Chocolate & Confectionery Fats Drive Growth For AAK

29 Oct 2015 --- Aak, the Swedish fats & oils company, has announced record operating profit and volume growth in its third quarter results, published today.

Chief Executive Arne Frank commented: “Again, a record high operating profit was achieved with solid year-on-year improvements. As expected Chocolate & Confectionery Fats continued to be the main driver and Food Ingredients also reported, all in all, a strong quarter. Technical Products & Feed, however, had a challenging quarter due to a planned but more extensive maintenance stop than normal.”

Total volumes were up 2 percent and organic volume growth was also 2 percent. Operating profit reached €40m (SEK 376 million), an improvement of 14 percent compared to the corresponding quarter in 2014. Operating profit at fixed foreign exchange rates, and adjusted for last year’s divestment of Binol and non-recurring items improved by 7 percent. The currency translation impact was €2.88m (SEK 27 million).

Business Area operating profit:

• Food Ingredients reported a result of €25m (SEK 230 million), an improvement of 9 percent.

• Chocolate & Confectionery Fats improved by 33 percent and reached €17.5m (SEK 166 million).

• Technical Products & Feed gained a result of €1.17m (SEK 11 million)

Sales amounted to €540m. The increase was mainly due to a positive currency translation impact of €32m and organic volume growth. This was, however, partly offset by lower raw material prices.

Food Ingredients reported a stable quarter with strong organic volume growth of 4 percent. The picture between the segments was, however, very variable.

The Bakery segment, which had a challenging 2014, continued to show organic volume growth during the third quarter. This growth was particularly strong in Latin America.

The Dairy segment reversed the trend from the last quarters and reported solid organic volume growth despite competitive pressure due to a low milk fat price. US showed particularly strong growth in this segment.

Infant Nutrition speciality volumes, comprising InFat business in Advanced Lipids AB, a joint venture of AAK and Enzymotec, continued the sequential organic growth trend from the second quarter. Year to date though, there is still negative year-on-year growth after the extraordinary first quarter in 2014. Infant Nutrition product range Akonino reported stable volume growth.

Food Service reported a stable quarter with continued growth in the UK and the Nordics.

More generally, commodity products showed again exceptional volume growth for the fourth consecutive quarter, but still from a very low level.

Despite the severely deteriorating market conditions in Ukraine and Russia, Chocolate & Confectionery Fats showed an impressive organic volume growth of 4 percent, mainly driven by our semi-speciality products. Low-end products continued to be under very strong competitive pressure, a trend since several quarters.

AAK has during the quarter launched Tropicao, its latest innovation within Chocolate & Confectionery Fats. This innovation has been developed for hot climate markets such as Latin America, Asia and the Middle East.

Despite chocolate consumption being on the rise in these markets chocolate manufacturers face significant challenges as the characteristics of chocolate risk to change in hot climates when distribution chains are far from perfect. Heat-related bloom, which gives the chocolate an undesirable white surface and potentially also a sandy, dry texture, is cited as the most frequent reason for chocolate quality complaints in hot climates.

Chocolate with Tropicao will maintain a non-bloom appearance as well as its sensory attributes when exposed to higher temperatures and unperfect distribution chains. Early feedback from customers has been very strong. However, sales cycles are lengthy.

The construction of new factories in Brazil and China, which were announced during 2014, are developing according to plans.

During September, 2015 AAK acquired 51 percent of the shares of Kamani Oil Industries Pvt Ltd., one of the leading speciality and semi-speciality oils and fats companies in India. The company had last year revenues of approximately SEK 1,000 million, with an annual volume of 100,000 MT.

This acquisition will give AAK a strong foothold in India. Kamani has very well-developed relations with both global and local customers. Together, we will continue to develop customer relations as well as the product portfolio of speciality and semi-speciality products. With a great focus on technical expertise and customer co-development, Kamani’s customer and market approach is very similar to AAK’s. The acquisition was completed on October 1, 2015.

AAK has established a partnership with Miyoshi Oils & Fats Co. by forming a new company together for the Japanese market, AAK Miyoshi JP. The Japanese market is particularly interesting for the Chocolate & Confectionery Fats and Bakery segments.

AAK will own 70 percent of the new company. The remaining 30 percent will be owned by Miyoshi Oils & Fats Co. AAK Miyoshi JP will have both sales and customer innovation resources and will focus on products for the chocolate and confectionery, bakery, dairy and infant nutrition markets The partnership will be operational from January, 2016.

The company program for 2014–2016, “AAKtion”, is developing according to plan. The program is intended to further strengthen the focus on “Sales-Innovation-Execution”.