Third quarter 2024

Interim report

2.16 TR just journals IS BS 2409

Financial highlights

Q3 2024

Volumes increased by 4 percent to 551,000 MT (529,000).
Operating profit increased by 10 percent, reaching SEK 1,256 million (1,143), including a negative currency translation effect of SEK 95 million. At fixed foreign exchange rates, operating profit increased by 18 percent.

Q1–Q3 2024

Volumes increased by 4 percent to 1,632,000 MT (1,575,000).
Operating profit increased by 22 percent, reaching SEK 3,628 million (2,975), including a negative currency translation effect of SEK 149 million. At fixed foreign exchange rates, operating profit increased by 27 percent.
Profit for the period totaled SEK 871 million (807).
Earnings per share equaled SEK 3.35 (3.10).
Cash flow from operating activities amounted to SEK 515 million (1,214).
Return on Capital Employed (ROCE), R12M, was 22.1 percent (19.1 percent on December 31, 2023).
Profit for the period totaled SEK 2,614 million (2,084).
Earnings per share equaled SEK 10.05 (8.02).
Cash flow from operating activities amounted to SEK 2,234 million (3,961).
Return on Capital Employed (ROCE), R12M, was 22.1 percent (19.1 percent on December 31, 2023).

	Q3 2024	Q3 2023	Δ %	Q1-Q3 2024	Q1-Q3 2023	Δ %	R12M 2024	Full year 2023
Volumes, '000 MT	551	529	+4	1,632	1,575	+4	2,180	2,123
Operating profit, SEK million	1,256	1,143	+10	3,628	2,975	+22	4,769	4,116
Operating profit per kilo, SEK	2.28	2.16	+6	2.22	1.89	+17	2.19	1.94
Profit for the period, SEK million	871	807	+8	2,614	2,084	+25	3,484	2,954
Earnings per share, SEK	3.35	3.10	+8	10.05	8.02	+25	13.38	11.35
Cash flow from operating activities, SEK million	515	1,214	-58	2,234	3,961	-44	3,587	5,314
Return on Capital Employed (R12M), percent	22.1	17.2	+28	22.1	17.2	+28	22.1	19.1

Volume growth across all three business areas and improved group profitability

Following a strong first half, I am pleased to report continued momentum in the third quarter, delivering strong results despite tougher comparisons. We achieved year-over-year volume growth across all three business areas and sustained an operating profit per kilo above SEK 2, reaching one out of three pillars in our 2030 aspiration ahead of schedule. In light of this performance, we will be presenting a strategic update at the upcoming Capital Markets Day on November 26 in Karlshamn, Sweden.

Business performance

Volumes increased by 4 percent, with all three business areas contributing. The growth was led by strong performance in Chocolate & Confectionery Fats, primarily driven by increased penetration of filling fats to regional customers.

Profitability, measured as operating profit per kilo, was strong and grew year-over-year, in both Chocolate & Confectionery Fats and Food Ingredients. Profitability in Technical Products & Feed improved compared to the second quarter this year but declined year-over-year. The strong profitability was mainly driven by our global optimization programs, including production process optimization and portfolio & price management, as well as operating leverage from increased volumes. Our third-quarter profitability was also supported by continued favorable market conditions in Chocolate & Confectionery Fats.

Driven by the improved profitability and increased volumes, operating profit grew 10 percent compared to the third quarter last year. At fixed foreign exchange rates, operating profit increased by 18 percent.

Operating cash flow was impacted by increased working capital, primarily driven by seasonal sourcing, rising raw material prices, and inventory buildup related to EUDR compliance.

Divestment of North American Foodservice to focus on Europe

As announced yesterday, AAK has entered into an agreement to divest its Foodservice facility in Hillside, NJ, USA. Although the standalone Hillside site will be sold, we are also making investments to enhance our European Foodservice structure, with a focus on reinforcing our already strong presence in the UK and Nordic regions.

A binding transaction agreement has been signed with Stratas Foods LLC, and the transaction is expected to be completed before the end of the year subject to customary closing conditions. Until completion, Hillside will continue to be reported as part of Food Ingredients. The transaction is expected to generate a one-time positive cash flow impact of approximately SEK 600 million at closing, with no anticipated material effect on the profit and loss statement. Hillside represents approximately 5 percent of AAK's total volumes and contributes around 1 percent to its operating profit. As a result, the divestment is expected to positively impact the group's operating profit per kilo by approximately 4 percent, all else being equal.

To future-proof and strengthen our remaining Foodservice operations in Europe, we are looking to invest in a new site to replace the existing facility in Dalby, Sweden. Additionally, we are modernizing our Hastings Foodservice site in the UK. The total capital investment for improving and expanding the European Foodservice business is approximately SEK 400 million, spread over 2025-2026.

Upcoming Capital Markets Day

As previously announced, we are pleased to invite investors, analysts, and media to our Capital Markets Day on November 26, 2024, in Karlshamn, Sweden. The event will begin at 9:00 AM CET with a site tour, followed by updates from members of the executive committee on AAK's strategy and 2030 aspiration.

Concluding remarks

We delivered a strong performance in the third quarter, continuing the momentum from earlier in the year, with organic volume growth and improved profitability. We remain committed to achieving an average operating profit growth of 10 percent over the long term, while being humble of the dynamic market conditions and the increasingly tough yearover-year comparisons we face. We remain focused on maintaining a balance between value and volume, and we approach the future with a prudently optimistic view.

Johan Westman, President and CEO

AAK Group, Q3 2024

Volumes

Volumes totaled 551,000 MT (529,000), an increase of 4 percent compared to last year.

Net sales

Sales reached SEK 11,171 million (11,619), a decrease of 4 percent. The decrease was mainly driven by a negative currency translation effect of SEK 696 million, somewhat mitigated by the increase in volumes.

Operating profit

Operating profit totaled SEK 1,256 million (1,143), corresponding to an increase of 10 percent compared to the same quarter in 2023. The earnings growth was driven by strong operating profit in both Chocolate & Confectionary Fats and Food Ingredients. Currency translation had a negative effect of SEK 95 million, of which SEK 62 million was related to Food Ingredients and SEK 33 million to Chocolate & Confectionery Fats. Operating profit at fixed foreign exchange rates increased by 18 percent.

Operating profit per kilo totaled SEK 2.28 (2.16), an increase of 6 percent. Currency translation had a negative effect of SEK 0.17 per kilo. At fixed foreign exchange rates, operating profit per kilo increased by 13 percent. AAK achieved this growth mainly as a result of our global optimization programs, including production process optimization and portfolio & price management, as well as operational leverage from increased volumes. Third-quarter profitability was also supported by continued favorable market conditions in Chocolate & Confectionary Fats.

Net financial costs and tax costs

Net financial costs totaled SEK 101 million (85). The financial costs increased due to reporting in hyperinflationary economies (IAS 29), partly offset by lower interest rates. Reported tax costs correspond to an average tax rate of 25 percent (24).

Earnings per share

Earnings per share equaled SEK 3.35 (3.10).

Cash flow and investments

Operating cash flow, including changes in working capital, amounted to SEK 515 million (1,214). Cash flow from working capital amounted to negative SEK 847 million (negative 25), mainly due to increased working capital, primarily driven by negative cash flows from inventory. The negative cash flow from inventory was a result of seasonal purchasing, rising raw material prices, and inventory buildup related to EUDR.

Cash outflow from investment activities amounted to SEK 311 million (270). Capital expenditure was primarily for maintenance investments, productivity improvements, and capacity increases.

Return on Capital Employed (ROCE)

Calculated on a rolling 12-month basis, Return on Capital Employed (ROCE) was 22.1 percent (19.1 on December 31, 2023).

Financial position

The equity-to-asset ratio was 57 percent (56 percent on December 31, 2023). Net debt on September 30, 2024, totaled SEK 2,176 million (SEK 2,425 million on December 31, 2023). Net debt/EBITDA totaled 0.39 (0.49 as of December 31, 2023).

On September 30, 2024, the Group had total credit facilities of SEK 8,213 million (8,605 as of December 31, 2023), of which there were SEK 6,697 million (7,085 as of December 31, 2023) in committed credit facilities. Unused committed credit facilities on September 30, 2024, totaled SEK 5,653 million (5,559 as of December 31, 2023). Non-committed credit facilities totaled SEK 1,515 million (1,520 as of December 31, 2023), SEK 1,384 million (1,352 as of December 31, 2023) of which were unused.

Selected events

New York Climate Week

Our CEO, Johan Westman, joined global leaders at the Sustainable Development Impact Meetings hosted by the World Economic Forum during the New York Climate Week in October.

The purpose was to engage in discussions on accelerating the shift toward sustainable food systems and reducing carbon emissions. We emphasized the importance of collaboration to drive sustainability and highlighted key initiatives, including decarbonizing supply chains, investing in regenerative agriculture, and supporting the flexitarian diet movement. This engagement marks a deeper involvement as AAK continues to explore opportunities to create meaningful, long-term positive impact.

Wear sunscreen

We recently shared out latest insights on the evolving sunscreen market, which is being shaped by consumers' increased awareness of the need to safeguard their skin with effective protection. Consumers still experience barriers such as unpleasant textures, concerns over toxic ingredients, and the environmental impact of sunscreen.

AAK's LIPEX SheaSolve™ is a shea-derived ester that helps overcome some of these issues by offering a plant-based solution with a light texture, excellent dispersion of mineral filters, and high SPF without leaving a white cast. Read more on AAK.com.

R&D collaboration with academia

AAK celebrated the completion of its 50th student project at the Process Development Lab in Arhus, Denmark, highlighting our collaboration with academia to drive innovation. Through partnerships with universities, and by offering student internships, we cultivate high-level R&D expertise and accelerate new technology and product development.

These collaborations enhance our understanding of complex processes while providing students with valuable industry experience. Notably, several former students have joined us as full-time employees. Additionally, we have been awarded public funding for research projects, further strengthening our innovation capabilities and academic partnerships.

AAK continue making progress on sustainability

AAK has continued to make progress in the sustainability of its global palm oil sourcing, with the proportion of verified deforestation-free palm oil rising from 83 percent in 2023 to 89 percent in the first half of 2024. This improvement reflects AAK's commitment to sustainable practices and biodiversity, especially given the evolving regulatory landscape.

EUDR postponement: Legislators slow down

A proposal has emerged to postpone the implementation of the EUDR by one year. Although no official decision has been made regarding this postponement, AAK recognizes that this last-minute proposal is unfortunate, as it penalizes those like AAK who were ready to implement in accordance with the previously announced timeline, adds uncertainty and may divert attention from the primary objective of stopping deforestation.