%

156

102

-705

-105-552

Other

Working Capital

Inventory

AR

AP

(-37)

(-118)

(-159)

(15)

(364)

(LY) Acquisitions

Cash flow from inventory driven by sourcing of strategic raw materials. Effects of lower raw material prices have diminished.

CAPEX related to regular maintenance investments and capacity increases amounted to SEK 208 million.


Return on Capital Employed (ROCE)We target a gradual and continuous improvement

ROCE end Q3 2019*15.1%

EBIT LTMSEK 2,097

million

Capital employed*SEK 13,872

millionGrowth and operating leverage

to drive increase in ROCE

* ROCE: Return on Capital Employed calculated on rolling 12 months

14,8

15,0

15,2

15,4

15,6

15,8

16,0

Q1 18

%

Q3 16 Q4 16 Q4 17Q1 17 Q3 17Q2 17 Q2 18 Q3 18 Q4 18 Q1 19 Q2 19 Q3 19

ROCE R12M excl. IFRS 16ROCE R12M incl. IFRS 16


Loan and duration profile

SEK million Duration

Mortgage 547 13 yearsMTN bond 500 5 yearsMTN bond 1,100 3 yearsBilateral 300 2 yearsClubloan 550 2 years

SEK million Duration

Bilateral 618 6 monthsBank loans 548 6 months

72%

Long term

28%Short term

Total loans 4,163

Cash -731

Net 3,432


Food Ingredients

Strong profit growth driven by Plant-based, Dairy, and Bakery segments

Special Nutrition had a mixed performanceGrowth for high-end solutions continued, although at a slower paceLower volumes for our semi-speciality solutionsWe have an impact from lower birth rates in China as well as destocking by some customers

Our business for plant-based solutions has generated strong volume and profit growth, although from a small base. Our pipeline of customer co-development projects has more than doubled between the second and the third quarterFoodservice improved profitability with small volume growth

0

320

0

900

200 300

600

1.200

1.500

340

20

220

360

240260280300

380

Q1 18

Q1 17

Q4 17

MSEK MSEK

Q1 16

Q4 16

Q3 19

Q4 15

Q4 18

Q3 15

Q2 16

Q2 19

Q3 18

Q3 16

Q2 17

Q2 18

Q3 17

Q1 19

321

364

Rolling 12 months Quarter

0,90

0,00

0,05

0,65

0,70

0,75

0,85

0,80

0,85

0,75

0,95 0,95

0,00

0,70

0,05

0,65

0,80

0,90

1,00 1,00

SEK

Q3 17

Q4 18

0,95

Q2 17

Q1 16

Q2 19

Q3 16

Q3 18

Q4 17

Q3 15

Q2 18

Q4 15

Q4 16

Q1 18

Q1 19

Q3 19

Q1 17

SEK

Q2 16

0,85

QuarterRolling 12 months

Business area development Ope

ratin

g pr

ofit

Ope

ratin

g pr

ofit

per k

ilo

Organic volume growth

+2%

Operating profit +13%

Operating profit per kilo+12%


Chocolate & Confectionery Fats

A quarter with limited volume growthThe lower operating profit per kilo was caused by higher production costs due to low-yielding shea kernelsWe expect to use the last batches during Q4Slightly positive price development on high-end solutions in the quarter

Capacity expansion investments progress according to planThere is a planned extended maintenance stop scheduled for our production plant in Aarhus, Denmark during the first quarter next year With new kernels in place and additional capacity, we expect to reach normal cost levels within the business area by the middle of the first quarter next year

0

200

400

600

800

180190

010

140

210

160

200

120130

150

170

Q3 18

Q4 15

Q1 16

Q3 19

Q4 17

Q4 18

206

MSEK MSEK

Q3 15

Q2 16

Q2 17

Q4 16

Q1 17

Q3 17

206

Q3 16

Q2 18

Q1 19

Q2 19

Q1 18


0,00

0,20

0,40

0,60

0,80

1,00

1,20

1,40

1,60

1,80

2,00

2,20

1,80

0,10

1,90

2,00

0,00

0,20

1,60

1,40

1,50

1,70

2,10

Q2 19

Q1 18

Q3 19

Q2 18

Q4 16

Q1 16

SEK

1,79

SEK

Q3 16

Q4 15

Q3 15

Q1 19

Q1 17

Q4 18

Q2 17

Q2 16

Q4 17

Q3 18

1,78

Q3 17


Business area development Ope

ratin

g pr

ofit

Ope

ratin

g pr

ofit

per k

ilo


+1%

Operating profit +0%

Operating profit per kilo

-1%


33

0

20

40

60

80

100

120

140

160

180

0

5

10

15

20

25

30

35

40

45

50

MSEKMSEK

Q3 17

Q3 16

37

Q2 17

Q3 15

Q4 15

Q1 16

Q2 16

Q4 16

Q1 17

Q4 17

Q1 18

Q2 18

Q3 18

Q4 18

Q1 19

Q2 19

Q3 19


0,510,47

0,000,050,100,150,200,250,300,350,400,450,500,550,600,650,70

0,000,050,100,150,200,250,300,350,400,450,500,550,600,650,70

Q3 16

SEK SEK

Q3 15

Q2 16

Q2 17

Q4 15

Q1 16

Q4 17

Q4 16

Q1 17

Q3 17

Q1 18

Q2 18

Q3 18

Q4 18

Q1 19

Q2 19

Q3 19

Rolling 12 monthsQuarter

Technical Products & Feed

Ope

ratin

g pr

ofit

Ope

ratin

g pr

ofit

per k

ilo

Both our fatty acids business and our feed business declined compared to the very strong corresponding quarter last year

Last year, our feed business was favorably impacted by the dry weather in Scandinavia which resulted in farmers purchasing more feed products than during a normal year

Compared to historical performances, we continue to operate on a significantly higher operating profit level due to our successful implementation of our customer co-development within the business area

Business area development


-4%

Operating profit -11%

Operating profit per kilo

-8%


Q3 summary

AkoPlanet™Strong growthStrong pipeline development

Dairy, Bakery, and FoodserviceGood EBIT/kilo improvement

M&AStep into adjacencyGood progress of earlier acquisitions

Special NutritionMixed performance, affected by:

Lower birth rates in China Destocking by some customers

Chocolate & Confectionery FatsRolling of contractsHigh production costs due to low-yielding shea kernels

HIGHLIGHTS CHALLENGES


Progress and good results for The AAK Way – strong foundation for our next company program

Continuous training on Creating Customer ValueFollow up on global customer survey – We listen, We care, We act Training on oils & fats and customers’ industries

Senior and Medical Nutrition business growingLaunch of AkoPlanet™ – AAK portfolio withsolutions for plant-based foodsCross-regional collaboration for strengthened INNOBO-Product offerings

Further progressing with multi-oil sustainabilityGlobal networks enabling best practice sharing on key production capabilitiesContinuous Improvement and Lean practices enabled by a strengthened toolbox

Go To Market Operational Excellence

Special Focus Areas

Innovation People

Market-driven innovation process Leadership developmentPreparing the organization for the future

23/10/201916


Almost on target for our management ambition after 33 months

Average 10% year-over-year EBIT

improvement*

*Excluding acquisitions and at fixed FX

+9%

300

6754

-17

404

Food Ingredients Technical Products & Feed

Chocolate & Confectionery Fats

Group Functions AAK Group

+4%+17%

+4%

+10%


Concluding remarks

We are well positioned with our offer of plant-based, healthy, high value-adding oils and fats solutions, using our customer co-development approach. We continue to see favorable underlying trends in our markets and we remain prudently optimistic about the future.

November 20

Aarhus, Denmark

CAPITAL MARKET DAY 2019


Q&A


Financial calendar

Financial calendar 2019

November 20, 2019 Capital Market Day, Aarhus

January 30, 2020 Fourth quarter and year-end report 2019

April 24, 2020 Interim report first quarter 2020

May 13, 2020 Annual General Meeting, Malmö


Investor Relations contact:

Fredrik NilssonChief Financial Officer

Mobile: +46 708 95 22 21E-mail: [email protected]

Further Investor Relations material can be found at aak.com/investors


Supplementaryinformation

Q3 presentation


IFRS 16 effect

703735

Q3IFRS 16

Q3

557 563

Q3 Q3IFRS 16

2.000

YTD YTDIFRS 16

2.089

YTD YTD IFRS 16

1.567 1.581

Q3 YTD

EBITDA EBITDA EBITEBIT


Cocoa butter price


Rapeseed and palm oil prices


YTD cash flow impacted by sourcing of strategic raw materials

-77

720

464

521

488

Changes WCEBITDA 2018

2.089

27

EBITDA Paid interest and taxes

CAPEX Other non-cash items

FCF

1.854

-1.009

+13%

Cash flow YTD 2019 Comments

Continued volume growth impacted cash flow from accounts receivables negatively. Sourcing of strategic raw materials have a large impact on cash flow from inventory.CAPEX related to regular maintenance investments and capacity increases amounted to SEK 521 million.Cash flow from acquisitions (MaasRefinery B.V., BD Foods Ltd., Soya International, and an increased ownership in AAK Kamani) amounted to SEK 488 million.

76

-585

-202

-9

Other

Working Capital

Inventory

ARAP

-720

(-615)

(-411)

(-463)

(-304) (61)

(LY)

Documents

Interim Report Third quarter 2019 - AAK · Lecithin is a critical ingredient with key functionalities for customers within most of AAK’s core segments – in particular Chocolate