Johan Westman, CEO Fredrik Nilsson, CFO Interim Report Third quarter 2019 The Co-Development Company
Agenda Third quarter 2019 1 Key strategic activities 2 Business area information 3 Q&A 4 2 23/10/2019 The Co-Development Company
Highlights Q3 Continued profit growth on the back of a strong Food Ingredients performance HIGHLIGHTS GROWTH & RETURNS Limited organic volume growth Q3 19 Adjusted All-time high operating profit Volume for a third quarter operating profit Reported tax costs reduced 571,000 MT to 25 percent (27) SEK 569 million Earnings per share (up 1% y/y) (up 8% y/y, up 4% y/y*) increased by 10 percent Cash flow impacted by sourcing of strategic raw materials Adjusted Strong trend and improved operating profit ROCE mix in Food Ingredients As expected, the lower yield per kilo 15.1%** in our CCF business continued with higher than SEK 1.00 normal production costs (up 8% y/y, up 2% y/y*) Acquisition of 80 percent of Soya International (Europe) Ltd. expands ingredient * Fixed FX ** Rolling 12 months incl. IFRS 16 effect portfolio 3 23/10/2019 The Co-Development Company
Operating profit for Q3 2019 – the trend continued 600 569 526 518 516 509 500 475 471 460 454 435 431 431 409 400 388 381 376 368 343 331 328 326 321 303 292 300 287 281 273 265 251 246 244 242 231 220 211 204 196 200 178 164 100 0 Q1 Q2 Q3 Q4 2010–2018 2019 4 23/10/2019 The Co-Development Company
Soya International, our latest acquisition, is a true global lecithin player with a scalable platform which AAK can leverage Comprehensive lecithin product range Est. in 1996, headquartered in Global presence with ~€15 million sourced from a broad supplier base the UK with ~10 employees of sales to more than 40 markets Operates out of Hale Processing partner in Rotterdam Focus on non-GMO speciality lecithin The Co-Development Company
Increase customer proximity within key segments Lecithin is a critical ingredient with key functionalities for customers within most of AAK’s core segments – in particular Chocolate & Confectionery Fats. There is a clear segment for speciality/semi-speciality lecithin. Soya Strong market growth on the back of global trends The speciality/semi-speciality lecithin market is benefiting from strong International – underlying trends such as non-GMO, clean label, organic, sustainability/traceability, and health strategic One of the closest adjacent ingredients to O&Fs Similar industry dynamics will increase synergy potential and simplify integration with AAK’s existing operations, including sourcing and go-to-market approach rationale Scalable platform with a solid track record Soya International has been active in the market for 20+ years and has experienced strong financial development with an asset light approach set for further scaling
FX exposure – translation impact positive in the quarter Average Average Movement Spot rate rate 2018 rate YTD vs SEK Sep 2019 USD 8.71 9.40 9.83 EUR 10.26 10.55 10.72 GBP 11.58 11.95 12.10 MXN 0.45 0.48 0.50 7 23/10/2019 The Co-Development Company
Working capital days up four days since year-end Working capital days, rolling 12 months Development YTD 75 Inventory Payables 70 +1 -3 65 60 55 50 Receivables Other WC 45 +1 Flat 40 35 30 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Inventory Acc. Rec Acc. Pay Tot Net WC 8 23/10/2019 The Co-Development Company
Good EBITDA improvement but Q3 cash flow was impacted by sourcing of strategic raw materials Cash flow Q3 2019 Comments +11% Cash flow from inventory driven by sourcing 735 of strategic raw materials. Effects of lower 102 AP 664 Other 156 raw material prices have diminished. 552 CAPEX related to regular maintenance -705 Inventory investments and capacity increases amounted to SEK 208 million. AR -105 (-118) -552 (-37) Working Capital 161 (-159) (364) 208 (15) 225 -303 108 -433 EBITDA 2018 EBITDA Changes WC Paid interest CAPEX and Other non- FCF (LY) and taxes acquisitions cash items Acquisitions 9 23/10/2019 The Co-Development Company
Return on Capital Employed (ROCE) We target a gradual and continuous improvement % 16,0 ROCE end Q3 2019* 15,8 15.1% 15,6 Capital EBIT LTM 15,4 employed* SEK 2,097 15,2 SEK 13,872 million million 15,0 14,8 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Q4 18 Q1 19 Q2 19 Q3 19 Growth and operating leverage to drive increase in ROCE ROCE R12M incl. IFRS 16 ROCE R12M excl. IFRS 16 * ROCE: Return on Capital Employed calculated on rolling 12 months 10 23/10/2019 The Co-Development Company
Loan and duration profile SEK million Duration Long term Mortgage 547 13 years MTN bond 500 5 years MTN bond 1,100 3 years 72% Bilateral 300 2 years Clubloan 550 2 years SEK million Duration Short term Bilateral 618 6 months 28% Bank loans 548 6 months Total loans 4,163 Cash -731 Net 3,432 11 23/10/2019 The Co-Development Company
Food Ingredients MSEK MSEK 380 1.500 364 Operating profit Operating Organic volume 360 per kilo profit growth 340 1.200 321 +12% 320 +13% +2% Operating profit 300 900 280 260 600 240 220 Business area development 200 300 20 Strong profit growth driven by Plant-based, Dairy, and 0 0 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Bakery segments 15 15 16 16 16 16 17 17 17 17 18 18 18 18 19 19 19 SEK Rolling 12 months Quarter SEK Special Nutrition had a mixed performance 1,00 1,00 0,95 Growth for high-end solutions continued, although at a 0,95 0,95 slower pace Operating profit per kilo 0,90 0,90 0,85 0,85 0,85 Lower volumes for our semi-speciality solutions 0,80 0,80 We have an impact from lower birth rates in China as well 0,75 0,75 as destocking by some customers 0,70 0,70 Our business for plant-based solutions has generated strong 0,65 0,65 volume and profit growth, although from a small base. Our 0,05 0,05 pipeline of customer co-development projects has more than 0,00 0,00 doubled between the second and the third quarter Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 15 15 16 16 16 16 17 17 17 17 18 18 18 18 19 19 19 Foodservice improved profitability with small volume growth Rolling 12 months Quarter 12 23/10/2019 The Co-Development Company
Chocolate & Confectionery Fats MSEK MSEK 206 206 210 800 Operating profit Operating Organic volume 200 per kilo profit growth 190 600 -1% 180 +0% +1% Operating profit 170 160 400 150 140 130 Business area development 200 120 10 A quarter with limited volume growth 0 0 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 The lower operating profit per kilo was caused by higher 15 15 16 16 16 16 17 17 17 17 18 18 18 18 19 19 19 production costs due to low-yielding shea kernels Rolling 12 months Quarter SEK SEK We expect to use the last batches during Q4 2,20 2,10 2,00 2,00 Slightly positive price development on high-end solutions in 1,80 1,90 Operating profit per kilo the quarter 1,79 1,78 1,60 1,80 1,40 1,70 Capacity expansion investments progress according to plan 1,20 1,60 There is a planned extended maintenance stop scheduled for 1,00 1,50 0,80 our production plant in Aarhus, Denmark during the first 1,40 0,60 quarter next year 0,20 0,40 With new kernels in place and additional capacity, we expect 0,10 0,20 0,00 0,00 to reach normal cost levels within the business area by the Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 15 15 16 16 16 16 17 17 17 17 18 18 18 18 19 19 19 middle of the first quarter next year Rolling 12 months Quarter 13 23/10/2019 The Co-Development Company
Technical Products & Feed MSEK MSEK 50 180 Operating profit Operating Organic volume 45 160 per kilo profit growth 40 37 140 -8% -11% -4% 35 33 Operating profit 120 30 100 25 80 20 60 15 Business area development 40 10 20 5 Both our fatty acids business and our feed business 0 0 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 declined compared to the very strong corresponding 15 15 16 16 16 16 17 17 17 17 18 18 18 18 19 19 19 quarter last year SEK Rolling 12 months Quarter SEK 0,70 0,70 Last year, our feed business was favorably 0,65 0,65 impacted by the dry weather in Scandinavia which 0,60 0,60 0,55 0,55 0,51 Operating profit per kilo resulted in farmers purchasing more feed products 0,50 0,47 0,50 than during a normal year 0,45 0,45 0,40 0,40 Compared to historical performances, we continue to 0,35 0,35 0,30 0,30 operate on a significantly higher operating profit level 0,25 0,25 0,20 0,20 due to our successful implementation of our customer 0,15 0,15 co-development within the business area 0,10 0,10 0,05 0,05 0,00 0,00 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 15 15 16 16 16 16 17 17 17 17 18 18 18 18 19 19 19 Rolling 12 months Quarter 14 23/10/2019 The Co-Development Company
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