AAK AB (publ.)

Welcome to the AAKQ22026 report presentation. For the first part of the presentation, participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. Today's event will last for 45 minutes. Now I will hand the conference over to the speakers, CEO Johan Westman and CFO Tomas Bergendahl. Please go ahead.

Thank you. Good morning everyone and thank you for joining us for today's call and also for your interest in AAK. With me today to review our second quarter results is our CFO Thomas Bergendahl. Also joining us for today's call is Niall Sands, President Commercial Development and Innovation and a member of our Executive Committee. Niall is here to share additional perspective on our commercial development and innovation agenda, as well as the role of our Kaukua and confectionery fat solutions in the current market environment. Good to have both of you with me on the call. With that, please turn to page number two. We will cover quarterly highlights, selected events, and a business and financial update, followed by concluding remarks. The presentation is scheduled for 45 minutes in total, including a Q&A session at the end. Page number three, as usual, a bit about the forward-looking statements. This presentation includes forward-looking statements that come with risks and uncertainties. These are our views on future events and financial performance, but actual results may differ. With that, let's move to slide number four. the quarterly highlights for Q2. Market conditions remained cautious during the second quarter, broadly in line with the business environment we saw in the first quarter. Following a strong start to the year, both volume and profitability were somewhat softer in the second quarter. However, for the first six months, both volumes and operating profit at fixed currencies remained above last year, representing a solid first half performance. Group volumes declined by 1% compared with the second quarter in 2025. The decline was mainly driven by dairy and food service, which continued to be affected by challenging market conditions. In addition, we had some production related challenges at our site in Karlsson that negatively affected volumes in food ingredients and technical products and feed. The estimated impact on group volumes was approximately one percentage point. Production at Karlsson has since returned to normal levels. Volumes in chocolate and confectionary fats declined slightly, but continued to outperform the broader chocolate market, which remained challenging. Operating profit per kilo amounted to SEC 2.25, a decrease of 5% compared with last year, excluding items affecting comparability. The decline primarily reflected price pressure in food ingredients, together with the production-related challenges in our site in Karlsson. The Carlson challenges had a negative impact of approximately two percentage points on group operating profit per kilo. Currency effects were neutral. Profitability in chocolate and confectioner fats remained strong in the quarter. Operating profit declined by 6% compared with the corresponding quarter last year, excluding items affecting comparability. This was driven by the lower operating profit per kilo and slightly lower volumes. The production related challenges in Karlsson amounted for approximately 3 percentage points of the decline. Currency effects were neutral on operating profit. Our operating cash flow remained strong and amounted to SEK 1.081 billion. supported by profitability and an improvement in working capital. Net debt to EBTA was at 0.68, reflecting our continued strong financial position. Return on capital employed amounted to 20%. And with that, please turn to the next page. Turning to a few strategic and sustainability highlights from the quarter. AAK became the first company to achieve gold status in the sustainable coconut charters assurance system audit with a score of above 95%. The result reflects strong performance across governance, traceability, risk management, reporting and verified chain of custody processes. This recognition supports our continued work to strengthen responsible coconut sourcing, improve traceability, and support smallholder farmers and help prevent deforestation. It also provides our customers with independently verified assurance on supply chain transparency and diligence, supporting their own sustainability reporting and compliance requirements. In May, we held AAK's annual general meeting in Malmö, with shareholders representing 75% of total votes. The AGM approved the proposed share buyback program as part of our updated capital allocation framework. The program amounts to SEK 1 billion per year over three years, subject to annual AGM approval, and is intended to support long-term shareholder value while maintaining financial flexibility. The AGM also approved an extraordinary dividend of SEK 3.85 per share. Finally, we announced a collaboration with Savor, a food technology startup to explore a new type of fat solution for dairy and bakery applications. The partnership combines Saver's carbon to fat technology with AAK's expertise in liquid chemistry and application development. The aim is to develop novel ingredient solutions that deliver on taste, texture, functionality, while supporting supply chain resilience through more diversified sources. The collaboration is initially focused on niche but growing customer demand, particularly in the US and Europe. for innovative fat solutions produced without the need for animals or farmland. With that, let's turn into the next slide for a review per business area, starting with food ingredients. Volumes were flat compared with the second quarter of 2025 with mixed performance across our segments. Dairy and food service declined while other parts of the business offset the majority of the decrease. Volumes were also negatively affected by the production related challenges at the Karlsson site. Operating profit per kilo amounted to SEC 2.14 compared with SEC 2.47 last year representing a decrease of 14%. Currency had a slight negative impact at fixed exchange rates operating profit per kilo decreased by 13%. The decline mainly reflect the price pressure in food ingredients together with the negative impact from the production related challenges in Karlsson. Operating profit decreased by 14% to 658 million, mainly due to the lower operating profit per kilo. Currency effects on operating profits were neutral. And with that, let's turn into the next page and the highlights for chocolate and confectionery fats. Volumes declined by 2% compared with the second quarter of last year. Even so, we continued to outperform the broader chocolate market, which remained challenging. Operating profit per kilo increased by 11% to SEK 4.36. Currency effects on operating profit per kilo were broadly neutral. and this was achieved despite a modest negative impact from the production-related challenges at the Colson site. Overall, operating profit increased by 9% to SEK 491 million, driven by the higher operating profit per kilo and partly offset by the lower volumes. Currency translation was neutral. And next slide for highlights in technical products and feed. Volumes declined compared to the second quarter of last year, with a mixed performance across the two segments. Technical products grew while feed declined. The decline in feed was mainly related to the production challenges at the Karlsson site following the annual maintenance stop where production remained offline longer than expected. Production has since restarted and returned to normal levels and we do not expect any lasting impact beyond the quarter. Operating profit per kilo was at SEK 0.37 broadly in line with last year. And overall operating profit decreased by 3% to SEK 24 million. With that, we have now covered the three business areas. And before handing it over to Tomas for a review of the second quarter financial results and an update on our 2030 strategic initiatives, I would like to invite Niall to provide some perspective on how the dynamics in the chocolate market are impacting our business. Niall, please. Thank you, Johan.

Please turn to the next slide. Given the interest in cocoa butter equivalents and cocoa butter, I'd like to spend a few minutes on how we think about this from an AAK perspective. At first glance, cocoa butter and cocoa butter equivalents may appear to address the same need, delivering the snap, gloss and melt that consumers expect from great tasting chocolate. But from especially oils and fats perspective, they are fundamentally different. The key is in the triglyceride composition. Natural cocoa butter is a strong benchmark. Its functionality is largely driven by a narrow group of triglycerides, primarily POP, BOS and SOS, which crystallize in a way that gives chocolate its characteristic structure, shine and melt. However, cocoa butter is also a natural raw material. This means it comes with variability linked to origin, season and crop conditions, and therein potential for significant price and supply volatility, as we have seen of late. This is where cocoa butter equivalents play an important role. In AAK, we do not view CBEs simply as substitutes, but rather as precision-designed specialty fats. By fractionating, blending, and even enzymatically adapting selected vegetable oils and fats, we can closely replicate the key triglyceride profile of cocoa butter while also tailoring functionality for specific customer needs. This gives us the ability to support customers in areas such as crystallization speed, hardness and snap, bloom resistance, viscosity, and performance for all climates, as well as production efficiency. Our objective in AEK, therefore, is not only to match cocoa butter, but to optimize performance for each customer's product, process, and market requirements. Coco butter will continue to play an important role. It offers authentic flavor release, strong mouthfeel, consumer familiarity, and premium position. But at the same time, CBEs offer a complimentary value proposition of more consistent quality, improved supply resistance, functional customization, and better process control. The important point is that this requires deep lipid chemistry and application know-how. Small differences in triglyceride composition can have a truly meaningful impact on tempering behavior, crystallization, and long-term bloom stability. This is where AAK has a clear role to play. It's our heartland. Our competitive advantage is not simply supplying oils and fats, but helping customers engineer for desired crystallization rates and functionality. By combining advanced vegetable oil processing, application expertise, and a deep understanding of triglyceride architecture, we help customers maintain sensory quality, improve productivity, and to build more resilient supply chains. So ultimately, the discussion is not simply cocoa butter versus cocoa butter equivalents. The real question is how can we engineer fat functionality to deliver the consumer experience expected from chocolate while giving manufacturers greater process control, supply resistance and cost competitiveness. For AAK, this is where we believe the value creation really lies.

With that, I now hand it back to you, Eoin. Thank you, Niall. I think this provides a good perspective on the role AAK can play in what has been and likely will continue to be a fascinating and dynamic chocolate market. As Niall explained, AAK's cocoa butter equivalents are not simply substitutes for cocoa butter. They are specialty fat solutions where functionality, consistency, and application know-how are critical. For our customers, this is about more than managing input cost. It is about maintaining the right consumer experience while improving process control, supply resilience and flexibility in formulation. At the same time, we should also recognize that market dynamics and raw material movements can create some pressure on margins over time, which makes our focus on value-added solutions and disciplined execution even more important. And with that, I will hand it over to you, Thomas, for a review of our financials. Go ahead.

Thank you, Johan. Good morning, everyone. Please turn to the next slide. Operating cash flow amounted to a positive 1.1 billion SEK in the quarter. Working capital decreased, driven by a reduction in inventory as well as accounts receivable and increase in payables, all contributing to a reduction in overall working capital. This was partly offset by negative cash flow from other working capital. The decrease of inventory in the quarter of close to 200 million SEC was driven by lower inventory levels, mainly related to seasonal inventory, primarily sheep. CAPEX amounted to close to 400 million SEK, comprised mainly of investments related to maintenance, productivity improvements, capacity increases, and the bottlenecking. The CAPEX spend for the full year of 26 is expected to be slightly higher compared to 25, close to 1.5 billion SEK, in line with indications provided in connection with the last two quarterly reports. The increase of capex spend in recent years compared to historical levels is mainly related to larger installations such as the bio boilers in Denmark and the new food service plant in Sweden. Free cash flow for the period amounted to positive 681 million SEK. Return on capital employed remains strong at 20%, slightly below last quarter. Year over year, the return on capital employed is down from 21.9%, mainly prompted by working capital, largely driven by an increase in raw material prices, as well as an increase in fixed assets. Next slide. The net debt to EBITDA ratio increased from 0.39 in Q1 to 0.68 in Q2, on par with Q2 last year. The increase in the ratio since Q1 2026 is mainly driven by dividends and the initiation of the share buyback program approved by the AGM, totaling roughly 2.7 billion SEK in the quarter, to some extent offset by positive cash flow for the quarter. Next slide. As many of you will recall, we introduced our updated 2030 aspiration at our Capital Markets Day in Karlsson in 2024. At the core is a clear objective to achieve operating profit per kilo of three plus sec and outgrow the underlying market on volumes. Together, this will support continued delivery of our financial target to grow EBIT by an average of 10% per year over time. The roadmap remains centered on six key strategic programs, production process optimization, portfolio and price management, procurement excellence, working capital management and cash generation through the cash to grow program, cost performance, including our fit to win program, as well as commercial and innovation excellence. Before handing it over to Niall, I'd like to provide a brief update on the current status of the broader product portfolio, project portfolio, sorry, as it has been one year since the last update in connection with the presentation of the Q2 25 results. Starting with production process optimization, we have completed the ninth and final deep dive in China at the end of last year. The next step is to scale the learnings from all nine deep dives across AK through one global operational excellence program with a continued focus on reducing inefficiencies, waste, complexity, and value leakage. This effort is currently ongoing. Portfolio and price management has, as previously communicated, completed the project phase and has been an important contributor to the profitability improvement that we've achieved since 2021. The tools and processes are now implemented across the relevant sites and the focus is on sustaining the structure and the results already achieved. similar to the production process optimization track price management is now being formalized into one global excellence structure procurement excellence also continues to progress well with category management and category strategies playing an increasingly important role in our procurement decisions cash to grow has now entered into its next phase with ownership transitioning to local organizations within ak Despite significantly higher raw material prices over the past three years, the program has delivered structural improvements, including lower inventory levels and reduced overdues. Turning to cost performance, which includes fit to win, the program performed well in 2025, but has in the second quarter of 2026 fallen behind plan. As a result, we have not yet reached the targeted 300 million SEK in annualized savings, currently at 200 million SEK on par with the level achieved at the end of Q1 2026. This area requires renewed focus going forward. Finally, turning to commercial and innovation excellence, I will hand it back to Niall to give an update. Thank you, Thomas.

We are seeing progress across a number of key business processes, capabilities and systems. On the commercial side, the commercial excellence initiatives are focused on strengthening price management, contract management and go-to-market capabilities to enhance our customer experience, as well as internal knowledge sharing and better product lifecycle management. A pricing maturity assessment is underway and will help shape the roadmap for how we further develop price management towards 2030. In contract management, a global standard process and governance model have now been identified, supported by a 2030 improvement plan. We are also investing in commercial capabilities. The Creating CustomerValue program has been relaunched, including a needs-based value proposition framework. All commercial teams are enrolled and a dedicated ambassador team is in place to coach and develop the program locally after training to extend and embed the go-to-market skills more broadly across the globe. The 2026 customer survey also shows encouraging progress. Customer satisfaction improved in every region with the net promoter score increasing by 13 points to 42. Our customers continue to value AAK highly for technical expertise, local innovation, service and sustainability that's embedded in our recognized customer co-development approach. To improve knowledge sharing, we are developing an AI-enabled commercial cockpit to support commercial operations with launch planned for Q3. In parallel, investment has been made in a product lifecycle management system with design now underway ahead of initial launch in November this year. On innovation, we are building on our strong customer co-development model while broadening the agenda towards the AIK-inspired innovation anchored in science, technology, and application development and validated market insights. We also strengthened the innovation governance through a revamped NPD stage gear process with a similar process for new technology development being established later this year. Intellectual property also remains an important part of protecting value from our discovery and innovation in AAK. And in 2025, we filed 31 new patent applications across our core platforms. Taken together, these initiatives are helping build a more systematic and scalable commercial innovation platform, supporting stronger customer relevance, better execution, and progress towards our 2030 aspiration. With that, I'll hand it back to Johan.

Thank you, Niall, and thank you, Tomas. To summarize, we continue to make progress on the alignment and optimization projects that we outline as a part of our 2030 aspiration. These initiatives are not isolated projects. Together, they are about building a stronger, more scalable operating platform for AAK. Improving how we run our plants, how we manage our portfolio and pricing, how we produce, how we manage cash and working capital, how we control costs and how we strengthen our commercial and innovation capabilities. Several of the programs have now moved from project phase into a more embedded way of working. That is important because the real value comes when these capabilities become part of how we operate every day across the group. We are doing this in line with AAK's decentralized but aligned operating model with clear group-wide priorities and methodologies while keeping ownership and execution close to the business. Taken together, this gives us confidence in our continued journey towards the 2030 aspiration to grow volumes ahead of the underlying market and to reach an operating profit per kilo of more than 3 sec, while continuing to deliver on our financial target of around 10% EBIT growth over time. Please turn to the next slide for a few concluding remarks before we open up for questions. Let me conclude by summarizing the quarter. We delivered resilient volumes, softer profitability and strong cash flow. Looking at the first half as a whole, the performance remained solid despite the cautious market. Both volumes and operating profit at fixed currencies were ahead of last year, although the second quarter was softer following a strong start to the year. The softer performance in the quarter was concentrated in a few clearly identifiable areas, mainly dairy, price pressure in food ingredients, and the production-related challenges at the Karlsson site, which has now been resolved. Chocolate and confectionery facts continue to hold up well, despite subdued chocolate consumption and lower cocoa butter prices. With that, I will hand it back to the operator and open up for questions. Go ahead.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. Please limit the questions to two questions per person. The next question comes from Benjamin Wallstett from ABGSC. Please go ahead.

Good morning. I'll start by directing a question to Niall. So I was wondering if Perhaps if you could discuss the role innovation could have in turning the trend in dairy, specifically perhaps where your technical advantage compared to in the CCF segment appear to be quite a bit lower.

Indeed, dairy innovation and what we can do there, obviously our focus is in key application areas around processed cheese, ice creams, et cetera. And therefore, whenever we look at the functionality that our customers are looking for, as well as the experience customers are wanting, plays very much in line with what we deliver when it comes to the experience pillar of our innovation platform, and that is around texture smoothness creaminess melt etc so our inherent understanding of application development but the essential role of that one of our key focuses is to enhance the overall customer experience of those applications in particular in dairy all right thank you and then turning to the coral salmon impact

Are there any sort of residual costs, any catch-up production, or any insurance recoveries that we should expect in H2, or is Q2 sort of the full P&L effect?

Thank you. Clear question. I hand that on to you, Thomas.

Yeah, thank you for the question. No, the impact, the negative impact that we saw in Q2 is the full and final impact of that extended stop. Thank you very much. I'll get back in line. Thank you. Thank you.

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

Good morning, Johan Thomas and Niall. Thank you for taking my questions. A follow-up on the cause of disruption and the decline in EBIT per kilo in food ingredients. Do you think that you could sort of... elaborate a bit on how much of the EBIT per kilo decline was driven by the Carlson disruption specifically and how much was due to underlying price pressure and the follow-up there. What's the run rate in food ingredient in terms of EBIT per kilo based on this into Q3?

Thank you. And with regards to run rate, we do not give forward-looking guidance specifically like that, but still being able to answer your first question as we highlighted, it was a bit half-half in relation to how much was coming from Karlsson and how much was coming from the competitive landscape. But Thomas, maybe to add a bit to that.

Yeah, the impact from the extended maintenance stop in Karlsson, as we mentioned before, on volume was about one percentage point on the overall group. The bulk of that ends up as Karlsson is very much focused on food ingredients and TPF. On the total bottom line EBIT impact on the group, we're talking about half of the drop from last year, about three percentage points, about 40 million SEC. mainly also divided by the majority into food ingredients and also into TPF.

Okay got it very clear and I'll have to choose my questions wisely here but on the high animal fat availability in Europe and the Americas which was a clear headwind into Q2 for food ingredient What is your visibility on when this potentially normalizes? Are you seeing any early signs of a reversal here in H2? Yeah, that's my second question. Thank you.

Yeah, I mean, very difficult to give a complete forecast. We have seen variability in the past if we go back in longer history where milk prices fluctuate and things adjust over time. At the moment, the situation is as we outlined. I don't think it's going to be a quick, quick change, but I don't know, Niall, if you have any further comments to that.

Just building on that, I think that's a fair reflection, Johan, in the sense that we do see strong protein formulation, reformulation, innovation coming through right across many segments of the supermarket aisle and therefore there is this current surplus. So with this protein consumer trend very much in vogue, we expect this

to be around for a little longer. But keep in mind, as with many of our products, there are certain products where there is an interchangeability between dairy and non-dairy fat, if you will. But in many cases, our solutions, just like in chocolate and confectionery, also in dairy and bakery and other products, are linked to specific applications, specific functionality, and the specifics of the lipid chemistry that we stand for, like Niall highlighted. And that's what it is. So this is more where it is more of a one-to-one opportunity for a customer to switch between the two. And then from a longer-term perspective, one could also review from a sustainability perspective, is that the path to go or we need to adjust back also from a sustainability perspective? But that's more in a longer-term perspective. Thank you.

Got it. Thank you.

The next question comes from Setu Sharda from Barclays. Please go ahead.

Yeah, thanks for taking my question. So I have a question on CCF. Your margins improved materially despite weaker volumes and a slight decline in cocoa butter alternatives. So what's doing the heavy lifting here? And given like Q2 is supposed to be a seasonally weak quarter, so do you Do you think that we could see continued margin improvement in CNCF through the year? And also earlier you had mentioned about the sweet spot of cocoa butter prices. If you can remind what was it and is it still applicable? And my second question is on about the food service, which remained like weak, particularly in the UK. Are you seeing any stabilization in demand trends or does the consumer environment remain challenging as we move through the second half and did you see margin pressure in foods service channel as well?

Thank you, Claire. So first of all, commenting on the CCF and the performance in the quarter, we have seen over several quarters a strong margin development, right? So we are holding up well, given the total shoplift market. So total shoplift and confection demand is slightly more subdued than what we present in terms of volume number. And then looking at the margin, we have seen AAK being able to deliver strong results on the back of our total portfolio optimization, on the back of our strong position within the Kalko butter equivalents, etc. So that is kind of the explanation to why Q2 delivered what it delivered, right? And then with regards to the sweet spot, I think it's important to keep in mind, I'll give you the answer what the sweet spot was, but I'll tell you more conceptually the dynamic in that. which is that as long as, if cocoa butter goes too high, and that is something that you have seen absolutely now in recent two years, if cocoa butter goes too high, then the total prices of shoplifts and confection solutions on the shelf in retail become so high that it might impact the consumer demand, and that's what we have seen. If it gets too low, and it gets really low, then you get into the situation where customers could ask themselves, why would I use a substitute one way or the other. And that is where we come into a sweet spot, right? Not too high because it then impacts a consumer demand, but also not too low because then you could start challenging whether you should use an alternative or not. having said that, as Niall explained very nicely, many of our solutions going into the chocolate and confection space also have functionality and improvement of the consumer product that you can't do with cocoa butter. So that's important to keep in mind that that goes for like forever going forward. And then the sweet spots can move up and down depending on what the overall market development is of the underlying raw materials. But the sweet spot was before between five and six,

Going into your second question on food service and as you correctly stated as well, we see the weakness within food service in the UK. Our standalone food service business has primarily focused on the UK market and in Scandinavia. And the markets are developing quite differently. Scandinavia has had a stable quarter with good margins. In the UK the situation is somewhat different. The general economy in the UK is challenged and we see quite a deteriorating market in terms of dining out and pubs and so forth. This has been a trend for some time and this is also affecting our food service business in the UK. We don't see any immediate recovery of this. My estimation is that we will continue to see a challenged environment in the UK for the remainder of the year.

Thanks. That's quite helpful. Yeah, I'll be back to the queue.

The next question comes from Erik Sandstedt from Kepler Shoebrew. Please go ahead.

Thanks, a couple of questions please. Could you elaborate on the source of the pricing pressure in food ingredients that you saw in this quarter? Is it purely competitive pricing or anything else like customer mix, contract renewals, input cost dynamics and so forth?

Could you repeat that, please?

I'm just wondering if you can share some more details on the pricing pressure that you saw in food ingredients in the quarter. Is it just competitive pricing, basically?

Thank you. Yes, it is. It's a competitive environment, which we have commented on before, that while we have very, very strong position, like Niall also highlighted, our customers rank us high. At the same time, the whole industry is looking for an offset to inflation, optimizing, etc. And that's where we are always up for competition in basically all the segments, specifically to food ingredients. In this case, in the dairy subsegment, it is very much linked to also the dairy fat development that we just talked about. In bakery, it is more a pressure across the board, if you will, with subdued volumes and customers seeking for price offset when they can, and that's what it is. So, there is a bit called a boosted, but apart from that, more general across the board.

Thanks. Is there a risk that the pricing pressure that you now see in food ingredients eventually translate bulls doing the CCF business or are those sort of two completely different businesses and end markets?

Thank you. Great question. It's not a translation impact between the two. It is absolutely different end markets, different application, different recipes, etc. And in many cases, different customers, although some has both. But there's no translation between the two. as we've said many times of course you know we're not alone in any of the segments where we operate so there are different market dynamics and different competitive landscape dynamics in in the different sub markets that we deliver to just like you know there is different to bakery fi is different to ccf and also within ccf there is a difference between different kinds of solutions but but there's no translation between the two so we need to look at them standalone perfect thanks for clarifying Thanks.

The next question comes from Matthew Yates from Bank of America. Please go ahead.

Good morning, everyone. I'd like to follow up really on the last gentleman's question around this concept of pricing pressure because it feels to me that there's been a step change in the last three months here. And I appreciate you've always recognized it's a competitive environment. But I can't recall as ever seen such a big shortfall on the results versus what you've reported today. So is it really down to the recent development in dairy has been the delta? Because I'm inclined to think that demand for bakery has probably been weak for the best part of two years. So I'm struggling as to what has suddenly changed.

And then as a follow-up, and I don't mind if Thomas or Nile take it,

When you were talking about portfolio and price management, I apologize, but honestly, it felt like a lot of management consultancy speak, and I'm struggling as to what you are tangibly doing in terms of actually running the business. So can you just maybe in more layman terms elaborate on what you're doing and what you think the benefits of that will be in due course? Thank you.

Thank you. I appreciate that. And with regards to price pressure, again, yes, dairy had an impact. Also, they caused some production-related challenges. We'd had a impact, but absolutely not the whole. So we have seen it, but it is increasing, if you will, the focus on cost optimization and price-focused conversations with our customers in the total food ingredient space. But again, specifically dairy, boosted, if you will, by the lower dairy fat prices, bakery a bit broader, and then, lastly, they call some production-related issues that we had. On the second part of the question, Thomas, could you be a bit more specific on the things we're doing in price management and portfolio management?

Yeah, thank you, Matt, for your question on price management. Fully appreciate the question you have, but As you know, AEK is and has been a very decentralized organization. This has over time created different processes and structures of how we do things. This also applies to our price management structure. In some areas we are better, or in some local areas we are better at managing this than in other areas. What we've done now is that we're standardizing how these prices are set. And we're also pulling it together into pricing groups where we look at the local demand and supply and become more, I would say, structured and analytic in our approach to how we set prices to customers based on the current and local conditions when it comes to demand and supply. And that's what's being introduced now as an excellence program across the group. into each of the local sales forces.

Got it. Thank you. And maybe finally, Johan, I appreciate you don't tend to give a specific guide, but presumably that pricing pressure is continuing into Q3 in the second half. And as such, does that make 10% profit growth this year probably unlikely?

Sorry, the last part of your question fell off. I heard the first one, so does that make the 10% growth?

Yeah, I appreciate that 10% is a midterm target, but as it pertains to this year, I think you're at, what, plus three in the first half? Any reason to believe in second half acceleration on that?

Let's be very clear. I know you know this. First, we'll not give a guidance for the 2026 outlook for the second quarter, but obviously with 3% year-to-date, if you will, then to deliver 10 would be a very significant change into the second half. But our target is not set by every quarter to deliver 10% or even every year. It is a 10% EBIT growth over time. And as we all know, in business, market dynamics can change, internal challenges or opportunities may occur, right? So our ambition is set at the 23rd ambition, which aligns well with growing 10% year on year. And we have been growing more than that in the past, and there will be periods like this where it's not like that, but that is how we set that target. So that is as much as I can say, I think. Okay, thank you.

The next question comes from Matthew Abraham from Barenburg. Please go ahead.

Hi there, morning. Thank you for taking my questions. First question just relates to the CCF division. You spoke about weak, broader chocolate and market demand. Just wondering how you see that evolving through the second half based on your customer discussions. And then the second question just relates to CBA volumes. Just wondering if you can disaggregate Thank you.

May I ask you, I think the first question was clear. How do we see the CCF demand moving into the second half? If I understood your question correctly, you were asking about our comment on that CCF has been weak overall in the market and whether that continues in the second quarter. Sorry, in the second half. Was that correct? That's the first question.

That's right, yes.

And then the second question I didn't hear fully, was it about the CBE specific or what was that?

Just wondering if you can disaggregate the CBA portfolio into the three parts and comment on what parts of the portfolio were driving the volume decline in the quarter and then also just comment on how you see Volume 4 the CBA portfolio evolving to the second half of the year.

Okay, so the complete cocoa butter alternatives and then break that down. Okay. Thank you. Got it. So for the first question, what we have seen is what I commented on before is that due to various reasons around elevated cocoa prices, sugar, input costs, significant inflation in retail for the whole chocolate and confection space. And we have seen weaker market conditions for some time, and so we also saw in Q2. Difficult to say when and how that will normalize and change and start moving upwards again. Maybe during the second half, but very difficult to give a complete forecast on that. But with regards to the second question, Niall, maybe a few comments on how we see the portfolio of cow-cow butter alternatives.

Yeah, overall, when you look at the specifics, CBEs are holding up really well in terms of portfolio. So strong performance, I would say, from CBEs, given the external market, as Johan alluded to, because there is continued softness in chocolate. Where we are mainly seeing the challenge in cocoa butter alternatives is with our CBS portfolio. so that is more a challenge when it comes to the competitiveness, but CBE's holding up nicely year on year.

Okay, thank you.

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

Hi, morning. Thank you for taking my questions. Just a couple from me. So first, on the Fit2win program, can you provide more color on why the program has fallen behind plan? And do you still expect a total run rate of 300 million by 2026? Essentially, I'm trying to think about the phasing in the second half. That's my first question. And then maybe a bit on CCF product mix. So you said spreads and filling sets, you saw slight growth, whereas cocoa butter alternatives declined. Can you remind us how different is the mix between the two categories? And if we continue to see a decline in cocoa butter alternatives in H2, will that have an impact on EBIT in H2? And then the last question is on the trajectory of raw material prices. Given the trajectory of palm oil prices, would you expect this to help with the price pressure in the second half? And any comments on the impact of aluminum on the business in terms of cocoa prices and palm oil prices? Thank you.

Thank you. I'll pass part of those questions to Tomas and Niall, but maybe if I start with the last one. Obviously, we source raw materials from almost across the globe, ranging from palm oil in Southeast Asia and Latin America, and the red seed in Europe, canola, we source coconut, etc. So, any weather impact could impact raw material chains. However, we have not seen a massive El Niño impact in terms of more elevated or more significant fluctuation in the raw material market than we have seen during the last five, six years. for other reasons right and we are used to dealing with that we don't see at the moment a kind of crop shortage on our main raw materials but fly price fluctuations could be there but that is where you've seen us dealing with that uh in the past and and that that's probably the answer to whether elevated uh palm oil prices could help offset i don't think it necessarily helps when things move a bit up and down you always have a reason to renegotiate and that could be a help if you will but it could also be adding to the tougher environment depending how things move so I wouldn't put too much emphasis on that we are We're always seeing price fluctuations in palm oil and other input materials, and we have to manage that, whether that is caused by COVID or transport or policymaking in Southeast Asia or potentially a Nino. I hope that answers that part of the question, and then I hand it over to Thomas for the Fit2Win impact.

Yeah, thank you, John. Fit2Win, as mentioned before, we have reached about 200 million SEC of cost reduction. We did so in Q1 and held it stable during Q2. The target was to reach 300 million by the end of Q2 which, as I mentioned before, we have not succeeded with as of yet. The main deviation that we see is on the people side versus the pure cost reduction where we've seen good progress. what remains on the people's side is connected to a bit more structural activities. So it's taking a bit longer than we expected. And if you look at the facing, it's difficult to say, but I would say we're looking at another six to 12 months to pull that in. In addition to that, we're also looking, of course, given the current environment externally on

what can we do in addition to what the plan of the 300 was and we can come back to that in later quarters with an update all right and thank you Thomas and then into the last part of your questions with the CCF linked Niall would you be willing to give some color to that yeah so CCF

Overall we see as I said earlier a very solid performance there our CBE portfolio year on year where we are challenged is a little more on the CBS from a volume development perspective but otherwise in terms of value adding portfolio within CCF it is around filling fats and spreads and again the performance there is a very solid year on year

And you also had a question on the mix within the portfolio. I think it's worth keeping in mind that we typically don't see a massive swing in the mix because these are solutions that go into products that are consumed every day and you don't see reformulations every day that ends up going out in the retail shelves, et cetera, and then a massive shift by consumers. These shifts come with trends and come with behaviors, right? But not necessarily a massive mix change between Q2 and Q3 and so forth.

Thank you.

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

Yes, two questions from my side. The first one is following up on the sort of CCS division and the weakness and strengths that you see in different parts of it. Is that sort of... volatility or is that driven by in any way the drop in the cocoa price?

Or is it just sort of a general market trend that's causing these shifts? That's the first question.

The second question is on the weakness in the dairy segment. and I think you also said in the bakery segment, are you at all able to sort of shift volumes to other categories or are those sort of volumes locked into those segments? Those were my two questions.

Thank you, Oscar. I take the liberty of taking the second question myself and then Niall please fill in on the CCF. So first part of it, sorry, the second question was about dairy and whether those volumes are locked in. In general, you could say that it's quite a good flexibility in our setup because our refineries and where we produce our evaluated ingredients do produce many of the ingredients in the same factory so if we get more capacity for having let's say lower volume in one area we can absolutely load it with other type business and that is obviously something that is ongoing all the time And that part of the optimization that you heard us talk about before, that also when we get food in a factory, we try to optimize it towards a mix with higher value added, more complex product that also delivers better functionality to our customers. so we can absolutely shift and we can absolutely load it with new volume but obviously you know in a shorter perspective that it needs to be a dialogue with with customers and turning into a contract and a delivery so it doesn't change over a week but it's absolutely an opportunity to fill and that capacity is not locked in typically especially not within you know dairy and bakery All right, hope that answers that question. And then Niall from a CCF Mix perspective.

Yeah, so from maybe more specifically, Oscar, on the cocoa butter price that you allude to. Yeah, so the cocoa butter has dropped from an all-time high. But even today, it's very high, relatively speaking, if you look at historical cocoa butter prices. And just to put a bit of a lens on it, since our Q1 earnings call, cocoa butter market prices have actually doubled and where today they're sitting around twelve thousand dollars per ton so it continues to be highly volatile and hence this offers the opportunity for aaka to support consumer and customer affordability with cbes as well as the functionality piece that i mentioned in the pitch earlier

The next questions will be the last for today's conference call.

The next question comes from Victor Hansen from DNB Carnegie. Please go ahead.

Hi. Thanks for squeezing in my two questions, starting on dairy. So yeah, you've touched upon this today. Low cow milk prices are negative for dairy business. So I'm wondering what actions are you taking with dairy to increase your competitiveness, or do you just have to take the hits from this? lower volumes and wait for the higher milk prices for your volumes to recover. And a follow up on this. Assuming the weak dairy volumes continue in H2 similar to H1, could it result in more production stops in H2 as you saw in Q2? Thanks.

Thank you, Victor. Well, what we are doing in terms of actions, that is what we do continuously, right? So now we face this, which can lead to, let's say, lost business opportunities in dairy, but we are always targeting new businesses or opportunities, call it in a two-way or two type of concepts. One is to load our factories with a decent volume that both cover costs and help kind of get a good utilization. And wherever we have a loss, let's say over dairy opportunity, then we try to load it with another opportunity that could cover for that. While at the same time, continue to focus on more advanced solutions where there is not a easy replaceable solution between, for example, dairy fats or or dairy fat alternatives. So that is the continued focus on the AKA, is the functionality that the ingredient brings and with that creating even more stickiness. Now, as we've said many times, it's in some cases you have a interchangeability like with cocoa butter versus alternatives or with dairy fat or dairy fat alternatives. There are solutions where you could change and that's where this could happen. But over time, long term and strategically, we focus on advancing our ingredients to bring more functionality and more value added solutions and applications to our customers. In the short term, we try to load our plants and backfill them, if you will. If we lose a contract, we try to win something else back and hunt for a volume that has an accretive EBIT opportunity. That's kind of the playbook.

Okay, perfect. Would it be possible to squeeze in a quick one on FX? That's been negative for a long while now. It was neutral. Maybe Thomas, you have some guidance for H2 if FX stays here.

Yeah, it's difficult to give the guidance on that depends on as you know as well this is translational so depending upon how the currencies move but what I can say in there is a big change from Q1 into Q2 and Q1 most of the currencies that we operate in contributed in a negative way with a negative effect. when we go into Q2, comparably to Q1, all currencies improved and we see particular movements in Mexico and Brazil that are contributing to the sort of equal status in Q2 with India still pulling down on the negative side. But as I stated, this is very difficult to project. That's more of a currency indication, and that's a different topic.

But on a year-on-year, in Q3, it was stable year-on-year. And if things were to be as they are today, then there would be limited impact. Thank you very much.

Thank you. Thank you.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Thank you, and thank you all for your questions. Before we close, I would just like to leave you with a few final reflections. We had a strong first quarter, while the second quarter was somewhat softer. Even so, the first half remained solid with both volume and operating profit at fixed currencies ahead of last year. The market environment continues to be challenging and we do not expect conditions to improve overnight. However, the factors affecting the second quarter were concentrated and clearly identifiable, including pressure in dairy and food service and the production challenges in Karlsson. At the same time, we continue to outperform the underlying chocolate market, delivering strong cash flow and maintain a strong financial position. It is also important to remember that AEK is a long term case. Quarter to quarter performance will vary, particularly in a volatile market environment. but our direction remains unchanged. We have a clear strategy, strong customer relationships, leading application expertise, and a broad portfolio of initiatives aimed at improving our commercial execution, operational performance, and cost efficiency. We remain confident in our ability to outgrow the underlying market over time, reach operating profit of north of three sec per kilo, and continue to delivering average EBIT growth of around 10% over time. With that, thank you for joining us today and thank you for your continued interest in AAK.