AAK Reports Strong Q2 Development in Chocolate & Confectionery Fats

18 Jul 2014 --- AarhusKarlshamn (AAK) has reported another record high operating profit, excluding acquisition related costs for a second quarter which reached SEK 281 million (244) (US$41 million), an improvement of 15 percent compared to the corresponding quarter in 2013. Volumes increased by 2 percent (organic growth negative 2 percent) compared to the second quarter 2013.

Speciality and semi-speciality volumes in Food Ingredients were stable during the second quarter. Infant Nutrition volumes showed some growth but materially less than expected, mainly due to market disruption in relation to new Chinese regulations for Infant formula producers. This market is expected to continue to grow more strongly from the fourth quarter, 2014. Dairy Fat Alternatives showed double-digit growth. Commodity volumes continued to decrease.

Chocolate & Confectionery Fats developed very well with high double-digit growth in Cocoa Butter Equivalent (CBE). Net sales increased by SEK 80 million mainly due to the acquisition of Unipro. Operating profit, excluding acquisition related costs, reached SEK 281 million (244), an improvement of 15 percent compared to the corresponding quarter in 2013. Operating profit, including acquisition related costs amounting to SEK 9 million, reached SEK 272 million (244), an improvement of 11 percent.

Operating profit per kilo excluding acquisition related costs, continued to improve to SEK 0.70 (0.62), an increase of 13 percent. Operating profit per kilo in Food Ingredients increased by 7 percent at SEK 0.77 (0.72), largely affected by a favourable product mix with stable growth in specialities and semi-specialities and low commodity volumes. Operating profit per kilo in Chocolate & Confectionery Fats improved by 32 percent at SEK 1.23 (0.93), as a result of a better product mix with higher CBE volumes and improved margins. Technical Products & Feed was stable at SEK 0.35 (0.35) per kilo. The costs for Group Functions have increased by SEK 4 million mainly due to increased investments in R&D, in line with the innovation focus in the new company program, AAKtion. In addition, the second quarter operating result included acquisition related costs of SEK 9 million.

The net financial cost increased slightly and amounted to SEK 31 million (28). The second quarter included one-off costs related to refinancing.

Cash flow and Investments Operating cash flow in the second quarter came out stronger than expected and amounted to positive SEK 168 million (576). As earlier predicted and communicated working capital increased - the increase amounted to SEK 99 million (decrease by 343 last year). Working capital is expected to continue to increase due to the forecasted growth in Chocolate & Confectionery Fats.

After net investments amounting to SEK 142 million (164), cash flow was positive SEK 26 million (positive 412).

On April 9, 2014 AAK announced agreement to acquire the oils and fats business of CSM Benelux NV in Merksem. The company is a leading bakery fats supplier to mainly the bakery markets in Belgium, the Netherlands and France. The acquired business employs around 100 people and had revenues of approximately SEK 970 million in 2013.

The business produces a variety of bakery fat solutions, margarines and pumpable shortenings. The acquisition includes the factory in Merksem, an experienced sales force, application specialists offering customized solutions, and a bakery innovation center. The innovation center will give customers the opportunity to work closely with AAK´s Customer Innovation teams.

The transaction was completed on July 1, 2014

Subsequent to June 30, 2014, AAK has acquired Fabrica Nacional de Grasas S.A. (FANAGRA), a Colombian company that specializes in vegetable oils and fats for the bakery segment. The company has 155 employees and had revenues of approximately SEK 270 million last year, with an annual volume of 30,000 tonnes.

“Based on AAK’s customer value propositions for health and reduced costs, and our customer product co-development and solutions approach, we continue to remain prudently optimistic about the future. The main drivers are the continued positive underlying development in Food Ingredients and the continued improvement in Chocolate & Confectionery Fats”, said Arne Frank, CEO and President.

“Speciality and semi-speciality volumes in Food Ingredients were stable during the second quarter. Infant Nutrition volumes showed some growth but materially less than expected, mainly due to market disruption in relation to new Chinese regulations for Infant formula producers.This market is expected to continue to grow more strongly from the fourth quarter, 2014. Dairy Fat Alternatives showed double-digit growth. Commodity volumes continued to decrease. Chocolate & Confectionery Fats developed very well with high double-digit growth in Cocoa Butter Equivalent (CBE). However, the severe crisis in Ukraine continues to influence our Chocolate & Confectionery Fats business materially.”

“Stronger than expected operational cash flow Operating cash flow including changes in working capital amounted to positive SEK 168 million (576). As earlier communicated working capital increased and the increase amounted to SEK 99 million (decrease 343) due to increased raw material prices during the fourth quarter 2013. Working capital is expected to continue to increase due to the forecasted growth in Chocolate & Confectionery Fats.”