Annual Report • Apr 16, 2020
Annual Report
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Co-development for superior consumer products
Annual Report 2019
| AAK at a glance |
|---|
| 2019 in brief |
| Comments by Johan Westman, President and CEO |
| A vision that drives customer value |
| Innovation as a foundation |
| Facts about fats 10 |
| Broad range of raw materials 11 |
| AAK's business model 12 |
| Continued growth through strategic acquisitions 14 |
| Three years with The AAK Way 16 |
| AAK's new strategic direction 18 |
| Business areas 20 |
| Our House of Sustainability 31 |
| A company to be proud of 34 |
| Risks and risk management 36 |
| Corporate governance and financial information 40 |
| Comments by Georg Brunstam, Chairman of the Board 42 |
| Directors' report 43 |
| Board of Directors 48 |
| Executive Committee 50 |
| The AAK share 52 |
| Reasons to invest in AAK 54 |
| Comments by Fredrik Nilsson, Chief Financial Officer 55 |
| Financial statements 56 |
| Notes 68 |
| Corporate Governance Report 111 |
| Auditor's report 121 |
| Financial calendar and Annual General Meeting 126 |
| Alternative performance measures (APM) and other financial definitions 127 |
We develop and provide value-adding vegetable oil solutions in close collaboration with our customers, enabling them to achieve long-lasting business results. We do so through our in-depth expertise in oils & fats within food applications, working with a wide range of raw materials and broad process capabilities.
Through our unique co-development approach, we bring together our customers' skills and know-how with our capabilities and mindset. By doing so, we solve customer-specific needs across many industries – Chocolate & Confectionery, Bakery, Dairy, Plant-based Foods, Special Nutrition, Foodservice, Personal Care, and more.
AAK's proven expertise is based on more than 140 years of experience within oils & fats. With our headquarters in Malmö, Sweden, more than 20 production facilities and customization plants, and sales offices in more than 25 countries, more than 3,800 employees are dedicated to providing innovative value-adding solutions to our customers.
We are AAK – The Co-Development Company
Food Ingredients is our largest business area. It primarily offers solutions to the bakery, dairy, foodservice, and special nutrition industries, as well as the fast-growing market for plant-based foods.
Chocolate & Confectionery Fats offers functional cocoa butter alternatives for chocolate, compounds for coating and molding, and speciality fats for confectionery fillings.
Our Technical Products & Feed business area offers fatty acids and glycerine for various applications, vegetable candle waxes, and proteins and fats for animal feed.
| Operational key figures (SEK million unless otherwise stated) |
2015 | 2016 | 2017 | 2018 | 2019 |
|---|---|---|---|---|---|
| Volumes, thousand tons | 1,833 | 1,966 | 2,129 | 2,239 | 2,290 |
| Net sales | 20,114 | 22,057 | 26,436 | 27,592 | 28,510 |
| Adjusted operating profit (EBIT)* | 1,411 | 1,615 | 1,786 | 1,956 | 2,157 |
| Operating profit | 1,409 | 1,615 | 1,786 | 1,956 | 2,142 |
| Operating profit per kilo, SEK | 0.77 | 0.82 | 0.84 | 0.87 | 0.94 |
| Cash flow from operating activities | 1,736 | 1,213 | 1,099 | 1,090 | 1,558 |
| Earnings per share, SEK** | 3.70 | 3.95 | 4.71 | 5.21 | 5.86 |
| Equity per share, SEK** | 26.13 | 29.65 | 30.21 | 35.11 | 40.74 |
| Dividend per share, SEK** | 1.29 | 1.46 | 1.63 | 1.85 | - *** |
| Return on Capital Employed, R12M, % | 15.7 | 15.8 | 15.6 | 15.8 | 14.9 |
* Adjusted for non-recurring items and acquisition costs
** Share data recalculated in accordance with the decided share split (6:1) by the Annual General Meeting on May 30, 2018
*** As communicated in a press release on March 30, 2020, the Board of Directors has, due to the corona pandemic, proposed to postpone the decision on the dividend for 2019. For further information, please see page 47.
For financial definitions, please see page 127.
A senior unsecured bond for a total of SEK 500 million with a tenor of five years was issued in March. In November, another senior unsecured bond for a total of SEK 500 million, also with a tenor of five years, was issued. Both bond issues are part of the MTN program (Medium Term Note) that was established in November 2018 with a framework amount of SEK 4,000 million.
In April and May, we further increased our position in the Indian market by acquiring an additional 13 percent of the shares of AAK Kamani, the joint venture between AAK and Kamani Oil Industries Pvt Ltd. that was formed in September 2015. In October, we acquired an additional 5 percent. AAK now owns 69 percent of AAK Kamani.
5
Looking back at 2019, there is no doubt that it has been a strong year for AAK. In terms of financial development, we have seen year-over-year growth in volumes, operating profit, operating profit per kilo, and earnings per share. We have also made three strategic acquisitions, increased our ownership in our joint venture AAK Kamani in India, and brought some key products to market.
Compared to 2018, we managed to grow our operating profit with 10 percent, in line with our ambition.
Business area Food Ingredients was our main driver with a 13 percent increase in operating profit. Dairy, Bakery and Foodservice all contributed nicely as did our solutions to plant-based foods. The picture for Special Nutrition was more mixed. Volumes were impacted by lower birth rates in China and destocking by some global customers. However, we continued to strengthen our mix with a higher portion of customer co-developed solutions.
Chocolate & Confectionery Fats also contributed to the profitability improvement. This despite facing some challenges throughout the year, especially due to low-yielding shea kernels. However, the last batches of these kernels have now been used. In addition, our investment projects to increase capacity and strengthen our supply chain have been completed according to plan and with good results. The long-term market trend
for the industry looks promising and we continue to see a strong demand for our high-end solutions.
Despite a small decline, Technical Products & Feed continued to operate on a significantly higher operating profit level during 2019 compared to historical performances. This is in large part due to our successful implementation of our customer co-development approach within the business area.
During the year, we have brought a number of important products to market, among them our chocolate solution COBAO™ Pure. This breakthrough innovation which delivers significantly improved bloom-retarding effects and extends shelf life, is expected to be beneficial mainly in the fast-growing premium chocolate segment.
AkoPlanet™, our portfolio with tailor-made solutions for food manufacturers developing plant-based alternatives, has generated strong volume and profit growth since it was launched in June 2019. Our pipeline of customer co-development projects more than doubled between the second and the third quarter, and then again between the third and the fourth quarter.
The three acquisitions we have made during the year have helped us increase our capacity in Europe, broaden our capabilities within our foodservice offerings, and expand our portfolio with lecithin, a key ingredient for many customers within our core segments.
We continue to make substantial progress within our sustainability activities to contribute to the UN Sustainable Development Goals. Through our responsible sourcing activities, we see a positive impact on smallholders' livelihoods, and through our co-development work, we continuously create new sustainable solutions.
In West Africa, we have further strengthened our shea sourcing program Kolo Nafaso and our work with women's groups. We are now directly working with more than 230,000 women. This is an important achievement in securing our long-term growth for shea-based solutions and making a positive and sustainable impact in our supply chain.
Fully aware of the impacts of global warming, we have committed to set a Science Based Target during 2020. Climate change impact assessments have been initiated at all production sites which will provide valuable input for our actions going forward.
The closing of 2019 also marked the end of The AAK Way, a company program that has resulted in many important achievements. In parallel with concluding the program, we have reviewed our market and our capabilities to define AAK's strategic direction going forward. Although we will continue to build on what has made us successful, we will also sharpen our focus and lift our capabilities to further strengthen our position as the leading speciality oils and fats provider in the world.
The strategic direction will be focused on the oppor tunities within the specific industries we serve as well as sustainability, health and nutrition. We will step up our focus and investments within Plant-based Foods and develop a Health & Nutrition platform. For Special Nutrition and Chocolate & Confectionery Fats we will invest for continued growth while focusing on optimizing our performance within Bakery and Dairy.
Financially, we believe that the strategic direction supports our ambition of an average 10 percent yearover-year operating profit growth combined with a good and consistent earnings per share improvement.
As I write this, the ongoing corona pandemic is profoundly impacting people's health, societies, and business operations across the world. The uncertainty in our industry has increased, especially in the short term. However, in a more long-term perspective, we still see favorable underlying trends in our markets, and we remain prudently optimistic about the future.
I'm very proud to be part of the AAK team and the dedicated work I see wherever I go continues to impress me. I would like to thank our customers, shareholders, the Board of Directors, our devoted management team, and all AAK colleagues around the world for your valuable contributions during the past year.
Johan Westman, President and CEO
AAK solves challenges and creates opportunities with lasting value through tailored vegetable oils and fats solutions. Through our unique co-development approach, customers can depend upon us to support their needs and help realize their goals.
To achieve this, we have set our standards as high as possible. After more than 140 years, we have the expertise and capabilities to make a positive impact to our customers' business, to the industries we serve, to our employees and stakeholders – and to the future of our planet.
Our vision is to be the industry's first choice for value-adding vegetable oil solutions. This goal is made possible by the attributes that form the foundation of our approach:
We succeed when we add real value to a customer's process and business. We go above and beyond to create opportunities and solve challenges through our unique co-development approach and our in-depth understanding of customer needs. This enables customers to explore and leverage every opportunity from idea generation to launch, generating results that last for years.
We aspire to be the first choice for businesses looking for innovative, cost-effective and sustainable vegetable oil solutions. Just as importantly, this ambition applies to all other stakeholders, such as our employees, partners, suppliers, and shareholders. We achieve this through our competitiveness, our consistently high-quality standards, and our innovation.
We know vegetable oils better than anyone else. This isn't only about developing superior products; it is about creating superior solutions. This is made possible through a unique multi-oil/multi-process approach and personalized services that encompass everything from consultation and customization to technical support and a faster time-to-market.
At AAK, innovation means continued sustainable growth for us and our customers. By constantly exploring new insights, new raw materials and new technologies, we are able to co-develop unique solutions that open the door to a wealth of opportunities. It is what makes working with AAK different.
Our solutions are never a success unless they add tangible, long-term value to our customers. Through our co-development approach, we start by gaining deep insights into the drivers behind market demand, as well as the challenges they present. This gives us a powerful framework to ensure each solution is exactly in line with the customer's specific requirements.
When it comes to creating a new solution, our global network of Customer Innovation Centers is home to many of the best engineering and technical minds in the business. We work in close collaboration with our customers' own teams and experts to bring the best resources into play at every stage. This allows us to make sure that value is created throughout the process until the final solution is ready for launch.
AAK's approach to innovation offers significant advantages that help customers to be more competitive and build market share. This is not only through safer, more cost-efficient processing or a more sustainable supply,
but also through superior products with a better sensory experience, better nutritional profile or that tap into the latest consumer trend.
Innovation at AAK has been strong over 2019 and thanks to our Customer Innovation Centers being close to our customer base, we have seen positive results virtually every day. For example, our focus on clean labels has created new solutions that increase the stability of chocolate based on cocoa butter, and in our nutrition portfolio we have added new solutions to improve the uptake of the essential omega-3 fatty acids. Within plant-based foods, we have developed new standards for sustainable solutions across different raw materials and functionalities.
Going forward and within the framework of our new strategic direction we will continue to work closely with our customers. This in order to gain market insights and steer our innovation efforts towards customer co-developed solutions that create even higher value. We will also increase our focus on solutions for plant-based foods and nutritional solutions that can be implemented in the food sector where we already have a strong footprint through our regional Customer Innovation Centers and close connection to the market.
As humans, we simply cannot live without fat. Found in every cell in the body, it is essential for producing certain hormones and provides a wide range of other important functions, including:
There are several different types of fat, which are typically divided into four main groups:
Saturated fat – found in animal products such as butter, cream, milk, meat, and vegetable oils from tropical plants (coconut and palm). Characterized by the ability to remain solid at room temperature.
Unsaturated fats have a positive (decreasing) effect on blood cholesterol while saturated fats increase all cholesterol, LDL ("bad" cholesterol) as well as HDL. Trans fats, on the other hand, only increase the level of LDL cholesterol and at AAK, we have been developing ways to reduce the majority of industrially-produced trans fats in our products.
Ever since AAK first started helping customers to improve and accelerate product development, our industry has changed tremendously. Consequently, our business model has evolved to ensure AAK continues to deliver ever more effective solutions that drive sustainable growth.
Our core business today is to provide value-adding vegetable oil solutions to the food, confectionery and cosmetics industries. Customers worldwide rely on our expertise, experience and innovation to deliver lasting business value in markets shaped by shifting consumer trends.
While this inevitably creates challenges to overcome, it also gives way to exciting new ideas and potential. We continuously refine our business model to ensure customers can leverage these developments and turn them into growth opportunities. This model is built around the following key attributes:
One of AAK's greatest strengths is our unique co-development approach. This was born from our strong relationships with customers, where we could bring the most value by working proactively in close collaboration to deliver value-adding results at every stage. This methodology enables us to work as an efficient team from idea to launch, drawing upon the right expertise at the right time to create solutions with better ideation, faster development times and more effective implementation.
We understand that customers come with their own unique challenges, and therefore require customized solutions to get the results they need to stay competitive. Our multi-oil and multi-process approach gives us an unmatched capability to provide products tailored to specific needs, while our worldwide network of Customer Innovation Centers and production facilities enables us to act effectively as both a local and global partner.
We make products with excellent nutritional and functional value, with outstanding structure, melting and crystallization behavior, rheological properties, flavor release, and skin penetration. This enables us to meet specific customer requirements for improved health profile, taste, processing, logistics, labeling, and legal requirements. In every case, our technical and commercial experts work closely with customers to identify the optimal solution.
Many customer demands are inspired by consumer health trends. This is an area we take very seriously, not least to support a customer's product development strategy. Here our expertise has enabled us to maintain high product functionality while reducing the majority of saturated fat solutions, believed to increase the risk of cardiovascular disease.
At AAK, we are constantly striving to reduce raw mate rials and processing costs, but never at the expense of our own high-quality standards. By finding new ways to operate more efficiently, we can help customers strengthen their bottom-line results. We see this as vital to help maintain their growth and development, espe cially as we work in a highly competitive market where retailers continue to challenge food manufacturers.
Sustainable growth is a cornerstone of our company. The foundation of our model for sustainable growth incorporates the ten principles of the UN Global Compact, the UN's Sustainable Development Goals, and our own policies and codes. Some of the industries we work with, for example Chocolate & Confectionery Fats and Plant-based Foods, have very ambitious sustainability commitments, and through our co-development approach we create solutions that help our customers live up to these commitments.
AAK's impressive growth journey over the last decade has been fueled by both organic growth and strategic mergers and acquisitions. Several important acquisitions were also completed during 2019.
In early 2019, we acquired Dutch company MaasRefinery B.V., specialized in toll refining of vegetable oils and fats for the food industry. The rationale behind the acquisition was to increase capacity, support existing production facilities and enable continued growth for AAK.
MaasRefinery is located next to a deep-sea terminal in Rotterdam and has a capacity of approximately 40,000 MT with room for expansion. The company, today known as AAK Rotterdam B.V., focuses on conventional as well as organic oils and fats, the latter being a key focus area for AAK.
MaasRefinery was established in 2009 and is designed according to the latest technology with processes that maximize energy efficiency and minimize oil losses. The company has integrated well into AAK and has been able to support our other European production facilities in a good way.
At the end of February, AAK acquired British foodservice company BD Foods, a producer of tailor-made restaurant quality meal accompaniments. The acquisition is a very good fit with our global foodservice expansion and provides a complementary range of products at the premium end of the foodservice market.
With a broad product and packaging offering, a customer-centric approach and a strong reputation in UK foodservice, the acquisition has broadened our product portfolio and given us greater access to some key operators in the foodservice market.
The company, now acting as AAK BD Foods, was established in 2001 and is located in St Leonardson-Sea on the south coast of England. It has a portfolio of over 3,000 products that are sold to a wide range of customers, including restaurants, hotels, airlines, wholesalers, and food manufacturers.
The first year with AAK BD Foods has been very good and the company has delivered strong results within our foodservice business.
In mid-September, AAK acquired 80 percent of Soya International (Europe) Ltd. The UK-based company focuses on the sourcing, processing and distribution of non-GMO semi-speciality and speciality lecithins. Lecithin is a natural emulsifier and a by-product from the processing of vegetable oils.
With this acquisition, AAK has expanded its ingredient portfolio with a product range critical to many customers within our core segments, especially Chocolate & Confectionery Fats and Bakery, but also Dairy, Special Nutrition, and Personal Care.
Soya International was founded in 1996 and operates out of Manchester, UK. It has a third-party processing facility in the Netherlands and holds well-established relationships with customers and distributors in 40 markets globally. The company now trades under the name of AAK Soya International Ltd.
Having entered the natural emulsifiers segment, we have started to leverage our go-to-market organization to include the lecithin business in our existing product portfolio. The global speciality lecithin market is expected to show strong market growth in the coming years and we are well positioned to grow the business well above the market.
Having guided our business for the past three years, our company program The AAK Way came to a close at the end of 2019.
Our key focus with the program has been to enable continued organic growth, to help us improve our operating profit year-over-year by 10 percent on average, and to build a stronger AAK for the short, mid and long term.
By establishing a strong foundation at the beginning of the program, followed by a dedicated and continuous execution, we are now able to reap the harvest of our many great efforts within the program's five priority areas.
A very important activity within Go to Market has been the global customer survey that was conducted in 2018. Based on both quantitative and qualitative input from close to 1,000 customers, we have put strong actions in place to further enhance our customers' experiences. We have also taken our go-to-market approach to new levels by developing strong training platforms and knowledge-sharing networks, as well as rolling out a high-level sales program to hundreds of go-tomarket colleagues globally, supporting our Customer Co-Development approach.
In this priority area we have strengthened our competitiveness within sourcing and made significant improvements within the responsible sourcing of our raw materials globally. To achieve a cost-efficient and flexible operation, we have also between our production plants ensured benchmarking and best practices for critical operational needs.
Special Nutrition and Dairy+ (including the plant-based foods industry) were identified as two special focus areas believed to hold significant potential for future growth. Important achievements include expansion into new markets, significant growth within Infant Nutrition, and a successful launch of our AkoPlanet™ brand has supported us in generating a very strong pipeline of solutions for the fast-growing plant-based foods industry.
Innovation is decisive for being the preferred partner to our customers and for securing that our solutions add significant value to their products. During the course of The AAK Way, we have further developed our innovation processes and several supporting tools and guidelines. We have also launched a global social platform internally to drive proactivity input for our innovation pipeline as well as added new Customer Innovation Centers in several AAK regions.
Aiming to have a great leadership in our organization, we have within priority area People invested significant time and effort in leadership development globally. Workforce planning has also been an important priority in order to secure the future of AAK.
To summarize, The AAK Way has given us many achievements to be proud of. As we set out to do, we have continued to deliver organic growth, we have improved our operating profit in accordance with our ambition, and we have made AAK a stronger company.
The closing of 2019 marked the end of our company program The AAK Way. To identify new opportunities for future growth, we have over the past year reviewed our market and our capabilities to define AAK's strategic direction going forward.
Our assessment shows favorable market and consumer trends and new opportunities for continued profitable growth. We are building on a very strong historical performance, and although we will preserve the DNA of our company we will, going forward, prioritize and operate our business somewhat differently.
Acknowledging that different industries are characterized by different market dynamics, it is important to differentiate our approach to each of them. Therefore, we have identified four different portfolio roles: "Invest in continued growth", "Bet for the future", "Optimize performance", and "Maintain current strategy"
Financially, we believe that the strategy supports our ambition of an average 10 percent year-over-year operating profit growth combined with a good and consistent earnings per share improvement.
Our strong historical growth in Chocolate & Confectionery Fats has been made possible by industry-leading application knowledge and an ability to offer customers the best solutions. Strengthening our key supply chains and capacities within customer innovation will enable us to capture the growth in high-value applications.
In Special Nutrition, high-quality solutions tailored to our customers' needs have over the past decade enabled high growth rates. A strong innovation pipeline and investments in our ability to serve important markets such as China is key to continue the growth.
We will enable the continued growth of these two industries by ensuring the necessary investments in new value propositions and a reliable supply of key products.
The overall bakery and dairy markets are characterized by more standard solutions with a strong focus on cost of ingredients and less opportunities for further premiumization of AAK's offering. However, some
underexploited, high-value product applications exist, and opportunities in shifting product mixes towards these higher-value products in specific applications as well as optimizing how to serve the markets will thus be pursued.
In Foodservice, our business is also characterized by large variations in the value that we can capture depending on the applications. As in Bakery and Dairy, there are pockets of high-value applications and products, and the focus going forward will thus be to focus on the higher-value products in the portfolio as well as to optimize our go-to-market approach.
The market shows a clear increase in consumer demand for healthy and fortified nutrition. As a result, consumer goods companies are looking to develop product offerings meeting this demand. This gives AAK an opportunity to build capabilities related to oils and fats health claims to enable our customers to claim health benefits.
The plant-based foods market is a fast-growing market where oils and fats can be an impactful differentiator to the quality, taste and texture of the final product. Our deep and broad knowledge within oils and fats provides an opportunity for AAK to become the preferred provider to plant-based foods companies. AAK already has a good starting point through engagements with key players in the market for plant-based dairy and plant-based meat, but we will lift our capabilities further to respond to the fast-moving market requirements.
For the remaining segments within AAK – Natural Emulsifiers, Personal Care, and Technical Products & Feed – the current strategy stays the most promising option for further value creation.
Natural Emulsifiers (lecithin) is a speciality segment with a large overlap with AAK product applications. Our recent acquisition in the UK is a first step into this market.
Personal Care is a growing business with a strong value proposition in the beauty industry's quest to move to more natural ingredients, where the future growth rates will be a function of the industry's ongoing replacement of mineral oils.
Technical Products & Feed is another healthy business, functioning as an outlet for various sidestreams as well as serving the market with strong value propositions in, for example, animal feed and waxes for candles.
We have developed a strategic roadmap with key focus areas that will be addressed by a range of initiatives to lift our performance for the future. The goal is to further differentiate ourselves from our competitors by enhancing our Customer Co-Development approach and sustainability offerings. To succeed, we need to offer a customer experience that is second to none and create even more differentiated solutions meeting the needs of our customers, consumers and the world we live in.
Our aim is to continue our growth journey by further utilizing our global strengths and harvesting synergies. To enable this, we will strengthen our global product management to fully leverage insights, expertise and resources as well as aim for global scale effects and efficiencies with more integrated and holistic end-to-end supply chain planning and execution.
Business area Food Ingredients
Food Ingredients is our largest business area and primarily provides solutions to the bakery, dairy, plant-based, nutrition, and foodservice industries. 2019 was a record year with doubledigit growth for our operating profit as well as our operating profit per kilo. The demand for our speciality and semi-speciality solutions increased.
| 2015 | 2016 | 2017 | 2018 | 2019 | |
|---|---|---|---|---|---|
| Volumes, thousand tons | 1,258 | 1,325 | 1,447 | 1,508 | 1,531 |
| Net sales, SEK million | 13,556 | 14,707 | 17,665 | 18,468 | 18,978 |
| Operating profit, SEK million | 903 | 996 | 1,107 | 1,205 | 1,366 |
| Operating profit per kilo, SEK | 0.72 | 0.75 | 0.77 | 0.80 | 0.89 |
2019 was another good year for Bakery. The execution of our bakery strategy to become an even stronger value-adding solutions provider for our bakery customers resulted in limited organic growth but with a clear shift in the product portfolio. We closed the year with confidence, ready to build on the solid foundation that has been established over the past three years.
AAK provides a wide range of solutions for major bakery applications, such as biscuits, cookies, crackers and wafers; laminated applications/pastry; cakes and muffins; and bread, pizza and donuts. All our solutions meet customer requirements for functionality and process efficiency as well as specific consumer demands.
Consumers are focused on healthier and more sustainable solutions where sugar and calorie reduction, low saturated fats, waste reduction, and shelf-life extension are key areas.
Created through our co-development approach, we have developed many new customized products, both consumer-oriented, for example with sustainably sourced raw materials, and customer-oriented, such as production efficiency improvements.
There is a growing demand for efficient and valueadding bakery solutions worldwide. To take advantage of the trend, we will continue to strengthen our position as an oils and fats specialist with deep technical industry knowledge. We will do so through specialized and dedicated resources and a strong network of regional Customer Innovation Centers and go-to-market teams to facilitate local customer penetration.
Dairy had yet another great year, reporting double-digit growth compared to 2018, both in terms of volumes and operating profit. All regions, North Latin America, South Latin America, the US, and Europe in particular, contributed with positive results.
We provide the whole dairy and ice cream segment with solutions ranging from cheese, whipped toppings and yellow fats to fermented milk products, milk drink, and coffee whitener. During 2019, we saw a great increase in sales of speciality and semi-speciality solutions.
The major dairy trends are healthy, sustainable and more cost-effective solutions. The dairy industry is also very much impacted by the rise of flexitarians, generating a need to develop solutions for plant-based dairy products.
Through our co-development approach, our Customer Innovation team has developed a variety of new products around the AAK world, resulting in yet another record year.
By maintaining our strong focus on speciality and semi-speciality solutions, our Dairy segment is expected to continue its growth journey.
2019 was a record year for Plant-based Foods, with the plant-based meat category being a significant contributor to the positive results. The growth was mainly driven by the US and Europe, but with good help from South Latin America and Asia.
We offer solutions for all major sub-segments within Plant-based Foods, be it plant-based burgers, sausages, frozen desserts, cheese, milk drinks, whipped toppings, or fermented products. The segment's primary products are all part of our AkoPlanet™ range and specifically designed and proven for each application.
The main trends supporting the market are health, sustainability, and a lifestyle where the "Instagram ability" of foods is of critical importance for today's conscious consumers, increasingly defining themselves as flexitarians.
The launch of our umbrella brand AkoPlanet™ in June 2019 was very successful. AkoPlanet™ consists of our proven solutions for the segment of plant-based foods, and the range is our foundation for developing specific solutions by using our co-development approach. Our pipeline of customer co-development projects has quadrupled since launch.
Led by the rise of flexitarians, a healthier lifestyle, and the younger generations' desire to ensure a planet for their children, the plant-based segment is expected to continue its growth journey.
Special Nutrition reported profit growth in 2019. This was particularly driven by high-end solutions within sub-segment Infant Nutrition.
AAK provides tailor-made speciality lipids solutions for Infant, Senior, and Medical Nutrition.
The global trends that are driving AAK's Special Nutrition segment are health, trust, sustainability, premiumization, and personalization.
Through our co-development approach, the Customer Innovation team has developed a variety of new products around the world for all three sub-segments within Special Nutrition. Examples include high-end innovations within Infant Nutrition and a new ingredient for Senior Nutrition, Akovita® ELIP, which is backed by clinical data.
AAK continues to grow in the wider nutrition area and we will keep focusing on bringing new innovations to the nutrition markets. We are currently expanding our production facilities in China to support local production of OPO (a fat ingredient that mimics the fatty acid profile of human milk).
2019 was a very strong year for Foodservice with double-digit year-over-year profit growth. UK-based BD Foods was acquired in February and has had a very effective and smooth integration.
AAK Foodservice produces over 500 different frying oils, speciality oils, condiments, sauces, dressings, and ingredients for the commercial caterer.
The main trends are more customization (faster, quicker and better), health and wellness, veganism, gluten-free, new flavors, technology and delivery, and sustainable solutions.
We constantly develop new products in close cooperation with our customers. As a result, a wealth of new and on-trend products has been co-developed and taken to market in 2019. We have, for example, launched a series of plant-based products across all regions as well as a new range of sauces (World Flavours) under our Lion brand.
The market is in steady growth as consumer behavior is changing and as their propensity to eat out is on the rise. We see a high interest in the above-mentioned trends, especially veganism, where we will continue to provide customized solutions for customer needs.
Chocolate & Confectionery Fats primarily serves customers in the chocolate confectionery and caramel, toffee and nougat segments. During 2019, the business area, which also includes Personal Care and Natural Emulsifiers, showed good volume and profit growth. This despite challenges with lowyielding shea kernels that resulted in a lower output and higher production costs.
| 2015 | 2016 | 2017 | 2018 | 2019 | |
|---|---|---|---|---|---|
| Volumes, thousand tons | 312 | 367 | 404 | 430 | 459 |
| Net sales, SEK million | 5,315 | 6,117 | 7,354 | 7,611 | 8,076 |
| Operating profit, SEK million | 553 | 664 | 735 | 747 | 794 |
| Operating profit per kilo, SEK | 1.77 | 1.81 | 1.82 | 1.74 | 1.73 |
Our solutions within Chocolate & Confectionery Fats continue to cover a wide range of product applications, including chocolate fats and compound fats for coating and molding, filling fats, barrier fats, and spreads.
With our unique customer co-development approach, we are very well positioned to address the major global trends in the chocolate and confectionery industry, including premiumization, individualization, and consciousness. We are furthermore well positioned to provide sustainable solutions that go further than comparable solutions in the market.
During 2019, we launched a global spreads campaign. Our tailor-made solutions give our customers great opportunities to work with new characteristics, flavors, and textures, and enable them to create differentiated spreads solutions that are in line with global consumer trends. The campaign has resulted in a significantly increased demand from both existing and new customers. COBAO™ Pure, a solution that delivers excellent bloom-retarding capabilities, was another important product launch during the year.
The long-term market trend for Chocolate & Confectionery Fats looks promising and the business area is well positioned to continue to grow with and above the market. Driven by our customer co-development approach, we will continue to develop new products and solutions.
2015 2016 2017 2018 2019
With the acquisition of Soya International (Europe) Ltd. in September, AAK broadened its ingredient portfolio and entered the speciality lecithin arena. The business currently trades under its new name, AAK Soya International Ltd., and operates out of Manchester, United Kingdom.
Our solutions – from soy, sunflower, and rapeseed origin – cover a range of non-GMO speciality and semi-speciality lecithins. Lecithin is a key ingredient for many customers within our core segments, especially Chocolate & Confectionery Fats and Bakery, but also Dairy, Plant-based Foods, Personal Care, and Special Nutrition.
Lecithins are natural by-products from the processing of vegetable oils, and the only natural, clean label emulsifiers in the market. The global demand for specialized lecithin, such as organic, certified or plain non-GMO, are expected to rise as consumers look to verify the sustainability and traceability within food production.
We have introduced our co-development approach within this segment which is a true differentiator as no other lecithin company can offer a similar approach together with oils and fats. We have high expectations to provide solutions for both existing and new customers.
The global speciality lecithin market is expected to show strong market growth on the back of global trends such as clean label declarations, natural and functional ingredients, and allergen-free. With new products and solutions driven by our customer co-development approach, we are well positioned to grow the lecithin business well above the market average.
AAK applies its technical expertise and technological know-how in the development of high-performing, functional emollients for the cosmetics industry. Since 1988, when we started to develop customized solutions for cosmetic giant L'Oréal, we have continued to develop our offer. Today, we are proud to serve all customer categories, from local niche brands to multinational brand leaders.
Our plant-derived emollients, distinct from synthetic, animal or fossil-based raw materials, are primarily used for skin care applications, including face care, body care, baby care, and sun care; but are also used in hair care, make-up, deodorants, and wet wipes. Our product range is appreciated for the moisturizing properties and sensory attributes it brings to final cosmetic formulations.
Trends supporting the continued global volume and value growth of the industry include a growing population, an increasing spending power in emerging markets, and an aging, active, health-oriented and appearance-focused population (female and male) in mature western economies. The increased demand for natural ingredients is driven by the growing concern and awareness of the health of our body and planet.
Ethical sourcing and traceability are becoming increasingly important for consumers and cosmetic producers. In response to customer interest in increasing the social value of their brands, we have developed Sustainability Partner Programs in collaboration with the Global Shea Alliance, where customers or brands can engage directly in supporting the optimization of the shea sourcing and processing in West Africa. Burt's Bees and Beiersdorf are two examples of such partnerships in 2019.
Though the cosmetics industry is global, it continues to be the mature western markets (Europe and North America) that consume the majority of plant-based emollients. This is due to these regions being the biggest manufacturers and consumers of skin care products and having the biggest consumer demand for natural alternatives. China and Brazil are expected to follow suit as their markets mature.
Business area Technical Products & Feed
AAK provides a growing range of specialized solutions for the technical products and feed industries. Although slightly below the record-high 2018, the business area reported good profitability in 2019.
| 2015 | 2016 | 2017 | 2018 | 2019 | |
|---|---|---|---|---|---|
| Volumes, thousand tons | 263 | 274 | 278 | 301 | 300 |
| Net sales, SEK million | 1,243 | 1,233 | 1,417 | 1,513 | 1,456 |
| Operating profit, SEK million | 88 | 100 | 84 | 155 | 150 |
| Operating profit per kilo, SEK | 0.33 | 0.36 | 0.30 | 0.51 | 0.50 |
AAK's business for technical applications, Tefac, had an excellent 2019 in a historical perspective, but did not quite reach the level of the record-high 2018. Our high-end products are still in demand, and we saw particularly good growth for our vegetable candle waxes. This was, however, offset by very low prices for glycerine caused by a substantial global oversupply and a volatile raw material market.
AAK offers fatty acids and glycerine that are produced by splitting the fat molecule and refining the outcome into value-adding solutions for various applications. Based on sustainably produced vegetable oils, AAK also offers solutions for candle makers.
In 2019, there was good growth for our candle business. Consumer preferences for more sustainable solutions are driving our customers in the candle industry away from fossil paraffin. Our customers with exposure to the plastics and automotive industries in Europe experienced a sluggish market during the second half of 2019.
We have during the year continued to add solutions to our portfolio for candle makers to match our customers' demand for sustainable and functional candle waxes.
AAK has historically provided a wide range of products for candle applications. With our widened product portfolio for candle wax applications, we will continue to focus on developing more opportunities in this segment to build the best possible pipeline for future growth.
Our Feed business in 2019 continued where the recordhigh 2018 ended, but declined somewhat towards the second half of the year. However, the underlying demand for our products continues to be strong. Our rapeseed crushing business had a stable year, performing particularly well towards the end of year.
AAK supplies ExPro®, a rapeseed meal, which is exposed to a special heat treatment process to improve the protein quality for ruminants. ExPro® is a perfect soybean meal replacer. We also supply by-pass fats, which are used in dairy cattle feeds to increase milk yield, as well as simple liquid fats.
With farms increasingly producing their own feeds, demand is turning to more concentrated feed products. These require smaller volumes of higher quality, containing more protein and more energy. In addition, we are seeing more customers turning to non-GMO feeds.
During the year, we have successfully re-launched a few products with good results.
We aim to grow with ExPro® in non-GMO feeds and with by-pass fats. The most interesting opportunities are in some of Sweden's neighboring countries where our market share is low. We have grown in these countries over the past years, but there is still good potential to continue to grow. In 2020 and beyond, we aim to continue optimizing and widening our portfolio to build a better foundation for future growth.
To have our House of Sustainability in order is key for sustainable growth and essential to our vision of being the first choice for value-adding vegetable oil solutions. For us, sustainable growth is about governance of risks and opportunities in our value chain and our responsibility towards all of our stakeholders. During 2019, our House of Sustainability, still representing the foundation of our sustainability work, has guided us to continued strong progress within the sustainability area.
The UN Global Compact (UNGC) is a solid platform and a broad concept based on ten universal principles within Human and Labor Rights, Environment and Anti-corruption. It enjoys participation by the major players in global business and sustainability, including the GRI (Global Reporting Initiative), ETI (Ethical Trading Initiative), ICC (International Chamber of Commerce), and OECD (Organization for Economic Cooperation and Development). AAK has been a member of the UNGC since 2003.
In 2015, all member states of the United Nations adopted 17 goals – the Sustainable Development Goals (SDGs) – setting out to end poverty, protect the planet, and ensure prosperity for all. Each goal has specific sub-targets to be achieved by 2030. As a global company, we recognize that businesses play an important role in that process and we have included the SDGs in our model. Many of our activities support the specific targets of the 17 SDGs.
AAK's sustainability policies and codes are based on the UNGC and our own principles and implemented globally for all our business activities. The policies and codes are aligned with many of our customers' requirements and values, which strengthen our strategic alignment. AAK's policies and codes are available at our website, www.aak.com.
We have defined five sustainability focus areas – the "pillars" – that are important to our business. They provide an overview and guide us in setting objectives and focus our resources. The five focus areas are: Our Customers, Our Suppliers, Our Planet, Our People, and Our Neighbours.
This area covers activities related to the sourcing of raw materials that we use. Sustainable sourcing is the backbone of AAK's business and a key element in our strategy. To obtain the right raw materials is essential but we place equal emphasis on how they are produced. For this reason, we have implemented a Code of Conduct for Suppliers of Raw Materials that applies to all actors in the supply chain.
This focus area is about working life at AAK – how to remain an attractive workplace and assure a healthy, equal and safe workplace. Our employees are our most important resource. AAK is a diverse company with employees from many parts of the world and with many different job functions. Common to every employee is our values and our Group Code of Conduct. These govern the way our business is conducted and how employees interact with each other and AAK's stakeholders.
Our Customers covers all areas in which we interact with customers. It includes products, product development, food safety, product information, and market communication. Interaction with customers is based on sound business ethics and a deep understanding of the company's responsibility for safeguarding customer brands.
Our Planet covers our impact on the environment in terms of resource consumption and emissions from our production plants. It is a top priority for us to minimize our use of natural resources and emissions per processed product even though our stronger focus on more refined products drives a higher degree of processing. All production sites are required to continuously work to improve their respective environmental footprints as well as get new acquired plants on track with AAK standards.
This focus area covers activities that we initiate and engage in – be they local,
regional, national or international – to be a part of and act responsibly in society. Contributing to and being part of the communities in which we operate are essential for maintaining a positive relationship with neighbours, politicians and authorities. Through a commitment to community causes, AAK is also instrumental in creating a workplace with highly motivated employees who are proud of representing a company that makes a noticeable difference.
To maintain momentum and drive improvement, we define ambitions within each of the five focus areas. Achievements and future ambitions are publicly available in our Sustainability Report. Further, based on the Global Reporting Initiative Standards, we globally monitor indicators that are material to our stakeholders and ourselves.
The engine driving our sustainability activities is our decentralized global sustainability team, established in 2007. It consists of local teams with competencies covering our sustainability scope. The Global Sustainability Manager reports to the Chief Strategy & Sustainability Officer who is ultimately responsible for sustainability and a member of AAK's Executive Committee.
Sharing our knowledge, objectives and achievements with our stakeholders is a fundamental part of our approach. In our annual Sustainability Report we share global information based on the GRI framework supported by a variety of local projects and initiatives illustrating how our sustainability work comes alive. Further, we regularly report progress on the implementation of our Responsible sourcing of vegetable oils
policy and our Palm oil policy in AAK's progress report on sustainable palm oil and AAK's progress report on sustainable shea. Reports and policies are available at our website.
The UN Global Compact encourages companies to engage in partnerships to tackle global challenges more effectively. We strongly believe that this will allow you to accomplish more than you would on your own. Partnering with other businesses, NGOs and governmental agencies are ways to accomplish more. AAK is participating in or partnering with, for example, RSPO (Roundtable on Sustainable Palm Oil), GSA (Global Shea Alliance) and Proforest.
Our sustainability approach is not static but rather adjusted to input from stakeholders such as customers, investors, NGOs, and employees. We monitor new and upcoming legislation, follow trends in our communities, and benchmark our sustainability practices against those of retailers, customers, and competitors.
If you would like to learn more about our sustainability work, please watch the short, animated video under Sustainability at our website or read about our sustainability achievements, initiatives and ambitions in our annual Sustainability Report, also available at our website.
Our priority area People is at the heart of AAK's ambitions towards people development. Over the last few years, a broad variety of initiatives and programs have been very successful. Not only has this delivered very positive results internally and helped to promote a high-performance culture across our global organization, but it has contributed significantly towards the value we create for customers.
During 2019, there have been many initiatives designed to support priority area People. These include the continued implementation of the AAK leadership model as well as a series of workforce planning, talent management and succession planning programs. We have during the year also continued to deliver our four days of leadership training for more than 400 managers and key employees worldwide, focusing on our leadership competencies and company values.
We have furthermore developed and implemented a new Performance Management process designed to promote continuous dialogues, feedback and employee development. By implementing a continuous dialogue model for performance management, we are committed to create an environment where everyone feels empowered to take responsibility for their performance and development.
We have during the year also finetuned and further developed our Global Trainee Program. This is where trainees are recruited into "real" jobs from day one that are aligned with a structured 12-month program designed to accelerate a number of attributes, namely:
Since the program was launched in 2012, we have recruited more than 60 trainees.
Health and safety are integral parts of AAK's business strategy. Any work-related injury is unacceptable and we strive to be a zero-injuries workplace. In 2019, we managed to decrease Lost Time Injury Rate (LTIR) at our production sites to 0.4 (0.6 in 2018). This was in large part due to our Global Safety Team who has developed a strategic program for continuous improvement, aligning the Group's global safety efforts.
Number of employees globally (as of December 31, 2019)
The average time of employment
Europe: 42% Americas: 30% Asia/Pacific: 19% Africa: 9%
Lost Time Injury Rate (LTIR) – the number of work injuries that result in one or more days of sick leave per 200,000 working hours (production sites)
Looking towards 2020 and beyond, we will continue to progress our existing initiatives and to develop on-the-job training with local, cross-functional projects. In 2020, we will also conduct our Employee Engagement Survey to identify what actions we need to focus on to secure a high level of engagement.
At the same time, new People initiatives and programs, will be implemented in alignment with AAK's new strategic direction. We want to evolve our position as "a company to be proud of" within the industry through a more proactive and systematic approach to the job market. At AAK, we have much to be proud of – and we want to make sure this message is heard far and wide to help attract even more of the best minds in the business.
The People strategy focuses on four key areas: AAK Purpose & Culture, People Development, AAK a great place to work, and Leadership Development. These are directed towards creating a unified business committed to delivering excellence and growth for AAK and our customers. By implementing what AAK stands for through the behavior and development of our employees, we can elevate our business by strengthening loyalty, fostering innovation and delivering a more passionate, customer-centric service.
Just as co-development plays a vital role in the success of our customer relationships, it is also a driving force behind our People strategy. We will increase our focus on inclusion and being an accessible company. This to ensure that the right people are recruited and given the best possible support and opportunities for development. This helps us to improve the quality of service we provide through a more skilled, focused and sustainable workforce.
AAK's operations are constantly exposed to risks, threats and external factors with an impact on the company. Through a proactive approach to business intelligence, the company aims to anticipate changes in factors affecting operations. Plans and policies are adjusted continuously to counteract potential negative effects. Active risk management, such as hedging raw material prices and currencies, reduces the risks that the company faces.
Harvests are weather-dependent. While a year of poor harvests drives up prices, a year of successful harvests reduces them. Most of our raw materials are traded on the international world market and purchased in foreign currencies. This exposes us to significant currency and raw material price risks.
We have a strategy of active risk management and as soon as a sales contract is signed, we hedge the equivalent currency and raw material price exposure. This safeguards margins against price risks on agreed sales contracts.
Since many raw materials are produced far away from our production plants and markets, transport costs are an important factor. Particularly the potential impact on margins from the growing demand for environmentally-acceptable transport methods have to be taken into consideration. Competition in commodities is fierce.
AAK is part of the processing industry. Improvements in results are achieved through organic volume growth and by increasing sales of speciality products with higher margins relative to lower-margin bulk products.
Capacity expansion aimed at increasing total volumes to meet growing demand has a relatively long planning horizon. AAK must analyze potential growth in good time. In the meantime, it is possible to balance production between our plants to enable processing of specific products closer to their markets and accommodate swings in supply and demand. Key speciality products are produced at dedicated plants, where problems with machinery can have a major impact.
The sector in which AAK operates is undergoing structural change. As a sector that has existed for just over a century and has a fundamental dependence on natural products, there is great pressure for more intensive development. This includes demands for sustainable, ethical production, where producers accept responsibility for social issues and the environmental impact of their operations. AAK operates on the basis of an organic growth and selective acquisition strategy. A strong balance sheet has laid the financial foundations for future acquisitions.
There is intense competition in the industry. Several global competitors deliver large volumes of bulk
products with limited margins. Our response is to focus more on products with better margins and higher value. These include confectionery products and cosmetics, as well as value-adding ingredients for the bakery, dairy and infant nutrition industries.
Operating globally always carries risks, but it can also be a stabilizing factor. Although AAK largely operates in mature markets in the US and Europe, much of company growth is generated in developing markets, which are vulnerable to political instability that can impact currencies and exchange rates. We also operate in Eastern Europe, the Middle East, Asia, Africa, and South America, where instability may arise. As a well-established operator in these areas, we have extensive experience of handling such issues. In addition, we operate with a deliberate risk management strategy.
Global operations also involve risks such as trade barriers, inflation, environmental and health-related legislation, and changes in national or regional legislation, e.g. the introduction of protective tariffs and taxes, which prevent AAK from operating in a free market.
AAK is committed to conducting business in accordance with applicable trade sanctions laws and export control regulations which AAK believes are important tools in
the international community's drive to inter alia improve human rights. AAK will not tolerate any violation of trade sanctions laws, export control laws or related regulations by its employees. This means that AAK will not engage, directly or indirectly, in any business, dealing, or transaction prohibited by applicable trade sanctions or export control regulations.
Furthermore, AAK and its employees will not carry out any direct or indirect business activities with any person, entity or government targeted by trade sanctions, nor export goods or services subject to applicable export control laws without required licenses and/or approvals from the relevant authorities.
We are able to adapt our product range quickly to the latest trends in the health debate. This is mainly because we work with all types of vegetable oils and can reformulate our products to meet customer needs. We focus strongly on co-development with our customers. This limits the risks involved in commercializing new products.
Regulatory measures also pose a risk. Active involvement in sustainability-related issues is, therefore, becoming increasingly important to forestall legislation on issues that are a natural development of human requirements.
Together with an external partner, AAK has during 2019 started to identify the physical and operational risks of climate change at our production sites. We have decided to first focus on water-related risks because of an increased number of extreme weather events globally linked to water as well as the potentially destructive power of water. The evaluation gives us input on risk exposure to production loss due to water-related hazards. The inherent risk exposure and the residual risk with regard to mitigation actions and plans will be discussed and implemented at each site. Draft reports have been submitted by more than half of our sites and the work will be further refined during 2020.
As soon as all areas required by AAK have been covered and all production sites have been implemented, the results can be used to determine the financial loss/implications and opportunities due to climate change before further actions are initiated. You can read more about the evaluation under Mitigating risks in a dynamic environment in our Sustainability Report.
AAK uses modern IT infrastructure and technology to support its business. Disruptions to critical IT systems could potentially have an impact on the business. Therefore, this is a risk that needs to be analyzed and mitigated with the objective to prevent possible issues and minimize impact. This work is conducted by Group IT together with our local entities. Our critical IT systems are audited annually, with security, internal processes and compliance in focus.
Cyber security has a very high priority at AAK and in order to minimize external threats, we are continuously investing in technology that is operated by a highly skilled staff. The Group IT Security Policy is implemented at all AAK units, and a common framework is used for our global IT infrastructure.
Business operations are affected by raw material prices, transport costs, energy prices, interest rates and exchange rates. Our employees are experienced in reacting quickly to changes in external factors and adapting operations, products and services to customer needs.
Corporate governance and financial information
| Comments by Georg Brunstam, Chairman of the Board | 42 |
|---|---|
| Directors' Report | 43 |
| Board of Directors | 48 |
| Executive Committee | 50 |
| The AAK share |
52 |
| Reasons to invest in AAK | 54 |
| Comments by Fredrik Nilsson, Chief Financial Officer | 55 |
| Consolidated Income Statement |
56 |
| Consolidated Statement of Comprehensive Income |
57 |
| Consolidated Balance Sheet |
58 |
| Consolidated Changes in Shareholders' Equity |
60 |
| Consolidated Cash Flow Statement |
61 |
| Income Statement – Parent Company |
62 |
| Statement of Comprehensive Income – Parent Company |
63 |
| Balance Sheet – Parent Company |
64 |
| Changes in Shareholders' Equity – Parent Company |
66 |
| Cash Flow Statement – Parent Company |
67 |
| Notes |
68 |
| Alternative Performance Measures |
109 |
| Corporate Governance Report |
111 |
| Auditor's report |
121 |
| Financial calendar and Annual General Meeting | 126 |
| Alternative performance measures (APM) and other financial definitions | 127 |
All amounts are denominated in SEK million unless otherwise stated.
As Chairman of the Board, it is with great pleasure I look back at another strong year for AAK, during which the company has further strengthened its position as a leading company within the world of speciality vegetable oils and fats.
AAK has continued to deliver profitable growth and three strategic acquisitions have expanded both the company's geographic footprint and its ingredient portfolio. Another important milestone during the year has been to develop a new strategic direction which was launched in November. With this strategic direction in place and with a clear ambition of further accelerating growth organically combined with carefully selected mergers and acquisitions, I look upon the future of AAK with great enthusiasm.
AAK is a very well-run company made up by competent and highly motivated colleagues. How to continue to achieve profitable and sustainable growth are goals that characterize all discussions and decisions by the Board and all AAK units. Working toward these goals, it is important that our decision-making processes and responsibilities comply with relevant rules and regulations and with the company's business principles. With this report we want to illustrate our effective and clear corporate governance and show that we always work in the shareholders' best interest.
2019 saw two changes to the Board of Directors. In connection with the Annual General Meeting, we welcomed Patrik Andersson as new board member, and at the end of the year Lillie Li Valuer decided to leave her position as board member due to new external commitments. On behalf of the Board, I would like to thank Lillie for her engagement during her time as board member of AAK.
There has been good progress within AAK's sustainability work as well, which is very encouraging. Sustainable products and solutions have been developed and put to market, we have seen improvements within resource efficiency, and the company has reduced its carbon dioxide emissions. Furthermore, there are strong engagements in AAK's supply chains. A great example is the company's Kolo Nafaso program in West Africa which now involves more than 230,000 shea-collecting women. At the end of last year, I had personally the opportunity to observe the program firsthand in West Africa and the impact it has on the women and their communities is nothing less than tremendous.
On behalf of the Board of Directors, I would like to thank AAK's management team and all employees around the organization for great contributions during 2019. Your hard and dedicated work has been, and will continue to be, integral to the company's growth and success.
Georg Brunstam, Chairman of the Board
The Board of Directors and the President and Chief Executive Officer (CEO) of AAK AB (publ.), corporate identity number 556669-2850, with its registered office in Malmö, hereby present the Financial Statements and Consolidated Financial Statements for the financial year January 1 – December 31, 2019.
2019 has been a strong year for AAK. There has been year-over-year growth in terms of volumes, operating profit, operating profit per kilo, and earnings per share. In addition, the company has made three strategic acquisitions, increased its ownership in the joint venture AAK Kamani in India, and brought some key products to market, including AkoPlanet™ and COBAO™ Pure. The closing of 2019 also marks the end of The AAK Way, a company program that has resulted in many important achievements.
currency translation impact was SEK 75 million. Operating profit at fixed foreign exchange rates and excluding acquisition costs improved by 6 percent. Food Ingredients reported a strong improvement by 13 percent and Chocolate & Confectionery Fats improved by 6 percent. Technical Products & Feed reported a decline of 2 percent but is compared to historical performances operating on a significantly higher operating profit level.
The equity/assets ratio was 46 percent as at December 31, 2019 (50 percent as at December 31, 2018). Consolidated net debt as at December 31, 2019 was SEK 3,117 million (2,667 as at December 31, 2018). On December 31, 2019, the Group had total credit facilities of approximately SEK 7,081 million.
Operating cash flow including changes in working capital amounted to SEK 1,558 million (1,090). Cash flow from working capital was negative, amounting to SEK 896 million (negative 555). Strategic purchases of key raw materials to Chocolate & Confectionery Fats impacted cash flow from inventory negatively. Accounts payables have during the latter part of 2019 showed positive cash flow and have, combined with lower raw material prices, to a small degree offset the increased inventory. Cash outflow from investing activities amounted to SEK 1,335 million (723), whereof SEK 535 million (0) was related to acquisitions.
The Company's largest business area, Food Ingredients, reported a record-high operating profit of SEK 1,366 million (1,205), an increase of 13 percent. The operating profit per kilo increased by 11 percent to SEK 0.89 (0.80). The increase in operating profit was primarily driven by semi-speciality solutions in Dairy, Bakery and Foodservice. The performance within the Special Nutrition segment was mixed. Lower birth rates in China and destocking by some customers had a negative impact on Infant Nutrition while Medical Nutrition continued to grow. Solutions for plant-based foods generated strong volume and profit growth.
Chocolate & Confectionery Fats reported an improvement in operating profit of 6 percent to SEK 794 million (747). The use of low-yielding shea kernels with a higher cost base when compared to using normal-yielding shea kernels impacted operating profit negatively. The profit growth was driven by an improved product mix and some favorable spot business opportunities during the second half of the year. Investment projects to increase capacity and strengthen the supply chain have been completed according to plan. The sourcing season for new kernels has been good and with new kernels at hand and additional production capacity, the cost level is expected to normalize within the business area by the middle of the first quarter 2020. Volumes increased by 7 percent. Operating profit per kilo decreased from SEK 1.74 to SEK 1.73 as a consequence of the yield challenges.
Operating profit for AAK's smallest business area, Technical Products & Feed, decreased by 3 percent from SEK 155 million to SEK 150 million. Compared to the record-high operating profit in 2018, both the fatty
acids business and feed business declined. Compared to historical performances, the business area is operating on a significantly higher operating profit level due to a successful implementation of the company's co-development approach within the business area
The company's business areas are Food Ingredients, Chocolate & Confectionery Fats and Technical Products & Feed. Group-wide functions are included in the Group Functions segment.
Food Ingredients maintains its strong regional positions, primarily in Europe, USA and North Latin America, but is gradually strengthening its positions in other regions.
Chocolate & Confectionery Fats and Personal Care have world-leading positions, and these will gradually be expanded in an increasingly global arena.
Technical Products & Feed has a strong local position in Northern Europe and will continue to focus its growth efforts in these geographic areas through its close links to the Karlshamn factory in Sweden, bringing significant synergy effects.
During the year, the company has reviewed its market and capabilities to define AAK's strategic direction going forward. Building on a very strong historical performance, we will preserve the DNA of our company. Passion, drive and entrepreneurship that can be found in all corners of AAK, our unique co-development
approach and customer centricity, and our determined focus on sustainability will remain key going forward.
The strategic direction will be focused on the opportunities within the specific industries we serve as well as sustainability, health and nutrition. We will step up our focus and investments within Plant-based Foods and develop a Health & Nutrition platform. For Special Nutrition and Chocolate & Confectionery Fats we will invest for continued growth while focusing on optimizing our performance within Bakery and Dairy.
During the first quarter, AAK acquired the Dutch company MaasRefinery B.V. and British foodservice company BD Foods Ltd. MaasRefinery had revenues of SEK 50 million in 2018 and BD Foods' revenues for the same year amounted to SEK 120 million. Neither of the transactions had a significant impact on AAK's earnings. Acquisition-related costs of SEK 9 million were charged during the first quarter.
During the second quarter, AAK further strengthened its position in the strategic and fast-growing Indian market by acquiring an additional 13 percent of the shares of AAK Kamani, and during the fourth quarter, AAK acquired another 5 percent. AAK now owns 69 percent of AAK Kamani.
During the third quarter, AAK acquired 80 percent of Soya International (Europe) Ltd. The UK-based company focuses on sourcing, processing and distribution of non-GMO semi-speciality and speciality lecithins. Soya International has a third-party processing facility in the Netherlands and holds well-established relationships with customers and distributors in 40 markets globally.
In 2018, the company had revenues of approximately SEK 150 million. There is a put/call option under which AAK could acquire the remaining 20 percent of the company within the next 2–5 years. The transaction had no significant impact on AAK's earnings. Acquisition-related costs of SEK 6 million were charged during the third quarter.
Torben Friis Lange, President Asia and Global Sourcing & Trading, has decided to pursue new opportunities outside of AAK and will leave the company during the spring 2020. Tim Stephenson, Director, Finance and Global Trading, has since February 1, 2020 taken over the responsibility as President Global Sourcing & Trading. The process to find Torben's successor as President Asia is ongoing.
AAK's financial goals are to grow faster than the underlying market and to generate strong cash flows. We also intend to continually improve the return on capital employed.
The objective of the Board of Directors, taking into account the development of Group earnings, its financial position and future development opportunities, is to propose annual dividends equivalent to at least 30–50 percent of the profit for the year, after tax, for the Group.
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.
For the 2020 Annual General Meeting, the Nomination Committee has proposed re-election of Georg Brunstam, Gun Nilsson, Bengt Baron, Märta Schörling Andreen, Marianne Kirkegaard and Patrik Andersson as Board members. Lillie Li Valeur decided to leave the Board of Directors in December 2019 due to new external commitments. In total, the Nomination Committee represents approximately 44 percent of the shares and votes in AAK as at December 31, 2019.
AAK's Nomination Committee for the 2020 Annual General Meeting consists of:
The total number of shares in AAK as of December 31, 2019 was 253,730,934. There is one class of shares in AAK, and each share entitles the holder to one vote. There are no limits as regards how many votes each shareholder may cast at an Annual General Meeting.
Nor are there any limitations regarding the transfer of the shares resulting from provisions in law or in the Articles of Association.
Of the Company's shareholders, only Melker Schörling AB has a shareholding which represents at least one-tenth of the number of votes of all shares in AAK. Melker Schörling AB's shareholding as at December 31, 2019 amounted to 31.1 percent of the shares and votes.
AAK is not aware of any agreement between direct shareholders of AAK that would involve limitations in the right to transfer shares. The shareholder structure is described further on page 53.
The Articles of Association stipulate that Board members shall be appointed by the Annual General Meeting of AAK. The Articles of Association contain no provisions regarding dismissal of Board members or regarding amendment of the Articles of Association.
The Group's long-term financing agreement contains stipulations that, in certain cases, give the lender the right to request advance payment if control of AAK changes substantially. Such a substantial change in control can occur as a result of an official take-over bid.
AAK's assessment is that it has been necessary to accept these stipulations in order to obtain financing on terms which are otherwise acceptable.
Guidelines for the remuneration of the CEO and other senior executives were adopted by the 2019 Annual General Meeting. No deviations from these guidelines have been made. The Board of Directors of AAK proposes that the 2020 Annual General Meeting resolve new guidelines for remuneration of senior executives to be applied in 2020. The present guidelines are contained in Note 8, Remuneration of the Board of Directors and senior executives.
These guidelines will cover those persons who are in Group management positions during the period of time in which the guidelines apply. The guidelines apply to agreements entered into after a resolution by the Annual General Meeting, and in the event that changes are made to existing agreements after this point in time. The Board will be entitled to diverge from the guidelines if there are particular reasons to do so in an individual case.
The Group's product development operations are described in further detail on pages 20–30.
The environmental impact from our plants include emissions of odorous substances, solvents, smoke and gases into the atmosphere, as well as discharging fats, oxygen-consuming material, and nutrients into the water, and also creating organic waste and noise. We continually review our impact on all levels to further improve the environmental performance at AAK. We operate all our plants with appropriate official permits
in all countries in which we are present. In Sweden, the operations in Karlshamn are licensable under Swedish law.
The recruitment of skilled and competent personnel is an important component in maintaining competitiveness for the AAK Group. The Group therefore has continuous active programs for personnel development.
All business operations involve risks – a controlled approach to risk-taking is a prerequisite for maintaining good profitability. Risks may depend on events in the operating environment and may affect a certain sector or market. A risk may also be purely company-specific or country-specific. At AAK, effective risk management is a continual process which is conducted within the framework of operational management and forms a natural part of the day-to-day monitoring of operations.
For more detailed information, please refer to the section on Risks and risk management on pages 36–39 and to Note 3, Financial Risk Management.
The AAK Group is exposed to the fierce competition which characterizes the industry related to fluctuations in raw material prices which affect capital tied up.
The raw materials used in operations are agricultural products, and availability may therefore vary due to climatic and other external factors.
The Group's management of financial risks is described in Note 3, Financial Risk Management.
The Corporate Governance Report on pages 111–120 is part of the Directors' Report. For information on the composition and work, etc., of the Board of Directors, see the Corporate Governance Report on pages 112–114.
Under Chapter 6, Section 11, of the Swedish Annual Accounts Act, AAK has decided to prepare its Sustainability Report separately from the Annual Report. The Sustainability Report was submitted to the auditor with the Annual Report.
The Company is the holding company of the AAK Group, and its activities consist mainly of joint Group functions connected to the development and management of the Group. The Parent employs personnel with skills and competencies to execute Group-wide financing, accounting, information, marketing, product development, human resources and IT. The Parent is also responsible for Group strategy and risk management and provides legal and tax-related services to Group companies.
The Parent's invoicing in 2019 amounted to SEK 159 million (119). The profit after financial items amounted to SEK 1,474 million (2,372). Interest-bearing liabilities minus cash and cash equivalents and interest-bearing
assets totalled SEK 2,173 million (positive 211 as of December 31, 2018). Investments in intangible and tangible assets amounted to SEK 5 million (6). The average number of employees at December 31, 2019 was 37 (37).
The objective for the dividend in the long term is to correspond to 30–50 percent of consolidated profits after tax, while always considering AAK's long-term financing requirements. During the last ten years, the annual dividend has been between 32–37 percent of the net result.
Based on the current situation with the ongoing corona pandemic, the Board of Directors has evaluated the proposal of the dividend for 2019.
As of March 30, 2020, AAK had not, due to the corona pandemic, experienced any material business disruptions. However, the volatility and uncertainty have increased within all industries that AAK serves.
AAK has a robust foundation with a strong financial track record and a solid balance sheet. However, as an additional precaution due to the current situation, the Board of Directors proposed, on March 30, 2020, to postpone the decision on the dividend for 2019*.
Retained profits from the previous year total SEK 4,966 million and the profit for the 2019 financial year is SEK 1,473 million (1,513 for the Group). Provided that the 2020 Annual General Meeting approves the Board's proposed appropriation of profits, a total of SEK 6,439 million will be carried forward.
| The Board of Directors propose that the disposable profit brought forward | SEK | 4,966,288,349 |
|---|---|---|
| and profit/loss for the year | SEK | 1,472,909,933 |
| Total | SEK | 6,439,198,282 |
| be appropriated as follows: | ||
| To be carried forward | SEK | 6,439,198,282 |
| Total | SEK | 6,439,198,282 |
The Group's and the Parent's income statements and balance sheets will be presented to the Annual General Meeting on May 13, 2020 for adoption.
* The dividend proposal for 2019 was SEK 2.10 per share (36 percent of net profit).
Chairman of the Board of Directors Elected in: 2018 Born: 1957 Nationality: Swedish
Other board positions: Chairman of the Board of Hexpol AB and Inwido AB. Board member of NIBE Industrier AB, Beckers Industrial Coatings Holding AB, and Melker Schörling AB
Holdings in AAK: 71,599 stock options, issued by Melker Schörling AB*
Board member Elected in: 2017
Born: 1955 Nationality: Swedish
Other board positions: Chairman of the Board of Directors of Hexagon AB. Board member of Hexpol AB, Loomis AB, and Bonnier Holding AB
Holdings in AAK: 6,000 shares
Board member Elected in: 2017
Born: 1962
Nationality: Swedish
Other board positions: Chairman of the Board of Directors of Enzymatica AB and Thule Group AB Holdings in AAK: 6,000 shares
Board member Elected in: 2015 Born: 1968 Nationality: Danish Other board positions: Board member of Dansk Supermarked Holdings in AAK: None
Board member Elected in: 2013 Born: 1984 Nationality: Swedish Other board positions: Board member of Melker Schörling AB, Hexpol AB, Hexagon AB, and Absolent Group AB Holdings in AAK: 78,774,412 shares (through Melker Schörling AB)
* Each stock option entitles the option holder to buy six shares.
Board member Elected in: 2019 Born: 1963 Nationality: Swedish Other board positions: Board member of Ecolean AB Holdings in AAK: 307 shares
AAK Sweden AB Appointed by IF-Metall Elected in: 2005 Born: 1957 Nationality: Swedish Holdings in AAK: None
AAK Sweden AB Appointed by PTK-L Elected in: 2018 Born: 1960 Nationality: Swedish Holdings in AAK: None
Authorized public accountant PricewaterhouseCoopers AB Born: 1969 The company's auditor since 2013
President and CEO Born: 1973 Employed: 2018 Nationality: Swedish Qualifications: MSc. Industrial Engineering and Management Holdings in AAK: 105,000 stock options*
Chief Financial Officer (CFO). Head of Corporate Communications, IT, Mergers & Acquisitions and Global Foodservice Vice President AAK AB Born: 1977 Employed: 2007 Nationality: Swedish Qualifications: MSc. Business Administration Holdings in AAK: 90,000 shares and 25,000 stock options*
Chief Strategy & Sustainability Officer. Head of People and Corporate Branding Vice President AAK AB Born: 1964 Employed: 2010 Nationality: Danish Qualifications: MBA, BSc. Chemical Engineering Holdings in AAK: 120,000 shares and 50,000 stock options*
President AAK Asia Vice President AAK AB Born: 1963 Employed: 2010 Nationality: Danish Qualifications: BSc. Dairy Technology, Graduate Diploma in Business Administration Holdings in AAK: 90,000 shares and 50,000 stock options*
President AAK Europe Vice President AAK AB Born: 1963 Employed: 2015 Nationality: Dutch Qualifications: Food Technology Holdings in AAK: 35,000 stock options*
President AAK USA and North Latin America Vice President AAK AB Born: 1967 Employed: 2007 Nationality: Mexican Qualifications: MBA, BSc. Mechanical & Electrical Engineering Holdings in AAK: 240,000 shares and 15,000 stock options*
* Each stock option entitles the option holder to buy six shares.
President AAK South Latin America Vice President AAK AB Born: 1961 Employed: 2014 Nationality: Mexican Qualifications: Graduate Diploma in Business Administration, Food Engineering Holdings in AAK: 18,000 stock options*
President Global Operations Vice President AAK AB Born: 1960 Employed: 2001 Nationality: British Qualifications: MBA, Graduate Diploma in Business Management Holdings in AAK: 40,000 stock options*
President Global Sourcing & Trading Vice President AAK AB Born: 1961 Employed: 1995 Nationality: British Qualifications: MA (Oxon), FCA Holdings in AAK: 10,000 stock options*
President Global Industries Vice President AAK AB Born: 1969 Employed: 2011 Nationality: Danish Qualifications: MBA, and Food Technologist Holdings in AAK: 10,000 stock options*
Chief Technology Officer (CTO) Vice President AAK AB Born: 1963 Employed: 1988 Nationality: Danish Qualifications: Graduate Diploma in Food Technology Holdings in AAK: 45,400 shares and 50,000 stock options*
Senior advisor Vice President AAK AB Born: 1951 Employed: 2002 Nationality: Nederländsk Qualifications: MSc. Food Technology Holdings in AAK: 75,000 shares and 25,000 stock options*
AAK's shares have been traded since October 2, 2006 on the NASDAQ OMX, Stockholm, the Nordic List. As from January 2, 2014, AAK shares have been traded in the Large Cap segment in the Consumer Commodities sector. The abbreviation is AAK and the ISIN code is SE0011337708.
During 2019, 118,0 million (86,1) shares were traded at a total value of SEK 19,585 million (11,437), which corresponds to a turnover rate of 47 percent (34). The average trade per trading day was 472,141 (347,107) shares or SEK 78 million (46). At the year-end, the price was SEK 178.00 (122.70) and AAK's market value was SEK 45,164 million (31,133). The highest price during the year was SEK 202.10 (August 2) and the lowest price was SEK 120.98 (January 3).
As at December 31, 2019, the share capital of AAK was SEK 422,884,890 (422,884,890). The number of shares was 253,730,934 (253,730,934). The quota value per share was SEK 1.67. Each share entitles the holder to one vote. All shares have equal rights to participate in the profits and assets of the Company.
There were 17,250 (11,820) shareholders as at December 31, 2019. There are shareholders in more than 40 countries, and the total ownership outside of Sweden amounted to 32 percent (31) at year-end. The ten largest individual shareholders accounted for 55 percent of the share capital on the same date. As of 31 December 2019, members of AAK's Group Executive Management owned a total of 660,400 shares in AAK.
The Board of Directors has adopted a dividend policy. According to the policy, the objective of the Board of Directors, taking into account the development of Group earnings, its financial position and future development opportunities, is to propose annual dividends equivalent to at least 30–50 percent of the profit for the year, after tax, for the Group.
The Board of Directors has proposed to postpone the decision on the dividend for the 2019 financial year. For further information, please see page 47.
AAK's aim is for the shares to be valued on the basis of relevant, accurate and up-to-date information. This requires a clear strategy for financial communication, reliable information and regular contact with financial market stakeholders.
Contact with the financial markets takes place via presentations in conjunction with quarterly reports and meetings with analysts, investors and journalists at capital market days, seminars and visits to AAK's divisions.
During 2019, a capital market day was held in Aarhus,
Denmark and a large number of meetings were held with analysts and other professional operators on site in Malmö, Copenhagen, London and Stockholm.
Those interested can obtain presentation material and listen to audio recordings from quarterly presentations at www.aak.com.
ABG Sundal Collier – Fredrik Ivarsson Berenberg Bank – James Targett Carnegie Investment Bank – Kenneth Toll Johansson Danske Bank – Oskar Lindström Exane BNP Paribas – Heidi Vesterinen Handelsbanken – Karri Rinta Nordea Bank – Christer Beckard SEB Enskilda – Carl Mellerby
Financial information about AAK is available at www.aak.com, where financial reports, press releases and presentations can be obtained. The Company's press releases are distributed via Cision and are also available on the Company's website.
The Company management can be contacted as follows: Telephone: +46 (0)40-627 83 00 Email: [email protected]
Fredrik Nilsson, CFO Telephone: +46 (0)40-627 83 00 Email: [email protected]
| Major shareholders, December 30, 2019 |
No. of shares |
Proportion of share capital and votes, % |
|
|---|---|---|---|
| Melker Schörling AB | 78,774,412 | 31.1 | |
| State Street Bank and Trust | 14,335,663 | 5.7 | |
| Alecta Pensionsförsäkring | 12,300,000 | 4.8 | |
| Swedbank Robur Fonder | 12,063,608 | 4.8 | |
| SEB Investment Management | 11,564,443 | 4.6 | |
| Didner & Gerge Fonder | 8,562,191 | 3.4 | |
| JPM Chase NA | 5,912,204 | 2.3 | |
| Handelsbanken Fonder | 5,689,381 | 2.2 | |
| Kirkbi Invest A/S | 4,859,272 | 1.9 | |
| CBNY- Norges Bank | 4,508,196 | 1.8 | |
| Other shareholders | 95,161,564 | 37.4 | |
| Total | 253,730,934 | 100.0 |
| Distribution of shareholdings, December 30, 2019 |
No. of shareholders |
Proportion of all shareholders, % |
Proportion of share capital and votes, % |
|---|---|---|---|
| 1–500 | 11,134 | 64.6 | 0.5 |
| 501–1,000 | 2,104 | 12.2 | 0.6 |
| 1,001–5,000 | 2,810 | 16.3 | 2.4 |
| 5,001–10,000 | 574 | 3.3 | 1.5 |
| 10,001–15,000 | 176 | 1.0 | 0.9 |
| 15,001–20,000 | 68 | 0.4 | 0.5 |
| 20,001– | 384 | 2.2 | 93.6 |
| Total | 17,250 | 100.0 | 100.0 |
| Information per share | 2019 | 2018 |
|---|---|---|
| Share price, reporting date, SEK | 178.00 | 122.70 |
| Dividend, SEK | - 1) |
1.85 |
| Direct yield, % | 1.18 | 1.51 |
| Earnings per share, SEK | 5.86 | 5.21 |
| Equity per share, SEK | 40.74 | 35.11 |
| Share price/Equity | 4.37 | 3.49 |
Definitions, see page 127. 1) For further information, please see page 47.
AAK has over the past decade been able to grow faster than the underlying markets in our focus areas – speciality and semi-speciality solutions in Food Ingredients and Chocolate & Confectionery Fats. With our new strategic direction, we will continue to support the company's growth journey. Market data* shows that in terms of volumes the oils and fats market in total is growing at approximately 3 percent with the speciality market growing even faster.
With our recent greenfield investments and our latest acquisitions, we have continued to strengthen our geographic footprint. Through this expansion we are represented in regions where both population
and urbanization are on the increase – demographic changes that present substantial market opportunities. We also see a growing middle class with a higher income and an increased spending power as well as a growing senior population as people live longer.
Between 2010 and 2019, AAK has annually increased its operating profit by 11 percent on average. Based on our high go-to-market activity (sales and customer innovation) and new product development, the very solid foundation we have built over time, our strong executive and local management, and our increased
focus on mergers and acquisitions, we see no reason to lower that ambition.
Despite considerable investments to increase capacity and several acquisitions to add both capacity and new capabilities to AAK, we have over recent years built a very strong balance sheet with an improved equity ratio. Combined with long-term loan agreements and our MTN program (Medium Term Note), this has created a solid foundation and a flexible alternative for further growth, both organically and through selective and strategic acquisitions.
Through our unique customer co-development approach and by focusing on trends and global key drivers, AAK is very well positioned to benefit from current consumer trends such as health and well-being, sustainability, premiumization, convenience, customization, and transparency. An important example is our natural and plant-based solutions that are on trend with consumer demands for health and nutrition. Sustainability is another competitive advantage as AAK is considered a trustworthy partner with focus on traceability and sustainability throughout the value chain. We are furthermore well positioned in the speciality segment in which there is a great demand for co-developed and high-quality premium solutions.
It has been a strong year where we have seen yearover-year growth in terms of volumes, operating profit, operating profit per kilo, and earnings per share. This is particularly impressive considering the challenges we have had with low-yielding shea kernels in Chocolate & Confectionery Fats and a more mixed performance in Special Nutrition due to lower birth rates in China and destocking by some global customers.
The continued double-digit improvement in operating profit is in line with our ambition, and we have now had 36 straight quarters with record-high operating profit quarter-over-quarter as well as a record-high full-year result every year since 2010.
To be able to meet future demand, we have continued to invest in capacity and to make strategic acquisitions. Despite this, we have had a positive cash flow after investments during the last three years. We expect capital expenditure to be at a slightly higher level in 2020 compared to 2019.
Cash flow from working capital was negative in 2019. Good working capital management on accounts receivables impacted cash flow favorably. This was offset by strategic purchases of key raw materials to Chocolate & Confectionery Fats which had a significant negative impact on cash flow from inventory.
During the fourth quarter, we saw a sharp increase in raw material prices, particularly for palm. This will have an impact on our cash flow and working capital during 2020.
We continue our focus on working capital days and further improvements should be possible, particularly relating to payment terms with our suppliers and late payments from some customers.
We always try to maximize our ability to invest in growth and create a higher shareholder return. To ensure continued growth, we want to have a strong balance sheet and be well capitalized with a net debt/EBITDA ratio lower than 3. Our current ratio is 1.10.
At the end of 2018, we established an MTN program (Medium Term Note) with a framework amount of SEK 4,000 million. The program supports us in diversifying our existing sources of funding and gives us a flexible alternative to current bank facilities.
Over the last years we have invested significant amounts in organic growth, built new factories, and made several acquisitions to strengthen our footprint and add new capabilities to AAK. Going forward, we will continue to invest in growth, both in equipment and in our employees, to secure that we can continue to be our customers' preferred co-development partner.
55
Fredrik Nilsson, CFO
| SEK million | Note | Jan–Dec 2019 | Jan–Dec 2018 |
|---|---|---|---|
| Net sales | 28 | 28,510 | 27,592 |
| Other operating income | 193 | 180 | |
| Total operating income | 28,703 | 27,772 | |
| Raw materials and consumables and changes in inventories of finished goods and work in progress | -20,247 | -19,784 | |
| Goods for resale | -496 | -939 | |
| Other external expenses | 5, 16, 28 | -2,685 | -2,462 |
| Employee benefits expenses | 6, 7, 8, 9 | -2,423 | -2,073 |
| Depreciation, amortization and impairment loss | 14, 15, 16 | -687 | -552 |
| Other operating expenses | -23 | -6 | |
| Total operating expenses | -26,561 | -25,816 | |
| Operating profit (EBIT) | 2,142 | 1,956 | |
| Result from financial items | 10, 16 | ||
| Financial income | 26 | 28 | |
| Financial expenses | -157 | -155 | |
| Net financial items | -131 | -127 | |
| Profit before tax | 2,011 | 1,829 | |
| Income tax | 11, 16 | -498 | -489 |
| Profit for the year | 1,513 | 1,340 | |
| Attributable to: | |||
| Non-controlling interests | 26 | 18 | |
| Parent company shareholders | 1,487 | 1,322 | |
| Earnings per share attributable to Parent shareholders during the year before and after dilution (SEK per share) | 12 | 5.86 | 5.21 |
| SEK million | Note | Jan–Dec 2019 | Jan–Dec 2018 |
|---|---|---|---|
| Profit for the period | 1,513 | 1,340 | |
| Items that will not be reclassified to profit or loss: | |||
| Remeasurements of post-employment benefit obligations | 9 | -21 | -28 |
| Items that may subsequently be reclassified to profit or loss: | -21 | -28 | |
| Translation differences | 402 | 362 | |
| Fair-value changes in cash flow hedges | -0 | - | |
| Tax related to fair-value changes in cash flow hedges | 0 | - | |
| 402 | 362 | ||
| Total comprehensive income for the period | 1,894 | 1,674 | |
| Attributable to: Non-controlling interests Parent company shareholders |
26 1,868 |
18 1,656 |
| SEK million | Note | Dec 31, 2019 | Dec 31, 2018 |
|---|---|---|---|
| ASSETS | |||
| Non-current assets | |||
| Intangible assets | 14 | ||
| Goodwill | 2,114 | 1,666 | |
| Patents and other intangible assets | 363 | 333 | |
| 2,477 | 1,999 | ||
| Property, plant and equipment | 15 | ||
| Land and buildings | 1,274 | 1,245 | |
| Plant and machinery | 3,739 | 3,255 | |
| Equipment, tools and fixtures and fittings | 239 | 229 | |
| Assets under construction | 782 | 739 | |
| 6,034 | 5,468 | ||
| Right-of-use assets | 16 | 770 | - |
| 770 | - | ||
| Financial assets | |||
| Shares in associates | 13 | 12 | |
| Deferred tax assets | 11 | 144 | 61 |
| Other non-current receivables | 18 | 18 | |
| 175 | 91 | ||
| Total non-current assets | 9,456 | 7,558 | |
| Current assets | |||
| Inventories | 18 | 6,681 | 4,705 |
| Accounts receivables | 3 | 3,529 | 3,441 |
| Current tax assets | 11 | 295 | 305 |
| Other receivables | 354 | 428 | |
| Derivative instruments | 3 | 1,391 | 698 |
| Prepaid expenses and accrued income | 231 | 163 | |
| Cash and cash equivalents | 19 | 982 | 737 |
| Total current assets | 13,463 | 10,477 | |
| TOTAL ASSETS | 22,919 | 18,035 |
| SEK million | Note | Dec 31, 2019 | Dec 31, 2018 |
|---|---|---|---|
| EQUITY AND LIABILITIES | |||
| Shareholders' equity | 20 | ||
| Share capital | 423 | 423 | |
| Reserves | 496 | 94 | |
| Retained profit | 9,418 | 8,391 | |
| Equity attributable to Parent's shareholders | 10,337 | 8,908 | |
| Non-controlling interests | 84 | 88 | |
| Total equity | 10,421 | 8,996 | |
| LIABILITIES | |||
| Non-current liabilities | |||
| Interest-bearing liabilities | |||
| Liabilities to banks and credit institutions | 21 | 2,987 | 2,551 |
| Pension provisions | 9 | 241 | 206 |
| Lease liabilities | 16 | 675 | - |
| Non-interest-bearing liabilities | 3,903 | 2,757 | |
| Deferred tax liabilities | 11 | 511 | 490 |
| Other non-current provisions | 22 | 102 | 72 |
| Other non-current liabilities | 423 | 362 | |
| 1,036 | 924 | ||
| Total non-current liabilities | 4,939 | 3,681 | |
| Current liabilities | |||
| Interest-bearing liabilities | |||
| Liabilities to banks and credit institutions | 21 | 870 | 661 |
| Other current liabilities | 12 | 7 | |
| Lease liabilities | 16 | 110 | - |
| Non-interest-bearing liabilities | 992 | 668 | |
| Accounts payables | 3 | 3,354 | 2,685 |
| Current tax liabilities | 11 | 474 | 393 |
| Other current liabilities | 283 | 249 | |
| Other current provisions | 22 | 36 | 30 |
| Derivative instruments | 3 | 1,098 | 290 |
| Accrued expenses and prepaid income | 23 | 1,322 | 1,043 |
| 6,567 | 4,690 | ||
| Total current liabilities | 7,559 | 5,358 | |
| TOTAL EQUITY AND LIABILITIES | 22,919 | 18,035 |
| Attributable to the Parent's shareholders | ||||||
|---|---|---|---|---|---|---|
| SEK million | Share capital | Reserves | Retained profit | Non-controlling interests |
Total equity | |
| Opening balance as at January 1, 2018 | 423 | -243 | 7,484 | 70 | 7,734 | |
| Profit for the year | - | - | 1,322 | 18 | 1,340 | |
| Other comprehensive income | - | 362 | -28 | - | 334 | |
| Comprehensive income | - | 362 | 1,294 | 18 | 1,674 | |
| Transactions with shareholders | ||||||
| Dividend | - | - | -412 | - | -412 | |
| Total transactions with shareholders | - | - | -412 | - | -412 | |
| Reclassification | - | -25 | 25 | - | - | |
| Closing balance as at December 31, 2018 | 423 | 94 | 8,391 | 88 | 8,996 |
| Attributable to the Parent's shareholders | |||||
|---|---|---|---|---|---|
| Non-controlling | |||||
| SEK million | Share capital | Reserves | Retained profit | interests | Total equity |
| Opening balance as at January 1, 2019 | 423 | 94 | 8,391 | 88 | 8,996 |
| Profit for the year | - | - | 1,487 | 26 | 1,513 |
| Other comprehensive income | - | 402 | -21 | - | 381 |
| Comprehensive income | - | 402 | 1,466 | 26 | 1,894 |
| Transactions with shareholders | |||||
| Change in non-controlling interests | - | - | 30 | -30 | - |
| Dividend | - | - | -469 | - | -469 |
| Total transactions with shareholders | - | - | -439 | -30 | -469 |
| Closing balance as at December 31, 2019 | 423 | 496 | 9,418 | 84 | 10,421 |
For further information, see Note 20.
| SEK million | Note | Jan–Dec 2019 | Jan–Dec 2018 |
|---|---|---|---|
| OPERATING ACTIVITIES Operating profit |
2,142 | 1,956 | |
| Depreciation and amortization | 14, 15, 16 | 687 | 552 |
| Other non-cash items | 29 | 246 | -278 |
| Cash flow before interest and tax | 3,075 | 2,230 | |
| Interest received and other financial income | 26 | 26 | |
| Interest paid and other financial expenses | -148 | -128 | |
| Tax paid | -499 | -483 | |
| Cash flow before changes in working capital | 2,454 | 1,645 | |
| Changes in inventory | -1,784 | 63 | |
| Changes in accounts receivables | 86 | -208 | |
| Changes in accounts payables | 540 | -538 | |
| Changes in other working capital items | 262 | 128 | |
| Changes in working capital | -896 | -555 | |
| Cash flow from operating activities | 1,558 | 1,090 | |
| INVESTING ACTIVITIES | |||
| Acquisition of intangible assets | -14 | -23 | |
| Acquisition of property, plant and equipment | -787 | -702 | |
| Acquisition of operations and shares, net of cash acquired | -535 | - | |
| Proceeds from sale of property, plant and equipment | 1 | 2 | |
| Cash flow from investing activities | -1,335 | -723 | |
| FINANCING ACTIVITIES | |||
| Loans raised | 29 | 1,878 | 1,751 |
| Amortization of loans | 29 | -1,287 | -1,462 |
| Amortization of lease liability | 16 | -122 | - |
| Dividends paid | -469 | -412 | |
| Cash flow from financing activities | 0 | -123 | |
| Cash flow for the year | 223 | 244 | |
| Cash and cash equivalents at beginning of year | 737 | 480 | |
| Exchange rate difference for cash equivalents | 22 | 13 | |
| Cash and cash equivalents at year-end | 19 | 982 | 737 |
| SEK million | Note | Jan–Dec 2019 | Jan–Dec 2018 |
|---|---|---|---|
| Net sales | 26 | 159 | 119 |
| Other operating income | 0 | 0 | |
| Total operating income | 159 | 119 | |
| Other external expenses | 5 | -136 | -105 |
| Personnel costs | 6, 7, 8, 9 | -101 | -100 |
| Depreciation, amortization and impairment loss | -7 | -3 | |
| Total operating expenses | -244 | -208 | |
| Operating profit (EBIT) | -85 | -89 | |
| Profit from financial items | 10 | ||
| Dividend from Group companies | 1,497 | 2,360 | |
| Profit from interests in Group companies | 87 | 119 | |
| Interest income and similar items | 1 | 4 | |
| Interest expenses and similar items | -26 | -22 | |
| Net financial items | 1,559 | 2,461 | |
| Profit before tax | 1,474 | 2,372 | |
| Income tax | 11 | -1 | -11 |
| Profit for the year | 1,473 | 2,361 |
| SEK million | Note | Jan–Dec 2019 | Jan–Dec 2018 |
|---|---|---|---|
| Profit for the period Other comprehensive income |
1,473 - |
2,361 - |
|
| Total comprehensive income for the period | 1,473 | 2,361 |
| SEK million | Note | Dec 31, 2019 | Dec 31, 2018 |
|---|---|---|---|
| ASSETS | |||
| Non-current assets | |||
| Intangible non-current assets | 12 | 11 | |
| 12 | 11 | ||
| Property, plant and equipment | 3 | 2 | |
| 3 | 2 | ||
| Right-of-use assets | 6 | - | |
| 6 | - | ||
| Financial non-current assets | |||
| Shares in Group companies | 17 | 5,788 | 2,426 |
| Receivables from Group companies | 2,971 | 4,604 | |
| Deferred tax assets | 11 | 5 | 3 |
| Other non-current assets | 18 | 14 | |
| 8,782 | 7,047 | ||
| Total non-current assets | 8,803 | 7,060 | |
| Current assets | |||
| Receivables from Group companies | 409 | 406 | |
| Tax assets | 11 | 7 | 7 |
| Prepaid expenses and accrued income | 6 | 6 | |
| Other receivables | 1 | 1 | |
| Total current assets | 423 | 420 | |
| TOTAL ASSETS | 9,226 | 7,480 |
| SEK million | Note | Dec 31, 2019 | Dec 31, 2018 |
|---|---|---|---|
| EQUITY AND LIABILITIES | |||
| EQUITY | 20 | ||
| Restricted equity | |||
| Share capital Statutory reserve |
423 5 |
423 5 |
|
| 428 | 428 | ||
| Non-restricted equity | |||
| Retained profit | 4,966 | 3,074 | |
| Profit/loss for the year | 1,473 | 2,361 | |
| 6,439 | 5,435 | ||
| Total equity | 6,867 | 5,863 | |
| LIABILITIES | |||
| Non-current liabilities | |||
| Interest-bearing liabilities | |||
| Liabilities to banks and credit institutions | 2,250 | 1,499 | |
| Lease liabilities | 3 | - | |
| 2,253 | 1,499 | ||
| Non-interest-bearing liabilities | |||
| Other non-current liabilities | 33 33 |
26 26 |
|
| Total non-current liabilities | 2,286 | 1,525 | |
| Current liabilities | |||
| Interest-bearing liabilities | |||
| Lease liabilities | 3 | - | |
| Non-interest-bearing liabilities | 3 | - | |
| Accounts payables | 8 | 18 | |
| Liabilities to Group companies | 12 | 27 | |
| Accrued interest | 2 | 1 | |
| Accrued expenses and prepaid income | 23 | 41 | 40 |
| Other current liabilities | 7 | 6 | |
| 70 | 92 | ||
| Total current liabilities | 73 | 92 | |
| TOTAL EQUITY AND LIABILITIES | 9,226 | 7,480 |
| SEK million | Share capital | Statutory reserves | Retained profit | Total equity |
|---|---|---|---|---|
| Opening balance as at January 1, 2018 | 423 | 5 | 3,488 | 3,916 |
| Profit for the year | - | - | 2,361 | 2,361 |
| Other comprehensive income | - | - | - | - |
| Total comprehensive income | - | - | 2,361 | 2,361 |
| Dividend | - | - | -412 | -412 |
| Closing balance as at December 31, 2018 | 423 | 5 | 5,435 | 5,863 |
| SEK million | Share capital | Statutory reserves | Retained profit | Total equity |
|---|---|---|---|---|
| Opening balance as at January 1, 2019 | 423 | 5 | 5,435 | 5,863 |
| Profit for the year | - | - | 1,473 | 1,473 |
| Other comprehensive income | - | - | - | - |
| Total comprehensive income | - | - | 1,473 | 1,473 |
| Dividend | - | - | -469 | -469 |
| Closing balance as at December 31, 2019 | 423 | 5 | 6,439 | 6,867 |
Total shares outstanding were 253,730,934 at quota value of SEK 1.67 per share. For further information, see Note 20.
| SEK million | Note | Jan–Dec 2019 | Jan–Dec 2018 |
|---|---|---|---|
| OPERATING ACTIVITIES | |||
| Profit after financial items | 1,474 | 2,372 | |
| Reversal of amortization and impairment losses | 4 | 3 | |
| Income tax paid | -4 | -10 | |
| Other non-cash items | 29 | 3 | - |
| Cash flow from operations before changes to working capital | 1,477 | 2,365 | |
| Changes in working capital | |||
| Net change in other current receivables | -4 | -298 | |
| Net change in other current operating liabilities | -21 | 2 | |
| Cash flow from operating activities | 1,452 | 2,069 | |
| INVESTING ACTIVITIES | |||
| Acquisition of intangible assets | -5 | -6 | |
| Acquisition of operations and shares, net of cash acquired | -3,362 | - | |
| Cash flow from investing activities | -3,367 | -6 | |
| FINANCING ACTIVITIES Loans raised from banks and credit institutions |
751 | 1,499 | |
| Loans raised from Group companies | 1,633 | - | |
| Amortization of loans from Group companies | - | -3,150 | |
| Dividend | -469 | -412 | |
| Cash flow from financing activities | 1,915 | -2,063 | |
| Cash flow for the year | 0 | 0 | |
| Cash and cash equivalents at beginning of year | 0 | 0 | |
| Cash and cash equivalents at year-end | 0 | 0 |
AAK AB (publ.), corporate identity number 556669-2850, is a Swedish registered limited liability company domiciled in Malmö, Sweden. The shares of the Parent are listed on NASDAQ OMX Stockholm, in the Large Cap list and under 1
Consumer Goods. The head office is located at Skrivaregatan 9, 215 32 Malmö, Sweden.
These consolidated financial statements for 2019 are for the Group consisting of the Parent and all subsidiaries. The Group also has ownership interests in associates and joint ventures. The Board of Directors approved these consolidated financial statements for publication on April 15, 2020.
Basis of presentation of the annual report and consolidated financial statements 2
The Group's consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the International Accounting Standard Board (IASB) and the interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) as adopted within the EU, the Swedish Annual Accounts Act, and the Swedish Financial Reporting Board's recommendation RFR 1 "Supplementary accounting rules for groups of companies". The Parent company has prepared its financial statements in accordance with the Swedish Annual Accounts Act and the Swedish Financial Reporting Board's recommendation RFR 2 "Accounting for legal entities".
The annual and consolidated financial statements have been prepared on a historical cost basis, with the exception of currency, fixed income and commodity derivative instruments, which are measured at fair value through profit or loss. Preparing these financial statements requires that the Board of Directors and the Company management use certain critical accounting estimates and assumptions. These estimates and assumptions can materially affect the income statement, balance sheet and other information contained herein, including contingent liabilities; see Note 4. Actual outcome can vary from these estimates under different assumptions or circumstances.
New and amended standards applied by the Group
A number of new standards and interpretations enter into force for financial years that start after January 1, 2019. None of these will not have any significant effect on the Group's financial statements.
In January 2016, IASB published a new leasing standard that will replace IAS 17 Leases and the associated interpretations IFRIC 4, SIC-15 and SIC-27. The standard requires that assets and liabilities attributable to all leases, with some exceptions, be recognized in the balance sheet. This recognition is based on the view that the lessee has a right to use an asset during a specific period of time and also has an obligation to pay for this right. AAK applied the new standard as of January 1, 2019.
The Group was affected primarily by lease agreements of rental for premises, land and lease of vehicles. The Group has applied the modified retrospective approach and has, in accordance with the standard, not restated the comparatives for 2018. The Group has adopted the majority of the practical expedients allowed for the first time that IFRS 16 is applied, the most significant being to account for leases with a remaining lease term of less than 12 months as at January 1, 2019 as short-term leases. The Group has also, after initial application, applied the practical expedients of accounting for leases with a lease term of 12 months or less and leases of low value as an expense on a straight-line basis in the income statement.
On transition, the right-of-use assets were measured at an amount corresponding to the lease liabilities at December 31, 2018 and amounted to SEK 741 million. Equity was not affected in the transition to IFRS 16. For more information about leasing, see note 16.
The consolidated financial statements cover AAK AB and all its subsidiaries. Subsidiaries are all companies over which the Group has a controlling influence. The Group controls a company when it is exposed to or is entitled to variable return from its holding in the company and is able to affect the return by exerting influence in the company. Subsidiaries are included in the consolidated financial statements as from the date on which the controlling influence is transferred to the Group. They are excluded from the consolidated financial statements as from the date on which the controlling influence ceases.
The acquisition of subsidiaries is recognized using the purchase method of accounting. The cost of acquisition is measured as the fair value of the assets provided as consideration, liabilities incurred and shares issued by the Group. Transaction costs relating to acquisitions are expensed as they are incurred. Identifiable assets acquired and liabilities and obligations assumed in an acquisition are measured initially at fair value at the acquisition date. For each acquisition, the Group determines whether all non-controlling interests in the acquired companies are to
be recognized at fair value or according to the proportional share of the acquired company's net assets. The excess of the purchase price, any non-controlling interests and the fair value of previous shareholdings at the acquisition date over the fair value of the Group's interest in identifiable net assets is recognized as goodwill. If this amount is less than the fair value for the acquired subsidiary's assets, the difference is recognized directly in the statement of comprehensive income. 2
All intra-group transactions, balances and unrealized gains on transactions are eliminated, unless the transaction provides evidence of impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
The Group handles transactions with holders of noncontrolling interests in the same ways as transactions with the Group's shareholders. In the event of acquisitions from holders of non-controlling interests, the company recognizes the difference between the purchase price paid and the actual acquired portion of the carrying amount of the subsidiary's net assets in equity. Gains and losses on disposals to holders of non-controlling interests are also recognized in equity.
When the Group no longer holds a controlling or significant influence, each shareholding is remeasured at fair value and the change in the carrying amount is recognized in the income statement. Fair value is used as the primary carrying amount and forms the basis for ongoing recognition of the remaining ownership interest as an associate company, joint venture or financial asset. All amounts relating to divested units previously recognized under "Other comprehensive income" are recognized as though the Group had directly disposed of the respective assets or liabilities. This can result in amounts previously recognized in "Other comprehensive income" being reclassified as earnings.
If the equity interest in an associate is reduced but significant influence still remains, where relevant only a proportional share of the amounts previously recognized in "Other comprehensive income" is recognized as earnings.
Associates are those companies where the Group has significant influence, but not a controlling influence over operational and financial management, usually through an ownership interest of between 20 percent and 50 percent of the voting rights. As of the date at which the significant influence is acquired, investments in associated companies are recognized in the consolidated financial statements using the equity method. The equity method means that the value of the shares in the associated companies recognized for the Group corresponds to the Group's interest in the equity of the associates plus Group-related goodwill and any residual values of Group-related surplus or shortfall in value. The consolidated income statement reports the Group's share of profit of associated companies, adjusted for any amortization, impairment or dissolution of acquired surplus or shortfall values, as other financial revenue. Dividends received from associated companies reduce the carrying amount of the investment.
The equity method is used until significant influence ceases.
Items included in the financial statements of each of the Group's subsidiaries are measured using the currency of the primary economic environment in which they operate (functional currency). The consolidated financial statements are presented in Swedish krona which is the Parent's functional and presentation currency.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing on the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at the closing rate are recognized as of the end of the reporting period in the income statement.
The results and financial position of foreign subsidiaries (none of which has the currency of a hyperinflationary economy) that have a functional currency other than the presentation currency are translated into the Group's presentation currency as follows:
Goodwill and fair value adjustments arising in the acquisition of foreign operations are treated as assets and liabilities of the entity and translated at the closing day rate.
The following rates were used to translate currency:
| Currency | Average rate | Closing rate |
|---|---|---|
| EUR | 10.56 | 10.49 |
| DKK | 1.41 | 1.40 |
| GBP | 12.06 | 12.40 |
| MXN | 0.49 | 0.49 |
| USD | 9.43 | 9.34 |
An operating segment is the part of the Group that conducts business operations from which it may generate revenue and incur expenses for which discrete financial information is available. The operating results of an operating segment are followed up by the Group's chief operating decision-maker in order to evaluate its performance and allocate resources to the operating segment. The Group's operations are divided up into operating segments based on which parts of the operations the Group's chief operating decision-maker monitors, that is, according to the management approach.
AAK's business operations are organized in such a way that the Group's highest executive decision-maker, that is the CEO, monitors earnings, returns and cash flows generated by the Group's various products. Each operating segment has a manager who is responsible for day-to-day operations and who regularly reports to the CEO on the outcome of the operating segment's performance and its resource requirements. Where the CEO monitors profit/loss and determines resource allocations based on the product that the Group produces and sells, these constitute the Group's operating segments.
The Group's operations are organically divided into business segments based on product. The marketing organization also reflects this structure. Segment reporting is submitted in accordance with IFRS 8 for the Group only. For each segment, the results, assets and liabilities directly attributable to or items that can reliably be attributed to the segment are included in that segment. Assets and liabilities not attributed to segments include tax assets and tax liabilities, financial investments and financial liabilities, as well as cash and cash equivalents and interest-bearing receivables.
Revenue from contracts with customers are reported as Net sales in the Consolidated Income Statement. AAK recognizes revenue from contracts with customers based on the five-step process described in IFRS 15. The five steps in the process for recognizing revenue from contracts with customers are: Identify the contract, identify separate performance obligations in the contract, determine the transaction price, allocate the transaction price to the separate performance obligations and recognize revenue when each performance obligation is satisfied. The Group's performance obligation in contracts with customers consists of providing the goods specified in the contract. Revenue from the Group's sales is recognized when the control of the products is transferred to the customer in accordance with the terms of the contract, which occurs when the products are delivered to the customer and there are no unfulfilled obligations that may affect the customer's acceptance and approval of the products.
Net sales are recognized based on the price specified in the sales contract less any discounts. A contract with a customer may include one or more variable considerations. The IFRS 15 standard requires an entity to estimate the amount of variable consideration and recognizes a minimum amount of highly probably, not reversing revenue. Variable considerations, such as price reductions, performance discounts and bonuses are non-significant within the AAK Group. Based on this, AAK follows the objective of the constraint as it is highly probable that a significant reversal in the cumulative amount of revenue recognized will not occur. No element of financing is deemed present as the sales are made with a credit term of 30–45 days. The Group's obligation to repair or replace faulty products under the standard warranty terms is recognized as a warranty provision monthly. A receivable is recognized when the goods are delivered as this is the point in time that the consideration is unconditional. Prepayments are reported as a liability on the line item Accrued expenses and prepaid income in the Balance Sheet.
Other operating income relates to for instance rental revenue, capital gains from the sale and scrapping of tangible and intangible assets and exchange gains on operating receivables and liabilities. Interest income is recognized allocated over the maturity of the security using the effective interest method. Dividend income is recognized when the right to receive payment has been determined.
A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate legal entity. The Group has no legal or constructive obligations to pay further contributions if this legal entity does not hold sufficient assets to pay all employee benefits relating to employee service in the current or prior periods. The fees paid in exchange for the employee performing services for the company are recognized as expenses in the period in which the services are performed.
A defined benefit pension plan is a pension plan that is not a defined contribution plan. The characteristic feature of a defined benefit plan is that it defines an amount of pension
benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and remuneration.
The liability recognized in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash flows using interest rates of high-quality mortgage bonds that are denominated in the same currency in which the benefits will be paid, and that have terms of maturity approximating the terms in the related pension commitment. Past-service costs are recognized immediately in the income statement.
The net interest rate is calculated by the discount rate being applied to defined benefit plans and to the fair value of plan assets. This expense is included in the personnel costs in the income statement.
Actuarial gains and losses as a result of experience-based adjustments and changes in actuarial assumptions are recognized in other comprehensive income in the period in which they arise.
Employees receive compensation on termination before normal retirement age or when they voluntarily accept termination in exchange for these benefits. The Group recognizes termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed, formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy.
Annual variable remuneration is based on meeting set targets determined on an annual basis. These targets are related to the performance of the Company. The Group recognizes costs as and when earnings occur.
2
Leasing is classified as operating leasing when the risks and benefits of ownership are retained by the lessor. All leasing agreements within the Group are classified as operating leases. Operating lease payments are recognized in the income statement on a straight-line basis over the period of the lease.
The Group leases various land, buildings, machinery, equipment and vehicles. Rental contracts are typically made for fixed periods of 10 to 30 years for land, 5 to 20 years for buildings and 3 to 5 years for vehicles but may have extension options as described below. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions.
Leases are recognized as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the lessee's incremental borrowing rate is used. The incremental borrowing rate is the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions considering the entity's financial credit ability.
Right-of-use assets are measured at cost comprising the following:
AAK has chosen to apply the practical expedient concerning short-term leases and leases of low-value assets. Short-term leases are leases with a lease term of 12 months or less and low-value assets have an underlying value of USD 5,000 or less when new. Payments associated with short-term leases and leases of low-value assets are recognized on a straightline basis as an expense in profit or loss.
Extension and termination options are included in the majority of the property leases across the Group. These terms are used to maximize operational flexibility in terms of managing contracts. When determine the lease term the management consider all relevant facts and circumstances that create an economic incentive for the lessee to exercise an option to extend the lease, or not to exercise an option to terminate the lease. Periods covered by the extension option are included in the lease term only if the lessee is reasonably certain to exercise the extension option, or if the lessee is reasonably certain not to exercise the termination option. Assessment regarding the exercise of options to extend or options to terminate a lease agreement is revised if there is any material event or change in circumstances that affect this assessment and if that change is within AAK's control.
Product development work is an integral part of production relating to process improvement measures that is expensed as part of the product cost as it arises. The development work consists primarily of work aimed at optimizing the attributes and function of speciality oils and fats, either for the finished product in which these oils and fats are ingredients or to improve the efficiency of the production process of the finished product.
sold. When acquiring operations where cost is less than the net value of the acquired assets, borrowings, and any contingent liabilities, the difference is recognized directly in the income statement.
Other intangible assets include such assets as capitalized expenditure on IT, patents and trademarks. These assets have a defined useful life and are carried at cost less accumulated amortization and impairment losses. The cost associated with maintaining an intangible asset is recognized as part of the carrying value or as a separate asset only when it is probable that the future economic benefit associated with the asset will flow to the Group and the cost of the asset can be reliably measured. Other expenditures are expensed as they arise. Other intangible assets are amortized using the straight-line method over their estimated useful lives, normally 5 to 10 years.
Land and buildings comprise mainly factory buildings and offices. All property, plant and equipment is carried at cost, less accumulated depreciation. Acquisition cost includes expenditure that is directly attributable to the acquisition of an asset.
Subsequent costs are included in the asset's carrying amount or are recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the assets will flow to the Group and the cost of the asset can be measured reliably. All other repairs and maintenance are expensed in the financial period in which they arise.
Land is not depreciated. Depreciation of other property, plant and equipment is allocated on a straight-line basis over the estimated useful lives of the assets to reduce their cost to residual values. Depreciation periods of between 3 and 15 years are used for plant and machinery, equipment, tools, fixtures and fittings. Industrial buildings and research laboratories are depreciated over 20 and 25 years, respectively, and office buildings over 50 years. When an asset's carrying amount may not be recoverable, the asset is immediately impaired to its recoverable amount.
Assets' residual value and useful life are reviewed at the end of every reporting period and adjusted as required.
Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in the income statement.
Assets with indefinite useful lives are tested for impairment annually rather than being amortized. All assets are assessed in terms of impairment whenever events or changes in circumstances indicate that an asset's carrying amount exceeds its recoverable amount. Impairment reflects the excess of an asset's carrying amount over its recoverable amount. The recoverable amount is either the asset's fair value less any selling costs or its value in use, whichever is greater. For the purposes of assessment, assets are grouped on the basis of the lowest level at which there are separate identifiable cash flows (cash-generating units). Assets, other than financial assets and goodwill, for which impairment loss
was previously recognized, are tested at the end of every reporting period to ascertain whether any reversal should be made.
Inventories are stated at cost or net selling price, whichever is lowest. Cost is calculated using the first-in-first-out principle (FIFO) or weighted average prices. The nature and area of use of the product determines the method used. The cost of finished goods and work in progress includes direct material costs, direct labor and other direct manufacturing costs and a reasonable allocation of indirect manufacturing expenses based on normal production capacity, excluding borrowing costs. Net selling price is the estimated sale price in the ordinary course of business, less costs of completion and applicable variable costs to sell.
Financial income consists of interest income on funds invested, dividend income and gains on hedging instruments recognized in profit or loss. Dividend income is recognized when the right to receive payment has been established. Results from the sale of financial instruments are recognized when the risks and benefits associated with ownership of the instruments have been transferred to the buyer and the Group no longer has control of the instrument. Financial expenses consist of interest expenses on loans, the effect of the resolution of present value calculations for provisions, impairment of financial assets and those losses on hedging instruments recognized in profit or loss. Borrowing expenses are recognized in profit or loss, except where they are directly attributable to the acquisition, construction or production of assets that take considerable time to complete for their intended use or sale, in which case they are included in the cost of those assets. No borrowing expenses have been capitalized during the past two years. Exchange gains and losses are recognized net.
The Group classifies its financial assets in the following categories:
The classification is dependent on AAK's business model for managing the financial assets and the contractual terms of the cash flows. Management establishes the classification of financial assets at initial recognition. Management reclassifies debt instruments when and only when its business model for managing those assets changes.
At initial recognition, the Group measures a financial asset at its fair value plus, in case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss.
A financial asset or financial liability is recognized in the balance sheet when AAK enters a contract for the instrument (i.e. on the relevant business day).
A financial liability is recognized when the counterparty has performed and a contractual duty to pay arises, even if no invoice is received.
A financial asset is derecognized when the rights to cash flow in the contract mature or the rights are transferred in a transaction that transfers essentially all risks and remunerations from ownership to the assets transferred. This also applies to parts of financial assets.
A financial liability is removed from the balance sheet when the duty in the contract is performed or otherwise extinguished. This also applies to parts of financial liabilities.
All of AAK's debt instruments are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest and are consequently measured at amortized cost. These are included in current assets, except for items with a maturity of more than 12 months after the end of the reporting period, which are classified as non-current assets. Interest income from these
financial assets are included in financial income using the effective interest method. The Group's financial instruments measured at amortized cost consist of accounts receivables and other receivables, as well as cash and cash equivalents in the balance sheet. 2
The Group subsequently measures all equity investments at fair value through profit or loss.
The Group assesses on a forward-looking basis the expected credit losses associated with its debt instruments carried at amortized cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognized from initial recognition of the receivables. The expected credit loss rates are calculated based on payment profiles and the corresponding historical credit losses experienced within the same period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables. Trade receivables and contract assets are written off when there is no reasonable expectation of recovery. Indications that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the Group. Impairment losses on trade receivables and contract assets are presented as net impairment losses within operating profit. Subsequent recoveries of amounts previously written off are credited against the same line item.
Derivative instruments are recognized in the balance sheet on the date of contract and at fair value, both initially and upon subsequent revaluation. The method of recognizing gain or loss arising from revaluation depends on whether the derivative is identified as a hedging instrument, and, in such event, the nature of the item being hedged. The Group has identified
hedging of fair value regarding a recognized asset or liability or a firm commitment (fair-value hedging).
When the transaction is undertaken, the Group documents the economic relationship between the hedging instrument and the hedged item, as well as the hedge's role in the Group's risk management objectives and strategy. The Group also documents its assessment, both when it enters into hedging contracts and on an ongoing basis, as to whether the derivative instruments used in hedging transactions are effective in terms of counteracting changes in fair value or cash flow that are attributable to the hedged items. The Company's derivative instruments consist of OTC or "over-the-counter" derivatives concluded with financial counterparties, listed standardized derivatives and sales and purchase contracts which are not deemed to be for own use (and consequently should be recognized as derivatives). According to IFRS 9, only contracts not designated for physical delivery may be accounted for as derivatives. AAK's business model permits (enables) the net settlement of purchase and sales contracts entered into. The full fair value of a hedging derivative is classified as a non-current asset or liability when remaining maturity of the hedged item is more than 12 months. It is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months.
Changes in fair value of a derivative that has been formally identified for hedging of fair value and meets the conditions for hedge accounting are recognized on the same line item in the income statement as any change in fair value attributable to the hedged risk for the hedged asset or liability. The Group applies hedging of fair value for raw materials in inventory. Changes in fair value of raw material in inventory are accounted for as a part of Current assets and liabilities in the balance sheet. The gain or loss attributable to the ineffective portion is recognized with immediate effect in "Raw materials and consumables and changes in inventory".
When forward contracts are used to hedge fair value the Group generally designates only the change in fair value of the forward contract related to the spot component as the hedging instrument. The change in the forward element of the contract that relates to the hedged item is recognized within Operating profit.
AAK applies the fair value option to binding commitments (sales and purchase contracts) for own use since this offset the change in fair value of derivatives not designated for hedge accounting (reducing accounting mismatch) and AAK's business model enables the net settlement of purchase and sales contracts entered into for physical delivery (the contracts are readily convertible to cash). Assets in this category are classified as current assets as they are expected to be settled within 12 months.
The fair value of instruments that do not have listed prices is determined using valuation techniques such as discounted cash flow models, in which all assessed and determined cash flows are discounted using a zero-coupon yield curve. The fair value of derivatives is determined using valuation techniques. The valuation is based on models that discount cash flows using forward curves for underlying variables such as raw materials and exchange rates. The assessed and determined cash flows are discounted by a zero-coupon interest rate curve. The Group's credit risk is taken into consideration in the valuation at fair value.
Accounts receivables are recognized initially at fair value and thereafter at amortized cost using the effective interest method, less provisions for impairment, see above about impairment. Provisions are recognized in the income statement as "Other external expenses".
Ordinary shares are classified as share capital. Transaction expenses that are directly attributable to new share issues or options are recognized, net of tax, in equity as a deduction from the proceeds.
Premium received for share warrants issued at market price has been recognized as an increase in funds brought
forward in equity as the options will be redeemed with equity instruments. Information on outstanding subscription warrants is available in Note 8. 2
Borrowings are initially recognized at fair value, net of transaction costs. Borrowings are subsequently stated at amortized cost and any difference between proceeds (net of transaction costs) and redemption value is recognized in the income statement, allocated over the period of the borrowing using the effective interest method.
Accounts payables are initially recognized at fair value and subsequently at amortized cost using the effective interest method.
Provisions are recognized in the balance sheet when the Group has a present legal or constructive obligation as a result of past events, and it is more likely than not that an outflow of resources will be required to settle the obligations and the amount can be estimated reliably. No provisions are made for future operating losses. If the effect of when in time payment is made is significant, provisions are calculated through discounting the expected future cash flow at an interest rate before tax that reflects current market assessments of the time value of money and, if applicable, the risks associated with the debt.
A provision for restructuring is recognized when the Group has adopted a comprehensive and formal restructuring plan, and the restructuring has either been started or published.
Tax expenses for the period comprise both current tax due and deferred income tax. Tax is recognized in the income statement, apart from when tax is attributable to items recognized in other comprehensive income or directly in equity. In such cases, tax is also recognized in other comprehensive income and equity. Income tax is determined using the tax
rules that have been enacted or announced by the balance sheet date and are expected to apply when the related deferred tax asset is realized or the deferred tax liability is settled. Tax expenses stated include both current tax due and deferred income tax.
Deferred tax is provided in full, using the liability method, on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the balance sheet. The principal temporary differences arise from depreciation of property, plant and equipment, provisions for pensions and other post-retirement benefits and tax losses carried forward. The tax rates enacted in each country are used in determining deferred income tax.
Deferred income tax assets for tax-deductible temporary differences and loss carry-forwards are recognized only to the extent it is likely that it will be possible to utilize these items. The value of deferred tax assets is derecognized when it is no longer deemed likely that they can be utilized.
Deferred income tax assets are recognized on temporary differences arising from investments in subsidiaries, except where the timing of the reversal of the temporary differences is controlled by the Group and it is probable that the difference will not be reversed in the foreseeable future.
Cash equivalents comprise balances with less than three months' maturity, including cash, bank deposits and other current securities.
Payments in and out have been divided up into three categories: operating activities, investing activities and financing activities. The indirect method is used for flows from operating activities.
The changes during the year in operating assets and operating liabilities have been adjusted for the effects of changes in exchange rates. Acquisitions and disposals are recognized under investing activities. The assets and liabilities that acquired and divested companies had at the time of the change are not included in the analysis of the changes
in operating capital, nor in changes to balance sheet items recognized under investing and financing activities. These items are reported separately under investing activities.
The calculation of earnings per share is based on the consolidated profit attributable to the Parent's shareholders and the weighted average number of shares outstanding during the year.
When determining earnings per share after dilution, a company must base its calculations on the company's shares and stock options which could result in dilution being exercised. Compensation from these instruments will be deemed to have been received from the issuing of ordinary shares at the average market price for ordinary shares during the period. The difference between the number of issued ordinary shares and the number of ordinary shares that should have been issued at the average market price for ordinary shares during the period shall be treated as an issue of ordinary shares without consideration. According to paragraph 47 of IAS 33, options and stock options only have a dilutive effect when the average market price for ordinary shares during the period exceeds the exercise price for options or stock options.
The dividend to shareholders in the Parent is recognized as a liability in the consolidated financial statements in the period when the dividend was approved by the shareholders. However, in 2018 a dividend to the Parent company of SEK 250 million was accounted in 2019. As a result of this, the financial statements of the Parent company are restated in the annual report of 2019.
The Parent company has prepared its financial statements in accordance with the Swedish Annual Accounts Act and the Swedish Financial Reporting Board's recommendation RFR 2 "Accounting for legal entities". No differences with the Group's accounting policies have been identified.
The AAK Group's operations are exposed to various financial risks, including market price risks (on raw materials, currencies and interest rates), liquidity risk, counterparty risk and credit risk. Since AAK's products are sold throughout the world, our sales revenues are exposed to market fluctuations in the exchange rates of the currencies involved. Moreover, the Group buys its raw materials on international markets, so its cost of raw materials is exposed to market fluctuations in both the price of the raw materials and the exchange rates of the currencies involved.
Exposure to such significant financial risks makes managing these risks a significant factor in successful operations. AAK believes that we are largely successful in managing risks owing to the policies and procedures established for the Group.
The Group's management of price risk and other risks related to purchasing of raw materials is regulated by AAK's policy and principles on the management of market risk for raw materials. Currency risk is hedged when risk arise from
underlying commercial actions and flows. Interest rate risks are hedged in line with AAK's financial policy and principles. Counterparty risks are measured and managed according to AAK's financial policy and principles. Policies and principles are established by AAK's Board of Directors, which also monitors, evaluates and updates these policies and principles annually.
The Group's annual costs for raw materials are two-thirds of the sales value of the finished products. AAK hedges both operational raw material price risk and the underlying operational currency risk when sales agreements are signed with customers.
Raw material prices fluctuate, so the Group has assigned a high priority to raw material procurement and to managing this exposure. Raw material procurement is managed by the Group procurement organization, which continually monitors and controls raw material market exposure for the Group. However, to maintain an effective organization, the Group's
procurement organization is permitted to take limited price risks within the framework of our trading policy established by the Board of Directors. Since these raw material positions are managed appropriately, AAK's profitability is affected only marginally by price changes.
AAK hedges sales contracts with physical purchases of raw material. In long-term contracts, AAK hedges by paper purchase contracts, since there is low liquidity in the market for longer periods. For paper purchase contracts, the Group uses standard commodity futures traded on commodity exchanges or OTC hedge contracts.
Exotic raw materials (of which shea is by far the most important) must be sourced when they are available right after the harvest season. No efficient hedge market exists for exotic raw materials. Therefore, the Group is typically left with a significant unhedged volume of exotic raw materials in the months following the harvest season. The Group endeavors to limit this exposure by entering into new exotic-raw-material-based sales contracts during the months in which the exotic raw materials are sourced.
| (Thousand tons) | Sales contracts | Inventory | Purchase contracts | Net exposure |
|---|---|---|---|---|
| Oils and fats | 1,786 | -334 | -1,461 | -9 |
| Exposure to raw material price risk, December 31, 2018 | ||
|---|---|---|
| -------------------------------------------------------- | -- | -- |
| (Thousand tons) | Sales contracts | Inventory | Purchase contracts | Net exposure |
|---|---|---|---|---|
| Oils and fats | 1,917 | -245 | -1,680 | -8 |
Sensitivity analysis – raw materials (excluding exotic raw materials) 3
With the stocks and commercial contracts hedged by raw material hedge contracts, leaving a very limited net exposure, changes in raw material prices have no significant effect on the Group's profit margin. A 10 percent change in all raw material prices would therefore have a negligible effect on Group operating profit.
A significant portion of the Group's buying and selling of raw materials is denominated in foreign currency. Moreover, most of the Group's operational subsidiaries are located outside Sweden. Changes in exchange rates therefore affect AAK in several ways:
AAK hedges all its currency transaction risks. Payment for all sales contracts is thus hedged in the local currency of the subsidiaries that have entered into such sales contracts. Exchange rate risks related to translating equity and profit/ loss in our foreign subsidiaries to SEK are not hedged.
| Exposure to transaction risk, December 31, 2019 | |||
|---|---|---|---|
| -- | -- | ------------------------------------------------- | -- |
| Currency contracts | |||||||
|---|---|---|---|---|---|---|---|
| SEK million | Assets | Liabilities | Sales contracts | Purchase contracts | Sold | Bought | Net exposure |
| USD | 3,402 | -4,181 | -2,333 | 1,174 | -1,508 | 3,362 | -84 |
| EUR | 2,292 | -994 | 1,687 | -327 | -3,214 | 511 | -45 |
| GBP | 39 | -676 | 68 | 0 | -359 | 929 | 1 |
| Other | 1,577 | -201 | 417 | -281 | -2,934 | 1,386 | -36 |
| Total | 7,310 | -6,052 | -161 | 566 | -8,015 | 6,188 | -164 |
| Currency contracts | Net | ||||||
|---|---|---|---|---|---|---|---|
| SEK million | Assets | Liabilities | Sales contracts | Purchase contracts | Sold | Bought | exposure |
| USD | 3,265 | -3,999 | -759 | 170 | -2,105 | 3,332 | -96 |
| EUR | 1,768 | -717 | 2,172 | -699 | -3,222 | 681 | -17 |
| GBP | 37 | -474 | 45 | 0 | -452 | 845 | 1 |
| Other | 382 | -251 | 554 | -332 | -3,032 | 2,692 | 13 |
| Total | 5,452 | -5,441 | 2,012 | -861 | -8,811 | 7,550 | 99 |
With all foreign currency transaction risk hedged by currency hedge contracts, leaving a very limited net exposure, changes in foreign currencies will have an insignificant effect on each subsidiary's profit margin. As this is considered non-material for AAK, no sensitivity analysis for transaction risk is shown.
Changes in foreign currencies relative to SEK do affect Group profit when the profit of each foreign subsidiary is translated into SEK. A 10 percent change in the exchange rates of all foreign currencies relative to SEK would have an effect of ± SEK 150 million (120) on Group operating profit. Furthermore, a 10 percent change in the exchange rates of all foreign currencies relative to SEK would affect Group net sales by SEK 2,800 million (2,100) and Group net working capital by SEK 510 million (390).
AAK's policy on interest rate risk management is to minimize volatility in cash flow and net profit caused by fluctuations in interest rates. However, during abnormal market conditions – e.g. a financial crisis – short-term interest rates can rise to extreme levels. In order to protect the Group's interest costs against such abnormal scenarios, the interest rate on part of the Group's net interest-bearing debt can be fixed or capped. AAK applies as a general principle cash flow hedging on interest rate swaps.
At year-end 2019, the Group's interest-bearing net debt, including pensions, amounted to SEK 3,117 million (2,667).
| % | 2019 | 2018 |
|---|---|---|
| SEK | 2.0 | 1.5 |
| DKK | 1.5 | 1.5 |
| USD | 2.5 | 3.3 |
| CNY | 4.5 | 5.0 |
| TRY | 13.5 | 27.0 |
| INR | 6.5 | 7.0 |
Sensitivity analysis – interest rates
At the closing date, the Group had a floating-rate-based net debt of SEK 2,950 million (2,274). A 1 percent change in interest rates would therefore have a full-year effect of SEK 30 million (23) on the Group's interest costs before tax.
AAK defines its managed capital as the Group's consolidated equity and net debt. The Group's objective when managing capital is to safeguard the Group's ability to continue as a going concern and provide an adequate return for shareholders and benefits for other stakeholders together with maintaining an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may for instance raise new loans, amortize existing loans, adjust the dividends paid to shareholders, issue new shares or sell assets to reduce.
AAK's policy on capital structure is to optimize debt financing, though not to a level that would threaten the Company's position as an investment grade company. When managing the capital, the Group monitors different measures including the following target key ratio which is included as financial covenant under the terms of the major borrowing facilities. This target level is considered relatively conservative and contributes to ensuring that AAK will be able to retain its high credit rating.
| Target | 2019 | 2018 | |
|---|---|---|---|
| Net debt/EBITDA | < 3.00 | 1.10 | 1.06 |
The Group's policy is to allocate total net borrowings per subsidiary relative to each subsidiary's share of the Group's cash flow. This minimizes the currency risk in relation to the Group's ability to pay interest on and amortize its borrowings, which in turn strengthens the Group's debt capacity.
| SEK million | 2019 | 2018 |
|---|---|---|
| SEK | 2,795 | 1,182 |
| DKK | 535 | 780 |
| USD | - | 399 |
| CNY | 216 | 176 |
| TRY | 35 | 270 |
| BRL | - | 121 |
| INR | 274 | 241 |
| Other | 2 | 41 |
| Total | 3,857 | 3,212 |
Liquidity risk concerns the Group's ability to meet its financial commitments as they fall due.
The following table shows all of the Group's financial commitments, listed by the earliest contractual maturity date at the balance sheet date. All liabilities to banks and credit institutions are based on variable interest rates, which means the year-end carrying value reflects the present value of these liabilities. All liabilities in foreign currency are translated into SEK at year-end closing rates.
| Between | Between | ||||
|---|---|---|---|---|---|
| Total amount | Less than 1 year | 1 and 2 years | 2 and 5 years | More than 5 years | |
| Non-current liabilities | |||||
| Financial liabilities | |||||
| Liabilities to banks and credit institutions | 2,987 | 353 | 1,100 | 1,113 | 421 |
| Other non-current liabilities | 423 | - | - | - | 423 |
| Total non-current liabilities | 3,410 | 353 | 1,100 | 1,113 | 844 |
| Interest on liabilities to banks and credit institutions | 284 | 83 | 65 | 110 | 26 |
| Total non-current liabilities and interest | 3,694 | 436 | 1,165 | 1,223 | 870 |
| Current liabilities | |||||
| Financial liabilities | |||||
| Liabilities to banks and credit institutions | 870 | 870 | - | - | - |
| Accounts payables | 3,354 | 3,354* | - | - | - |
| Derivative financial instruments | 922 | 922 | - | - | - |
| Accrued expenses | 1,322 | 1,322 | - | - | - |
| Other current liabilities | 258 | 258 | - | - | - |
| Total current liabilities | 6,726 | 6,726 | - | - | - |
| Interest on liabilities to banks and credit institutions | 51 | 51 | - | - | - |
| Total current liabilities and interest | 6,777 | 6,777 | - | - | - |
* The majority are due within 3 months.
| Between | Between | ||||
|---|---|---|---|---|---|
| Total amount | Less than 1 year | 1 and 2 years | 2 and 5 years | More than 5 years | |
| Unused committed credit facilities | 5,728 | - | 3,951 | 1,777 | - |
| Between | Between | ||||
|---|---|---|---|---|---|
| Total amount | Less than 1 year | 1 and 2 years | 2 and 5 years | More than 5 years | |
| Non-current liabilities | |||||
| Financial liabilities | |||||
| Liabilities to banks and credit institutions | 2,551 | 933 | - | 1,100 | 518 |
| Other non-current liabilities | 362 | - | - | - | 362 |
| Total non-current liabilities | 2,913 | 933 | - | 1,100 | 880 |
| Interest on liabilities to banks and credit institutions | 377 | 76 | 76 | 176 | 49 |
| Total non-current liabilities and interest | 3,290 | 1,009 | 76 | 1,276 | 929 |
| Current liabilities | |||||
| Financial liabilities | |||||
| Liabilities to banks and credit institutions | 661 | 661 | - | - | - |
| Accounts payables | 2,685 | 2,685* | - | - | - |
| Derivative financial instruments | 258 | 258 | - | - | - |
| Accrued expenses | 1,044 | 1,044 | - | - | - |
| Other current liabilities | 193 | 193 | - | - | - |
| Total current liabilities | 4,841 | 4,841 | - | - | - |
| Interest on liabilities to banks and credit institutions | 33 | 33 | - | - | - |
| Total current liabilities and interest | 4,874 | 4,874 | - | - | - |
* The majority are due within 3 months.
| Less than | Between | Between | |||
|---|---|---|---|---|---|
| Total amount | 1 year | 1 and 2 years | 2 and 5 years | More than 5 years | |
| Unused committed credit facilities | 4,698 | 1,034 | - | 3,664 | - |
The Group's cash and cash equivalents of SEK 982 million, available credit facilities of SEK 6,684 million and future cash generated by the business are together deemed sufficient for the Group to meet its financial commitments.
The Company is exposed to credit risk primarily in relation to accounts receivables and customer contracts. Risk in the latter case is represented by customers' failure to meet their commitments due to changes in market prices.
Generally, AAK's credit risks are significantly limited due to the stable, long-term business relationships we have with our customers and suppliers.
The customer structure for the Group is such that its singlelargest customer is responsible for less than 5 percent of its total sales, and the average customer corresponds to less than 1 percent.
Nearly a quarter of the Group's sales occur in countries where the political and commercial risks are deemed to be higher than in Western economies. However, we experience only a limited need for impairments even in these countries. This is largely due to the fact that a significant portion of AAK's business in these countries is with large multinational companies that also do business worldwide. The partners with whom AAK do business are also primarily companies with which we have stable, long-term relationships.
Each business segment is responsible for managing its customer credit risks, while our large production facilities are responsible for managing their counterparty risk in relation to raw material procurement.
| 2019 | 2018 | |
|---|---|---|
| Provisions at January 1 | 48 | 41 |
| Provisions for potential losses | 24 | 11 |
| Reversed amount that is | ||
| not recoverable | -2 | - |
| Unused amount reversed | 1 | -5 |
| Exchange differences | 2 | 1 |
| Provisions at December 31 | 73 | 48 |
Provisions for impairments are entirely related to accounts receivables. Total accounts receivables excluding provisions were SEK 3,456 million (3,393).
| SEK million | 2019 | 2018 |
|---|---|---|
| 1–30 days | 383 | 423 |
| 31–120 days | 43 | 53 |
| 121–360 days | 26 | 59 |
| Over 360 days | 36 | 9 |
| 488 | 544 |
The Group had two classes of financial instruments (hedging instruments): raw material hedge contracts and currency hedge contracts, all measured at fair value. The fair value of the derivative financial instruments is measured using valuation methods and observable market data (methodology: level 2). The valuation methods applied are described in the accounting policy.
| Assets and liabilities | |||||||
|---|---|---|---|---|---|---|---|
| measured at fair value through the income statement |
Derivatives held for | Derivatives measured at fair | |||||
| As at December 31, 2019 | hedging purposes | value through equity | |||||
| Carrying | Valuation | Carrying | Valuation | Carrying | Valuation | ||
| SEK million | amount | level | amount | level | amount | level | Total |
| Sales and purchase contracts | 813 | 2 | 813 | ||||
| Currency hedge contracts | 152 | 2 | 152 | ||||
| Fair value of changes in inventories | 426 | 2 | 426 | ||||
| Total assets | - | 1,391 | - | 1,391 | |||
| Sales and purchase contracts | 801 | 2 | 801 | ||||
| Currency hedge contracts | 122 | 2 | 122 | ||||
| Fair value of changes in inventories | 175 | 2 | 175 | ||||
| Total liabilities | - | 1,098 | - | 1,098 |
| Assets and liabilities | |||||||
|---|---|---|---|---|---|---|---|
| measured at fair value through the income statement |
Derivatives held for | Derivatives measured at fair | |||||
| As at December 31, 2018 | hedging purposes | value through equity | |||||
| Carrying | Valuation | Carrying | Valuation | Carrying | Valuation | ||
| SEK million | amount | level | amount | level | amount | level | Total |
| Sales and purchase contracts | 544 | 2 | 544 | ||||
| Currency hedge contracts | 123 | 2 | 123 | ||||
| Fair value of changes in inventories | 31 | 2 | 31 | ||||
| Total assets | - | 698 | - | 698 | |||
| Sales and purchase contracts | 180 | 2 | 180 | ||||
| Currency hedge contracts | 78 | 2 | 78 | ||||
| Fair value of changes in inventories | 32 | 2 | 32 | ||||
| Total liabilities | - | 290 | - | 290 | |||
3 Foreign currency contracts and the foreign currency components in sales and purchase contracts are valued at actual market foreign currency forward rates. The raw material price components in sales and purchase contracts are valued at actual market forward prices for identical or similar raw materials. Inventory is valued at actual market spot prices for identical or similar raw materials. Interest rate swap contracts are valued at actual market interest rates.
Inventory hedging at fair value
Future contracts, and purchase and sales contracts not deemed to be assets for own use are used for hedging, which means that they cannot be exempted from derivative accounting. Since the quality of the underlying raw materials used for hedging differs from the quality of the hedged raw materials, some inefficiency is likely. AAK minimizes this inefficiency by reducing the basis risk between hedged raw material risks and the underlying raw materials used as hedging contracts. Due to the basis risk involved, AAK uses the "dollar offset" method for testing the hedge efficiency of the fair value of raw materials. Hedge efficiency testing in 2019 confirmed that the fair-value hedge of raw materials qualifies for hedge accounting.
Fair-value hedge of currency risk on sales contracts qualifying for exemption under assets for own use The hedging instruments used are future contracts and purchase contracts. As the currency risk of the hedge instruments is identical to the currency risk of the hedged contracts, no material basic risk exists. AAK therefore only uses the "critical match" method to test the hedge efficiency of currency risk on sales contracts that qualify for own use exemption and that may consequently be exempted from derivative accounting. The hedge efficiency testing in 2019 confirmed a perfect critical match.
In preparing these financial statements, the Group management and Board of Directors must make estimates and assumptions that affect the recognized amounts of assets and liabilities, revenues and expenses, and other information, especially regarding contingent liabilities. The estimates and assumptions for accounting purposes dealt with in this section are deemed the most critical for a proper understanding of the financial statements, in view of their degree of significance in judgments and uncertainty. Our estimates and assumptions in this regard change as the circumstances for AAK's operations change.
The Group tests goodwill for any impairment on an annual basis or whenever events or objective circumstances indicate that the fair value of acquisition-related goodwill may have declined – for example, because of changes in the business climate or decisions to dispose of or discontinue certain operations. To determine whether the value of goodwill has decreased, the cash-generating unit to which the goodwill is attributable must be valued and this is done by discounting the cash flow of the unit. In applying this method, the Company relies on several factors, such as profit/loss,
business plans, financial forecasts and market data. See also note 14.
AAK's property, plant and equipment and intangible noncurrent assets, excluding goodwill, are recognized at cost less accumulated amortization/depreciation and any impairment. Besides goodwill, AAK recognizes no intangible assets with unlimited useful life. Depreciation/amortization is applied over the estimated useful life to an estimated residual value. Both the useful life and residual value are reviewed at least once at the end of each financial period.
The carrying amount of the Group's non-current assets is tested whenever events or changes in circumstances indicate that the carrying amount cannot be recovered. The carrying amount of intangible assets not yet finished for use is tested each year. If such an analysis indicates that the carrying amount is too high, the recovery value of the asset is established, which is either the net sales value or the value in use, whichever is greatest. Value in use is measured as the expected future discounted cash flow from the assets or the cash-generating unit to which the asset belongs. See also note 14 and 15.
The Group is liable to pay taxes in many countries. Extensive reviews and testing are necessary to establish worldwide provisions for income tax liabilities. There are many transactions and calculations for which the final tax is uncertain. The Group recognizes a liability for anticipated tax audit issues based on assessment of whether an additional tax liability will arise. In cases where the final tax for these matters differs from the amounts first recognized, these differences will impact current and deferred tax assets and tax liabilities in the period when these determinations are made. See also note 11.
According to our best assessment, neither the Parent nor any subsidiary is currently involved in any legal proceedings or arbitration proceedings that are deemed to have any significant negative impact on the business, its financial position or its performance.
The present value of pension obligations depends on multiple factors determined on an actuarial basis using a number of
4
| 4 | assumptions. The assumptions used to determine net cost | of each year. This is the rate used to determine the present | denominated in the currency in which the benefits will be paid, |
|---|---|---|---|
| (income) for pensions include the discount rate. Each change | value of assessed future payments that are expected to | and that have terms of maturity equivalent to the assess | |
| in these assumptions will affect the carrying amount of | be demanded to settle the pension obligations. When | ments for the pension obligation in question. See also note 9. | |
| pension obligations. | determining a suitable discount rate, the Group considers | ||
| The Group determines a suitable discount rate at the end | the interest rates of high-quality mortgage bonds that are |
5
| Group | Parent | ||||
|---|---|---|---|---|---|
| 2019 | 2018 | 2019 | 2018 | ||
| Audit | |||||
| PwC | 7,053 1) |
6,866 | 1,190 3) |
1,164 | |
| Other | 1,275 | 568 | - | - | |
| Subtotal, audit | 8,328 | 7,434 | 1,190 | 1,164 | |
| Other audit assignments | |||||
| PwC | 1,171 | 154 | - | - | |
| Other | 689 | 127 | - | - | |
| Subtotal, other audit assignments | 1,860 | 281 | - | - | |
| Tax consulting | |||||
| PwC | 48 | 178 | - | - | |
| Other | 1,517 | 403 | - | - | |
| Subtotal, tax consulting | 1,565 | 581 | - | - | |
| Other assignments | |||||
| PwC | 2) 2,093 |
6,891 | 2) 2,022 |
6,761 | |
| Other | 1,641 | 688 | - | - | |
| Subtotal, other assignments | 3,734 | 7,579 | 2,022 | 6,761 | |
| Total | 15,487 | 15,875 | 3,212 | 7,925 |
1) Of which SEK 1,935,000 concerns PricewaterhouseCoopers AB. 2) Of which SEK 2,022,000 concerns PricewaterhouseCoopers AB.
3) Of which SEK 1,190,000 concerns PricewaterhouseCoopers AB.
The audit assignment refers to fees for the statutory audit, i.e. work that has been necessary in order to issue the Auditors' Report, and what is referred to as audit consulting, which is submitted in conjunction with the audit assignment.
| 6 | Group | Parent | ||
|---|---|---|---|---|
| 2019 | 2018 | 2019 | 2018 | |
| Wages and salaries | 1,838,517 | 1,573,568 | 57,858 | 63,855 |
| Social security contributions | 468,143 | 390,872 | 32,184 | 32,786 |
| (of which pension costs) | (144,725) | (113,295) | (10,030) | (9,810) |
SEK 6 million (6) of the Group pension costs relates to the Board of Directors, the CEO and other senior managers.
| 2019 | 2019 2018 |
2018 | ||||
|---|---|---|---|---|---|---|
| Board of Directors, CEO and | Other | Board of Directors, CEO and | ||||
| other senior managers | employees | other senior managers | Other employees | |||
| Wages | Of which variable | Wages | Wages | Of which variable | Wages | |
| and salaries | remuneration | and salaries | and salaries | remuneration | and salaries | |
| Parent, Sweden | 26,587 | 12,313 | 31,271 | 32,222 | 8,755 | 31,633 |
| Subsidiaries, Sweden | 4,542 | 969 | 291,883 | 3,482 | 726 | 281,163 |
| 31,129 | 13,282 | 323,154 | 35,704 | 9,481 | 312,796 | |
| Foreign subsidiaries | 66,201 | 18,970 | 1,418,033 | 56,673 | 12,951 | 1,168,395 |
| Group total | 97,330 | 32,252 | 1,741,187 | 92,377 | 22,432 | 1,481,191 |
7
| 2019 | 2018 | |||||
|---|---|---|---|---|---|---|
| Number of | Number of | |||||
| Average number of employees | employees | Of which men | Of which women | employees | Of which men | Of which women |
| Parent, Sweden | 37 | 22 | 15 | 37 | 22 | 15 |
| Subsidiaries in Sweden | 513 | 374 | 139 | 505 | 378 | 127 |
| 550 | 396 | 154 | 542 | 400 | 142 | |
| Foreign subsidiaries: | ||||||
| United Kingdom | 552 | 416 | 136 | 430 | 329 | 101 |
| India | 525 | 493 | 32 | 535 | 502 | 33 |
| USA | 515 | 385 | 130 | 496 | 377 | 119 |
| Mexico | 388 | 319 | 69 | 384 | 315 | 69 |
| Denmark | 223 | 163 | 60 | 214 | 152 | 62 |
| Colombia | 153 | 106 | 47 | 155 | 103 | 52 |
| China | 146 | 107 | 39 | 125 | 90 | 35 |
| Ghana | 144 | 129 | 15 | 112 | 103 | 9 |
| Netherlands | 136 | 101 | 35 | 102 | 76 | 26 |
| Brazil | 112 | 79 | 33 | 111 | 80 | 31 |
| Burkina Faso | 111 | 93 | 18 | 113 | 97 | 16 |
| Belgium | 98 | 76 | 22 | 90 | 70 | 20 |
| Benin | 57 | 56 | 1 | 51 | 51 | - |
| Turkey | 43 | 29 | 14 | 42 | 29 | 13 |
| Singapore | 23 | 12 | 11 | 19 | 10 | 9 |
| Malaysia | 22 | 4 | 18 | 22 | 4 | 18 |
| Uruguay | 16 | 7 | 9 | 16 | 8 | 8 |
| Russia | 16 | 3 | 13 | 16 | 3 | 13 |
| Ivory Coast | 16 | 14 | 2 | 5 | 5 | - |
| Ukraine | 9 | 4 | 5 | 7 | 3 | 4 |
| Mali | 7 | 7 | - | 4 | 4 | - |
| Japan | 4 | 3 | 1 | 4 | 3 | 1 |
| Poland | 4 | 2 | 2 | 4 | 2 | 2 |
| Philippines | 4 | 1 | 3 | 3 | 2 | 1 |
| Australia | 2 | 1 | 1 | 2 | 1 | 1 |
| Czech Republic | 2 | 1 | 1 | 2 | 1 | 1 |
| Germany | 2 | 1 | 1 | 2 | 1 | 1 |
| Nigeria | 2 | 1 | 1 | - | - | - |
| Norway | 1 | 1 | - | 1 | 1 | - |
| Malta | 1 | 1 | - | - | - | - |
| 3,334 | 2,615 | 719 | 3,067 | 2,422 | 645 | |
| Group total | 3,884 | 3,011 | 873 | 3,609 | 2,822 | 787 |
| 2019 | 2018 | ||||
|---|---|---|---|---|---|
| Board members and senior managers | Total on reporting date | Of which men (%) | Total on reporting date | Of which men (%) | |
| Group (incl. subsidiaries) | |||||
| Board members | 188 | 81 | 165 | 79 | |
| Chief Executive Officer and other senior managers | 48 | 90 | 43 | 86 | |
| Parent company | |||||
| Board members 1) | 6 | 50 | 6 | 33 | |
| Chief Executive Officer and other senior managers | 3 | 66 | 4 | 75 |
1) And two employee representatives, one of which is male.
The principles for the remuneration of senior managers (Group management) at AAK, in both the Parent company and the Group, are designed to ensure that AAK can offer internationally competitive remuneration that can attract and retain qualified managers.
Compensation of the Chief Executive Officer and other senior managers is considered by the Remuneration Committee of the Board of Directors and all decisions are made by the Board as a whole.
Total remuneration includes salary, annual variable remuneration, pension, car allowance, and termination benefit.
Fixed salary, individually determined and differentiated according to responsibility and performance, is determined on competitive principles and reviewed annually. The applicable date for the annual performance review is January 1.
Annual variable remuneration is based on meeting set targets determined on an annual basis. These targets are related to the performance of the Company. Senior management are entitled to up to 110 percent of their annual fixed salary in variable remuneration.
At the Annual General Meeting in AAK AB on May 17, 2017 it was resolved to implement a long-term incentive program for senior executives and key employees in AAK and issue of subscription warrants for implementation of a subscription warrants program. The total number of subscription warrants in the program amounted to 1,220,000 with an initial value of SEK 42.40 per subscription warrant, in total SEK 51,728,000. In 2017, employees in AAK subscribed for 880,320 subscription warrants at an average price per subscription warrant of SEK 42.54 for a value of SEK 37,444,825. After the share split in 2018 the number of shares each subscription warrant entitles to is six. In 2019, employees in AAK subscribed for 20,480 subscription warrants at an average price per subscription warrant of SEK 244,14 for a value of SEK 4,999,987. The number of outstanding subscription warrants on December 31, 2019 amounts to 319,200 (339,680) at a book value of SEK 9,283,187 (14,283,175).
Pensions for senior management are in line with the Swedish KTP plan (corresponding to ITP) and retirement age for senior managers is 65 years.
The Company has separate agreements with the Chief Executive Officer and senior managers for termination compensation of one year's salary (fixed cash amount per month x 12 months) on termination by the Company. Neither the Chief Executive Officer nor any senior manager can independently assert the right to termination compensation.
The period of notice of termination by the Chief Executive Officer and senior managers is agreed as 6 months. Termination notice by the Company is agreed as 12 months.
Fees are paid to the elected members of the Board in accordance with a resolution of the Shareholders' Annual General Meeting. This is distributed between the members as decided by the Board of Directors.
No other compensation or benefits have been paid to members of the Board, except travel expenses. The CEO, the secretary to the Board and employee representatives to the Board do not receive any compensation other than for costs in connection with their participation in Board activities.
Under a resolution of the Annual General Meeting, total compensation of elected external members of the Board is set at SEK 3,870,000, for the period up to the next annual general meeting, including compensation for committee work. Of this amount, the Chairman receives SEK 880,000 and each other external member receives SEK 390,000. Compensation for committee work is distributed, in accordance with a decision of the Annual General Meeting, as SEK 250,000 to the Chairman of the Audit Committee, SEK 125,000 to other members of the Audit Committee, SEK 100,000 to the Chairman of the Remuneration Committee, and SEK 50,000 to other members of the Remuneration Committee.
| Salary/Board of | Annual | ||||
|---|---|---|---|---|---|
| SEK | Directors' fees | variable salary | Other benefits2) | Pension cost | Total |
| Board of Directors | |||||
| Georg Brunstam, Chairman | 980,000 | - | - | - | 980,000 |
| Bengt Baron | 452,500 | - | - | - | 452,500 |
| Marianne Kirkegaard | 390,000 | - | - | - | 390,000 |
| Gun Nilsson | 640,000 | - | - | - | 640,000 |
| Märta Schörling Andreen | 565,000 | - | - | - | 565,000 |
| Lillie Li Valeur3) | 257,500 | - | - | - | 257,500 |
| Patrik Andersson | 390,000 | 390,000 | |||
| Subtotal for Board | 3,675,000 | - | - | - | 3,675,000 |
| Senior managers | |||||
| Johan Westman, Chief Executive Officer | 8,446,187 | 7,522,680 4) |
127,620 | 2,561,912 | 18,658,399 |
| Other senior managers | 43,841,461 | 31,127,883 4) |
2,555,765 | 4,022,736 | 81,547,845 |
| Subtotal, senior managers | 52,287,648 | 38,650,563 | 2,683,385 | 6,584,648 | 100,206,244 5) |
| Total | 55,962,648 | 38,650,563 | 2,683,385 | 6,584,648 | 103,881,244 6) |
1) Refers to items recorded as an expense in 2019.
2) Other benefits refer primarily to company cars.
3) Lillie Li Valeur decided to leave the Board of Directors in December 2019.
4) Final amounts approved by the Remuneration Committee to be paid in 2020. During the year, variable remuneration expensed in 2018 of SEK 25,226,914 was paid.
5) Refers to the following for 2019: Anne Mette Olesen, David Smith, Fredrik Nilsson, Gerardo Garza López de Hereida, Jan Lenferink, Karsten Nielsen, Octavio Díaz de Léon, Renald Mackintosh, René Schou, and Torben Friis Lange.
6) Of the amount of SEK 100,206,244, SEK 36,310,875 relates to the Parent company, AAK AB.
The Group maintains defined benefit retirement plans in which employees earn the right to payment of benefits after completing their employment, based on their final salary and period of service. These defined benefit retirement plans exist in Sweden, the Netherlands, Belgium, and India. There are further commitments for retirement and survivors' pensions for salaried employees in Sweden that are insured through Folksam (Folksam cooperative occupational pensions).
The obligations for retirement and survivors' pension for salaried employees in Sweden are insured through policies with Alecta or correspondingly in Folksam. According to a statement by the Swedish Financial Reporting Board, UFR 3, classification of ITP plans financed via insurance with Alecta, this is a defined benefit plan that involves several different employers. For the period from January 1 to December 31, 2019, AAK AB and AAK Sweden AB have not had access to sufficient information to recognize their proportional shares of the plan's obligations, plan assets and costs, which has meant that it has not been possible to recognize the plan as
a defined benefit plan. The ITP 2 pension plan that is insured through Folksam is therefore recognized as a defined contribution plan. The premium for the defined benefit retirement and survivors' pension is calculated individually and depends on factors including salary, pension earned previously and expected remaining period of service. Charges for ITP 2 pensions insured through Folksam are SEK 17 million (14).
The collective consolidation level consists of the market value of Alecta's assets as a percentage of the estimated insurance commitments, computed using Alecta's actuarial methods and assumptions, which are not in accordance with IAS 19. The collective consolidation level should normally be permitted to vary between 125 and 155 percent. If Alecta's collective consolidation level is below 125 percent or above 155 percent, measures must be taken to create the conditions for the consolidation level to return to the normal range. If the consolidation is low, one measure may be to increase the agreed price for new policies and increasing existing benefits. If the consolidation is high, one measure may be to introduce premium reductions. At year-end 2019, Alecta's and
Folksam's surplus in the form of their collective consolidation levels was 148 percent and 187 percent, respectively (142 percent and 174 percent, respectively).
The Group has defined benefit pension plans in Sweden and the Netherlands which come under largely similar regulations. All plans are pension plans based on final salary and give employees covered by the plans benefits in the form of a guaranteed level of pension payments during their lives. The level of the benefits depends on the employees' period of service and salary on retirement. The pension payments in the Swedish and Dutch plans are normally indexed according to the consumer price index. The plans are subject to largely similar risks. Benefits are paid from plans that are secured with foundations. The activities of the foundations are regulated by national regulations and practice which also apply to the relationship between the Group and the administrator (or equivalent) of the foundation's plan assets. Responsibility for monitoring the plans, including investment decisions and contributions, is held jointly by the company and the foundation's board.
| 2019 | 2018 | |
|---|---|---|
| Specification of costs | ||
| Costs for services during current year | 36 | 29 |
| Interest expenses | 18 | 18 |
| Anticipated return on plan assets | -13 | -12 |
| Employee contributions | -6 | -5 |
| Total cost of defined benefit plans, included in employee costs (Note 6) | 35 | 30 |
| Cost of defined contribution plans | 110 | 83 |
| Total pension costs | 145 | 113 |
| Net defined benefit liability in the Balance Sheet | ||
| Present value of funded obligations | 1,054 | 899 |
| Fair value of plan assets | -813 | -693 |
| Net defined benefit liability | 241 | 206 |
| 2019 | 2018 | |
|---|---|---|
| Change in defined benefit liability | ||
| Net liability at January 1 | 206 | 164 |
| Net cost recognized in the income statement | 35 | 30 |
| Benefits paid | -11 | -10 |
| Disbursement of funds from the foundation | 11 | 10 |
| Contributions by employer to funded obligations | -28 | -25 |
| Actuarial losses/gains arising from changes in demographic assumptions | 21 | 28 |
| Actuarial losses/gains arising from changes in financial assumptions | - | - |
| Actuarial losses/gains arising from changes in experience | - | - |
| Exchange rate differences on foreign plans | 3 | 2 |
| Reclassifications | 4 | 7 |
| Net liability at December 31 | 241 | 206 |
| Composition of plan assets (%) | ||
| Fixed income | 40 | 42 |
| Shares | 22 | 22 |
| Properties | 5 | 6 |
| Alternative investments | 33 | 30 |
The entire pension obligation in the Netherlands concerns alternative investments.
Contributions to plans for post-employment benefits for the 2020 fiscal year are expected to amount to SEK 30 million. The weighted average term of the pension obligation is 17–19 years.
| The Netherlands | ||
|---|---|---|
| Discount rate | 1.05 | 1.85 |
| Inflation | 1.05 | 1.85 |
| Future annual salary increases | 2.35 | 2.35 |
| Sweden | ||
| Discount rate | 1.70 | 2.60 |
| Inflation | 1.80 | 2.00 |
| Future annual salary increases | 2.80 | 3.00 |
| 9 | ||||
|---|---|---|---|---|
| Sensitivity in the defined benefit liability to changes in key weighted assumptions | Impact on the defined benefit liability | |||
| The Netherlands | +1% | -1% | ||
| Discount rate | -99 | 134 | ||
| Inflation | 13 | -12 | ||
| Future annual salary increases | 13 | -12 | ||
| Sweden | +1% | -1% | ||
| Discount rate | -60 | 78 | ||
| Inflation | 72 | -58 | ||
| Future annual salary increases | 43 | -28 | ||
| 10 | Group | Parent | |||
|---|---|---|---|---|---|
| 2019 | 2018 | 2019 | 2018 | ||
| Dividend from Group companies | - | - | 1,497 | 2,360 | |
| Interest income | 10 | 6 | 1 | 4 | |
| Share of profit in associated companies | 16 | 17 | - | - | |
| Changes in exchange rates | 0 | 2 | - | - | |
| Other financial income | 0 | 3 | - | - | |
| Group contributions | - | - | 87 | 119 | |
| Financial income | 26 | 28 | 1,585 | 2,483 | |
| Interest expenses | -98 | -124 | -20 | -17 | |
| Interest expenses leases | -35 | - | -0 | - | |
| Changes in exchange rates | -1 | -2 | -2 | -1 | |
| Other financial expenses | -23 | -29 | -4 | -4 | |
| Financial expenses | -157 | -155 | -26 | -22 | |
| Net financial items | -131 | -127 | 1,559 | 2,461 |
| Group | Parent | |||
|---|---|---|---|---|
| 2019 | 2018 | 2019 | 2018 | |
| Current tax | -587 | -431 | -3 | -11 |
| Deferred tax | 89 | -58 | 2 | - |
| Total | -498 | -489 | -1 | -11 |
The Group's weighted average underlying tax rate is approximately 24–25 percent. The Group's weighted average tax rate for 2019, based on the tax rates in each of the various countries involved, was 25 percent. The tax rate in Sweden is 21.4 percent (22).
| Group | Parent | |||
|---|---|---|---|---|
| 2019 | 2018 | 2019 | 2018 | |
| Profit before taxes | 2,011 | 1,829 | 1,474 | 2,372 |
| Weighted average tax rate | ||||
| based on the tax rates in each country | -442 | -415 | -315 | -522 |
| Tax effect of non-deductible expenses | -19 | -20 | -3 | -3 |
| Tax effect of tax-exempt income | 7 | 6 | 317 | 514 |
| Effect of deficit deductions not carried forward | -45 | -57 | - | - |
| Effect of tax rate changes | 5 | 14 | - | - |
| Adjustment for current tax for previous years | -4 | -17 | - | - |
| Tax expense | -498 | -489 | -1 | -11 |
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset the recognized tax assets and liabilities and when the deferred taxes refer to the same tax authority. The offset amounts are as follows:
| Group | Parent | |||
|---|---|---|---|---|
| Deferred tax assets | 2019 | 2018 | 2019 | 2018 |
| Tax loss carry-forwards | 21 | 21 | - | - |
| Non-current assets | 24 | 1 | - | - |
| Right-of-use assets | 4 | - | 0 | - |
| Inventory | -3 | -5 | - | - |
| Current assets | 1 | -15 | 5 | 3 |
| Provisions | 63 | 36 | - | - |
| Current liabilities | 34 | 23 | - | - |
| At year-end | 144 | 61 | 5 | 3 |
| 11 | Group | Parent | |||
|---|---|---|---|---|---|
| Deferred tax liabilities | 2019 | 2018 | 2019 | 2018 | |
| Non-current assets | 489 | 477 | - | - | |
| Inventory | -4 | 5 | - | - | |
| Current assets | 19 | 16 | - | - | |
| Provisions | 6 | -30 | - | - | |
| Current liabilities | 1 | 22 | - | - | |
| At year-end | 511 | 490 | - | - |
In addition to deferred tax assets and liabilities, AAK has the following current tax liabilities and tax receivables:
| Group | Parent | |||
|---|---|---|---|---|
| 2019 | 2018 | 2019 | 2018 | |
| Current tax liabilities | -474 | -393 | -1 | 0 |
| Current tax receivables | 295 | 305 | 8 | 7 |
| Income tax liabilities/tax assets | -179 | -88 | 7 | 7 |
| 12 | Group | |||
|---|---|---|---|---|
| 2019 | 2018 | |||
| Earnings attributable to shareholders of the Parent (SEK million) | 1,487 | 1,322 | ||
| Weighted average number of ordinary shares in issue | 253,730,934 | 253,730,934 | ||
| Earnings per share before and after dilution, SEK | 5.86 | 5.21 |
Earnings per share are calculated for 2019 based on net profit for the year attributable to shareholders in the Parent – SEK 1,487 million (1,322) – and on a weighted average number of ordinary shares in issue of 253,730,934 (253,730,934). The weighted average number of ordinary shares and earnings per share are recalculated in accordance with the decided share split (6:1) by the Annual General Meeting on May 30, 2018.
13 The ongoing corona pandemic is profoundly impacting people's health, societies, and business operations across the world. As a supplier of ingredients to the crucial food supply chain, AAK has a very important role to play right now. All of the company's production plants around the world have strong contingency plans in place to secure operations and inbound/outbound logistics so that food manufacturers can maintain their production of food products.
As of March 30, 2020, AAK had not experienced any material business disruptions. Food supply will remain essential and a top priority going forward. However, the volatility and uncertainty in every step of the supply chain have increased within all industries that AAK serves.
AAK has a robust foundation with a strong financial track record and a solid balance sheet. However, as an additional precaution due to the current situation, the Board of Directors of AAK has proposed to postpone the decision on the dividend for 2019. The original dividend proposal for the year was SEK 2.10 per share.
14
| Patents and other | |||
|---|---|---|---|
| Group | Goodwill | intangible assets | Total |
| Cost at January 1, 2018 | 1,601 | 623 | 2,224 |
| Investments | - | 20 | 20 |
| Acquired through business combinations | 4 | - | 4 |
| Reclassifications | - | 3 | 3 |
| Exchange differences | 61 | -6 | 55 |
| Accumulated cost at December 31, 2018 | 1,666 | 640 | 2,306 |
| Cost at January 1, 2019 | 1,666 | 640 | 2,306 |
| Investments | - | 7 | 7 |
| Acquired through business combinations | 366 | 44 | 410 |
| Exchange differences | 82 | 13 | 95 |
| Accumulated cost at December 31, 2019 | 2,114 | 704 | 2,818 |
| Amortization and impairment loss at January 1, 2018 | - | 274 | 274 |
| Amortization for the year | - | 30 | 30 |
| Reclassifications | - | 1 | 1 |
| Exchange differences | - | 2 | 2 |
| Accumulated amortization and impairment loss at December 31, 2018 | - | 307 | 307 |
| Amortization and impairment loss at January 1, 2019 | - | 307 | 307 |
| Amortization for the year | - | 29 | 29 |
| Exchange differences | - | 5 | 5 |
| Accumulated amortization and impairment loss at December 31, 2019 | - | 341 | 341 |
| Residual value at December 31, 2018 | 1,666 | 333 | 1,999 |
| Residual value at December 31, 2019 | 2,114 | 363 | 2,477 |
In preparing the financial statements for 2019, the Group has reviewed impairment of goodwill.
Goodwill is allocated to the following cash-generating units; Business areas Food Ingredients, Chocolate & Confectionery Fats and Technical Products & Feed. These cash-generating units correspond to the operating segments of AAK. The recoverable amount for a cash-generating unit is determined
by calculating its value in use. These calculations are based on estimated future cash flow as stated in budgets and forecasts covering a five-year period. Cash flow beyond this period has been extrapolated by no more than 3 percent (3) in any case. Working capital beyond the five-year period is estimated at the same level as year five. Discount rates are assumed to be 8 percent (8) after tax and 11.4 percent (11.4) before tax.
Testing has not demonstrated any need for impairment. The sensitivity in these calculations indicates that recognized goodwill is still intact even if the discount rate increases by 1 percent or if long-term growth is 1 percent less.
| 2019 | 2018 | |
|---|---|---|
| Food Ingredients | 1,213 | 1,080 |
| Chocolate & Confectionery Fats | 901 | 586 |
| Technical Products & Feed | - | - |
| Total | 2,114 | 1,666 |
| 15 | Equipment, tools and | Non-current assets | ||||
|---|---|---|---|---|---|---|
| Group | Land and buildings | Plant and machinery | fixtures and fittings | under construction | Total | |
| Cost at January 1, 2018 | 2,187 | 8,733 | 565 | 767 | 12,252 | |
| Investments | 50 | 306 | 56 | 290 | 702 | |
| Disposals | - | -33 | -6 | - | -39 | |
| Reclassification to tax assets | - | - | - | -8 | -8 | |
| Reclassifications | 116 | 174 | 38 | -329 | -1 | |
| Exchange differences | 41 | 252 | 19 | 19 | 331 | |
| Accumulated cost at December 31, 2018 | 2,394 | 9,432 | 672 | 739 | 13,237 | |
| Cost at January 1, 2019 | 2,394 | 9,432 | 672 | 739 | 13,237 | |
| Investments | 4 | 277 | 35 | 469 | 785 | |
| Acquired through business combinations | 10 | 191 | 1 | - | 202 | |
| Disposals | -1 | -18 | -2 | - | -21 | |
| Reclassifications | 46 | 385 | 20 | -451 | 0 | |
| Exchange differences | 89 | 364 | 38 | 25 | 516 | |
| Accumulated cost at December 31, 2019 | 2,542 | 10,631 | 764 | 782 | 14,719 |
| Equipment, tools and | Non-current assets | ||||
|---|---|---|---|---|---|
| Land and buildings | Plant and machinery | fixtures and fittings | under construction | Total | |
| Depreciation at January 1, 2018 | 1,037 | 5,619 | 384 | - | 7,040 |
| Disposals | - | -30 | -4 | - | -34 |
| Reclassifications | - | 2 | -2 | - | - |
| Depreciations for the year | 69 | 401 | 52 | - | 522 |
| Exchange differences | 31 | 162 | 13 | - | 206 |
| Accumulated depreciation at December 31, 2018 | 1,137 | 6,154 | 443 | - | 7,734 |
| Depreciation at January 1, 2019 | 1,137 | 6,154 | 443 | - | 7,734 |
| Acquired through business combinations | 3 | 72 | 1 | - | 76 |
| Disposals | -1 | -12 | -1 | - | -14 |
| Depreciations for the year | 76 | 419 | 58 | - | 553 |
| Exchange differences | 41 | 235 | 24 | - | 300 |
| Accumulated depreciation at December 31, 2019 | 1,256 | 6,868 | 525 | - | 8,649 |
| Impairment loss at January 1, 2018 | 12 | 22 | - | - | 34 |
| Exchange differences | - | 1 | - | - | 1 |
| Accumulated impairment loss at December 31, 2018 | 12 | 23 | - | - | 35 |
| Impairment loss at January 1, 2019 | 12 | 23 | - | - | 35 |
| Exchange differences | - | 1 | - | - | 1 |
| Accumulated impairment loss at December 31, 2019 | 12 | 24 | - | - | 36 |
| Residual value according to plan at December 31, 2018 | 1,245 | 3,255 | 229 | 739 | 5,468 |
| of which land | 143 | ||||
| Residual value according to plan at December 31, 2019 | 1,274 | 3,739 | 239 | 782 | 6,034 |
| of which land | 148 |
16 The consolidated balance sheet shows the following amounts related to leases:
| Right-of-use assets | 2019 |
|---|---|
| Land and buildings | 592 |
| Plant and machinery | 78 |
| Equipment | 5 |
| Vehicles | 95 |
| Residual value at December 31, 2019 | 770 |
Additions to the right-of-use assets during the year were SEK 101 million.
| Lease liabilities | 2019 |
|---|---|
| Non-current | 675 |
| Current | 110 |
| Total lease liabilities | 785 |
The consolidated income statement shows the following amounts related to leases:
| Depreciations of right-of-use assets | 2019 |
|---|---|
| Land and buildings | 64 |
| Plant and machinery | 12 |
| Equipment | 1 |
| Vehicles | 28 |
| Total depreciation | 105 |
| Expense related to short-term leases (included in Other external expenses) |
16 |
| Expense related to leases of low-value assets (included in Other external expenses) Interest expense (included in Result |
5 |
| from financial items) | 35 |
| Tax income (included in Income tax) | 4 |
The total cash lease payments for the year amounted to SEK 143 million.
The table below describes the differences between the Group's operating lease agreements recognized according to IAS17 and recognition under IFRS16:
| Operating lease commitments at December 31, 2018 |
652 |
|---|---|
| Less: Effect of discounted commitment | |
| (with the incremental borrowing rate at the | |
| date of initial application) | -150 |
| Less: Short-term leases not recognized | |
| as a liability | -16 |
| Less: Low-value leases not recognized as | |
| a liability | -5 |
| Add: Adjustments for extension and | |
| termination options | 260 |
| Lease liability recognized at January 1, 2019 | 741 |
Future minimum leasing fees under non-cancellable operating lease agreements are distributed as follows:
| Total | 652 |
|---|---|
| More then 5 years | 304 |
| Between 1 and 5 years | 238 |
| Within 1 year | 110 |
Operating lease expenses of SEK 102 million are recognized in the consolidated income statement for 2018.
| 2019 | 2018 | ||||
|---|---|---|---|---|---|
| Registration number | Domicile | Number of shares | Share of capital, % | Book value | Book value |
| 45954919 | Aarhus, Denmark | 400,000,000 | 100 | 1,468 | 1,468 |
| 0118-01-031265 | Tokyo, Japan | 70,000,000 | 70 | 5 | 5 |
| 556880-4339 | Malmö, Sweden | 100,000 | 100 | 472 | 472 |
| 481 | |||||
| 0 | |||||
| 0 | |||||
| 5,788 | 2,426 | ||||
| 556759-7918 556747-6931 556728-5837 |
Malmö, Sweden Malmö, Sweden Karlshamn, Sweden |
100 1,000 100 |
100 100 50 |
481 3,362 0 |
| Company name | Registration number | Domicile | Share of capital, % |
|---|---|---|---|
| AAK (UK) Ltd | 1585686 | Hull, United Kingdom | 100 |
| AAK Australia Pty Ltd | 094486361 | New South Wales, Australia | 100 |
| AAK Baltic Holding AB | 556381-8664 | Karlshamn, Sweden | 100 |
| AAK Bastogne SA | 0673.737.551 | Bastogne, Belgium | 100 |
| AAK Belgium NV | 0547.965.074 | Antwerpen, Belgium | 100 |
| AAK Burkina Faso Sarl | BF BBD2007 B465 | Bobo-Dioulasso, Burkina Faso | 100 |
| AAK Canada Ltd | 2040468 | Toronto, Canada | 100 |
| AAK China Ltd | 913 101 155 791 320 606 | Shanghai, China | 100 |
| AAK Colombia S.A.S. | 860090365-8 | Bogotá, Colombia | 100 |
| AAK Côte d'Ivoire SASU | CI ABJ2018 B20038 | Abidjan, Côte d'Ivoire | 100 |
| AAK Czech Republic s.r.o., | 15268853 | Prague, Czech Republic | 100 |
| AAK Dalby AB | 556236-0478 | Lund, Sweden | 100 |
| AAK Denmark A/S | 15672099 | Aarhus, Denmark | 100 |
| AAK do Brasil Indústria e Comércia de Óleos Vegetais Ltda | 07.830.192/0001-02 | São Paolo, Brazil | 100 |
| AAK Germany GmbH | HRB89102 | Darmstadt, Germany | 100 |
| AAK Havnen A/S | 13919232 | Aarhus, Denmark | 100 |
| AAK Insurance Malta Ltd | C51071 | St Julians, Malta | 100 |
| AAK International AB | 559155-5411 | Malmö, Sweden | 100 |
| AAK Invest Ltd | C59066 | St Julians, Malta | 100 |
| AAK Kamani Pvt Ltd | U15140MH2002PTC137681 | Maharashtra, India | 69 |
| AAK Malaysia Sdn. Bhd. | 516423-P | Kuala Lumpur, Malaysia | 100 |
| AAK Mali SARL | MA BKO2018 H5859 | Bamako, Mali | 100 |
| AAK Malta EUR Ltd | C78539 | St Julians, Malta | 100 |
| AAK Malta MXN Ltd | C83359 | St Julians, Malta | 100 |
| AAK Malta RUB Ltd | C92442 | St Julians, Malta | 100 |
| AAK Malta TRY Ltd | C88855 | St Julians, Malta | 100 |
| AAK Malta USD Ltd | C59069 | St Julians, Malta | 100 |
| AAK Mexico, S.A. de C.V. | AUM8302244G2 | Morelia, Mexico | 99.9976 |
| AAK Netherlands BV | 35012547 | Zaandijk, The Netherlands | 100 |
| AAK Nigeria Oils and Fats Ltd | 1539623 | Lagos, Nigeria | 100 |
| AAK Norway AS | 988 369 403 | Oslo, Norway | 100 |
| AAK OOO | 7709851438 | Moscow, Russia | 100 |
| AAK Phillippines Inc | CS201816294 | Batangas, Phillippines | 100 |
| AAK Poland Sp.z o.o., | 0000124135 | Warsaw, Poland | 100 |
| AAK Rotterdam BV | 24419984 | Rotterdam, The Netherlands | 100 |
| AAK SG Pte. Ltd. | 201421305H | Singapore, Singapore | 100 |
| 17 Company name |
Registration number | Domicile | Share of capital, % |
|---|---|---|---|
| AAK Soya International Ltd | 07734226 | Cheshire, United Kingdom | 80 |
| AAK Sweden AB | 556478-1796 | Karlshamn, Sweden | 100 |
| AAK Turkey Gida Sanayi ve Ticaret Limited Sirketi | 877226 | Istanbul, Turkey | 100 |
| AAK USA Inc. | 13-3445572 | New Jersey, USA | 100 |
| AAK USA K1, LLC | 45-2596488 | Kentucky, USA | 100 |
| AAK USA K2, LLC | 45-2700873 | Kentucky, USA | 100 |
| AAK USA Realco, LLC | 45-2596451 | Kentucky, USA | 100 |
| AAK USA Richmond Corp. | 94-28476111 | Richmond, USA | 100 |
| AAK Zhangjiagang Ltd | 913 205 920 885 469 71Q | Zhangjiagang, China | 100 |
| Aarhus (Malaysia) Sdn Bhd | 203033-P | Teluk Intan, Malaysia | 100 |
| Aarhus 1 A/S | 10112265 | Aarhus, Denmark | 100 |
| Aarhus 3 A/S | 16335770 | Aarhus, Denmark | 100 |
| AarhusKarlshamn Hull Ltd | 2193829 | Hull, United Kingdom | 100 |
| AarhusKarlshamn Latin America S.A. | 214947990014 | Cousa, Uruguay | 100 |
| AarhusKarlshamn Ltd | 2747344 | Hull, United Kingdom | 100 |
| AarhusKarlshamn Spain S.L | 11174823 | Madrid, Spain | 100 |
| Alba Fabrikers AB | 556030-2183 | Lund, Sweden | 100 |
| Allied Foods Ltd | 500613 | Hull, United Kingdom | 100 |
| Anglia Oils Ltd | 1492748 | Hull, United Kingdom | 100 |
| BD Foods Ltd | 04170983 | Hull, United Kingdom | 100 |
| Belico Holding AB | 556537-0904 | Karlshamn, Sweden | 100 |
| Book & Claim Ltd | 5997462 | Hull, United Kingdom | 100 |
| Ceylon Trading Co. Ltd. | J 333 | Colombo, Sri Lanka | 100 |
| Chamber & Fargus Ltd | 2352279 | Hull, United Kingdom | 100 |
| Crown Foods A/S, Danmark | 76952019 | Holbæk, Denmark | 100 |
| Fondation (Centre de recherche sur l'arbre a karite) | 00085852R | Satiri, Burkina Faso | 100 |
| Hydrogen I/S | 21839639 | Aarhus, Denmark | 68.9 |
| Karlshamns International Plc | 2366565 | Hull, United Kingdom | 100 |
| Karlshamns UK Holdings Plc | 83553 | Hull, United Kingdom | 100 |
| KI Ghana Ltd | C-933 | Tamale, Ghana | 100 |
| KNAR Benin Sarl | 19 269B | Cotonou, Benin | 100 |
| Knar Togo Sarl-U | B.P.508 | Kara, Togo | 100 |
| Nutrionelle Ltd | 1726044 | Hull, United Kingdom | 100 |
| Oasis Foods Company | 22-2107122 | New Jersey, USA | 100 |
| Rapsona | 556759-4600 | Malmö, Sweden | 100 |
| Rowallan Creamery Ltd | 529393 | Hull, United Kingdom | 100 |
| Tefac AB | 556283-5214 | Karlshamn, Sweden | 100 |
| Unicao Ltd | 1492799 | Hull, United Kingdom | 100 |
| 18 | Group | ||
|---|---|---|---|
| 2019 | 2018 | ||
| Raw materials and consumables | 4,071 | 2,905 | |
| Goods in transit | 576 | 289 | |
| Work in progress | 1,199 | 832 | |
| Finished products and goods for resale | 835 | 679 | |
| Total according to balance sheet | 6,681 | 4,705 | |
| Change in fair value | 251 | -1 | |
| Inventory at fair value | 6,932 | 4,704 |
"Raw materials and consumables and changes in inventories of finished products and work in progress" for the Group includes impairment loss on inventories of SEK 25 million (28).
| 19 | Group | ||
|---|---|---|---|
| 2019 | 2018 | ||
| Cash equivalents | 874 | 712 | |
| Current investments | 108 | 25 | |
| Total | 982 | 737 |
As of December 31, 2019, the Group's registered share capital was 253,730,934 shares (SEK 422,884,890).
Translation reserves include all exchange differences that arise when translating financial statements from foreign operations whose financial statements are stated in currencies other than the Group's presentation currency. The Parent company and the Group present their financial statements in SEK.
The hedging reserve encompasses the effective portion of the accumulated net change in the fair value of a cash flow hedging instrument attributable to hedging transactions yet to take place.
The statutory reserve refers to a reduction of the share capital carried out previously.
Retained profits and profit for the year include profits earned and retained by the Parent and subsidiaries, investments in associates, revaluation of the net pension commitment, net effect of acquisition of minority share and profit for the year.
The Group owned a total of 0 (0) treasury shares as of December 31, 2019.
| Statutory reserve | Hedging reserve | Translation reserve | Total | |
|---|---|---|---|---|
| 2018 opening balance | 5 | 25 | -273 | -243 |
| Exchange differences | - | - | 362 | 362 |
| Reclassification | - | -25 | - | -25 |
| 2018 closing balance | 5 | - | 89 | 94 |
| 2019 opening balance | 5 | - | 89 | 94 |
| Exchange differences | - | - | 402 | 402 |
| 2019 closing balance | 5 | - | 491 | 496 |
In accordance with the articles of association for AAK AB, share capital shall be a minimum of SEK 300 million and a maximum of SEK 1,200 million. All shares are fully paid and entitle the holder to equal voting rights and shares in Company assets. Share capital consists of 253,730,934 shares (253,730,934) at a quota value of SEK 1.67 per share, and shareholder equity of SEK 422,884,890 (422,884,890).
The statutory reserve refers to a reduction of the share capital carried out previously.
Retained profit includes non-restricted equity from the previous year after any dividend distribution together with the profit for the year. The total non-restricted equity is the amount available for dividends to shareholders.
In accordance with the Swedish Companies Act, the Board of Directors proposes appropriation of profits for the consideration and approval of the Annual General Meeting of the Shareholders.
| the disposable profit brought forward | SEK | 4,966,288,349 |
|---|---|---|
| and profit/loss for the year | SEK | 1,472,909,933 |
| Total | SEK | 6,439,198,282 |
| To be carried forward | SEK | 6,439,198,282 |
|---|---|---|
| Total | SEK | 6,439,198,282 |
| 21 | Group | Parent | |||
|---|---|---|---|---|---|
| Non-current | 2019 | 2018 | 2019 | 2018 | |
| Liabilities to banks and credit institutions | 2,987 | 2,551 | 2,250 | 1,499 | |
| Total | 2,987 | 2,551 | 2,250 | 1,499 |
| Group | Parent | |||
|---|---|---|---|---|
| Current | 2019 | 2018 | 2019 | 2018 |
| Liabilities to banks and credit institutions | 870 | 661 | - | - |
| Total | 870 | 661 | - | - |
Maturity for non-current borrowing is as follows:
| Group | Parent | |||
|---|---|---|---|---|
| 2019 | 2018 | 2019 | 2018 | |
| Between 1 and 5 years | 2,566 | 2,033 | 2,250 | 399 |
| More than 5 years | 421 | 518 | - | 1,100 |
| Total | 2,987 | 2,551 | 2,250 | 1,499 |
| Group | Restructuring | Environmental restoration | Other | Total |
|---|---|---|---|---|
| Opening balance at January 1, 2018 | 1 | 27 | 88 | 116 |
| Provisions for the year | - | - | 21 | 21 |
| Provisions claimed for the year | -2 | - | -37 | -39 |
| Reclassification | 7 | - | -7 | - |
| Exchange differences | -1 | 1 | 4 | 4 |
| Closing balance as at December 31, 2018 | 5 | 28 | 69 | 102 |
| Opening balance at January 1, 2019 | 5 | 28 | 69 | 102 |
| Provisions for the year | - | - | 70 | 70 |
| Provisions claimed for the year | -4 | - | -30 | -34 |
| Reversal of unused amounts | - | - | -5 | -5 |
| Exchange differences | - | 0 | 5 | 5 |
| Closing balance as at December 31, 2019 | 1 | 28 | 109 | 138 |
| Provisions include | 2019 | 2018 | ||
| Non-current | 102 | 72 | ||
| Current | 36 | 30 | ||
| Total | 138 | 102 |
A provision for restructuring is reported when the Group has adopted a comprehensive and formal restructuring plan, and the restructuring has either been started or published. No provisions are made for future operating expenses.
These provisions are primarily related to restoring contaminated land.
| 23 | Group | Parent | |||
|---|---|---|---|---|---|
| 2019 | 2018 | 2019 | 2018 | ||
| Employee-related expenses | 399 | 322 | 35 | 33 | |
| Other | 923 | 721 | 6 | 7 | |
| Total | 1,322 | 1,043 | 41 | 40 |
| 24 | Group | Parent | |||
|---|---|---|---|---|---|
| 2019 | 2018 | 2019 | 2018 | ||
| Collateral for provisions and liabilities | |||||
| Property mortgages | 598 | 663 | - | - | |
| Other assets | 1 | 498 | - | - | |
| Total | 599 | 1,161 | - | - |
| 25 | Group | Parent | |||
|---|---|---|---|---|---|
| 2019 | 2018 | 2019 | 2018 | ||
| Other contingent liabilities | 2,127 | 1,781 | 2,127 | 1,781 | |
| Total | 2,127 | 1,781 | 2,127 | 1,781 |
Contingent liabilities refer primarily to counter-guarantees issued for Group companies' commitments to financial institutions to cover local borrowings.
Over and above the contingent liabilities stated above, guarantees for the completion of various contractual undertakings are sometimes involved as part of the Group's normal business activities. There was no indication at year-end that any contractual guarantees provided will require any payment to be made.
26 For the Parent, SEK 159 million (119), i.e. 100 percent (100) of sales were to Group companies. The Parent's purchasing from Group companies is related to administrative services of limited scope. All transactions were carried out on commercial terms. As at December 31, 2019, the Parent had intragroup receivables of SEK 409 million (156) and intragroup liabilities of SEK 12 million (27).
During the first quarter, AAK acquired the Dutch company MaasRefinery B.V. with a production capacity of approximately 40,000 MT and room for expansion. The plant had revenues of SEK 50 million in 2018 and has 20 full-time employees. The company forms part of AAK's sales and profit as from March 1, 2019. The acquisition had very limited impact on AAK's profit for 2019.
BD Foods Ltd., a British foodservice company with production of tailor-made restaurant quality meal accompaniments, was acquired by AAK during the first quarter. In 2018, revenues
amounted to SEK 120 million and the company had approximately 100 employees. BD Foods forms part of AAK's sales and profit from March 1, 2019. The acquisition had very limited impact on AAK's profit for 2019.
In the third quarter, AAK acquired the UK-based company Soya International (Europe) Ltd. The company focuses on the sourcing, processing and distribution of non-GMO semispeciality and speciality lecithins and had 2018 revenues of approximately SEK 150 million. The company forms part of AAK's sales and profit as from September 1, 2019. The acquisition had very limited impact on AAK's profit for 2019.
During the second quarter 2019, AAK acquired an additional 13 percent of the shares in AAK Kamani, India for an amount of SEK 112 million, and in the fourth quarter an additional 5 percent for an amount of SEK 47 million. AAK now owns 69 percent of the shares. The transaction had no significant impact on AAK's profit in 2019.
| Assets and liabilities recognized as a consequence of the acquisitions | Fair value (SEK million) |
|---|---|
| Goodwill | 29 |
| Contracts with customers | 35 |
| Trademarks | 9 |
| Property, plant and equipment | 125 |
| Other non-current assets | 10 |
| Inventories | 37 |
| Other current assets | 53 |
| Cash and cash equivalents | 69 |
| Provisions | -13 |
| Other non-current liabilities | -182 |
| Other current liabilities | -63 |
| Total net assets | 109 |
| Goodwill | 336 |
| Total acquisition with cash and cash equivalents | 445 |
| Net outflow of cash and cash equivalents on account of the acquisitions | |
| Cash and cash equivalents paid for the acquisitions | 445 |
| Cash and cash equivalents in the companies acquired at the acquisition date | -69 |
| Impact on the Group's cash and cash equivalents | 376 |
The Group's operations are organizationally divided into business segments based on product. The marketing organization also reflects this structure. 28
All transactions between business segments are recognized at market value. Assets and liabilities not attributed
to a segment include tax assets and tax liabilities, financial investments and financial liabilities, as well as cash and cash equivalents and interest-bearing receivables.
The external sales are based on where our customers are located. The carrying amounts of assets and the direct investment in plant for the period are determined by the location of the assets. Segment-based reporting is prepared in accordance with the accounting policies described in Note 2 "Accounting Policies".
| Food | Chocolate & | Technical | Group | |||
|---|---|---|---|---|---|---|
| 2019 | Ingredients | Confectionery Fats | Products & Feed | Functions | Eliminations | Group |
| Net sales | ||||||
| External sales | 18,978 | 8,076 | 1,456 | - | - | 28,510 |
| Internal sales | 2,111 | 6,188 | 2 | - | -8,301 | - |
| Group total | 21,089 | 14,264 | 1,458 | - | -8,301 | 28,510 |
| Food | Chocolate & | Technical | Group | |||
|---|---|---|---|---|---|---|
| 2019 | Ingredients | Confectionery Fats | Products & Feed | Functions | Eliminations | Group |
| Operating profit/loss | 1,366 | 794 | 150 | -168 | - | 2,142 |
| Total | 1,366 | 794 | 150 | -168 | - | 2,142 |
| Other | ||||||
| Assets | 11,427 | 9,079 | 910 | 54 | - | 21,470 |
| Unallocated assets | - | - | - | - | 1,449 | |
| Group total | 11,427 | 9,079 | 910 | 54 | - | 22,919 |
| Liabilities | 3,565 | 2,761 | 596 | 209 | - | 7,131 |
| Unallocated liabilities | - | - | - | - | - | 5,367 |
| Group total | 3,565 | 2,761 | 596 | 209 | - | 12,498 |
| Investments | 354 | 387 | 45 | 6 | - | 792 |
| Depreciation, amortization and impairment loss | 405 | 231 | 40 | 11 | - | 687 |
| North and | Other | |||||
|---|---|---|---|---|---|---|
| 2019 | Europe | South America | Asia | countries | Total | |
| External sales | 13,947 | 11,008 | 3,192 | 363 | 28,510 | |
| Intangible assets and property, plant and equipment | 4,197 | 3,529 | 1,472 | 83 | 9,281 | |
| Other assets | 6,804 | 3,625 | 2,199 | 1,010 | 13,638 | |
| Total assets | 11,001 | 7,154 | 3,671 | 1,093 | 22,919 | |
| Investments | 326 | 216 | 213 | 37 | 792 |
| Food | Chocolate & | Technical | Group | |||
|---|---|---|---|---|---|---|
| 2018 | Ingredients | Confectionery Fats | Products & Feed | Functions | Eliminations | Group |
| Net sales | ||||||
| External sales | 18,468 | 7,611 | 1,513 | - | - | 27,592 |
| Internal sales | 2,115 | 5,109 | 3 | - | -7,227 | - |
| Group total | 20,583 | 12,720 | 1,516 | - | -7,227 | 27,592 |
| Food | Chocolate & | Technical | Group | |||
|---|---|---|---|---|---|---|
| 2018 | Ingredients | Confectionery Fats | Products & Feed | Functions | Eliminations | Group |
| Operating profit/loss | 1,205 | 747 | 155 | -151 | - | 1,956 |
| Total | 1,205 | 747 | 155 | -151 | - | 1,956 |
| Other | ||||||
| Assets | 10,016 | 5,913 | 906 | 67 | - | 16,902 |
| Unallocated assets | - | - | - | - | 1,133 | |
| Group total | 10,016 | 5,913 | 906 | 67 | - | 18,035 |
| Liabilities Unallocated liabilities |
2,432 - |
1,417 - |
360 - |
156 - |
- - |
4,365 4,674 |
| Group total | 2,432 | 1,417 | 360 | 156 | - | 9,039 |
| Investments Depreciation, amortization and impairment loss |
442 293 |
243 216 |
28 36 |
8 7 |
- - |
721 552 |
| Europe | South America | Asia | countries | Total |
|---|---|---|---|---|
| 13,284 | 10,750 | 3,182 | 376 | 27,592 |
| 3,304 | 2,864 | 1,249 | 50 | 7,467 |
| 4,948 | 3,356 | 1,706 | 558 | 10,568 |
| 8,252 | 6,220 | 2,955 | 608 | 18,035 |
| 342 | 267 | 105 | 7 | 721 |
| North and | Other |
| Group | Parent | ||||
|---|---|---|---|---|---|
| 2019 | 2018 | 2019 | 2018 | ||
| Sales of non-current assets | 6 | 2 | - | - | |
| Changes in pensions and provisions | 51 | 22 | 3 | - | |
| Unrealized exchange rate effects on financial instruments | 75 | -24 | - | - | |
| Others | 114 | -278 | - | - | |
| Total | 246 | -278 | 3 | - |
| Changes that do not affect cash flow | ||||||
|---|---|---|---|---|---|---|
| Exchange | ||||||
| Group | Dec 31, 2018 | Cash flows | Acquisition-related | rate effects | IFRS 16 Leases | Dec 31, 2019 |
| Non-current financial assets | 18 | 0 | - | 0 | - | 18 |
| Current financial assets | 20 | -8 | - | 0 | - | 12 |
| Non-current financial liabilities | 2,913 | 388 | 73 | 37 | 675 | 4,086 |
| Current financial liabilities | 668 | 74 | 14 | 5 | 232 | 993 |
| Total liabilities from financing activities | 3,543 | 470 | 87 | 42 | 907 | 5,049 |
| Changes that do not affect cash flow | ||||||
|---|---|---|---|---|---|---|
| Exchange | ||||||
| Parent | Dec 31, 2018 | Cash flows | Acquisition-related | rate effects | IFRS 16 Leases | Dec 31, 2019 |
| Non-current financial liabilities | 1,499 | 751 | - | - | - | 2,250 |
| Total liabilities from financing activities | 1,499 | 751 | - | - | - | 2,250 |
| Organic volume growth | ||
|---|---|---|
| % | 2019 | 2018 |
| Food Ingredients | ||
| Organic volume growth | 2 | 4 |
| Acquisitions/divestments | - | - |
| Volume growth | 2 | 4 |
| Chocolate & Confectionery Fats | ||
| Organic volume growth | 7 | 6 |
| Acquisitions/divestments | - | - |
| Volume growth | 7 | 6 |
| Technical Products & Feed | ||
| Organic volume growth | -0 | 8 |
| Acquisitions/divestments | - | - |
| Volume growth | -0 | 8 |
| AAK Group | ||
| Organic volume growth | 2 | 5 |
| Acquisitions/divestments | - | - |
| Volume growth | 2 | 5 |
| EBITDA | ||
| SEK million | ||
| Operating profit (EBIT) | 2,142 | 1,956 |
| Add back depreciation and amortization | 687 | 552 |
| EBITDA | 2,829 | 2,508 |
| Return on Capital Employed (ROCE) | ||
| SEK million Total assets |
22,919 | 18,035 |
| Cash and cash equivalents | -982 | -737 |
| Financial assets | -12 | -20 |
| Accounts payables | -3,354 | -2,685 |
| Other non-interest-bearing liabilities | -3,207 | -1,973 |
| Capital employed | 15,364 | 12,620 |
| Operating profit (Rolling 12 months) | 2,142 | 1,956 |
| Return on Capital Employed (ROCE), % | 13.9 | 15.5 |
| Net working capital | ||
|---|---|---|
| SEK million | 2019 | 2018 |
| Inventory | 6,681 | 4,705 |
| Accounts receivables | 3,529 | 3,441 |
| Other current receivables, non-interest-bearing | 2,261 | 1,574 |
| Accounts payables | -3,354 | -2,685 |
| Other current liabilities, non-interest-bearing | -3,209 | -1,973 |
| Working capital | 5,908 | 5,062 |
| SEK million | ||
|---|---|---|
| Current interest-bearing receivables | 11 | 20 |
| Cash and cash equivalents | 982 | 737 |
| Pension liabilities | -241 | -205 |
| Non-current liabilities to banks and credit institutions | -2,987 | -2,551 |
| Current liabilities to banks and credit institutions | -870 | -661 |
| Other interest-bearing liabilities | -12 | -7 |
| Net debt | -3,117 | -2,667 |
| SEK million | ||
|---|---|---|
| Net debt | 3,117 | 2,667 |
| EBITDA (Rolling 12 months) | 2,829 | 2,508 |
| Net debt/EBITDA, multiple | 1.10 | 1.06 |
| SEK million | ||
|---|---|---|
| Shareholders' equity | 10,337 | 8,908 |
| Non-controlling interests | 84 | 88 |
| Total equity including non-controlling interests | 10,421 | 8,996 |
| Total assets | 22,919 | 18,035 |
| Equity to assets ratio, % | 45.5 | 49.9 |
This Corporate Governance Report has been drawn up in accordance with the rules of the Annual Accounts Act and the Swedish Corporate Governance Code ("the Code"). The Corporate Governance Report has been subject to the statutory review by the company's auditor.
Effective and clear corporate governance contributes to the safeguarding of trust among AAK's stakeholder groups and also increases the focus on business benefit and shareholder value in the company. AAK's Board of Directors and management team endeavor, through a high level of transparency, to make it easy for individual shareholders to understand the company's decision-making process and to clarify where in the organization responsibilities and authorities reside. AAK's corporate governance is based on applicable legislation, the Code, NASDAQ OMX Stockholm's regulatory framework for issuers, generally accepted practice in the stock market and various internal guidelines. Where AAK has chosen to diverge from the rules in the Code, the reason is provided under each heading in this Corporate Governance Report.
AAK is a Swedish public limited liability company, the shares of which are traded on NASDAQ OMX Stockholm within the Large Cap segment, Consumer Commodities sector. AAK has around 17,200 shareholders. Its business operations are global, with a presence in more than 100 countries. As at December 31, 2019, the number of employees was 3,884. Responsibility for management and control of AAK is divided between the shareholders at the Annual General Meeting, the Board of Directors, its elected committees and the President and Chief Execurive Officer (CEO) in accordance with the Swedish Companies Act, other legislation and ordinances, applicable rules for companies traded on a regulated market, the Articles of Association and the Board's internal control instruments. AAK's goal is to be the obvious first choice for its customers, and to create the best possible value for the company's various stakeholder groups – in particular customers, suppliers, shareholders and employees. At the same time, AAK aims to be a good corporate citizen and take long-term responsibility. The aim of corporate governance is to define a clear allocation of responsibility and roles between the owners, the Board, the executive management team and various control bodies. In line with this, corporate governance covers the Group's management and control systems.
Information about shareholders and shareholdings can be found on pages 52–53.
AAK's current Articles of Association were adopted at the Annual General Meeting on May 30, 2018. The Articles of Association state that the company is to operate manufacturing and trading business, primarily within the food industry, to own and manage shares and securities and other associated business. The Articles of Association also state the shareholders' rights, the number of Board members and auditors, that the Annual General Meeting shall be held yearly within six months of the end of the financial year, how notification of the Annual General Meeting shall be effected and that the registered office of the Board of Directors shall be in Malmö, Sweden. The company's financial year is the calendar year. The Annual General Meeting shall be held in Malmö or Karlshamn, Sweden. The Articles of Association contain no restrictions on the number of votes each shareholder may cast at a general meeting. Furthermore, the Articles of Association contain no special provisions on the appointment and removal of members of the Board of Directors and on amendments to the Articles of Association. For the current Articles of Association, please see www.aak.com.
The Annual General Meeting of AAK is the highest decision-making body and the forum through which the shareholders exercise their influence over the company. The tasks of the Annual General Meeting are regulated by the Swedish Companies Act and the Articles of Association. The Annual General Meeting makes decisions on a number of central issues, such as adoption of the income statement and balance sheet, discharge from liability for the Board members and CEO, the dividend to shareholders and the composition of the Board.
Further information about the Annual General Meeting and complete minutes from previous Annual General Meetings and Extraordinary General Meetings are published at www.aak.com.
The Annual General Meeting held on May 15, 2019 was attended by shareholders representing around 60 percent of the share capital and votes in the company. Georg Brunstam was elected Chairman of the Meeting. The Annual General Meeting adopted the income statement and balance sheet, as well as the consolidated income statement and consolidated balance sheet. Following this, the Annual General Meeting approved the Board's proposal for a dividend for the 2018 financial year of SEK 1.85 per share. Georg Brunstam, Märta Schörling Andreen, Gun Nilsson, Bengt Baron, Lillie Li Valeur and Marianne Kirkegaard were re-elected as ordinary members of the Board of Directors. Patrik Andersson was elected as new member of the Board of Directors. Georg Brunstam was elected Chairman of the Board. The employee organizations had appointed Lena Nilsson (PTK-L) and Leif Håkansson (IF Metall) as employee representative members of the Board, and Mikael Myhre (IF Metall) and Fredrik Rydberg (PTK-L) as deputy members of the Board. The Annual General Meeting did not authorize the Board to resolve on the issue of new shares by the Company or the acquisition of the Company's own shares.
The Annual General Meeting decides on the election of the Board, among other items. The task of the Nomination Committee is to make proposals to the Annual General Meeting regarding the election of the Chairman and other members of the Board and of the Chairman of the Meeting, and regarding remuneration issues and related issues. The Nomination Committee considers the company's operations, phase of development and other relevant circumstances when assessing the appropriate composition of the Board.
At the Annual General Meeting 2019, Märta Schörling Andreen (Melker Schörling AB), Henrik Didner (Didner & Gerge Fonder), Leif Törnvall (Alecta) and Åsa Nisell (Swedbank Robur Fonder) were elected members of the Nomination Committee in respect of the Annual General Meeting 2020. Märta Schörling Andreen was elected Chairman of the Nomination Committee. The members of the Nomination Committee represent around 44 percent of the votes in AAK. The decision also included the opportunity to change the composition of the Nomination Committee in the event of a change in ownership. During the year, the Nomination Committee held two minuted meetings. At these meetings, the Chairman reported on the evaluation work, whereupon the Nomination Committee discussed any changes and new recruitments. The Nomination Committee has been
contactable by letter with proposals from shareholders. The members of the Nomination Committee have not received any remuneration from AAK for their work. Shareholders who wish to contact the Nomination Committee can send letters addressed to AAK AB (publ.), Valberedningen, Skrivaregatan 9, SE-215 32 Malmö, Sweden.
The tasks of the Board are regulated in the Swedish Companies Act and the Articles of Association. In addition to this, the work of the Board is regulated by the working practices adopted by the Board each year. The procedural rules of the Board also regulate the distribution of work and responsibilities between the Board, the Chairman of the Board and the CEO and also include procedures for financial reporting by the CEO to the Board. According to the current working practices, the Board shall meet at least six times each year, including a statutory meeting following election held immediately after the Annual General Meeting. The tasks of the Board shall include setting strategies, business plans, budgets, interim reports and year-end reports for AAK. The Board shall also monitor the work of the CEO, appoint and dismiss the CEO and decide on important changes to AAK's organization and operation. The most important tasks of the Board are to set the overall goals for the company's operation and to decide on the company's strategy for achieving the goals; to ensure the company has an effective executive management
team and appropriate remuneration terms; to ensure the transparency and accuracy of the company's external reporting; and that external reporting provides a fair presentation of the company's performance, profitability and financial position and exposure to risk; to monitor the financial reporting, including instructions to the CEO and the establishment of requirements for the content of the financial reporting to be submitted to the Board on a continuous basis; to ensure the company's insider policy and logging procedures are adhered to in accordance with legislation and the guidelines of the Swedish Financial Supervisory Authority; to ensure there are effective systems for follow-up and control of the company's operational and financial position against set goals; to follow up and evaluate the company's development and to recognize and support the work of the CEO in carrying out the required measures; to ensure there is sufficient control of the company's compliance with legislation and other rules applicable to the operation of the company, to ensure the required ethical guidelines are set for the company's behavior; and to propose to the Annual General Meeting any dividend, repurchase of shares, redemption or other proposals falling within the competence of the Annual General Meeting. The Chairman of the Board of Directors is responsible for evaluating the work of the Board. During 2019, he conducted a survey of the members and, based on this and interviews in the previous year, analyzed the results. The results of the survey were then presented and discussed on the Board and on the Nomination
Committee as the basis for assessing the size and composition of the Board. The evaluation focused on Board work in general and on the contributions of individual members, including the Chairman of the Board and the CEO. The Board evaluations clearly contributed to continued development of the work of the Board and the committees.
Under the Articles of Association, AAK's Board shall consist of at least three and at most ten members. The current Board consists of six members elected by the Annual General Meeting. Under Swedish law, employee organizations have a right to be represented on the Board, and have appointed two ordinary members and two deputies. In accordance with the proposal by the
CORPORATE GOVERNANCE
Nomination Committee, six members were re-elected and one new member, Patrik Andersson, were elected. Georg Brunstam was re-appointed Chairman of the Board of Directors. At the statutory Board meeting following the Annual General Meeting, the Board chose to appoint an Audit Committee and a Remuneration Committee. Gun Nilsson was appointed Chair of the Audit Committee and Lillie Li Valeur and Märta Schörling Andreen were appointed members. Georg Brunstam was appointed Chairman of the Remuneration Committee and Märta Schörling Andreen was appointed member. Georg Brunstam is also Director of the Board of Melker Schörling AB, which holds around 31.1 percent of the votes in AAK. Georg Brunstam cannot, therefore, be considered to be independent in relation to major shareholders in the Company in accordance with the Code. Märta Schörling Andreen, a member of the Board of Directors of Melker Schörling AB, and Gun Nilsson, CEO of Melker Schörling AB, also cannot be considered to be independent in relation to AAK's major shareholders. The other three members elected by the Annual General Meeting, Bengt Baron, Marianne Kirkegaard and Patrik Andersson, are independent in relation to AAK, the Company management and the Company's major shareholders in accordance with the Code. Lillie Li Valeur decided to leave the Board of Directors in December 2019 due to new external commitments. Bengt Baron was appointed new member of the Audit Committee.
The Board therefore fulfils the requirement of the Code that at least two Board members who are
independent of the Company and the Company management shall also be independent of the Company's major shareholders. Mikael Ekdahl, lawyer, acts as secretary to the Board. The application and result of the diversity policy are described on the Company's website in the Nomination Committee's reasoned statement regarding proposals to the Board of AAK AB.
The Board's working practices, containing instructions for the division of work between the Board and the CEO and for financial reporting, are updated and adopted annually. Board meetings consider the financial reporting and monitoring of day-to-day business operations and profitability trends, as well as goals, strategies for the business operation, acquisitions and significant investments and matters relating to capital structure. Business area managers and other senior executives report on business plans and strategic issues on a continual basis.
Remuneration and audit issues are prepared within the respective committees. The Board holds a statutory meeting immediately after the Annual General Meeting. At this meeting, the Board's working practices are also adopted, as are the instructions to the CEO and the Committees and other internal management instruments. The current Board held its statutory meeting on May 15, 2019, at which all members were in attendance.
At the Annual General Meeting held on May 15, 2019, Georg Brunstam was re-elected Chairman of the Board. The role of the Chairman of the Board is to lead the work of the Board and ensure the Board fulfils its tasks. The Chairman shall monitor the progress of the business in dialogue with the CEO, and is responsible for ensuring the other members continuously receive the information required to carry out the work on the Board, maintaining the required quality and in accordance with the Swedish Companies Act and other applicable laws and ordinances, the Articles of Association and the working practices of the Board. The Chairman is responsible for ensuring the Board constantly develops its knowledge about the Company, that an evaluation of the Board's work is carried out and that the Nomination Committee is provided with this evaluation. The Chairman shall also participate in evaluation and development issues relating to senior executives in the Group.
The Board held 11 meetings during the year. Business area managers have reported on the goals and business strategies of the business areas. The Board has handled issues relating to strategy, staffing and organization. Decisions have been made relating to investments and acquisitions. Other areas handled are the Group's work on the supply of raw materials, risk management and the Company's strategy for capital structure and borrowing.
| Board of | Audit | Remuneration | |
|---|---|---|---|
| Member | Directors | Committee | Committee |
| Number of meetings | 11 | 4 | 2 |
| Georg Brunstam | 11 | 2 | |
| Marianne Kirkegaard | 10 | ||
| Gun Nilsson | 11 | 4 | |
| Lillie Li Valeur | 10 | 4 | |
| Märta Schörling | |||
| Andreen | 11 | 4 | 2 |
| Leif Håkansson | 11 | ||
| Bengt Baron | 11 | ||
| Lena Nilsson | 11 | ||
| Patrik Andersson | 6 |
Patrik Andersson has attended all Board meetings since he was elected member of the Board at the Annual General Meeting on May 15, 2019.
Information about the members of the Board can be found on pages 48–49.
According to the decision of the Annual General Meeting, the total fees to the Board amounted to SEK 3,870,000, to be allocated between the members as follows: SEK 880,000 to the Chairman and SEK 390,000 to each of the other members elected at the Annual General Meeting who are not employed by the Company. The Chairman of the Audit Committee
received SEK 250,000 and the members SEK 125,000 each. The Chairman of the Remuneration Committee received SEK 100,000 and the member SEK 50,000. The secretary to the Board and employee representatives to the Board do not receive any compensation other than for costs in connection with their participation in Board activities. For further information about remuneration to members of the Board, please see page 87.
The Board continuously evaluates the work and competence of the CEO and the Company's management team. This is discussed at least once a year without representatives of the Company management being present.
The 2019 Annual General Meeting approved the principles for the remuneration of senior executives. The principles for the remuneration of AAK's senior executives are designed to ensure, from an international perspective, that AAK can offer compensation that is competitive and at the prevailing market level to attract and retain qualified people. The total remuneration package paid to senior executives shall consist of fixed basic salary, annual variable salary, pension, company car and severance payment. The fixed salary shall be individually differentiated on the basis of responsibility and performance, and shall be set on market principles and revised annually. In addition to annual salary,
senior executives shall also receive a variable salary, which shall have a pre-set ceiling and be based on the outcome in relation to goals set annually. The goals shall be related to the company's performance and shall also be able to be linked to individual areas of responsibility. The annual variable portion must not exceed 110 percent of the fixed salary. In addition to the variable salary mentioned, share or share-price related incentive programs may be added as determined from time to time by the Annual General Meeting. The right to a pension for senior executives shall apply from the age of 60 at the earliest. Pension plans for senior executives shall primarily be defined benefit plans. In the event of termination of employment by the Company, the notice period for the CEO and other senior executives shall be twelve months, and they shall be entitled to receive severance pay with a pre-determined ceiling corresponding to twelve months' salary. For termination of employment by the employee, a notice period of six months shall normally apply and no severance pay shall be payable. These guidelines will cover those persons who are in Group management positions during the period of time in which the guidelines apply. The guidelines apply to agreements entered into after a resolution by the Annual General Meeting, and in the event that changes are made to existing agreements after this point in time. The Board will be entitled to diverge from the guidelines if there are particular reasons to do so in an individual case.
Audit and remuneration issues within the Board are handled in committees, whose task it is to prepare issues arising and submit proposals for decisions to the Board. The tasks and working practices of the committees are determined by the Board in written instructions, which constitute part of the Board's working practices.
In accordance with the Board's working practices, issues of remuneration to the CEO and senior executives shall be prepared by the Remuneration Committee. The Remuneration Committee prepares and presents proposals to the Board relating to remuneration to the CEO and other senior executives. The final task of the Remuneration Committee is to monitor and evaluate the ongoing programs for variable remuneration of the company management team, and programs terminated during the year, as well as the application of the guidelines for the remuneration of senior executives and the current remuneration structure and remuneration levels in the Company. During 2019, the members of the Remuneration Committee were Georg Brunstam (Chairman) and Märta Schörling Andreen. The recommendations of the Remuneration Committee to the Board include principles for remuneration, the relationship between fixed and variable salary, conditions for pensions and severance pay and other benefits payable to the management. Remuneration to the CEO of the
Group has been decided by the Board on the basis of the recommendations of the Remuneration Committee. Remuneration to other senior executives has been decided by the Chief Executive Officer in consultation with the Remuneration Committee. For further information, see page 87. During 2019, the Remuneration Committee met on two occasions, on which both members attended. Current guidelines for remuneration to senior executives can be found in Note 8. The Board's proposal for new guidelines will be put to the Annual General Meeting in 2020 for a decision.
During 2019, the members of the Audit Committee were Gun Nilsson (Chair), Märta Schörling Andreen and Lillie Li Valeur. The Audit Committee held four ordinary meetings during the year, which the Company's external auditors and representatives of the management team attended. Areas dealt with by the Audit Committee are primarily related to planning, scope and follow-up of the audit for the year. Other issues dealt with include risk management, integration and systematics of Group procedures, coordination of insurance issues, corporate governance, internal control, accounting rules, development of the global finance function, financing operations and other issues that the Board has requested the Audit Committee to prepare. Under the provisions of Chap. 8, Section 49 a, of the Swedish Companies Act (2005:551), at least one member of the Audit Committee must be independent in relation to major shareholders in the Company, and have expertise in accounting or auditing, and the Company fulfils this requirement of the Code.
AAK's auditors are appointed by the Annual General Meeting. At the Annual General Meeting in 2019, the audit company PricewaterhouseCoopers AB was re-elected as auditors up to and including the Annual General Meeting in 2020. Sofia Götmar-Blomstedt, Authorized Public Accountant, was appointed auditor in charge. Sofia Götmar-Blomstedt also has auditing engagements in companies including Coop Sverige, Scandic Hotels Group AB, Genovis AB, Pågengruppen AB and Beijer Electronics Group AB. All services requested in addition to the statutory audit are tested separately to ensure there is no conflict arising involving independence or disqualification. No agreements with related parties exist.
It is the task of the CEO to lead operations in accordance with the guidelines and instructions of the Board. In conjunction with this, the CEO shall use the required control systems to ensure the company complies with applicable laws and regulations. The CEO reports to the Board meetings and shall ensure the Board receives as much factual, detailed and relevant information as is
required for the Board to reach well-informed decisions. The CEO also maintains continual dialogue with the Chairman of the Board and keeps him informed of the development and financial position of the Company and the Group.
AAK's Group management team consists of twelve persons from five countries: the CEO, Chief Financial Officer (CFO) who is also responsible for Mergers & Acquisitions, Corporate Communications, Global IT and Global Foodservice, Chief Strategy & Sustainability Officer, who is also responsible for People and Corporate Branding, Chief Technology Officer (CTO), President Global Operations and President Global Sourcing & Trading, as well as five persons in charge of business areas/regions/industries and one Senior advisor. The Group management team meets every other month and deals with the Group's financial development, investments, synergy and productivity projects, acquisitions, Group-wide development projects, leadership and competence supply and other strategic issues. The meetings are chaired by the CEO, who make decisions in consultation with the other members of the Group management team. The Group has a small number of Group employees, who are responsible for Group-wide activities, such as financial performance, tax, IT, internal control, strategy, investor relations, information and legal issues. The CEO and Group management team are presented on pages 50–51. For remuneration principles and salaries and other fees paid to the CEO and Group management team, please see Note 8.
AAK's business areas are Food Ingredients, Chocolate & Confectionery Fats and Technical Products & Feed. The heads of each business area are responsible for goals, strategies, product development and day-to-day business issues, as well as for profit, cash flow and balance sheets for the unit in question. The business areas in turn are organized into different sectors with responsibility for day-to-day business issues. Direction is exercised through internal boards, which meet four times a year. AAK's CEO chairs the meetings. Other executives are co-opted as necessary. In all countries where AAK has subsidiaries, a Country Manager has legal charge of operations. The Country Manager's task is to represent AAK vis-à-vis public authorities in the country, to coordinate operations on the ground, organization and Group-wide procedures/projects and to ensure that Group-wide guidelines are complied with. For each such country, one member of the Group management team has been appointed to have overall responsibility for operations. This person is the superior of the Country Manager, and in most cases acts as Chairman of the local legal board.
The Board is responsible for AAK's internal control, the overall purpose of which is to protect the owners' investments and the Company's assets. The Board shall provide a description of how internal control and risk management relating to financial reporting
are organized in a separate section of this Corporate Governance Report. Internal control relating to financial reporting is a process involving the Board, the company management team and personnel.
The process has been designed to ensure the reliability of external reporting. According to the commonly accepted framework established for this purpose, internal control is usually described from five different aspects, which are described below. The control environment forms the basis for internal management and control. Risk assessment and risk management mean that the management is aware of and has itself assessed and analyzed risks and threats to operations.
Control activities are the measures and procedures designed by the management to prevent errors from arising and for discovering and correcting errors that do arise. In order for individual tasks to be carried out in a satisfactory manner, the personnel in an organization need to have access to current and relevant information. The final module of the model relates to follow-up of internal management and the design and effectiveness of controls.
AAK's organization is designed to facilitate quick decision-making. Operational decisions are therefore made at business area or subsidiary level, while decisions about strategies, acquisitions and overriding financial issues are taken by the company's Board and Group management team. The organization is characterized
by clear division of responsibilities and effective and established management and control systems, covering all units within AAK.
The basis for the internal control relating to financial reporting consists of an overall control environment in which the organization, decision-making routes, authorities and responsibilities have been documented and communicated in management documents, such as AAK's financial policy, raw material purchasing policy, the manual on financial reporting and the authorization rules set by the CEO. AAK's finance functions are integrated through a joint consolidation system and joint accounting instructions. The Group's finance unit works closely and effectively with the controllers of subsidiaries in relation to year-end financial statements and reporting.
As a supplement to the internal control, under a specific plan, an annual audit of some units in the Group is carried out on a rotating basis by the Group's central Finance Department, in collaboration with an independent international accounting firm. AAK has decided not to set up a separate review function (internal audit), as the functions mentioned above fulfil this task well. All of AAK's subsidiaries report on a monthly basis. These reports form the basis for the Group's consolidated financial reporting. Each legal unit has a controller who is responsible for the financial management of each business area, and for ensuring the financial reports are correct, complete and delivered in time for consolidated reporting.
Through its international presence, the AAK Group is exposed to a number of different risks. Risk management within the Group is run in accordance with fixed policies and procedures, which are reviewed annually by AAK's Board. Risks relating to commodities are managed using the Group's raw material purchasing policy. Risks relating to currency, interest and liquidity are mainly governed by AAK's finance policy. The Group's credit policy directs the management of credit and contract risks. Effective risk management unites operational business development with the requirements of owners and other stakeholders for improvements in control and long-term value. Risk management aims to minimize risks, but also to ensure that opportunities are utilized in the best possible way. Risk management covers the following areas of risk: strategic risks relating to the market and sector, commercial, operational and financial risks, compliance with external and internal regulatory frameworks and financial reporting. The main components of risk assessment and management are identification, evaluation, management, reporting, follow-up and control. For further information about AAK's risk management, please see Note 3.
The risks identified relating to financial reporting are handled via the company's control activities. These control activities aim to prevent, identify and correct
errors and discrepancies. Control activities take the form of manual controls, such as reconciliation and stocktaking, automatic controls via the IT systems and general controls of the underlying IT environment. Detailed financial analyses of the result and follow-up against budgets and forecasts supplement the operation-specific controls and provide overall confirmation of the quality of the reporting.
To ensure the completeness and accuracy of its financial reporting, the Group has adopted guidelines for information and communication aimed at ensuring relevant and significant exchange of information within business operations, both within each unit and to and from management and the Board. Policies, handbooks and working practices relating to the financial process are communicated between the management and employees, and are available in electronic format and/ or printed format. The Board receives regular feedback on internal control from the Audit Committee. To ensure that external information is correct and complete, AAK has a communication policy adopted by the Board, which states what is to be communicated, by whom and in what way.
The effectiveness of the process for risk assessment and execution of control activities is followed up continuously. The follow-up covers both formal and informal
procedures, which are used by those responsible at each level. The procedures include follow-up of results against budgets and plans, analyses and key figures. The Board receives monthly reports about the Group's financial position and development. The Company's financial situation is discussed at each Board meeting, and the management team analyzes the financial reporting at detailed level on a monthly basis.
At Audit Committee meetings, the Committee follows up the financial reporting and receives reports from the auditors about their observations.
AAK has a number of policies for the operations of the Group and its employees. These include:
Ethical guidelines for the Group have been drawn up with the aim of clarifying the Group's fundamental approach to ethical issues, both within the Group and externally with regard to customers and suppliers.
The Group's finance function works in accordance with instructions adopted by the Board, which provide a framework for how the Group's operations shall be financed, and for how, for example, currency and interest risks are to be handled.
The Group's communication policy is a document describing the Group's general principles for the publication of information.
The Group's environmental policy provides guidelines for environmental work within the Group.
The consolidated income statement and balance sheet will be presented to the Annual General Meeting on May 13, 2020 for adoption.
The Board of Directors and the Chief Executive Officer declare that the consolidated accounts have been prepared in accordance with IFRS International Accounting Standards, as adopted by the EU, and
provide a true and fair view of the Group's financial position and results. The annual accounts have been prepared in accordance with generally accepted accounting practices and provide a true and fair view of the Parent's financial position and results.
The Directors' Report for the Group and Parent provides a true and fair view of the development of the business operations, financial position and results of the Group and Parent and describes the significant risks and uncertainty factors facing the Parent and the companies belonging to the Group.
Malmö, April 15, 2020
Chairman of the Board President and CEO Member
Georg Brunstam Johan Westman Märta Schörling Andreen
Marianne Kirkegaard Bengt Baron Gun Nilsson Patrik Andersson
Member Member Member Member
Leif Håkansson Lena Nilsson
Employee representative Employee representative
Audited and submitted on April 15, 2020 PricewaterhouseCoopers AB
Sofia Götmar-Blomstedt Authorized Public Accountant Auditor in charge
To the general meeting of the shareholders of AAK AB (publ.), corporate identity number 556669-2850
We have audited the annual accounts and consolidated accounts of AAK AB (publ.) for the year 2019 except for the corporate governance statement on pages 111–119. The annual accounts and consolidated accounts of the company are included on pages 43–120 in this document.
In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the Parent company as of December 31, 2019 and its financial performance and cash flow for the year then ended in accordance with the Annual Accounts Act. The consolidated accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the Group as of December 31, 2019 and their financial performance and cash flow for the year then ended in accordance with International Financial Reporting Standards (IFRS), as adopted by the EU, and the Annual Accounts Act. The statutory administration report is consistent with the other parts of the annual accounts and consolidated accounts.
We therefore recommend that the general meeting of the shareholders adopts the income statement and balance sheet for the Parent company and the Group.
Our opinions in this report on the annual accounts and consolidated accounts are consistent with the content of the additional report that has been submitted to the Parent company's audit committee in accordance with the Audit Regulation (537/2014) Article 11.
We conducted our audit in accordance with International Standards on Auditing (ISA) and generally accepted auditing standards in Sweden. Our responsibilities under those standards are further described in the Auditor's Responsibilities section. We are independent of the Parent company and the Group in accordance with professional ethics for accountants in Sweden and have otherwise fulfilled our ethical responsibilities in accordance with these requirements. This includes that, based on the best of our knowledge and belief, no prohibited services referred to in the Audit Regulation (537/2014) Article 5.1 have been provided to the audited company or, where applicable, its Parent company or its controlled companies within the EU.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions.
We designed our audit by determining materiality and assessing the risks of material misstatement in the consolidated financial statements. In particular, we considered where management made subjective judgments; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including
among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates.
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements.
Based on our professional judgment, we determined certain quantitative thresholds for materiality, including the overall Group materiality for the consolidated financial statements as a whole. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the financial statements as a whole.
Key audit matters of the audit are those matters that, in our professional judgment, were of most significance in our audit of the annual accounts and consolidated accounts of the current period. These matters were addressed in the context of our audit of, and in forming our opinion thereon, the annual accounts and consolidated accounts as a whole, but we do not provide a separate opinion on these matters.
Market valuation of inventory and completeness, existence and market valuation related to open sales and purchase contracts
The Group applies hedging of fair value in relation to raw material in inventory, meaning that a change in the price of the hedge has a direct impact on the value of the inventory. Open sales and purchase contracts are recognized according to IFRS 9, and thus measured and recognized at market value on the balance sheet date. Recognition of raw material purchases is complex and fluctuations in the price of raw material can have a significant impact on the financial information. An incorrect valuation of purchase contracts and inventory has a direct impact on the Group's costs and earnings.
The Group's raw material purchasing process is based on the premise that the underlying currency and raw material are hedged as soon as a sales contract has been signed. A possible omission in recognizing entered contracts or the risk that a fictive contract is recognized would limit AAK's possibilities to implement appropriate risk management and would also affect the recognized result.
How the Group works with risk management and the measurement of sales and entered purchase contracts is described in Note 3.
In order to verify that sales and purchase contracts are complete, remeasured at market value, comprise existing contracts and that inventory is measured at market price, our audit included a combination of:
Gained an understanding of, and tested, the internal control aimed at identifying signed sales and purchase contracts, and the measurement of these. In addition, we have also tested the Group's internal controls for updating and registering market prices.
An analytical review has been conducted of the accounting effects.
This document also contains other information than the annual accounts and consolidated accounts and is found on pages 1–42 and 126–127. The Board of Directors and the Chief Executive Officer are responsible for this other information.
Our opinion on the annual accounts and consolidated accounts does not cover this other information and we do not express any form of assurance conclusion regarding this other information.
In connection with our audit of the annual accounts and consolidated accounts, our responsibility is to read the information identified above and consider whether the information is materially inconsistent with the annual accounts and consolidated accounts. In this procedure we also take into account our knowledge otherwise obtained in the audit and assess whether the information otherwise appears to be materially misstated.
If we, based on the work performed concerning this information, conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
The Board of Directors and the Chief Executive Officer are responsible for the preparation of the annual accounts and consolidated accounts and that they give a fair presentation in accordance with the Annual Accounts Act and, concerning the consolidated accounts, in accordance with IFRS as adopted by the EU. The Board of Directors and the Chief Executive Officer are also responsible for such internal control as they determine is necessary to enable the preparation of annual accounts and consolidated accounts that are free from material misstatement, whether due to fraud or error.
In preparing the annual accounts and consolidated accounts, the Board of Directors and the Chief Executive Officer are responsible for the assessment of the company's and the Group's ability to continue as a going concern. They disclose, as applicable, matters related to going concern and using the going concern basis of accounting. The going concern basis of accounting is however not applied if the Board of Directors and the Chief Executive Officer intend to liquidate the company, to cease operations, or has no realistic alternative but to do so.
The Audit Committee shall, without prejudice to the Board of Directors' responsibilities and tasks in general, among other things oversee the company's financial reporting process.
Our objectives are to obtain reasonable assurance about whether the annual accounts and consolidated accounts as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinions. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs and generally accepted auditing standards in Sweden will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these annual accounts and consolidated accounts.
A further description of our responsibility for the audit of the annual accounts and consolidated accounts is available on Revisorsinspektionen's website: www.revisorsinspektionen.se/revisornsansvar. This description is part of the auditor's report.
In addition to our audit of the annual accounts and consolidated accounts, we have also audited the administration of the Board of Directors and the Chief Executive Officer of AAK AB for the year 2019 and the proposed appropriations of the company's profit or loss. We recommend to the general meeting of shareholders that the profit be appropriated in accordance with the proposal in the statutory administration report and that the members of the Board of Directors and the Chief Executive Officer be discharged from liability for the financial year.
We conducted the audit in accordance with generally accepted auditing standards in Sweden. Our responsibilities under those standards are further described in the Auditor's responsibility section. We are independent of the Parent company and the Group in accordance with professional ethics for accountants in Sweden and have otherwise fulfilled our ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions.
The Board of Directors is responsible for the proposal for appropriations of the company's profit or loss. At the proposal of a dividend, this includes an assessment of whether the dividend is justifiable considering the requirements which the company's and the Group's type of operations, size and risks place on the size of the Parent company's and the Group's equity, consolidation requirements, liquidity and position in general.
The Board of Directors is responsible for the company's organization and the administration of the company's affairs. This includes among other things continuous assessment of the company's and the Group's financial situation and ensuring that the company's organization is designed so that the accounting, management of assets and the company's financial affairs otherwise are controlled in a reassuring manner. The Chief Executive Officer shall manage the ongoing administration according to the Board of Directors' guidelines and instructions and among other matters take measures that are necessary to fulfill the company's accounting in accordance with law and handle the management of assets in a reassuring manner.
Our objective concerning the audit of the administration, and thereby our opinion about discharge from liability, is to obtain audit evidence to assess with a reasonable degree of assurance whether any member of the Board of Directors or the Chief Executive Officer in any material respect:
Our objective concerning the audit of the proposed appropriations of the company's profit or loss, and thereby our opinion about this, is to assess with reasonable degree of assurance whether the proposal is in accordance with the Companies Act.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with generally accepted auditing standards in Sweden will always detect actions or omissions that can give rise to liability to the company, or that the proposed appropriations of the company's profit or loss are not in accordance with the Companies Act.
A further description of our responsibility for the audit of the administration is available on Revisorsinspektionen's website: www.revisorsinspektionen.se/ revisornsansvar. This description is part of the auditor's report.
The Board of Directors is responsible to ensure that the corporate governance statement on pages 111–119 has been prepared in accordance with the Annual Accounts Act.
Our examination of the corporate governance statement is conducted in accordance with FAR's auditing standard RevU 16 The auditor's examination of the corporate governance statement. This means that our examination of the corporate governance statement is different and substantially less in scope than an audit conducted in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. We believe that the examination has provided us with sufficient basis for our opinions.
A corporate governance statement has been prepared. Disclosures in accordance with chapter 6 section 6 the second paragraph points 2–6 of the Annual Accounts Act and chapter 7 section 31 the second paragraph the same law are consistent with the other parts of the annual accounts and consolidated accounts and are in accordance with the Annual Accounts.
PricewaterhouseCoopers AB, Box 4009, 203 11 Malmö was appointed auditor of AAK AB by the Annual General Meeting of the shareholders on May 15, 2019 and has been the company's auditor since the financial year May 1, 2005–December 31, 2005.
Malmö, April 15, 2020 PricewaterhouseCoopers AB
Sofia Götmar-Blomstedt Authorized Public Accountant Auditor in charge
AAK AB will provide financial information for the 2020 financial year on the following occasions:
Reports and press releases are available in English and Swedish and can be ordered from:
AAK AB (publ.) Corporate Communications Skrivaregatan 9 215 32 Malmö, Sweden Telephone: +46 (0)40-627 83 00 Email: [email protected]
More information on AAK AB (publ.) is available on the company's website: www.aak.com
AAK AB's Annual General Meeting will take place at 2 p.m. on Wednesday, May 13, 2020 at Malmö Arena, Hyllie Stationstorg 2, in Malmö. Doors to the Annual General Meeting open at 1.30 p.m. and registration must be completed before 2 p.m., at which time the voting list will be established.
Right to attend the Annual General Meeting Shareholders are entitled to attend the Annual General Meeting if they are registered in the printout of the shareholders' register created on Thursday, May 7, 2020, and if they have given notice that they will attend the Annual General Meeting by 4 p.m. on Thursday, May 7, 2020.
Registration in the shareholders' register The company is a reconciliation company and its shares are affiliated with Euroclear Sweden AB, the Swedish central securities depository. This means that, in order to be entitled to attend the Annual General Meeting, shareholders must be entered in the shareholders' register held by Euroclear Sweden AB on Thursday, May 7, 2020. Anyone who has had shares registered through a nominee must temporarily register the shares in their own name to be able to attend the Annual General Meeting. This should be done in good time before this date.
Shareholders who wish to attend the Annual General Meeting must notify the company by one of the following alternatives:
In the notification, the shareholder must specify his or her name, address, phone number, personal or corporate identity number and shareholding. For shareholders who are represented by proxies, the original proxy form must be sent with the notification. Anyone representing a legal entity must show a copy of the certificate of incorporation or equivalent authorization documents showing they are an authorized signatory.
Notice of the Annual General Meeting is published in Post- och Inrikes Tidningar and on the company's website, including a full agenda. An advertisement regarding the Annual General Meeting being convened will be published in Svenska Dagbladet.
AAK presents Alternative performance measures that are not defined in the financial reporting framework IFRS. Alternative performance measures are used as guidance to the Group's management and external stakeholders in their analysis of the Group's operations and are considered as a supplement to the financial statements prepared in accordance with IFRS. AAK uses the following Alternative performance measures:
Organic volume growth, EBITDA, Return on Capital Employed (ROCE), Net working capital, Net debt, Net debt/EBITDA and Equity/asset ratio. See pages 109–110 for calculations. See definitions of the Alternative performance measures and other performance measures below.
Cash and bank balances and short-term investments with a maturity of less than three months.
Total assets less cash and cash equivalents, other interest-bearing receivables, non-interest-bearing operating liabilities, but excluding deferred tax.
Dividend per share in relation to the share price at the reporting date. Expressed in percent.
Dividend in relation to the net profit for the year. Expressed in percent.
Net profit for the year attributable to the Parent company shareholders divided by the average number of shares on the reporting date.
Earnings before interest, tax, depreciation and amortization.
Equity including non-controlling interests in relation to total assets. Expressed in percent.
Equity excluding non-controlling interests divided by the average number of shares on the reporting date.
Interest-bearing liabilities (incl. pension liabilities, excl. financial leases) less Cash and cash equivalents and other current interest-bearing receivables.
Net debt in relation to EBITDA calculated on a rolling 12 months basis. Expressed as a multiple of EBITDA.
Non-interest-bearing current assets less non-interestbearing current liabilities.
Total volume growth excluding effects of acquisitions/ disposals. Expressed in percent.
Operating profit in relation to average capital employed, calculated on a rolling 12 months basis. Expressed in percent.
Share price in relation to equity per share.
AAK AB (publ.) Skrivaregatan 9 215 32 Malmö, Sweden Telephone: +46 (0)40 627 83 00 Email: [email protected] www.aak.com Corporate identity no. 556669-2850
For further information, please visit our website at www.aak.com.
This document is a translation of the Swedish language version. In the event of any discrepancies between the translation and the original Swedish AAK Annual Report 2019, the latter shall prevail.
AAK is a leading provider of value-adding vegetable oils & fats.
Our expertise in lipid technology within foods and special nutrition applications, our wide range of raw materials and our broad process capabilities enable us to develop innovative and value-adding solutions across many industries – Chocolate & Confectionery, Bakery, Dairy, Plant-based Foods, Special Nutrition, Foodservice, Personal Care, and more.
AAK's proven expertise is based on more than 140 years of experience within oils & fats. Our unique codevelopment approach brings our customers' skills and know-how together with our own capabilities and mindset for lasting results.
Listed on the NASDAQ OMX Stockholm and with our headquarters in Malmö, Sweden, AAK has more than 20 different production facilities, sales offices in more than 25 countries and more than 3,800 employees.
Published by AAK AB (publ.). Produced by AAK Corporate Communications. Graphics and original: www.johnjohns.se. Photography: Thomas Hergaard, AAK, Shutterstock. Print: Exakta. Explore more at www.aak.com
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