AAK AB (publ.)

Good morning, everyone. Thank you for joining us today. Welcome to our third quarter results presentation. As you heard, joining me today here in Malmö is also our CFO, Thomas Bergendahl, and we will guide you through this presentation. If we move into slide number two, this is what we will cover today. The quarterly highlights, some selected events, We'll also include the recently announced divestment of our food service site in North America. We'll have a business and financial update and then some concluding remarks. I will also take this opportunity to briefly review the agenda for our upcoming Capital Markets Day. And as usual, we will end it with a Q&A session. With that, we move into slide number three. This presentation includes forward looking statements that come with risk and uncertainties. These are our views on future events and financial performance, but actual results could be different. So please keep that in mind when digesting this material. Now over to page number four. I'm proud to report strong growth across all our business areas. We have had a 4% volume increase and we have improved our group profitability for the third quarter. Our operating profit per kilo, our margin, grew by 13% at fixed currencies, driven largely by our global optimization programs and favorable market conditions in the chocolate and confectionary fats segments. As a result, our operating profit increased by 18% compared to the third quarter last year at fixed currencies. Operating cash flow amounted to 514 million SEK, impacted by an increase in working capital. Our net debt to EBITDA ratio was stable at 0.39 and our return on capital employed stands at a solid 22.1%. And with that, we move to the next slide. Sustainability remains a key pillar of our strategy, and I am proud to report that we continue to make progress. We have increased our verified deforestation-free palm oil from 83% in 2023 to 89% in just the first half of 2024. The improvement was primarily driven by enhanced verification, higher RSPO purchases, stronger supplier engagement and satellite monitoring. This is not something new, but rather the result of hard work and our continued commitment to sustainable practices and protecting biodiversity, especially as regulations continue to evolve. Speaking of regulations, as I'm sure many of you have seen, there is a proposal to delay the EU deforestation regulation by one year. No final decision has been made yet, but we see the proposal as unfortunate, as it risks adding unnecessary uncertainty. And worst of all, it also risks shifting the focus away from the goal that we all should be focusing on, which is to stop deforestation. On that note, I will now hand it over to Thomas, who will explain a bit about the rationale about the announced divestment of our food service site in North America.

Thank you, Johan. Good morning, everyone. We're now on slide six. As announced yesterday, AAK has entered into an agreement to divest our food service facility, Hillside, in the US. The transaction is expected to close at year-end 2024 and will generate a one-time cash flow of roughly 600 million Swedish kronors at the time of closing. It's anticipated that there will be no material impact on the profit and loss statement as a result from the transaction itself. The deal logic is driven by that the Hillside plant is geographically separated from the rest of our food service business that resides in Europe. And that the plant has very limited connections or synergies with the US-based oils and fats business that we have in the group. nor any synergies with the European food service business. In addition, the site has for some time been challenged from a profitability perspective due to the lack of the above-mentioned synergies, but also from the fact that it's a standalone site in a highly competitive local market. uh the hillside plant accounts for about five percent of the group volumes uh as it stands today and around one percent of operating profit as a result the divestment will positively impact our operating profit per kilo everything else equaled by four percent At the same time, to strengthen our remaining food service operations in Europe, we are making a capital investment in a total of 400 million Swedish kronors, spread over 2025 and 2026. This will be invested in a new site to replace the existing facility in Dalby, Sweden. And as part of the investment focus in food service, we will also enhance and modernize our Hastings food service site in the UK. The three remaining food service sites after the divestment of Hillside in the US that resides in Europe currently generate above average EBIT per kilo margins compared to the group. With that, I'll hand it back to Johan to go over the Q3 performance per business area. Thank you, Thomas.

And with that, let's move into slide seven, some business area highlights. We start with that by looking into food ingredients. Volumes grew by 1%, led by bakery and food service, while special nutrition saw a slight decline due to a continued challenging environment in China. Operating profit per kilo increased by 3% to 2.21 sec per kilo. primarily driven by food service and dairy, and it included a negative impact from currencies of SEC 0.18. At fixed foreign exchange rates, operating profit per kilo increased by 11% year on year. Absolute operating profits for food ingredients increased by 4%, including a negative FX of 62 million SEC, At fixed foreign exchange rates, operating profit increased by 13%. And with that, please turn to the next slide. Chocolate and confectionary fats had a strong quarter with a 12% increase in volumes, somewhat helped by soft comparisons to last year and supported by favorable market conditions. result of this operating profit per kilo increased by seven percent even after a negative currency impact of sick 0.25 per kilo at fixed foreign exchange rates operating profit per kilo increased by 14 and with that overall this resulted in a 20 growth in operating profit or 27 at fixed currencies a strong quarter for our chocolate and confectionary fats business With that, we turn to the next page and our third business area. In technical products and feed, volumes increased by 4%, primarily driven by growth in technical products, while feed was roughly flat. And with that operating profit per kilo declined 0.65 SEC. And operating profit decreased slightly to 46 million SEC, down 4% year on year. But on the other hand, a sequential improvement from quarter two. And with that, I hand it back to you, Thomas, for some more comments on the financials. Thank you.

Please turn to slide 10. Cash flow in the quarter was driven by strong earnings, offset somewhat by an increase in working capital, mainly driven by inventory. As you can see, inventory increased by just above 700 million SEK. And the make-up of this is 300 million coming from seasonality-driven sourcing of rapeseed and shea. Another 200 million SEK from the previously mentioned temporary ramp-up of conventional raw material in preparation for the implementation of the EUDR. And an additional inventory value of just over $200 million driven by an increase in raw material prices. And this is then based on the six to nine month lag that we have talked about before. Existing commitments of additional conventional inventory purchases aimed at the smooth implementation of the UDR regulation is expected to add an additional 200 to 250 million sec of inventory value in Q4. These are materials already under contract. and was made before the announcement of a potential delay in the implementation. The excess EUDR-related inventory, totaling then just over 400 million at the end of 2024, conventional in nature, without EUDR-related premiums, is temporary and will be run down during the first half of 2025, primarily in Q1. Accounts receivables increased slightly, driven by the 4% increase in volumes, and cash flow from accounts payable were relatively flat in the quarter. Capex, as you can see, amounted to just over 300 million SEC, which is similar to the level in Q2. Year to date we have spent a total of 881 million SEK and we continue to expect a 24 full year amount of CAPEX just north of 1.2 billion SEK. Return on capital employed increased following the continued strong development of operating profits. EBIT for the last 12 months was close to 4.8 billion SEK, up roughly 200 million sequentially from Q2, together with capital employed at 21.6 billion SEK, the latter rather flat over the last few quarters. This resulted in a return on capital employed, as Johan mentioned before, at 22.1%, up from 21.5% in Q2. Next slide, please. Driven by the strong operational earnings, net debt to EBITDA remains at a level that provides us with financial flexibility. At 0.39 in Q3, it's a slight trend downwards from the 0.41 we achieved in Q2 and significantly down from the peak at 2.03 that we had in Q2 of 2022. With that, I'll hand it back to Johan for some concluding remarks before we open up for questions.

Thank you. And please move to the next slide, please. I would like to take this opportunity to remind everyone about our upcoming Capital Markets Day on November 26 to be held in Karlsson. During the day, we will be presenting a strategic update on the 2030 aspiration that we have. You will also hear from Thomas on the financials and from Niall Sands on our innovation pipeline. There will also be opportunities to engage with other members of the management team during the afternoon, where we will have some Q&A breakout sessions. And at the end of the day, we will have a transport back to Malmö And there will be a light and informal dinner at our headquarter offices. Most welcome to that capital markets day. And with that, we move into the last page. Some concluding remarks. To wrap up, our third quarter results demonstrate our ability to drive growth and profitability across our business areas. Volume grew by 4% year over year with improved operating profit per kilo, leading to an 18% increase in operating profit at fixed foreign exchange rates. We remain committed to achieving an average operating profit growth of 10% over the long term. We're also humble about the dynamic market conditions and the increasingly tough year on year comparisons that we face. Our focus is to maintain a balance between value and volume, and we approach the future with a prudently optimistic view. And with that, we are happy to take any questions that you might have. Operator, please begin.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Benjamin Wallstead from ABG Sundell Collier. Please go ahead.

Hello. A couple of questions from me. First of all, in the CEO statement, you're right about approaching tough comps, Johan. In this quarter, you grew EBITs 10% year-on-year on a 40% EBIT growth comp, and one might argue that's a tough comparable as well. I was wondering what comparables are you referring to specifically in this statement, please?

Thank you. That's a great clarifying question. I think it's fair to say that When you grow on top of growth, it doesn't mean that the comp becomes any easier, right? So you should look at this in the long term. We grew like 40% last year. We grow another 10 or 18 at fixed currencies. I mean, it's really strong growth. We're really delivering well. And at the same time, we have somewhat dynamic market conditions and risks and uncertainty is slightly higher than we're used to. But on the other hand, as you know, AK, we have a very strong organization. We are agile and we focus on being prepared to deliver in those environments. But so look at it more in the. some of the performance over the last couple of years. I think that's fair to say that that's a tough comparison. We have delivered a lot, very strong results in a short period of time. That's impressive, but one should also be a bit humble about that.

Perfect, thank you very much. Perhaps another clarifying question. You write in the report that you've reached one of your three 2030 aspirations. namely the EBIT per kilo target. And me and my analyst colleagues sort of agree that it's unlikely that you'll drop below this SEC2 level anytime soon. Would you say this is your view as well, or rather is this what you're saying in the report?

Yeah, thank you for that. We, as you know, sound like a broken record. We won't give the guidance, meaning I'm not going to guide on firm. We're not dropping or we're going to continue above. The way we look at this is like strong performance. We remain focused on driving value over volume. In essence, we are not going to sit back, relax, quite the opposite. We are driving our organization, pushing our organization to continue to deliver, but we recognize that we have in a short period of time actually reached that target. And with that reason to be proud of that, but at the same time, clear message that we're not backing off. We continue to focus on that. And at the same time, we have two other important parts of that aspiration, which is to grow our volume. faster than the market and also to create impact and get recognition for that impact. So we remain focused on our aspiration. We recognize that we reach one of the targets, but we also want to be clear that we're not backing down. Quite the opposite. We are still pushing for the 2030 in terms of also reaching 10% year on year growth in the long term. But we'll also come back to that and give you more clarity on our execution against that aspiration at our capital market stage.

Perfect. Thank you very much. One final question. In the CCF segment, the market remains favorable with a high COCO price in particular. I would like to ask you about your view of volume growth in the segment going forward, assuming the higher COCO prices will eventually reach consumer retail prices. Would you say growth in fillings, for example, where the cocoa price impact might be smaller could offset the volume loss in chocolate bars, if that should be the case?

First of all, it's difficult to forecast growth of certain consumer segments, so whether a a bar or a piece of chocolate or a gift box you know which segment is going to grow or shrink difficult to say uh however if you look at it from a more of a helicopter view in the industry What is favorable for AK is that we have a very strong position in the chocolate and confection space. Our solutions bring functionality, bring cost efficiency to our customers. So, for example, when we replace cocoa butter, be that you know, in a chocolate bar or another product or with filling fats and so forth. So I think it's fair to say that the risk on the volume side is where the consumer demand goes down due to, call it, inflation on the shelf in retail. But we have also seen many times that despite downturns and so forth, consumers tend to want to treat themselves and snacking remains strong. On the positive side is that our solutions are really relevant in this market environment, which means that we have solutions that brings cost reduction for our customers. We have solutions that are functional and brings functionality to our customers. And with that, we sit with a portfolio that is very relevant for our customers. There is an opportunity for AK to grow volume, even if the absolute snacking volume should be flat or down. But again, there are some uncertainties in that. And at the end of the day, the absolute volume is, of course, driven by consumer demand. Perfect.

Thank you very much for all of my questions. I appreciate your point on consumer trends being difficult to forecast. I struggle every day, it feels like. Thank you.

The next question comes from Johan Fred from SEB. Please go ahead.

Yeah, hi. Good morning, guys. Thank you for taking my questions. Starting off on food ingredient, is there any chance that you could quantify the negative impact on volumes and profits from infant nutrition in the quarter?

Thank you for the question. I would say we do see some quarter of a quarter reduction in volume. The situation is still, as it has been for several years, under pressure, primarily driven by the lower birth rates in China. The earnings levels, the margins per kilo are still well above the average for the group. So it's still a very attractive segment for us. But there are some natural challenges in terms of the birth rates and local strong competition. And we're focusing continuously to improve our product offering and also see if our products can be included in new end products, if you will, outside of the existing product range. But it is a challenge situation, but again, has been so for the past, I'd say, four, maybe five years.

Okay, I got it. But what was the volume growth in the other bakery and dairy, for example, and food services if you exclude infant nutrition?

The volume increase was slight. So the volume of special nutrition is fairly low to begin with being high and complex products that take time to produce. So, if you compare it to a bakery and dairy, there's much more volume there to begin with as a share of the overall. But there was a slight increase.

Okay, got it. Thank you so much. And the question on raw mat prices. We've seen the spread between palm oil and cacao widening thus far in Q4. Of course, you hedge your contracts and this mostly... affect working cap, I would assume. But have you seen any impact from the higher palm oil prices on the consumer behavior?

No, not as of yet. But as you say, we also see the increasing trend in the price of palm. You also see an increasing trend in price of she, for example. That's also part of the replacement cocoa butter equivalent product. So raw mats are on the rise but from palm itself we haven't seen any impact.

And I would argue that if you look at it especially over the last five years this increase in palm is moderate compared to dynamics that you see on cocoa prices and also if you look at premiums like we've just seen EU proposing a delay on the EUDR. That kind of uncertainty and fluctuation on companies like us being on the border of buying raw material with EUDR premiums and so forth and then it goes away and it stabilizes a bit. That kind of uncertainty I think has a greater impact on us and customers on when to lock in volumes or not and how to hedge versus a slight uptick in the palm prices that we've seen.

And there is still another 50 to 60 percent to go to reach in palm prices, to reach the very highs that we had in mid-2020.

So to cut it short, I think this increase impacts our working capital, yes, but this is a type of increase up-down that we are used to dealing with and the industry as such.

Okay, very clear. Thank you so much. And building on your answer there regarding the EUDR regulation, you mentioned that a potential postponement of the implementation was unfortunate as that's uncertainty, but do you see any tangible impact on your operation beside the potential working cap buildup? You mentioned just now sort of a higher margin on the EDR oils, for example. Could you elaborate a bit on that?

Yes, thank you. And first of all, to be crystal clear, very limited impact. But that is due to the way AAK has been operating. And that's what you've seen in AAK during other times of uncertainty like COVID, like disruptions on supply chains. We are agile. We have a flexible organization. I'm so proud of the organization, what we have done also on the EUDR topic. We've been early on, I think we were early on understanding the complexity of this regulation. So again, we really support the focus on no deforestation. We have our goals already set for no deforestation. So with that, we are aligned with EU, but we're not aligned with the way that EU proposed to implement this. And I think this is what now backfires. So to cut it short, I think that we have different government bodies that is now saying, hey, this is so complex, it's so difficult, and the EU is now proposing a delay, I think due to the complexity of the implementation. So what we think is unfortunate is that companies like us, we have been working hard, we are prepared, and there is a good intent to stop deforestation. This brings uncertainty in raw material prices. This brings uncertainty about when is it coming? What is it going to include? Will it be changed? And that uncertainty is never good. What I do hope is that there will be something coming here on a more simple way of implementing it that would be beneficial for especially European companies. We are ready and we would have been ready. Now we have to adjust and we have been able to dodge a significant impact due to EU's change of mind, if you will.

So I gather you're comparatively to your competitors well positioned for the upcoming regulation if it were to be implemented at the end of the year?

We have been working hard to be ready. I cannot comment on our competitors and I will not do but AAK has been working with this for a long time. We would be ready for the end of the year and we will be ready for the end of next year. Now let's see where this moves.

Got it. Those were all my questions. Thank you so much for taking the time.

The next question comes from Alex Jones from BAFA. Please go ahead.

Morning. Thanks very much for taking my questions. The first one, just to clarify your answer to the first question on comps, you mentioned higher risks than usual in the market. Can you clarify exactly what you mean by that, whether you're just referring to sort of the geopolitical and macroeconomic environment or whether there's anything sort of AAK specific that's making you concerned about future quarters and then just two more questions on the food service side on the European operations can you talk about the synergies that European food service business has with your broader oil and fats ingredients business and therefore the logic of you continuing to own that while selling off the US side And then on the 400 million investment that you're now making, how much of that is a sort of maintenance investment that we shouldn't think of as driving future growth versus how much will that help you optimize and drive volumes and margins in the future? Thank you.

Thank you. So what we see when we say, when we look at your first question of what do we mean by risks and opportunities? And so I think, you know, coming back to what I just commented on EUDR, while we say we have an agile organization, we're moving to be ready in the way, shape and form we can be, but also recognizing like the EUDR very vaguely written difficult to understand implementation of this regulation. What does that mean in operations? That means that we are investing but also pausing investments depending on where the regulation goes. We buy stocks to be ready or have safety stock but we also then need to look at when do we buy stocks with premium for being segregated and so forth. So it just adds dynamics. Take that as an example. We're dealing with this now almost like on a monthly basis. Now I'm I'm confident that AK is strong with regards to dealing with this, but that uncertainty, as you can imagine, could risk having us having a bit of a higher cost that could not be offset in the short term, but also vice versa. It creates opportunity for a company like AK, and we've seen that in the past. So I guess what I'm saying is that, take that as an example, the probability room, if we can call it that, is just a bit wider. bit higher risks but also more opportunities and we are staying focused on being ready to deal with uncertainty to be ready to grasp opportunities but also to be humble and understand that there are you know we're not immune to to to risks and we're not immune to market dynamics and i think that goes also into chocolate and confectionery again we have a strong portfolio We have lots to offer in order to help customers formulate and to use our products, for example, to replace cocoa butter. But it's very difficult to foresee whether there's going to be a weaker consumer demand or not in snacking as a consequence of potential price increases on the shelf in retail. So if I take those two example that would exemplify that, yeah, there are probably more dynamic environment with with higher risks but in that environment there are also more opportunities so i guess overall message is ak is going to stay focused on being ready to deal with uncertainty and also being ready to grasp opportunities so with that we have a chance to really continue delivering strong but there's also a risk for for further headwinds

And when it comes to the questions you had on food service, the difference lies in that in the US, we have one standalone unit in a very competitive local market. We have no or very, very limited connections to the oils and fat business there, as I mentioned. In Europe, the picture is quite different. We have three units fully focused on the food service business, two in the UK and one in Sweden. The connection to the oils and fats business is much bigger there. So if you look at the facility in Sweden, it gets a lot of its raw materials, primarily rapeseed from our large unit Carlsson. And in the UK, the connection to our oils and fats business in Hull is also significant in terms of supply and so forth. So the connection is there. In addition, as these units are fairly close to each other from a geographical perspective, serving sort of Northern Europe and the UK, we also see a lot of bundling of products from the different entities into the market as AAK. So there's a bit of a shared market there and certain products and so forth. are bundled when we go out to customers. So there is a lot more synergy and a lot more sort of presence in terms of critical mass. And as I mentioned before, the EBIT per kilo performance of those three units are actually above the group average, which is not the case with the facility that we have in Hillside on the East Coast. When it comes to Capex, the 400 million that we're investing, most of it's going into the new build to replace the Dalby facility. I'd say about 350 or so out of the 400. The remaining goes into the improvement of the existing facility in Hastings in the UK. And on your question, if that will then reduce future maintenance capex, I'd say to some extent, of course. If you build a new plant, as you No maintenance will probably not be as high in the first couple of years as it is with a fairly old unit that we have today. So you will see some easement there over time, but in the scheme of things, if you look at the full total 1.2 billion of capex of which sort of five to six hundred million is maintenance for the group uh as a whole the impact will not be significant the units are fairly small i hope that answers your questions thank you thank you

The next question comes from Joan Lim from BNP Paribas, Exane. Please go ahead.

Good morning, everyone. Three questions from me, please. So in food ingredients, you said volumes are driven by bakery, but I noticed that in bakery, EBIT per kg was flat. Could you maybe provide more color as to why that is, please? And then my second question is on Q4. Can you remind me if there's any seasonality between Q3 and Q4? Are there typically phasing of orders ahead of the Christmas season? That's the second question. And the last question is, we've heard chocolate producers talk about increasing price elasticity for consumers. So if overall chocolate volumes were to decrease, how does that impact AAK? What have you seen or heard from customers so far? Is that a concern? Thank you.

Thank you. Starting with your question on food ingredients and bakery, I think we, as you mentioned, also saw a good volume increase in bakery. We've done that over the last couple of quarters, which is really nice to see. If you look at a single quarter, there are mixed effects, of course, what type of products we sell within the bakery segment and the margins of the different segments in bakery varies quite a bit from sort of mid to high end. that said uh the ebit per kilo is flat with growth and i think mostly driven by mix uh we are much more sort of focused on the long-term development than there over the last two years you've seen a great improvement of the per kilo in bakery so some quarters it may stabilize you may even see a small reduction some quarters but over time the trend has been very positive

All right. And then on chocolate and confectionery, a bit back to, I think, what I mentioned before, the one parameter that we have less visibility on and obviously less impact on is the absolute consumer demand from the shelf in retail with regards to snacking. So that goes almost without saying, should there be a drop in demand, then obviously there will be less products sold with AEK solutions inside. However, our solutions are also sought after from our customers because they can help offset cost increases like Kakaobutter. So we see an increased interest in reformulating products to use our solutions versus current solutions. And with that, that creates an opportunity. And that's what you've seen a bit in the results this year. And I think also, you know, structurally an opportunity going forward. But what is then the total residual mix of that? Should there be a drop in absolute consumer demand, but an uptick in the usage of our solutions? What is the net going to be? Very difficult to forecast, but positive, really positive that we have a strong portfolio. We have a strong position in the CCF industry. And with that, we are ready to take these opportunities when they come.

uh so yeah a bit uncertainty on the absolute volume but still very strong position was there one more question or was that it there was one more on um seasonality between q3 and q4 if there's any uh phasing of orders ahead of christmas

Typically, I mean, there's been five years of dynamics, if you will. So I go back almost to pre-COVID with the statement that The seasonality that we saw was that Q1, Q2 was fairly stable on A level and then Q3, Q4 was fairly stable on a higher level. So seasonality being more volumes and better earnings for AK in Q3, Q4 versus Q1, Q2. And then we've seen fluctuations and market dynamics over the last five years. And you've also seen AK growing very strongly. So doing the right things, which has had a positive impact on our absolute earnings trend. So I guess going back to the short answer, not a big drama between Q3, Q4, typically. Q1, Q2 being typically, you know, slower.

That's really helpful. Thank you. So I guess what I was trying to get at was the strength in Q3 wasn't really about customers stocking up or buying early ahead of Q4?

No, I don't think so. Typically not. Hard to say. I mean, we don't have full visibility on their production line. So there's always a bit of variation, you know. Like in China, is the Chinese New Year coming that week or that week? That has a bit of impact. The customer planning ahead of Easter, Christmas, of course it has an impact, but I wouldn't say that we have seen any abnormal behavior on stocking up in this Q3 versus other Q3s.

Okay, that's very helpful.

Thank you very much.

Thank you.

The next question comes from Priya Patel from UBS. Please go ahead.

Hi, I have a couple of questions. So firstly, we're seeing some inflation in raw materials, and you can kind of hedge that in the rest of the business, but in infant nutrition, there are some contracts with a lag. Are you able to tell us when these contracts are signed and the typical length of these contracts? And then secondly, just in food ingredients so the ebit per kilo improved in food service and also the volume growth was this mainly in the european business or the north american business thank you

Thank you. I'll start with the food service question, if that's okay. The improvement in EBIT per kilo there is broad-based. The performance has been much better historically as well in Europe than what we've seen in our US facility. But the U.S. facility, Hillside, has actually performed much, much better in 24 compared to what it did in 22 and 23. So there's been a broad-based improvement, I would say.

I just want to repeat your question on raw material. Was the specific question on raw material inflation impacting special nutrition, or was it raw material inflation in general?

Yes, special nutrition, just like the contracts.

Yeah, so in special nutrition, we do use raw materials that are also handled over a raw material stock, if you will, or market platform. So we are able to hedge lots of what goes into infant nutrition. On the other hand, the raw material piece of the bill of material if you will is lower because these are high value added products with a great deal of refining and so forth where it also includes premiums that we cannot hedge so lots of hedgeable pieces in there and also some unhedgable pieces but i would say this is nothing new this is business as usual if you want

Okay, thank you.

The next question comes from Oscar Lindstrom from Danske Bank. Please go ahead.

Yes. You previously talked about having some free capacity in your plants following the almost almost two years of consecutive volume declines that you had. What's the situation now with regards to available capacity and when will you have to start building new capacity or buying new capacity for that matter?

Great question. So maybe it sounded like a broken record, but try to bring clarity. uh we continue to optimize so so we have put extra efforts over the last three four years on you've heard us speaking about optimization but if i repeat part of that is portfolio and so forth a part of that is really working hard with our footprint our refining footprint and having efforts like a deep dive where we structurally go in and look at every plant or plant by plant to see what is the opportunity here to run faster, smarter, to de-bottleneck, to optimize the portfolio within the plant and that has resulted in very positive results. i.e. freeing up capacity plant by plant. So during these last two years you have seen us adding capacity in the form of deep bottlenecking. We have added a bit of capacity also in making investments obviously to increase capacity. So with that and we're going to continue that we expect to be able to to grow volume and to free up capacity with these optimizations. At the same time then when volume growth grow even more and in certain plans we then make stepwise investments to increase capacity and when we need to we do a greenfield, brownfield or potentially an M&A. For the time being I would say that we can manage continued growth with the efforts that we have in place. There is some capacity still there, like 10, 15%, still some opportunity for freeing up capacity through these optimization programs and de-bottlenecking. But when volumes grow more than that, there is certainly a need for further expansion. And we are continuously looking for opportunities for geographical expansion on Bolton acquisitions, as you know. But this is where we are at the moment. Happy to invest when and if needed. All right.

Yeah. Yeah. Super. Thank you very much. That's the question. Thank you.

The next question comes from Alex Sloan from Barrelcase. Please go ahead.

Yeah. Hi, morning all. Thanks for taking the questions. The first one, just going back to the raw material cost inflation, obviously we can track quite well what's going on in palm and rapeseed oil Shea is a harder one, certainly for me to have visibility on. So it would be great if you could kind of give some color on the supply outlook there and the scale of inflation you're seeing and perhaps expecting going forward as demand for CPEs has picked up. And I guess more broadly on raw material cost inflation, I mean, it would appear that AOK and the industry hasn't necessarily given back all of the deflation of the last few years to customers, which has been part of the margin expansion. Does that make it any more difficult dealing with cost inflation from here in terms of negotiations with customers, or is it kind of business as usual as regards the pass-through of raw maps into pricing? So that would be the kind of first question. The second one, I guess, very impressive return on capital employed improvement, which has been in large part driven by margin expansion. We have seen some of that margin expansion across some of the downstream peers. I wonder at these levels, are you seeing any of the kind of the upstream players in oils that thinking about adding capacity in some of these areas or is that not really a risk? Thanks.

Thank you. I think I start by answering your questions from back to beginning. So the last two questions there are upstream players adding capacity or as we call it, wanting to eat our lunch. I think that is, again, business as usual. So the answer is yes, but that's been the case for many years and it continues to be like that. Meaning when you see opportunity downstream, there is a tendency for upstream players to want to look at that. But at the same time, we continue to focus on where we are and be the leader in speciality. So I think that's where it is and it hasn't changed dramatically over the last couple of years. The same thing on pricing. there is always a competitor standing shoulder to shoulder to you. And our customers are professional customers, professional players. consumer good companies, they have a great deal of focus on procurement and so forth. So that's where it is. And it hasn't changed a lot with raw material swings either. So I think that the short answer is business as usual. Obviously, there are always dynamics, but business as usual to hide. Then coming into raw material inflation, and as you said, you and we have good visibility on some of them with regards to SHEA and the link to Kaukua prices and the opportunities for our CCF solutions. with this market dynamics there is a good demand for shape based products yes and with that inflation on raw material we see that but on the other hand that is also reflected in how we price and how the market is pricing that if you take all of that into account the cost of goods sold is going to be at the level where it's still very competitive to cocoa butter. So we're back to having competition between competitors on selling chocolate and confection fat solutions. But if you look at it in comparison to cocoa butter, you still arrive at a very competitive price level, even with shea inflation or palm inflation. But for the time being, yes, prices are higher for shea than last year.

That's helpful. And are you seeing actually shade supply increasing as a result? And how long is how long does that sort of supply response typically take? Is it kind of similar to cocoa? It's quite a drawn out process.

Yeah, she is. I mean, she is a fantastic. It's a fantastic raw material. unlike others i mean this is a wild it's a wild the she tree is a wild tree in in west africa so the beauty is it's there's plenty of trees there's plenty of shade to uh to pick if if one wants to on the other hand it's not industrialized which is that is uh less easy to just flip the switch and say i need 20 more tomorrow So it needs planning. And this is what we are doing and also other players in this industry. We typically source between late August up until early in the beginning of the year after. But there are possibilities to source more, source less in certain time periods. But you need to have a one to two year planning horizon to increase and decrease. And that's what we're doing and what we're used to. and that's where we also have our colonna faso program with financing women we have had between 200 to 350 000 women enrolled in our sustainability program which is fantastic massive and we have lots of ak colleagues on the ground in west africa to drive this so we're on the ball uh but it is bit more long-term planning to go up and down but if you look at it helicopter view there are plenty of kernels uh to uh to get uh but you can't get them overnight if you needed to like it can do with some other products in society that's really helpful thank you are no more questions at this time so i hand the conference back to the speakers for any closing comments thank you so much as usual very very good questions i like the engagement and thank you for taking the time to listen to our earnings call for q3 2024.