AAK AB (publ.)

Good morning, everyone, and welcome to the Q3 2023 Earnings Call for AAK. It will today be me, Johan Westman, the CEO of AAK, as well as my colleague and CFO, Thomas Bergendahl. We will run this presentation as we normally do. The agenda for today we have on page number two. We'll first run through some highlights. the quarter even though we did release results early preliminary but now the full report is out. We will also go through some selected events as well as the business and financial update and then concluding remarks and as usual happy to take any questions afterwards. So with no further ado let's go right into it on page number four. As we release preliminary now confirmed We do see the continued strong trend that we have seen from earlier this year with a profit growth, a strong profit growth. We're up 39% versus last year or 35% that fixed FX. This strong growth is driven by continued sales and focus on our speciality solutions with a high value added content and a good value proposition for our customers. As well as continued productivity improvement, call it internally focused improvement activities, as well as a better portfolio and price management. This has been a bit the tone of the voice as you've heard throughout the year, but we really get traction in our strategy in the way we implement that. When we look at the operating margin, it was also strong in the quarter. So, of course, volume is down 5% if you compare to last year, however, Looking at it a bit more sequentially, we see volumes being up 5% versus the second quarter this year. But all in all, the strong result for Q3 was driven by margin expansion. Last but not least, we also have a strong operating cash flow. Operating cash flow at 1.2 billion SEC, and that combined with also a strong result leads to a return on capital employed. Let's go through the some of the events this quarter. As a company we on page five we continue to invest for the future and one example is regarding health and nutrition where we are engaging into projects in this case linked to type 2 diabetes. Just to mention and exemplify some of the things we're doing on the more long-term horizon. The second message here is a bit more of a sad one. We tragically, as you've seen, lost our dear chairman, Jero Brunström, earlier. And he has now been replaced with the election of Patrick Andersson. Patrick Andersson knows AK well, and we know each other well. Patrick has been on the board of directors since 2019, and we are off to a good start. With that, let's go through the more details in our different business areas, starting with food ingredients on page six. As you can see to the right on this page, the strong trend continues upwards. We are growing our operating profit, and that is on the back of margin expansion or continued margin expansion. Our operating profit per kilo is up 59%, and operating profit is up by 55%. So all in all, a continued positive trend for food ingredients. When we dig one level deeper into this, we continue our optimization program in bakery, somewhat weaker performance in special nutrition and food service, but growth on the other hand in dairy. So all in all, we're executing our strategy and at the same time impacted by some of the market developments that we see across certain industry sectors. With that, moving on to chocolate and confectionery fats. Again, another strong quarter for chocolate and confectionery fats, a continued positive trend, both earnings growth and margin expansion. Operating profit up 58% year on year. And sorry, operating profit per kilo up 58% year on year, which is driving the operating profit, which was up 41% or 32% at fixed effort. When you look at volumes, volumes are down and they are down 11% year on year. But that is again from a high level last year. So Q3 in 2022 was quite high. If you do a comparison a bit on the longer term horizon, we are actually up 14% versus pre-COVID level. So a bit on the longer term horizon, not too dramatic, but down versus a high last year. All in all, a very strong quarter for Shopify. With that, moving into page eight, and technical products and feed. In this area, we see a bit more of a volume loss linked to a combination of what is happening around us, a bit on, call it inflationary pressure into certain sectors, and a bit lower volume in technical products and feed. On the other hand, if you look at this on the long-term horizon, still on fairly good levels. When you look at the profits per se, we had lower volume in technical products and feed and somewhat lower crushing margin. That in total leads to pressure on the earnings. On the other hand, when we look at candles business, for example, which is a promising area combined with replacing the mineral oils and other sectors that were growing in the candles business. So underlying trend around the opportunities for using plant-based oils and fats is still positive, positive in the short term. positive on the long term, but the volume reduction in technical products and feed was driving the change in result of the reduction in result versus last year. With that, I hand it over to you, Thomas, to do some more comments on the working capital and further details on financials.

Thank you, Johan. Good morning, everyone. Continuing on slide nine, moving into the cash flow for the quarter. Q3, we continue to see positive underlying trend that we've seen in the past three quarters with a strong cash flow. This quarter, mainly driven by the earnings. The quarter generated a positive operating cash flow of 1.2 billion, free cash flow of just north of 900 million SEC. And year to date, we have an operating cash flow of 4 billion SEC and a free cash flow just north of 3 billion SEC. We continue to see a positive contribution to the cash flow from inventories in the quarter as you can see. And this is mainly driven by reduced inventory levels due to the reduced volumes as well as a favorable inventory mix. Payables continue to contribute on the negative side and again mainly driven by the reduced inventory levels and volumes. Interest cost was Slightly increased compared to Q3 22 at around 100 million SEC mainly driven by higher interest rates and Mitigated to some extent by a reduced debt level the average tax rate was 24 percent during the quarter other non cash items as you can see at a positive slight effect of 86 million mainly driven by unrealized hedging contracts of materials and CapEx very much in line with last year at two hundred and seventy million SEC. And continue to be related to production improvements. We're talking the bottlenecking capacity optimization and so forth. And our guidance for the CapEx for the full year of twenty three is at one point two billion SEC. Very similar also to last year. And we continue our focus and efforts to effectively manage our cash flow through different programs internally within the organization. that so far has yielded good results. And we remain committed to maintain momentum on our networking capital also going into the future. Moving on to the next slide, slide 10. As Johan mentioned, return on capital employed reached 17.2% in the quarter, which is up from 15.9% in Q2 this year. And as Johan also mentioned, driven mainly by the improved profitability. And we're up from 14.5% at the end of 2022. And we're also now above the last peak we've had in December 21 of 15.6%. So at a very good level. Next slide, slide 11, net debt EBITDA ratio. This was further reduced, as you can see in the quarter, ending up at 0.73%. down from 1.01 in Q2 and down from the peak of 2.03 in mid 2022. And we're now well below the level that we saw before the impact of increased raw material prices at the start of the pandemic. The improvement again here is driven by strong profit development driving the cash flow and which has resulted in a reduction of our net debt position. as you can see as well. Johan, back to you.

Thank you, Thomas. Concluding remarks before we go into questions and answers. Strong profit growth, including sequential volume improvements. We did see a year-on-year reduction in volume, but again, positive compared to the second quarter this year. Our strong profit growth was driven by improved profitability, and that as a result of the focus, continued focus on speciality solutions, our internal improvement programs, one being around productivity, and also the portfolio and price management that we systematically have worked with for some time now. That combined also with a strong cash flow driven by increased earnings puts us in a good position for the future. We have one financial guidance as a company and that is to grow our absolute EBIT by 10% year-on-year and that has not changed. However, following a year in which our performance clearly have exceeded market expectations substantially and with two reversed profit warnings in this year, we believe it's important to make a one-time effort to better align So last but not least, as a concluding remark, we anticipate a finish to the year in line with the average performance of the first nine months. And with that, we are happy to take questions.