AAK AB (publ.)

Good morning, everyone, and welcome to the AAK quarter one earnings call. In today's presentation, as you heard, it will be myself and our CFO, Thomas. And the agenda for today you have on page two. We'll start with a few highlights on the quarter, some key events, an update on the business and financials, as well as our concluding remarks. And as always, we are happy to take any questions that you have after this presentation. So without further ado, we're moving into page three, some overall comments on the quarter. As communicated earlier in our early profit release, we had a strong start to the year. A strong quarter with regards to our operating profit, up 43% at the fixed FX. Sorry, 34% at fixed FX, reported 43%. As well as a very strong development on our margins, our operating profit per kilo is up significantly in the quarter, up 43% year on year at fixed FX. While profits were strong, our volumes were down by 6%, but this was mainly due to our controlled exit out of Russia. And in addition, our continued focus on optimizing different segments where we operate, and particularly in the bakery industry, we continue with our optimization program. And we have closed the plant in Europe, consolidated volumes into two other factories, but also left low margin business behind. So when looking at that, there is no real drama on the volume decline year on year. We can also, when we compare the results, see that in this and in the year-on-year perspective, our strong improvement of earnings is really due to a continued focus on our speciality solutions. It is also a favorable market condition versus last year, where inflation started to come, obviously starting to compensate for that, but not fully. So in a year-on-year perspective, there's also an element of uh more favorable market conditions or us being able to compensate fully for that so all in all a good development in a combination of focus on speciality solutions improvements internally productivity optimization as well as favorable market conditions on top of that which we now released in our report this morning we have had a strong operating cash flow which is now a one north of one billion positive And this is really linked to a better earnings, better EBITDA, as well as good development on our networking capital. So all in all, a positive also impact on return on capital employed, as well as our net debt to EBITDA being decreased back to 1.36. So with those overall comments, let's move into page number four. We're also proud to announce, and certainly linked to our strategy going forward, we need to be focusing as well as releasing new products into the market, more value-added solutions. And a good example of that is our new product, CBIS Shocker 15, with an attempt to improve product for the consumer, for our customers, while at the same time offering a, call it, value-added solution, which is affordable. So value for money creation for the end consumer. We've also made strong improvements on our sustainability journey from plant to brand. We have released our sustainability report. I strongly recommend you to read that. And we make progress in many areas and remain focused on delivering on our targets linked to science-based target initiative, as well as our deforestation-free targets in our supply chain. We've also opened up our plant-based innovation center of excellence in the Netherlands. This innovation center marks a new step for AK. We will be able to really take our customers in and together with them, develop new solutions in a lab setting, an application setting, a tasting setting, as well as a culinary kitchen to really showcase the possibilities of future food solutions that are more sustainable, more functional, tasty, and with a good performance. So that's a good step forward that we will now start to capitalize on. With those comments, we move into page five and some deep dives into the respective business areas, starting with food ingredients. Pretty much the same momentum as in AEK as a whole for the quarter. So a strong momentum continuing from last year, Margin expansion and that leading into an absolute increase of operating profits. Operating profit is up 48% versus last year at fixed FX and operating profit per kilo is up 59% versus last year, despite volumes being down. But again, part of volumes being down linked to exiting out of Russia, part of volumes being down due to the optimization of bakeries. But in the rest of the segments, we see this positive mix of internal productivity improvements, as well as being more capable of compensating for inflationary effects. So all in all, a strong development for food ingredients. If we then move into chocolate and confectionary fats on page six, here we see a somewhat larger volume drop, but that is also linked to Russia because Russia is and was for us a large chocolate and confectionary fats market. So volumes down 9% year on year, but again, mostly driven by the exit out of Russia. On the other hand, we continue to see strong momentum in our business with strong improvement of margins operating profit per kilo up 29% that fixed FX and that leads us to a total operating profit being up by 16% year on year, despite the exit out of Russia. With that, we're moving into the third business area for AK, technical products and feed. And here we can see that we have had a strong momentum for many quarters in a row, and this continued into the first quarter of 2023. So operating profit up, operating profit per kilo up, And this is mostly driven by a good development within our free business, as well as a continued good demand for natural ingredients to replace mineral oils, fossil-based ingredients in other non-food segments where we deliver. So operating profit up 33% and operating profit per kilo up 26% versus last year. With those comments, by business area, I am happy to hand it over to Thomas, our CFO, for some further comments on raw materials and the financials of AKS.

Thank you, Johan. And good morning, everyone. Continuing on slide eight. Raw material prices, as we've mentioned before, and as you've seen, has since the decline began by mid last year, leveled out roughly half of the peak that we saw in Q2 in 22. The current price level is still significantly above pre-pandemic levels, as you can also see. And a quick reminder that changes in the raw material prices have a large impact on working capital and our capital employed. And as you can see on the slide, a 10% change at current price levels is estimated all else equal to have a plus minus 500 million sec impact on working capital and an estimated time lag of roughly six to nine months. There is some uncertainty of the time lag given the mix of raw materials, and the 10% impact value change has been adjusted as the new raw material prices have, or as raw material prices have declined lately. Turning to slide nine. And as you might recall from the last quarter Q4, we had a solid cash flow driven by a strong finish to the year. And when we look at Q1, we can see that the underlying positive trend continued. The quarter generated a positive operating cash flow, as Johan mentioned, of 1.1 billion SEK at par with the Q4 cash flow driven by a strong EBITDA as well as a reduction in working capital of roughly 400 million SEK. And as expected, lower raw material prices as well as improved inventory management had a positive effect on inventories and the cash flow for the quarter. The positive effect from inventories was somewhat subdued by lower accounts payables, as you can see, which declined faster than inventories due to existing shorter account payable terms relative to account receivable terms, mainly related to procurement of raw materials. meaning that there is a timing effect in Q1 in how raw material price impacts payables versus inventories and then subsequently receivables. The cash effect from accounts receivables was slightly positive, as you can see, but just slightly. Interest costs increased quarter of a quarter compared to last year, mainly driven by higher interest rates, as well as a slightly higher net debt and additional committed facilities compared to a year ago. And the average tax rate remained unchanged at 24%. Jan-Willem Wasmann, CapEx total 362 million SEC and what's related to production improvement, such as the bottlenecking capacity optimization and the continued construction of the biomass boilers, we are putting in place in all who's Denmark, as well as our recent acquisition in India. Other non-cash items had a negative cash flow effect of 246 million SEK, and this was mainly driven by unrealized hedging contracts on raw materials. And during the quarter, the valuation of unrealized hedging contracts had a positive impact on EBITDA, but this was offset by a negative effect from realized hedging contracts and inventory revaluation as a result of our back-to-back hedging model. This resulted in a net P&L impact that was roughly neutral between these items. And that's the intent of our hedging model as well. The realized hedging contracts are cash and included in the free cash flow. The unrealized hedging contracts, on the other hand, does not have a cash flow effect and is therefore adjusted for in the item other than on cash items. Next slide, please. Slide 10. Return on capital employed reached 15.2% in the quarter, driven by improved profitability and up from 14.5% at the end of last year. And close to the last peak, we've had a 15.6% at the end of 2021. Slide 11, please. And then finally, net debt EBITDA ratio was reduced further in the quarter, ending at 1.36%. down from the peak of 2.03 in mid 2022. And in all respects, substantially back at the level we saw before the impact of increased raw material prices. Johan, back to you.

Thank you, Tomas. So when summarizing that quarter and to wrap up this presentation, I think there's no doubt that this is a positive quarter. strong improvement of absolute earnings, strong improvements of margins, as well as a strong cash flow. So really good to see that. But more importantly, I see this quarter together with the development we've seen over the last one and a half year. It's a good milestone in a way or a confirmation of our journey towards our 2030 aspiration. We have set out to double our margin in terms of EBIT per kilo, while at the same time growing faster than the market and making increasingly positive impact. And while volumes were slightly reduced, but for reasons that we well know, some positive tailwind, there is also very, very strong development internally, both in terms of optimization as well as a continued focus on really delivering high value added speciality ingredients. So when looking ahead, we feel very confident with our strategy, with our 2030 aspiration, and that's the key going forward. So all in all, we remain prudently optimistic also about the short to midterm, but fully geared towards the 2030 aspiration and making sure that we, in everything that we do in our organization, keep that in mind as we execute on our strategy. With that, we are happy to take any questions on the quarter or our view on the long-term horizon.